The ruins of the initial factories after the 1822 fire
The layout of the factories just before the 1841 fire
The "factories" were not workshops or manufacturing centres but the offices, trading posts, and warehouses of foreign factors, mercantile fiduciaries who bought and sold goods on consignment for their principals. The word derives from “feitoria” which means trading post in Portuguese (the first westerners to engage in trade with China).
The foreign agents were known at the time as "supercargos" in English and as daban (大班) in Chinese. This term's Cantonese pronunciation, tai-pan, only came into common English use after the rise of private trading from 1834 on. A private captain might be his own supercargo; a large East Indiamen might have five or more, which were ranked "chief supercargo", "2nd supercargo", and so on. A team of supercargos divided their work, some overseeing sales, others tea purchases, silk purchases, and so forth. Permanent supercargos might divide their work by the order ships arrived. The bookkeepers who attended them were called "writers"; those serving with the ship, who also checked these accounts, "pursers".
"Hong" is the Cantonese pronunciation of 行, the Chinese term for a properly-licensed business. By analogy, it was applied to its chief, the Hong merchant, and its property, the factories themselves. It has also been suggested the term was first applied to the factories as they were arranged in a row along the riverbank, "row" or "rank" being an alternative meaning of the same Chinese character.
Hoppo, or fully the "Canton Sea Customs Minister", was the imperial official responsible for imperial customs and supervised the other officials. The word is Chinese Pidgin English, and some speculated that it derived from Hu Bu (Board of Revenue), but the official had no connection to the Board. The Hoppo was responsible for fixing the charges levied as a ship entered the port, a responsibility that allowed him to become quite rich.
Since the Ming dynasty ( founded in 1368 ), a series of sea bans (haijin) restricted China's foreign commerce, at times attempting to ban it completely. In 1684, the Kangxi Emperor of the Qing Dynasty allowed foreigners to trade with China in the four cities of Guangzhou, Xiamen, Songjiang, and Ningpo. In the case of Guangzhou, early traders were obliged to follow the monsoon winds, arriving between June and September, conducting their business, and then departing between November and February. The foreign ships were anchored downstream at Pazhou (then known as "Whampoa"), with business conducted in the city's western suburbs. Western traders were further required to work through Chinese merchants who would guarantee their good behavior and tax obligations; they were also the owners and landlords of the warehouses and apartments the traders were obliged to use. In practice, private traders could often avoid these restrictions but the customs superintendent, the hoppo, was always careful to enforce them upon large-volume purchasers such as the East India Company. Typically, cargo was ferried from the ships by its own crew and to the ships at the expense of the Chinese merchants on their "chop boats" (lighters). To avoid theft or piracy, foreign traders began assigning a few of their own seamen to these ships as guards.
In 1686, Westerners were allowed to rent accommodations in the factory quarter to avoid the necessity of shuttling back to Pazhou each night. For the most part, the supercargos, their assistants, and the bookkeepers stayed at the factories, the crew—except for a few guards or those on shore leave—stayed with the ships, and the captains continued to ferry between the two. A Chinese comprador hired each factory's staff of Chinese servants and bought its provisions from local vendors; senior supercargos sometimes brought their own staff or slaves as well. Another comprador dealt with the ship's provisions at Pazhou, where sampan ladies crowded around the ships to do laundry and odd jobs for the sailors. A few weeks before departure, the crew came to the factories in shifts of a few days each for shore leave, chaperoned by some of the ship's officers. Hog Lane was lined with open-fronted booths and shops catering to them, selling food, drink, clothing, and "chowchows" (novelties), and was policed by Chinese guards stationed at both ends of the alley. At first the supercargos came and left with the ships, but over the course of the 18th century companies began to rent their factory spaces year-round to avoid being displaced on their return. The supercargos were then permitted to outstay their company's ships a few weeks to conduct business for the next season; after that, they were obliged to remove themselves to Macao through the spring and summer until the appearance of the next ship. By the 1760s, every East India company had permanent supercargos and rooms were being rented in Macao year-round as well.
In the mid-1750s, the East India Company realized that the fees and prices were both better at Ningbo; it was also nearer the main centres of Chinese tea production and silk manufacture. The impact of their shift on Guangzhou's tax receipts and a fear of a second Macao being created prompted attempts to force Ningbo to make itself less attractive. When that failed, the Qianlong Emperor issued a 1757 edict closing all ports but Guangzhou's to most Westerners.[n 1] In order to keep the traders in the factory area and out of the rest of the western suburbs, the 17 Chinese merchants of the port were obliged to establish the guild known to foreigners as the "Cohong" in 1760, each paying an entrance fee of around 10,000 Spanish dollars (74,000 tls.) and submitting to a levy of about 3% on their future business. Ten of the merchants did so, the fees establishing the Consoo Fund and Hall, walkways, and a new street to which small-scale merchants were obliged to move in order to continue selling to the foreign traders.[n 2] Since the new street was particularly full of porcelain dealers, it came to be known as China Street. The Hong merchants included Howqua (Wu Bingjian), Puankhequa, Mowqua, Goqua, Fatqua, Kingqua, Sunshing, Mingqua, Saoqua, and Punboqua. Despite the existence of Sinophones and the linguists usually accompanying each ship, foreigners were notionally banned by imperial decree from learning the Chinese language, there being officially appointed translators for that purpose. The foreign traders—despite most working for government monopolies themselves—protested strongly at the Cohong's control over prices, advances, and exchange rates and predicted the death of trade with China. In fact, the Cohong helped ensure Chinese production met the traders' needs—some ships had previously been obliged to wait as much as a year to be fully stocked—and by 1769, the area was being expanded to make up for an extreme shortness of apartments. In 1748, there had only been eight factories, but there were seventeen by 1770, a number kept up until the great fire of 1822.
It was discovered that, rather than depending on the monsoon winds, ships could arrive or depart at any time of year by rounding the Philippines. This opened the trade for smaller craft who might only need a few weeks to complete a visit, where the large company vessels still needed 4 to 5 months at minimum. Subsequently, the British and Americans typically always had ships anchored off Pazhou, allowing them to keep their supercargos and staff in the Guangzhou factories all year. During the 1780s, the Spanish also began to send several ships from Manila each year rather than the single vessel they had previously used; they began renting a permanent factory in 1788. (In practice, senior supercargos tended to prefer Macao during the summer regardless and to send their junior officers to deal with off-season trade.)
In 1793, George III sent George Macartney to request that ports in northern China be opened to trade but was rejected by the Qianlong Emperor, not due to Macartney's refusal to kowtow in the presence of the Qianlong Emperor, as is commonly believed. A second embassy under Lord Amherst fared no better in 1816–7. The growth of European (particularly British) tea consumption supplemented the port's heavy trade in silk and porcelain. The balancing trade in goods from Europe was poor so payments had to be settled in large volumes of bullion until the trade in opium rose to take its place.
In 1835, the medical missionary Peter Parker opened an ophthalmic hospital in the area. Parker commissioned Lam Qua, a Western-trained Chinese painter who also had workshops in the area, to paint pre-operative portraits of patients who had large tumors or other major deformities.
The viceroy Lin Zexu's vigorous suppression of the British opium trade precipitated the First Opium War (1839–42), during which the factories were burnt to the ground. The 1842 Treaty of Nanking ending that war forced the ceding of Hong Kong Island to the British and opened the treaty ports of Shanghai, Ningbo ("Ningpo"), Xiamen ("Amoy"), and Fuzhou ("Fuchow"). It nominally opened the walled city of Guangzhou to the foreigners, but this was subsequently resisted by the city's viceroys on a number of pretexts. The factories were rebuilt at their former location but, with their diminished importance, they were not rebuilt a third time after their destruction at the onset of the Second Opium War. Instead, the foreign traders first operated off of Henan Island on the other side of the Pearl River and then, after the war's conclusion, rebuilt their Guangzhou operations at a new enclave on the Shamian sandbar south of the city's western suburbs.