 Arab merchants. The Ming dynasty banned tobacco as a decadent good in 1640, and opium was seen as a similarly minor issue. The first restrictions on opium were passed by the Qing in 1729 when Madak (a substance made from powdered opium blended with tobacco) was banned. At the time, Madak production used up most of the opium being imported into China, as pure opium was difficult to preserve. Consumption of Javanese opium rose in the 18th century, and after the Napoleonic Wars resulted in the British occupying Java, British merchants became the primary traders in opium. The British realized they could reduce their trade deficit with Chinese manufactories by counter-trading in narcotic opium, and as such efforts were made to produce more opium in the Indian colonies. Limited British sales of Indian opium began in 1781, with exports to China increasing as the East India Company solidified its control over India.
The British opium was produced in Bengal and the Ganges River Plain. Rather than develop the Indian opium industry themselves, the British were able to inherit an existing opium industry from the declining Mughal Empire, which had for centuries profited by selling unrefined opium inside the empire. However, unlike the Mughals the British saw opium as a potentially valuable export. The East India Company itself neither produced nor shipped opium, but did set the horticultural laws allowing for opium cultivation and actively facilitated the transport of the drug to company-controlled ports. From Calcutta, the company's Board of Customs, Salt, and Opium concerned itself with quality control by managing the way opium was packaged and shipped. No poppies could be cultivated without the company's permission, and the company banned private businesses from refining opium. All opium in India was sold to the company at a fixed rate, and the company hosted a series of public opium auctions every year from November to March. The difference of the company-set price of raw opium and the sale price of refined opium at auction (minus expenses) was profit made by the East India Company. In addition to securing poppies cultivated on lands under its direct control, the company's board issued licences to the independent princely states of Malwa, where significant quantities of poppies were grown.
By the late 18th century, company and Malwan farmlands (which were traditionally dependent on cotton growing) had been hard hit by the introduction of factory-produced cotton cloth, which used cotton grown in Egypt or the American South. Opium was considered a lucrative replacement, and was soon being auctioned in ever larger amounts in Calcutta. Private merchants who possessed a company charter (to comply with the British royal charter for Asiatic trade) bid on and acquired goods at the Calcutta auction before sailing to Southern China. British ships brought their cargoes to islands off the coast, especially Lintin Island, where Chinese traders with fast and well-armed small boats took the goods inland for distribution, paying for the opium with silver. The Qing administration initially tolerated opium importation because it created an indirect tax on Chinese subjects, as increasing the silver supply available to foreign merchants through the sale of opium encouraged Europeans to spend more money on Chinese goods. This policy provided the funds British merchants needed to then greatly increase tea exports from China to England, delivering further profits to the Qing monopoly on tea exports held by the imperial treasury and its agents in Canton.
However, opium usage continued to grow in China, adversely affecting societal stability. From Canton, the habit spread outwards to the North and West, affecting members from every class of Chinese society. This spread led to the Qing government issuing an edict against the drug in 1780, followed by an outright ban in 1796, and an order from the governor of Canton to stop the trade in 1799. To circumnavigate the increasingly stringent regulations in Canton, foreign merchants bought older ships and conve