For centuries, the Chinese traded their riches with Europe along the Silk Road and its many branches to the north. But the sea trade to the south was new in the 17th and 18th centuries, and the Chinese government feared that the westerners would corrupt the Chinese and perhaps even try to conquer China. In 1760, the government established a set of regulations to control the foreigners and their ships. Canton was the only port open to strangers. All ships were required to stop first at Macao, a small settlement acquired by the Portuguese in 1557. Macao was about 65 miles south of Canton and 40 miles from Hong Kong. There, foreign ships hired a pilot licensed by the Chinese government. The pilot had to acquire written permission (called a "chop") for the foreign ship to enter Chinese waters. The ships were examined, and finally with the guidance of a pilot, the vessel could proceed up the river to Whampoa, an island 13 miles below Canton.

All ships had to anchor at Whampoa and could go no further. It was not uncommon for a hundred ships to be anchored at once. Here the loading and unloading of cargoes took place. The sailors had to stay with the ship, and were only allowed on rare occasion to enter Canton for a day in the company of an officer. The captains and supercargoes went up the river to Canton, where they resided during the trading season which lasted from August until March. Women were not allowed to enter Canton, nor were guns or arms of any kind allowed to be brought in. If women did accompany men on a voyage to China, they set up housekeeping in Macao and awaited their husbands. There were strict regulations controlling the foreigners in Canton, who were confined to the row of factories set up outside Canton along the Pearl River. The factory’s long narrow buildings were used to store goods on the first floor, and housed offices and accommodations on the second and third floors. The factories were called by the name of the country which first established them (Sweden, Denmark, Austria, etc.) although many of these countries no longer participated in the trade by the 1800s. One of the first things that had to be done by a captain upon arrival was to acquire accommodations in one of the factories.

Trade was conducted through a system called the co-hong. Thirteen Hong Merchants were established in 1782 to act as go-betweens with the foreigners and the Chinese government. The Hong Merchants were responsible for the behavior of the foreigners with which they traded. The most famous of the Hong Merchants was Houqua, a man who was treasured by the westerners for his loyalty, friendship, and honesty. He was one of the richest men of his time.

During the entire time that America was a British colony, it was absolutely forbidden to trade with China. That privilege was reserved for a group of British merchants known as the East India Company. But after the War of Independence, the Americans were free to trade with China and loaded its first ship the Empress of China, in 1783. Arriving in 1784, those aboard ship were greeted with the strange sights and sounds of the Chinese. They saw hundreds of small ships, which lined the banks of the Pearl River and where many Chinese families lived. There were so many small boats that only a narrow travel lane was left down the middle of the river. There were larger junks involved with the trade in Java. Elaborately decorated sterns and strange eyes painted on the bows peered at the anxious foreigners. Gaily decorated "flower boats" were filled with Chinese ladies of pleasure and strange Chinese music flowed from some of the ships.

At first, each ship had its own supercargo who was responsible for the sale of the cargoes and the purchase of goods. This system was soon replaced by the agent-in-residence, who worked for a particular American firm. Some of these agents were very young men of 16, 17 or 18 years of age. By the time they reached 20, they would retire to America with great wealth. Many of the great fortunes of the time were made by these firms, and these names even today are identified with wealth. Russell & Co. (and the Forbes family), Perkins and Company, Heard and Company, Olyphant and Company, etc.