During the late 8th and 9th centuries China's economy experienced a long period of dramatic changes. Prior to this time, the vast amount of the Chinese population and wealth had existed on the great Hopei-Honan plain. However, the population was now shifting to the south into the Yangtze Valley. In the Yangtze Valley farmers found soil that was much more fertile, and as a result they began producing large surpluses. The surplus led to more trade, larger populations, a new merchant class, and the rise of new towns. However, by 830 AD, the Yangze Valley would suffer one natural disaster after another, including insect invasions, floods, and droughts.
The Sung dynasty falls into two distinct periods. The Northern Sung existed from 960-1126 AD, and the Southern Sung existed from 1127-79 AD. Historians tell us that the Sung inherited many of their cultural traits from the Tang. They also tell us that a great “commercial revolution” started during the Tang times and ran its course until the Yuan dynasty in the13th century. Throughout their history, the Tang dynasty had increased agricultural production. The dramatic increase in production was largely based on an increase in the land under cultivation that was the result of widespread reclamation. Also, they began to specialize in the crops that they grew. After time, they discovered rice strains that resulted in higher yields. In addition, they improved their systems of exchange and distribution. At the same time, their treatment of the soil improved, and so did their farming implements.
When the Sung dynasty rose to power the population of China had grown to more than 100 million. By the start of the Northern Sung period the majority of the Chinese population lived south of the Huai River which is the traditional divide between north and south. The Sung devoted vast resources expanding their system of canals and roads. However, water transportation of goods became very popular. The south was rich in waterways, and water transportation was a fraction of the cost.
Before the expansion of agriculture very little was sold outside the town where it was produced, and the surplus rice, grain, and other commodities could only be sold in existing administrative centers. Under the Tang and the Sung, trade became important. They wanted to open up new markets where their goods could be sold.
Another important Sung idea, that led to a huge increased in commerce was the introduction of paper money. The Chinese had searched forever for an adequate means of exchange or coinage. Despite the production of amazing amounts of copper and silver, they were always running out of money. They were in need of a better way of collecting taxes. At first they tried promissory notes, but then settled on paper money. As a result, the Chinese economy became monetized. This led to an explosion of commercial activity that created a wealthy merchant class. By the end of the Northern Sung, huge volumes of timber, rice, vegetables, textiles, tea, and handcrafted goods moved along the trade routes, and everywhere major trade routes developed, towns and cities developed.