I have recently begun reading Charles C. Mann's book 1493. In the book, he makes the point that Chinese demand for silver caused, in part, a global trade network to develop between Asia, Europe, the Americas, and Africa. I understood many of his arguments after accepting that China wanted large quantities of silver, but I did not understand why China wanted silver in the first place. Mann also said that China did not want to trade much with Europe before the European discovery and extraction of American silver, simply because Europe did not have anything China wanted before that point. He briefly stated that China needed a source of money or currency, but I am not sure that this single cause accounts for the seemingly infinite demand, considering American silver was abundant.
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Excellent question.
Currency minted in silver was the de facto unit of exchange in Ming dynasty China. Therefore silver was demand in China because it formed the basis for a monetary system.
During the early years of the dynasty the Ming attempted to issue paper currency, but this was met with lack of enthusiasm from the population. Paper currency met rapid devaluation and fell out of use because of continuous government issuance of them without regards to inflation. At the same time copper coins also faced rapid devaluation as well. Crack downs upon the usage and minting of precious metals failed to stop them from being used as the preferred medium of exchange.
At the same time population in China was growing rapidly, and hence additional demand for money grew accordingly. What this meant was that there needed to be a monetary expansion based on precious metals that the government would not devaluate. The solution to this was the importation of silver from the Americas via trade with European countries. Eventually even the Ming government itself gave in, and allowing taxes to be collected and paid in silver rather than enforcing the usage of paper currency.
The rapidly growing population and commerce in China therefore meant there was high demand for silver in order to mint coins to service this vibrant economy.
I just finished Debt: The first 5000 years by David Graeber, and he touches on the subject. Graeber argues that the Chinese had such an appetite for silver because the people, having lost trust in government-backed paper money, used uncoined silver instead in transactions. The Ming dynasty co-opted the movement, not only collecting taxes in silver, but also flooding the market with silver to keep prices (and taxes) artificially low.
Unfortunately, I just returned the book, so I can't copy the exact text, but here's a quote from a short piece published in Mute by that author:
One of the main factors of the movement back to bullion, for example, was the emergence of popular movements during the early Ming dynasty, in the 15th and 16th centuries, that ultimately forced the government to abandon not only paper money but any attempt to impose its own currency. This led to the reversion of the vast Chinese market to an uncoined silver standard. Since taxes were also gradually commuted into silver, it soon became the more or less official Chinese policy to try to bring as much silver into the country as possible, so as to keep taxes low and prevent new outbreaks of social unrest. The sudden enormous demand for silver had effects across the globe. Most of the precious metals looted by the conquistadors and later extracted by the Spanish from the mines of Mexico and Potosi (at almost unimaginable cost in human lives) ended up in China. These global scale connections that eventually developed across the Atlantic, Pacific, and Indian Oceans have of course been documented in great detail. The crucial point is that the delinking of money from religious institutions, and its relinking with coercive ones (especially the state), was here accompanied by an ideological reversion to ‘metallism'.