There is an instructive debate among historians on this topic called "the great divergence", questioning why the European economy overtook the Chinese in the early modern period.

China experienced an economic revolution during the Song Dynasty (970-1270), developing many proto-capitalist features well ahead of their European counterparts. The population doubled, the government issue the world's first paper money, private enterprise and international trade boomed, new advances in science and technology and the development of financial instruments such as joint stock companies were made. These gains were largely reversed however in the succeeding period of Mongol rule in the Yuan Dynasty (1271-1368).

Why the Song failed to develop into a fully capitalist economy is a matter of considerable debate. The Jurchen, and later Mongol conquests in China are an obvious factor. Europe was spared this fate because of a mixture of luck and its distance from Mongolia.

Max Weber and David Landes are notable examples of a culturalist explanation, citing Confucianism in particular for stifling entrepreneurialism, the rule of law, and scientific research in China.

Mark Elvin concurred with this view, adding an economic factor in the high level equilibrium trap. Essentially this means that the supply and demand of labour were well balanced, eliminating the incentive to develop industrial means to reduce high labour costs as happened in Britain in the 19th century.

Kenneth Pomeranz goes further, arguing against a culturalist explanation, saying that China remained as prosperous as Europe until the 19th century. He argues that Europeans had easy access to a number of key resources: Food, wood and cotton from the Americas, a wealth of fish from the Atlantic, and, crucially, coal deposits in close proximity to population centres where manufacturing could develop (Manchester for example).