Soon the merchants took over another function.  So long as there had been many small feudal states, and the feudal lords had created lesser lords with small fiefs, it had been a simple matter for the taxes to be collected, in the form of grain, from the peasants through the agents of the lesser lords.  Now that there were only a few great states in existence, the old system was no longer effectual.  This gave the merchants their opportunity.  The rulers of the various states entrusted the merchants with the collection of taxes, and this had great advantages for the ruler:  he could obtain part of the taxes at once, as the merchant usually had grain in stock, or was himself a landowner and could make advances at any time.  Through having to pay the taxes to the merchant, the village population became dependent on him.  Thus the merchants developed into the first administrative officials in the provinces.

In connection with the growth of business, the cities kept on growing.  It is estimated that at the beginning of the third century, the city of Lin-chin, near the present Chi-nan in Shantung, had a population of 210,000 persons.  Each of its walls had a length of 4,000 metres; thus, it was even somewhat larger than the famous city of Lo-yang, capital of China during the Later Han dynasty, in the second century A.D.  Several other cities of this period have been recently excavated and must have had populations far above 10,000 persons.  There were two types of cities:  the rectangular, planned city of the Chou conquerors, a seat of administration; and the irregularly shaped city which grew out of a market place and became only later an administrative centre.  We do not know much about the organization and administration of these cities, but they seem to have had considerable independence because some of them issued their own city coins.

When these cities grew, the food produced in the neighbourhood of the towns no longer sufficed for their inhabitants.  This led to the building of roads, which also facilitated the transport of supplies for great armies.  These roads mainly radiated from the centre of consumption into the surrounding country, and they were less in use for communication between one administrative centre and another.  For long journeys the rivers were of more importance, since transport by wagon was always expensive owing to the shortage of draught animals.  Thus we see in this period the first important construction of canals and a development of communications.  With the canal construction was connected the construction of irrigation and drainage systems, which further promoted agricultural production.  The cities were places in which often great luxury developed; music, dance, and other refinements were cultivated; but the cities also seem to have harboured considerable industries.  Expensive and technically superior silks were woven; painters decorated the walls of temples and palaces; blacksmiths and bronze-smiths produced beautiful vessels