In the late eighteenth and early nineteenth centuries, deep-seated Spanish suspicion of the Chinese gave way to recognition of their potentially constructive role in economic development. Chinese expulsion orders issued in 1755 and 1766 were repealed in 1788. Nevertheless, the Chinese remained concentrated in towns around Manila, particularly Binondo and Santa Cruz. In 1839 the government issued a decree granting them freedom of occupation and residence.
In the latter half of the nineteenth century, immigration into the archipelago, largely from the maritime province of Fujian on the southeastern coast of China, increased, and a growing proportion of Chinese settled in outlying areas. In 1849 more than 90 percent of the approximately 6,000 Chinese lived in or around Manila, whereas in 1886 this proportion decreased to 77 percent of the 66,000 Chinese in the Philippines at that time, declining still further in the 1890s. The Chinese presence in the hinterland went hand in hand with the transformation of the insular economy. Spanish policy encouraged immigrants to become agricultural laborers. Some became gardeners, supplying vegetables to the towns, but most shunned the fields and set themselves up as small retailers and moneylenders. The Chinese soon gained a central position in the cash-crop economy on the provincial and local levels.
Of equal, if not greater, significance for subsequent political, cultural, and economic developments were the Chinese mestizos (see Glossary). At the beginning of the nineteenth century, they composed about 5 percent of the total population of around 2.5 million and were concentrated in the most developed provinces of Central Luzon and in Manila and its environs. A much smaller number lived in the more important towns of the Visayan Islands, such as Cebu and Iloilo, and on Mindanao. Converts to Catholicism and speakers of Filipino languages or Spanish rather than Chinese dialects, the mestizos enjoyed a legal status as subjects of Spain that was denied the Chinese. In the words of historian Edgar Vickberg, they were considered, unlike the mixed-Chinese of other Southeast Asian countries, not "a special kind of local Chinese" but "a special kind of Filipino."
The eighteenth-century expulsion edicts had given the Chinese mestizos the opportunity to enter retailing and the skilled craft occupations formerly dominated by the Chinese. The removal of legal restrictions on Chinese economic activity and the competition of new Chinese immigrants, however, drove a large number of mestizos out of the commercial sector in mid-nineteenth century. As a result, many Chinese mestizos invested in land, particularly in Central Luzon. The estates of the religious orders were concentrated in this region, and mestizos became inquilinos (lessees) of these lands, subletting them to cultivators; a portion of the rent was given by the inquilino to the friary estate. Like the Chinese, the mestizos were moneylenders and acquired land when debtors defaulted.
By the late nineteenth century, prominent mestizo families, despite the inroads of the Chinese, were noted for their wealth and formed the major component of a Filipino elite. As the export economy grew and foreign contact increased, the mestizos and other members of this Filipino elite, known collectively as ilustrados (see Glossary), obtained higher education (in some cases abroad), entered professions such as law or medicine, and were particularly receptive to the liberal and democratic ideas that were beginning to reach the Philippines despite the efforts of the generally reactionary--and friar-dominated--Spanish establishment.