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This battle is surprisingly little-known in the West; yet it has marked the end of the westward expansion of China, setting a westernmost mark that no Chinese state has managed to attain ever since.
This battle has also a fundamental cultural and religious importance: it marks the start of the slow but steady Islamisation of Central Asia, a process that has taken about 1,000 years to complete, but which has left its mark deep into China itself: the Huí minority would have never existed hadn't the Silk Road fallen under Muslim influence after the battle of Talas.
Táng China and the Arab Abbasid Caliphate were the two superpowers of the 8th century AD yet, much like the USA and the USSR in the second half of the 20th century, they had avoided direct confrontation. Much like the USA and the USSR, again, each of them was however allied with a number of small buffer states located on the Silk Road, the main source of outside income for both China and the Arab empire.
The Táng empire (in yellow on the map above) was really made up of two major territories: China proper to the east, and Xīyù to the west, linked by a very narrow strip of land, the Héxī Corridor, which was under constant threat of the Tibetan empire. Xīyù itself was much more of a protectorate than a real province, even though it had a Chinese military governor and heavy military presence.
In any case, Talas, where the Chinese and Arab empires met, was very far from both China and the Arab heartland, and could only be reached by travelling through scorching arid lands (especially in July).
The events that led to the battle are quite trivial: two aristocratic families squabbled for the succession to the throne in one of the city-states controlled by the Chinese in Xīyù. Or, according to other sources, two kinglets from two neighbouring city-states in Xīyù squabbled amongst themselves. Whichever version is true, the fact is that the Chinese governor of Xīyù intervened on behalf of one of the parties, beheaded the prominent members of the other party, and looted their treasure. This was seen as quite unchivalrous by the surviving members of the wronged party, who asked the Arabs for help. The latter obliged by sending a large army. Unfortunately, details of the battle itself are very, very scarce (even the exact location is unknown). Apparently the Chinese were tired and thirsty; in the midst of the battle, their Turkic allies switched sides, resulting in a massive Chinese defeat.
Despite the heavy Chinese defeat, the Arabs did not push their advantage because of inner trouble in the Arab heartlands that required that the troops be sent back. The Chinese tried to take advantage of this respite to rebuild their military power in Xīyù, but the Ān Lùshān Rebellion of 755-763 put a definitive end to these plans. It wouldn't be until under the Qīng, approximately 1,000 years on, that the Chinese empire reconquered its Western Regions.
A side effect of the battle of Talas was that, amongst the many Chinese prisoners of war, there were many papermakers who were brought to Samarkand where they were ordered to teach their handicraft. As a result, Samarkand became a flourishing paper-making centre of Central Asia and of the Muslim world. The scenario that (alas!) didn't make it into The Celestial Empire was about these Chinese papermakers having to flee Samarkand and return to China without being caught.