(I) The Changes in Development Strategy
When the Chinese Communists assumed power in October 1949, they inherited an economy that can be called backward by any quantitative criterion. Prolonged external war and subsequent civil strife had inflicted immeasurable damage. Confronting this situation, the new government set forth two major economic goals: first, to restore the deteriorated economy as soon as possible, and second, to begin a rapid, forced-draft industrialization program to break the vicious cycle of backwardness and poverty.
In the course of industrialization, the economy experienced acute inbalances, strains, and supply bottlenecks, which forced the planners to alter their scheme. In terms of scale of priority, rate of capital formation, and investment technique, the development strategies followed between 1949 and 1969 can be roughly divided into four consecutive stages.
The Unbalanced Growth Strategy, 1949-57
During the early years of the industrialization program, the Chinese development strategy almost completely duplicated the Soviet model.1 The features of this strategy consist of (1) a high rate of capital formation, with overwhelming emphasis on industrial development; (2) a high priority on the expansion of the capital goods industry; and (3) a preference for larger plants and for capital-intensive techniques. During China’s First Five-Year Plan (1952-57), the ratio of gross investment to gross domestic product in terms of 1952 constant prices was about 20 percent, compared with only 6 percent in the prewar period. Of the investment in capital construction, 48 percent was concentrated in industry, of which 85 percent was for heavy industry.2 Since agriculture provided the lion’s share of total savings, the essence of this development policy was simply a continuous squeeze of the agricultural sector to support heavy industry.
In the choice of technique and scale, the Chinese planners also followed the Soviets, by investing in relatively large and capital-intensive projects. More than 85 percent of the capital investment was allocated for the 694 large industrial projects, leaving only 15 percent for the more than 10,000 small projects.
The Soviet model proved to be quite successful in the early stage of China’s industrialization. The capacity of major industry expanded rapidly. According to official statistics, gross domestic product grew at an annual rate of 8. 9 percent and industrial production at 18 percent.3 The growth of agriculture, however, lagged far behind that of industry. During the same period, agriculture rose 4.5 percent a year and output of food grains by 3. 7 percent, barely surpassing the population growth rate.
As a result of the deliberately unbalanced growth strategy, the growth soon hit its ceiling. In 1956, a sharp increase in capital investment over the preceding year immediately caused inflationary pressures on the commodity market. Bottlenecks in materials and transportation and difficulties in the balance of payments forced the planners to reduce the rate of investment. In the following year, investment slipped back 7.4 percent and the growth rate was curtailed. This retrenchment caused underutilization of industrial capacity and a rapid rise in unemployment. The applicability of the Soviet model to China was questioned by economists and top planners.4 A new approach to economic development was planned by the Chinese leaders in late 1957, and a new drive, know as the Great Leap Forward, was introduced in 1958.
The Great Leap Forward, 1958-60
The general idea behind the new strategy was to accelerate simultaneously the growth of both the modern and the traditional sectors. Although capital goods industries were still accorded high priority, agriculture was no longer neglected. The strategy thus shifted from concentration of investment in a few lines to a more balanced pattern. Such a shift required a larger investment to push the ceiling upward. The new idea was to substitute labor for capital or to use surplus labor for capital formation.5 The concept came very close to Ragnar Nurkse’s proposal, which also focused on labor absorption or employment-generating effects of industrialization.6
Large-scale water conservation projects involving 100 million peasants were undertaken in late 1957 and early 1958.7 Next, a more drastic drive to build millions of small plants and mines using indigenous methods of production was carried out in the whole country. Some sixty million persons were mobilized in the so-called “backyard blast furnace” drive.8 The new strategy not only eliminated all surplus labor but also created a critical shortage of manpower in the agricultural sector. This led to the establishment of the rural commune as a means of releasing peasant housewives from household chores to participate in productive activities.9
In the first year of the Great Leap, both industrial and agricultural output rose sharply, partly because of the exceptionally favorable weather in 1958 and partly because of the establishment of millions of small plants.10 In general, Nurkse’s capital-creation approach seemed to be gaining ground in the Chinese case.
However, the exuberant phase was short-lived and illusory. Most of the small workshops and backyard furnaces, lacking technical equipment and skilled labor, turned out unusable products at exceedingly high costs, while the commune system destroyed peasant incentives and caused mismanagement of agricultural production. The economy’s limit of tolerance was soon reached and the new drive lost its momentum. Agricultural output, affected by both adverse weather and manmade mistakes, dropped precipitously in 1960,11 and industrial output went down subsequently. The new strategy, instead of moving the economy ahead, brought it to the brink of a total collapse.
In order to alleviate the mounting crisis, the strategy of development was drastically revised. A new policy of “readjustment” (of the pace of development), “consolidation” (of existing plants), “reinforcement” (of the weak links), and “improvement” (of quality of products) was implemented in 1961.12 The scale of capital investment in industry was sharply reduced. Agriculture received first priority, followed by light and heavy industry in descending order.13 Most of the small workshops erected in the Great Leap period were abandoned. Employment in the industrial sector was appreciably curtailed. During 1960-61, some twenty million workers and urban dwellers were sent back to the countryside to reinforce the agricultural front.14 Industrial investment was concentrated in those branches which could support the agricultural sector, notably chemical fertilizers and agricultural machinery. The new strategy thus represented a complete reversal of the “unbalanced growth” of the first period and also differed materially from the labor-absorption strategy of the second period.
To stimulate workers and peasants, material incentives were reemphasized. The commune system underwent a complete revision,15 Private plots of land were redistributed to individual peasants, and farm markets were reopened to provide a channel for private exchange. A nation-wide increase in salaries and wages was made in 1963. As a result of these revisions, agricultural output began a slow recovery. In 1964, grain output slightly surpassed the 1957 level.16 By 1965, most of the industrial output has attained the 1958-59 level. The Chinese economy as a whole had recovered most of the losses caused by the Great Leap.
The Modified Great Leap Scheme, 1966-
The stress on material incentives caused widespread “capitalist tendencies” in the rural areas, which signaled the general favoring of a revisionist line like that prevailing in the Soviet Union. Toward the end of 1965, on the eve of the new Third Five-Year Plan, debates on the new lines of economic development erupted in the top hierarchy of the Communist Party. Those leaders in charge of Party affairs and economic planning apparently favored a continuing relaxation. They argued that industrialization could only be achieved by economic means. Material incentives and profits were both indispensable for running the economy, regardless of the differences in social structure. They opposed mass participation in economic construction and were convinced that industrialization required the guidance of experts, factory directors, engineers, and technicians. Their views, which underlay the adjustments of 1961-1965, were the antithesis of the views advanced by Mao Tse-tung, the author of the Great Leap and the communes.17
According to Mao and his followers, if China followed in the footsteps of the West and the USSR, she would encounter numerous bottlenecks in capital supply and technology. Her economy would then grow at a snail’s pace. Instead, China should adopt a spartan type of economy wherein political indoctrination would replace material incentives. Once properly indoctrinated and committed, the immense manpower of China could become a source of tremendous energy which could bring about a high rate of economic growth.18
The schism between these two views together with other conflicts finally developed into the fierce power struggle known as the Great Cultural Revolution. During this period, many radical measures similar to those of the Great Leap were resurrected. Material incentives were condemned as “economism.” Mass participation in industrial management was encouraged. College-trained engineers and technicians were downgraded. Small-scale plants were again in favor.19 Although agriculture still was accorded the top priority, a large portion of capital investment was allocated to the nuclear program.
The vicissitudes of Chinese development strategy during the first two decades reflected a series of problems confronting the Chinese Communist leadership.
First, unlike in the Soviet Union, the capacity of the agricultural sector to support industrialization was rather limited in China. Over the entire period, there was keen competition for the scarce resources needed by both agricultural and industrial development. The change of priorities from the “heavy industry first” of the First Five-Year Plan period to “agriculture first” after 1961 clearly reflected the small tolerance of Chinese agriculture for being squeezed in support of industry.
Second, in the course of its industrialization the Soviet Union benefited substantially from the importation of modern science and technology, while Communist China was forced to pursue a technique of dualism - developing simultaneously a modern, large-scale, capital-intensive sector and a traditional, small-scale, labor-intensive sector. The amount of unemployed or underemployed labor in China was so immense and the capital-absorption capacity of modern technology so limited that China simply could not afford the same capital-intensive technique as the Soviet Union.
Third, although both Chinese and Soviet leaders infused economic behavior with ideology, the Chinese leaders apparently viewed it as an effective substitute for the scarce capital and backward technology. The ideological ingredient was never so strong in molding economic decisions in the Soviet Union as it was in Communist China during the past two decades.
(19) For instance, chemical fertilizer output in Kiangsu by small plants in 1969 was officially reported to be triple that in 1966.
(18) An excellent analysis is provided by Alexander Eckstein in his paper “Economic Fluctuations in Communist China’s Domestic Development,” in Ping-ti Ho and Tang Tsou (ed. ), China in Crisis (Chicago: University of Chicago Press, 1968), Vol I, Book 2, pp. 669-700.
(17) Chu-yuan Cheng, “The Root of China’s Cultural Revolution - the fued between Mao Tse-tung and Liu Shao-ch’i,” Orbis, Vol. II., No. 4 (1968), pp. 1160-1178.
(16) In his December Report to the Third NPC, Chou En-lai pointed out that the 1964 agricultural production would surpass that of 1957 (JMJP, Dec. 31, 1964).
(15) For details, see Chu-yuan Cheng, “The Changing Pattern of Rural Communes in Communist China,” Asian Survey, Nov. 1961, pp. 3-9.
(14) See article by Ma Wen-Sui (Minister of Labor) in Hung-ch’i, No. 5, 1961, p. 11.
(13) This change in prioities was officially announced by Chou En-lai in his speech of March 27, 1962, to the third session of the National People’s Congress (JMJP, April 16, 1962).
(12) This new policy was decided at the Ninth Plenum of the Eight CCP Central Committee in January 1961 (Jen-min Jih-pao, Jan. 21, 1961). The general policy known as “readjustment, consolidation, reinforcement, and improvement” was mentioned in Kung Hsian-Cheng,”Produce More and Better Light Industrial Products for Daily Use,” Hung-ch’i (Red Flag), No. 5, pp. 89-90, February 10, 1962.
(11) According to Viscount Montgomery, who visited China in September 1961, Mao personally told him that output of food-grains in 1960 was 150 million tons and the forecast for 1961 was for 10 million tons more (The Sunday Times, London, October 15, 1961, p. 25). If this is true, 1960 output dropped by 20% from 1959 and 30% from 1958.
(10) In 1958, one-third of steel and coal output was produced by small workshops and coal pits.
(9) The stress of the urgency of liberating housewives from domestic chores for socialist construction was enunciated by Finance Minister Li Hsien-nien, in Ts’ai-cheng (Public Finance), No. 8, August 5, 1958.
(8) For details see Chu-yuan Cheng, Communist China’s Economy, 1949-1962 (South Orange, N. J. : Seton Hall University Press, 1963), p. 139.
(7) Jen-min Jih-pao (People’s Daily), May 3, 1958.
(6) Ragnar Nurkse, Problems of Capital Formation in Underdeveloped Areas (Oxford: Blackwell, 1953), p. 49.
(5) Liu Shao-ch’i, Report on the Work of the Central Committee of the CCP to the Second Session of the Eight National Congress (Peking: Foreign Language Press, 1958), p. 49.
(4) See editorials in Chi-hua Ching-chi (Planned Economy), Peking, No. 9, 1957, pp. 1-4, and No. 10, 1957, pp. 1-3; also articles by Liao Chi-li, Ibid., No. 8, 1957, pp. 4-6; and Chi Chung-wei, Ibid., No. 10, 1957, pp. 7-11.
(3) Ten Great Years (Peking State Statistical Bureau, 1959), pp. 20,88.
(1) K. C. Yeh, “Soviet and Communist Chinese Industrialization Strategies,” in Donald W. Treadgold (ed.), Soviet and Chinese Communism, Similarities and Differences (Seattle: Washington University Press, 1967), pp. 327-363.
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