(VI) Recent Developments and Prospects
According to the original schedule, the Third Five-Year Plan was to start in 1963, but this was delayed by the economic crisis which developed in the aftermath of the Great Leap. The plan was officially launched in 1966. Toward the end of 1965, on the eve of the new plan, debates about the future course of economic development became increasingly intense. Those who were in power within the Party apparently favored continued relaxation of control over agriculture and decentralization in industrial management as a stimulus to production. At the same time, they also opposed any attempt at a new Great Leap, lest it produce acute dislocation again. These views were antithetical to Mao’s concept, and the conflict between the two became one of the factors which culminated in the outbreak of the Cultural Revolution.
For more than three years, China’s political and social organization suffered an unprecedented upheaval. In the first year of struggle, the rival Party leaders did not seem to have ruled out the possibility of a reconciliation, and they had agreed to keep the economy intact. The 16-point resolution adopted by the Party’s eleventh plenary session in August 1966 provided protection for scientists, technicians, and workers. Until November 1966, Red Guards were prohibited from interfering with production in factories, mines, and communes. Under such precautions the economy showed no sign of serious damage.66
The turning point came in December 1966, when the Party leaders failed to reach a reconciliation and the Red Guards’ attacks were extended to managers in factories. Since the beginning of 1967, struggles for power have broken out in almost every factory. The Maoist leaders mobilized revolutionaries to seize power from the established officials. This was followed by bitter conflicts among the factional revolutionary rebels themselves. From May to September 1967, the country’s industrial centers were nearly paralyzed. Throughout the whole year, there were very few official claims about industrial progress. The usual quarterly or semi-annual announcements of increased production were largely absent. In his address before a mass meeting in Wuhan on October 9, 1967, Chou En-lai openly admitted that a “certain price” for the Cultural Revolution had been paid. “Production is affected to some extent, especially in places where disturbances occur.”67
The degree of setback can be roughly measured by the subsequent increase in industrial output in the second half of 1968, as compared with the first half of 1968 or the corresponding period of 1967. In those provinces and cities where the Maoist group had grasped a firmer hold and the Revolutionary Committee had been set up at an earlier date, industrial output resumed its upward growth in the second quarter of 1968. For instance, in Heilungkiang, gross industrial output value in the second quarter was up 22 percent compared with that in the first quarter. It rose still another 26.9 percent in the third quarter.68 Thus, the third quarter output amounted to 155 percent of the first.
In most cases, a sharp rise in industrial output did not emerge until the second half of 1968. The July output in Shensi was reported to have achieved a 100 percent increase over the average monthly output for the first half of 1968.69 In Kwangsi, total value of industrial output in its four major industrial centers (Nanning, Liuchow, Kueilin, and Wuchow) in the fourth quarter equalled or exceeded the sum of the previous three quarters.70
The growing body of evidence illustrates a clear trend; industrial output in China went up sharply in the second half of 1968. The magnitude of the increase ranged from 50 to 100 percent compared with the first half. If the Cultural Revolution had left industry intact, the proclaimed increases in the second half of 1968 would imply a fantastic great leap, which conflicts with the diminuation of capital investment and the deterioration of the production environment. The staggering rise of output can therefore only be explained by the depth to which production had previously sunk.
This assumption gains further support when official reports contrasting 1968 and 1969 output with that of 1966 are examined. According to one report, industrial output of Tientsin in August 1968 surpassed that in August 1966 by only 7.4 percent.71 For most major industrial centers, it was not until the first quarter or first half of 1969 that industrial output value exceeded the 1966 level. In Shanghai, it surpassed 1966 levels by 18 percent, while in Canton the margin was only 10 percent.72 The narrow margin between 1969 and 1966 output would suggest that, while the 1968 industrial output might be only slightly below the 1966 level, the 1967 industrial output must have declined by 15-20 percent from that of the previous year. If the 1969 industrial output is 15 percent higher than 1966and the 1970 output gains another 10 percent increase over 1969, the increase in industrial output in the Third Five-Year Plan will be about 45 percent (with 1965 as base), an annual growth rate of 7.7 percent. This is significantly lower than the growth rate between 1957 and 1966 (9.5 percent per year).
The growth of agricultural production does not seem to have been seriously disturbed in 1966 and 1967, thanks to exceptionally favorable weather. The 1968 output however, was apparently adversely affected. By 1970 grain output is expected to be around 225 million tons, up 12.5 percent from 1965 with an average annual growth rate of 2.4 percent. Although the growth rate of foodgrains still slightly exceeded that of population (estimated at 1.5 percent per year), the margin is narrow indeed.
From a 1969 vantage point it seems that the long-term prospects of the Chinese economy will be clouded by several unsur-mounted difficulties.
First of all, there is an apparent barrier to the economy’s attaining a high rate of capital formation. As long as agricultural output grows at only a snail’s pace and the government has to commit a significant portion of foreign exchange to importing foodgrains, the rate of capital formation cannot be expected to be high. The recent emphasis on labor-intensive, small-scale plants and the dispatch of millions of workers and students to rural areas signifies the leadership’s awareness of the critical shortage of capital. Since capital remains the most significant factor in economic growth, a low rate of capital formation will undoubtedly induce a slackening of the growth rate.
Secondly, in the allocation of scarce resources there is a growing competition between military and civilian production. During the 1958-68 period, despite a marked slowdown in the growth rate, the government spent an increasing proportion of investment for its nuclear program. Between 1964 and 1969, ten nuclear weapons tests were conducted. Of the eight ministries of machine-building industry, six now specialize in defense production. The expansion of the nuclear weapons program has absorbed a substantial numberof the best scientists, engineers, and managers from the civilian sector. In an economy where such skills are scarcer than in advanced economies, and where they are most critical for the successful and smooth operation of an industrial enterprise because of the workers’ generally lower level of knowledge and experience, negative effects are likely to follow when such skills are diverted to other needs. According to a study by Robert Demberger, during the 1953-65 period a one-yuan increase in domestic production of military goods would cause a reduction in total civilian output of 2.37 yuan.73 An expansion in defense production will scale down the future growth rate.
Finally, with the advent of the Cultural Revolution, there is a strong tendency for the leadership to substitute ideological inputs for capital and to resume non-material incentives for workers and peasants. Many radical measures similar to those tried during the Great Leap have been resurrected in recent years including the reinstallation of the mass line, the downgrading of engineers and technicians, and tighter control over the rural economy. The anti-material incentive, anti-modern technology mentality, if allowed full sway, will hinder the growth of the economy in general and of the modern sector in particular.
The combined effect of these factors means a lower rate of growth for the Chinese economy in the years ahead. In the coming decade, taking all factors into consideration, an annual growth rate of 2 to 3 percent for the net national product, 6 to 7 percent for industrial output, and 2 to 2.5 percent for agricultural output would be the most likely possibilities for Chinese economic performance.
(73) Robert Demberger, “Opportunity Costs of Defense Expenditures” (unpublished ms).
(72) Wen Hui Pao, Shanghai, Apr. 10, 1969.
(70) Kwangsi Jih-pao (Kwangsi Daily), Nanning, Mar. 29, 1969, editorial.
(69) JMJP, Sept. 27, 1968, p. 4.
(68) JMJP, Aug. 20, 1968, p. 4.
(66) Chu-yuan Cheng, “The Cultural Revolution and China’s Economy,” Current History, Sept. 1967, pp. 148-177.
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