Communist China's economy since the ‘leap’

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<ul><li><p>Communist Chinas Economy Since the Leap It has never been easy to gain an understanding of </p><p>the Chinese Communist economy because of the lack of reliable data. The difficulty has increased since 1960, when the flow of economic information was drastically curtailed. In fact, there was an almost complete black- out for about two years, in 196 I and 1962. Thus, in order to have an appraisal of the development of the Chinese Communist economy since the Great Leap, we have no choice except to squeeze as much information as we can from the available data, however scattered and incomplete it may be. In doing so, we naturally take the risk of trying to generalize without a fkm sta- tistical foundation. </p><p>Why the Great leap Forward Failed As is well known, the Great Leap Forward was </p><p>launched toward the end of 1957 to remedy a highly unfavorable economic situation: there had been virtu- ally no increase in the production of foodgrains in 1957 (by official estimates) ; urban unemployment and rural underemployment were considerable; Soviet economic aid (in the form of credits) came to an end. The Great Leap was, in the Chinese expression, an attempt to walk on two legs on a large scale in order to speed up economic development. By two legs was meant simultaneous development in industry and agriculture; in heavy and light industries; in centrally and locally managed enterprises; in large, medium and small enter- prises; in modern and native technologies; in centralized leadership and mass participation. Simultaneous devel- opment did not mean development at the same rate, however, for industry was still given priority over agri- </p><p>(Continued from Page 9) </p><p>alongside the call of the PKI Politburo (received by the pro-Peking New Zealand Communist Party and published by its organ), *l that Indonesian Communists should now be ready to lead a protracted armed strug- gle, integrated with the peasantry. Amidst new warn- ings by Suharto, early in March 1967, that remnants of the PKI were plotting once again to seize power, army units wiped out a contingent of Communist ele- merits operating along the border of East and Central Java, led by an aged and widely venerated soothsayer, Mbah (Grandfather) Suro. This operation suggested that, as in the past, the Party was making use of the nativistic cultural substratum in the heart of the Java- nese countryside .82 It also indicated once again the tactical flexibility of the now-underground PKI as it seeks to develop a new united front tactic. Whether this new front tactic will eventually have more success than its predecessors remains to be seen. </p><p>-J. v.d. K. </p><p>*lPeop&amp;s Voice (Auckland), Nov. 16, 1966. *20n Sum, see Antma Daily News Bulletin, March 11, 1967. </p><p>On earlier PKI exploitation of nativistic religious expectations in rural Java, see, e.g., Ruth T. McVey, The Rise of Indonesian Com- munism (Ithaca, NY.: Cornell University Press, 1965)~ pp. 176- 177, 180. </p><p>10 </p><p>culture, heavy over light industries, large over medium and small enterprises, modern over native techniques, central over local enterprises. </p><p>Simultaneous development was deemed feasible de- spite scarcity of capital. The scarce capital was to be used, as previously, primarily for the development of heavy industry; labor was to be the main input for other development. The development strategy was one of large-scale substitution of labor for capital, a massive utilization of the underutilized manpower. </p><p>In terms of Chinese factor endowments, the strategy of the Great Leap seems quite defensible. But the Great Leap years also saw the downgrading of technical ex- pertise, as the Party cadres gained control of production in the name of mass participation and politics takes command, and pushed the campaign so ambitiously and fanatically that many basic technical constraints were neglected. As a result, there was a gross misuse and misallocation of resources. The fanatic adventure of building backyard furnaces that produced steel of little worth, the ill-designed irrigation programs that hindered the regular function of rivers and resulted in alkalinization of soil, and the large-scale application of untested farming techniques that wasted much of farm labor (such as deep ploughing and close planting) are all cases in point. </p><p>As the statistical system, which saw so much im- provement under the State Statistical Bureau during lg52-1g57, virtually collapsed in the Great Leap, the official statistics of the outcome of the Great Leap are of little use. But the picture seems clear. In 1958 both industrial and agricultural output probably rose rather sharply. Industrial output probably continued to grow in 1959 but at a much slower rate. Agricultural output most probably suffered a sharp decline in 1959 despite official claims to the contrary. Few official statistics have been released regarding agricultural and industrial out- put after 1959, but it is no secret that the Chinese Com- munist economy went into a slump and, as a result, there was a fundamental shift in development strategy. </p><p>Chi-ming Hou </p><p>Chi-ming Hou, professor of economics at Colgate University, holds a Ph.D. from Columbia Uni- versity and received his undergraduate training in Fu Jen University of Peiping. He is the author of Foreign Investment and Economic Development in China, 1840-1937 (Cambridge: Harvard Uni- versity Press, 1965). </p><p>Communist Chinas Economy Since the Leap was read at the Conference on Controversies in American Society, held at Pennsylvania State University in November 1966. The paper is the outgrowth of research that Dr. Hou conducted while at the Center for Chinese Studies, University of California, Berkeley, during his tenure of a Brookings Research Professorship, 1965-1966. </p><p>COMMUNIST lh&amp;UIlS </p></li><li><p>A New Scale of Priority: Agriculture Comes First The Chinese Communist leaders must have been as </p><p>confused as they were shocked by the deepening eco- nomic crisis. The Great Leap and the system of rural communes, introduced in the fall of 1958, were sup- posed to bring wonders-they were supposed to enable the country to be completely modernized both in indus- try and agriculture in no more than 15 to 20 years. But the agricultural performance after 1959 gave no support for such an optimistic outlook. While never admitting any blunders or mistakes in fundamental policy, the Chinese Communists quietly abandoned the basic tenets of the Great Leap and the communes as the economic crisis deepened in lgGo and 1961. Prob- ably out of the sheer necessity of survival, a new eco- nomic policy evolved. It called for a new scale of prior- ity of development: agriculture, light industry and heavy industry, in descending order. Industry was to serve agricultural development because it was recog- nized that modem inputs were essential for further agricultural improvement. Investment in industry was to be curtailed in order to concentrate on strengthening the agricultural front. </p><p>The idea of regarding agriculture as the foundation, with industry taking the lead in economic development, was advanced in early 1960 in Li Fu-chuns report on the draft economic plans for lg6o.l It gained momen- tum in the autumn of the year when the harvest turned out to be very poor and a movement of all people to agriculture and foodgrain was brought to a peak throughout the country. In January 1961 the Eighth Plenum of the Eighth Central Committee of the Chinese Communist Party decided that the scale of basic con- struction should be appropriately reduced and light in- dustry developed in order to ease the severe shortage of consumers goods. In December 1961 a secret document (known as Seventy Articles of Industrial Policy) was reportedly issued to the cadres by the Party, requesting that unless special authority was given, all basic con- struction should be suspended, all those enterprises that had been operating regularly at a loss be shut down, and the practice of recruiting labor from rural areas be abandoned for at least three years.2 </p><p>Then on March 27, 1962, Premier Chou En-&amp; set forth the 10 tasks for national economy, reaffirming the policy of readjustment (of the pace of development), consolidation (of existing plants), reinforcement (of the weak links), and improvement (of quality) .8 He called for further contraction of basic construction, the send- ing of urban inhabitants and workers to rural areas in order to strengthen the agricultural front, and the de- velopment of the economy in accordance with the new scale of priority-agriculture, light industry and heavy industry, in that order. Since the Ninth Plenum of the Eighth Central Committee investment reportedly has been allowed only in coal mining, timber, chemical fer- tilizer, agricultural machinery and transportation. </p><p>lJen-min jib-pao (hereafter referred to as JMJP), Mar. 31, 1960. ZChoh-ming Li, ea., Industrial Development in Communist China </p><p>(New York: Frederick A. Praeger, 1g64), p. 11. aJMJP, April 17,1g6a. </p><p>Official statements in more recent years indicate that this new economic policy as formulated between 1960 and ig6z has probably continued to be the basic policy of development. At least, there is no evidence to suggest any new departure from this policy. Unfortunately, it is not possible to describe the new policy in quantitative terms such as saving-consumption ratio or the percent- age distribution of investment and output in various sec- tors of the economy. </p><p>This new economic policy represents a sharp reversal of the development policy adopted prior to the Great Leap. In 1952~1957, Communist China followed very closely the Soviet pattern of investment policy; nearly half of total public capital investment was for industry, 15 per cent for transportation and communications. Only 13 per cent was for agriculture, while the re- maining 23 per cent was for all other sectors. About 85 per cent of total capital investment in industry was allocated to heavy industry. Even in 1958-1959, when simultaneous development on all fronts was emphasized, a larger share than ever before (65 per cent) of state investment was for industry, whereas only g per cent went for agriculture. Total investment in light indus- try doubled in 1958 over 1957, but investment in heavy industry increased even faster.s </p><p>Four Transformations Effort to Modernize Agriculture </p><p>There is no doubt that the Chinese Communists have been serious in implementing the new economic policy. There have been concentrated efforts to aid agriculture, especially in what is called four transformations in agriculture, namely, mechanization, electrification, irri- gation and chemical fertilizers. It is reported that in I 964 more than 70 per cent of the 1,800 hsien (coun- ties) had tractor stations; the number of tractors in 1964 was five times as many as in ig57.s In rural areas, total consumption of electric power (much of it used for irrigation purposes) increased by 22 times from 195 7 to 1964. Irrigation facilities in terms of horse- power increased twelvefold. In 1965, nearly gg million mou (mou: roughly 1/S acre) of farm land were irri- gated by mechanized pumps, a twofold increase over ig61.I As compared with 1957, chemical fertilizers supplied by the state more than trebled in 1g64.8 </p><p>Other efforts to aid agriculture included the use of more insecticides; there was a reported increase of 64 per cent in 1964 over 1963, and an increase of 47 per cent in 1965 over 1964.~ Attention has also been paid to the use of improved seeding; by 1965 there were special farms to grow improved seeds in almost every Jzsien.O Efforts have also been made to supply agricul- </p><p>It is too early to tell whether this policy may have been dected by the current Proletarian Cultural Revolution. </p><p>SIC, C. Yeh., Soviet and Communist Chinese Irw!u.strializdion Strategies, RAND, May 1965. </p><p>eJMJP, Orr 20, 1964. 7Far East- Economic Review Year Book, 1966, p. 1~; JMJP, </p><p>Oct. ae, ig6i. eJMJP, Dec. 31,1g6&amp; report by Chou En&amp;i. sTsu-ho, No. ah 1966, p. 33. lOIbid. </p><p>11 </p></li><li><p>tural tools (some semim echanized); it is reported that in 1965, a billion small and medium agricultural tools and machines were produced for the rural areas; steel used to manufacture these products totaled one million metric tons. All these statistics may be grossly exag- gerated and have to be used with caution, but they do seem to suggest the emphasis which the Chinese govern- ment has given to agriculture. It may also be noted that in introducing and carrying out the aid-to-agricul- ture measures, special attention has reportedly been paid to the special needs of different localities in order to avoid the uniformity and extremism so characteristic of the Great Leap years. </p><p>Per Capita Foodgrain Production Continues to Decline </p><p>Despite these modernization eff arts, which admittedly are still in the initial stage, the shocking fact is that the level of production of foodgrains achieved in 1957 (that is, 185 million metric tons) was not surpassed until 1964, according to official reports.12 The reported figure for 1965 is 200 million metric tons,la but Western ob- servers in Hong Kong suggest that foodgrain production in 1965 and 1966 was less than in 1964 because of ad- verse weather conditions, the 1964 level being about the same as in 1957. Very little information is available on the output of other agricultural products. Official reports singled out only cotton, tobacco and sugar cane, together with foodgrains, for comparison between 1964 and ig57-the production of all these items in 1964 surpassed the 1957 level. Most probably the level of subsidiary production has increased as compared with 1957, though the precise extent of the increase is not known. If it is true that the current level of foodgrain production is only at the 1957 level, the level of pro- duction must have been very low indeed in 1960 and 1961, inasmuch as there has been a reported increase every year since 1962.~~ </p><p>All these figures should of course be read in relation to population data. Chou En-lai has reported an annual population growth rate of 2 per cent for ig60-1g621 and nearly 2.5 per cent for 1963 and 1g64.1a Chou at- tributed the changes in growth rate to changing eco- nomic conditions. Another official report put the pres- ent rate of population increase at 1.8-2.0 per cent. If these figures reflect the real situation, the per capita output of foodgrains has obviously declined. </p><p>Agricultural Crisis Affects Industrial Output The low level of agricultural output must also mean </p><p>a low level of industrial output. For an economy such as the Chinese, agricultural development is essential to any sustained industrial growth. The primary function of agriculture is to feed the people and the labor force; </p><p>Wommunist China Digest, JPRS, 35070, April 18,ig66, p. 41. ZJMJP, Dec. 31,1g64. Whina News Summary No. 117, April ~8, $966, p. I. Iden-min Shou-tse, 1964, p. 6. IEJMJP, Dec. 26, 1963. Wited in Rei-Ching yen-chiu, Vol. 7, No. 7 (July 31, 1964) p. </p><p>51. ITFar Ea.&amp;m...</p></li></ul>