communist china's national product in 1952

Communist China's National Product in 1952Author(s): Alexander Eckstein, Y. C. Yin and Helen YinSource: The Review of Economics and Statistics, Vol. 40, No. 2 (May, 1958), pp. 127-139Published by: The MIT PressStable URL: http://www.jstor.org/stable/1925023 .

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COMMUNIST CHINA'S NATIONAL PRODUCT IN 1952 * Alexander Eckstein

with the assistance of Y. C. Yin and Helen Yin

NATIONAL income accounting provides a broad avenue for systematically survey-

ing the state of a country's statistical development, for identifying the most serious statistical gaps, and for appraising the reliability of the data. This function may be particularly important in areas where statistics are not regularly published, but are presented in scattered and unsystematic fashion.

While this statistical mobilization and survey function is methodologically quite important from the standpoint of further studies of China's mainland economy, it is a subsidiary rather than a primary purpose of this study. Thus, the major focus is upon an analysis of the structure and flows in the economy, upon composition rather than just size of national product. Our work on the Chinese Communist economy, its performance, its capacity for growth, the relative importance of different sectors, the rate of saving and investment, the sources of saving, etc., has been greatly handi- capped by the absence of national income estimates for some recent period. All of the previ- ous estimates are for the I93I to I936 period.' Owing to the profound structural and institutional changes in the Chinese mainland economy, these would be inapplicable to the I950's even if they were methodologically and statis- tically unassailable. For recent years, the Chi- nese Communists have published some highly aggregated estimates.2 However, it is difficult

to work with these, since they are not buttressed by a detailed exposition of sources and methods used. The national income concept used in this context is apparently the same as in the Soviet Union, that is, it excludes passenger transport, government, and many other types of services.

In recent years, particularly since I955, we have begun to obtain much more information on various aspects of the Chinese economy, e.g., agricultural and industrial production, government budget, agricultural taxation and mar- keting, profits of state enterprises, levels of investment expenditure, etc. However, it has been very difficult to interpret and appraise these data since they could not be fitted into a broader framework and could not be assessed against the background of performance and intersectoral flows in the economy as a whole. In effect, -all of our investigations have suffered from the lack of an analytically meaningful yardstick.

It is my hope that this study, confined to an analysis of national income accounts in one year, will at least go part of the way toward filling this gap. It should be viewed as an attempt to explore a new field of inquiry rather than to furnish definitive estimates. One of the purposes here is to apply the national accounting framework to an underdeveloped sovietized economy and to work out a method of approach to the available data which can then also be used for future estimates. There is no doubt that as the work on Chinese national income proceeds, these methods will be improved and new information will become available so that our present estimates will need to be revised.

Space forbids a detailed exposition of methods and sources. Neither is it possible to dis- cuss at length the pricing and valuation prob- lem. These tasks will necessarily be left to a forthcoming monograph on national income and product in Communist China. Therefore, the primary purpose of this paper is to summarize the findings, to give some general indications of the methods of estimation pursued, and to bring out some of the analytical implications.

[ I27 ]

* I wish to thank Professors Abram Bergson and Shigeru Ishikawa for their valuable suggestions and com- ments and to acknowledge my indebtedness to the Russian Research Center and the Center for East Asian Studies at Harvard University and to the Center of International Studies at M.I.T. for enabling me to undertake the research for this study.

1 I am referring here only to the careful and systematic work of Ou Pao-san and T. C. Liu. Ou Pao-san also makes a tentative estimate for I946 and a number of others have engaged in a wild numbers game with all sorts of estimates advanced for the prewar and postwar period.

' Cf. speech by Po I-po, Chairman of the National Eco- nomic Commission, at the CCP Eighth National Congress on Sept. i8, I956, text reprinted in HHPYK, No. 20 (I956), 72-76; and Yu Tien, "A Preliminary Discussion on Pro- portion between Consumption and Accumulation in Our National Income," TKP (Peking), March 24, I957, trans- lated text in SCMP, No. I5I0, I8-26.



I28 THE REVIEW OF ECONOMICS AND STATISTICS

Considering the objectives of this study, I952

was selected as the most appropriate year. It is a year for which data are relatively abundant and, more important, it is the first more or less normal year after the advent of the Chi- nese Communist regime. That is, normal in the sense that physical plant and capacity - badly disrupted by prolonged war and civil war - were more or less restored and the channels of distribution were reestablished. The year also marked the end of a long cycle of open inflation which can be dated from I937, i.e., from the beginning of the Sino-Japanese War.

National income accounting in I952 is also facilitated by the fact that as compared with later years market criteria and pricing still played an important role in resource allocation. There was as yet no comprehensive system of physical planning, no turnover taxation of the Soviet type, no outright rationing, and no com- pulsory farm collection schemes over and above the tax in kind. However, all of this was coun- teracted, at least temporarily, by the very acute disorganization of markets in the wake of the so-called san fan (three anti's) and wu fan (five anti's) movement.3

In some respects (but only in some) mainland China in I952 was roughly at the same stage as the Soviet Union in I927-2 8. In China, this was the last pre-planning year. It was also the year during which land reform was completed, and the drive for collectivization was still in the future. While large segments of the economy were nationalized, there was still a sizeable private enterprise sector. In effect, all of agriculture, handicrafts, and part of manufacturing and trade were still within the private household and business sector. On the other hand, the bulk of mining and heavy industry,

and practically all of modern transport and banking, were in the hands of the state.

Yet, while nationalization was only partial, the public sector could reach deep into the private through such instruments as taxation and state trading. There was no formal and explicit price control administration, but there was a great deal of price leadership and administra- tive pricing by the state trading companies, based on their market power. A few salient data may serve to illustrate the degree of market power these companies had attained by I952. Thus, 63 per cent of wholesale and 42

per cent of retail trade was within the purview of the state trading sector.4 As far as some of the principal staples are concerned, the share of these companies was even higher, as evidenced by the fact that of the total grain marketed in I952, apparently 70 per cent passed through state trading channels. Actually, were one to include grain deliveries on tax account, this share would rise to about 8o per cent.5

Against this background and bearing the recent inflationary experience in mind, Chinese Communist planners apparently decided to use their market power for the pursuit of a price policy based on two primary considerations: (i) maintenance of price stability in consumer goods markets, and (2) imposition of very high profit margins in state industry, trade, and transport in order to attain a high rate of involuntary saving. Logically this could be ac- complished in any one or a combination of three ways: by pressing down wages, by capturing economies gained through improvements in productive technology and in distributive efficiency, and through monopsonistic pricing of agricultural products.

s'The Three-Anti's Movement was officially launched to eliminate "corruption, waste, and bureaucratism" within the state apparatus. It was inaugurated in late I95I in Manchuria and spread from there to the rest of China. Gradually it was extended to a Five-Anti's Movement against "bribery, tax evasion, fraud, theft of state assets, and leakage of state economic secrets." At the same time the butt of the attack was shifted from the state bureauc- racy to private industry and trade. It led to the levying of heavy monetary fines upon private enterprise, in effect a capital levy, which resulted in wholesale bankruptcies. Under the impact of this campaign, private industry and trade were brought to a virtual standstill in the first few months of I952.

' State Statistics Office, "Statistical Abstracts of the National Economy," HHPYK, No. I7 (I956), 46; these percentages refer to "purely commercial organizations," thus excluding self-employed small merchants, itinerant peddlers, etc.

' Grain purchased by private traders in I952 accounted for about 30% of the total grain marketed. (Cf. JMJP of November 29, I952.) At the same time, a long article by Tseng Ling on "The rural market at the height of agricultural cooperativization," in Ching-chi yen chiu (Economic Research), No. 2 (I956), indicates that in I952 the grain purchased by the state comprised i8.i% of total grain production. On this basis it is possible to estimate the total quantity of grain purchased by private traders. The quantity delivered as tax grain is officially published, so that the total of 8o per cent can be derived in this way.



COMMUNIST CHINA'S NATIONAL PRODUCT 129

Available evidence indicates that while all three factors seem to have been at work, the last two were probably more important than the first. During these first few years, the new regime necessarily worked with an inherited price structure which it gradually shaped to its own purposes. However, the inherited structure already had built into it strong monopsonistic tendencies occasioned by transport and communications barriers, and by institutionally conditioned market imperfections (e.g., the fu- sion of the landlord, moneylending, and market- ing functions). While the old imperfections were gradually disappearing, the monopsonistic pricing elements not only persisted, but were gradually reinforced as the state gained in market power and as agricultural development lagged more and more behind industrial expansion. The net result is an undervaluation of farm prices, i.e., undervaluation in terms of prevailing scarcity relationships, more pronounced after I952 than before, but by no means negligible even in that year.

As of now, these interpretations are largely in the realm of hypothesis rather than fully documented findings. Attempts to measure the degree of price distortion are inevitably fraught with serious conceptual and statistical difficul- ties, particularly where the data are as poor as in China. However, this is a task which must be assigned a high research priority. In the meantime, the validity of any findings (such as those presented in this study) expressed in established market prices will necessarily be limited. This is particularly the case in a pre- dominantly agricultural economy, where the relation between agricultural and non-agricultural prices very significantly affects the structure of the national product.

Nature and Quality of Data

The state of our knowledge concerning the Chinese economy and the factors and forces that have shaped its development lags considerably behind that for most of the other underdeveloped areas. In the case of China- both past and present -the task of the economic analyst is greatly complicated by the wide pro- liferation of fragmentary and highly unreliable quantitative information on the one hand, and

the almost complete absence of even approxi- mately reliable and comprehensive statistical series on the other hand. The very nature of the available information therefore forces the student to resort to methods of analysis that could be characterized as economic archeology, involving reconstruction and piecing together of fragments.

There is no question that with the advent of the Chinese Communist regime, the efficiency of statistical organization and data collection was improved considerably. It would indeed be surprising if it were otherwise, in view of the fact that the new regime has brought the country under unified central administration, that it has constantly extended the scope of the nationalized economic sector, and that central planning has encompassed ever widening spheres of economic activity. With the estab- lishment of a national bureau of statistics late in I952, the quality of the data changed per- ceptibly. Further improvement was accelerated by the preparations for the first Five-Year Plan, by the population count taken in mid-I953, and by the gradual standardization of accounting procedures in state enterprises, government organs, and in fiscal administration. Paradox- ically many of the inconsistencies in Chinese Communist statistics are a byproduct of this change in the quality of data; as a rule statistics published since I953 are based on a broader coverage and are methodologically more con- sistent and sounder than the data of earlier years.

There are no regular statistical yearbooks and systematic statistical reports of the type we are generally accustomed to for most of the non-bloc areas. Since I953, two annual reports have been published: the budget, which gives revenue and expenditure totals and breakdowns in value terms, and the communique of the State Statistical Bureau on plan fulfillment, very much patterned on the corresponding Soviet report. Up to mid-I955, when the First Five- Year Plan was submitted to the National Peo- ple's Congress,6 most of the data released were in percentage or index number form, with the physical quantities or values for the base year

'Report on the First Five-Year Plan for the Develop- ment of National Economy, by Li Fu-chun, HHYP, No. 8 (I955).




TABLE I. - HOUSEHOLD AND PRIVATE SECTOR ACCOUNT (Millions of New Yuan)

Incomes Expenditures

i. Incomes of Farm Households 35,925 i. Retail Sales to Households 22,400

(a) Net Money Income from Agricultural 2. Farm Consumption in Kind i6,055 and Handicraft Products 13,700 3. Expenditure on Housing Services 2,330

(b) Net Income in Kind from Agricultural (a) Farm I,500 and Handicraft Products 2I,I00 (b) Non-Farm 830

(c) Imputed Net Rent on Farm Dwellings I,I25 4. Consumption of Subsistence by Armed 2. Non-Farm Wages and Salaries Including In- Forces I,000

comes of Self-Employed I3,525 5. Trade Union and Other Dues 70 (a) Direct Wages, Salaries and Incomes I3,400 6. Expenditure on Miscellaneous Services I,OOO (b) Supplementary Incomes in Kind I25 Total Household Expenditures for Goods

3. Private Business Earnings I,420 and Services Consumed 42,855 4. Imputed Net Rent on Private Non-Farm 7. Gross Investment in the Private Sector 3,900

Dwellings 500 8. Total Current Expenditure on Consump- 5. Pay and Subsistence of Armed Forces I,500 tion and Investment 46,755 6. Total Income Currently Earned 52,870 9. Transfer Outlays 5,805 7. Transfer Receipts goo (a) Increases in Bank Deposits of House-

(a) Rural Relief I45 holds 320

(b) State Unemployment Relief 40 (b) Direct Taxes 3,950 (c) Veterans' Benefits 2IO (c) Gifts, Fines, Capital Levies, and (d) Stipends of Students 320 Other Misc. Transfers I,500 (e) Pensions, Allowances, and other Benefits 50 (d) Private Enterprise Contributions to (f) Amortization of Bonds and Interest on Social Insurance 35

Bonds and Savings Deposits I35 _ IO. Total Expenditure 52,560

8. Total Income 53,770 ii. Statistical Discrepancy I,2IO

53,770

SouRcEs: Appendix A, B, and C of forthcoming study.

unknown or highly conjectural. However, in connection with the publication of the Five- Year Plan a vast array of production data as well as hitherto unpublished value categories were released, not only for the period covered by the FYP (I953-I957), but for the preced- ing years as well, and particularly for I952 as the last pre-plan year.

The Estimates

Gross National Product at Market Prices, rather than National Income at Factor Cost, is the central concept around which the present study is woven. Ideally, it would be preferable to have estimates based on both concepts. Un- fortunately, data presently available do not permit this.

We present in effect two independent national product estimates in Tables i to 3, one derived from the income and the other from the expenditure side of the account. The statistical discrepancy between the two is a symptom of their independent derivation and a function of the margins of error inherent in the very nature

of the data and the statistical expedients to which we at times were compelled to resort.

In terms of general form and structure, the accounts in Tables i to 3 are patterned after those found in the Soviet national income studies of Bergson and his associates.7 The latter necessarily reflect the changing property relations in the Soviet Union, particularly between I928 and I937. As indicated above, Mainland China's economy in I952 was far from fully nationalized or collectivized, so that in this respect it bore many points of resem- blance to the Soviet economy on the eve of the first Five-Year Plan. Therefore, for our purposes Hoeffding's accounts were most relevant, although naturally there are some differences in individual items - a reflection of the differences in particular institutional arrangements and stages of development as between the two countries. Moreover, while Bergson and his

'Abram Bergson, Soviet National Income and Product in I937 (New York, I953); Oleg Hoeffding, Soviet National Income and Product in 1928 (New York, I954); and Abram Bergson and Hans Heymann, Jr., Soviet National Income and Product, 1940-48 (New York, I954).



COMMUNIST CHINA'S NATIONAL PRODUCT

associates derived investment as a residual, we estimated it directly.

Perhaps a word should be said about the Household and Private Sector account presented in Table i. As its title implies, this really com- bines what are usually two separate accounts - one for household and the other for business transactions - so that household consumption and private enterprise investment appear together on the expenditure side, while wage and business income are ranged together on the income side.

One of the advantages, as well as one of the justifications, for this type of mixed account is that in an underdeveloped and only partially commercialized area like Mainland China, the bulk of economic activity is carried on by family enterprises. As a result, the line between the household as a supplier of labor or consumer of final goods, and as an entrepreneur becomes very blurred. This is the case not only for agriculture, but for most of handicraft, local trading, and native transport as well. This makes it difficult to separate the incomes of wage earners from those of the self-employed. Similar considerations bar any reliable basis for distinguishing between money rents for housing and imputed rent for owner-occupied dwellings.

The income side of our accounts rests mainly on four items: agricultural product, non-farm wage bill (including incomes of self-employed), net earnings of private and government enterprises, and indirect taxes. It was possible to derive government enterprise earnings and indirect taxes from officially published data. But the other major income categories had to be estimated, so to speak, "from the bottom up."

In general terms, the "value added" approach was used to derive agricultural product, on the basis of (a) officially published production data (in cases where such data were not available, we estimated them); (b) detailed price data, culled from the Chinese press; and (c) inputs estimated by us. In principle, the physical out- puts were valued in terms of prices at which the state trading companies purchased farm products. For those commodities for which no state purchase prices were available, the Tientsin wholesale price ratios were used as a basis for calculating the farm price. This, of course, in-

volves the implicit assumption that price relationships are the same in farm and in wholesale markets, which may not necessarily be the case. It also presupposes that Tientsin is a representative wholesale market.

This method of pricing undoubtedly leads to an undervaluation of the farm product. It was used primarily because absence of adequate data barred the application of other methods of valuation.

Published labor force and employment data, in combination with average wage rates estimated on the basis of detailed wage quotations, were used in calculating the wage bill. Both the employment and wage data are subject to a considerable margin of error. There is some indication that the labor force data exclude certain types of temporary and casual workers. Moreover, the interindustry classification of the labor force is at times inconsistent. For instance, all workers employed by the Ministry of Trade would be ranged in the commercial category, even though the Ministry may oper- ate some non-trading enterprises. At the same time, wage quotations for certain categories of workers are quite fragmentary, and the range of variation in some cases is sizeable. As a result of all these factors combined, the aggregate wage bill is probably subject to a smaller margin of error than its interindustry distribution.

Private enterprise earnings were estimated separately for industry, trade, construction and transport. Published sources give the aggregate net earnings of "capitalistic" industrial enterprises for I950-55 as a whole, with an annual breakdown of actual dividend payments. Our estimate of private industrial profits is based on the assumption that fluctuations in dividend payments were proportional to total earnings. Depreciation allowances in industry were estimated on the basis of Indian rates. Similarly, there are published data on rate of earnings in private trade for I95I and I954. These were used for estimating I952 profits after some ad- justments designed to allow for the different business conditions in I952. Profit rates in construction were estimated on the basis of certain sample cost breakdowns. Earnings estimates in private modern transport were derived from state enterprise profits on the assumption that the rate of profit per ton-km. would be the




TABLE 2.- PUBLIC SECTOR ACCOUNT (Millions of New Yuan)


i. Profits of Government Enterprises and i. Government Administration I,730 Organizations 6,480 2. Defense 4,370 (a) Paid into the Budget 5,730 3. Community Services (Health, Welfare, (b) Retained Earnings 750 and Education) I,I50

2. Profits of Cooperative Organizations 220 4. Gross Public Investment 7,600 3. Public Sector Contributions to Social In- 5. Geological Exploration, Research, Indus-

surance Funds IOO trial Training, and Other Economic 4. Indirect Taxes 6,465 Services goo

Less Subsidies 500 6. Village Government Services 585 5. Total Charges Against Current Product I2,765 7. Total Outlays Net of Transfers i6,335 6. Transfer Receipts 5,805 8. Transfer Outlays goo

(a) Private Enterprise Contributions to So- (a) Unemployment Benefits 40 cial Insurance 35 (b) Pensions, Allowances, and Other

(b) Gifts, Fines, Capital Levies, and Other Benefits 50 Miscellaneous Transfers I,500 (c) Veterans' Benefits 2IO

(c) Money Savings by Household 320 (d) Stipends to Students 320 (d) Direct Taxes by Private Sector 3,950 (e) Interest and Amortization on Bonds

i. Agricultural Taxes 3,380 and Interest on Savings Deposits I35 ii. Business Income Tax 570 (f) Disaster Relief I45

7. Total Income I8,570 9. Total Expenditure I7,235 Io. Statistical Discrepancy I,335

I8,570

SOURCES: Appendix D of forthcoming study.

same for private as for public transport. A more detailed exposition of sources and methods will be given in Appendix C of the forthcoming monograph.

In effect, then, the income side of our accounts was built on a combination of the "value- added" approach for agriculture, and the "distributive shares" approach for the non-farm sector. On the expenditure side, data for retail sales to households, government investment in fixed capital, and government consumption were obtained from official reports; however, these required considerable adjustment to avoid dou- ble counting. On the other hand, private investment, public investment in inventories, and a miscellany of smaller items had to be estimated.

Farm consumption in kind was derived by deducting agricultural tax payments from farm income in kind. The estimate for retail sales includes sales of farm requisites to agriculture and of consumer goods to enterprises and to government organs. Therefore, the official figures were adjusted downward on the basis of our agricultural input estimates and of published ratios giving the proportion of retail sales channeled to households.

The expenditure items given in budget re-

ports and other official publications proved particularly troublesome because of uncertainties and inconsistencies in their definition. This ap- plies particularly to the so-called "basic," "economic," and "cultural" construction categories. The first is a euphemism for total government investment in fixed capital. Unfortunately, however, the published figure includes certain items which cannot properly be considered as investment. On the other hand they exclude "major repairs" and certain types of equipment purchases. On the basis of procedures which space limitations forbid us to present here, it was possible to estimate the magnitudes to be added and subtracted.

The absence of investment data for the private sector necessitated the use of quite crude methods of estimating aggregate investment in fixed capital. Based on official announcements and studies, modified in the light of corresponding data for India, Burma, some Latin-Amer- ican countries, and the United States in the nineteenth century, an equipment/construction ratio of I :2 was assumed. Investment was then estimated by applying this ratio to the capital goods output and import data available.8

'Cf. HHYP, No. 8 (I955), I38; JMJP, May I6, 1955, 2; M. Mukherjee and A. K. Ghosh, "The Pattern of Income



COMMUNIST CHINA'S NATIONAL PRODUCT I33

TABLE 3.- GROSS NATIONAL PRODUCT ACCOUNT (Millions of New Yuan)


i. Incomes of Farm Households 34,800 i. Household Consumption 42,855 2. Compensation of Employees and 2. Community Services II,50

Self-Employed I5,025 3. Government Administration I,730 3. Rental Incomes I,625 4. Village Government Administration and Services 585 4. Enterprise Earnings 8,220 5. Geological Exploration, Industrial Training, Re-

(a) Private I,420 search, and Other Economic Services goo (b) Public 6,8oo 6. Defense 4,370

5. Indirect Taxes Net of Subsidies 5,960 7. Gross Investment II,500 6. Gross National Income at Market 8. Gross National Expenditure at Market Prices 63,090

Prices 65,635 9. Statistical Discrepancy 2,545

Considerable difficulty was also encountered in estimating inventory accumulation. Essen- tially, the procedure adopted was to estimate net capital investment on the basis of an assumed depreciation allowance of two and a half per cent of GNP,9 and then to derive net inventory accumulation as a residual from the official aggregate net investment estimates. Un- fortunately, the definition of the latter is somewhat obscure. Specifically, it is not clear whether they include only changes in inventories, or also cash balances and bank deposits.

Chinese Communist foreign trade and balance-of-payments data are so scanty and so grossly inconsistent that all attempts to con- struct an international account had to be aban- doned. Only total trade turnover data are given, without any breakdown of imports and exports. Moreover, there are no statistics what- soever on remittances of overseas Chinese, while the available data for capital movements are most implausible. Thus, official budget data

indicate that in I952 China made loans to f or- eign countries of at least Y392 million, while her own proceeds from loans were only YI93 million, or possibly even less.10 On this basis, Communist China would seem to be a net lender. However, it is possible, or even probable, that the YI93 million includes only the officially announced commercial and economic loans from the Soviet Union, while military loans to finance shipments of material for the Korean war may be hidden under "other rev- enues." Faced with this situation, we in effect assumed that both trade and payments were in balance. In reality, Communist China probably had a small deficit both in her trade account and in her balance of payments. Attempts to estimate this deficit would be so hazardous and subject to such a large margin of error, that an assumption of balance may be safer.

Table 4 presents estimated distributive shares by industrial origin. The data in this table do not add up to an independent estimate of gross national product; on the contrary they were used for estimating the non-agricultural wage bill and business earnings. On the other hand, the agricultural wage bill is imputed. In fact, since the completion of land reform, and prior to large-scale collectivization in I955, Chinese agriculture was characterized by small-scale family farming, using very little wage labor. Hence, we assumed that in such a situation agricultural income (in money and in kind) would constitute no more than wage income, ex- cept for an unrequited surplus which in effect constitutes the nationalized land rent collected in the form of a tax in kind.

In sum. this is still a tentative and nrplim-

and Expenditure in the India Union- a tentative study," Bulletin of the Central Statistical Institute, Vol. 33, Part III, 49-68; Government of the Union of Burma, The Na- tional Income of Burma, August I954, Summary Table i-B, 5; United Nations, Department of Economic and Social Affairs, Analyses and Projections of Economic De- velopment I, An Introduction to the Technique of Pro- gramming (Study prepared by ECLA); and Simon Kuznets, National Product Since I869 (New York, I946).

'This is based on several considerations: (a) Chinese Communist sources give capital stock figures for modern industry and a depreciation rate of I.4 per cent for this sector in 1952, (b) these data as well as all of the other discussion in Chinese Communist literature, indicates that the depreciation allowances are quite low; (c) national income data for a number of underdeveloped countries (cf. I956 Economic Survey for Asia and the Far East) indicate depreciation rates ranging from about 3.5 to 5.0 per cent of national income; however, in the light of (a) and (b) one would expect these rates to be lower in China. 10Cf. Tsai Cheng (Finance), No. 8 (I957).




TABLE 4. - WAGE BILL AND GROSS DOMESTIC PRODUCT BY INDUSTRIAL ORIGIN

Wage Bill Value Added In millions of Y In millions of Y In per cent

i. Agriculture, Forestry, and Fishing 27,645 3I,095 52.I

2. Mining and Manufacturing 7,920 II,480 I9.2

(a) Factory I,6io 6joo IO.2 (b) Workshop 930 6 0

(c) Handicraft 5,380 5,380 9.0

i. Farm 3,700 3,700 6.2

ii. Non-Farm i,68o I,6.8o 2.8

3. Construction I,500 2,000 3.4 4. Transport and Communications I,425 2,700 4.5

(a) Modern Transport and Communications 4I0 I,685 2.8

(b) Native Transport 7I0 7I0 I.2

(c) Hauling, Porterage, and Warehousing 305 305 0.5

5. Trade 2,055 4,300 7.2

6. Modern Banking and Insurance 220 300 0.5

7. Dwelling Services .. I,625 2.7

8. Government Services I,675 I,675 2.8

9. Defense I,500 I,500 2.5

I0. Other 2,430 2,995 5.0

Gross Domestic Product at Factor Cost 46,370 59,670 I00.0

SOURCES: Appendix A, B, and E of forthcoming study.

inary estimate of Gross National Product in Communist China. Several of its components are subject to a considerable margin of error. This is particularly true for estimates of investment, private business earnings, expenditure on miscellaneous and housing services, and subsidies." The income side of the account may be considered as more reliable since the area of uncertainty is greater in more of the expenditure items. While further work will undoubtedly lead to refinements and improvements in the statistical reliability of the different components, it is not likely to change radically the orders of magnitude and the structural relationships which emerge from this estimate. How- ever, it is likely to bring out more clearly the methodological limitations inherent in estimating national product in an underdeveloped sovietized economy.

Some Economic Implications

With the accounts laid out and the GNP estimates presented, the question before us now is what do the findings show and what do they mean in economic terms? Specifically, what do they tell us about the structure of Mainland China's economy, the pattern of its resource

use, and the degree of socialization. Compari- sons with the situation in India and in the Soviet Union on the eve of their respective Five Year Plans, with occasional references to the United States, will serve to bring these analytical implications into bolder perspective.

Analysis of economic structure. In comparing the economic structures of Mainland China, India, and the Soviet Union on the eve of their first Five Year Plans it becomes abundantly clear that both China and India exhibit all of the typical features of an underdeveloped area - much more so than the Soviet Union in I928.

If anything, China would appear to be somewhat behind India. This would certainly seem to be the case if we measure the stage of development in terms of the agricultural contribu- tion to national product. While on first sight the difference between China and India may appear slight in this respect, it must be noted that the Indian estimates include local farm proc- essing in agriculture, so that on a comparable basis the Chinese percentage would be about 59 as compared with India's 5I. This is further reinforced by the fact that the farm prices in terms of which agricultural product is weighted may be undervalued in China.

The data in Table 5 indicate that the mining and manufacturing sector as a whole (including non-farm handicrafts and construction) as-

'1 Due to limitations of space, description and analysis of methods used in deriving the estimates for some of the smaller components in our accounts will have to be left to the forthcoming monograph.




TABLE 5. -COMPOSITION OF NATIONAL PRODUCT BY

INDUSTRIAL ORIGIN IN CHINA (I952), INDIA (I950- 51), AND THE SOVIET UNION (I928)

(Per cent)

China India Soviet Union Net National Product

Gross Net Do- At estab- Domestic mestic lished At adjusted

Economic Branch Producta Product a prices b factor cost

Agriculture, Forestry, and Fishing 52.J 5I-3 37-9 4I.6

Mining and Man- ufacturing I9.2

Modern ... 6.5 Large-scale inc. modern IO.2 1 3I.5 27.7

Handicrafts & small-scale 9.0 f 9.6

Construction 34 J J Transport and

Communication 4.5 6.8 7.2

Modern 2.8 2.3

Native I.7 I4-7

Trade 7.2 J 6.9 5.7 Finance and

Insurance 0.5 0.7 I.2 I.3

Dwelling Serv- ices 2.7 4.3

Defense 2.5

Other Govern- 4.5 5.6 .4 ment Services 2.8I

Miscellaneous _

and other 5.0 6.3 J

I00.0 100.0 I00.0 I 00.0

a At factor cost. b At market prices. SOURCES: Table 4; Government of India, National Income Report,

Table 28, io6; and Hoeffding, op. cit., Table 7, 46.

sumed about the same importance in India as in China, i.e., roughly i6 per cent of GNP. On the other hand, given the much more rapid rate of industrial expansion in China, were one to compare the national products of the two countries in I956 or I957 it is probable that the industrial sector in China would emerge as the larger of the two.

Yet, what is particularly striking about the economic structure of both of these countries is how very modest the modern industrial sector really is, even in comparison with the Soviet Union of I928. In contrast, the relative importance of the other sectors in the three economies can be much less clearly understood or categorized in development terms. Modern transport apparently makes a much greater con- tribution to national product in the Soviet Union than in the other countries, thus yielding a pat-

tern that conforms to one's a priori expecta- tions. However, almost the opposite seems to be the case in respect to trade, with this sector looming relatively larger in India than in the Soviet Union or China. Yet, this contradiction is probably more apparent than real, since the bulk of trade in the Soviet Union was already in I928 of a commercial character, while in the case of China and particularly India individual peddlers, small traders, and shopkeepers loom very large. Thus, in the latter case, the comparative importance of trade is a reflection of overcrowding and disguised unemployment. This is not intended to suggest that this phenomenon was altogether absent in the Russia of I928 - on the contrary - but only that it was of much less importance.

The data in Table 4 clearly show that in the case of China the greatest divergence between the wage standard and total product valuation is concentrated in modern industry, transport and communications, and trade. These are the sectors in which the wage bill comprises the smallest share of value added. This phenomenon

TABLE 6. - COMPARATIVE WAGE SHARE OF NET PROD- UCT IN INDUSTRY, TRANSPORT, AND TRADE IN CHINA, THE SOVIET UNION AND THE U.S.

(Per cent)

China a U.S.S.R.d U.S.a Economic Branch 1925 I 92 8 T1937 T1950

Modern Industry Total 4I.6b 48.7 40.5e 70.4 Public sector only 33.8b

Modern Transport and Communications 24.3 62.9 78.4 77.7

Trade Total 47.8 c 26.9 I9.2 65.7 Public sector only I4.4

a Gross product at factor cost. b Includes large-scale mining, factory and workshop industry. c Includes a large number of peddlers and self-employed small

traders. d Net product at market prices. e Includes mining, manufacturing, and construction. f Net product at factor cost. SOURCES: Tables 5 and E-1; Hoeffding, op. cit., Appendix Table A,

142; and Bergson, op. cit., Appendix Table I, 123.

and its possible economic implications may be brought into sharper focus by comparing the wage shares of these economic branches in China, the Soviet Union, and the United States. The differences which emerge are most striking, as illustrated by the data in Table 6. Thus while wages accounted for 70 per cent of industrial product in the United States, the corre-



i36 THE REVIEW OF ECONOMICS AND STATISTICS

sponding proportions in China and Russia were only 40 to 50 per cent. For the public sector of industry in China, for which incidentally the estimates are more reliable than for the private sector, the percentage is even lower. This tend- ency is even more pronounced in the case of trade, if we focus our attention on the state trading sector in China. The wage share in total trade is so much higher only because it includes a very large number of individual, self- employed traders who earn no more than a wage or its equivalent.

Naturally these differences are affected by a certain lack of statistical and conceptual com- parability of the estimates for the three countries. However, given the wide gaps in the wage shares, these are not likely to alter the outcome significantly.

What accounts for these differences? The comparatively small wage share in China and the Soviet Union is but a symptom of a very high rate of profit, profit here being interpreted in a broad sense as including all factor returns other than labor. These high profit margins are a function of monopsonistic and monopolistic pricing policies pursued by state enterprises and state trading agencies. They are really a reflection of the fact that state market power is ap- plied to "buy cheap and sell dear." However, this power can naturally be exercised only in those sectors in which the state plays an important role.

If this high rate of "surplus value" is merely a function of "cheap" purchases of the labor factor -in the sense that wages may be kept significantly below the marginal revenue product of labor - this will have but a redistribu- tive effect without necessarily affecting the interindustry distribution of national product at established prices. However, if monopoly profits reflect "cheap" purchases of inputs from other sectors or "dear" sales to these sectors, then the interindustry distribution will inevitably be distorted, with profit margins in certain economic branches inflated at the expense of the other branches. There is naturally a third and by no means irrelevant possibility that profit margins are inflated by monopoly pricing in final markets, i.e., in sales to households. In reality, regardless of what form this profit inflation assumes, it represents a form of

taxation, a form of involuntary saving. How- ever, the particular form will determine the ex- tent to which this burden of non-consumption is borne by urban labor, by the peasantry, or by the consumers at large.

In this respect the situation in China and the Soviet Union may differ somewhat. There is no question that real wages in Russia have lagged very much behind increases in productivity. From the studies of Janet Chapman and Galenson we certainly know this to have been the case.'2 Unfortunately, we do not as yet have comparable studies for Communist China, but all of the available indications seem to point this way. Yet this factor alone could not account for the high profit margins shown by the data in Table 6. In the Soviet Union these were attained through a combination of "cheap" purchases from agriculture and high rates of turnover taxation reflected in high prices to consumers. Given the hold-the-price-line policy in China, at least as far as the consumer staples are concerned, one must assume that a relatively larger share of the involuntary savings burden represented by profits-cum-indirect- taxes is borne by the peasantry than by consumers at large.

Resource use. A number of analytically sig- nificant conclusions emerge from an examina- tion of the data in Table 7. First of all, as one might perhaps expect, in contrast with India, Chinese and Soviet pre-plan resource use patterns seem to be more or less hewn out of the same mold. Thus the burden of non-consumption seems to be just about the same in China in I952 as in the Soviet Union in I928. Given the fact that by any index of development China seems to be much more backward than Russia on the eve of its first Five Year Plan, this in effect means that this burden weighs much more heavily upon China. At the same time it is possible that our estimates may somewhat over- state the weight of this burden inasmuch as - as indicated above - consumers' goods may have been undervalued in China in I952, particularly for the mass consumption staples. Thus, on a factor cost basis, personal consump-

12 Janet Chapman, "Real Wages in the Soviet Union," this REVI:EW, xxxvi (May I954); Walter Galenson, Laboi Productivity in Soviet and American Industry (New York

I955).



COMMUNIST CHINA'S NATIONAL PRODUCT 137

tion in China might loom larger than shown in Table 7.

TABLE 7. - COMPARATIVE PATTERNS OF RESOURCE USE IN CHINA, INDIA, AND THE SOVIET UNION

(Per cent)

Soviet Union b

I928 1937

At ad- At ad- At justed At justed

China India a estab. factor estab. factor 1952 1950-5I prices cost prices cost

Household consumption 67.9 (88.5) 69.4 66.3 62.9 55.7

Government sumption

Community services i.8 4-9 5.2 9-4 io.6

Gov't administration 2.7

Village gov't 3- admin. r . and services 0.9 2.5 2.7 2.5 3.1

Misc. gov't expenditure I.4

Military outlays 6.9 I.9 2.3 2.5 6.o 7.7 Gross Investment i8.2 9.3 C 20.8 23.2 I9.2 22.9

a Gross national product at market prices. b Gross national product. c In fixed capital only. SOURCES: Table 3; Government of India, Final Report of the Na-

tional Income Committee, Table 34, I ; United Nations, Economic Survey of Asia and the Far East (1956), Special Table 0, 194; Hoeff- ding, op. cit., Table 6, 46 and Appendix E; and Bergson, op. cit., Table 8, 75 and Appendix Table 3, 136-37.

On the other hand, the Indian rate of personal consumption may be overstated since the estimates for that country make no allowances for increases in working capital. As will be brought out below, it is perfectly possible that inventory accumulation may have been unim- portant in I950-5I, in which case the margin of error would be small. However, in any case there is no question that a much larger share of national product went into household consumption in India than in China. This is primarily due to the fact that all elements of government consumption, but particularly military outlays, were significantly smaller in India than in China. Surprisingly, however, the gross rate of investment in fixed capital was apparently not much higher in China than in India. This may be less the case in later years with the Chinese rates of investment in fixed capital probably being raised at a more rapid rate than the In- dian. Yet, until we have carefully worked out national income and investment estimates for both countries for different years we cannot be

sure about this. The contrary impression which generally prevails is due to the fact that practically always what is compared is total investment in China (including fixed and working capital) with investment in fixed capital only in India. On this basis for the last pre-plan years the rates would be on a net basis about 5 to 6 per cent for India as compared with about i 5 per cent for China. These wide discrepancies are a function of quite high levels of investment in working capital and of lower capital consumption allowances in China.

There is another possibility that must be faced, namely that the similarity in the Chinese and Indian fixed capital investment rates is more spurious than real. This, for instance, could be the case if Chinese pricing policies paralleled the Soviet example in all respects. As Bergson's and other studies have shown, in the Soviet Union established market prices tend to undervalue investment goods in relation to consumer goods. However, prior to I953 this seems to have been much less the case in China. While we do not as yet have any systematic price studies at our disposal, available evidence suggests that up to and including I952, producers' goods prices were permitted to fluctuate more freely than consumers' goods prices.13

Unfortunately, there are no working capital or inventory accumulation estimates for India in I950-5I. However, on a priori grounds at least, one would expect this type of investment to be considerably higher in China during this period. In I950-5i and during the early years of the first Five Year Plan, Indian industrial plant was operating well below capacity. On the other hand, even in I952, and particularly toward the latter half of the year, Mainland Chinese plant was being utilized very inten- sively. This was, for instance, evidenced by multi-shift operations over wide ranges of industry. At the same time, much of the new investment in fixed capital went into rehabilita- tion of damaged or dismantled equipment, with most of new plant construction taking place in

" For some of the evidence on price trends see Tien Ch'i, "Several problems concerning the revision of I952 constant prices of industrial products," in T'ung-chi Kung-tso (Statis- tical Work), No. I (I957), I5-I7; or Fan Jo-yi, "Attempt at analysis of commodity production and price under the socialist system," Ching-chi Yen-chiu (Economic Research), No. 3 (I957), 54-67.




later years. Amidst such conditions, the labor- capital ratio - in industry at any rate - must have been higher in China than in India, and corresponding working capital requirements must have been higher too. All of this was further reinforced by the fact that I952 was a bumper harvest year in China, which prompted the government to significantly augment its central reserves and stocks.

In the final analysis, these possible differences in working capital investment in China and India are a function of the different patterns of planning in the two countries. Thus, under ceteris paribus assumptions the more rapid the rates of growth the higher will be the working capital requirements. Beyond this, fixed and working capital are substitutable within certain ranges. On the basis of all of the available evidence, the Chinese planners seem to be much more conscious of this than the Indians. It is for instance strange to find that practically all of the discussions in India of investment and capital requirements are largely confined to fixed capital and that the Indian Five Year Plans make no explicit allowances for working capital needs. In a sense, the high rates of investment in working capital are a function of the Chinese planners' commitment to high rates of growth in the economy as a whole, while they assign highest priority to the expansion of producers' goods industries. This necessarily means that in the initial and early stages of development, when fixed capital resources are very scarce, a large share of these must be channeled to the investment goods industries. As a result, the other industries, and particularly the other economic branches, are compelled to step up the rate of plant utiliza- tion, substituting at the same time liquid assets for fixed assets.

One of the striking features of Table 7 is the high rate of military expenditure in China, not only as compared with India, but even the Soviet Union in I928. In part, this is undoubtedly due to China's involvement in the Korean war; but more fundamentally it is an expression of the much more active and aggressive foreign policy pursued by Communist China even in its early stages of development, as compared to the Soviet Union, which primarily concentrated upon internal reconstruction, transportation,

and development until the Nazi threat in the I930's led to a reorientation.

Actually, investment and military outlays combined seem to have been more or less the same in China and in the Soviet Union in I928.

This means that as the military pressures di- minished with cessation of the Korean hostil- ities, the Chinese could through a process of reallocation raise the rate of investment in fixed capital without necessarily increasing the aggregate non-consumption burden. In reality, the total also was raised in recent years, particularly in I956, to the point that may approxi- mate Soviet investment rates. At the same time, available data point to more rapid increases in fixed than in working capital investment, so that in this respect too the differences between the Chinese and Soviet investment patterns seem to be narrowed more and more.

Socialization of the economy. As was noted earlier, the economy of the Chinese Mainland was in I952 still far from being fully socialized. In a sense, it was a mixed economy in the process of transition from a state in which it was preponderantly private in character to one in which gradually more and more sectors were brought within the purview of nationalization. Therefore in this respect, this economy was in a very similar state to that of the Soviet Union in I928; this is shown by the quantitative indicators in Table 8.

TABLE 8. -STATISTICAL INDICATORS OF THE GOVERN- MENT 'S ROLE IN ECONoMIc ACTIVITY IN CHINA, IN- DIA, AND THE USSR

(Per cent)

China: India: U.S.S.R.: Government share in: 1952 1950-51 1928

Generation of product 22.2a 7.6c National expenditure at

market prices 24.11b 8.2d 24.5

Gross capital formation 67.o 27.8 e 7I.0

a Gross domestic product at factor cost. b Gross domestic expenditure. e Net domestic product at factor cost. d Net national expenditure. e Fixed capital only. f Gross national expenditure. SOURCES: Tables i-3 and Table E-i of forthcoming study; Gov-

ernment of India, National Income Committee Report, Table 3I, IO9; and Hoeffding, op. cit., Tables I and 2.

As of I952, practically all of Chinese agriculture was still based upon private peasant landholding. It was during this year that the land redistribution program was completed,




while state farms and collectives were of negligible importance. Large segments of industry - particularly consumers' goods industries -

and retail trade were still in private hands. On the other hand, virtually all of transport, communications, and banking was nationalized. This was pretty much also the situation in the Soviet Union in I928. As a matter of fact, one of the things that emerges very clearly from this comparative analysis is that in spite of the fact that in terms of stage of development and economic structure China in I952 lagged considerably behind the Soviet Union on the eve of its plan era, the pattern of resource allocation and the degree of socialization closely paralleled Russia's.

On the other hand, one of the more notable features of the comparisons in Table 8 is the very low degree of socialization in India as con- trasted to China. In spite of a commitment to a "socialist pattern of society," the state plays a comparatively modest role in India's economic life. Undoubtedly, were one to examine the figures for the later plan years, they would show some growth in the importance of the public

sector. Yet even for recent years this role is significantly smaller than that played by gov- ernments in most so-called free enterprise economies. Admittedly, this is partly a function of the fact that large segments of the Indian economy are non-monetized. However, as the Chi- nese example amply illustrates, this need not be a barrier to socialization in one form or another. Naturally, this does not mean that the government sector may not be of much greater importance in marginal and dynamic terms than these averages would indicate. But it certainly does signify that the Indian brand of socialism is an unusually mild species of the genus, much milder than the pronouncements of many In- dian leaders would lead one to suspect.

In effect then, while the Indian and Chinese economies exhibit roughly the same structural characteristics, by I952 the outlines of a Sovi- etized path of development were so indelibly imprinted upon Mainland China's economy that in all other respects the contrast between these two underdeveloped areas appears very sharp even at this comparatively early stage.



communist china's national product in 1952

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