COMMUNIST CHINA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A011400020001-4
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• Document Page Count: 45
• Document Creation Date: December 27, 2016
• Document Release Date: August 20, 2013
• Sequence Number: 1
• Publication Date: May 13, 1958
• Content Type: NIE

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2 6 MAY 1958 NIE 13-58
S74(ET 13 May 1958
N?)V 318
(
NATIONAL INTELLIGENCE EST1MA E
NUMBER 13-58
(Supersedes NIE.13-57)
COMMUNIST CHINA
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 13 May 1958. Concurring were The Director of Intelli-
gence and Research, Department of State; the Assistant Chief
of Staff, Intelligence, Department of the Army; the Director
of Naval Intelligence; the Assistant Chief of Staff, Intelli-
gence, USAF; and the Deputy Director for Intelligence, The
Joint Staff. The Atomic Energy Commission Representative
to the IAC and the Assistant Director, Federal Bureau of
Investigation, abstained, the subject being outside of their
jurisdiction.
SE/RET
.?
00CVMFNT NO
NO ci-ttiCIE IN CLASS.
0 OpPLASSIF; ED
CLASS. CHANGED TO: TS S C
NEXT REVIEV/ DATE: /09/.
AUTH: HR 70-2
fjA rE?' REVEWER? C7416
? .1
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TABLE OF CONTENTS
Page
THE PROBLEM
1
CONCLUSIONS
1
DISCUSSION
4
I. INTRODUCTION
4
II. DEVELOPMENTS DURING THE PERIOD OF THE FIRST
FIVE YEAR PLAN
5
A. The Economy
5
B. Reorganization of the Chinese Society
7
C. Problems in Eliciting Popular Support
8
D. The Regime's Ability to Control Mainland China .
10
E. Strengthening Its Military Establishment
11
III. PROBABLE TRENDS WITHIN COMMUNIST CHINA DUR-
ING THE NEXT FIVE YEARS
12
A. The Economy
12
Agricultural Production
12
Industrial Production
13
Foreign Trade
14
B. The Party
15
C. Popular Attitudes
15
D. The Military Establishment
16
IV. COMMUNIST CHINA'S EXTERNAL RELATIONS
17
A. With the Bloc
17
B. Relations with the Non-Communist World
18
ANNEX A: The FIRST FIVE YEAR PLAN
22
Industrial Production
22
Machine and Equipment Building
23
Iron and Steel
23
Non-Ferrous Metals
23
Chemicals
23
Petroleum
23
Coal
23
Light Industry
24
Regional Dispersion of Industry
24
Transportation
24
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Agricultural Production 25
Foreign Trade and Economic Relations 26
Population, Manpower, and Consumption 26
Scientific Development 26
ANNEX B: COMMUNIST CHINA'S MILITARY ESTABLISHMENT 28
A. Ground Forces 28
B. Air Forces 29
C. Navy 30
FIGURES
Following Page
1. Communist China and the USSR ? Estimated Production In-
creases During Their First Five-Year Plans 5
2. Communist China ? Estimate of 1957 Gross National Product
and Production of Principal Commodities Compared with Those
of Selected Countries 5
3. Communist China ? Foreign Trade 1952-1957, and 1962 . 6
4. Communist China ? Gross National Product, By Sector of Origin
1952, 1957, and 1962 22
5. Communist China -- Budget Revenues and Expenditures 1950-
1958 22
TABLES
Page
I. Estimated Production of Selected Commodities 1952, 1957,
1962 14
II. Transportation ? estimated total freight ton kilometers 24
III. Transportation ? percentage breakdown of freight . 25
IV. Ground Forces 29
V. Air Forces 30
VI. Naval Forces 31
MAPS
Communist China ? Railroads
Communist China ? Industry and Mining
Communist China ? Air Defense Districts and Disposition of Combat
Jet Aircraft
Communist China ? Current Military Districts and Disposition of
Ground Forces
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COMMUNIST CHINA
THE PROBLEM
To analyze Chinese Communist domestic developments and external relations
during the period of the First Five Year Plan (1953-1957) , and to estimate prob-
able trends during the next five years.
CONCLUSIONS
1. We believe that the Chinese Commu-
nist ability to exercise firm and effective
control of mainland China will continue.
The leadership of the party continues to
demonstrate cohesion and determination
and, at the same time, a considerable
degree of flexibility. It is supported by a
party membership of about 13 million
and controls a large and efficient military
and public security apparatus. We be-
lieve that the death or incapacitation of
Mao Tse-tung would not endanger the
regime's control of the country, although
it might complicate the achieving of some
objectives and reduce the party's policy
flexibility. (Paras. 43-45, 66-68)
2. The regime apparently has made con-
siderable progress in its efforts to recast
the traditional structure of Chinese so-
ciety in the Communist mold. It has col-
lectivized almost all the peasants and has
virtually eliminated private ownership in
industry and commerce. Although the
Chinese people have viewed with favor
some of the regime's achievements, the
regime's stringent curtailment of con-
sumption and the constant pressures to
conform and to work harder have pro-
voked much dissatisfaction and disillu-
sionment, especially among the peasants.
The party's experiments during the past
two years to gain wider popular support
by admitting problems and encouraging
their discussion?the "letting 100 flowers
bloom and diverse thoughts contend"
program ? has been sharply cut back.
(Paras. 27-42)
3. In its efforts to elicit a more positive
popular response, the regime, because of
its determination to achieve rapid indus-
trialization, will have little to offer in the
way of material inducements. Dissatis-
factions and occasional popular outbursts
will continue, especially among the peas-
antry and certain minority groups, but
we believe the net effect on the regime's
programs will be no more than a com-
plicating or retarding one. Most Chi-
nese, conscious of the regime's power and
seeing no alternative, will probably con-
tinue to acquiesce in Communist rule.
(Paras. 68-70)
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4. The Chinese Communists achieved a
high rate of economic growth during
their First Five Year Plan (1953-57) ,
demonstrating their capability to mar-
shal resources for investment despite the
backward nature of the economy. A vital
factor in their economic program was the
assistance rendered by the USSR in ex-
panded trade, credits, and technical aid.
Starting from a very small base, the aver-
age annual rate of growth of industrial
output was about 16 percent, but indus-
trial output at the end of 1957 was still
small compared to the industrial output
of Japan or the UK. Agricultural out-
put was adequate to meet basic needs,
but its expansion fell far short of that in
other sectors of the economy. (Paras.
17-26)
5. During the next five years, the regime
will have to cope with difficult economic
problems stemming from the forced pace
of industrial development. However, the
basic problem will continue to be the race
between population growth and food pro-
duction. The Chinese population is now
probably about 640 million and increasing
at about 2.0-2.5 percent per year; agri-
cultural output during the next five years
will, at best, probably not exceed the 3
percent per annum increase achieved
during the First Five Year Plan. In the
event of a series of bad crop years and of
widespread lack of cooperation among the
peasants, the regime would face grave
difficulties. However, even in these cir-
cumstances, the regime, because of its
control apparatus, probably could main-
tain itself in power and, at the same time,
maintain industrial growth, although at
a reduced rate. (Paras. 54-57)
6. We believe that Communist China dur-
ing the next five years will probably be
2
able to maintain a rate of economic
growth roughly comparable to that of the
past five years. By 1962 its Gross Nation-
al Product will probably be on the order of
US $65-67 billion, as compared with US
$46 billion in 1957. The contribution of
the industrial sector will probably have
increased to about 26 percent, as com-
pared to about 19 percent in 1957. (Paras.
52, 53, and 59)
7. Communist China's military power in
the Far East will bulk even larger by 1962
than it does at present. The army will
probably be somewhat smaller, but it will
be better equipped and more mobile. The
air force and navy will have increased in
size and effectiveness. The Chinese Com-
munist armament industry, with Soviet
technological assistance, will probably be
able to meet most, if not all, army re-
quirements for small arms, artillery,
transport, and ammunition. Shipbuild-
ing and aircraft production will' probably
have increased considerably. Neverthe-
less, Communist China will still be de-
pendent on the USSR for heavy and com-
plex military equipment and for many
components. (Paras. 71-73)
8. Although Communist China will al-
most certainly not have developed a mis-
sile or nuclear weapons production capa-
bility of its own by 1962, we believe that
the Chinese Communists will press the
USSR for such advanced weapons. By
that time the USSR will probably have
provided it with some varieties of missiles
and other weapons adaptable to nuclear
use, but with non-nuclear warheads. Un-
less barred by an effective international
agreement, the USSR may introduce nu-
clear weapons into Communist China by
1962, although they will almost certainly
remain under Soviet control. In any
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event, even though nuclear warheads
were not deployed in Communist China,
they would be readily available if Sino-
Soviet interests required them. (Para.
74)
9. Communist China will almost certain-
ly remain firmly aligned with the USSR.
Peiping will continue to acknowledge
Moscow as the leader of world Commu-
nism, but as Communist China grows in
strength and stature, it will probably play
an increasingly important role in the
formulation of general Bloc policy. Al-
though there will almost certainly be
some frictions, these are unlikely to im-
pair Sino-Soviet cooperation during the
period of this estimate. (Paras. 75-83)
10. In its efforts to reduce and eliminate
Western influence in Asia, Communist
China will probably proceed primarily by
non-military means. Its foreign policy
will probably display more initiative and
assertiveness, while continuing to em-
phasize coexistence and a readiness to in-
crease economic and political relations
with other states. Without compromis-
ing its stand on basic issues, Communist
China will continue to portray itself as
willing to reach a rapprochement with
the US. At the same time, the Chinese
Communists will almost certainly con-
tinue their subversive efforts throughout
the Far East. They will almost certainly
continue their efforts to undermine the
will of the Nationalists on Taiwan, and to
discredit them internationally. They will
probably not resort to overt military ag-
gression as long as they believe it would
involve them in military action with the
US. Although their attitude towards the
Offshore Islands may become more ag-
gressive, a decision to initiate military
3
action to seize these Islands would prob-
ably be contingent on an estimate that
the US would not intervene militarily.
(Paras. 88-90)
11. Japan will continue to be one of Pei-
ping's most important targets, especially
because there is a growing area of com-
petition between Communist China and
Japan. Peiping will continue to seek to
reduce conservative strength and US in-
fluence in Japan by exploiting Japanese
fears of becoming involved in a nuclear
war, any areas of friction with the US,
and Japan's eagerness to expand trade
with mainland China. In pursuit of
these objectives, Communist China will
continue to employ both conciliatory and
tough tactics. Trade between Commu-
nist China and Japan will probably in-
crease, and Peiping will probably be able
to gain at least quasi-diplomatic status
for a trade mission in Japan. (Paras.
93, 63)
12. Assuming a general continuance of
present Bloc and Western policies, we be-
lieve that intercourse between Commu-
nist China and the Free World will in-
crease considerably during the next five
years. This trend will probably involve
added diplomatic recognition of Peiping
by a number of states, but will occur
whether or not formal diplomatic ties are
established. It will also involve greater
difficulty in excluding Communist China
from the UN. (Paras. 95-96)
13. If Communist China continues its
present international policy, we believe
that its prestige in Asia will continue to
grow during the next five years. This
will occur whether or not additional coun-
tries recognize Communist China, or it is
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admitted to the UN. But it does not
necessarily follow that as a result of in-
creased prestige the Chinese Communists
will be able to induce non-Communist
Asian countries to adopt internal or ex-
ternal policies desired by Communist
China. Communist China's future role
in Asia will be determined to an impor-
tant extent by developments in five fields,
in varying degrees beyond the control of
the Chinese Communists:
a. The course of events in the US-
USSR relationship and in the broad as-
pects of the cold war.
b. Developments within the Bloc such
as spectacular scientific achievements or
major political upheavals.
c. The extent to which local Commu-
nist parties, e.g., those in Indonesia, Laos,
and India, gain or lose political strength.
d. The extent to which the growth of
Communist China's power gives rise to
increased apprehensions among Asian
governments as to Communist China's
future intentions and thus causes them
to take increasingly effective measures
at least to counter their own internal
Communists.
e. The extent to which the US has the
confidence and trust of non-Communist
Asian governments, and in turn helps
these governments not only to resist the
Communists, but also to meet their na-
tional aspirations. (Para. 97)
DISCUSSION
I. INTRODUCTION
14. The Chinese Communist regime during
the period of its First Five Year Plan (1953-
1957) made considerable progress toward its
long-run goal of transforming Communist
China from a backward agricultural country
into an industrialized nation. With assist-
ance from the USSR, the Chinese Communists
have achieved a high rate of increase in their
Gross National Product, and especially in the
output of heavy industry. The imposition of
Communist institutions on society has pro-
ceeded at a rapid rate as a result of the vir-
tual elimination of private enterprise in in-
dustry, commerce, and agriculture. These
domestic achievements and the growing mili-
tary power of Communist China contributed
to its increased impact abroad, both in the
Free World and in the Communist Bloc.
15. At the same time, the forced pace of
change has created internal stresses and
strains which are substantial and widespread.
These stresses and strains have been produced
by the rigidities and repressions which are
essential features of Communist methods and
programs and which hinder the development
of general popular support for the regime.
They were inevitable in view of the regime's
efforts quickly to mold the Chinese into a
disciplined Communist society. Tensions have
also developed out of the intervention, at all
levels of society and in all activities, of party
workers who have the power to command, but
who in most cases have inadequate training
and experience in their duties of supervising
the specific educational, social, or economic
organization. Moreover, the regime's efforts
to restrict consumption in order to increase
investment have been felt particularly by the
peasants, whose incentive to produce has been
reduced. Nevertheless, as far as we can see,
these tensions are not critical in the sense of
threatening the position of the Communist
leaders or of being likely to hamper produc-
tion to the extent of seriously limiting the
further growth of the Chinese Communist
economy.
16. The Chinese Communists, after going
through a period of pessimism engendered by
the economic problems which came to a head
in 1956, now appear confident that they can
maintain a rapid rate of economic expansion
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during the next five years. This confidence
is tempered by the extent of popular criticism
of the regime as revealed by the recent but
short-lived experiment in relaxing controls on
public discussion, by the evidence that there
was a growing separation between the party
and the people, and by the widespread peas-
ant dissatisfaction when collectivization failed
to bring increased income. The regime's con-
fidence is also tempered by a more realistic
appreciation of the magnitude of its basic
problems, particularly that of agriculture.
II. DEVELOPMENTS DURING THE PERIOD OF
THE FIRST FIVE YEAR PLAN
A. The Economy"
17. The Chinese Communists, during the
period of their First Five Year Plan, achieved
a high rate of economic growth which com-
pares favorably with that of the Soviet Union
in its First Five Year Plan (1928-1932). (See
Figure 1.) This progress was achieved despite
relatively crude and rudimentary planning,
resulting from such factors as the limited
technical personnel, the lack of reliable and
comprehensive statistics, the backward state
of the economy, and the rapid imposition of
social change. Although the regime has made
a pretense of proceeding according to an over-
all five year plan, it has actually operated
from year to year on annual plans which have
generally been aimed at correcting the ex-
cesses and defects of the previous year. Nev-
ertheless, the regime demonstrated its capa-
bility to control the economy sufficiently to
limit consumption and to marshal resources
See Appendix A for a more detailed discussion
of the First Five Year Plan.
2 Chinese Communist statistics upon which the
data and analyses throughout this estimate are
based are subject to the same reservations as
those of other Bloc countries, but to a somewhat
greater extent, in view of the inexperience on
the part of the newly established Chinese Com-
munist statistical collection system. This inex-
perience probably accounts for the majority of
such statistical defects as have been noted. Chi-
nese Communist statistics are the basis for the
regime's planning and we believe are not, in
general, misrepresented.
See maps for Communist China's railroad sys-
tem and major industrial and mining centers.
5
for investment, despite the backward nature
of the economy and the necessity of obtaining
the funds for investment largely from the
agricultural sector, the output of which fluc-
tuated widely from year to year.
18. Starting from a small base, the average
annual rate of growth of industrial output
during the period was high, probably about 16
percent. This growth was uneven, exceeding
30 percent in 1953 and 1956, but dropping
sharply in 1955 and 1957. During the five
year period, production of such basic items as
steel more than tripled; while the output of
coal, electric power, and cement more than
doubled. Despite this considerable progress,
the Chinese Communist industrial output at
the end of 1957 was still small compared to
that of Japan or the UK. (See Figure 2.)
19. The increased industrial output was to an
important degree obtained from the recon-
struction, expansion, and more intensive utili-
zation of existing plant, although a consid-
erable investment was made in new plant,
much of which will come into production in
1958-1962. The regime has directed about 56
percent of total investment into the industrial
sector and has favored heavy over light in-
dustry by about eight to one. Industry be-
came more diversified with the addition of
new plant, and by the end of the period pro-
duction facilities for trucks, sea-going ships,
aircraft, and more complicated machine tools
were put into operation, although the Chi-
nese Communists are still dependent on for-
eign sources for many components.
20. The growth of industrial output was re-
tarded by uneven development among various
parts of the industrial sector, which resulted
in serious imbalances. The most important
of these was the failure of the output of raw
materials to keep in phase with the expansion
of manufacturing capacity, especially in the
machine and equipment building industries.
In some cases, however, the deficiencies of raw
materials arose from the difficulties in devel-
oping natural resources; for example, the re-
gime has been unable to develop sufficient
sources of crude oil and copper, accessible to
existing rail lines, to meet requirements. The
output of light industry, dependent largely on
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COMMUNIST CHINA AND THE USSR
ESTIMATED PRODUCTION INCREASES DURING THEIR FIRST FIVE-YEAR PLANS
Figure 1
ELECTRIC POWER
(Billion kwh)
19.0
262%
Increase
13.5
270%
11,_ELej
7.3
5.0
1952 957 928 1932
COMMUNIST
CHINA
USSR
CRUDE OIL
(Million metric tons)
318%
Increase
1.4
0.44
1952 1957
COMMUNIST
CHINA
186%
Increase
11.5
21.4
928 1932
USSR
COAL
(Million metric tons)
122.4
193%
Increase
F11_81%
Increase
i5T5-
64.4
952 957
COMMUNIST
CHINA
928 1932
USSR
STEEL
(Million metric tons)
5.9
952 1957
COMMUNIST
CHINA
1928
1932
USSR
CEMENT
(Million metric tons)
234%
Increase
2.9
6.7
184%
Increase
3.5
1.9
1952 1957
COMMUNIST
CHINA
1928 1932
USSR
26762 4-58
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COMMUNIST CHINA
ESTIMATE OF 1957 GROSS NATIONAL PRODUCT
AND PRODUCTION OF PRINCIPAL COMMODITIES
COMPARED WITH THOSE OF SELECTED COUNTRIES
GNP
(Billion 1955 US dollars)
200
150
100
407
65.8'
50 111
0
56
24.6 24.8
El
167
4.1?1,Nt Qt
?4.
Ok'
t,
?73?.- ?
4.? Differs horn figure presented in patograph 6 whfah was
convettecl front noon or the official exchange rote.
%40
CRUDE STEEL
(Million metric tons)
60
40
20
102.3
51
22.1
12.58
5.24 1 75rL
04r 4`,41.
GNP
(Us dollars)
1200
800
400
2,376.9
1,088.2
104.3 67.7
0
272.8
49.
O It
o t,
26763 5-58
COAL
(Million metric tons)
300
200
463 468.8
227.
122.4
100
44.2 PL!
4' e & 4
-cf4.
Figure 2
ELECTRIC POWER
(Billion lovly)
210
753.5
CRUDE
(Million
100
50
OIL
metric tons)
98.
353.
200
150
100
50
0
+
O
? ?
104.
77.71
19'0310.87
1.44
0.46 0.32
0.19
44*
4.4
1/4 p
I., N
0
IS
1;r1 v.
4L-
4'
04
PER CAPITA
FOOD GRAINS
(Kilograms)
100
80
60
40
20
17.6
489.5
252
--1111--778--198-155 .5-
4; v. 4:?' +
.*
4.14
t-
4,*
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COTTON CLOTH
(Linear meters)
60
40
20
4-
0
44 .4. 4.
49.
51.
_
9.5
27.4
7.9
12.4
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agricultural raw materials, has not been suffi-
cient fully to utilize present plant capacity.
21. Technical assistance from the Bloc has
been of paramount importance to Communist
China's industrialization. The major indus-
trial projects, accounting for about 40 percent
of total industrial investment, were designed,
supervised, and placed in initial operation by
Soviet technicians. In addition, Bloc, largely
Soviet, advisors and technicians have worked
with virtually every ministry in the govern-
ment and with many individual enterprises.
Technicians have provided on-the-job train-
ing for Chinese workers and some 7,000 Chi-
nese have been sent to the USSR for training.
Soviet bloc technical data have been used on a
large scale.
22. The growth of agricultural output was
adequate to meet basic needs, but its expan-
sion fell far short of that in other sectors of
the economy. Serious natural calamities in
1954 and 1956 and bumper crops in 1955
caused wide fluctuations in output during the
five year period. Moreover, production was
adversely affected by the disruption and con-
fusion which accompanied the rapid collec-
tivization of agriculture in 1955 and 1956.
Agricultural growth was also hampered as a
direct result of the regime's decision to mini-
mize state investment in this sector and to
depend on its ability to squeeze the bulk of
agricultural investment funds directly from
the earnings of the collectives. The large
flood control and irrigation projects, under-
taken by the state, were not sufficiently ad-
vanced to increase materially the acreage un-
der irrigation, even though the amount spent
exceeded the plan by 50 percent. Further-
more, State investment in the chemical in-
dustry was inadequate to increase substan-
tially the availability of chemical fertilizer.
The increases in grain and cotton production
that were achieved were largely the result of
direct investment by the collectives in small
irrigation projects which permitted an expan-
sion of double-cropping.
23. Economic progress during the First Five
Year Plan, to an important extent, was de-
pendent on the importation of vital ma-
chinery, equipment, and industrial raw mate-
rials. Bloc countries were Communist China's
6
major trading partners, accounting for nearly
78 percent of total trade. There was some in-
crease in trade with non-Communist coun-
tries, but this increase was limited to some ex-
tent by Western trade controls. The Chinese
Communists were able to maintain an import
surplus over the period 1953-1957 as a whole.
This was made possible by Soviet credits,
largely of a military nature, which accounted
for about 13 percent of total imports, and, to
a lesser extent, by remittances from Overseas
Chinese. However, during the period, balance
of payments pressures increased. Despite a
doubling of exports, imports rose by only one-
third, and the trade balance shifted from an
import to an export surplus. This shift re-
sulted from the exhaustion of foreign credits,
mounting foreign debt service, reduced Over-
seas Chinese remittances, reduced Soviet ex-
penditures in China after the force with-
drawal of 1955, and the Chinese Communist
foreign aid program. (See Figure 3.)
24. Despite this slim margin on which they
have been operating, the Chinese Communists
made a series of offers or grants of economic
aid. The largest portion of Chinese Commu-
nist foreign aid has gone to other Communist
countries: grants in goods and services of
$325 million each to North Korea and North
Vietnam, $40 million to Outer Mongolia, and
$7.5 million to Hungary; and a loan of $25
million to Hungary. In addition, to non-
Communist countries, Communist China
has extended grants totalling $55 million, and
has extended in late 1957 and early 1958 loans
totalling an additional $32 million.4 Of the
total of about $810 million in grants and
loans, Bloc and non-Bloc, about $630 million
had actually been expended by the end of
1957.5
Grants (in millions of US$): Cambodia, 22.4;
Nepal, 12.6; Egypt, 4.7; Ceylon, 15.75. Loans ex-
tended (in millions of US$): Indonesia, 11.2;
Burma, 4.2; Yemen, 16.3.
5 The loans and grants to Bloc countries were in
yuan currency to North Korea and North Viet-
nam and in rubles to Hungary. Yuan data have
been converted into US dollar equivalents at the
rate of 2.46 yuan per US $1 and rubles at 4 per
US $1. The use of the yuan-dollar exchange
rate may overstate considerably the value of aid
to North Korea and North Vietnam.
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COMMUNIST CHINA
FOREIGN TRADE
1952-1957, AND 1962
TOTAL FOREIGN TRADE
(MILLIONS OF YUAN)
TOTAL TRADE
TOTAL IMPORTS...
IMPORTS ON LOANS
6490
IMPORTS
8112
EXPORTS
8487
6063
11024
5297
4961 /
1? 117
4
5180
10865
5568
4950
23
4927
10350
5400
Figure 3
15440
1952
1953
1954
DIRECTION OF FOREIGN TRADE
(MILLIONS OF YUAN)
USSR
FREE WORLD
EUROPEAN
AND
ASIAN SATELLITES
3869
1399
11222
1585
4681
1846
1944
11536
1955
5007
1956
1957
5834
(1962)
Estimated
1952
26764..5-58 _
1953 1954
1955
1956
1957
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25. The total increase in GNP during the past
five years has probably been great enough to
register an average annual growth in per
capita output of five to six percent, even
though the population expanded at an aver-
age annual rate of about two percent. About
45 percent of the increase in output appar-
ently was channeled into investment or gov-
ernment purchases of goods and services.
While the remainder was absorbed by an in-
crease in personal consumption, probably
more than three-fifths of this increase went
to the non-agricultural population, which
comprised less than one-fifth of the popula-
tion. As a result, per capita consumption of
the peasant population was probably improved
little, if any.
26. The fact that population growth has
nearly kept pace with the increase in agricul-
tural output has become a matter of deep
concern to the regime. During the past five
years, the number of mouths to feed has prob-
ably increased by some 65 million and now
totals about 640 million. As a result of im-
proved sanitation, hygiene and public health
measures, better distribution of food, and the
maintenance of peace within the country, the
rate of increase of the population has prob-
ably risen somewhat over the period of the last
five years, averaging about 2.2 percent. With
an average annual increase in agricultural
output during the past five years of about
three percent, the margin of safety is very
thin. In an effort to deal with this problem
the regime is developing programs which it
hopes will, in time, reduce the birth rate.
B. Reorganization of the Chinese
Society
27. The regime apparently made considerable
progress in its efforts to recast the traditional
structure of Chinese society in the Commu-
nist mold. These efforts sprang from both
Communist doctrine and from the pragmatic
need to establish a high degree of organiza-
tion and control in order that a rela-
tively small group ? the Chinese Communist
Party ? could dominate the vast Chinese
population.
7
28. Before 1953, the power of the landlords
and well-to-do peasants which had been domi-
nant in rural areas was virtually eliminated.
Subordination of youth to their elders was
weakened by placing the former in positions
of responsibility. Women were given equal
status in society. Through centralized con-
trol of all media of communications and a
cadre network, the Communists weakened the
clan and regional loyalties which still existed
among many Chinese. The regime sought to
convince all Chinese that the welfare of the
individual and of the family must be subordi-
nated to the general good of the nation as a
whole.
29. Since 1953, the regime has intensified its
efforts to reorganize traditional Chinese so-
ciety. By persuasion, pressure, and, in some
instances, terror, the Communists increased
their efforts to impose the Communist way of
life on the intellectuals and the middle class.
The most radical changes in the old ways of
life during the past five years, however, re-
sulted from the regime's programs to socialize
all forms of economic activity. The success
of these programs was surprising because of
the rapidity with which the millions of peas-
ants were shuffled into collective groupings
and business enterprises were brought under
government control. Moreover, there were
relatively few outward manifestations of re-
sistance, at least initially.
30. By the end of 1956, socialization had vir-
tually eliminated all private control of indus-
trial and commercial enterprises. The regime
continued to utilize many former owners as
managers and technicians, paying them liqui-
dation dividends which may be continued for
a few more years. It has also introduced
measures designed to increase party control
of management and labor.
31. By the end of 1957, the Chinese Commu-
nists claimed that 93 percent of peasant
households were in collective farms, and that
an additional four percent were in coopera-
tives. The remaining small fraction, except
in Tibet and certain other. exempted areas,
had been placed under the guidance of the
nearest collective.
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32. Although the organizational phase of col-
lectivization was quickly accomplished, the
Communists have not realized the major bene-
fits which they had anticipated. Despite an
increase in the output of major food crops,
the government's 1956 collection declined, in
part because many peasants discovered that
even in collectives they could circumvent gov-
ernment controls, especially when the local
cadres sided with the peasants. Agricultural
output was also adversely affected by the dis-
locations which accompanied the actual or-
ganization of the collectives, and by the dif-
ficulties which were encountered in establish-
ing effective management of the larger agri-
cultural units.
33. The Communists also had to cope with
peasant disillusionment which became in-
creasingly apparent in 1957. Many peasants
were unhappy because their incomes had not
increased as promised, or because they had not
been adequately remunerated for their con-
tribution of land and implements. In addi-
tion to evading government efforts to procure
grain, substantial numbers of peasants with-
drew from collective farms, although most of
them were forced to return. The higher
urban incomes continued to attract large
numbers of peasants into cities where unem-
ployment was already a critical problem.
Strong measures have been taken to force
these dissatisfied peasants to return home,
but the problem still exists.
C. Problems in Eliciting Popular
Support
34. The regime's progress in changing the
form of Chinese society apparently was not
matched in the realm of popular attitudes.
The Chinese population as a whole appears to
have ambivalent feelings toward the regime.
The regime has had considerable success in
its efforts to foster a sense of common identity
in the population at large, in part because of
the groundwork of nationalist sentiment
which had been stimulated by Sun Yat-sen
and the Kuomintang, and in part because of
its own achievements. There has probably
been a favorable response to specific programs
such as public health and education which
improve the lot of the individual, or road
building, irrigation, and flood control which
are visible community improvements. There
has probably also been a favorable, but less
general, response to developments which boost
national pride such as the production of
planes and trucks, bridging the Yangtze, and
the increased world prestige of Communist
China.
35. But in most Chinese these effects have in
varying degrees almost certainly been offset
by negative reactions to other aspects of the
regime. The intellectuals have been resentful
of the pressures to conform and the restric-
tions on discussion. The urban workers have
disliked the constant orders to produce more
goods faster, the compulsory attendance at
innumerable indoctrination meetings in their
free time, and the shortages of consumer
goods. The peasants have been dissatisfied
with the failure of their personal incomes to
rise in proportion to their increased output,
and with the regimentation of the collective
system. In general, the regime- has made lit-
tle progress in gaining popular acceptance of
the Communist dogma or in substituting, as
an incentive, the prospect of a future mil-
lenium in place of more food and clothing
for the present generation. Moreover, the in-
tensification and centralization of control
have probably caused previously diffused dis-
content to be directed against the regime.
But regardless of dissatisfaction or resent-
ment, the Chinese are aware of the power of
the regime and see no alternative; their re-
sponse to the regime is, for the most part,
one of acquiescence.
36. To elicit greater popular support for the
regime and to improve the effectiveness of the
party organization, the regime undertook a
venturesome experiment in the spring of 1957.
It admitted the existence of problems, re-
laxed restrictions on public discussion, and in-
vited criticism of the operations of the party
and its programs. Although some elements
within the party were apparently opposed to
relaxing controls, Mao and other leaders
seemed to see many advantages. Public criti-
cism, in their view, might provide a safety
valve, give the people a greater sense of par-
ticipation in party affairs, and create the im-
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pression that the regime was modifying its
authoritarian procedures. They apparently
feared that the party had become separated
from the people, a weakness they believed had
been a principal cause of the outbursts in
Hungary and Poland. Moreover, public criti-
cism, they thought, would reveal to the lead-
ers the weaknesses in the operations of the
party and provide the basis for corrective
measures. They must also have estimated
that rule by the Chinese Communist regime
had been generally accepted and that criti-
cisms would be directed at the implementa-
tion of policy rather than at the basic char-
acter of the regime itself.
37. This program grew out of a largely un-
successful effort in early 1956 to create a more
positive response to its programs by a relaxa-
tion of domestic tensions and by promising an
improvement in the harsh conditions of life.
However, the promises and incentives directed
initially to the intellectuals, and later ex-
tended to the peasants and workers, failed to
evoke a significant response, and in the spring
of 1957 Mao broadened the scope of the lib-
eralization policy. As part of the 1956 meas-
ures, intellectuals had been encouraged to de-
bate differences on non-political subjects; Mao
now encouraged the population in general to
participate in the greater freedom to discuss
and extended the subjects of discussion to the
operation of the party and its programs. At
the same time he formalized his policy in a
doctrinal statement which recognized that
even in a Communist state there were contra-
dictions in outlook between the leaders and
the people, and within and between various
groups. But these contradictions, he insisted,
were largely non-antagonistic because of the
disappearance of exploitation of one class by
another, and, therefore, could be resolved by
discussion and persuasion, rather than by
force.
38. The extent and intensity of the criticism
appears to have surprised the regime. It
found that neither the Communist system,
the party's monopoly of leadership, nor the
Soviet orientation had been as fully accepted
in China as it had apparently believed, espe-
cially among the very intellectuals it had
courted. The regime's critics were numerous
and came from many select groups, including
even the party. Their criticisms almost cer-
tainly reflected the views of a body of opinion
much larger than the regime has admitted.
39. In June 1957 the regime reacted by ab-
ruptly cutting off criticism, and Mao's con-
tradictions formula was rewritten to point
out clearly the categories of Communist
truth which were above criticism. The re-
gime subsequently conducted an intensive
campaign against its critics and has dismissed
accused "rightists" from their positions. It
has apparently not felt it necessary to imple-
ment its sometimes explicit threat of punish-
ing its critics on harsh "counter-revolu-
tionary" grounds, however, and the erring
ones have been told that they will be given a
chance to redeem themselves. To counteract
the criticism, the regime also launched a
massive campaign designed to convince the
people of the superiority of the Communist
system.
40. Nevertheless, the regime did not disre-
gard all criticism, and has taken steps to im-
prove the operation of the party and its rela-
tions with the people generally. The regime
has urged a continuation of public discussion,
although, as might be expected, the response
has been guarded and concerned largely with
details of administration and production.
The party also continued the "rectification"
program which had been launched as part of
Mao's original program and which seeks by
persuasion and education to create conform-
ity, tighten discipline, correct errors, and re-
invigorate the party.
41. One major source of difficulty within the
party was that it had apparently grown too
fast for proper indoctrination of members.
Total party membership is at present about
13 million. About two-thirds of its members
had been recruited since 1949 and about two
million since June 1956. As a result there
were many who were free-riders, dead-wood,
or "not steeled through labor." Traditional
localist sentiments also still existed in the
party, as exemplified by the many rural
cadres who supported the grievances of the
peasants rather than enforced edicts of the
regime or who resented party personnel of
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non-local origin. Moreover, the exercise of
authority and the enjoyment of special privi-
leges led to a deterioration of the party's rela-
tions with the people.
42. Although the main emphasis of rectifica-
tion has been upon reeducating members, a
number of party officials and deputies to the
National People's Congress have been dis-
missed from the party for "rightist" activi-
ties, and further dismissals of cadres for in-
competency or unreliability are probable.
There has also been a wholesale transfer of
party and government cadres to lower levels,
particularly to rural areas where large num-
bers were assigned to agricultural collectives.
This program seems to have had a number of
objectives: strengthening of the party net-
work in the crucial agricultural field; re-
trenchment of non-productive personnel in
party, government, and industrial organs; re-
duction of bureaucratic tendencies in these
organs; inculcating members with an appre-
ciation of manual labor; and punishment of
errant members. It probably was also in-
tended to meet criticisms of the material priv-
ileges enjoyed by party members. There are
indications that many of those transferred re-
sented the shifts.
D. The Regime's Ability to Control
Mainland China
43. We believe that the regime has the ability
to exercise firm control of mainland China.
Despite the fact that problems and weak-
nesses within the party have been revealed
by the rectification program, the party re-
tains its basic elements of strength: a ruth-
less and resourceful leadership, a large mem-
bership organized to act as an instrument of
control and policy implementation, and an in-
tention and ability to enforce a high degree of
discipline and conformity. The party organi-
zation continues to be backed up by large and
well-disciplined police, militia, and security
organizations, supplemented by a network of
informers and local "resident's committees"
which provide surveillance over individual
family groups. Party control is reinforced by
mass organizations which mobilize various so-
cial and occupational groups in the popula-
10
tion behind Communist programs and which
serve as channels for propaganda and indoc-
trination. The authority of the party is fur-
ther enhanced by its control of all media of
communication and of the distribution of the
bulk of food supplies in urban areas, and by
its success in corralling most peasants into
collectives.
44. Behind this control mechanism stand the
large Chinese Communist military forces
which are effectively under the control of the
party. During the revolution the party and
the army were, to a large extent, an integral
unit. Military personnel and veterans con-
tinue to make up a large part of the party.
The regime claims that about 75 percent of
the rank and file of the armed forces are
members of the Chinese Communist Party or
of the Young Communist League, and all re-
ceive intense political indoctrination. Be-
cause of the close identity of the party and
army in the past, many senior party members
have a military background; thus the 1956
enlargement of the Politburo and the Central
Committee brought a significant number of
such persons into the top levels of party lead-
ership. However, there is no indication that
they form a military bloc within the party
leadership, or that a military group with po-
litical ambitions has emerged within the
armed forces. The party appears to be fully
aware of the importance of maintaining con-
trol over the military and the military appears
to accept the dominant role of the party. At
the time Marshal Zhukov was ousted from his
positions in the Soviet Union, Chinese Com-
munist military spokesmen publicly stated
their support of a strong party role in the
armed forces.
45. The regime has been able to deal effec-
tively with sporadic outbursts of resistance
which have for the most part been localized
and poorly organized. Probably in part to
demonstrate its power, the regime has carried
out two nationwide drives against "counter-
revolutionaries." The security forces have
also dealt with several student riots and dem-
onstrations against the regime, and with
some civil disturbances growing out of peas-
ant resentment against collectives. There
have been indications of continuing discon-
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tent in minority areas, recently including de-
mands for genuine autonomy, but large-scale
armed uprisings have been reported only in
Tibet. Strong anti-Chinese sentiment in
Tibet culminated in an outburst in 1956 and
induced the regime to announce that the in-
troduction of social "reforms" into Tibet
would be postponed for six years. Despite
this concession, sporadic incidents continue
in Tibet.
E. Strengthening Its Military Establish-
ment 6'7
46. The capabilities of the armed forces to
fulfill their internal and external functions
have increased significantly during the past
several years. The Korean War gave great
impetus to the development and moderniza-
tion of Communist China's armed forces and
stimulated large-scale Soviet aid. Since the
war, the trend has continued toward further
modernization and a more balanced military
establishment.
47. Since 1954, ground force personnel and
infantry division strength have remained at
an estimated 2'/2 million men and 114 divi-
sions respectively. However, overall capabili-
ties have been increased by continued mod-
ernization. Anti-aircraft and anti-tank bat-
talions are now included in most' of the in-
fantry divisions, and a tank-assault gun regi-
ment has been added to at least 28 of the in-
fantry divisions. In 1955 the regime inaugu-
rated a new military conscription and reserve
program which is now providing an army
composed in the main of selected conscripts.
The army's effectiveness in modern warfare,
as a result of current training programs, has
been considerably increased. In addition, the
reserves will include, on a continuing basis,
about two million men who will have under-
gone active military service within the pre-
vious three years.
48. Since 1954, Communist China's combined
air arm has increased from 65,200 to 87,000
o See Annex B for more complete discussion.
See maps for the disposition of ground forces
and combat jet aircraft, and for the location of
naval bases.
11
officers and men while total aircraft in opera-
tional units have increased from 1,580 to
2,880. A more significant indicator of prog-
ress toward modernization is the increase
from 850 to 2,280 jet aircraft, of which 1,835
are fighters and 445 are light bombers. Com-
munist China has also developed an extensive
radar detection system which covers the en-
tire coast and major inland industrial centers.
This system has fair to good detection capa-
bility except for aircraft at low altitudes. Its
high altitude GCI capability has not been ex-
panded to include all areas.
49. The navy has gradually increased its over-
all strength to 55,000 and its general service
personnel strength to 48,000 officers and men.
This growth was accompanied by a substan-
tial increase in offensive and defensive capa-
bilities. Its major surface units include four
destroyers, 16 submarines, four escort vessels,
54 amphibious ships and 31 mine warfare ves-
sels, as well as a Naval Air Arm including 435
combat aircraft.
50. Although still dependent to a large degree
upon the Soviet Union for heavy and complex
equipment, aircraft, and many component
and spare parts, Communist China has made
progress in its effort to achieve military self-
sufficiency. It now produces small arms, mor-
tars through 160-mm, and artillery through
122-mm howitzers. In addition, Communist
China now has a number of airframe and air-
craft parts plants, including an aircraft as-
sembly plant at Mukden capable of series
assembly of jet fighter aircraft. Mukden's
monthly assembly capacity will probably
reach 100 jet fighters by 1963. Communist
China has a rapidly growing shipbuilding in-
dustry now assembling submarines and pro-
ducing hulls for escort vessels, submarine
chasers, mine warfare vessels, and motor tor-
pedo boats. However, practically all arma-
ment for these vessels and a substantial part
of components, equipment, and machinery is
obtained from the Bloc. The Chinese Com-
munists continue to be handicapped by a
shortage of technological skills in both the
armed forces and the armaments industry.
We believe that the country has no guided
missiles or nuclear weapons and, at present,
lacks the capability to produce them.
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51. The high cost of maintaining such a
large military establishment and of develop-
ing a munitions industry has been a heavy
drain on Communist China's economy. The
Chinese Communists have reduced the pro-
portion of expenditures budgeted as military
from 26 percent in 1953 to 18 percent in 1957.
However, this has not involved a significant
decline in the absolute amount spent, and
there has probably been an increase in invest-
ment in plants for producing military equip-
ment.
III. PROBABLE TRENDS WITHIN COMMUNIST
CHINA DURING THE NEXT FIVE YEARS
52. We believe that during the next five years
the Chinese Communists will continue to be
able to exercise effective control of mainland
China and will gain some success in further
imposing Communist social institutions and
patterns on the Chinese people. The regime
will probably be able to maintain a rate of
economic growth roughly comparable to that
of the last five years, but this will necessitate
continued stringent control of consumption,
particularly in view of the increasing popula-
tion. Its efforts to gain increased popular
support will be severely limited by its determi-
nation to maintain the pace of economic de-
velopment and social change. There will con-
tinue to be a widespread but fluctuating feel-
ing of dissatisfaction and discontent among
the Chinese people which, while hampering
somewhat the regime's programs, will prob-
ably not be translated into effective resistance.
A. The Economy
53. Although the Second Five Year Plan is
still in process of formulation, the general
outlines of this plan as announced in Septem-
ber 1956 appear to be the basis of the re-
gime's planning. These indications are suffi-
ciently clear to enable us to estimate that
total output will probably increase by 7-8 per-
cent annually during the period of the Second
Five Year Plan, or about as rapidly as in the
First Five Year Plan. The increments to pro-
duction will probably cost more in terms of
investment required, since gains from more
intensive utilization of existing plants will be
far less. However, investment during the
Second Five Year Plan will probably continue
to increase relative to total output. The em-
phasis will continue to be on industrial devel-
opment, and by 1962 the industrial sector
will probably contribute nearly 26 percent of
total gross product as against 18 percent in
1957 and 13 percent in 1952.
54. Agricultural Production. In their ap-
proach to the Second Five Year Plan, the Chi-
nese Communists have been forced to give
greater priority to the expansion of agricul-
tural production in order to provide for the
minimum consumption needs of its growing
population, agricultural raw materials, espe-
cially cotton, for its expanding industry, and
exports with which to repay loans and to
finance the import of vital capital equipment.
This greater priority for agriculture will in-
volve some reorientation of industrial devel-
opment, with a greater share of investment
allotted to those heavy industries which pro-
vide fertilizers, agricultural chemicals, irriga-
tion equipment, and implements for agricul-
ture. For example, investment in the chem-
ical fertilizer industry will probably rise from
one percent of total state investment in the
First Five Year Plan to about three percent
in the second plan period.
55. The Chinese Communists have announced
that, in 1958, 14 percent of the state's capital
investment will be in agriculture, suggesting
that such investment for the entire Second
Five Year Plan may be as much as four times
the amount allocated for this purpose during
the First Five Year Plan when it amounted to
only 7.8 percent of a smaller total investment.
The state's investment in agriculture is used
primarily on large-scale water conservation
projects. However, direct investment by the
collectives in irrigation and drainage facili-
ties, fertilizers, farm tools and machinery,
livestock, and other production requisites will
continue to provide the major source of funds
for agricultural development. Such invest-
ment, and the related technological improve-
ments, are considered by the regime to be the
most effective way of immediately increasing
agricultural production.
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56. In September 1956 the regime set 1962
agricultural goals at 250 million tons of grain
and 2.4 million tons of cotton, but in 1957,
recognizing that these goals were far too am-
bitious, it lowered the targets to 240 million
tons of grain and 2.15 million tons of cotton,
while increasing substantially the proposed
agricultural development effort. However, we
believe that these goals are still too optimistic,
in view of the limited amount of fertilizers
that will be available and the modest pro-
posed increases in both irrigated areas and
sown area obtained through reclamation and
multiple cropping. Between 1957 and 1962
grain production will probably only rise from
185 million tons to 215 million tons and cotton
from 1.64 million tons to 2 million tons. About
one-fourth of these production increases are
expected to result from increased application
of chemical fertilizer.
57. The above estimates imply a rate of in-
crease of agricultural production of about
three percent annually. This increase would
provide a small margin over the probable an-
nual increase of population of 2.0-2.5 percent.
However, a number of contingencies could re-
move this margin. A major imponderable is
the willingness of the peasants to maintain
their efforts to produce under collectivization.
Weather and its effect on crops are also un-
predictable. Finally, we cannot completely
discount the possibility that the present rate
of population growth might increase. Under
the worst combination of these contingen-
cies for the Chinese Communists ? a series
of bad crop years, peasant apathy, and
a rising rate of population growth ? the
regime would face grave difficulties. How-
ever, with its internal security system and
its control of food distribution the regime
could almost certainly maintain itself in
power. Furthermore, other stopgap measures
open to Peiping would include loans or aid
from the Soviet Bloc, and a reduction in ex-
ports and some increase in imports of agricul-
tural products. At the same time, the regime
would have sufficient production capacity in
heavy industry and construction to enable it
to maintain industrial growth, though at a
reduced rate.
58. Ensuring a food supply for its enormous
and growing population will be Communist
China's number one economic problem for the
indefinite future. Arable land is relatively
limited, and by far the major share of the
land area is too high, dry, or hilly to be culti-
vated. At present about 11 percent of the
land is under cultivation. Marginal lands
could be brought under cultivation and double
cropping extended through heavy investment
and modern techniques which would increase
the sown area by possibly half. With a gen-
erous water supply and a long growing season
in the most important farm areas, yields can
be raised through improvements in flood con-
trol, irrigation, pest control, crop types, and
fertilization. In the long run and with more
investment, we believe the Chinese Commu-
nists can probably double agricultural output.
However, present population growth, if unal-
tered, would double the population in 28 to 35
years, making difficult any improvement in
living standards even if all agricultural po-
tentials were realized.
59. Industrial Production. No finalized Sec-
ond Five Year Plan has been prepared, but
the preliminary proposals put before the
Eighth Congress of the Chinese Communist
Party in September, 1956, provided for an in-
crease in gross value of industrial production
of about 86 percent during the Second Plan,
compared to a rise of about 115 percent
achieved during the First Plan. Heavy in-
dustry will continue to receive priority. Al-
though there is evidence of considerable
change in the individual industral goals, the
attainment of the overall industrial goal, as
proposed, appears likely in view of the pros-
pective level of industrial investment. (See
Table 1.)
60. An increasing proportion of heavy indus-
trial investment will be in new industrial areas
in northern Manchuria and in north-central
and northwest China, based upon the location
of raw materials and upon strategic consider-
ations. Increased production during the Sec-
ond Plan will rely greatly on completion of
new capacity, much of which was started dur-
ing the First Plan. In contrast with the First
Five Year Plan, in which emphasis was on
large scale plants, significant proportions of
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TABLE I
ESTIMATED PRODUCTION OF SELECTED COMMODITIES 1952, 1957, 1962 *
14
Esti-
1962
mated
% in-
% in-
crease
Pre-
Esti-
crease
1957
liminary
mated
1962
Commodity
Measure
1952
1957
over '52
Goal
Prod.
over '57
Industry
Electric power
Bil kwh
7
19
161
44
44
131
Crude steel
TMT
1,349
5,235
288
12,000
12,000
129
Coal
MMT
64
122
93
190-210
190-210
55-72
Trucks
Units
0
7,000
**NA.
32,000
357
Merchant vessels
TGRT
7
21
200
N.A.
120
471
Cement
MMT
3
7
72
12.5
12.5
87
Turbines
T kw
7
240
3,482
N.A.
1,289
437
Electric generators
T kw
30
284
847
1,400-1,500
1,400
393
Crude oil (Nat. & Syn.)
TMT
436
1,443
231
5,000-6,000
3,500
143
Copper (refined)
TMT
8
14
70
N.A.
50
257
Chem. Fertilizer
TMT
194
803
314
5,000-7,000
6,000
647
Cotton cloth (factory)
Mil. mtrs
3,017
4,000
33
8,000-9,000
6,354
59
Agricultural
Total grains
MMT
168
185
10
240
215
16
Cotton (ginned)
TMT
1,305
1,640
26
2,150
2,000
22
Cattle (incl. buffalo)
Mil. head
57
74
30
90
90
22
Hogs
Mil. head
89
114
28
220
160
40
*Footnote 2 on page 5 applies also to this table.
**Not available.
the increased output of iron, steel, and coal
will come from newly constructed or renovated
small and medium size units. To the extent
that this program is implemented, it will pro-
vide more employment, conserve scarce capi-
tal, and require less machinery imports.
61. The variety of products made by Chinese
industry will continue to increase rapidly, but
there will continue to be shortages, especially
in chemical fertilizers and crude oil. During
the Second Five Year Plan, the machine
building industry will probably be able to sup-
ply at least 70 percent of machinery require-
ments, compared to about 60 percent in the
First Five Year Plan. In addition to the pri-
ority development of the chemical fertilizer
and machinery industries, it is expected that
increased attention will be given to merchant
shipbuilding, copper, and crude oil. Even if
the regime achieves its crude oil targets, how-
ever, in 1962 it will still be heavily dependent
on imports to meet its rapidly increasing re-
quirements.
62. Shortages of trained technicians and sci-
entists will continue to exist. In an effort to
solve this problem, the regime plans to have
one third of the 500,000 students, who will
graduate from colleges and universities dur-
ing the next five years, go into teaching in all
fields. Of those who will not go into teaching,
one half will be engineers, a third will be in
medicine, science, agriculture, or forestry,
and about a sixth in law, the social sciences,
and other fields. During this period the re-
gime also plans to double its present enroll-
ment in primary and middle schools. Even
if these goals are met by 1962, however, the
regime will still be far short of the highly
trained personnel needed in the scientific and
technical fields.
63. Foreign Trade. Total exports in the Sec-
ond Five Year Plan are estimated at 32.0 bil-
lion yuan, and imports at 29.2 billion yuan.
This compares with 23.3 and 25.2 billion yuan,
respectively, during the First Five Year Plan.
We believe that the bulk of Communist
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China's trade will continue to be with the
other Bloc countries, especially the Soviet
Union. However, the proportion of total trade
with the non-Communist world will probably
increase in the Second Five Year Plan, ex-
panding from about 22 percent to possibly 30
percent of total trade. We believe that the
most important elements of this increase will
be an expansion of Communist China's ex-
ports of iron ore and coal to Japan and con-
sumers goods to South and Southeast Asia,
and imports of fertilizers, industrial equip-
ment, and steel from Japan and capital goods
from Western Europe. Communist China will
probably increase the use of its growing mer-
chant marine in international trade.
64. The maintenance of the present level of
multilateral trade controls will complicate
Chinese Communist economic and military
development by creating import problems, in-
creasing costs, and reducing flexibility. Fur-
thermore, present unilateral US financial con-
trols will deny Communist China an impor-
tant export market, as well as reduce dollar
remittances.
65. The Chinese Communists apparently are
going ahead with their Second Five Year Plan
with no provision for new long term credits
from the USSR. Communist China will have
to finance through exports the imports re-
quired for industrialization, as well as to re-
pay Soviet credits advanced during the First
Five Year Plan and to finance their own aid
program ? both of which total an estimated
3.0 billion yuan. With their present capabili-
ties, the Chinese Communists can probably
carry out their planned industrial develop-
ment without further Soviet credits. How-
ever, in the event of serious economic diffi-
culties, the Chinese might seek and obtain
some assistance on credit from the USSR.
B. The Party
66. The party will probably continue to face
difficulties in maintaining vigor, flexibility,
and internal discipline. The strains created
by recent massive shifts of cadres to lower
levels and the difficulty of absorbing the high
post-1949 membership will continue. Difficul-
ties that will inevitably arise in formulating
15
the regime's program will almost certainly
create policy differences at various party
levels. Although these problems may force
the party occasionally to resort to repressive
measures, in the main the regime will prob-
ably be able, through periodic rectification
programs, to resolve intra-party conflicts by
discussion, persuasion, and administrative
disciplinary procedures. Moreover, we believe
that the party will retain a significant degree
of flexibility in its policies.
67. These problems would be aggravated by
the death or incapacitation of Mao. Should a
succession question arise in the next five years,
party authority would probably initially pass
to a group, with Liu Shao-chi, Chou En-lai,
Teng Hsiao-ping, and Ch'en Yun as its most
likely members, and with Chu Teh as titular
head of state. Policy disagreements and
power rivalries would probably sharpen in the
absence of Mao. The temptation to occupy
his position would be great, and could lead
to a struggle for dominance within the party.
We believe that such a struggle would com-
plicate the achieving of certain of the regime's
objectives and reduce its policy flexibility, but
would not threaten the regime's ability to
control the country.
C. Popular Attitudes
68. We see little prospect that popular discon-
tent can or will be translated into organized
and active resistance in the near future. Un-
rest will probably continue at about its pres-
ent level, and sporadic cases of isolated, small-
scale active resistance will probably occur,
particularly in rural and ethnic minority
areas. Reactions to the increasing pressures
of austerity and industrialization may, at
times, cause the regime to clamp down, but
the Chinese Communist leadership, while cap-
italizing on the people's recognition of the
regime's willingness to utilize severely repres-
sive measures if necessary, will probably avoid
widespread or systematic use of terroristic
methods. There will continue to be much
dissatisfaction, but we believe the net effect
on the regime's programs will be no more
than a complicating or retarding one. Al-
though the regime will continue to seek
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greater positive support, it will have limited
success because of its determination to carry
out its economic and social programs. The
response of the bulk of the Chinese people to
the regime will probably remain one of acqui-
escence.
69. The regime will continue to have prob-
lems with intellectuals. The outspoken criti-
cisms which came from the universities in the
spring of 1957 showed the regime that its
efforts at indoctrination failed to force many
students and professors into accepting the
Communist way. The problems of winning
the student generation will be made more dif-
ficult by the shortage of facilities for higher
education, the limited urban employment op-
portunities for graduates, and the need to
sharpen disciplinary measures and political
controls over students. Furthermore, the re-
gime will probably continue to force great
numbers of middle school graduates to accept
long-term agricultural assignments in the
countryside.
70. The peasants will almost certainly con-
tinue to give the regime trouble. The regime
recognizes that a major problem during the
Second Five Year Period will be to improve
the management of the collective farms and
to obtain from the peasants a greater accept-
ance of the collective system. The regime
will probably be able to keep the peasants in
line by enforcement of tighter controls, and,
in good crop years, by allowing some increases
in consumption.
D. The Military Establishment
71. Communist China's military capability
will almost certainly continue to improve over
the next five years. Although the army will
probably be reduced in size, it will be equipped
with newer and better weapons, and will be
more mobile and better trained than at pres-
ent. The air force and navy will increase in
size and effectiveness. Although the armed
forces will be somewhat better balanced, the
concept of a large ground army will still pre-
vail. The Chinese Communists will probably
maintain a large standing army which, in
addition to its offensive and defensive mis-
sions, will provide the basic force for con-
trolling mainland China and will continue to
have an intimidating effect in Asia.
72. By 1962 the combined air forces will prob-
ably have about 3,600 aircraft, an increase of
more than 700. The Chinese Communists
probably will have completed converting their
fighters and light bombers to jets, and may by
that time have some jet medium bombers.
The navy will probably continue its rapid
development, with principal emphasis on im-
proved defense capability within home waters.
There will probably be a significant increase
in submarine strength, and the probable re-
placement of overage ships will increase the
navy's operating effectiveness.
73. The armaments industry will increase in
size and efficiency, but during the period of
this estimate, Communist China will continue
to be heavily dependent upon the Soviet Union
for many kinds of heavy and complex military
equipment and for technological assistance.
During 1958-1962 it will probably be able to
meet armed force needs for small arms and
for nearly all artillery, transport, and ammu-
nition, but will still be unable to meet the
needs for armored fighting vehicles and more
complex fire control systems. The shipbuild-
ing industry will also continue its rapid ex-
pansion. Domestic aircraft production will
probably increase considerably, but Commu-
nist China will continue to be dependent on
the USSR for many components.
74. Although Communist China will almost
certainly not have developed a missile or nu-
clear weapons production capability of its own
by 1962 because of the continuing shortage of
technicians and the demands of other mili-
tary and economic programs upon its limited
resources, we believe that the Chinese Com-
munists will press the USSR for such advanced
weapons. It is probable that during the next
five years the USSR will provide the Chinese
Communists with some varieties of missiles
and other weapons adaptable to nuclear use,
but with conventional warheads. The Chi-
nese Communist and Soviet views on the in-
troduction of nuclear warheads 8 into Com-
munist China are less certain. Unless barred
by an effective international agreement, the
Including bombs.
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USSR may introduce nuclear weapons into
Communist China by 1962, although they will
almost certainly remain under Soviet control.
In any event, even though nuclear warheads
were not deployed in Communist China, they
would be readily available if Sino-Soviet in-
terests required them.
IV. COMMUNIST CHINA'S EXTERNAL
RELATIONS
A. With the Bloc
75. Communist China's close relations with
the USSR are based on mutual objectives, re-
liance on Soviet military power and economic
support, a common ideology, and a conviction
that Bloc unity is essential in the face of a
common enemy. In the Chinese Communist
view, unity is crucial to the expulsion of West-
ern, particularly US, influence from Asia and
Africa, and to the ultimate achievement of
economic and military superiority over the
West. The Chinese Communists appear to
accept the Soviet Union as the head of the
Bloc because of its experience and leadership
in the doctrinal, economic and technological
fields, and because of its military power. They
have supported Soviet policy on all interna-
tional questions. Communist China has in
turn sought and gained Bloc acceptance as
the second major Communist power and,
probably, as a participant with the Soviet
Union in the formulation of general Bloc
policy.
76. The Chinese Communists insist that the
strength and unity of the Bloc against the
West must be maintained and that the essen-
tial Communist character of each Bloc state
be preserved. To the extent that it will con-
tribute to, or is compatible with, these over-
riding considerations, the Chinese Commu-
nists favor flexibility in intra-Bloc relations,
desiring particularly that the Chinese party
have a wide area of doctrinal and policy ini-
tiative. Although there have been differences
in the emphasis which the Chinese Commu-
nists have placed on various aspects of intra-
Bloc relations over the past two years, their
basic concept of intra-Bloc relations has re-
mained: the USSR is the head of the socialist
camp and the member states should at all
17
times place the interests of unity among the
Socialist countries above everything else; but
the USSR should, in turn, refrain from ex-
cessive intervention in the internal affairs of
each Communist state. These views of unity
and diversity were substantially reflected in
the Moscow 40th Anniversary communique,
probably of joint Sino-Soviet authorship.
77. Close Sino-Soviet alignment does not ap-
pear to have been affected by the cessation of
Soviet credits, although the Chinese Commu-
nists may have hoped for new credits or for
more lenient repayment terms on past credits.
Whatever the nature of the Peiping-Moscow
discussions on this subject, the Chinese Com-
munists appear to have accommodated them-
selves to the situation, and in 1957 they al-
tered their planning for the Second Five Year
Plan to take account of reduced estimates of
import availabilities. The Soviet Union is
still extending technical assistance and has
concluded a long-term agreement which is
believed to provide for an increased level of
Sino-Soviet trade, including the bulk of the
essential import needs of Communist China's
industrial development program. Moreover,
the Chinese Communists probably believe that
the USSR remains a source of aid in the
event of a serious crisis.
78. Sino-Soviet relations as they concern
guidance to the Asian Communist parties ap-
pear to have been governed by a mutually
acceptable division of responsibilities and a
willingness to cooperate. Despite occasional
differences of nuance in the statements of
Asian Communist parties, we have little evi-
dence of any Sino-Soviet disagreement on the
character of Communist activities in Asia.
Communist leaders of North Korea and North
Vietnam, as well as those in non-Communist
Asian countries, visit both Moscow and Pei-
ping for consultation. The policy line, as
given in newspapers and radio broadcasts of
both countries, varies little if any.
79. With respect to the border areas, the
USSR and Communist China apparently have
overcome, or at least suppressed, their his-
torical conflict of interests, and in Sinkiang
and Outer Mongolia are cooperating in de-
velopment programs. The Soviet Union is
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building the portion of the trans-Sinkiang
rail line from the Soviet line in Kazakhistan
to Wusu in Sinkiang Province, and the Chi-
nese Communists have accepted Soviet tech-
nicians in the area to assist in its develop-
ment. The USSR, by constructing the trans-
Mongolian railroad to China, has facilitated
increased Chinese Communist cultural and
economic relations with Outer Mongolia.
80. During the five year period of the esti-
mate, it does not appear likely that there will
be any appreciable change either in the firm-
ness of the Sino-Soviet relationship or in
China's status and role therein. Though
there will almost certainly be frictions, Com-
munist China and the USSR will probably be
able to work out satisfactory solutions to prob-
lems arising out of China's status in the Bloc,
its economic relations with the USSR, and the
division of Communist responsibilities in Asia.
Nevertheless, because of Communist China's
growing stature and strength, it is possible
that problems may arise which would be diffi-
cult to resolve.
81. A source of disagreement may be Commu-
nist China's possible desire to exert greater
influence on general Bloc policy, both internal
and external. Because of the immense value
of the Sino-Soviet alliance to both partners,
Soviet and Chinese Communist leaders al-
most certainly will consider that they must
meet certain of each other's requests, be care-
ful not to offend each other's sensibilities, and
defer, at times, to the other partner. Al-
though the Soviet leaders will almost certainly
be apprehensive lest a strengthened China
seriously challenge the USSR for Communist
primacy at some distant date, there is no evi-
dence that this is affecting present policy.
External policy disagreements, if any, would
be more likely to occur with respect to areas
where the interests of one party might be con-
siderably greater, such as the Taiwan straits,
or where they differed as to the risks involved
in undertaking a specific action.
82. With respect to high level Soviet negotia-
tions with the West, the Chinese Communists
probably feel that it would be inadvisable at
present to press for the introduction of topics
which are of primary interest to Communist
18
China and which would require its presence,
e.g., entrance into the UN and the acquisition
of Taiwan. It is possible, however, that dif-
ferences between Peiping and Moscow may
arise in the future with respect to the sub-
stance or the mechanics of negotiations with
the West.
83. Sino-Soviet cohesion would probably not
be significantly affected by a Soviet-Western
detente, or by Communist China's entry into
the UN or recognition by the US. Communist
China would probably welcome a Soviet-West-
ern detente because its leaders would believe
that this would increase Communist oppor-
tunities in Asia. They would probably also
welcome a limitation of armaments agree-
ment which convinced them that they could
safely reduce their expenditures for arms, al-
though they would probably take the position
that they would not be bound to any agree-
ment in which they did not formally partici-
pate as the representative of China. The
USSR would almost certainly welcome Com-
munist China's representation in the UN and
its recognition by the US, although the So-
viet leaders might have some misgivings that
these developments might reduce somewhat
Peiping's political dependence on the USSR.
B. Relations with the Non-Communist
World
84. Communist China's leaders appear to
view the present world position of the Sino-
Soviet Bloc with considerable confidence.
They seem convinced that the world balance
of power has shifted to the Bloc and that the
"East Wind" is prevailing over the West. Chi-
nese Communist optimism is based on a view
of history that assumes that Communism will
ultimately triumph and on specific develop-
ments such as recent Soviet weapons ad-
vances, Communist gains in the Near East
and Africa, and the rapid economic growth of
the Bloc. While the Chinese Communists
probably do not consider that the West has
suffered any decisive defeat in the Far East
since the French were forced out of Indochina,
they appear confident that the trend in Asia
'See NIE 13-2-57, "Communist China's Role in
non-Communist Asia," dated 3 December 1957.
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is running against the West. Peiping almost
certainly considers the growth of Communist
political strength and influence in Indonesia
and of neutralism and anti-American feeling
in some Asian countries as indications of this
trend.
85. In a period of less than a decade, Peiping's
leaders have seen their country become the
strongest Asian power and achieve substantial
progress in making its impact felt in Asia
and the world. They are cognizant of grow-
ing pressure in the Free World for expanded
economic and political relations with Pei-
ping. Communist China is not handicapped
by Asian racial antagonisms against the white
man and it can claim common experience with
the former colonial areas. The Chinese Com-
munists almost certainly believe their eco-
nomic progress can be used in their efforts
to convince the underdeveloped Asian coun-
tries that Communism is the best way for-
ward.
86. The Chinese Communists have given no
indications of undue impatience in the pursuit
of their objectives in Asia. They appear aware
of the many problems of internal develop-
ment facing Communist China, the continu-
ing need to adjust and reconcile intra-Bloc
relations, and the suspicions of Communist
China which exist in much of Asia. Most
importantly, they almost certainly consider
the presence of US influence and military
forces in Asia to be the major obstacle in their
path. They almost certainly estimate that
any attempt to speed up the process of com-
munizing Asia by military aggression would
involve serious risk of war with the US, but
at the same time probably believe that over
the long run the US will not be able effec-
tively to counter the forces which they con-
sider to be working to the advantage of Com-
munist China.
87. Given these views, Communist China ap-
pears to be directing its energies toward the
intermediate objective of weakening the posi-
tion and influence of the US in Asia. To this
end it is seeking to induce Asian countries
to adopt a policy of friendship toward the
Bloc, to strengthen, and if possible bring to
power, indigenous Communist movements
19
without the use of external force, and to un-
dermine the will of the Nationalists on Tai-
wan to resist. Since Indochina, the prin-
cipal thrust of Communist China's policy has
been reasonableness and peaceful coexistence,
though it has been adamant on certain basic
issues, particularly Taiwan.
88. We believe that Communist China will
continue essentially the outlines of its present
flexible course in Asia, though displaying
more assertiveness and a heightened readiness
to take advantage of opportune situations.
It will probably intensify its efforts to con-
vince other nations of its peacefulness and
reasonableness, and even of its willingness
for a rapprochement with the US, believing
that an apparent readiness to make conces-
sions will add significantly to Free World
pressures to accept Communist China as a
member of the community of nations and to
bring about a change in US policy.
89. Communist China will continue to seek
admission to the UN and the expansion of
economic and political relations with most
states. It will probably make additional of-
fers of economic assistance to other Asian
countries. At the same time, it will continue
its subversive efforts throughout the Far East.
In its propaganda overtures, it will attempt
to create an exaggerated impression of its eco-
nomic growth, and, while stressing its peace-
ful intentions, will do nothing to dim its grow-
ing reputation in Asia as a military power.
In relations with Asian states its military
power will be an operating but silent factor.
It will probably not resort to overt military
aggression which it believes would involve it
in military action with the US.
90. Peiping is probably concerned that, as an
unwanted by-product of peaceful coexistence,
there is a growing acceptance of a "two-
Chinas" concept. The Chinese Communists
will continue their efforts to disabuse the
world, and especially other Asian leaders, of
any idea that Communist China will renounce
its intention to gain control of Taiwan. They
will almost certainly not resort to military
action to seize Taiwan, so long as this would
involve risk of war with the US. They will
almost certainly continue their present efforts
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to undermine Nationalist will and to discredit
the Republic of China abroad. The possibil-
ity cannot be excluded that the Chinese Com-
munists will adopt a more aggressive policy
toward the Offshore Islands, in part because
of intense irritation and a sense of affront,
in part to emphasize their determination to
destroy the Nationalist government, and in
part to test US intentions in the Taiwan area.
If they should become convinced that the US
would not intervene militarily, they would
seek to capture these islands by military ac-
tion.
91. The Chinese Communists will probably
complete the announced withdrawal of their
forces from Korea in order to bring pressure
on the US to do the same, to enhance Commu-
nist China's chances for UN entry, and to
support Moscow's efforts to create Free World
pressures for summit negotiations and dis-
engagement schemes. However, Peiping will
almost certainly maintain its military forces
in a position to reintervene rapidly in case of
a resumption of hostilities. The Chinese Com-
munists, in concert with the Soviet Union,
will probably encourage the North Korean re-
gime to build covert strength in South Korea
and to press for the reestablishment of cul-
tural and economic contacts across the armi-
stice line. The Chinese Communists will
probably publicly support North Korean pres-
sure for nationwide elections under "neutral"
supervision, but will continue to oppose direct
UN supervision. The Chinese Communists
will almost certainly not agree to unification
on terms which they estimate would lead to
an anti-Communist Korea.
92. Peiping's objectives in Vietnam will simi-
larly be to strengthen the Communist regime
in the north while attempting to undermine
the government in the south. Peiping will
continue to support Communist agitation for
nation-wide elections under conditions that
would favor the Communists. The Chinese
Communists may believe that should South
Vietnam be deprived of President Diem's
leadership, the Communists might gain suffi-
cient strength to seize control from within.
93. Japan will continue to be one of Peiping's
most important targets, especially because
20
there is a growing area of competition between
Communist China and Japan. Chinese
Communist policies will be directed toward
reducing the degree of cooperation between
Japan and the US, particularly in the mili-
tary field, toward undermining the Japanese
government's anti-Communist position, to-
ward destroying the friendly relations between
Japan and the GRC, and toward increas-
ing the influence in Japan of left-wing ele-
ments, e.g., left-wing Socialists, and the Japa-
nese Communist Party. Peiping will continue
to exploit Japan's desire for peace, its fears
of becoming involved in a nuclear war, any
areas of friction with the US, and Japan's
eagerness to expand trade with mainland
China. Peiping will probably be able to gain
at least quasi-diplomatic status for a Chinese
Communist trade mission. In pursuit of these
objectives, Communist China will continue to
employ both conciliatory and tough tactics.
94. Although the majority of the Overseas
Chinese will probably continue to seek to
avoid entanglement in the political activities
of both Communist and Nationalist China,
Peiping will nevertheless continue its efforts
to use the Overseas Chinese as instruments
for both overt and covert activities. At the
same time, these communities will continue to
be a source of friction between Peiping and the
host governments. The nature and effective-
ness of Chinese Communist policy towards
Overseas Chinese will continue to vary from
country to country, but there are indications
that Peiping will increase its efforts to allay
Southeast Asian suspicions by emphasizing
in its propaganda the responsibilities of the
Overseas Chinese to the host country.
95. Assuming no significant change in the
basic policies of the Bloc or of the West, in
particular the US, we believe that intercourse
between Communist China and the Free
World will increase considerably during the
next five years. This will come about for a
number of reasons, including a growing belief
that normal relations with Communist China
should be established, a hope that such rela-
tions would reduce tensions in Asia, and a
desire to exploit what many see as a major
trading potential. For these reasons, addi-
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tional countries will probably recognize Com-
munist China, possibly including Canada,
New Zealand, Belgium, France, and Japan.
96. It is probable that the US will experience
more difficulty in seeking to exclude Commu-
nist China from the UN. Moreover, the effect
of the UN's censure in generating opposition
to Communist China will probably decrease
with the passage of time and with the with-
drawal of Chinese Communist troops from
Korea. Should Communist China gain a seat
in the UN, it would be taken, in Asia espe-
cially, as a mark of international acceptance
of Communist China, and many of the coun-
tries not already recognizing Peiping would
probably do so. Particularly in Asia, com-
mercial and other forms of intercourse with
Communist China would almost certainly in-
crease substantially. Communist China's op-
portunities in Asian countries for subversion,
for influencing the Overseas Chinese, and for
giving covert support to indigenous Commu-
nist parties would increase.
97. If Communist China continues its present
international policy, we believe that its pres-
tige in Asia will continue to grow during the
next five years. This will occur whether or
not additional countries recognize Commu-
nist China, or it is admitted to the UN. But
it does not necessarily follow that as a result
21
of increased prestige the Chinese Communists
will be able to induce non-Communist Asian
countries to adopt internal or external policies
desired by Communist China. Communist
China's future role in Asia will be determined
to an important extent by developments in
five fields, in varying degrees beyond the con-
trol of the Chinese Communists:
a. The course of events in the US-USSR re-
lationship and in the broad aspects of the cold
war.
b. Developments within the Bloc such as
spectacular scientific achievements or major
political upheavals.
c. The extent to which local Communist
parties, e.g., those in Indonesia, Laos, and
India, gain or lose political strength.
d. The extent to which the growth of Com-
munist China's power gives rise to increased
apprehensions among Asian governments as
to Communist China's future intentions and
thus causes them to take increasingly effec-
tive measures at least to counter their own
internal Communists.
e. The extent to which the US has the confi-
dence and trust of non-Communist Asian gov-
ernments, and in turn helps these govern-
ments not only to resist the Communists, but
also to meet their national aspirations.
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ANNEX Al
THE FIRST FIVE YEAR PLAN
Al. Tlie Chinese Communists made substan-
tial economic progress during their First Five
Year Plan 1953-1957. Gross National Product
increased at an average annual rate of about
7-8 percent,2 which compared favorably with
recent rates of a little over three percent in
India, eight percent in Japan, and seven per-
cent in the Soviet Union. While the average
rate of growth was fairly rapid, increases from
year to year were uneven, in large part because
agricultural output, which provides about 50
percent of total national income and the raw
materials that determine the output of light
industry, depends upon uncertain weather
conditions. (See Figure 4 for Gross National
Product, by sector of origin.)
A2. To achieve this rate of growth, total in-
vestment averaged 17 percent of the GNP for
the five year period, a proportion roughly com-
parable to that in the US. Investment in
capital construction accounted for about 58
percent of gross investment during the five
year period; of total investment in capital con-
struction 56 percent went into industry, 19
percent into transportation and communica-
tions, and only about 8 percent into agricul-
ture. Nevertheless, over 50 percent of total
investment funds were derived directly or in-
directly from agricultural output.
A3. Communist China's budget revenues rose
sharply up to 1954 as the regime consolidated
1Chinese Communist statistics upon which the
data and analyses throughout this estimate are
based are subject to the same reservations as
those of other Bloc countries, but to a somewhat
greater extent, in view of the inexperience on
the part of the newly established Chinese Com-
munist statistical collection system. This inex-
perience probably accounts for the majority of
such statistical defects as have been noted. Chi-
nese Communist statistics are the basis for the
regime's planning and we believe are not, in
general, misrepresented.
its controls over the economy, but have since
risen more gradually and, as a proportion of
the GNP, actually declined slightly from 29 to
27 percent between 1954 and 1957. The re-
gime's fiscal policies have been to maximize
revenues and to tailor its expenditures to its
expected receipts. The regime's flexible con-
trol over expenditures has generally main-
tained budgetary balance and economic sta-
bility, except in 1956 when the government
resorted to currency issue to cover a budget
deficit. However, a surplus in state revenues
was reestablished in 1957, largely as a result
of a cutback in investment. (See Figure 5
for state revenues and expenditures.)
Industrial Production
A4. During the First Five Year Plan, Com-
munist China, with substantial Soviet assist-
ance, made considerable progress in laying
the foundations for industrialization. Start-
ing from a small base, the gross value of in-
dustrial output increased about 133 percent,
with heavy industry increasing more than
200 percent and light industry some 85 per-
cent. Although the average annual rate of
growth of industrial output during the period
was high (16.5 percent) , it was uneven, being
reduced to 7 percent in 1957, which was a year
of consolidation and rebuilding of inventories
after the overambitious construction activity
of 1956.
However, in international comparisons, account
should be taken of Communist China's price
structure, which in terms of world prices over-
values industrial manufactures ? the fastest
growing sector ? and thus overstates the rate
of growth. If Communist China's industrial
manufactures were re-valued at world market
prices, the rate of growth would drop to 6-7
percent.
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GROSS NATIONAL PRODUCT, BY SECTOR OF ORIGIN
1952, 1957, and 1962
(1956 Constant factor prices)
2%
3%
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0000000000 (.0009
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