TRENDS IN PLANNED ECONOMIC DEVELOPMENT IN COMMUNIST CHINA 1952-62

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A000800060002-4
• Release Decision: RIPPUB
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• Document Page Count: 163
• Document Creation Date: December 23, 2016
• Document Release Date: July 8, 2013
• Sequence Number: 2
• Publication Date: June 28, 1957
• Content Type: REPORT

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OLLICL I
ECONOMIC INTELLIGENCE REPORT
N? 72
TRENDS IN PLANNED ECONOMIC DEVELOPMENT
IN COMMUNIST CHINA
1952 - 62
CIA/RR 91
28 June 1957
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
?
SECRET
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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ECONOMIC INTELLIGENCE REPORT
TRENDS IN PLANNED ECONOMIC DEVELOPMENT IN COMMUNIST CHINA
1952-62
CIA/RR 91 ?
(ORB Project 15.1674)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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CONTENTS
Summary and Conclusions
I. Introduction
Page
1
9
II.
Significant Developments in Economic Planning
and Administration
11
A.
Changes in Scope and Direction of Economic Planning
11
B.
Extension of Economic Controls
13
1. Organizational Structure
13
2. Economic Control Organization
16
3. Socialization of Agriculture, Industry,
and Commerce
19
C.
Budget System
32
1. General
32
2. Revenue
33
3. Expenditures
37
It. Projected Budgets, 1957-62'
41
D.
Capital Construction Under the First and
Second Five Year Plans (1953-62)
45
1. First Five Year Plan
45
2. Second Five Year Plan
48
III.
Population and Labor Force
61
A.
Population Trends
61
B.
labor Force
62
1. Workers and Employees
62
2. Quality of the Labor Force
67
3. Wages
69
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IV. Trends in the Economy
A. Agriculture
B. Industry
Page
75
75
82
1.
Engineering Industries ,
87
2.
Armaments Industry
92
3.
Electric Power
92
4.
Petroleum
94
5.
Coal
96
6.
Ferrous Metals
97
7.
Nonferrous Metals
100
8.
Chemicals
101
9.
Cement
102
10.
Light Industry
104
C.
Transport and Telecommunications
105
1.
Railroads
105
2.
Motor Vehicle Transport
112
3.
Inland Waterways
113
4.
Coastal Shipping and International
Seaborne Commerce
115
5.
Air
117
6.
TeleCommunications
118
D.
Domestic Trade
118
E.
Gross National Product
125
1.
Size of Gross National Product, 1955
125
2.
Trends in Gross National Product, 1950-57
125
3.
Trends in Gross National Product, 1958-62
128
4.
Trends in Sector Composition of Gross
National Product
130
5.
Trends in Distribution of Gross National
Product, by End Use
135
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V. Foreign Trade and Aid Programs
A. Direction and Composition
B. Trade with the Free World and Economic Acitivities
in Underdeveloped Areas
C. Future Trends
Page
143.
iti
146
149 50X1
Tables
1. Communist China: Development of Agricultural
Producer Cooperatives and Collectives,
December 1955-June 1956
23
2. Communist China: Ownership of Industrial Output
27
(Excluding Handicrafts), 1952-56
3. Communist China: Participation in All Retail Trade,
31
1954-56
4. Communist China: Participation of Bona Fide
Commercial Enterprises in Retail Trade, 1954-56
5.
Communist China:
Budget Revenue, 1955-56
6.
Communist China:
Budget Expenditures, 1955-56
7.
Communist China:
Projected Budget Expenditures,
31
34
38
1957, 1960, and 1962 1 42
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Page
8. Communist China: Projected Budget Revenue,
1957, 1960, and 1962 43
9. Communist China: Value of Completed Capital. Construction,
1953-56 54
10. Communist China: Value of Completed Industrial Capital
Construction) 1953-56 56
11. Communist China: Value of Completed Capital Construction
In Current Prices, by Sector, 1953-56 57
12. Communist China: Index of Expenditures for Completed Capital
Construction in Current Prices, by Sector, 1953-56 58
13. Communist China: Comparison of Major Expenditures Under the
First and Second Five Year Plans, 1953-62 59
14. Estimated Growth of the Chinese Mainland Population,
Selected Years, 1930-62 61
15. Communist China: Workers and Employees Employed in
Economic Enterprises, Selected Years, 1952-62 63
16. Communist China: Distribution of Workers and Employees
of Economic Departments, by Sector, 1952 and 1955 65
17. Communist China: Distribution of Workers and Employees
In Industry) 1952 and 1955 66
18. Communist China: Sources of Specialists and Skilled
Workers, 1953-57 67
19. Communist China: Enrollment in Secondary Schools,
1952-57 68
20. Communist China: Index of Average Wages of Selected
Workers, 1952-62 70 '
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21. Communist China: Total Wages of Office and Factory
Workers) 1952-57 and 1962
22. Communist China: Population, Food Production, and Per
Capita Availability of Food, 1952-62
23. Communist China: Estimated Production of Food and
Industrial Crops, 1950-62
Page
73
79
83
24. Communist China: Gross National Product and Production of
Principal Commodities Compared with Those of Selected
Countries, 1955 84
25. Communist China: Index of Value Added by Industry,
1950-62 86
26. Communist China: Estimated Production of the Engineering
Industries, 1950-62 88
27. Communist China: Estimated Production of Armaments and
Munitions, 1950-62 93
28. Communist China: Estimated Production of Fuels and Power,
1950-62 95
29. Communist China: Estimated Production of Ferrous and
Nonferrous Metals and Minerals) 1950-62
30. Communist China: Estimated Production of Cement, Rubber
Products, and Selected Chemicals) 1950-62
31. Communist China: Estimated Production of Selected Products
of Light Industry, 1950-62
32. Communist China: Estimated Volume and Performante of
Transportation) 1950-62
33. Communist China: Retail Trade, 1950-57 and 1962
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103
106
108
120
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Page
34. Communist China: Rural and Urban Retail Sales in
Current Prices, 1952-55, 1957, and 1962 121
35. Communist China: Relation of Net Farm Income and
Disposable Cash Income in Current Prices) 1950-55)
1957) and 1962 121
36. Communist China: Disposition of Basic Food Crops,
1950-55) 1957, and 1962 124
37. Communist China: Sector Indexes for the Gross National
Product at Factor Cost in 1955 Constant Prices,
1950-62 126
38. Communist China: Gross National Product) by End Use,
1950-62 127
39. Communist China: Income, by Sector of Origin) 1950-62 131
40. Communist China: Index of Gross Value of Production)
1950-57 and 1962 134
41. Communist China: Percentage Distribution of Gross
National Product in 1955 Prices, by End Use, 1950-62 137
42. Communist China: Relation of State Investment to Increases
in Industrial Production, 1957 and 1962 138
43. Communist China: Estimated Balances of Imports and
Exports, 1955 142
44. Communist China: Composition of Exports, 1950, 1953,
and 1955 143
45. Communist China: Average Annual Imports, 1953-55 143
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Charts
Following Page
Figure 1. Communist China: Budget Revenues and
Expenditures, 1950-56 32
Figure 2. Communist China: Indexes of Growth,
Selected Economic Sectors, 1950-62 . ? ? ? 110
Figure 3. Communist China: Gross National Product,
by Sector of Origin, 1952, 1957, and
1962 130
Figure 4. Communist China: Foreign Trade, 1950-55,
1957, and 1962 142
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(ORR Project 15.1674)
TRENDS IN PLANNED ECONOMIC DEVELOPMENT IN COMMUNIST CHINA*
1952-62
Summary and Conclusions
The principal economic planning measures of the Chinese Communist
government have been indications of the progress which the leaders
of the Chinese Communist Party think that they have made in elimi-
nating what the leaders themselves call the "basic contradiction"
between the existing backward small peasant economy and the state-
controlled economy of modern industry. The Party line has been as
"hard" as the leadership thought it could be with respect to extract-
ing the maximum in investment resources from agriculture and light
industry for the rapid development of heavy industry and as "soft" as
the leadership thought it had to be in expanding consumer industries
In order to offer material incentives to workers and peasants.
The bumper harvest of 1955 favored and the investment require-
ments of the Five Year Plans demanded the complete regimentation of
all production under the control, allocation,*and planning of the
centralized administration. Mao Tze-tung, in his report of July 1955
on agriculture, after the relatively modest collectivization goals
of the First Five Year Plan (1953-57) had already been accepted by
the National Peoples Congress, called to task those Party members
who had been guilty of "rightist conservatism" and pointed the way
of rapid collectivization to coordinate agriculture with the Program
of industrialization. For the regime, this position constitutes a
means, first, of assuring the realization of the goals of industrial
investment; second, of providing more consumer goods as material in-
centives for workers and peasants; and, third, of possibly increas-
ing agricultural investment.
As of September 1956, more than 90 percent of the agricultural
households of Communiat China were in low-level and higher level
agricultural producer cooperatives. By spring of 1957, 90 percent
of these households probably will be in the higher level collectives.
An initial result of socializatidn of agriculture has been a drop in
livestock numbers and in the output of the subsidiary or sideline
* The estimates and conclusions contained in this report represent
the best judgment of ORR as of 1 February 1957.
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occupations of peasants. This development has meant a decrease in
peasant income as well as in production of raw materials for some
light industries. The regime has recognized the shortcoming in co-
operative management by decreeing that where cooperatives are not
organized especially to manage animal husbandry, the livestock should
revert to individual control, and that peasants should be allowed
more time for sideline production.
In industry, Socialization has decreased the share of private
enterprise in the ownership of industrial output to approximately
0.4 percent. The attempted socialization of handicraft producers
does not appear to have been completely successful. Urban handi-
craft production appears to be completely under state control) whereas
rural handicraft production, often a sideline activity of the peasants,
does not appear to be so completely controlled. The full impact of
drastic and rapid change will not be apparent for some time to come.
In commerce the wholesale trade is wholly state controlled. The
policy of socialization of retail trade has evidently been relaxed
in the realistic interest of providing flexibility in an economic
sector where the intricacies and expense of maintaining direct state
control are unprofitable. Although a "free market," encompassing
about one-quarter of the total retail value, is being sanctioned, the
state remains in indirect control.
The Eighth Party Congress, in September 1956, was the climax of
the program for 1956 of hundreds of conferences on past progress)
present policies and programs, and future plans. The atmosphere
created by the reports of the Party leaders to the Congress was one
of satisfaction with accomplishments and confidence in the future
growth and consolidation of national strength under the economic
planning and administration of the Party leadership. The final Party
resolution on the proposed Second Five Year Plan (1958-62) approved
the early completion of the socialist transformation of agriculture,
industry, and commerce and fixed the general goals of the Plan at
doubling industrial output and increasing agricultural output by 35
percent. These goals were to be accomplished by doubling state in-
vestment in capital construction in the Second Five Year Plan corn-
pared with the First.
The 12-year Draft National Program for the Development of Agri-
culture, promulgated on 23 January 1956, detailed the methods by which
the goal of doubling or tripling agricultural production by 1967 was
to be achieved, including the long-needed large-scale flood-control
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and irrigation projects on the largest rivers of China and a more ex-
tensive use of domestically produced chemical fertilizers beginning
in the Third Five Year Plan (1963-67). The principal anticipated
results of the application of the new program were to be realized
from the planned labor-intensive efforts of the cooperatives.
The measures for improvement of agriculture are to be provided
for out of the over-all doubling of investment in the Second Five
Year Plan compared with the First, including an increase from 7.6
percent of total investment funds allocated for agriculture in the
First to 10 percent of total investment funds in the Second, which
In absolute terms amounts to an increase for agriculture of about
260 percent -- from 3.2 billion yuan* ($1.3 billion) to 8.5 billion
yuan ($3.4 billion).
It is clear from the plans that were promulgated and from the
intensive organizational and productive efforts that were put forth
in 1956 that the Chinese Communists have finally evolved an inte-
grated plan for the development of agriculture -- a plan which is
deficient in only one major aspect (the amounts of chemical ferti-
lizers to be utilized) and which they hope to remedy in time. As was
emphasized by. Mao Tze-tung, the basic premise of the Chinese Com-
munists, in undertaking the collectivization of agriculture and in
intensifying through the cooperatives their efforts to increase.
agricultural production, was that both the proportions and the abso-
lute amounts of grain and technical crops passing througb state
trading and processing channels must expand to support the industri-
alization program. It is clear, therefore, that the progress made in
agriculture in 1956 is an important step toward realization of a
better balanced program for economic development. The results in
1956 were not satisfactory to the planners in many respects, and it
remains to be seen whether the outcome of increased production and
state control of output will exceed in magnitude the effects of the
state program of forced procurement of grain and technical crops that
began in November 1953. There are indications that difficulties in
implementing the plan through the cooperatives possibly may affect
adversely the realization of production goals.
The proposals of Chou En-lai under the Second Five Year Plan pro-
vide that total capital investment for the years 1958-62 is to be
about twice that of the First Five Year Plan -- about $36 billion.
* Converted at the exchange rate of 2.45 yuan equal to US $1.00.
Unless otherwise specified, all dollar values in this report are
id terms of US dollars.
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Of this amount, investment in industrial capital construction will
account for 60 percent; in railroad transport, 13 percent; in agri-
culture, forestry, and water conservancy, 10 percent; and in miscel-
laneous activities, about 17 percent. Within the category of in-
dustrial investment the producer goods industry is to receive about
seven times as much as consumer goods industries, thus continuing
the same proportions as in the First Five Year Plan.
Current receipts and major expenditures in the planned 1956 bud-
get are substantially higher than in 1955. The increase in expendi-
tures is such that no revenue will be available for carryover into
1957. The largest increase in expenditures is an increment of 5.5
billion yuan in investment in capital construction designed to achieve
roughly one-third of the program for capital construction under the
First Five Year Plan. These expenditures for fixed investment ac-
count for a larger proportion of the funds allocated to economic con-
struction than in previous years and probably account for the rise of
2.3 billion yuan in bank loans in contrast with budget allocations of
working capital to industry and commerce. The ability of the banking
system to meet the over-all loan increase of 5 billion yuan in 1956
is questionable in view of the apparent lack of a budget surplus and
of any specific allocation of new funds to the banking system. The
estimated shortage of bank credit is believed to be part of a generally
tightening financial situation in Communist China, which may become
serious in 1957 in the light of the serious flood damage of 1956.
The planned increase in current receipts in 1956 may be traced almost
completely to anticipated profits of state industry.
The chief characteristic of the final 1955 budget was underful-
fillment. On the revenue side this underfulfillment was attributed
to the effects of the flood damage in 1954 on industrial taxes and
on state commercial profits. Underfulfillment of expenditures was
a result of the austerity program in industrial construction, especially
in light industry. The patterns of expenditure and revenue in 1955
and 1956 show no substantial changes; although profits of state en-
terprises are now the primary source of revenue. Heavy industry ac-
counted for half of construction funds, and defense spending for 20
to 25 percent of budget expenditure compared with 26 percent in 1952
and 1953. A projection of revenue through 1962 reveals no conflicts'
with announced plans to double investment. There is, hoWever, little
leeway for large increases in other types of spending, especially for
defense expenditures, which are the chief competitors of the invest-
ment program for budget funds.
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During the first 2 years of the program for industrialization,
1953 and 1954, substantial progress was made in developing the indus-
trial output of Communist China, although the rate of increase did
decline slightly. A sharp drop in the rate of increase was noted in
1955, especially in light and handicraft industries, reflecting in
part the effects of the widespread floods of 1954. Industrial growth
under the Second Five Year Plan probably will require greater invest-
ment and improvements in the rail transport system than were provided
under the First Five Year Plan. During the next few years the pro-
gram for industrialization probably will suffer some disruptions on
account of recent events in the European Satellites and in the Middle
East and of difficulties arising from the imbalance of the over-all
Plan. Further increases in production in almost all industries are
dependent upon increases in new productive capacity, much of which
is to be supplied by the Soviet Bloc. According to the Second Five
Year Plan, heavy industry is to produce more heavy and complicated
equipment, with a number of iron and steel plants, automotive plants,
power installations, and machinery-manufacturing plants scheduled for
completion.
The trends in the modern industrial sector are shown in the fol-
lowing tabulation, which gives the production of major industries
for 1952 and 1955 and that projected for 1957 and 1962:
Electric power (billion kilo-
watt-hours)
?
1952
1955
1957
(Last Year
of First Five
Year Plan)
1962
(Ian Year
of Second Five
Year Plan)
7.26
12.3
18.7
38.7
Coal (million metric tons)
64
93.6
113 to 120
190 to 210
Pig iron (thousand metric .tons)
1,870
3,630
5,375
9,500
Crude steel (thousand metric
tons)
1,350
2,853
4,900
11,100
Finished steel (thousand metric
tons)
1,110
2,220
3,675
8,325
Crude oil (thousand metric tons)
430
980
1,600
5,500
Cement (thousand metric tons)
2,860
4,500
7,700
12,500 to 14,500
Machine tools (thousand units)
13.7
13.7
29
Tungsten (thousand metric tons)
15.8
20.5
23.7
24.0
Copper (thousand metric tons)
8
12.9
13.6
15.5
Lead (thousand metric tons)
7
22.5
23.1
25
Zinc (thousand metric tons)
3.5
7.9
11
22
Antimony (thousand metric tons)
10
11
11
11
Tin (thousand metric tons)
sulfuric acid (thousand metric
tons)
9.8
146
16
252
18
290
29
400
Ammonium sulfate (thousand metric
tons)
181
324
504
890
Cotton yarn (thousand metric tons)
656
720
1,016
1,452
Cotton fabric (million linear
meters)
3,265
3,770
4,800
6,890
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The Chinese Communists have been carrying out an ambitious rail
construction program to improve the existing system and to service
future planned demands) but the growth of rail capacity has not kept
pace with the requirements of the growing industrial economy. In-
creased utilization of facilities and increases in freight car inven-
tory have largely overcome some limitations, but traffic over several
sections of line has been approaching or exceeding capacity. The
transport system will continue to grow at a rapid rate, but increased
investment is required if rail transport is to support the growth of
the industrial sector during.the next few years.
Rapid increases in retail trade took place from 1950 to 1954,
averaging about 15 percent a year. The increase in 1955 above 1954,
however, was only 2 percent. Production of light industry in 1955
was affected by shortages of cotton and tobacco) but retail sales
were affected by certain other difficulties which will continue
through 1962. The quality of many of the products of light industry
has suffered because the planning system emphasized quantity rather
than quality of production. The state trading system also hindered
rather than helped trade in many commodities. Farm cash income will
increase at a slower rate than total income, and the need for increas-
ing the purchase of production materials for agriculture will limit
cash expenditures for farm consumption. Prices at.e being raised for
industrial crops and livestock to encourage production and to give
the rural population a greater share of total cash income. As agri-
cultural production will fall short of the targets of the Second
Five Year Plan, this problem will continue to affect the level of
trade in rural areas.
If the targets of the Second Five Year Plan for the basic food
crops were fulfilled, consumption of grain would rise by almost 30
percent. It is likely, however, that production of basic food crops
will show only half of this increase. The supply of basic food crops
thus will increase twice as fast as the probable increase in popula-
tion, but food consumption will not rise as rapidly as total consump-
tion. As food is still the predominant concern of most of the popu-
lation, the prospects are for continued rationing and other measures
to limit demand for the basic food crops.
The population of Communist China is believed to be growing at a
rate of 1.5 percent per year, with improvements in public health and
welfare measures tending to decrease the mortality rate while the
birth rate remains high. The total labor force still exceeds require-
ments in terms of numbers, but the training of skilled workers and
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technicians continues to fall short of requirements for the program
for industrialization, especially with respect to quality.
The gross national product of Communist China in 1955 was about
90 billion yuan. At the exchange rate for 1955 this is equivalent
to about $36 billion. This figure lies in the lower part of a pos-
sible range extending from almost $90 billion for the value of
Chinese output in US prices down to $25 billion in terms of the yuan
value of US output. The gross national product of China is increas-
ing at an average annual rate of 7 to 8 percent during the First
Five Year Plan. This rate probably will continue through the period
of the Second Five Year Plan. From 1952 to 1962, industry will nearly
double its share of total output, increasing from 15 percent in 1952
to 27 percent in 1962. In 1962, industry will be nearly 4 times its
1952 level, an average annual rate of increase of nearly 15 percent.
Agricultural output probably will increase at an average annual rate
of about 3 percent for the 10-year period. Investment expenditures
will rise in the 10-year period from less than one-sixth to about
one-fourth of total output. Although consumption expenditures per
capita probably will increase significantly, they will drop to less
than 70 percent of total output.
The foreign trade of Communist China continues to increase rapidly.
Total trade in 1955 was valued at about $4.5 billion, an increase of
30 percent above the 1954 level. If military deliveries under loan
arrangements are excluded, trade is approximately in balance. The
bulk of trade continues to be with the Soviet Bloc, with Free World
trade comprising about 20 percent of the total. Since 1954, Communist
China has extended trade in the Free World considerably. Trade with
underdeveloped nations has especially been emphasized) and China
presently has programs for economic aid in Cambodia and Nepal. Sub-
stantial economic aid has been given to North Korea and North Vietnam.
Foreign trade should contihue to grow, but at a declining rate.
Growth will be dependent upon the Chinese Communist, capability to
export but can be expected to reach about $4.8 billion by 1957 and
more than $6 billion by 1962.
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I. Introduction.
The "high tide of socialist transformation" of agriculture, in-
dustry, and commerce and the speedup of production which were decreed
by the leadership of the Chinese Communist Party in the latter half
of 1955 have profoundly changed the structural organization of the
Chinese economy and the trend of economic development in Communist
China during 1956. The accelerated socialization has been utilized
by the regime to bring under state control and allocation more of
the human and material resources of the country in order to expand
production and bolster investment in industry. At the same time,
the feverish speedup in production has similarly been used to hasten
the program for industrialization under the First and Second Five
Year Plans (1953-57 and 1958-62).
A chain of circumstances led to the series of shock decisions
taken by Mao Tze-tung and the Central Committee of the Chinese Com-
munist Party in the latter half of 1955. The floods in 1954 had
reduced the available amounts of grain and industrial crops, so that
In 1955 the output of light industrywas seriously cut back and state
revenues were reduced below expectations. A food shortage in southern
China, which required the release of state grain reserves for relief'
purposes in the spring of 1955, was followed by bumper harvest yields
throughout China. The difficulties encountered in 1954 by the Party
cadres in procuring adequate grain and industrial crops for the planned
allocations of the state and in organizing the peasants in cooperatives
were largely removed by the bumper crop in 1955. At the same time,
the reduced revenues of 1955 had necassitated a severe economy drive
and cutbacks in planned investment and construction. Failure to
attune to the economy program the scheduled rates of production in
the construction materials and steel industries left the leaders with
temporary surpluses which they sought to export to improve their
trading position. In addition, the scheduled arrivals of Soviet Bloc
industrial equipment ordered in earlier years were expected to be
larger in 1956 and 1957 than in any previous year, necessitating sub-
stantial increases in investment allocations. The Second Five Year
Plan, if it were to follow the Soviet model of doubling industrial
output achieved under the First Five Year Plan, would necessitate
doubling investment and therefore would require substantial increases
in state revenues, which are largely derived from marketed grain and
industrial crops.
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It is the purpose of this report to review and analyze the eco-
nomic development of Communist China under the First Five Year Plan
in the light of all available information, and to assess (1) the
impact on the economy of the various planning decisions made by the
Peiping regime, including the doubling of the rate of investment in
relation to the projected 50-percent increase in national income and
a possible rise in per capita consumption, and (2) the prospects for
realizing the goals of the Second Five Year Plan.
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II. Significant Developments in Economic Planning and Administration.
? A. Changes in Scope and Direction of Economic Planning.
The principal economic planning measures of the Chinese Commu-
nist government have been sensitive indicators of the progress which
the Chinese Communist Party leaders think they have made in eliminating
what the leaders themselves call the "basic contradiction" between the
existing backward small peasant economy and the state-controlled economy
of modern industry. The measures effected under the forced procurement
of agricultural crops beginning in November 1953, and those envisaged
under the First and Second Five Year Plans) have made it clear that the
Chinese Communist leaders are concentrating what they consider to be
the utmost of Chinese efforts and resources toward the goal of estab-
lishing China as an advanced industrial power. The Party line has been
as "hard" as the leadership thought it could be in respect to extracting
the maximum in investment resources from agriculture and light industry
for the rapid development of heavy industry and as "soft" as the leaders
thought it had to be in developing consumer industries in order to offer
material incentives to workers and peasants to strive for increased
production. The time finAlly came in 1955 when the projected rates of
investment and growth for heavy industry required substantially increased
allocations of investment resources from agriculture. It was clear that
these requirements could be obtained only by exte/ding close state con-
trol over the entire agricultural sector and by attaining substantially
increased agricultural production. The only alternative was a falling
off in the rate of growth of industry.
The extension of state controls over agriculture -- equivalent
in the Communist rationale to socialization -- was a calculated risk
requiring the deputizing of millions of poorly qualified cadres to
posts of authority to direct the reorganization of land patterns and
the intensification and improvement of cultivation practices on a mass
scale. The risk was calculated, too, in terms of yielding increased
income for the majority of the participating peasants, which would
offset their losses in surrendering control of their own labor time
and return from land. Where the peasants' distributive rights in their
output ordinarily left only enough or little more than enough to tide
them over to the next harvest -- that is, among the peasants classified
as "poor" and "lower middle," who constituted the vast majority, and
among those who had only recently improved their status, the "new
middle" peasants -- there was every reason, in the view of the Party
leaders, to believe that the immense reorganizational effort of the
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first year of massive cooperativization would succeed in attaining
slight improvement of production or reduction of flood losses which
would be sufficient to provide increases both in peasants' retained
shares and in marketed portions of agricultural output. This calcu-
lation was based on detailed results of average and bumper crop years)
which proved that the peasants tended to retain a more or less constant
absolute amount of their crop yields for home consumption whereas the
marketed portions in good years mounted more than proportionately to
the total crop. The much-used cliche of "saving an ounce of grain per
day per person for the state" had real meaning with reference to the
total farm population, each ounce thus saved amounting to nearly one-
half million tons per year. The marketed portions of crops varied by
10 or 15 percent between average and good crop years. Only in the
areas of normally large export surpluses of grain, where more of the
peasants were classed as "upper middle" or "rich," would the regime
expect the peasants to refuse to surrender their distributive rights
in harvested crops and to undertake intensified cooperative efforts
in return for an uncertain promise of an increased individual share
in total output. The "upper middle" and "rich" peasants in the
areas of export surpluses constituted only about 10 percent of total
peasant households and were mainly localized in a few provinces.
The acceptance by the Central Committee of the Communist Party
of the calculated risks of enforcing rapid collectivization of agri-
culture on a mass scale involved mainly the preparation of general di-
rectives which could be understood and implemented by cadres untrained
in farm cooperative work or in agricultural techniques and which would
serve to instill in the masses of peasants the motive of joint partici-
pation in the communal effort to improve over-all productivity and to
advance their common lot and the purposes of the state. The regulations
for cooperatives and the 12-Year Program for Agricultural Development set
forth the aims and the terms for pooling individual labor and productive
assets in phrases that appealed to popular understanding. Hundreds of
national) provincial, and local conferences of workers and farmers and
an intensive propaganda campaign through all the mass Media were under-
taken to stimulate patriotic enthusiasm for the effort and to overcome
the traditional insularity of the individual peasant household. The
mass organizational effort carried over into the detailed program of
the 12-Year Program, utilizing the prescribed annual labor of the farm
households -- 250 workdays for men and 120 for women -- to carry out
local projects in irrigation, flood control, fertilizer accumula-
tion, and enclosing the small individual plots in large collective
fields. The scheduling of cooperative organizational work and local
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projects for the cooperative members required adroit management to fit
the necessary pattern of farm productive and sideline activity. The
successive directives of the Central Committee demonstrated the central
planners' recognition of this necessity, although in some cases too
late to make up losses of subsidiary and handicraft production.
The Second Five Year Plan incorporates the expectations of the
Central Committee as to the results of increased agricultural production
and the necessary coordination of agricultural development with the
investment requirements for the industrial goals. The agricultural
goals probably still reflect some of the inflated optimism that was
used in the 12-Year Program to elicit general acceptance of collectivi-
zation and intensified cooperative efforts, but in the view of the
planners the impetus to be gained from immediate improvements in agri-
cultural production might go far toward providing additional investment
resources for agriculture which could render their Second Five Year
Plan goals for agriculture more practical of realization. The invest-
ment requirements for industry are considerably less than would be
obtained by full realization of the Second Five Year Plan's agricul-
tural goals.
The extension of detailed economic planning and supervision
to the agricultural sector of the Chinese economy, which is envisaged
in the socialization program, the 12-Year Program, and the Second Five
Year Plan, brings China's largest economic sector under central control
as to allocation of investment resources and output. This represents
a considerable increase in resources under central control, as well as
in central directive responsibility and cadre supervision, and it will
probably result in improved aggregative statistics of agriculture. It
has already brought about an intensification of effort on a mass scale
to increase agricultural output. For the regime, it constitutes a
means (1) of assuring the realization of their industrial investment
goals, (2) of providing more consumer goods as material incentives for
workers and peasants, and (3) of possibly increasing agricultural in-
vestment.
B. Xtension of Economic Controls.
1. Organizational Structure.
During 1956 the proliferation of the centralized eco-
nomic control structure of Communist China continued, culminating
in the creation in May 1956 of 10 new ministries, 2 commissions, and
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2 specialized bureaus. The present
the State Council, 8 staff offices,
24 specialized bureaus. The number
since the Communist regime began in
central government is composed of
7 commissions, 41 ministries, and
of ministries has more than doubled
1949.
a. Central Planning.
Following the lead of the USSR in this field, China in
May 1956 removed the function of annual planning from the State Planning
Commission and assigned it to the new National Economic Commission. The
State Planning Commission now concentrates on Five Year Plans. 1/* Before
the division, the State Planning Commission from 1952 to 1956 increased its
departments from 16 to 24 in order to handle the increasingly complex
problems of planning the growth of the economy. 2/
A National Technological Commission was also created in
May 1956 to engage in long-range planning for the improvement of industrial
technology. Like a similar agency created earlier in the USSR, this com-
mission is charged with selecting and promoting new techniques, formulating
Five Year Plans, coordinating long-range technological developments, and
insuring consistent technological developments throughout the industrial
structure. V
b. Central Statistical Control.
The State Statistical Bureau, also attached to the State
Council, is responsible for compilation and analysis of statistical data. 1J
The Director is also Vice-Chairman of the State Planning Commission. The
5 present deputy directors were previously regional government officials (2
from East China and 1 from Central-South, Southwest, and Northeast,** respec-
tively) and thus have close knowledge of regional problems.
The Bureau is responsible for establishing systems and forms
for use in all statistical reporting. The internal organization, methods,
and terminology of the Bureau closely follow those of the Central Statis-
tical Directorate in the USSR. 2/ In addition to the Central Bureau, there
are statistical units within the provinces, municipalities, and hsiens
(counties), operating under the general supervision of the Central Bureau.
The central industrial ministries and commissions also have statistical
sections. During 1956 the poor quality and inaccuracy of some statistical
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reporting continued to concern the authorities. One persistent cause
is the shortage of trained statistical personnel on the lower levels. y
c. Industrial Ministries.
There are now 16 ministries concerned with control of
Industrial production and extraction processes. In addition to the
previously existing Ministries of Light Industry, First and Second
Machine Industries, Textile Industry, Agriculture, Forestry, Coal Indus-
try, Electric Power Industry, and Petroleum, 7 new ministries were
created in May 1956. // The Ministry of Heavy Industry was abolished,
and 3 of its former "control bureaus" were transformed into ministries in
order to give more specialized attention to the chemical industry, the
building materials industry, the iron and steel industry, and the non-
ferrous metals industry. The last two were combined under a Ministry
of Metallurgical Industry. Ministerial specialization has also occurred
In the electrical equipment industry, now supervised nationally by the
Ministry of Power Equipment, which will apparently administer the manu-
facture of electrical and medical equipment. ?/
Two new ministries were created to promote the develop-
ment of certain industrial sectors: the Ministry of Timber Industry,
which took over some of the functions of the Ministry of Forestry, and
the Ministry of Marine Products, which administers some functions form-
erly under the Ministry of Agriculture. The 2 new ministries control
the processing, shipping, and sale of related products.
d. Other Economic Ministries.
Three other economic ministries were also established
in May 1956. The Ministry of Land Reclamation controls state-operated
farms (formerly under the Ministry of Agriculture) and directs the
migration of people to carry out reclamation work. 2/
The establishment of two new ministries -- the Ministry
of City Construction and the Ministry of City Services -- extends the
Influence of the central government in urban areas. 1O/ Services and
operations which were formerly controlled locally will now be adminis-
tered by the central government. Thus the Ministry of City Construction
will be responsible for the planning and design of city construction and
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public utilities, including the problem of planning the construction
of entire cities in the western areas of the country. The specific
responsibility of the Ministry of City Services remains unclear.
The two ministries which had controlled all local state)
public-private, private, and cooperative industries were also abolished
In the May 1956 reorganization. These were the Third Ministry of Machine
Building) which supervised machine building and electrical companies)
and the Ministry of Local Industry. Enterprises formerly under these
ministries will, depending upon the type of operation, be controlled
by "special corporations" organized by the appropriate industrial
ministry. 11/ The virtual elimination of private industrial enter-
prises through socialist transformation and their inclusion under
separate industrial ministries further extends and simplifies cen-
tralized control of the Manufacturing process in China. Similarly,
control of local food enterprises was vested in the new Ministry of
Food Industry.
2. Economic Control Organization.
Elements of local flexibility in meeting local problems
will probably be added to the economic control mechanism of China.
A concurrent strengthening of organs of administrative supervision has
also been noted, however, indicating that the trend to a high degree
of centralized economic control will continue.
a. Elements of Local Flexibility.
With reference to the degree of centralization there
are, in general, two categories of ministries. 1g/ The ministries of
the first type are highly centralized. Each has an elaborate vertical
structure with field offices throughout the country; even the lowest
level is supervised by Peiping and has no responsibility to the local
government. This group includes the Ministries of Metallurgical In-
dustry., Chemical Industry) Building MaterialS Industry, Railroads)
Higher Education, First and Second Ministries of Machine Building,
National Construction) Communieations? Posts and Telecommunications,
Foreign Affairs, Geology) and Light Industry.
The second type of ministry of the central government
does not have field offices as such but controls operations through
counterpart departments which are nominally responsible to local state.
organs. That this local responsibility is more apparent than real is
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illustrated in the example of the Ministry of Finance, where no account-
ant in a local-level organ can be appointed) dismissed, or transferred
without the consent of his superior in the accounting administrative
system. It is probable that primacy of authority of other central
organs is maintained in other local organs in much the same fashion.
Although policy making is highly centralized in these
areas., the lack of clear differentiation of authoritY between central
and local organs, as well as the lack of administrative flexibility at
local levels) leads to many problems. This is implicit) for example,
in Chou En-lai's announcement on 30 June 1956 of a plan for division
and definition of authority between the central and local governments
with reference to planning, capital construction, and finance and polit-
ical and legal affairs.* This plan is presently under consideration
and is to be implemented provisionally in 1957. 23/
Further clarification of the degree of local control
under consideration was provided by Liu Shao-chi in September 1956 1L/:
As regards a good deal of the work of the State,
such as agriculture, small and medium industries,
local transport, local commerce, primary and second-
ary education, local health services, local finance
and so forth, the central authority should only put
forward general principles and policies and map out
general plans, while the actual work should be referred
to the local authorities to make arrangements for
carrying it out in a manner suitable to a particular
place and a particular time involved.
With respect to financial administration) the Minister
of Finance in his budget message to the National Peoples Congress on
15 June made the following statement 252:
It is planned to appropriately expand the author-
ity of various localities in financial administration
and in the expedient use of funds) so as to enable
local authorities to control, within the limitations
stipulated by the budget) their income and expendi-
tures according to local conditions ... .
This list also included "enterprises" and "organizations," probably
referring to business enterprises and government agencies.
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The limiting of authority, by measures of this type;
to those local economic organs whose successful operation is affected
by local conditions and the absence of the implication that general
decentralization is envisaged indicates that only a minor increase
in local authority is contemplated.
b. Extension of the Activities of the Ministry of
Supervision.
More details on the activitieD of the Ministry of Super-
vision as an instrument of central control were revealed in 1956. This
ministry is an organ of administrative supervision and; unlike other
supervisory organs which can only present indictments for action through
the peoples courts, has the power to render anministrative punishment. 1?1
The Ministry appears to have vertical organization with
supervisory committees at every level of government administration. In
addition to permanent duties, supervisory organs point out and are often
given specific objectives for investigation and supervision. During
1956, organs of the Ministry were active in inspection and supervision
of the agricultural cooperation movement in rural areas, the conditions
of both flood prevention works and population control in potential flood
areas, the formulation and execution of supply plans for food and daily
necessities; and the execution of the price policy toward subsidiary
agricultural products. 17./
During the first 6 months of 1956 the Ministry also
conducted; in conjunction with the Ministry of Food, "keypoint" examin-
ation of food departments in their storage; transport, and supply work;
with particular emphasis upon storage work and storage facilities. 1?./
A number of examples of the results of inspections by
supervisory organs in 1955 were made public in February 1956. The
Ministry noted that the supervisory organ in the textile industry had
decided to reduce the circulation and special funds of 41 production
units by about 25 percent. Further) inspection of the railroad and
communications ministries resulted in a total deduction of 37 million
yuan from the operational funds of these departments. 12/ These audit-
ing activities in the textile and communications industries may signify
a formal assumption of the auditing function of the Ministry of Finance
similar to that noted in the Ministry of Railroads in 1954. 22/ No
further substantiation, however, is available.
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An illustration of another type of control function was
shown by the activities of supervisory organs in Shansi and 8 other
provinces) where 716,500 tons of grain were claimed to have been saved
from deterioration by their inspection work. gl/
The most publicized action of the Ministry of Super-
vision in 1956 was its work in July on the MUkden Transformer Factory
case. The Ministry and the Supervisory Committee of the Central
Committee of the party conducted a joint investigation of the case)
and their joint report noted that a struggle between leading party
cadres in the administration of the factory had resulted in serious
losses to production, shipment of defective products, falsification
of records, and "failure to seriously learn Soviet advanced experience
by declining to carry out the correct suggestion of the Soviet experts."
In addition, a serious attitude of "rightist indifference" existed
among the leading groups of the factory. ga/ The immediate results
were the expulsion from the Party of the secretary of the Party commit-
tee in the plant and the director of organization of the plant commit-
tee and the administrative demotion of the plant director and one other
functionary. 2,3/ The appearance in August of a change in the organi-
zational form of the Ministry of Supervision and a strengthening of
Its work on the lower levels is probably a second result of the case.
These measures will probably mean both an increase in
the number of peoples' supervisory committees over the 4,000 noted in
November 1954 and an increase in the number of correspondents over the
78,196 observed in May of 1954. 22/ As a spur to the activities of
these "correspondents," it was also emphasized that "supervisory
correspondents or corresponding teams with excellent achievements
must be extolled or rewarded." gg
The institution of a rewards system for what has been
essentially a network of unpaid informers and the expansion of the acti-
vities of this ministry into various fields indicates that the streng-
thening of the existing mechanism of administrative control over the
organs of government continues. This will help to insure control of both
Ideological attitudes and execution of policies to the top levels of the
regime.
3. Socialization of Agriculture, Industry, and Commerce.
The socialization of the economy of Communist China, accel-
erated in late 1955 by the personal intervention of Mao Tze-tung, has
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resulted in almost total elimination of the private enterprise sector of
the economy. Direct state control of agriculture, industry, and wholesale
trade is virtually complete. Direct state control of retail trade and rural
handicraft production is less apparent; however) indirect control by the
state in these fields has greatly narrowed the sphere of operation of
private interests.
a. Socialization of Agriculture.
Chinese Communist progress in the socialization of agri-
culture has been so rapid since July 1955 that the regime itself has not been
able accurately to describe it. Three of the five stages of development of
a socialist agriculture appear to have been realized with the organization
of 91.7 percent of the total peasant households in China into approximately
992,000 semisocialist and higher level agricultural producer cooperatives.
The fourth stage) the transformation of semisocialist cooperatives into
higher level cooperatives (collectives) in which the ownership of the land
and means of production by the collective replaces that of the individual,
will probably be 90 percent complete by spring 1957. The fifth stage,
technical reform of agriculture or mechanization, is supposed to be com-
pleted in 1972 or 1977 (Fourth or Fifth Five Year Plan).
The figures given in the following discussion are average
figures and tend to obscure regional unevenness in the progress of social-
ization. For example, in the extent of formation of agricultural cooper-
atives, Hunan Province) with 14 percent of total households, and Szechwan
Province, with 3.8 percent of households, are well under the national
average of 68.1 percent. 21/ Underaverage figures such as these are
assumed to be balanced by overaverage progress in other provinces, parti-
cularly those of northern China. It is felt that the lag in collectivi-
zation in these two provinces is probably the result of a number of factors.
First, both produce approximately 18 percent of the total food crop prod-
uction, and strong measures for collectivization might jeopardize the
harvest. Second, neither province is a marginal area with a substantial
class of poor peasants. The chief instrument of Communist rural policy
has been the poor peasant class) and the lack of numerical strength of this
class may have inhibited the progress of collectivization. Third, both
provinces are within the newly liberated area. A general observation of
the success of Communist rural policies indicates that those policies
have been most successful in those areas which they have held longest.
Fourth, both provinces have a double crop season. The timing of coop-
erativization has been correlated with the off-season in most areas.
Thus the progress of collectivization in these areas would be limited to
two short off-seasons rather than one long one and would accordingly be
somewhat slower.
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The First Five Year Plan stipulated the organization
of one-third of the peasant households in China into approximately
1.3 million semisocialist cooperatives by 1957. This goal, announced
in early July 1955, was rendered obsolete by Map Tze-tung in his report
of 31 July 1955. In this speech Mao stated his view that the formation
of 1.3 million cooperatives by the spring of 1956 was a better target and
that basic completion could be achieved by 1960. 2?/
By the end of September, provincial Communist committee
targets reflected Mao's goals. During October the pace of cooperativi-
zation was again speeded up by the decision of the Central Committee of
the Communist Party. Basic completion (70 to 80 percent of all peasant
households in cooperatives) was set for the spring of 1957 and total
completion for the spring of 1958. This advanced Mao's goals by almost
2 full years. By November 1955 the figure set by Mao as a goal for
spring 1956 -- 1.3 million cooperatives -- had been achieved.
A primary factor in the decision for the speedup in
excess of Mao's target appears to have been the knowledge that the
harvest prospects for 1955 were good. A measure which reflected the
confidence of the leadership in a satisfactory harvest was the Draft
Model Regulations for Agricultural Producer Cooperatives, published on
10 November 1955. Beyond serving as the organizational basis for the
cooperatives, these regulations clearly pointed out that there was
another stage of cooperativization ahead. .2.9/
Through December the movement increased in tempo. The
number of cooperatives ceased to be a true indicator of the pace of
cooperativization. The number of households in cooperatives became the
more valid figure as the average size of a cooperative jumped from 25
to well over 100 households. This increase in organized households
meant that the physical size of the cooperative increased, which was
considered a prerequisite for movement into higher stage producer
cooperatives, or collectives.
In December, two northern provinces of China, Hopei
and Heilungkiang, came out with plans to start organizing higher stage
cooperatives in the spring of 1957. On 26 January the Draft 12-Year
National Program for Agriculture was published, stipulating that the
goal of organizing approximately 85 percent of the peasant households
into elementary or semisocialist cooperatives should be attained in
1956. IV FUrthermorel areas which had already set up higher stage
cooperatives by the beginning date of the 12-Year Plan were to complete
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the higher stage by 1957. Those areas Which did not have a higher stage
cooperative in operation were required to create at least one collective
(of more than 100 households) to serve as an example and were given the
target year of 1958 to complete the basic work of organizing collec-
tives. This implied that by 1958 approximately 85 percent of all the
peasant households in China would be in collectives.
This 12-Year Plan which blueprinted the total mobili-
zation of the agricultural population to achieve increased agricultural
production contained stipulations for a 250-day workyear for males and
a 120-day workyear for females. The conditions prescribed for elemen-
tary cooperatives to go forward to the collective stage were as fol-
lows 11/:
The step must be the voluntary desire of the
cooperative members, the cooperative must have strong
enough leadership, and more than 90 percent of its
members must be able to derive higher incomes after
the change.
Thus any dissatisfaction felt by the peasant at his loss of land rights
and control was to be offset by a prospect of increased income.
Figures announced in May indicated that, at the end of
March, 90 percent of the total households had been organized into 1.08
million agricultural producer cooperatives. Of these households, 52
percent were in higher level cooperatives. 32/ At the same time, Teng
Tzu-hui announced that the building, merging, and changeover of cooper-
atives to collectives had stopped because of spring.sowing? and the
movement shifted to consolidation and development of existing cooper-
atives.
Although the creation of new cooperatives ceased, con-
solidation and changeover did not. In June the total number of cooper-
atives dropped almost 90,000 -- to 992,000. The percentage of the total
households in cooperatives, however, increased to 91 percent. Of these
households, 68.1 percent were in collectives. "V (See Table 1.*)
* Table 1 follows on p. 23.
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Table 1
Communist China: Development of Agricultural Producer Cooperatives
and Collectives
December 1955-June 1956
Number of Agricultural
Producer Cooperatives
(Million)
Total Households
in Agricultural Producer
Cooperatives 2/
(Percent)
Agricultural Producer Cooperatives
Households in Collectives 12/
(Percent)
December 1955
1.90
63.0
6.7
January 1956
V.A.
78.0
25.0
March 1956
1.08
90.0
52.0
June 1956
0.992
91.7
68.1
a. Based on 120 million total households.
b. The term collectives is used for higher level agricultural producer cooperatives.
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Whereas the progress of cooperativization was extremely
rapid and generally satisfactory to the Communist leaders, some fairly
serious side effects became apparent. Sideline or subsidiary produc-
tion, which the peasantry would normally engage in during the winter
season, appears to have been neglected. Insufficient production in
subsidiary occupations decreased the income of the peasants and lowered
the amount of raw materials available for some light industries and
the export trade.
On 3 April the Central Committee of the Communist Party
and the State Council issued a directive on "Careful and Frugal Prai-
tices in the Operation of Agricultural Producer Cooperatives" which
pointed up some of the problems that had arisen in the previous 6
months. 11/ It suggested that too much of the resources of the coop-
eratives was being wasted on such nonproductive construction as cul-
tural and educational facilities. The directive stipulated that coop-
eratives established after 1954 should avoid undertaking basic con-
struction projects and concentrate on agricultural production.
Emphasis on socialization of handicraft workers was also
affecting operation of the agricultural producer cooperatives. Some
localities, in organizing handicraft workers into handicraft cooperatives,
had forbidden them to join agricultural producer cooperatives. Further,
some of the agricultural cooperatives had been forbidden to produce bricks,
tile, and plaster for their own use. Rigid attempts tO differentiate be-
tween handicraft producers and agricultural producers in the countryside had
evidently caused a drop in the efficiency and production of both groups.
This criticism was more strongly repeated at the National
Peoples Congress in June, as well as criticism of certain cadres who had
been forcing peasants into cooperatives. Although there were a number
of overzealous cadres whose efforts to overfulfill their quotas had resulted
in uneconomical and impractical measures in the rural areas, the general
results of cooperativization were satisfactory. Teng Tzu-hui stated at the
Congress that another upsurge in cooperativization could be expected in the
winter of 1956-57 which would reduce the over-all number of cooperatives
but would expand their membership. Li
On 30 June 1956 the Congress adopted the "Model Regu-
lations for Higher Agricultural Producer Cooperatives" which were to
serve as the charters for the collectives. 2Y These regulations were
imuch like the earlier regulations except that income to cooperative
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members became predicated solely on the amount of labor they accom-
plished. Solutions for many of the weaknesses which had been apparent
in the earlier phases of the movement, however, were included. The
principle of increased income to collective members was basic in these
regulations, and provisos for allowing tools and facilities for side-
line production to stay in the peasants' hands were also stipulated.
More important, limits were set on the public expendi-
tures of money. Production fees were to be kept within 15 to 20 per-
cent of annual income. Administrative salaries should not exceed 2 per-
cent of annual income, and reserve and welfare funds were not to exceed
10 percent. This presumably would mean that the annual production
dividend to members would be 6o to 70 percent.
One other measure also seemed to ease the situation in
sideline production created during the winter of 1955-56. In July the
State Council, in conjunction with the Ministries of Food and Commerce
and the Peoples Bank, announced a plan for advanced purchase of 17.5
million hogs, with payments in the form of grain and cash. 11/ This
measure was aimed both at remedying the drop in hog production in
1955-56 and at stimulating the general level of production.
At the Eighth Congress of the Communist Party in Sep-
tember 1956, the main theme, reflected in almost every speech, was the
basic importance of agriculture. The announcement that the bourgeois-
democratic revolution had been finished pointed to the fact that social-
ist transformation had been basically completed with the organization
of cooperatives. The main problem remaining, according to the resolu-
tion of the Congress, was the modernization and elevation of the bas-
ically backward productive forces -- that is, the agricultural economy,
to support and complement advanced socialist industrialization. lpj
In retrospect, it appears that the Communist leaders
are extremely shrewd in their estimates of how strongly they can enforce
their will on the Chinese peasants. Basic to the speedup of 1955 was
the fact that 1955 was a comparatively good harvest year. If, as seems
probable, 1956 was a good harvest year, it is expected that some sem-
blance of an increase of income to most of the members of the collec-
tives will be achieved. In that event, full collectivization of the
remaining peasant households would probably be enforced.
The fifth and last stage of this socialization is the
technical reform of agriculture. The regime is not likely to make
spectacular gains in this field in the immediate future because of
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equipment production limitations and of the relatively low priority
assigned to production of agricultural implements. The present task
appears to be the consolidation of these drastic changes in the country-
side and continued emphasis upon raising the productivity of the land.
The agricultural producer collectives will remain the chief mechanism
for mobilizing human labor to achieve this increased production.
b. Socialization of Industry.
On 29 October 1955, Mao Tze-tung met with the leading
figures of the All-China Federation of Industry and Commerce. The
meeting marked the beginning of an increase in the tempo of sociali-
zation of industry and commerce which lasted through February 1956.
The drive for formation of joint state-private enterprises by whole
trades, rather than on an individual basis) that had begun in August
1955 was given great stimulus by this meeting. By the end of January
1956) virtually all private industrial enterprise had been transformed
into joint state-private enterprise.
Implicit in the transformation of private industry was
a move to reform the modes of operation by merger, relocation, and in-
troduction of the methods of operation of state-operated industry.
Measures to be undertaken by this transformation included inventorying
of stocks and estimation of the assets of the enterprises in order to
determine the value of shares on which dividends would be paid to the
former private owners. In similar fashion the transformation envisaged
changes in management, working hours, and wage systems.
In February it appeared that the regime was not prepared
for such speedy development. On 8 February the State Council published
two directives -- one on enterprise inventories and the other on post-
poning further Socialist transformation for 6 months. 19/ The first
directive stated that the standard for assessment would be set equiva-
lent to the conditions and value of machinery and plant facilities in
the state-operated industries.
The second directive implied that much of the change
was in name only, because) in postponing the further transformation
for 6 months, the original owners were to continue to be responsible
for the management of their enterprises and no changes were to be made
in their personnel, worxing hours) and wage systems. The state, how-
ever, continued to accept applications for conversion from private
operation to joint operation.
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As most of the operations of private enterprises had
previously been indirectly controlled by the state through state loans,
orders, and control of raw material allocations, the net change in
status does not appear to have been great. Nevertheless, the shift
is tabulated in Table 2, where ownership of industrial output, exclud-
ing handicraft, for the years 1952-56 is shown.
Table 2
Communist China: Ownership of Industrial Output
(Excluding Handicrafts)
1952-56
Percent
1952 1953 1954 1955 1956
State-operated
50
54.0
59.0
63
63.8
Cooperatives
3
3.5
3.8
5
4.7
Joint state-private
5
5.7
12.3
16
31.1
Private
42
36.8
24.9
16
0.4
Total 100 100.0 100.0 100 100.0
Both the bookkeeping and inspection involved in paying
dividends on private stock in joint enterprises appear to have been
burdensome, and in June 1956 Chen Yun announced that a flat 5-percent
dividend would be paid regardless of type or size of operation.112/
The diverse problems encountered in the drive to socialize industry
and commerce were also clearly indicated by Chen. In particular, the
small proprietors, whose plants were often part of their homes and to
whom a dividend of 5 percent on the value of their holdings was not
enough to live on, were evidently in bad straits. There also appeared
to be problems in the working relationships between the representatives
of the state and the former owners of the enterprises.
The shift of an increased number of industrial enter-
prises from private to joint operation was also a factor in the govern-
mental reorganization of May 1956. Under the reorganization, the Min-
istry of Local Industry and the Third Ministry of Machine Industry were
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abolished and more centralized control of the newly transformed indus-
tries was provided for by having each enterprise, in accordance with
its type of operation, under a special corporation set up by the spe-
cific industrial ministries.
Efforts were made by leading spokesmen of the govern-
ment to defend the regime's practice of maintaining former capitalists
in management and technical positions after transformation. The
rationale for their retention was the necessity for using their know-
ledge of business in the enterprises. The criticism that the 5-percent
dividend payment was surplus value and thus constituted exploitation
was admitted. This practice, however) is to be eliminated within the
next few years. Ill/
Handicraft producers were also the subject of the in-
creased tempo of socialization of industry. In urban areas) handicraft
producers appear to have been almost completely organized into handi-
craft cooperatives; supply marketing, and production cooperatives; or
production teams by type of production and size of operation.
In rural areas the attempt to transform handicraft
producers does not seem to have been notably successful. The rigid
imposition of cooperatiVization of whole trades was not suited for
rural areas as handicraft production is also an off-season activity
of the peasantry. Again, many of the individuals and families who
were primary producers of handicrafts were also engaged in secondary
agricultural cultivation as well as rural buying and selling.
It is apparent that overzealous attempts to simplify
and split the mixed rural organization of China into handicraft cooper-
ative organizations, agricultural cooperatives) and trade cooperative
organizations resulted in a slight decrease in handicraft production
and a greater decline in quality and diversity. The State Council
directive of February, postponing further socialization, stated ig/:
As to those scattered and small-scale handicrafts
for repair 'jobs and other personal services, the
inherent factors of popular convenience and their
quality should be preserved. Protection should be
given to those special crafts with approved traditions.
Those handicrafts which are suitable for individual
management and the workers practicing these crafts
who are reluctant to join cooperatives should continue
to be managed individually.
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The socialization of handicrafts is reflected in the
1956 budget. Of the total value of handicraft production, 72.5 percent
is to be produced by handicraft cooperatives; supply, marketing, and
production cooperatives; and production teams. The remaining 27.5 per-
cent is to be produced by individual handicraftsmen. In 1955) individ-
ual handicraftsmen produced 85 percent and handicraft cooperatives,
15 percent, of the total value of handicraft production. IV
The official statement at the Party Congress in Septem-
ber 1956 gave a total of 90 percent of "all who follow the calling of
individual handicrafts" as being in producer cooperatives or supply
and marketing cooperatives. Ity Presumably the workers in individual
handicrafts, accounting for 15 percent of the total of 1956 handicraft
production, are rurally located and in some cases engaged in other
occupations as well as handicrafts.
c. Socialization of Commerce.
Mao Tze-tung's push for socialization in October 1955
probably caused a considerable drop in the private part of retail trade
as early as February 1956. The traditional conduct of wholesale and
retail trade by a great number of private firms and private individuals
rapidly gave way to the conduct of trade by types of collective organ-
izations similar to those found in industry and agriculture. Wholesale
trade in the most important goods is almost entirely in the hands of
state trading companies. In 1950, private wholesale firms accounted
for 76 percent of wholesale trade) but by early 1956 the share of private
wholesale firms had declined to less than 5 percent of the total.
The state-operated retail network consists mainly of
the department stores and other large stores in the cities. In the
rural areas the formation of supply and marketing cooperatives was the
main objective of the collectivization program for retail trade. These
supply and marketing cooperatives, although nomiaslly voluntary organi-
zations of rural people grouped together under local leadership to pro-
mote more economic buying and selling) in reality constitute an impor-
tant administrative device by which the state exercises increasing con-
trol over the economic livelihood of peasant families. The supply and
marketing cooperatives now form the principal channel through which
rural people buy consumer goods and farm tools and supplies.
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The reorganization of 1955, in which the Ministry of
Procurement of Agricultural Products was created to handle all purchase
of major staple crops, limited the purchasing operations of the supply
and marketing cooperatives to secondary agricultural products and handi-
craft products. The reduction of the number of cooperatives which
resulted from the reorganization allowed the regime to reduce the number
of administrators needed as well as disperse the agents of trade out
into the countryside in order to improve peasant morale and production
efficiency by bringing retail outlets closer to their places of work. hji
By the beginning of 1956/ most of the medium sized and
small private retail enterprises in the large cities had been either
eliminated, consolidated into larger units, or transformed into jointly
operated public-private businesses. By April 1956, 1,680,000 private
rural merchants and peddlers, more than 6o percent of the total, had
been absorbed into the various forms of collective organization such
as jointly operated public-private businesses and commission sales
agencies.is
The problems that arose from the collectivization of
domestic trade are similar to those arising from the collectivization
of industry and agriculture. In the haste to form agricultural producer
cooperatives and to increase the production of major agricultural com-
modities, many rural persons who had been merchants were transferred
to agriculture and many peasants who were part-time merchants no longer
devoted time to this sideline activity. In early 1956 there were crit-
icisms in the official press of (1) the absence of conveniently located
retail outlets in rural areas, (2) the lack of attention paid to the
changing needs of the peasants, (3) the existence of large inventories
of stale and unwanted stocks, and (4) the failure to comply with quality
standards in the case of a great number of important consumer goods.
On 3 March the All-China Federation of Supply and
Marketing Cooperatives, Which had been the leading organ in stimulating
transformation, issued a directive which brought transformation to a
halt IV:
... Special characteristics should be preserved
and promoted, and generally, during the immediate com-
ing months, no changes should be made to their original
management and control methods, including the taking
in of stocks, the pushing of sales, keeping of books,
wages and ... forms of service.
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Table 3 shows the participation of various elements in all
retail trade. Table 4 shows participation of bona fide commercial organs
-- that is, enterprises whose sole function is trading. Both tables are
based on 1955 Plan fulfillment figures and 1956 budget report, and sub-
sequent developments will require modifications of them.
Table 3
Communist China: Participation in All Retail Trade
1954-56
Percent
State-operated
Cooperatives
Joint state-private
Private
Peasant
Total
1954
1955
1956 (Planned)
19.5
38.3
4.7
37.5
100.0
27.0
30.5
12.7
29.8
100.0
60.5
25.5
8.9
5.1
100.0
Table 4
Communist China: Participation of Bona Fide
Commercial Enterprises in Retail Trade
1954-56
Percent
1954?
1955
1956 (Planned)
State-operated
22.2
31.5
28.2
Cooperatives
45.7
35.8
31.9
Joint state-private
5.6
15.2
26.1
Private
26.4
17.4
13.6
Total
100.0
100.0
100.0
Chen Yun, speaking at the Eighth Party Congress in
September, announced that a number of direct state controls over the
marketing of some consumer goods would be relaxed. 2/ He'estimated
that commodities, constituting one-fourth of the value of total 1956
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retail trade) would be traded on a free market. Whereas all grain,
industrial crops) and important subsidiary agricultural crops would
continue to be purchased by the state or by supply and marketing cooper-
atives as agent, of the state, a part of the subsidiary agricultural
products, which had been exclusively purchased by supply and marketing
cooperatives, would be permitted to be-competitively purchased, trans-
ported, and marketed by state-operated stores, cooperative stores)
cooperative teams, and supply and marketing cooperatives. Free market-
ing by handicraft workers of their products would be restored. The
quality of manufactured consumer goods was expected to improve as a
result of the provision for removal of price fixing on goods of varying
quality.
At least some Marxist criticism of the so-called free
market has been noted, for both Chen, at the Congress) and Hsueh Mu-
chiao, vice chairman of the State Planning Commission, have pointed
out that this definitely is not a capitalist market. 122/
As of 3 November 1956, free markets were in operation
in nine provinces -- Kwangtung) Fukien) Hupei) Shantung) Kiangsul
Szechwan, Kiangsi, Shensi, and Hopei. 52/ Initial indications are
that a rise in prices of commodities traded) followed by an increase
in supply. and a price drop back to the price set in state stores) has
resulted. al This free market is a realistic return to the situation
as it was before 1953. Attempts at extending complete control to all
facets of economic life by the state during the drive for socialization
appear to have been unsuccessful in this phase of the retail commercial
process.
C. Budget System.
1. General.
A tighter financial situation in 1956 is suggested by the
fact that total planned budget revenue available for current expendi-
ture was to increase by a smaller percentage than any previous budget)
and that it is insufficient to provide the surplus characteristic of
Chinese Communist budgets since 1951.* Failure to achieve a budget
surplus may have serious repercussions in view of the expanded bank
credit program of 1956. Budget funds in the past have been the chief
source of bank reserves and, with no increase apparent from this source
in 1956, the planned expansion of credit of 4.5 billion yuan by non-
inflationary means seems very difficult of achievement.
See Figure 1, following p. 32.
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Ina
Crecits. Lem ail
Prods al Mao 0-
Pecuteal
ladabia
Coneenad It
COMMUNIST CHINA
BUDGET REVENUES AND EXPENDITURES
1950-56
(Billions of Current Yuan)
REVENUES
12.967
9.5%
-21F
n."
it5je
--MT; " :a
38%
46%
17.560
11%
325%
39%
26.237
Othe Mos It
3'
21.762
7.5%
-2413.
35%
vi
42%
3 4, 94 I
29.732
3;
27.203
38%
34%
4s
48%
Its
25786 4.57
EXPENDITURES
Ode 162444?14 tia81%
Petriba ?Z 19k
Mem 41.5%
WO. Want
sai Ekrationl
East Omuta
2584
16.787
6'
1.14t 2, 25%
7,1111-?
29.5%
48%
0.61 lad ad
Ced tannest
Form lid val 094
24.632
3%
24%
4.
50%
29.347
II'
22%
47.
30.743
3%
2%
201
0;
0324'
52'
Goad Rim.,
1950 1951 1952 1953 1954 1955 956 1950 1951 1952 1953 1954 1955 956
(Budget) (Budget)
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Figure 1
ECONOMIC CONSTRUCTION
EXPENDITURES
0.595
24'
2.316
11/1.5%
13.782
lot
^-1
244
56.055
104
00er
Camay. ad
NS, tads
Coaadaradas
Tranamittan
I174dsrs, F4707
St
14;
14%
14.026
14;
Csaarnaci. ?24 latenba
kdad,
144
471
Mosar
II'
10.
lit
12;'
36.5;
Had
La
46%
1953 1954 955 1 Budge9 5 60
50X1
50X1
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The undesirable method of achieving a surplus in the final
1956 accounts through underfulfillment of expenditure is a possibility.
According to a statement at the Eighth Party Congress in September, the
capital construction plan would be only 92 percent fulfilled, which) if
exactly reflected in capital construction expenditures, would result in
an expenditure underfulfillment of over 1 billion yuan. This could well
be offset by cuts in planned receipts due to the 1956 flood and typhoon
damage. Judging by the 1954 experience, however, the main impact on
the budget of these natural disasters will come in 1957) when antici-
pated profits on commerce and indirect taxes will be affected.
2. Revenue.
a. Taxes.
Tax receipts, which constituted about 75 percent of
current revenue in 1950, were budgeted at about 47 percent for 1956)
being supplanted for the first time as the chief source of revenue by
.profits and depreciation reserves of state enterprises. Within the
tax category) there has been a shift of even greater magnitude -- away
from reliance on agricultural taxes and in favor of industrial and
commercial taxes. Most of the latter are in the form of commodity or
turnover taxes with incidence on the consumer, who in China for the
most part is the peasant, thus maintaining agricultural income as the
major source of tax revenue. Table 5* shows the budget revenue of
Communist China in 1955 and 1956.
Almost all of the 1.2-billion-yuan rise in tax receipts
in 1956 will be from industrial and commercial taxes, which will still
fall short of the 1955 planned collections of such taxes. The signifi-
cant underfulfillment of industrial and commercial tax revenue in 1955
was attributed to declines in important sectors of light industry out-
put and to the lack of peasant purchasing power, both stemming from
flood damage to crops in 1954. This explanation was rejected by a
group of former private entrepreneurs who, in a statement to the Peoples
Congress in June, said ineptness in socialized trade and failure to
utilize experienced private personnel caused artificial shortages and
underfulfillment of retail trade plans and consequent underfulfillment
of commercial profits and taxes. 2/ Criticism of this sort was not
without foundation, for the Chinese Communists recently adopted a series
* Table 5 follows on p. 34.
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Table 5
Communist China: Budget Revenue
1955-56
Million Yuan
;955 1956
Budget Items Planned) (Actual) (Planned)
Profits and depreciation
reserves of state enter-
prises
Industry
4,591
5,073-
6,689
Commerce
3,709
3,320
4,095
Communications
N.A.
1,791
2/108
Agriculture and
forestry
N.A.
532
632
Other
N.A.
478
6o4
Joint enterprises
. N.A.
21
200
/Total
11,116
11,194
14,328
Taxes
Agriculture
2,800
3,054
3,020
Industry and commerce
10,000
8,725
9,970
Customs duties and
salt tax
981
966
990
Total
Credits, loans, and
insurance
Foreign loans
Domestic bonds
Residual
Total
13,781
12,7145
13,980
N.A.
600
1,712
2,312
1,657
7o4
2,361
142
600
742
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Table 5
Communist China: Budget Revenue
1955-56
(Continued)
Million Yuan
Budget. Items
15955 1956
(
Planned (Actual) (Planned)
Other
Total current
receipts
841 ,
M.
27,201
681
28,050
29,732
Surplus carried over
from previous year
3,143
3,155
1,011
Total revenue
31,191
30,358
30,741
a. The discrepancy between total profits and the sum of sector
profits derived from the 1956 breakdown and announced increases
has been eliminated by treating other profits as a residual.
Alternatively, it may be that the state suffered a loss of 88
million yuan on its share of joint enterprises for which no
profits were recorded for 1955.
of trade reform measures reminiscent of former freer trade practices,
which were acknowledged to be directed at remedying defects of social-
ized trade.
The constant value of 1955 and 1956 agricultural taxes
at 3 billion yuan is difficult to reconcile with the budget statement
that grain tax collections were to increase from 19 million metric tons
of processed grain in 1955 to 20.7 million tons in 1956. Central govern-
ment grain collections were to remain at 17.25 million tons, but, because
of increased authorizations of local surtaxes and levies, total collec-
tions were to go up. The possible explanation that local levies are not
included in reported agricultural taxes is supported by budgets of pre-
vious years, wherein the changing value of grain taxes bears no relation
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to the reported volume of grain collections. If local levies are not
included, the reported value of agricultural taxes by no means reflects
the true burden of the budget on peasants in Communist China.
b. Profits and Depreciation Reserves of State Enterprises.
Achievement of the profit target was the crucial goal
in planned receipts for 1956. The absolute increase of 3.1 billion yuan
was the largest profit increase ever planned or achieved in a Chinese
Communist budget, and it not only matched the total increase in budget
receipts of 2.5 billion but helped to offset the large decline in 1956
in revenue from foreign loans. The large rise was predicated on the
fulfillment of many Five Year Plan production goals during 1956, any
significant failure in which may entail curtailment of planned expen-
ditures.
Feasibility of the profits target may be more easily
analyzed because of inclusion within the latest budget report of the
sector breakdown of state enterprise profits. Industry is the largest
source, contributing about 46 percent of such receipts in 1955 and 1956.
All sectors of the state economy expected to increase profits in 19560
but the absolute increase of 1.6 billion yuan from state industry was
double that of any other sector. The planned increase in industrial
profits was 31 percent, which was substantially greater than the planned
21-percent increase in gross value of state industrial output. An
upward adjustment in industrial profit margins at the expense of the
commercial markup was planned for 1956, however) and this could support
at least a part of, if not the entire, differential. Any general under-
fulfillment of 1956 industrial production certainly will have repercus-
sions on the optimistic industrial profits target.
The state's commercial profits arise primarily from its
90-percent share of wholesale trade and) within that trade, from profits
on sales of basic agricultural commodities. The planned 21-percent in-
crease in state commerce profits iS probably largely dependent on the
Chinese Communist thesis that the marketed proportion of crops and thus
of goods available to the trade network will nearly double under agri-
cultural producer cooperatives as compared with previous proportions
marketed by individual peasants.
The planned 200-million-yuan return in 1956 on the state's
share in joint enterprises was only part of its earnings from partici-
pation in the joint enterprises' 31-percent share of total industrial
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output and 25-percent share of retail trade. Expenditures for capital
construction and increased working capital of joint enterprises are to
be financed outside the budget from profits, in contrast to the treat-
ment accorded to state enterprises. Extension of this plan to state
enterprises is to take place within the next few years when such enter-
prises will be allowed to retain a set proportion of profits for invest-
ment.
c. Credit, Loans, Insurance, and Other.
The conclusion in 1955 of a 2-year transfer of Soviet
military equipment and supplies to Communist China was responsible for
the drop in credit, loans, and insurance receipts from over 2 billion
yuan to roughly 700 million yuan in 1956. The much-vaunted Soviet in-
dustrial credit contributed less than 1 percent of 1955 and 1956 receipts.
Annual domestic bond sales of 600 million yuan continued in 1956.
Receipts, under the category other, in the past have been
substantially higher than in 1955 and 1956 because of the previous in-
clusion in this category of nonrepetitive donations and confiscations.
The more stable revenue elements of this category are believed to be
administrative fees of budget-supported enterprises, such as school
tuition fees and gross revenue of forced labor camps.
3. Expenditures.
All major categories of expenditure were to be increased
In 1956 in response to the drive to fulfill the First Five Year Plan
ahead of schedule, the speedup of socialization in the first quarter
of 1956, and to make up for cuts in expenditure during the 1955 aus-
terity program. Table 6* shows the budget expenditures in 1955, planned
and actual, and in 1956. Although on the surface defense expenditures
are an exception to this trend) over 1 billion yuan of 1955 expenditure
simply reflects the value of transferred Soviet military equipment and,
when this is disregarded, domestic expenditure on dcfense in 1956 shows
an increase of 19 percent. The leveling off of 1956 total expenditures
In relation to 1955 obscures the major category increases because of the
listing within the 1955 budget of a 2.4-billion -yuan allocation to the
banking system. It had been expected that any such increase in bank
reserVes would be determined by the year-end surplus) but achievement of
the bank loan plan required the assignment of funds during that year. As
pointed out above, such an allocation of reserves in 1956 was not possi-
ble unless planned expenditures were cut or revenues exceeded the plan.
* Table 6 follows on p. 38.
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Table 6
Communist China: Budget Expenditures
1955-56
Million Yuan
Expenditure
Economic Construction
Industry
359" 1956
(
Planned (Actual) (Planned)
Heavy
,51698
5,327
7,569
Light
690
524
975
Total
6,388
>,852
8,544
Agriculture, forestry) water
conservancy, and meteorology
1,312
1,473
2,185
Communications and transport
2,146
1,911
2,896
Commerce, food, and foreign
trade
2,845
3,355
857
Other 2/
1,498
1,127
1,573
Total
14,189
13,762
16,251
Unaccounted
45
Social, cultural, and educational
3,851
3,189
3,916
Administration
2,242
2,154
2,1120
_---
Defense
7,193
6,500
6,112
Other
General reserve
1,017
790
Credit, loans, insurance,
and other
1,245
Bank credit funds
12/
2,418
Local revolving funds
li/
201
Foreign and domestic debt
22
662
760
Foreign aid and miscellaneous
456
670
Total
2,262
3,742
2,220
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Table 6
Communist China: Budget Expenditures
1955-56
(Continued)
Million Yuan
EXpenditUre
Grand Total
Capital construction 2/
1955 1956
(Planned) (Actual) (Planned)
29,737 29,347 30,723
9,592 8,631 14,091
a. Identified in 1955 plan budget as stockpiling, municipal construction,
and joint enterprises. The latter category is now financed outside the
budget.
b. Expenditures similar to these were made at the end of 1954 fram
accumulated surplus allocations to the banking system in that year total-
ing 2.6 billion yuan and to local revolving funds of 307 million yuan.
c. Most of these expenditures are under economic construction with a ?
minor share under social, cultural, and educational, and administration.
In 1956 the largest increase in expendittre was for capital
construction. The planned rise of 62 percent in this category was to
carry out over one-third of the First Five Year Plan construction pro-
gram in 1956. As most of the expendittire for fixed assets comes under
economic construction, the 2.3-billion -yuan rise in this category is
not unexpected.
The priority of heavy industry in investment spending con-
tinued in 1956 with the allocation of an even larger proportion of eco-
nomic construction funds. The 86-percent increase in light industry
Investment was elicited by the need for more consumer goods to match
the planned increases in average wages and, more important, by the
attraction of the quick return on capital so invested.
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Increased spending on communications and transport and on
agriculture, forestry, and water conservancy was sufficient to averful -
fill in 1956 the Five Year Plan investment targets for these sectors.
Agricultural investment has been largely for flood control and irriga-
tion, and the stepping up of such, construction work in 1956 was facili-
tated by the regimentation of agricultural labor through the now almost
universal agricultural producer cooperatives.
The decline in expenditure on commerce, food, and foreign
trade of over 2 billion yuan brings 1956 spending to roughly the same
level as in 1954. Spending in 1955 exceeded the annual average for this
category because it included a huge allocation of working capital to the
new Ministry of Agricultural Procurement. This Ministry took over from
the supply and marketing cooperatives responsibility for buying basic
agricultural commodities under the forced sales program. A change in
financing accompanied the shift in responsibility because, in the place
of bank loans of working capital to the cooperatives, a permanent grant
of budget funds was made to the Ministry.
Social, cultural, and educational projects bore the brunt of
the economy program in 1955 when only 82 percent of planned spending, took
place. The curtailed expenditures apparently were to be carried out in
1956, especially as regards school construction. Enrollment plans for
higher education and secondary schools have been revised upward, necessi-
tating at least a meeting if not an expansion of construction plans.
Considerable expenditure on school facilities was to be financed outside
the budget, for example, by agricultural producer cooperatives' sponsoring
primary schools and, in addition, by increasing revenue from tuition fees.
Some averfulfillment, or a shifting of funds within the category, was
expected in 1956 because farm relief already was over the planned expen-
diture of 200 million yuan.
The Chinese Communists have had notable success in holding
down administrative expenditures, and the increase in this category
planned for 1956 just about covered the planned wage increase. Measures
underlying the stability of administrative expenditures have been pri-
marily at the expense of government workers, who have been cut from the
payroll, transferred to local units, suffered money wage cuts, and lost
a variety of fringe benefits.
The allocation to Defense of Soviet credit and transfers of
Soviet military equipment in China to the Chinese Communists constitutes
about 20 percent of total defense expenditures. The only other comment
on defense spending in the official budget report was the explanation
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that underfulfillment of the budget plan for defense expenditures was due
to the conscientious handling of funds by the Defense Department, which
permitted reductions in planned expenditure. There has been little change
In the level of military personnel in the last few years, although there
have been pay increases. For the most part, however, increases in defense
spending over the years represent new equipment, supplies, and defense
construction.
Expenditures on foreign and domestic debt in 1955 and 1956
almost equaled current receipts from borrowing. In 1956 the state was
to repay about 100 million yuan on the 1954 bonds, 50 million yuan on
the 1955 bonds, 146 million yuan on the 1950 Soviet loan) and the remain-
der of 4601 million yuan on the Soviet loans of 1954 and 1955.
The foreign aid mentioned in the budget covers commitments
to North Vietnam, North Korea, Cambodia, Mongolia, and Nepal, arranged
In order of magnitude of China's 1956 expenditures for foreign aid. The
aid agreements run for 2 to 5 years from 1955 and, assuming equal annual
drawings, aid expenditure in 1956 will total 355 million yuan. The
remaining 315 million yuan of miscellaneous expenditure in 1956 covers
tax collection expensea and other unknown items.
4. Projected Budgets, 1957-62.
Receipts and expenditures have been estimated for the last
year of the First Five Year Plan and for the period of the Second Five
Year Plan. The methodology for estimating the 1957 budget is given in
the footnotes to Tables 7 and 8. Table 7* shows budget expenditures
projected for 1957, 1960, and 1962. Table 8** shows budget revenue
projected for 1957, 1960, and 1962. Information for projecting revenue
and expenditure through 1962 was drawn mainly from speeches by Liu Shao -
chi and Chou En -lai at the Eighth Party Congress. Certain desirable
relations of economic aggregates were defined; for example, budget expen-
diture should constitute roughly 30 percent of national income. Within
the budget, twice as much should be spent on capital construction as in
the First Five Year Plan; defense and administration expenditures should
be cut from 30 to 20 percent of spending; and economic construction and
social, cultural, and educational expenditures should be raised from 56
percent to 60 to 70 percent of spending.***
* Table 7 follows on p. 42.
** Table 8 follows on p. 43.
*** Continued on p. 44.
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Table 7
Communist China: Projected Budget Expenditures
1957, 1960, and 1962
Billion Yuan
1957
1960
1962
Economic construction
17.4 2/
22.8
3o.4
Social, cultural, and educational
4.2 2/
5.2
6.o
Administration
2.4 2/
2,8
3.1
Defense
6.1 2/
6.7
7.3
Other
2.5 2/
4.9
5.2
Total
42.4
2242
Surplus
-0.3
0.9
0.9
Capital construction I/
11.6 g/
17.1 h/
23.5
a. The remainder of 11.6 billion yuan to be expended under the
First Five Year Plan plus increased capital construction expendi-
tures of 4.3 billion yuan (less 200 million yuan attributed to edu-
cational construction), adjusted for an aVerage relationship of eco-
nomic construction yuan to capital construction yuan of 1.4 to 1.
b. Estimate.
c. Estimate based on announced policy not to increase the number
of administrative employees and the regular underfulfilIment of
planned expenditures, which in 1956 were 2.42 billion yuan.
d. Estimate based on continution of spending at same level as in
1956 with no Soviet military credits.
e. Estimate based on greater domestic debt retirement, as a greater
proportion of bonds will be due and shipments under aid agreements
negotiated in 1956 will be at a higher level. The reservefunds
also are expected to increase in line with their announcements that
this is necessary for greater flexibility and dealing with emergencies.
f. Most capital construction expenditures as listed under economic
construction with a minor share under social, cultural, and educational,
and administration.
g. Balance of 7.3 billion yuan left to be spent under the First Five
Year Plan plus 4.3 billion yuan representing announced plans to over-
fulfill capital construction spending by 10 percent.
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Table 7
Communist China: Projected Budget Expenditures
1957, 1960, and 1962
(Continued)
h. Capital construction expenditures for each year have been esti-
mated within the framework of the plan to double First Five Year
Plan capital construction to.a total of 85.5 billion yuan. The
allocations to specific years are based on the proportions achieved
In the First Five Year Plan or planned as for 1957, that is, 15
percent in 1953. For other years, estimated expenditures are: .
1958, 12.8 billion yuan; 1959, 14.5 billion yuan; and 1961, 20.5
billion yuan.
Table 8
Communist China: Projected Budget Revenue
1957, 1960, and 1962
Million Yuan
Profits and depreciation reserves of state
enterprises
1957
1960_
1962
Industry
7,492
11,037
14,649
Commerce
41406
5,692
6,675
Transportation and communications
2,365
3,331
4,068
Other
1,480
2,309
3,116
Total
15,743
22,369
28,508
Taxes
Agriculture
3,182
3,618
3,971
Industrial and commercial
10,790
14,312
16,988
Other
1,089
1,327
11495
Total
15,061
19,257
22,454
Credit, loans, insurance, and other
1,475
1,645
1,900
Total
32,279
43,271
52,862
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Derived total expenditures for the Second Five Year Plan
period were assumed to increase at a regular yearly rate of about 10 .
percent. The desired expenditure proportions were assumed to be achieved
gradunily through 1962. For example, economic construction and social,
cultural, and educational spending would constitute 66 percent of 1960
expenditures and 70 percent of 1962 expenditures.
Distribution of funds within the consolidated classifications
was made in relation to past budgets. The use of roughly 140 million
yuan per year in administrative spending was assumed to continue through
the Second Plan period. Defense expenditures were derived on a residual
basis. The estimated rise in such spending errs only on the conserva-
tive side in view of the military modernization program and the planned
buildup of more costly naval and air units. Analogy to the First Five
Year Plan spending also was used in breaking out social, cultural, and
educational expenditures, leaving economic construction expenditures
as a residual. Other expenditures are equal to the unaccountedrfor
proportions of state expenditures, for example, 10 percent in 1962.
Estimated revenues are sufficient to finance the projected
expenditures. Tax revenue was estimated from the base year 195, when
major revisions were made in Chinese Communist tax regulations. Turn-
over taxes and commodity taxes were moved by estimated gross value
Indexes for the relevant sectors. Income taxes and profits of state
enterprises were estimated from value-added indexes and data on social-
ization. An implicit assumption as regards socialization was that the
1956 pattern would hold through 1962.
The category of credits, loans, insurance, and other was
moved by certain assumptions as to domestic bond campaigns and foreign
loans. By 1952 tha annual bond target is estimated at 750 million yuan,
an increase from the 600-million yuan flotations of the First Five Year
Plan. Only a slight increase in the level of foreign loans is estima-
ted from the 1955-.56 rate of 140 million yuan per year to 200 million
Yuan by 1962. Other receipts are assumed to rise by about half the rate
of other sources of revenue.
Projected revenues are sufficient to yield a budget surplus,
although never one in excess of 1 billion yuan. Unless the banking
system successfully develops private savings as a source of bank re-
serves, the budget surplus will not permit very great increases in
annual loans. '
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D. Capital Construction Under the First and Second Five
Year Plans (1953-62).*
1. First Five Year Plan.
Judging from a series of many Chinese Communist announce-
ments since 1953 it is apparent that, as stated by Chou En-lai on
18 September 1956, the Peiping government expects that the First Five
Year Plan goals for capital construction will have been exceeded by
10 percent by the end of 1957. Percentages of completion of annual
plans of capital construction for previous years are as follows:
1953) 89.6 percent; 1954) 92.4 percent; and 1955, 94 percent. Figures
given by Liu Shao-ch'i at the Eighth Party Congress imply that the
Chinese Communists foresee 92-percent completion of the 1956 Plan.
This degree of plan fulfillment would pit the Chinese Communists in
a position to overfulfill the First Five Year Plan in 1957. If, for
example, only 87 percent of the 1956 Flan were completed, or 28.5
percent of the entire Five Year Plan instead of 33 percent as the
1956 plan contemplated, and if an equal volume of work were done in
1957, the entire Five Year Plan would have been exceeded by 10 per-
cent by the end of 1957.
Because a reduCtion of unknown proportions was made in
the 1956 capital construction program it is possible to describe and
discuss the program only as it stood before September 1956 when the
reduction was announced at the Eighth Party Congress. The extent of
the cutback is not known with respect to any sector. Although there
appears to have been a general reduction in construction allocations)
several sectors have received increases and, in any case, the over-
all reduction is believed to be no more than 8 percent. 52/
Industrial investment by the industrial departments has
taken up 52.7 percent of total capital (or basic) construction ex-
penditures from 1953 through 1955, and if the 1956 Flan is considered)
industrial investment will have amounted to 52.5 percent of planned
expenditures for the 4-year period (see Table 9**). Investment in
* As the Chinese Communists allocate capital construction funds and
announce the volume of capital construction work completed in terms
of current prices, this discussion is also in terms of current prices.
It is not believed that price changes have been sufficient to lead to
more than minor errors in estimating the yuan value of total capital
construction.
** P. 54, below.
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transportation, posts, and telecommunications has absorbed 19.7 per-
cent of total basic construction expenditures from 1953 through 1955.*
Expenditure for capital construction projects in culture, education,
and health constituted 8.7 percent of capital construction expendi-
tures from 1953 through 1955, amounting in those 3 years to 66 per-
cent of the amount originally planned in this category under the
First Five Year Plan. Agricultural investment by the government
under the Five Year Plan is estimated to have been 6.9 percent** of
total basic construction investment from 1953 through 1955, and if
the 1956 Plan is considered, agricultural investment will have been
7.2 percent of the total planned capital construction expenditures
from 1953 through 1956. In addition to Five Year Plan investment
funds, agricultural loans are estimated to have amounted to 1.0 bil-
lion yuan in 1955, and to amount to 3.6 billion yuan in 1956. The
increase in new loans in 1956 over 1955 is to be 2.6 billion yuan
as compared with an increase of only 300 million yuan in 1955 over
1954.
a. Investment by Industrial Departments.
Industrial inyestment by the industrial departments
as a percentage of yearly total investment has increased each year '
of the Five Year Plan, from 49.3 percent in 1953 to 52.7 percent in
1954 and to 55.2 percent in 1955 (see Table 11***). The latter was
the year of the great economy movement, when nonindustrial invest-
ment was cut back -- building construction, for example, being re-
duced from 47 million square meters in 1954 to 30 million square
meters in 1955. In the 1956 Plan it is estimated that industry
dropped to approximately 52.1 percent of total 1956 planned basic
* The Chinese Communists report posts and telecommunications in-
vestment with transportation for these years. Posts and telecom-
munications investment on the central government level is less than
1 percent of total First Five Year Plan investment as planned.
** The term agricultural investment covers investment in agricul-
ture, forestry, and water conservancy and is used for the sake of
brevity. Investment for the lumber industry, which is defined by
the Chinese Communists as an industrial investment, is included in
their allocation for agriculture, forestry, and water conservancy
but is deducted for comparative purposes here.
*** P. 57, below.
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construction expenditures. Investment by the industrial departments
will have more than doubled since 1953 if 1956 Plans were carried out.
If the 1956 Plans were fulfilled by 90 percent, investment by the
Industrial departments will have more than doubled since 1953 (see
Table 12*).
The order or priority within industry ranks machine
building first, followed by steel, power, coal, and oil. Textiles,
chemicals, nonferrous metals, and the construction materials indus-
try are at a lower level, and various light industries are at the
bottom of the list in order of volume of investment.
During 1956 the proportional distribution of invest-
ment funds between heavy (or producer goods) industry and light
industry has been a subject of much discussion among the Chinese
Communist planners. On 18 June 1956, Li Fu-chun, Chairman of the
National Planning Commission, stated that, whereas the First Five
Year Plan originally stated That heavy industry was to receive
88.8 percent and light industry 11.2 percent of industrial invest-
ment funds, in 1956 and 1957 the proportional distribution was to
be changed in favor of light industry, to 87.5 percent and 12.5
percent. The new ratio presumably was to apply to the total Five
Year Plan investment. This represents only a small change in the
ratio of.heavy to light industry investment -- from about 8 to 1
to about 7 to 1.
Local industrial investment -- to serve local needs --
was allocated 4.4 percent of the total basic construction funds.
About half of the local industry investment will be for light indus-
try.
b. Transportation.
Transportation, posts, and telecommunications were
second only to government industry in volume of yearly capital con-
struction investment through 1956. Within the investment for trans-
portation, posts, and telecommunications, the investment for rail-
roads has been the greatest and has shown the greatest increase.
If the 1956 railroad basic construction plan was fulfilled by 90
percent, the total expenditure in 1956 will have been 2.5 times that
of 1953. No other sector has had such an increase over 1953 expendi-
ture. Investment for railroads as a percentage of yearly total basic
* P. 58, below.
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construction expenditure has been as follows: 1953, 11.1 percent;
1954, 13.8 percent; 1955) 14.5 percent; and 1956, 14.4 percent (Plan).
Investment in highways, waterways, civil air trans-
port, and posts and telecommunications, as a percentage of yearly
total basic construction expenditure, has been as follows:' 1953,
6.4 percent; 1954, 7.0 percent; and 1955, 5.8 percent.
c. Agriculture, Forestry, and Water Conservancy.
Agricultural investment (excluding investment in the
lumber industry) as a percentage of yearly total investment under
the First Five Year Plan has been as follows: 1953, 10.0 percent;
1954, 4.8 percent; 1955, 6.4 percent; and 1956, 7.6 percent (estimate
The estimated share for 1956 was somewhat higher than agriculture's
share from 1953 through 1955 (6.9 percent).
The preponderant share of agricultural investment,
both by the Ministry of Agriculture and by the Ministry of Conser-
vancy, goes to water conservancy construction. There have been
announcements of great increases in irrigated areas since October
1955 and of plans for enormous yearly increases in irrigated areas.
It is believed that most of these newly announced increases have .
been and are to continue to be the result of peasant activity and
that they take the form of small-scale, simple irrigation construc-
tion. It is believed that these activities are financed through
the savings of agricultural producer cooperatives and through agri-
cultural loans to cooperatives and to individual peasants. The
great development of agricultural producer cooperatives from mid-
1955 to mid-1956 and the increase of loans coincide with the great
increase in small-scale conservancy construction. In 1955, total
agricultural loans are estimated to have amounted to 1.0 billion
yuan and in 1956 were to amount to 3.6 billion yuan.
2. Second Five Year Plan.
From the Second Five Year Plan proposals presented at
the Eighth Party Congress it is apparent that capital construction
expenditure is planned to be about twice the size of that under
the First Five Year program, or about 85 billion yuan (see Table 13*).
Industrial capital construction is to constitute 6o percent of the
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total expenditure) or about 51 billion yuan, compared with 58.2 per-
cent of total planned expenditure under the First Five Year Plan.
The proportion allocated for transportation in the Second Five Year
Plan was not announced, but with respect to railroad investment a
reasonable assumption can be based on the statement that 8,000 to
9,000 kilometers of new rail lines would be built. As this is twice
the mileage of. track originally planned under the First Five Year
Plan, it is assumed that railroad investment under the Second Five
Year Plan will be approximately double the planned expenditure under
the First Five Year Plan) or approximately 11 billion yuan 13 per-
cent of the total planned investment expenditure. Investment in agri-
culture is to constitute 10 percent of the total) or about 8.5 billion
yuan, as compared with 7.6 percent of the total under the First Five
Year Plan. (The 7.6 percent includes the lumber industry investment
of about 789 million yuan.) If it is assumed that lumber needs
will double with construction and that the industry should have at
least the same proportionate share of total investment which it had
under the First Five Year Plan, then about 1.8 percent of Second
Five Year Plan investment or 1.5 billion yuan will be allocated for
the lumber industry. It is further assumed that the 8.5 billion yuan
allocated to agriculture includes the lumber industry investment as
Is the case under the First FiVe Year Plan. If the estimated 1.5
billion yuan for the lumber industry is subtracted from the 8.5 bil-
lion yuan, the agricultural investment under the Second Five Year
Plan constitutes 8.2 percent of the total. Agricultural investment
(excluding the lumber industry) under the First Five Year Plan was
set at 5.8 percent of the total.
Investment in all other elements of the Second Five Year
Plan makes up 18.5 percent of the total. Under the First Five Year
Plan this residual was 22.7 percent.
These proportions show the relative importance which the
Chinese Communists attach to the various phases of the investment
program. Industry still far outranks all else and has a slightly
larger proportionate share than under the First Five Year Plan. Rail
transportation is still in second place with a very substantial pro-
portion of the total. Agriculture has gained somewhat. She miscel-
laneous category has diminished.
When the absolute amounts allocated under the First and
Second Five Year Plans are compared, it is seen that industry and
rail transport in the Second Five Year Plan are twice the volume of
planned expenditure in the First; agricultural expenditures are 2.8
times greater. The residual category is 1.6 times its planned
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magnitude in the First Five Year Plan. These relationships are shown
In Table 13.
a. Industry.
The principal feature of capital construction invest-
ment in industry under the Second Five Year Plan is that it is twice
the magnitude of investment in the First Five Year Plan. Investment
In most industries will at least double -- that is, most of them will
retain approximately the same percentage shares which they had during
the First Five Year Plan. Oil investment, now that geological surveys
of the past few years are reported to have uncovered large resources)
mill probably be increased to between three and four times the esti-
mated 1.1-billion-yuan investment planned under the First Five Year
Plan. It is expected that among heavy industries, machine building
(engineering industries), steel, and power will continue to have
highest priority and oil) coal, and chemicals follow in priority.
Investment in nonferrous metals should continue to be proportionately
small.
Emphasis will continue to be upon heavy industry. In
view of the production targets proposed for the Second Five Year Plan)
the investments in heavy and light industry should retain approximately
the same ratio to each otheras during the First Five Year Plan. If
any appreciable downward modification were made in the Second Five
Year Plan, the heavy industry proportion would receive .the greater cut.
(1) Chemical Fertilizer Investment.
Special mention should be made of capital con-
struction investment in chemical fertilizer because of its importance
in the agricultural program of the Second Five Year Plan. It is be-
lieved that unless construction not presently known to be planned is
undertaken during the Second Five Year Plan, the magnitude of invest-
ment outlay will not be great and that in any case it will not have
more than a small proportionate share of total industrial 'capital con-
struction investment.
The two types of fertilizer of chief interest to
the Chinese Communists are nitrogen fertilizer (ammonium sulfate and
ammonium nitrate) and phosphate fertilizer. These two will make up
the great bulk of the 3.2 million metric tons which the Chinese Com-
munists say they will produce in 1962. Of this total it is estimated
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that one-third will be made up of nitrogen fertilizer. The remaining
two-thirds will be phosphate fertilizer. _The only known construction
or expansion of nitrogen plants is that which is included in the First
Five Year Plan -- this includes 3 new plants and 2 existing plants
being reconstructed.
Another source of increased ammonium sulfate pro-
duction will be the expansion of byproduct production of ammonium
sulfate by the expanding steel industry. This type of production will
be a considerable share of the total production.
It is believed that approximately two-thirds (2.0
to 2.2 million metric tons) of the 1962 chemical fertilizer goal will
be made up of phosphate fertilizers. A great deal of construction is
taking place in 1956 and 1957 in phosphate fertilizer, and probably
a large capacity will come into being during 1956 and 1957. This new
capacity is not included in the 1957 production goal of 578,000-metric
tons of chemical fertilizer. The 578,000-metric-ton goal includes
548,000 tons of nitrate fertilizer, leaving only 30,000 tons of phos-
phates. It is certain, however, that much more phosphate production
will be possible by 1957.
(2) Industry on the East China Coast.
There was discussion among the Chinese Communist
planners during 1956 of a reemphasis on development of industry in
established coastal industrial areas) especially in Shanghai and
Tientsin. The reemphasis is pointed toward developing existing plant
facilities and increasing the utilization rate of existing capacity,
which can be accomplished by rationalizations and by slight expansions
of existing plants. The coastal industry development program has been
urged as a means of saving investment funds; of increasing state in-
come through quick returns on small investment; of developing con-
sumer goods production; of increasing, with relatively small expense,
heavy industry production for support of new industrial bases in the
interior; and of fostering the development of a body of experienced
Industrial personnel for employment in the new industrial centers.
b. Agriculture, Forestry, and Water Conservancy.
Capital construction investment in agriculture under
both First and Second Five Year Plans is made up of several elements:
water conservancy, building and expansion of chemical fertilizer
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plants (the allocations for which are included in industrial invest-
ment), land reclamation, setting up of state farms, mechanization of
agricultural operations, improvement of agricultural techniques
through the setting up of agricultural technique stations, and the
like. The principal elements are irrigation, the fertilizer program,
and reclamation. Mechanization of operations will play a very minor
role through 1962.
Investment funds spent for capital construction in
agriculture consist of those which are spent by the Ministries of
Agriculture, of Water Conservancy, and of Forestry; those which are
spent by industrial ministries for chemical fertilizer plants; and
those spent by peasants through savings of agricultural cooperatives
and through state agricultural loans.
(1) Irrigation by the State and by Peasants.
Most of the state's capital construction invest-
ment funds for agriculture are spent upon water conservancy. The
major part of the conservancy program consists of the building of
very large water control projects which serve for flood control,
erosion prevention, development of hydroelectric power, and navi-
gation. The effect upon agriculture of state investment is three-
fold. In the first place, as the flood menace is decreased over
the years, calamities will decrease in number and severity and there
will be fewer bad crop years caused by floods. Second, water re-
sources will be made available for irrigation purposes in areas
hitherto lacking in sufficient water. Third, the state can under-
take irrigation projects which are too big to be handled by agri-
cultural producer cooperatives and by individual peasants.
The first 5-year program provided for an increase
of irrigated land by 4.8* million hectares. Apparently most of this in-
crease (probably 75 percent) is to be achieved by the peasants in coope-
ratives through savings of cooperatives and through loans by the state.
The Ministry of Water Conservancy reported in July 1955 that of the
68-million-mou** increase in irrigated land in 1950-54, the peasants were
responsible for irrigating 50 million mou through the carrying out of
* It is believed that this figure more accurately reflects net in-
crease in irrigated land than do the figures given in the spring of
1956, when enormous increases were reported to have taken place and
to be planned for 1956, 1957, and subsequent years.
** One mou is equal to approximately one-sixth of an acre.
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small-scale irrigation projects. The state was responsible for the irri-
gation of the remaining 18 million mou or 25 percent of the total. _511
It is probable that the state's part in adding to the irrigated area will
remain at about this level through 1962.
(2) Effectiveness of Chinese Communist Agricultural
Investment.
An examination of the Chinese Communist agri-
cultural investment program (both state and peasant) indicates that
it will probably enable the Chinese, barring natural calamities, to
produce 80 million metric tong of rice and 1.745 million metric tons
of cotton in 1957 and 95 million metric tons of rice and 2.4 million
tons of cotton in 1962. This judgment is based upon gauging the
effectiveness of the two principal elements of the investment pro-
gram -- irrigation and increased application of fertilizers. The
addition of newly reclaimed land to the cultivated area Is important
but not so important as the other two elements.
Table 9* shows capital construction expeAditure
In 1953-56 under the First Five Year Plan. Table 10** shows capital
construction expenditures, 1953-56, by central government industrial
ministries under the First Five Year Plan. Table 11*** shows basic
construction expenditures, by sector, in 1953-56. Table 12XXXX
shows an index of basic construction expenditures, by sector, in
1953-56. Table 13/ shows a comparison of major expenditures under
the First and Second Five Year Plans.//
Table 9 follows on p. 54.
**
Table 10 follows on p.
56.
Table
11 follows on p.
57.
***
****
Table
12 follows on p.
58,
Table
13 follows on p.
59.
//
Continued on p. 61.
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Table 9
Communist China: Value of Completed Capital Construction pi*
1953-56
Million Yuan
1953
1954 1955 1956 Plan 1/
Departments
Total Planned
Expenditures
1953-57
Expenditures
Percent of
5-Year Goal
Expenditures
Percent of
5-Year Goal
Expenditures
Percent of
5-Year Goal
Expenditures
Percent of
5-Year Goal
Industry 2/
Machine building
Fuel
Heavy Industryid
Textiles
Light industry
Construction and engineering
Geology
Local industry
Total 8/
Transportation and posts and tele-
communications 12/
Railroads
Communications (central and local
government) S
Total
Agriculture, forestry, and liner
conservancy S
Excluding lumber industry
Lumber industry
Total
Culture, education, and health S
Commerce, banking, and cammodity
stockpiling 4/
Municipal utilities S
Other expenses 2/
Industrial expenditures not else-
where listed 2/
Statistical discrepancy
Grand total
6,930
6,790
6,490
1 160
690
690
200
1,900
24 850
--4..--"2
9254/
8684/
7794/
1734/
1034/
894/
264/
21,54/
3,2084/
13.3
12.8
12.0
14.9
14.9
12.9
12.8
12.9
12.9
12.8
16.5
13.9
26.4
12.0
22.9
22.7
30.4
15.6
15.2
1,117 4/
1,007 1/
9354/
2804/
1674/
1,1104/
304/
3024/
12.., al
16.1
14.8
14.4
24.1
24.1
15.9
14.8
15.9
15-9
18.3
20.6
19.0
14.7
14.4
14.6
22.8
32.5
14.5
17.5
1,11371/
1,3664/
1,40211
21104/
11434/
144 4/
404/
3954/
5,167 4/
20.7
20.1
21.6
20.7
20.7
20.8
20.1
20.8
20.8
23.9
21.5
23.1
24.3
22.2
23.8
20.3
26.6
13.6
21.9
1,983 4/
2,104 d/
1,9354/
2804/
1674/
2024/
624/
557 1/
7,299 4/
28.6
31.0
29.8
24.1
24.1
29.3
31.0
29.3
29.3
35.5
31.9
34,4
43.0
29.8
39.8
32.8
to.!
5,670
2,540
8,210._
724 gy
4184/
1 142 V
1,0354/
5234/
1,558d/
1,35144/
5464/
1,900 4/
nN
2,0134/
811S
2 824
2,471
789
32?32
3,050
1,280
1,160
460
42,740
652
954/
71474/
699 1/
3894/
250
70 S
22 EV
-n
5,506
a=
363
11144/
lin 4J
701 4/
416 A/
232
81 iv
26 4/
.59
71498
6co.
1754/
riai
626 4/
31314/
218
101 EV
32 V
+199
2AS 9/
ili
1,0834/
2354/
1295
151 4/
146 iv
14,000
Footnotes for Table 9 folioi, on p. 55. " n
0.9
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Table 9
Communist China: Value of Completed Capital Construction 2,./
1953-56
(Continued)
a. Value of completed investment is expressed in current prices. It is believed that in 1955 new criteria of value of completed investment were introduced,
and that these new criteria resulted in higher totals of completion than would have resulted from continuance of the criteria used in 1953 and 1954. In 1955
the Chinese Communists probably started counting certain savings as completed investment. They may also have started to count partial completions in their
totals. .The new criteria resulted in a total value for 1955 which was over 1 billion yuan (or 2.7 percent of total expenditure planned under the First Five
Year Plan) higher than would have been 'obtained under the criteria used in 1953 and 1954.
b. Based on the 1956 Plan before its reduction announced in September 1956.
d. Estimate.
e. Estimate. No plan announcements are available for 1956 machine building investment. It is assumed to increase in the same proportion as heavy industry.
f. This is a category used in the First Five Year Plan. It is not equivalent to the term heavy industry when that term is used in contrast to light industry.
g. The First Five Year Plan includes a sum of 1.77 billion yuan to be spent for industrial investment by nonindustrial ministries. Of this sum the Plan
allocated 789 million yuan to the lumber industry under the Ministry of Forestry. The remaining 981 million yuan is distributed among various other nonindus-
trial ministries. The Five Year Plan allocates 24.85 billion yuan to investment by the industrial departments. The additional 1.77 billion yuan brings the
grant total allocated to industry up to 26.62 billion. In Table 9 the sum of 1.77 billion is included in the sums listed for nonindustrial ministries and is
not explicitly set forth except in the case of the 789 million planned for the lumber industry. The remaining 981 million yuan is included in the sums listed
for nonindustrial departments and in the item Industrial Expenditures Not Elsewhere Listed. See Table 10 for a detailed breakdown of industrial expenditures.
i. Highways, waterways, civil air transport, and posts and telecommunications.
J. Total if it is assumed railroads have the same proportion of total transport investment as in 1955.
k.
1.
m.
n?
o. This is a category used in the First Five Year Plan.
p. These sums are among the industrial investments by nonindustrial ministries. They should be added to the yearly expenditures of certain of the nonindus-
trial ministries listed but the Plan does not specify their allocation. Therefore this table excludes the other sums.
q. Li Fu-chun, Vice Premier of the State Council and Chairman of the State Planning Commission, said on 18 June 1956 that in the first 3 years of the First
Five Year Plan 54.6 percent of the work for the 5 years was completed.
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Table 10
Communist China: Value of Completed Industrial Capital Construction W.
1953-56
Departnents
Total Planned
Expenditures
1953-57
1953
1954
1955
1956 Flan 5/
Expenditures
Percent of
5-Tear Goal
Expenditures
Percent of
9-Year Goal
Expenditures
Percent of
5-Year Goal
Expenditures
Percent of
.Year Goal
Machine building
6,930
9252/
13.3
1,117 2/
16.1
1,4372/
20.7
1,983 cy
28.6
Fuel industry
Electric power
3,11165/
3935/
11-5
1.3T/
12.8
62425/
18.8
861/
25.2
Coal
2,292/
332/
14.5
399 2/
17.4
477 0
20.8
5435/
23.7
Petroleum
1,082 2/
11435/
13.2
1712/
15.8
21475/
22.8
7002/
64.7
Total
6,790
868/
12.8
1,0015/
14.8
l,366/
20.1
23a1' 5/
31.0
Heavy industry
Steel 2/
24,2922/
422 2/
9.8
504 2/
11.7
9062/
23.3
Other //
2,1985/
3575/
11315/
404E/
N.A.
Total
6,490
in 2/
12.0
9I]2 9/
14.4
11402 c'
21.6
&DI 2/
29.8
Textiles
1,160
1735/
14.9
2802/
24.1
240 c/
20.7
280/
24.1
Light industry
690
1032/
14.9
167 2/
24.1
143 c/
20.7
167 2/
24.1
Construction and engineering
620
69 2/
12.9
1105/
15.9
114 'I/
20.8
2022/
29.3
Geology
200
265/
12.8
30E4
14.0
502/
20.1
625/
31.0
Local industry
1,900
2455/
12.9
302 c)
15.9
3955/
20.8
557/
29.3
Industrial investments by
nonindustrial ministries gi
Lumber industry
789
955/
12.0
114 2/
14.4
1755/
22.2
2355/
29.8
Other
981
136 2/ .
184 2/
2175/
3005/
Total
12.723
22 El
10 d
325.5/
5355]
x
Grand total
3,21395/
12.9
24,22465/
16.0
5 559 c/
20.9
7,8255/
29.4
a. See footnote a, Table 9.
b. Based on the 1956 non before its reduction announced in September 1956.
c. Estimate.
d. Estimate. No Plan announcements are available for 1956 machine building investment. It is assumed to increase in the same proportion as heavy industry.
e.
f. Includes chemical, nonferrous metals, and construction materials industries.
g. This item brings together the various industrial investment sums allocated to the nonindustrial ministries. In Table 9, these sums are included in the
total allocated to various nonindustrial ministries and in the item Industrial Expenditures Not Elsewhere Listed.
h. This item includes sums subtracted from the yearly totals given in Table 9 for various nonindustrial ministries and it includes also the item Industrial
Expenditures Not Elsevhere Listed.
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Table 11
Communist China: Value of Completed Capital Construction in Current Prices, by Sector
1953-56
Percent
Sector
1953
1954
1955
1956 Plan
Industry b/
49.3
2/
52.7
2/
55.2
2/
52.1
2/
Transportation and posts and telecommunications
17.6
2/
20.8
2/
20.3
2/
20.2
2/
Agriculture, forestry, and water conservancy
(excluding lumber industry)
10.0
4.8
6.4
7.6
2/
Culture, education, and health
10.7
2/
9.3
2/
6.7
2/
N.A.
All others
12.4
2/
12.4
2/
11.4
2/
N.A.
Total
100.0
100.0
100.0
100.0
a. Based on the 1956 Plan before its reduction announced in September 1956.
b. The percentages are based on the industrial investment totals in Table 9 (total
1953-57 = 24.850 billion yuan) and do not include industrial investment of nonindustrial
ministries.
c. Estimate.
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Table 12
Communist China: Index of Expenditures for Completed Capital Construction in Current Prices, by Sector
1953-56
1953=100
Sector 1953 1954 1955 1956 Plan 2/
Industry12/ 100 123 2/ 161 2/ 227 2/
Transportation and posts and telecommunications 100 136 2/ 166 2/ 248 2/
Agriculture, forestry, and water conservancy
(excluding lumber industry) 100 56 92 163 2/
Culture, education, and health 100 100 2/ 90 2/ N.A.
/
Index of total 100 115 144 215
a. Based on the 1956 plan before its reduction announced in September 1956.
b. The percentages are based on the industrial investment totals in Table 9 (total 1953-57 = 24.85 bil-
lion yuan) and do not include industrial investment of nonindustrial ministries.
c. Estimate.
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Table 13
Communist China: Comparison of Major Expenditures Under th; First and Second Five Year Plans
1953-62
Sector
Planned Expenditures,
First Five Year Plan W
(Billion Yuan)
Approximate Planned
Expenditures, Second
Five Year Plan
(Billion Yuan)
Second Five Year Plan
as a Percent of
First Five Year Plan
Percent Under
First Five Year
Plan
Percent Under
Second Five Year
Plan
Industry
24.85
51.00
205
58.2
60.0
Railroads
5.67
11.30 ?
200
13.3
13.3
Agriculture, forestry, and
water conservancy
2.47 hi
7.00 hi
283
5'8 12/
8.2 hi
All others
9.75 sj
15.70 4/
161
22.7
18.5
Total
42.74
85.00
199
100.0
100.0
a. These are the figures as set forth in the Five Year Plan. They do not take account of possible overfulfillment or underfulfill-
ment of plans.
b. Excludes lumber industry investment.
C. The principal elements are culture, education, and health; nonrail transportation; municipal utilities; and banking, commerce,
and commodity stockpiling.
d. Largely the same as under the First Five Year Plan.
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III. Population and Labor Force.
A. Population Trends.
The estimated growth pattern for the Chinese population over the
last 25 years, with a projection to the year 1962, is shown in Table 14.
The year-to-year figures for population were not separately estimated
but were projected on the basis of assumed average annual rates of in-
crease for much wider time spans -- 1930-49, 1950-52, 1953-56, and
1957-62. The basiv assumption is that China's population has undergone
sporadic growth over the past 25 years with considerable variation of
annual rates of growth but that the paucity of information precludes
any reconstruction of even approximate yearly changes. A growth rate
of 0.3 percent per year was estimated for the peii.od through 1949 from
a review of social and economic conditions of this period, coupled with
analogical reasoning based on the record of the Indian population.
Table 14
Estimated Growth of the Chinese Mainland Population
Selected Years, 1930-62
Million
Year
(Midyear)
Population
Year
(Midyear)
Population
1930
535
1954
589.6
1935
543
1955
596.7
1940
551
1956
603.9
1945
559
1957
611.1
1950
568
1958
620.3
1951
572
1959
629.6
1952
577
1960
639
1953
582.6
1961
648.6
1962
658.3
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Following the termination of widespread hostilities in 1949,
some decline in mortality rates was experienced. Continuation of this
decline requires control over famine and disease, and, whereas some
progress is being made, the very magnitude of the task insures against
easy or early success. Consequently, based on current information
available from China and on evidence from the demographic history of
similar populations, it seems likely that the mortality rate in China
Is now declining slowly and will continue this trend through 1962.
The birth rate, on the other hand, is currently believed to be within
the range of 40 to 50 per 1,000 population and is expected to maintain
that high level through 1962. It is estimated that the annual rate
of increase will rise to an average of approximately 1.5 percent over
the period 1956-62, adding a net increase of about 10 million to the
population each year.
The official growth Ate of 2 percent which was first announced
in connection with the 1953 census has been rejected chiefly on the
grounds of too low mortality rates.
B. Labor Force.
1. Workers and Employees.
Workers and employees in the national economy are the largest
component of the Chinese Communist labor force for which data have been
made available on a continuing basis. This group numbered 18.5 million
In 1955, or roughly 6 percent of the estimated labor force.* The labor
force is largely composed of agricultural workers.
Although the composition of the worker and employee classifi-
cation, as used in the 1955 State Statistical Report, was not spelled
out, it is believed to be linked with other announcements on workers in
departments of the nationalized economy and with the First Five Year Plan
classification of workers and staff in economic departments. The latter
was given as a subCategory of the 21 million workers and staff in the
entire nation and constituted almost 80 percent of the whole category.
Total employment of workers and employees and distribution
by form of ownership are shown in Table 15.**
** Table 15 follows on p. 63.
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Table 15
Communist China: Workers and Employees Employed in Economic Enterprises
Selected Years, 1952-62
Million
Area of Employment
1952
1955
1957 Plan
1962.Plan
State, cooperative, and joint enterprise
6.3
12.2 2/
11.1
25.5
Private enterprise
10.4
5.3 2/
9.3
Subtotal
16.7
17.5
20.4
25.5
Administrative
IL2
La 2/
1.6
1.6
Social, cultural, and educational
2.3
2.8 2/
2.7
4.o
Personal service
0.5
3.5 2/
Total -
21.0
23.3
25.2
31.7
a. Estimate.
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The greatest change has been from private to socialized
employment at a rate well in excess of the First Five Year Plan target
of a shift of about 1 million persons Almost half of the First Five
Year Plan goals for Increases-in over-all and economic department employ-
ment remain to be accomplished. Prospects of fulfilling these goals in
the last 2 years of the Plan are good, especially in view of the speedup
In production and construction which, even with increases in labor
productivity, requires silable additions to the labor force. Actual
increases in 1956, if continued at the rate of the first half year)
would fulfill half the remaining goal, leaving about the same increase
necessary to complete the Plan in 1957.
The Second Five Year Plan includes an increase of 6 million
to 7 million persons among workers and employees. In Table 15* the in-
crease is shown as 6.5 million persons, with 5.1 million assumed to be
new workers in the nationalized economy. The Second Five Year Plan
goal represents an increase of 25 percent, which exceeds the planned
20-percent increase of the First Five Year Plan.
The Chinese Communists have had success in keeping admin-
istrative employment more or less constant. Increases in employment
in 1953 and 1954 were reversed as part of the 1955 economy drive,
especially at the central government level. The overfulfillment of
the Five Year Plan goal for social, cultural, and educational employ-
ment was to be expected in view of overfulfillment of higher and middle
school enrollment plans.
a. Sector Distribution of Workers and Employees
in Economic Departments.
The distribution of workers and employees in economic
departments in 1952 and 1955 is shown in Table 16.**
The big decline in private handicraft, transportation,
and miscellaneous employment is because of exclusion in 1955 of certain
handicraft employees from the worker classification and the transfer of
such workers to other categories of employment, including agriculture.
The 1952 and 1955 transportation figures are not completely comparable,
as no private modern employment was included in the 1952 total, whereas
* P.63, above.
** Table 16 follows on p. 65.
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Table 16
Communist China: Distribution of Workers
and Employees of Economic Departments, by Sector
1952 and 1955
Thousand
Sector
1952
1955
Industry
5)405
6,603
Commerce
3,453
3,825
Posts, telecommunications)
and transportation
797
1,550
Construction
1,021
2,300
Agriculture, forestry, and water
conservancy
239
575
Finance
378
600
Private handicraft) transportation)
and miscellaneous ?
5,485
3,047
Total 16,778 18 500
the 1955 figure includes former private highway and water transportation
workers now in joint and state enterprises. The figures on construction
employment may also lack comparability because the later figure includes
all construction workers, whereas in 1952 only permanent building and
installation workers were listed. The announced building and installa-
tion employment in 1955 was 1.8 million persons. The 2.3 million figure
given in Table 16 reflects roughly the same relationship of building
and construction employment to over-all construction employment as was
shown in construction data for the nation and the Northeast region in
1953.
b. Industrial Distribution of Workers and Employees.
Absolute figures on- industrial .employment have been used
in conjunction with announcements on increases in gross value of produc-
tion and labor productivity to make the estimated industrial breakdown
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of the labor force shown in Table 17. The largest percentage increases
In the labor force have been in those sectors having top investment
priority, such as engineering, heavy industry, electric power, and coal
mining.
Table 17
Communist China: Distribution of Workers and Employees
in Industry
1952 and 1955
Thousand
Industry
19522,./
1955
Heavy
590
740 12/
Light
3,030
3,400 2/
Textiles
700
700 di
Coal mining
46o
790 2/
Engineering
315
580 f/
Weapons and ammunition manufacturing
150
120 5/
Electric power
110
200 hi
Petroleum
50
73 1/
Total
5,405
6,603
a. Figures are based primarily on an-
nouncements.
b. Estimate derived from announced increases in labor
productivity and gross value of output applied to an-
nounced 1954 heavy industry employment.
c. Estimate derived from assumption that gross value of
output of food-processing workers per capita is typical
of light industry workers, who produce the balance of 4
billion yuan in output.
d. Adjusted downward by 20,000 to reflect decreases in
textile production in 1955. LV
e. Estimate based on adjustment of announced figure on
number of coal miners to include surface and managerial
personnel.
f. Estimate based on announced production and labor
productivity increases.
g. Estimate based on value added.
h. .?..51
i. Residual.
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2. Quality of the Labor Force.
The Chinese Communists are using foreign technical assistance,
a strict allocation of available technicians, intensive on-the-job train-
ing programs, and a greatly expanded educational system to overcome the
general shortage of skilled and technical manpower. One measure of this
shortage is the admittedly inadequate but still relatively ambitious
First Five Year Plan target of increasing both the number of specialists
and the number of skilled workers by 1 million persons. Table 18 .shows
the sources of the new personnel.
Table 18
Communist China: Sources of Specialists and Skilled Workers
1953-57 92/
Source
Number
Higher education graduates
283,000
Secondary vocational graduates
888,300
Completion of study abroad
900
Training of workers abroad
22,300
Worker training 12/
918,000
a. School years 1952/53 and 1956/57.
b. Ministry and on-the-job training.
a. Educational Training.
Competition between enterprises and educational institu-
tions for qualified,persons has been intense, with the latter seeming to
have gained priority in 1956. Graduates of the secondary vocational
schools who ordinarily would enter the labor force immediately were
encouraged to sit for college entrance examinations. Five Year Plan
enrollment targets for higher education have been revised upward, from
434,000 to 510,000 for 1957, and for secondary vocational enrollment
have been surpassed in 1956, with a total of 801,000 students in con-
trast to a 1957 goal of 672,000.
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This latter revision has elicited competition for per-
sonnel not only within industry but also within the educational system
itself. The combined demands of secondary vocational and senior middle
schools for junior middle school graduates total 810,000 persons, a
figure somewhat in excess of the 1956 number of junior middle graduates,
787,000. Top priority for enrollment has been given to the senior
middle schools, which plan to enroll 366,000 new students in 1957.
Table 19 shows enrollment in secondary schools in 1952-57.
Table 19
Communist China: Enrollment in Secondary Schools
1952-57
Thousand
First Five
School
1952-53
1955-56
1956-57
Year Plan
Senior
260
582
N.A.
724
Junior
2,230
3,318
N.A.
3,983
Total
2,490
3,900
5,200
4,707
Vocational
635
537
801
672
The stepped-up enrollment has had a deleterious effect
on the quality of education in Communist China. Lengthening of the
course of study only partially offsets this poor preparation and will
delay graduation of the increased number of new students until 1961
or 1962. ?
Priority in building new higher education institutions
and. in reforming existing ones favors technical education. Over one-
third of the college graduates during the First Five Year Plan will be
from technical schools, with teachers occupying the next higher propor-
tion of 25 percent. Preparation for teaching predominates in secondary
vocational institutions, with graduates of such courses numbering 52 per-
cent of the total and with engineering graduates second at 21 percent.
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Continued competition for qualified personnel is implicit
In the announced 12-year plan for education, which raises the annual new
entrants target considerably above the First Five Year Plan goals. For
example, the Minister of Higher Education has estimated that from 3 million
to it million new students will be admitted during the coming 12 years, a
tripling of the average yearly entrance rate of the First Five Year Plan.
New goals for'education in the Second Five Year Plan have been announced
only in very broad generalities. Enrollment in colleges is to double by
1962, and the enrollment in secondary vocational, senior middle, and
junior middle schools is expected to triple. .6.1/
b. Training of Skilled Workers.
The Ministries of Heavy Industry, Fuel Industries, and
Machine Industries are responsible for meeting over half the Five Year
Plan target of training 920,000 skilled workers. On-the-job training
planned for 439,000 workers is both practical and easy to organize but
becomes expensive whdn the master worker must interrupt his work for the
benefit of only a few apprentices. In order to use the time of this
skilled worker most efficiently, a system of technical training classes
is being used to train 362,000 workers. The balance of the skilled
worker trainees are to receive formal training in technical schools,
which have been increased from 22 to 192 in 1956.
?
Although skilled and technical labor were both. in short
supply when the Communists came to power in 1949, skilled labor is now
much less a problem. The relatively rapid advance made by the Chinese
in training skilled labor, compared with training technicians and special-
ists, is mainly a function of the shorter time required for training, plus
the lower investment cost for training skilled workers. It seems likely,
moreover, that the goal of the Five Year Plan to train 920,000 skilled
workers will be achieved without undue difficulties.
3. Wages.
a. Trends.
(1) Average Money Wage.
The wage series for all workers and staff and for
industrial workers is presented in Table 20.* It is based largely on
Chinese Communist announcements, which were not always clear as to type
* Table 20 follows on p. 70.
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Table 20
Communist China: Index of Average Wages of Selected Workers
1952-62
1956
1957
1962
1952
1953
1954
1955
Plan
Plan
Plan
Workers and staff
Average money wages
100
112.8 Lk/
115.7 2/
120.2 2/
133.5 12/
133 2/
166 1/
Average real wages
100
112 2/
Industrial workers
Average money wages
100
111.4 1/
114 E/
114.7 E/
127.1 2/
Average real wages
100
105 LI/
106.7 1/
106.9 1/
a. Derived by working backwards from an announced 20.2-percent increase in 1955 above
1952 .01; an announced 3.9-percent increase in 1955 above 1954 LI; and an announced
2.6-percent increase in 1954 above 1953. /2/
b. /1/
c. First Five Year Plan.
d. Second Five Year Plan.
e. '72/
f. Derived from an announced 2.3-percent increase in 1954 above 1953. DI
g. Derived from au announcement that 1955 increased 0.6 percent above 1954 and 14.7
percent above 1952. /12/
h. la/
i. Derived from an announcement that the 1955 increase above 1954 in real wages was
0.2 percent and that the 1955 increase was 6.9 percent above 1952. ig
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of wages and extent of the group affected, but the derived series gives
a picture of wage movements which is not out of line with other price
and wage data.
As noted in Chinese Communist literature, average
wage increases continued to be substantial through 1953 and then
leveled off. The movement contrary to this pattern in average money
wages of all workers in 1955 probably is due to the shift of remaining
government workers from the wages-in-kind to the cash wage system. The
slower rate of increase of industrial wages reflects the higher base
from which such workers ,have been raised. For example, the average
yearly wage of employees covered by labor insurance in 1955 (principally
Industrial workers) was 750 yuan, whereas the average wage of the 18.5
million workers in economic departments was approximately 519 yuan.
Workers outside the economic departments, such as primary school teachers
and local government cadres, have even lower wages -- that is, from 240
to 360 yuan for the teachers and from 150 to 240 yuan for hsiang (town-
ship) cadres.
The wage reform of 1956 included among its features
larger increases for these lower paid workers. The average increase for
all workers was 13 percent, whereas primary school teachers were to
receive a 33-percent increase; supply and marketing cooperative cadres,
26-percent; and hsiang cadres, up to 69 percent. The large increases
for the latter three groups are almost identical with increases planned
for them during the First Five Year Plan, indicating relative neglect
of such workers in the earlier years of the Plan.
Other features of the 1956 wage reform were to give
the greatest increases within the economic departments to workers in
heavy induStry and major construction areas and to high-level scientific
workers and senior technicians. /I/ The differential for skilled workers
was to be widened, with lower, or Grade 1, employees receiving an 8-percent
increase,_ and the highest, or Grade 8 employees, an 18-percent increase.. /.8.1
The fen (wage unit) calculation of wages, which tied wages to the price
movements of five basic commodities, and local cost-of-living subsidies
are to be abolished in favor of straight cash wages. Piece-rate wages are
to be used as extensively as possible, and there are to be regular upward
adjustments of basic work quotas. The original decision to make only
slight increases in wages of workers in coastal industries was subsequently
modified to harmonize with the increased production and investment planned
for this area.
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(2) Real Wages.
Real wages have failed to keep pace with money
wages. the greatest price rise affecting the workers' cost of
living took place in 1953, when over half the increase in money
wages was counteracted by price increases. The two wage series in-
dicate that as of 1955 there had been a-7.3-percent increase in the
workers' cost of living (see Table 20*).
Further inflationary inroads on the workers'
real income were expected in 1956. Upward adjustments have been
made in farm purchase prices, and, with wages no longer tied to
price increases of basic commodities, these increases probably
will be passed on to the worker in the form of higher retail prices.
Relaxation of purchasing and price controls on handicrafts and sub-
sidiary farm products, constituting 25 percent of retail trade, may
also rob workers of the increased income effects of planned money
wage increases. Possible shortfalls in anticipated output of agri-
culture, and light industry resulting from the 1956 floods and typhoon
may also have inflationary effects on worker-income. .
(3) Total Wages.
The planned 1956 wage increases were to raise
the workera' total income by 1.25 billion yuan. When this total
is related to the 13-percent proportion by which affected workers'
average wages are to he increased, the implied total wage bill is
9.6 billion yuan. If private employees, who numbered 5.3 million,
received 90 percent of the average wage in the Socialized sector,
the total wage bill for 1955 would_ be 13.1 billion yuan. The
average yearly wage of 561 yuan has been moved back by the' average
wage index for all workers. Table 21** shows the total wages of
office and factory workers in 1952-57 and 1962.
* P.701 above.
** Table 21 follows on p. 73.
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Table 21
Communist China: Total Wages of Office and Factory Workers
1952-57 and 1962
Billion Yuan
1952
1953
1954
1955
1956
1957 2/
1962 32/
9.8
11.9
12.4
13.1
14.3
14.9
23.3
a. Estimate based on achievement of the Five Year
Plan goal for the labor force and maintenance of the
1956 average wage.
b. Estimate based on the Second Five Year Plan
goals of an increase of 25 to 30 percent in average
wages and an increase of 6 million to 7 million in
the number of workers and employees.
b. Fringe Benefits.
The sum paid by the state and individual enterprises
for labor insurance, medical services, culture and education, and welfare
facilities for workers and employees ran about 13 percent of their total
wages and totalled 4.4 billion yuan for the years 1952-55. L30/ If
fringe benefit expenditure for other wage earners ran at least 6.5 percent
of their wage bill, total fringe benefit costs for the 4-year period
would have been 543 billion yuan. Central funds are spent for such facil-
ities as sanatoria and old age homes. Local funds pay for old age and
disability pensions, sick leave subsides and the like. Enterprises pay
3 percent of the wage bill for this insurance program and, in addition,
pay medical expenses, educational expenses, and miscellaneous welfare
expenditures.
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IV. Trends in the Economy.
A. Agriculture.
Since mid-1955 a number of important policy decisions have been
implemented by the Party leaders which deeply affect the structural or-
ganization of agriculture) state control of agricultural output, the
proportions of investment funds allocated for agriculture, and the rel-
ative position and progress of agriculture in the planned economy.
These decisions depart somewhat from Soviet precedent in generally
recognizing the essential importance of agricultural improvement to the
Industrialization program and in postulating a balanced development of
agriculture and light industry, along with heavy industry, as a means
of expanding the capital resources of the state and providing the nec-
essary incentives for greater efforts on the part of workers and peas-
ants. The decisions are aimed generally at subjecting agriculture to
more complete control within the planned economy. By means of rapid
socialization, the Underemployed labor of the peasants is to be regi-
mented in projects to enclose small farm plots in large fields, to
construct dikes and ditches for flood control and irrigation, and to
fit the drainage system to the changed field pattern, and thus to
facilitate large-scale cultivation and utilization of improved farm
Implements. Cooperativization is to provide the means for better
planning of crop patterns and rotation, allocation of investment
resources, and control of output through state channels.
The effect of the 1954 floods, in reducing agricultural output
and thus the output of light industry and the hoped-for increases of
budgetary revenues in 1955, focused the attention of the Party Central
Committee planners on the need to bring agricultural production more
completely within the orbit of central planning and control. Thus
Mao Tze-tung) in his 31 July 1955 Report on the Cooperativization of
Agriculture, after the relatively modest collectivization goals of the
First Five Year Plan had already been accepted by the National Peoples
Congress, called to task those Party members who had been guilty of
"rightest conservatism" and pointed the way of rapid collectivization
to coordinate agriculture with the program of industrialization 111/:
In the first place, as we all know, the production
level of marketed grain and industrial raw materials
in our country today is very low, and the State's re-
quirements of these resources are growing year by year.
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This is an acute contradiction. If we cannot within
the period of about three rive Year Plans basichlly
solve the problem of the cooperativization of agri-
culture, that is to say, turn the small scale opera-
tions with animal power implements into large scale
mechanized operations, ... then we shall not solve
the present contradiction between the annually
growing demand for marketed grain and industrial raw
materials and the present low level of Production of
the major crops ... . In the second place) certain
of our comrades have also failed to link together
two important things) namely: in one of the most
important departments of Socialist industrialization,
heavy industry ... depends upon the use of its prod-
ucts in large quantities when agriculture has been
placed on the foundation of large scale operation
through cooperativization . In agriculture,
under the conditions of our country ... we must
first have cooperativization of agriculture before
we can make use of large-sized machinery ... .
Then; again) certain of our comrades have also
failed to link together two other matters, namely:
for the realization of the industrialization of the
State and the technical reform of agriculture, large
sums of capital are needed, and a Considerably large
portion must be accumulated from agriculture. Apart
from the direct level of the agricultural tax, there
is the development of the production of light indus-
trial goods, which are the living needs of the peas-
ants, to be exchanged for the marketed grain and raw
materials of the peasants, so that both the needs of
the peasants and of the State are satisfied, and
capital is accumulated for the State. The large
scale development of light industry not only calls
for the development of heavy industry, but also
calls for the Targe-scalg development of agricul-
ture ... which in our country is the Socialist
cooperativization of agriculture.
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The 12-year Draft National Program for the Development of Agricul-
ture was presented to the nation on 25 January 1956 by Liao Lu-yen, Min-
ister of Agriculture. This Program detailed the methods by which the.
goal of doubling or tripling agricultural production by 1967 were to be
achieved, including the long-needed large-scale flood control and irriga-
tion projects on China's largest rivers and more extensive use of domes-
tically produced chemical fertilizers beginning in the Third Five Year
Plan. For the period of the Second Five Year Plan the Program was to
concentrate on the utilization of more intensive labor of the coopera-
tives on small-scale flood control and irrigation projects, improved
agricultural practices, extension of use of better seeds and pesticides,
better storage and transportation facilities, greater use of natural
fertilizers, a modest increase in use of chemical fertilizers, larger
scale cultivation by enclosure of small plots in large fields, and
gradual extension of the use of better tools and machinery. The prin-
cipal anticipated results of the application of the new program were
to be realized from the planned labor-intensive efforts of. the coopera-
tives, the methods and objectives of which were thus succinctly sum-
marized by Chen Po-ta, member of the Central Committee and occasional
spokesman for Mao Tze-tung, in a speech before the Chinese Peoples
Political Consultative Conference on 2 February 1956 .?2/:
This plan ... relies on the possibility of agri-
cultural producers' cooperatives raising labor producti-
vity ... . [The draft National Program provides thag
every able-bodied man in the countryside should be able
to work at least 250 working days a year, and that with-
in the next seven years every woman in the rural areas
should be able to devote at least 120 days to productive
work, in addition to the time devoted to household
work ... .
At the Eighth Party Congress in September 1956, after reviewing
the Party program first enunciated by Mao in 1955 -- whereby the number
of cooperatives had increased to nearly 1 million, incorporating 110
million of the 120 million farm households in the country -- Liu Shao-ch'i
elaborated the means by which the cooperatives were to achieve the planned
Increases of agricultural production. f_12/
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In presenting his proposals for the Second Five Year Plan for
agriculture at the Eighth Party Congress, Chou En-lai reaffirmed Mao's
statement on the new Party line as to the indispensability of agricul-
tural development for the development of heavy industry and the entire
national economy LV:
Experience has shown us that industrial construc-
tion centered around heavy industry cannot and should
not go on all by itself. It needs the coordination of
other things, especially the coordination of agricul-
ture ... .
In presenting the goals for increased agricultural production in the
Second Five Year Plan, Chou reiterated the means of achieving increased
yields per land unit, as mentioned by Liu Shao-ch'i, and for increasing
cash and subsidiary crop sideline production, and added the important
proviso that, "With regard to increasing the supply of fertilizers, on
the one hand., the state should actively develop the fertilizer manu-
facturing industry and endeavor to import more chemical fertilizers ...
This increased provision of imported chemical fertilizers is apparently
to be accounted for as an expense of production and not out of the in-
creased investment funds provided in the Second Five Year Plan. The
other improvement measures for agriculture, however, are to be provided
for out of the over-all doubling of investment in the Second Five Year
Plan as compared with the First, including an increase from 7.6 percent
of total investment funds allocated for agriculture in. the First Plan
to 10 percent of total investment funds in the Second Plan, which in
absolute terms amounts to an increase for agriculture of about 260 per-
cent -- from 3.2 billion yuan to 8.5 billion yuan.
Table 22* shows the relationship between the estimated produc-
tion of the main food crops and population growth estimated at 1.5
percent per annum for the years 1952 through 1955 and projected through
1962 in comparison with the 1931-37 average. Table 22 shows that in
the best year of agricultural production under the Communists, 1955, the
per capita availability of food was only 89 percent of that it 1931-37
and that in order to realize the prewar average by 1957 an increase in
food production of 38 million tons of food or 23.5 percent over 1952
would have to be realized. This compares with the Communist plan to in-
crease the gross value of agricultural output 23.3 percent in 1957 over
1952, including an increase of 17.6 percent, or 31 million tons of food.
* Table 22 follows on p. 79.
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Table 22
Communist China:
Population, Food Production, and Per CakIta Availability of Food
1952-62
Year
Population
(Million)
Population
Index
Food Produc-
tion (Million
Metric Tons)
Food
Index
Per Capita Avail.
ability of Food
(1952 = 100)
Per Capita Avail-
ability of Food
(1931-37= 100)
1952
577.0
100
164
100
100
84
1953
582.6
101
166
101
100
84
1954
589.6
101
164
100
99
83
1955
596.7
103
180
110
106
89
1956
603.9
105
180
110
105
88
1957
611.1
106
187
114
108
91
1958
620.3
108
192
117
109
92
1959
629.6
109
198
121
111
93
1960
639.0
111
204
125
113
95
1961
648.6
112
210
128
114
96
1962
658.3
114
217
133
117
98
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For the realization of an increase of food production to keep
pace with the increase in population the Communists place their main
reliance upon the wide extension of relatively small measures of improve-
ment such as improved plowing; small-scale irrigation and flood control
measures; pest and insect control; improvement of transportation, stor-
age, and food processing; extension of double-cropping; and reclamation
of waste land. The new emphasis in rapidly extending collectivization
In order to enforce the adoption of improvement measures to increase
output as well as to maximize the quantities of agricultural products
passing through state trading channels, may result in their making sub-
stantial progress toward realization of the goals. The projected in-
crease in investment in agriculture, the inauguration of large-scale
Irrigation and flood control projects in the Second and Third Five Year
Plans, and the changed allocation of investment resources allowing for
substantial increase in fertilizer use, make it appear possible that
the Second Five Year Plan goals for increased food production may be
reached at least by the end of the Third Five Year Plan.
In spite of the compulsion on the part of the state planners
to accomplish wonders in improved production and peasant income in the
first year of general cooperativization, several unforeseen factors
have arisen to prevent the realization of at least part of the 1956
annual goals and even some of the 1957 goals for agriculture. In the
excess of zeal with which the cadres in the countryside were directed
to mobilize the cooperative members in small-scale irrigation and flood
control labor projects, it was mistakenly assumed that the peasants
were customarily idle during the winter months and that their conscrip-
tion in the projects would result in increases in crop production and
In net income in the immediate crop year. It was overlooked that the
wholesale involvement of the peasants in enforced capital construction
activities withdrew them from their usual winter sideline production and
deprived them of the income that ordinarily tided them over until the
next harvest. It was also not foreseen that the cost of some of the
cooperatives' construction projects would exceed the value of the
possible increase in cooperative production and income which might re-
sult from the projects, so that the members would suffer a decline in
their annual income, thus diminishing their incentive to participate
In the cooperative effort. Steps were taken to correct this "tendency
to lay one-sided stress on collective and national interests while over-
looking the interests of the individual" only after the error had been
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committed. The Regulations for High Stage Cooperatives were phrased to
provide that the total annual production dividend shares of the members
should be 60 to 70 percent of cooperatives' income, which, according to
Teng Tze-hui, would enable at least 90 percent of cooperative members to
increase their income in 1956 over 1955.
Another example of partially wasted effort was the widespread
allocation of conscripted cooperative labor in North and East China to
well digging for irrigation purposes, "with the result that in some
places the wells sunk were so numerous that they far exceeded actual
needs, while in other places the wells sunk were noeserviceable," as
Teng Tze-hui phrased it. 1112/
In the field of animal husbandry, it is apparent from refugees'
and travellers' reports, as well as from the Communists' admissions,
that the cooperatives have failed to exercise the responsibility and
care for livestock that individual peasants formerly exercised, and
that there has been an actual decline in livestock and fowl numbers.
The situation became so serious that a State Council Directive on Hog
Breeding was issued on-1 July 1956, admitting that the collectives were
Inexperienced and indifferent in hog raising, and that a concession
should be made to private competence in this field on the principle of
"private ownership, private breeding, and state assistance." The state
assistance was indicated to include increased hog prices, the compulsory
diversion of nearly all oil cake (residue from vegetable oil) to hog
feeding, and the allocation during the ensuing year of 500,000 metric
tons of grain for the purpose of advances for the contract purchase of
hogs. Through these measures it was hoped to double the hog population
by the end of 1957. Meanwhile, pork exports were cut 50,000 tons.
in 1956, and a recent article has indicated that in various local areas
hog numbers have dropped to 2/5 or 1/3 of 1955 numbers. Since livestock
breeding was one of the sidelines to which the peasants gave their atten-
tion during the winter months, it is probable that the decrease of produc-
tion in this field was another casualty of the diyersion of cooperative
members to the irrigation and flood control corvees.
Aside from the miscalculations and wastage of effort contingent
upon the structural reorganization of agriculture, the regime's dominant
aim of increasing agricultural output in the first year of general coopera-
tivization seems likely to be frustrated in some respects by adverse
weather. It is still too early to estimate final crop yields, but the
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Communists' preliminary estimate of exactly meeting their goal of an in-
crease of 117,000 metric tons in 1956 over 1955 in cotton production
seems somewhat too precise to be realistic, while the assertion that 1955
production of wheat was exceeded by 10 percent may understate the amount
of losses due to the weather. The timing of the typhoon, which struck
the cotton belt while the plants were still young, may have obviated the
damage, although the losses must still have been considerable. Emergency
efforts to save the wheat crop could have resulted in equalling or sur-
passing last year's production, but a 10-percent increase seems too high.
Production of rice probably will top last year's record, because of the
extension of the area of cultivation and double-cropping, although the
targeted increase of 10 percent may be overly optimistic. The soybean
crop may suffer a slight decline from last year because of floods in
the important producing area of the Northeast, while other oilseeds will
probably show an increase, along with tobacco, resulting from expansion
of crop areas and increased allocations of fertilizer. Estimates of
total production of the important food and technical crops for 1950-56
and projections thereof through 1962 are given in Table 23.*
It is clear from the plans that have been promulgated and from
the intensive organizational and productive efforts that have been put
forth this year that the Chinese Communists have finally evolved an
integrated plan for the development of agriculture -- a plan which is
deficient in only one major aspect -- the amounts of chemical fertilizers
to be utilized. The progress made in agriculture in 1956 is an important
step toward realization of a better balanced economic development program.
Probably the 1956 results will not be satisfactory to the planners in
many respects, but on the whole the outcome of increased production and
state control of output will exceed in magnitude the effects of the
state's program of forced procurement of grain and technical crops that
began in November 1953.
B. Industry.
Industry in Communist China has generally recovered from the war
years with production of major industrial commodities meeting or ex-
ceeding pre-Communist levels of output. A program to develop the indus-
trial base of the economy has been initiated, and some success has been
achieved toward the goal of developing heavy industry. However, per
capita production remains low, and despite recent economic advances
Communist China still lags behind other advanced Asian nations as well
as the US and the USSR. This is graphically shown in Table 24.**
* Table 23 follows on p. 83.
** Table 24 follows on p. 84.
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Table 23
Communist China: Estimated Production of Food and Industrial Crops
1950-62
Industry
Unit 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962
Rice Million metric tons 58 61 68 70 66 73 78 80 82 85 88 92 95
Wheat Million metric tons 17 18 18 18 23 23.5 22 23 24 25 25 25 26
Other grains Million metric tons 52 50 52 51 49 55 52 53 54 55 58 59 6o
Tubers (grain equivalent) Million metric tons 13 15 16 17 17 19 19 20 21 22 22 23 24
Soybeans Million metric tons 8.7 9 9.5 9.5 9 9.5 9 11 11 11.1 11.3 11.5 12
Total grains Million metric tons 149 153 163 166 164 180 180 187 222 198 204 210 217
Meat (carcass weight) Thousand metric tons 5,207 5,359 5,513 5,665 5,819 5,533 5,922 6,120 6,338 6,54o 6,760 6,990 7,225
Poultry Thousand metric tons 324 330 338 345 352 360 368 376 385 392 401 410 417
Fish Thousand metric tons 911. 1,232 1,710 1,741 2,000 2,400 3,000 3;450 3,968 4,563 5,247 6,034 6,939
Eggs Thousand metric tons 884 903 921 941 960 981 1,000 1,021 1,043 1,065 1,087 1,110 1,132
Oilcake Thousand metric tons 6,750 6,850 6,950 7,000 7,050 7,100 7,I50 7,200 7,250
Tung oil , Thousand metric tons 85 85 90 100 105 110 115 120 123
Sugar beets Thousand metric tons 184 308 479 505 989 1,596 1,868 2,135 2,238 2,550 2,875 3,188 3,500
Sugar cane Thousand metric tons 3.3 4.6 7.1 7.2 8.6 8.1 12.8 13.2 18.3 20.9 23.5 26.1 28.7
Sugar (raw value) Thousand metric tons 376 408 451 524 597 688 894 1,100 I,280 I,460 I,640 1,820 2,000
Wheat flour (modern mills) Thousand metric tons 1,200 1,400 3,000 3,000 3,300 3,800 4,590 4,700 4,682 4,774 4,847 4,920 5,012
Edible vegetable oil Thousand metric tons 847 981 1,133 1,070 1,078 1,263 1,364 1,434 1,466 1,503 1,543 1,584 1,625
Rapeseed Thousand metric tons 800 865 932 8437 878 969 1,154 1,188 1,224 1,260 1,298 1,337 1,377
Sesame seed Thousand metric tons 150 338 525 428 330 367 390 413 436 459 482 505 525
Peanuts Thousand metric tons 1,618 1,966 2,316 2,127 2,767 2,926 3,372 3,473 3,577 3,684 3,795 3,909 4,026
Tea Thousand metric tons 62.5 65 82.4 84.7 92.1 108 112 127.8 143.6 159.4 175.2 191 207
Tobacco Thousand metric tons 36 180 222 213 232 298 345 373 420 473 533 6co 600
Cotton (ginned basis) Thousand metric tons 710 1,045 1,305 1,175 1,065 1,518 1,635 1,745 1,806 1,959 2,112 2,265 2,400
Wool (grease) Thousand metric tons 34 34 34 34 35.4 ? 36.1 36.8 37.5 38.2 39 39.8 40.6 41.4
Silk (raw) Thousand metric tons 2.7 3.0 4.3 4.2 4.2 4.2 4.3 4.3 4.4 4.4 4.5 4.5 4.6
Industrial wood Million cubic meters 10.0 10.7 11.9 16.7 20 24 26 28 30 32 34 36 38
Fuel wood Million cubic meters 15 15 15 15 15 15 15 15 14 13 13 12 12
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Communist China:
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Table 24
Gross National Product and Production of Principal Commodities
Compared with Those of Selected Countries
1955
Commodity
Total
Per Capita
Unit
Communist
China
USSR
India
Japan
US
Unit
Communist
China
USSR
India
Japan
US
Gross national
producty
Billion US $
37
145
27.5
21.3
387
US $
62
740
71
238
2,345
Grains b
Million metric tons
171
120
78.6
19.5
143.6
Kilograms per year
287
611
206
219
870
Cotton cloth
Billion linear meters
3.8
5.9
4.7
3.1
9.2
Linear meters per year
6.4
30
12
35
56
Coal
Million metric tons
93.6
391
38.8
43.8
450
Kilograms per year
157
1,995
100
489
2,727
Crude steel
Million metric tons
2.9
45.3
1.7
9.4
106
Kilograms per year
4.9
, 231
4.4
105
642
Electric power
Billion kilowatt-hours
12.3
170
8.5
63.6
625
Kilowatt-hours per year
21
867
22
711
3,788
Crude oil
Million metric tons
1
70.8
0.3
0.3
336
Kilograms per year
1.7
361
0.79
3.4
2,036
Cement
Million metric tons
4.5
22.5
4.6
10.6
49.9
Kilograms per year
7.5
115
12
118
302
Rail freight
traffic
Billion ton-kilometers
98.1
971
50 2/
42
953
Ton-kilometers per year
164
4;954
130
469
5,776
a. Calculated at current dollar exchange rate and does not compare prices between countries.
b. Including potatoes at 0.25 of gross weight; and excluding soybeans.
c. 1954 traffic.
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The share of total output originating in industry has shown a
rapid rise (see Table 39* and discussion of gross national product)
and a growing proportion of industrial output is originating in areas
of the economy dominated by the state (see Table 2** and discussion of
industrial socialization). There have been large increases in indus-
trial output) with heavy industry demonstrating a more rapid growth
relative to consumer goods. This is indicated in the index presented
In Table 25.***
From 1949 to 1952 large increases in industrial output were
achieved, reflecting the integration of the economy under one govern-
ment. In the first 2 years of the inddstrialization program, 1953
and 1954, substantial progress was made in developing industrial out-
put. A sharp decrease in the rate of increase was noted in 1955,
especially in light and handicraft industries, reflecting in part
disruptions due to the widespread floods of 1954. In 1956, with a
number of construction projects being completed, the rate of increase
again was significant. During the First Five Year Plan, industry,
excluding individual handicraft, has exhibited an average annual growth
rate of about 18 percent, with heavy industry averaging better than
20 percent. Industrial growth during the next few years, however, will
probably be tempered by the capabilities of the rail transport system,
by disruptions in new industrial construction caused by events in the
European Satellites, and by compounded problems arising from the im-
balance in the over-all development plan.
During the Second Five Year Plan, 1958-62, the rate of indus-
trial growth is expected to decline somewhat, averaging about 14 per-
cent per year, with heavy industry averaging about 15 percent. Indus-
trial production in heavy industry should show a marked increase in
1960, however, when the Pao-t'ou and Wu-han iron s.nd steel complexes,
truck and tractor plants, refineries, and other installations are sched-
uled to come into full production.
Heavy industry receives a much greater emphasis in development
than light industry. As shown in Table 25, light industry demonstrated
its most rapid growth before 1955, reflecting the reorganization and
development of textiles, food processing, and other industries; but
since 1954, and projected through 1962) growth in light industry will
probably average less than 9 percent annually, with almost all of this
P. 131, below.
** P. 27, above.
*** Table 25 follows on p. 86.
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Table 25
Communist China:
Index of Value Added by Industry
1950-62
1952
100
Item
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
Heavy industry
48
72
loo
135
163
185
224
253
281
328
388
454
532
Percent of annual increase
50
39
35
21
18
21
13
11
17
18
17
17
Light industry
56
73
loo
115
139
140
158
173
189
207
230
247
272
Percent of annual increase
30
37
15
21
1
13
9
9
10
11
7
10
Industry, including handicraft workshops
51
73
loo
127
154
167
198-
222
246
281
327
375
433
Percent of annual increase
43
37
27
21
8
19
12
11
14
16
15
15
Individual handicraft
58
78
100
121
143
134
156
161
177
194
214
224
235
Percent of annual increase
34
28
21
18
-6
16
3
10
10
lo
5
5
Total industry (including individual
handicraft)
53
74
loo
126
152
161
190
209
232
263
303
343
390
Percent of annual increase
4o
35
26
21
6
18
Io
11
13
15
13
14
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growth in textiles. On the basis of gross value of production includ-
ing handicrafts, the Chinese plan to balance light and heavy industry by
1962. Excluding individual handicrafts, however, in 1952 light industry
contributed 61 percent compared to 39 percent for heavy industry, whereas
by 1957, both sectors are planned to contribute an equal amount. By 1962,
heavy industry is projected to contribute 56 percent compared with 44
percent for light industry.
1. Engineering Industries.
Although still generally limited to the production of parts
and assembly, repair) and manufacture of simple machinery and equipment,
Communist China's engineering industries are oriented toward future
indigenous production of a full range of producer goods. Advances dur-
ing the past several years have been noteworthy. Engineering industry
projects under the Five Year Plan, a number of which have been com-
pleted, are designed to provide more diversity of product mix as well
as to augment capacity to produce larger numbers of complete units and
more complicated types of machines.
Machine building industries are heavily emphasized in this
program. Development of these industries began from a very small base.
Before the Communist regime, machine plants were engaged largely in
repairing and assembling machines with imported parts. Complete ma-
chines were occasionally manufactured but were of simple design in-
volving only simple manufacturing techniques. The Communists, however,
have converted repair plants into manufacturing establishments and
have consolidated many small machine shops into a relatively small
number of larger ones. Many older establishments are being renovated
or expanded, and several important new machinery manufacturing instal-
lations are being built. Shanghai remains the most important single
center of machine industries in China, while the Northeast is the
chief regional producer. Production of the engineering industries for
1950-62 is shown in Table 26.*
In textile machinery manufacture, the Chinese were able
to make substantial advances by consolidating small machine shops and
utilizing a labor force familiar with textile machinery operation and
repair. As new plants built under the Five Year Plan came into opera-
tion during 1953 and 1954, production greatly expanded. China pre-
sently is self-sufficient in the production of textile machinery for
* Table 26 follows on p.88.
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Table 26
Communist China: Estimated Production of the Engineering Industries
1950-62
Industry
Unit
Turbines
Batteries
Electric lamps
Electric wire and cable
Electric motors
Electric generators
Transformers
Thousand kilowatts
Metrid tons
Million units
Million US $
Thousand kilowatts
Thousand kilowatts
Thousand kilovolt-
amperes
Switchgear and switchboard
apparatus Thousand US $
Radio communications equipment Thousand US $
Telephone handsets Thousand units
Telephone switchboards Thousand lines
Textile machinery Thousand spindles
Thousand looms
Machine tools Thousand unita
Thousand metric tons
Agricultural equipment
(new type only)
Lopomotives
Freight cars
Passenger cars
Trucks (4-ton US-150 and
2-1/2-ton GA2-51)
Tractors (Belarus, DT-24 and
DP-54)
Naval vessels
Merchant vessels
Inland vessels
Self-propelled
Non-self-propelled
Fishing vessels
Aircraft
Thousand units
Units
Units
Units
Units
Units
Thousand standard dis-
placement tons
Thousand gross register
tons
1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962
4 5 6.7 15 45 90 164 189 217 249 287 330 379
730 1,030 1,500 1,600 1,700 1,800 1,900 2,000 8,100 2,200 2,400 2,500 2,700
16 21 29 32 34 36 38 40 43 45 . 48 51 54
16.7 19.5 22.9 25.4 30.7 64.1 90.4 117.2 131.3 147 164.7 184.5 203
200 335 639 902 713 524 1,048 1,153 1,122 1,296 1,373 1,456 1,543
Negligible 2.7 30 59.4 61.8 108 281 331 351 372 394 418 443
570 815 1,167 1,961 1,961 2,079 2,430 2,610 2,767 2,932 3,108 3,294 3,592
1,400 2,000 3,600 5,600 6,1oo 6,400 6,7co 7,200 7,600 8,1co 8,603 9,100 9,600
1,100 1,900 2,850 3,000 3,200 3,400 3,600 3,800 4,000 4,300 4,500 4,800 5,056
35 48 64 74 85 98 no 130 150 170 200 230 265
19 28.5 43 46 48.5 51 54.5 58 61 65 69 74 79
o 64 250 286 400 500 N.A. N.A. N.A. N.A. N.A.
o 4 6 8.5 13 8 15 N.A. N.A. N.A.
3.3 5.9 13.7 20.5 15.9 13.7 27.0 6 29.0 N.A. N.A. N.A.
16.3 24.0 23.5 23.0 N.A. N.A.
Negligible Negligible 300 353 529 1,303 19,500
O 0 20 1 52 98 184
o o 5,792 4,500 5,445 9,258 5,480
o o 6 42 90 150 200
O 0 0 0 0 0 1,000
o o o o o o o
o 0.3 2 4 6 10 14
3 4 9 2.5 13 8 10
Thousand horsepower 14 17 8 1 2 9 16
Thousand deadweight tons 12 13 14 1 3 26 33
Thousand gross register
tons
Units
160
6,450 N.A.
350 N.A.
4,000
150
19
11
23
50
2 3 3 3
O 0 0 0 0 23 274 382
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10,000 16,000
2,000 5,500
23 28
12 13
30 37
148 55
4
359 390
N.A.
N.A. N.A.
N.A. N.A.
27,000 38,000 45,000
13,500 17,500 20,500
33 38 43
14 15 16
44 51 58
62 69 76
5 5 5
396 396 396
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her growing textile industry and is in a position to offer complete
sets of spinning and weaving machinery on the export market.
Production of machine tools has been greatly increased
due to the more efficient and intensive use of existing facilities.
Under the Five Year Plan, four major plants are under construction
or renovation. Production in 1954 and 1955 was cut in terms of
numbers of units apparently from overproduction of certain types
and as a result of a shift in product mix to heavier types of metal
cutting and shaping tools. The more modern machine tools produced by
the Chinese are copies of Soviet or European Satellite models. All
production thus far has been of general-purpose types, such as lathes,
milling machines, and shapers. Except for a few models in mass pro-
duction, most have been built as prototypes. As yet the Chinese have
not designed a machine tool, and the quality of domestically manufac-
tured tools has been a constant source of internal complaints. f6/
The Chinese must still rely upon the USSR for more special-purpose
types of machine tools.
The agricultural equipment industry has been forced to
expand somewhat by the agricultUral cooperativization program. Plan-
ning has been poor, and prodUction schedules have been raised excess-
sively. The 1956 Plan for horse-drawn wheeled plows was continually
revised until it amounted to over five times the original 1957 Plan, 2/
and then because inventories far exceeded demand, production was cur-
tailed during the latter half of the year. Quality of product has
been low, and shortages of facilities have required that production be
initiated at many machine tool plants, handicraft cooperatives, and
at literally thousands of small workships and other factories unfa-
miliar with agricultural equipment production. Production of most
items is presently still far short of actual requirements. L8187
Priority will probably continue to be accorded the industry for nec-
essary production equipment, raw materials, and new plant construction.
Production of chemical and refining equipment in Communist
China is still extremely limited, and development and expansion of
the chemical and petroleum industries remain largely dependent upon
Imports of equipment.
Communist China's electrical machinery industry has made
nominal advances, but the industry is still relatively small and China
Is required to import almost all of the more complicated equipment.
The average size of the motors, generators; transformers, and turbines
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produced is increasing slowly, but the larger items in the product
mix are generally in limited production. The variety of wire and
cable products has increased also but is still limited. There have
been few changes in the product mix of electronic and telecommunica-
tions equipment, and production consists of conventional items such
as radio receivers and telephone handsets. Production of electronic
components has been introduced on a small scale. 'Upon completion of
the telecommunications combine under construction near Peiping, the
Chinese Communists will become much more self-sufficient in electronic
components and will be able to produce more complicated electronic and
telecommunications end products. The electrotechnical industry still lags
behind other machine building industries in quality of product. Lack of
modern equipment and qualified personnel has resulted in extremely inferior
products, especially the newer, more complicated, highly engineered types.
There has been considerable advance in the manufacture
of transportation equipment. Steam locomotives have been produced of
parts entirely manufactured within China, ?2/ and an increased effi-
ciency of operations has been achieved at locomotive and car shops.
New techniques, such as welding, have been introduced for freight car
construction, and quality control is being improved. Production of
'railroad equipment has been concentrated at three main shops -- at
Ssu-fang (near Tsingtao), and Dairen. The Chinese
Communists have imported rolling stock on a very limited scale, and
domestic production has reached a rate such that expansion of carrying
capacity based on indigenous resources is possible for the rail lines.
In the field of motor vehicles manufacture, production of
4-ton ZI3-150 trucks was initiated in 1956 at the No. 1 Automobile
Plant at Chang-chun, and it is estimated that by 1960 this plant will
reach full production of 30,000 units per year. A second truck plant,
probably to be located in Wuhan, is scheduled for completion by 1960
and will produce a 2-1/2-ton truck, presumably the Soviet model GAZ-51.
Chinese Communist production of Soviet model tractors
will begin by 1957. The Tientsin tractor plant, producing the Soviet
Belarus tractor, is to initiate line production at that time and should
reach full production by 1959. 22/ Trial production of the Soviet DT-
24-type tractor is to begin in 1956 at the Nanking tractor plant, and
limited production is scheduled for 1957. This plant is to be com-
pleted in 1959 and should achieve capacity production by 1960. Con-
struction of the new, large tractor plant at Lo-yang is reportedly
ahead of schedule and possibly will be completed in 1958. Production
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of the Soviet DT-54 tractor at this plant could then reach full capac-
ity by 1962. There also have been reports of another tractor plant,
possibly at Chang-chun, which will produce the Belarus tractor.
In the field of aviation, in a short time the Chinese
Communists have been able, with the assistance of the USSR, to bridge
a significant technical gap. Results of this progress are newly con-
structed aircraft factories, 21/ an established Aeronautical Institute, 22/
production of trainer aircraft, Di and trial production of jet engines
and jet aircraft. 21J Trial production of YAK-18 conventional primary
trainers was initiated, probably at the Nanchang aircraft plant, in
1954; line production is estimated to have been achieved by late 1955.
It is estimated that annual production could reach 300 aircraft by 1957.
All instruments, radio equipment, armaments, and other technical com-
ponents for the aircraft will be supplied by the USSR. Initially the
Chinese Communists will assemble the low-powered reciprocating engines
from parts supplied by the USSR, but by 1960 they will be producing
the engines and should be able to furnish one-half of the raw materials
required. By 1960 the Chinese Communists will be able to furnish
about one-half of the raw materials required for airframe production.
In September 1956, Communist China announced the successful
trial production of jet aircraft, probably at the large aircraft plant
at Mukden North Airfield. The first aircraft to be produced (and pos-
sibly the first 2 years' production) will be assembled from Soviet-
furnished parts. Production of jet aircraft should steadily increase
and could reach 96 aircraft annually by 1960. The Chinese were assem-
bling jet engines in 1956 and by 1962 should be producing engine parts
equivalent to ho percent of the total value added in engine production.
By 1960 the Chine.se will be able to furnish about one-half of the raw
materials required for jet airframe production, but the USSR will be
required to supply all electronic components, hydraulic systems, and
the like.
Chinese shipbuilding has advanced rapidly, largely as a
result of significant assistance of material and technical aid from
the USSR. At the principal yards at Dairen and Shanghai, larger and
more complex vessel-types have been constructed. Medium-sized mer-
chant vessels were produced in 1954, and in 1955 a relatively large
naval shipbuilding program was undertaken. The trend in shipbuilding
is toward the more complex steel vessels. Priorities apparently are
being given to small combatant naval vessels, tugs, and barges in
that order, whereas only amall numbers of fishing vessels and cargo
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vessels are being constructed as capacity becomes available. Shipping
requirements for coastal cargo vessels are being net through import
of Bloc-constructed tonnage. On the inland waterways, the trend toward
establishment of a Western-type fleet of tugs and barges continues.
Although some yards are still producing junks, more and more yards have
begun construction of conventional-type vessels.
2. Armaments Industry.
Although not yet able to meet all equipment requirements
of the Chinese Communist armed forces, the armaments industry is be-
lieved to be proceeding with a program of gradual modernization. Re-
quirements for weapons) including light artillery and machine guns,
were probably fulfilled by indigenous production before 1956, permit-
ting cutbacks in 1956 and 1957. Facilities for the production of
heavier armaments are being developed which will permit production
of tanks and possibly antiaircraft artillery by 1960. Table 27* shows
estimated production of weapons and ammunition for 1950-62. Estimated
ammunition production capacity is also shown, and is indicated to be
increasing at a steady rate. Estimated minimum production of ammuni-
tion for 1954-62 was calculated on the basis of roughly one-third of
estimated capacity. In anticipation of or in the event of war, it is
believed that actual production could be quickly expanded to the ca-
pacity figure.
3. Electric Power.
Development of electric power is a realized requisite in
the expansion of China's industrial plant. During the First Five Year
Plan the Chinese Communists plan on initiating 4.o6 million kilowatts
of new capacity, of which 2.05 million kilowatts are to be installed
and operating before the end of 1957. Electric power production
during the first 3 years of the plan has been increased about 18 per-
cent annually, and it is estimated that this rate of increase can be
maintained through 1962. In addition to increasing installed capacity,
the Chinese have also increased production by raising the over-all uti-
lization of the power system. Even so) the rate of growth of the elec-
tric power industry has not kept pace with the rate of growth of in-
dustry as a whole. Investment for electric power during the Second Five
Year Plan) however) is to be double that expended during the First Five
Year Plan and should enable the power industry to more fully service the
expanding industrial plant.
* Table 27 follows on p. 93.
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Table 27
Communist China: Estimated Production of Armaments and Munitions
1950-62 .
Industry
Ammunition (all
types)
Production
Capacity
Artillery
Mortars
Machineguns
Small arms
Armored vehicles
Unit
1950 1951 .1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962
Thousand metric tons 41 47 54 54 22 23 24 25 26 28 30 30 30
Thousand metric tons 41 47 54 62 65 68 71 75 79 83 87 91 ? 95
Thousand pieces
Thousand pieces
Thousand pieces
Thousand pieces
Units
0.2 0.2 1.0 1.2 1.4 1.6 i.6 0.6 0.6 o.6 0.8
0.8 1. 5. 5.8 7. 8. 3. 3. 3. 3. 3.
2. 2.2 10 11.6 13 15 16 5 5 5 5
36 43 207 234 260 260 100 100 100 100 100
0 0 o o o o o o o o 300
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0.8 0.8
3. 3.
55 5
100 100
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Much of the new capacity being installed is located to
support the planned development of inland industrial centers. Among
these projects are the million-kilowatt hydroelectric stations now
being surveyed at the Sanmen and Liu-chia Gorges on the Yellow River,
the Yili-ho power project in Yunnan, and the Tzu-ping-pu power station
on the Min River in Szechuan. Table 28* shows the estimated capacity
and production of electric power for 1950-62.
U. Petroleum.
Production of crude petroleum and shale oil in Communist
China has been inadequate to meet estimated demands which have required
large imports of crude oil and refined products from the Soviet Bloc.
In 1955, when production of crude products was about 980,000 metric
tons, Communist China imported an additional 250,000 metric tons of
crude oil and 1 million tons of refined products. Although it has
been officially announced that crude production would not meet planned
goals in the First Five Year Plan, China is making a concerted effort
to increase crude oil production and refining capacity. Investment
for the Ministry of Petroleum in the Second Five Year Plan is to be
3 to '4 times the amount invested in the First Five Year Plan, repre-
senting a much heavier proportion of investment for petroleum in re-
lation to other sectors of the economy than had previously been noted.
The 1962 production goal of 5 million to 6 million metric tons repre-
sents an average annual increase in production of about 29 percent
compared with an average annual increase of about 27 percent in the
First Five Year Plan.
Increased production of natural crude oil is related to
Increased production at Yumen, development of new fields in the Tsaidam
and Dzungaria Basins, and the completion of large refineries at Lan-chou
and in the Karamai oilfield. The first phase of the Lanchou refinery
is expected to go into production in 1958, and by 1960 the plant is to
be at full refining capacity of about 2 million tons. Expansion of
transportation facilities to the Yumen oilfield and into the new Tsaidam
and Karamai oilfields will expedite the exploitation of these crude oil
resources. Increases in production of synthetic crude oil are depend-
ent upon completion of new plants during the Second Five Year Plan.
* Table 28 follows on p. 95.
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Table 28
Communist China: Estimated Production of Fuels and Power
1950-62
Industry
Unit
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
Electric power
Capacity
Production
Million kilowatts
Billion kilowatt-hours
4.6
5.8
2.03
7.26
2.24
9.15
2.58
U.
3.05
12.3
3.6
14.1
4.2
17.
4.8
20.1
5.6
23.1
6.4
27.9
7.4
32.8
8.5
38.7
Coal
Million metric tons
41
51
64
67
80
94
105
113-
125-
139-
155-
172-
190-
120
134
150
168
188
210
Petroleum products
Crude oil
Natural
Thousand metric tons
110
160
210
320
440
530
66o
1,020
1,400
1,950
2,600
3,300
4,300
Synthetic
Thousand metric tons
90
140
220
300.
350
450
540
580
600
65o
700
1,000
1,200
Total
200
300
436
620
/22
222
1222
1,600
2,000
2,600
3,300
4,300
5,500
Gasoline (refined products
include imported crude
through 1955)
Thousand metric tons
46
58
130
170
200
240 '
220
310
410
550
720
925
1,200
Kerosine
Thousand metric tons
12
18
43
65
78
100
130
180
240
320
420
540
700
Diesel fuel oil
Thousand metric tons
7
11
22
32
38
48
6o
8o
loo
130
160
220
280
Lubricating oil
Thousand metric tons
5
8
16
25
30
35
33
51
70
98
130
165
215
Residuals (fuel oil,
asphalt, coke, and other
residuals)
Thousand metric tone
100
160
290
410
500
640
620
780
950
1,200
1,500
1,970
2,500
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By 1960, planned production of natural crude oil will exceed
estimated Chinese refining capacity and, by 1962, nearly 2 million tons
of additional capacity will be required to process domestic production
of crude oil.
China will probably continue to import refined petroleum
products at the 1955 rate through 1960, but by 1962 imports should be
reduced to about 500,000 tons annually. Imports of crude oil will
probably decline to less than 100,000 tons in 1957, and no imports of
crude would be expected by 1960.
The Chinese Communists have directed considerable effort
toward improvement of the quality and variety of output of refined
products as well as toward increasing total production and, with the
exception of aircraft fuels and high-grade lubricants, a relatively
complete line of products is produced. In 1955, over one-quarter of
Chinese imports of POL were aircraft fuels and high-grade lubricants.
The Lan-thou refinery is expected to inaugurate production of aircraft
fuels when it goes into operation, probably fn 1958, but it will proba-
bly produce only small amounts of these fuels initially. The Yumen
refinery has tested and produced a number of essential high-quality
lubricants and apparently is planning to expand production of this type
of product. Establishment of research institutes, such as the large
laboratory at Yumen, emphasizes the Chinese desire to improve the
quality of domestically produced petroleum products. Table 28* shows
the estimated and projected production of petroleum products for 1950-62.
5. Coal.
Communist China's coal industry is experiencing a consid-
erable slow down in development which may affect the general industrial
sector. The 1957 production goal, originally set at 113 million tons, 92/
raised to 120 million tons, 9g and then to 130 million tons, 9// has
apparently been scaled back to between 113 and 120 million tons. 98/
Unfavorable conditions developing during 1956 caused a curtailment in
plans to produce 109 million tons of coal during that year. Increasing
congestion on the railroads has been a hindrance to coal production,
which is heavily dependent upon adequate rail car supply and transpor-
tation service to move coal from the mines. It is estimated that over
80 percent of coal production has to move over the railroads. In addi-
tion, there have been numerous reports of timber and steel shortages
* P. 95, above.
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In construction projects, and combines and other equipment have failed
to arrive as planned, delaying completion of new mines. China's
coal industry is almost completely dependent upon the USSR for supply
of such things as combines) cutters) and conveyors, as well as for
technical construction and operating assistance. Delays in the com-
pletion and equipping of mines now under construction could cause
production to fall seriously short of the plan.
Although there have been scattered reports of local coal
shortages, at the present time the over-all coal supply appears ade-
quate to meet domestic requirements and allow for limited exports.
It is estimated that China's industrial plant uses over 25 percent of
coal production) electric power generation and the railroads each
consume an additional 10 percent of production, and home consumption
probably uses at least 45 percent of production.
During the Second Five Year Plan, planned coal production
Is to increase about 25 percent annually. As the Chinese have for
the first time given coal production goals for 1962 with a range of
15 percent) however) it would appear that there is some doubt about
the actual increase in coal mine capacity that will be needed or
provided. Table 28* shows the estimated and projected coal produc-
tion for the years 1950-62.
6. Ferrous Metals.
Communist China's priority development of the iron and
steel industry is reflected in the substantial progress made since
1952 and in the ambitious goals recently announced for the Second Five
Year Plan. Although China's production of crude steel in 1952 was
less than 20percent of that of the advanced industrial nation of
Japan) this ratio will rise to 40 percent in 1957 and to almost
80 percent in 1962. Great strides are being taken to overcome the
imbalance between pig iron, ingot steel, and finished steel capacities
inherited from the pre-Communist period, and it is estimated that this
defect will be corrected by the end of the Second Five Year Plan.
However, the ferrous metals industry is still unable to
satisfy the great demands imposed upon it by Communist China's forced
Industrialization program. Despite the recent announcement that fin-
ished steel output in 1956 will be 600,000 tons above the previous
* P. 95, above.
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goal, it will be necessary to import an additional 750,000 tons in
an attempt to meet domestic requirements. 22/ It is questionable
whether even these measures will serve to remedy what Chou En-lai
has described as "the serious deficiency" of steel encountered in
the 1956 capital construction program. 100/ A perennial problem
of the industry is the low percentage of high-grade iron ore) which
accounts for only some 20 percent of total ore reserves, and the
consequent necessity for large-scale construction of ore-dressing
and sintering plants. Moreover, as Communist China is as yet
deficient in chromium and nickel, 101/ the USSR will have to con-
tinue to supply the increasing amounts of nickel and ferrochrome
required for China's stainless steel production.
The rehabilitation and expansion of Communist China's
iron and steel industry has been under the direction of Soviet
specialists, large numbers of whom are supervising the construction
and operation of plants designed in the USSR and the installation
of equipment largely manufactured in the USSR. Achievement of the
1962 crude steel production goal of 10.5 million to 12.0 million
tons will depend largely on further expansion of the An-shan Iron
and Steel Company and the construction of the planned new iron and
steel combines at Wu-han and Pao-t'ou, although a recent announce-
ment envisages the development of the Chungking Iron and Steel Works
into a major ferrous metals complex by that date. 102/ It is esti-
mated that both Wu-han and Pao-tIou will be in partial production
by 1960, 1 and 2 years, respectively, ahead of the schedule provided
in the First Five Year Plan for completion of the initial phase of
these projects. Table 29* presents the estimated production of
ferrous and nonferrous metals and minerals in 1950-62.
Improved technology has resulted in higher quality pro-
duction of ferrous metals, with announced rejection rates for 1955
of 2.96 percent for pig iron, of 1.7 percent for open-hearth steel,
of 0.9 percent for Bessemer steel, and of 1.4 percent for ordinary
steel products. 103/ It is probable, however, that inspection standards
in the iron and steel industry are lower than those in Western nations)
in view of the acute shortage of ferrous metal products in China. A
much higher but unspecified rate of rejections of new kinds of finished
steel products is admitted.
* Table 29 follows on p. 99.
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Table 29
Communist China: Estimated Production
of Ferrous and Nonferrous Metals and Minerals
1950-62
Thousand Metric Mons
Industry
Ferrous metals
1950 1951 1952 1953 1954 1955 1956 1957 1958 1959
1960 1961 1962
Fig iron 960 1,400 1,870 2,230 3,030 3,630 4,5110 5,375 6,035 6,300 7,300 8,8,3009,500
Crude steel 605 890 1,350 1,760 2,200 2,853 4,516 4,900 5,100 6,100 7,6C0 9,250 11,100
Finished steel 360 688 1,110 1,487 1,740 2,220 3,387 3,675 3,825 14:575 1400 g:3c7000 ,: 200 1
938 g:325
Coke
1,275 1,945 2,860 3,600 4,500 5,200 5,900 6,685 7,000
000
Iron ore 2,082 3,159 4,058 6,233
8,408 10,583 12,745 14,918 15,100 i5,800 18,00o 20,800 23,403
Tungsten (concentrate,
22.1 23.7 N.A. N.A. N.A. N.A. 24.
68 percent PCs) 11 11.6 15.8 17.4 19. 20.5
Manganese ore (+35 percent Mn) 70 83.6 123.8 134.7 168.4 196. 280 310 350 380 450 530 620
Molybdenum (metallic equivalent
o.6 1.05 1.07 N.A. N.A. N.A. N.A. 1.2
of MoSg) 0.125 0.515 0.55 0.575 o.575
Nonferrous metals
Copper (refined) 4 6 8 10.9 12.6 12.9 13.2 13.6 14. 14.3 14.7 15.1 15.5
8 11 6 16 18 20 22 24 26 29
6 7 9. 13 1
Tin
Lead I. 5 7 12.3 22.2 22.5 22.8 23.1 23.4 23.8 24.2 24.6 25
6.8 7.9 8.3 11 13 15 17 20 .22
Zinc 2.7 3 3.5 5.2 11
6 8 10 II II II 11 II 11 11 II 11
Antimony 12 20 20 40 60 80 100
0 o o o 2 10
Aluminum
Fluorspar 5 5 5 10 15 17.5 20 23 27 31 36 42 48
Salt 3,420 3,600 4,945 5,400 5,600 6,000 6,700 7,600 13,100 8,800 9,600 10,400 11,000
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7. Nonferrous Metals.
Development of the nonferrous metals industry is a major
goal in the economic planning of Communist China. With the exception
of copper and aluminum, current production of nonferrous minerals is
sufficient for internal needs and leaves a surplus for export. Ex-
pansion of the Ko-chiu tin mines and refinery in Yunnan Province is
one of the key Soviet-aid projects and is designed to help satisfy
Bloc requirements for this metal. Other nonferrous minerals ex-
ported in large quantities to Bloc countries are antimony, fluorspar,
mercury, and zinc concentrates.
Communist China will continue to rely on imports of re-
fined copper from the rest of the Soviet Bloc during the period of
this estimate, however, thereby aggravating the shortage of this
metal throughout the Bloc area. Despite strenuous efforts to increase
copper production from deposits in Northeast, Southwest, and North-
west China and the planned construction of a new copper refinery
(as yet unlocated), 104/ Communist China is not expected to achieve
self-sufficiency in copper until well after 1962.
On the other hand, the Second Five Year Plan target of
100,000 tons of aluminum production by 1962 appears excessive in
view of internal requirements for this commodity. Communist China
possesses a raw material base adequate to supply the planned in-
crease in output, although this raw material is aluminous shale and
is poorer in quality and more costly to exploit than the commonly
used bauxite. The major deterrent to the accomplishment of the 1962
goal is the lack of metal reduction capacity. As the Fu-shun Aluminum
Plant, the only known aluminum reduction plant in China, is already
operating at designed capacity, 105/ it will be necessary to construct
new plants if the production target is to be reached. The reason for
such a large planned increase is not entirely clear. It is unlikely
that the export market is a major consideration, as Chinese aluminum,
produced at high cost, could not compete in the Free World market and
as Bloc demand is satisfied largely by production in the USSR and
Hungary. The probable explanation is that Communist China is intent
upon achieving self-sufficiency in this strategic metal in order to
support a major aircraft industry and other industrial development.
The quality of nonferrous metals has been raised considerably
over the past 5 years. Most of the tin metal being produced at present
meets Soviet standards for first grade tin (99.6 percent purity), and
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zinc of a purity of 99.97 percent was being produced in 1954. 12W
Some copper of 99.99 percent purity has been produced. 107/
8. Chemicals.
The Chinese Communists refer to the chemical industry as
one of the backward industries of China. 'With abundant phosphate,
salt, coal, and limestone deposits, China has most of the basic raw
materials to support a sizable chemical industry. In the First Five
Year Plan, 7 key Soviet-aid projects were assigned to this industry,
including 2 nitrogen fertilizer plants, 2 modern dyestuffs plants,
2 pharmaceutical plants, and 1 calcium carbide plant. 108/ The ever-
increasing demand for chemicals, especially chemical fertilizer, and
the difficulties encountered by the Chinese in undertaking capital
construction in this highly technical field, 109/ however, indicate
an increasing reliance upon imports of chemicals during the Second
Five Year Plan.
Two-thirds of state investment in the chemical industry
for 1955 was earmarked for the development of fertilizer production. 110/
The announced 1962 production goal for chemical fertilizers -- 3.0
million to 3.2 million metric tons -- is more than 5 times the 1957
goal. 111/ As the First Five Year Plan provides only for construction
of 3 new plants and reconstruction of 2 others) and as the Chinese
Communists have stated that it takes 5 to 6 years to design and con-
struct a chemical fertilizer plant, more chemical construction pro-
jects would have to be immediately initiated than are thus far men-
tioned in the plans, if the 1962 goal is to be realized. Although
a part of the planned increase might be realized from expansion of
byproduct production of the steel industry, the planned increase for
1962 may consist largely of phosphate) which was classified as mineral
fertilizer in the First Five Year Plan. Phosphate requires little
processing other than grinding the rock into granular form and
possesses much less nutrient value in comparison with other chemical
fertilizers. Whereas domestic production of nitrogen fertilizer is
projected to approximate 1 million tons in 1962) it is expected that
from It to 5 times that amount will have to be imported in that year,
most of it coming from the Free World.
Communist China also will continue to be dependent upon
large imports of rubber for many years to come. With its synthetic
rubber industry still in the experimental stage and with its program
for the development of rubber plantations in South China and on Hainan
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Island just getting under way, it is estimated that at least 75 per-
cent of China's rubber requirements in 1962 will be met through
natural rubber imports from Southeast Asia. On the other hand, Com-
munist China should have sufficient production capacity to satisfy
most of its motor tire requirements well in advance of that date.
Table 30* shows the estimated production of selected chemical and
rubber products for 1950-62.
The quality of chemical and rubber products has been the
target of much criticism) and special emphasis is now being placed
on remedying the causes by training more competent technicians and
replacing obsolescent equipment.
9. Cement.
The cement industry provides a key to Communist China's
industrialization program, as it furnishes the principal ingredient
for construction of industrial buildings, water conservancy projects,
roads, airfields, and military fortifications. In keeping with the
proposal to double capital construction investment during the period
of the Second Five Year Plan, the 1962 production goal of 12.5 mil-
lion to 14.5 million tons of cement is slightly more than twice the
planned production figure for 1957. 112/ This goal probably will be
achieved) but will only meet China's minimal cement needs.
The rapid rise in Communist China's cement production
from 0.66 million tons in 1949 to 4.6 million tons in 1954 resulted
from the expansion, rehabilitation, and reconstruction of existing
capacity and from marked improvement in the rate of utilization of
this capacity. With capacity utilization approaching the maximum
rate in 1954, subsequent increases in cement production have depended
on increased production capacity, partly in the form of new cement
plants. 113/
In 1956 the Chinese Communists produced about 6.4 million
tons of cement, exceeding the 1957 goal by 0.4 million tons. In
spite of this increase, a shortage of cement hindered the construction
program in 1956. This has resulted in part from a failure to gauge
properly the domestic demand for cement in 1956, as the planned in?
crease in production over 1955 was 16? percent less than the rate of
increase in demand. 114/ In addition, commitments to export large
quantities of cement, presumably to the USSR, have aggravated the
* Table 30 follows on p.103.
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Table 30
Communist China: Estimated Production
of Cement, Rubber Products, and Selected Chemicals
1950-62
Industry
Unit
1950
1951
1952
1953
1954
1955
1956_
1957
1958
1959
1960
1961
1962
Cement
Thousand metric tons
1,400
2.500
2,860
3,930
4,600
4,500
6,400
7,700
8,800
10,000
11,200
12,300
12,500 to
14,500
Motor vehicle tires
Thousand sets
62
225
417
488
702
597
675
760
N.A.
N.A.
N.A.
1.500
Rubber footwear
Million pairs
45.1
67.6
61.69
69.1
76.69
68.2
100
108.3
N.A.
N.A.
N.A.
N.A.
150
Calcium carbide
Thousand metric tons
6
7
8
10
12
15
18
21
3cr
42
48.6
56.5
6o
Synthetic ammonia
Thousand metric tons
8
21
28
40.6
51-9
62
72
86
97-5
119
125
137
151
Refined naphthalene
Thousand metric' tons
0.396
0.5
0.73
0.9
1.2
1.3
1.4
1.5
1.6
1.72
1.84
1.97
2
Refined benzol
Thousand metric tons
3.04
12.9
18.85
23.7
29.8
32.8
40
43
46
49
52.3
56
6o
Teluor.
Thousand metric tons
0.8
2.8
4.08
5.
6.
7.
8.
8.6
9.2
9.85
10.5
11.2
12
Crude phenol
Thousand metric tons
0.306
0.378
o.6
0.72
0.9
0.96
2.
2.14
2.39
2.5
2.62
2.8
3
Caustic soda
Thousand metric tons
20.12
49.07
79.
89.27
216.o5
137
145
154
171
I90
210
234
259
Sulfuric acid
Soda ash .
Thousand metric tons
Thousand metric tons
75
112.4
115
184.6
146
192.
198252
222.7
P)1
9.6
40
272
444
290
476
310
540
35
N
6Io
M
6%
380
780
400
88o
Nitric acid
Thousand metric tons
8
8.5
9.4
14.
22.
25.1
29.4
33.6
38.
46.5
48.6
53-5
59
Ammonium nitrate
Thousand metric tons
1
4.9
7-5
22
26
32
38
44
59
74
89
98
108
Ammonium sulfate
Thousand metric tons
76.8
128.5
181
226
295
324
415
504
580
702
734
806
890
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shortage. 115/ The failure to plan for an adequate increase in pro-
duction to meet 1956 requirements suggests that the 1962 goal may
be underestimated.
Maintaining the quality of given types of cement appears
to be a problem for the industry. It is reported) for example, that
only three cement plants kept their product up to standard in the
first half of 1954. 116/ Table 30* gives the estimated production
of cement for 1950-62.
10. Light Industry.
Despite the announced intention of the Chinese Communists
to allocate a greater proportion of investment to light industry) in/
the proposals for Communist China's Second Five Year Plan indicate
less emphasis on the development of light industry than was evident
In the First Five Year Plan. Whereas the First Five Year Plan pro-
vides for growth in light industry of approximately 83 percent (about
80 percent of the corresponding rate for heavy industry), the pro-
duction goals for 1962 reveal a planned growth for light industry of
only 6o percent (less than 410 percent of the planned rate of develop-
ment for heavy industry). Moreover, this increase will result pri-
marily from expansion and renovation of existing production capacity)
including the large segment of private industry recently brought into
the state sector) where quick returns in expanded output are antici-
pated from relatively small investment. 118/ Much of this increase
will originate in the coastal area of China) which accounts for some
70 percent of the total national output of light industry, 119/ and,
more specifically) in Shanghai, Tientsin, and Canton.
Aside from the policy of developing heavy industry on a
priority basis) the growth of light industry in China is limited by
inadequate supplies of agricultural raw materials. For light indus-
try as a whole, production increased 28 percent. In 1953 following the
bumper harvest of the preceding year, but in 1955 the rate of increase
was only 1 percent as a result of the floods and other natural calami-
ties experienced in the previous year. An even better example of the
problem of agricultural raw materials is afforded by the cotton textile
Industry, which contributes nearly one-third of the total value of
the output of light industry. Production of cotton yarn declined 14
percent in 1955 and increased an estimated 29 percent in 1956.** Thus
* P. 103, above.
4* The Communists have recently admitted that 1956 cotton production
did not reach the 1955 level.
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the sizable increase of 60 to 80 percent in cotton yarn production
scheduled for the Second Five Year Plan is entirely dependent upon
the success encountered in the attempt to increase raw cotton pro-
duction by nearly 50 percent during the plan period. In like fashion,
achievement of other light industry production goals will be governed
by the level of agricultural production which, as Chou En-lai has
pointed out, will remain subject to "the influence of natural calami-
ties." 120/ Table 31* shows estimated production of selected products
of light industry in 1950-62.
The deterioration of quality of products of light indus-
try is a serious problem in present-day China. Chia To-fuj Director
of the Fourth Staff Office of the State Council, recently acknowledged
that "the quality of many light industry products is still unsuitable,
or in some cases has even become worse in the past few years." 121/
It is expected that emphasis on quantity at the expense of quality
will continue to characterize light industry production in China for
many years to come.
C. Transport and Telecommunications.
1. Railroads.
Transport routes in Communist China are concentrated in
the eastern half of the country, converging primarily on such large
economic and population centers as Mukden, Peiping, Shanghai, HankoW,
and Canton. The industrial regions in the Northeast are particularly
well served by internal transport routes. New route construction
into western areas, formerly served largely by primitive means of
transport, is being increasingly emphasized in an attempt to develop
unexploited resources and increase the effectiveness of central govern-
ment control.
Since the Communists gained control of the China mainland
in 1949, transport service has shown marked increases in performance,
so that by 1955 total traffic in terms of tons originated was 150
percent greater than in 1950. This growing performance of the trans-
port system has been the product of a number of factors -- a growing
demand for service, increasing investments, and greater operating
efficiency. Outstanding among these have been the increasing require-
ments generated by the industrialization program, without which trans-
port performance could not progress.
* Table 31 follows on p. 106.
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Table 31
Communist China: Estimated Production of Selected Products of Light Industry
1950-62
Industry
Unit
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
Cotton yarn
Thousand metric tons
' 438
487
656
745
834
720
929
1,016
997
1,096
1,205
1,324
1,452
Cotton cloth (factory production)
Million linear meters
1,602
2,175
3,265
3,943
4,474
3,770
4,860
4,800
5,160
5,550
5,970
6,420
6,890
Wool yarn
Thousand metric tons
2.8
"3-5
4.
4.7
5.5
6.6
7.4
8.3
8.7
9.1
9.6
10
11
wool cloth
Million linear meters
2.4
2.4
3.7
4.7
5.
6.
6.7
7.5
7.9
8.3
8.7
9.1
9.6
Silk cloth
Million linear meters
23.6
29.5
38.8
44.1
47.1
62.5
77.5
77.5
83.7
90.4
97.6
105.
113.
Gunny bags
Million bags
13.
29.4
67.4
60.4
6o.
53.4
60
68
71
75
79
83
87
Cigarettes
Thousand cases (50,000
Matches
Machine-made paper
cigarettes per case)
Billion boxes
Thousand metric tons
1,885
5.87
139
2,030
7.22
239
2,650
9.11
372
3,552
8.02
428
3,728
10.35
556
3,567
11.13
589
4,133
11.91
707
4'7"
12.7
Boo
4,900
13.6
910
5,1T4.6
1,030
511*?
15.6
1,170
5,700
16.7
1,330
6,000
1,530-Z.9
Newsprint
Thousand metric tons
36
41
47
61
79
120
137
154
175
195
210
230
250
Native-made paper
Thousand metric tons
LA.
NA.
167
N.A.
N.A.
N.A.
N.A.
237
M.A.
N.A.
N.A.
N.A.
N.A.
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One of the most notable features of the Chinese Communist
Internal transport system is the extent to which rail services cur-
rently predominate. In terms of tons originated, the railroads' share
of total traffic has risen progressively from about 50 percent of the
volume carried by all forms of transport in 1937 to about 70 percent
of total inland traffic in 1956.
Since the Chinese Communists have controlled China, the
railroads have been the most significant interior transport connection
in international trade. In 1955, well over 95 percent of the total
tonnage of international trade over interior routes crossed the border
by rail. Rail service is available between China and the USSR, North
Korea, Kowloon (Hong Kong), and North Vietnam. Nearly 90 percent of
all trade with the USSR was moved via the railroads. The Trans-
Mongolian railroad) opened to traffic during January 1956) will pro-
vide means for an appreciable increase in the capacity of transport
supporting China's foreign commerce through Siberia. It is estimated
that in 1955 rail connections with the USSR handled about 5 million
tons of freight. About 90 percent of this was in trade with the
USSR, the remainder in trade with the European Satellites.
The pattern of transport between China and North Vietnam
was changed in late 1955 by the completion and official opening of
the Hanoi-Nam Quan line linking the North Vietnam rail system with
that of China. This line became the principal transport route for
conveying the increasing volume of aid to North Vietnam, which in
1955 amounted to about 60,000 tons. The Chinese are presently work-
ing on the Hanoi-Kunming line, which will be used primarily to facil-
itate the export of Yunnan mineral resources through the ocean ter-
minal at Haiphong.
Chinese domestic rail operations consist largely of the
movement of a few bulk commodities from a relatively small number
of places of origin to a fey principal destinations. Transport of
coal) the largest single item shipped, made up more than 30 percent
of the total rail performance during 1954, whereas agricultural prod-
ucts and construction materials each made up more than 20 percent, and
transport of ores and semiprocessed metals made up about 5 percent. 122/
As the level of the economy rises) shipments of machinery, chemicals)
and other manufactures are becoming of increasing importance. Petro-
leum is still a minor item in transit. Table 32* shows the estimated
volume and performance of transportation in Communist China in 1950-62.
* Table 32 follows on p. 108.
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Table 32
Communist China: Estimated Volume and Performance of Transportation
1950-62
Industry
Freight originated
Railroads
Inland waterways
(excluding junks)
Coastal waterways
(excluding junks)
Motor vehicles
Total
Performance
Railroads
Inland waterways
(excluding junks)
Coastal waterways
(excluding junks)
Motor vehicles
Total
Unit 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962
Million metric tons 99.5 110.5 132.1 160.4 192.6 193.4 246 257 281 305 329 352 376
Million metric tons 4.50 6.90 9.41 15.3 20.5 26.3 42.7 48.4 54.1 60.1 65.0 70.8 75.8
'Million metric tons 0.828 3.30 5.76 5.92 9.91 10.5 13.7 15.8 17.8 19.9 22.0 24.0 26.2
Million metric tons 7.45 12.6 20.7 30.4 43.5 50.1 58.1 67.5 81.0 97.2 117 140 168
Million metric tons 112 111 168 212 267 280 IL 389 434 482 Qa 587 646
Billion ton-kilometers 39.4 51.5 60.2 78.1 93.2 98.1 120 130 143 156 169 182 196
Billion ton-kilometers 1.68 2.66 3.64 5.63 7.89 10.4 17.1 19.6 22.2 24.9 27.3 30.0 , 32.5
Billion ton-kilometers 0.822 2.91 5.00 4.65 8.04 8.38 11.0 12.6 14.2 15.9 17.6 19.2 21.0
Billion ton-kilometers 0.373 0.503 0.678 1.18 1.87 2.52 2.84 3.21 3.85 4.62 5.55 6.66 7.99
Billion ton-kilometers 11-21 57.6 69.5 89.6 111 119 151 165 183 201 219 238 El
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Between 1950 and 1954, rail traffic, in terms of tons
originated, almost doubled, and in 1954 it was about 4o percent
above the pre-Communist peak year of 1945. Growth in the volume
of rail traffic has generally been consistent with the growing
needs of the economy. Figure 2* shows indexes of growth in
selected major economic sectors as well as gross national product,
which are a fairly representative measure of economic activity.
It is shown that the trends in these indicators have paralleled
the trends in tons originated on the railroads during the same
period. This correlation reflects the fact that the increased
demand from the production of goods and services both supported
and made necessary the growth of rail transport.
The present high level of rail performance has resulted
from a nuMber of various factors. The railroads, now operating on
a national scale, have developed an effective centralized, but
flexible, administration which has permitted intensive exploita-
tion of the rail system. Hign traffic levels have been attained
through an intensive utilization of existing facilities and equip-
ment. Particular emphasis has been placed on decreasing freight
car turnaround time and increasing the load per car. 123/ It is
estimated that between 1950 and 1953, turnaround time was reduced
from an estimated 4.7 to 4.0 days, where it apparently has leveled
off. Reductions in turnaround time are not likely to continue, as
new lines extended into remote areas will tend to offset gains
elsewhere. By 1954 the average load per car had reached 31.6 tons,
an increase of 3.3 tons over the 1952 figure. Recent announcements
indicate that the net weight per car load is to increase to 34.7
tons by the end of 1957. The rise in average load per car may be
attributed to the increasing proportion of 4o- and 50-ton cars as
well as to the considerable volume of heavy loading freight cur-
rently moving. Any continued increases will probably result from
Increases in the capacity of cars rather than from improved methods
of loading. Efforts are presently being directed toward increasing
the load factor of locomotives by increasing the average gross freight
train weight.
Sizable additions have been made to the rolling stock in-
ventory by production of new units. 124/ Since 1953, Chinese freight
car production has been made up of 50-ton cars (except for a limited
number of 30-ton refrigerator cars) rather than the 30-ton car for-
merly produced. This, of course, means that the actual freignt-carry-
ing capacity has increased substantially more than the increases in
number of cars would indicate.
* Following p. 110.
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As a result of increased utilization of facilities and
equipment and of increases in the freight car inventory, limitations
which had been imposed on rail operations by the availability of
rolling stock are believed to have been largely overcome. As traffic
has continued to increase) however, limitations on further growth in
the number of trains are being imposed by available track capacity in
certain areas. Since 1954 there have been indications that the rail-
roads have been operating under an increasing strain and have not
been improved at the same rate as the increase in traffic they have been
obliged to carry. Along certain key sectors of line, traffic capacity
and traffic volume were becoming almost identical. A net general trans-
port shortage does not exist as yet, but local rail congestion and
local inability to handle requirements can be expected. During 1956,
references to congestion and lack of adequate transportation have in-
creased. An official of the central transport planning staff stressed
the point that the volume of freight transport requirements in 1956
would approach or exceed the level originally planned under the Five
Year Plan for transport in 1957. 125/ Most of the recent trouble has
been reported on sections of such key rail lines as the Peiping-Hankow,
the Lung-hal, and the Shih-men - Tai-yuan railroads. The campaign to
move heavier trains appears to be an attempt to alleviate this situ-
ation in part. It is doubtful, however, that the over-all effect of
heavier train movements will be adequate to solve the problem, and
there have already been examples of traffic congestion in spite of it.
If the basic problem is to be rectified, additional investment in track
and facilities on existing lines appears necessary. Double tracking
of main trunklines, increasing the capacity of key rail junctions and
yards, increasing the capacity of lines, and installation of automatic
signalling systems on certain main lines are to be emphasized in the
Second Five Year Plan.
During the past 6 years the Chinese Communists have carried
on a most impressive rail construction program. The task of building a
rail system to meet the grbwing requirements of the existing industrial
sector and to service the areas into which Chinese industry and mining
are expanding is a monumental one, however, and apparently improvements
have not been sufficient to cope with the increases in traffic gener-
ated. By the end of 1956 the Chinese had constructed over 5,000 kilo-
meters of new line, giving them an operable track network of about
29,000 kilometers. About 45 percent of rail investment in the Five
Year Plan has been allocated for new lines. A major part of the new
construction has been concentrated in the western areas of China,
remote from major centers of economic activity. Extension of the rail
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COMMUNIST CHINA
INDEXES OF GROWTH OF
SELECTED ECONOMIC SECTORS, 1950-62
1203
1030 1030
900
800
700
600
500
400
300
203
100
0
1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962
1950 100
/
/
/
/
/
/
?
/
/
/
/1 i
/-
?
....
/
/
/
, 2
./
/
. /
/
?
/
/
//

7
,
111-70
:
-
? I,
,
//
/
1-/--?-?
.....,"
...so
/
1,...1
/
.er
./
/
, .1?
. ?
ir
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r
-
-
---
.
ems ?
____/:.;.7
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/,'
A,..- :'
,,r.....tae?
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-
- ----
-
---
---
Figure 2
Ferrous Mining
(95% of total mining)
Cement
Electric Power
Index of Modern
Industrial Production
Modern Transport,
Ton kilometers
Modern Transport,
Tons originated
Rail, Ton kilometers
Coal
Rail, Tons originated
Gross National
Product
Timber
Grain
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system?into these areas hitherto inadequately served by modern trans-
port apparently has been designed to enable the Chinese to exploit
undeveloped mineral resources; to establish an efficient transport ser-
vice to support planned industrial centers,, power developments, and
agricultural stations; and, to a lesser extent, to provide for more
effective political control over greater areas of population. Con-
structton of the line westward from Lan-thou, via Yumen and Orumchi,
to connect with the Soviet system near Aktogay and the projected line
into the Tsaidam Basin are prime examples of this effort. Work is
also under way on various sections of track which will provide an
additional north-south trunkline parallel and 250 kilometers west of
the Peiping-Hankow-Canton line. This line, which will pass through
Paotou, Lan-chou, Chengtu, Chungking, and Kunming, will ultimately pro-
vide a Chinese inner belt line linking North Vietnam and the USSR.
Other new line construction has apparently been undertaken
with the intention of increasing military logistic capabilities in cer-
tain strategic areas. Such lines as the Litang-Fort Bayard and the
Yingtan-Amoy are examples of this effort.
In addition to-trunkline construction, forestry railroads
are being extended and numerous branch lines are being constructed to
service new or enlarged industrial and mining installations and to
exploit sources of construction materials.
A great deal of attention has also been directed toward
strengthening the existing' rail system. Nearly one-third of rail in-
vestment under the First Five Year Plan has been allocated for rehabili-
tation of existing lines, construction or restoration of double tracks,
development of additional yard and handling facilities, and installa-
tion df communications equipment.
In order for the rail system to continue to grow concur-
rently with the economy as a whole, a relatively large investment for
improvement of the system's capacity, for extension of the system, and
for increases in the locomotive and freight car inventory will have to
be continued. The economy will have to generate a large measure of the
resources required for this expansion, and a failure to do so will
Impair the growth of the over-all economy, more particvlsrly the growth
of the modern industrial sector.
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2. Motor.Vehicle Transport.
Motor transport in Communist China is employed chiefly for
short-distance intercity freight movement. The average length of haul
is still only about 40 kilometers, and the generally primitive quality
of the road system hinders the growth of motor transport. In the north
and central sections of the country) where the road network is fairly
dense although in poor condition, motor transport acts mainly as a
feeder to railroads and rivers, whereas in the northeast, main roads
parallel rail lines and provide complementary service. Motor transport
has facilitated the growth of commercial centers in rural areas not
served directly by rail or water, and new feeder roads) joining scattered
farming communities to the established transport network, enable market-
ing of commodities by vehicle that previously were dependent upon coolie
or animal carriers. Demand for motor transport has also been increased
with the centralization of grain procurement and distribution under state
control. In spite of appreciable increases in motor transport, however,
the volume of goods moved by truck is relatively small; animal and
coolie transport probably still haul as much tonnage as motor trucks if
not more. Table 32* presents performance of motor vehicles.
The Chinese have made considerable progress in the construc-
tion of new highways. From a road network of 78,000 kilometers in
1950, motorable highways were extended to 180,000 kilometers by the
latter part of 1956, mainly by projected new motorable roads into
areas formerly served only by coolie and animal transport. lag Low
standards of construction will continue to keep the efficiency of
Chinese highway transport at a low level. Presently, the greater part
of the road net is not capable of supporting truck traffic throughout
the year.
A major emphasis has been placed on the extension of the
highway network to the border areas where only primitive means of
communication formerly existed. Construction of roads in these areas
has assisted the economic and cultural development of the racial
minority districts and has tied them more closely to the central govern-
ment. Truck transport in the western oilfields has been of prime
importance. Roads provide the only means of direct transportation
between Communist China and Tibet and between Communist China and
the neighboring countries of Laos, Burma, India, and the Soviet Central
Asian republics. Because of Communist China's policy of strengthening
* F. 108, above.
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her southwestern border positions, roads in this area have received
considerable expansion.
In addition to increasing and modernizing the motor road
network, the Chinese have also been investing heavily in their motor
vehicle park. Mainly as a result of large imports of vehicles from
the Soviet Bloc, the park increased from about 4o,000 units in 1950
to about 80,000 units by the end of 1955. Continued import of
vehicles, couliled with domestic manufacture beginning in 1956, is
expected to bring the total park to more than 150,000 units by the
end of 1960.
3. Inland Waterways.
The inlana waterways system of Communist China is one of
the most extensive in the world. Api5roximately 100,000 kilometers
of routes are now open to navigation although most are suitable only
for shallow draft vessels. The heaviest volumes of traffic are
carried on the Yangtze system, the West River in the South, and the
Sungari system in the Northeast. In spite of the great length of
such main routes as the Yangtze, inland water transport is essentially
local in nature; in 1954 the average length of haul of the modern
water transport sector (excluding native craft) was only 385 kilo-
meters. The transport of agricultural produce, coal, and building
materials is most important on the inland waterways, but as the level
of the economy rises, movement of industrial raw materials and pro-
duce is becoming relatively more important.
The increased emphasis on rail transport has reduced the
relative importance of water transport, and river traffic still has
not approached pre-Communist levels. Inland water operations have
steadily improved under the Communists, however, and waterway freight
movement in 1955, in terms of ton-kilometers, was about six times
that of 1950, as shown in Table 32.* Because of the recent strain
on rail transport, some bulk cargoes planned for rail shipments have
been diverted to water. With the continuation of the present emphasis
placed on water transport, the achievement of further development
plans now under way should bring performance close to pre-Communist
levels by 1960. Nevertheless, with the constantly growing role of
the railroads, the relative share of freignt tons originated on in-
land water transport will probably never be as great in proportion
to total freight tons originated as it was in the past.
* P. 108, above.
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The self-propelled fleet, for the most part confined to
the main arteries, is estimated to total only about 750 vessels,
ranging from 4,000-ton passenger-cargo vessels to smaller tugs and
steam launches. Efficiency in operations has been increased under
the Communists. Socialization of almost all vessels operating over
the waterways and centralization of dispatch control and cargo
allocation have probably aided efficiency. Voyage time for vessels\
operating on scheduled runs has been reduced, in some instances fro*
one-third to one-half. On the Yangtze, routing of barges through
the entire voyage, instead of transshipping the cargo several times,
has improved transit of bulk cargoes. Within the last year, over-
all efficiency of transport service has been helped by the establish-
ment of through services from the Yangtze to ports along the east
coast.
The nonpowered fleet consists of a large number of small
junks and native craft, which in the aggregate have a freight capacity
of nearly 4 million tons and which in 1953 accounted for about 46
percent of total inland water transport. 127/ On major waterways,
such as the main stream of the Yangtze and the Sungari, tug-barge
units are replacing the junk to some extent, especially on long-
haul routes. On river inlets, canals, lakes) and tributary streams,
however, the shallow draft junk is still supreme. More than 80 per-
cent of China's junks operate in the Yangtze basin, along the Huai
and Han Rivers, through the Poyang and Tung-ting Lake areas, and
among the numerous canals. Throughout the Yangtze basin and along the
Pearl River system in south China, the junk is the primary means of
contact between market centers and the countryside. The junk operates
largely in support of the Chinese agricultural economy and is essential
in the role of collecting grain and other agricultural produce and
in local distribution. In addition, junks have been used in large
numbers to move literally millions of tons of dirt and fill in support
of various construction programs, such as water conservancy projects.
There is some doubt that the Chinese know how much traffic is actually
moved by junks; announcements about junk traffic tend to be vague and
are inconsistent. The statistics shown in Table 32, based on Chinese
announcements, do not include junk traffic. It is estimated, however,
that in 1955 junks possibly carried about 22 million tons of traffic
in support of the general economy and, depending on the extent that
essentially local haul traffic is also included, could possibly have
carried more than 100 million tons.
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Investment in inland waterways has greatly increased dur-
ing the past several years, largely because of construction of new
self-propelled ships and barges. Before 1954, relatively little in-
vestment went into new vessels, most of it going to salvaging vessels,
rehabilitating the existing fleet and purchasing secondhand craft.
Since 1954, emphasis has been on new construction. Relative invest-
ment .for channel improvement and similar projects is small, but
appropriations for construction projects have increased several times
yearly and are especially important on the local level.
4. Coastal Shipping and International Seaborne Commerce.
Operations of the Chinese Communist merchant fleet are
generally confined to serving the domestic coastal trade; recently
there has been an insignificant amount of commerce carried to North
Vietnam. Chinese Nationalist interdiction of coastal shipping has
diminished and at present is effective only in the Taiwan Straits
area, especially around the port of Amoy. To the north of Taiwan,
the Chinese Communists operate unobstructed trunk and feeder passenger
and freight routes servicing all coastal ports north from Foochow.
The largest segment of the Chinese fleet is concentrated in this
area; shipment of coal) grains, and other agricultural products;
petroleum products; and industrial goods comprise the bulk of traffic.
A smaller segment of the fleet operates out of Canton in South China
to Swatow and to ports in the Liuchow Peninsula - Hainan Island area,
providing local support for military and economic activities.
Apparently the available fleet has been able to handle
almost all tonnage requirements. Coastal shipping performance has
grown steadily; ton-kilometer performance in 1955 was 10 times the
1950 figure, as shown in Table 32.* Continuing efforts to increase
the utilization and efficiency of the coastal fleet have enabled it
to cope with the growing demands for service, and some slack in fleet
operations may still exist.
Between 1950 and mid-1955, with salvage efforts, foreign
purchases, and new construction the Chinese Communist merchant fleet
increased from about 79 vessels of 175,000 gross registered tons (GET)
to about 120 vessels of 295,000 GRT. There has been little construc-
tion of coastal freighters in Chinese shipyards, almost all production
going into inland waterways vessels and barges and recently into naval
* P. 108, above.
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craft. Within the last year, the Chinese Communists have stepped up
their foreign purchase program and presently have orders with Fin-
land, Poland) and Hungary for new coastal-type vessels. It is esti-
mated that by 1960 the Chinese Communists could have a coastal fleet
of 350,000 to 400,000 GRT. This would still be less than half the
size of Nationalist China's Merchant fleet in 1949.
The powered merchant fleet is considerably augmented by
a large number of coastal trading junks which handle the bulk of
local service operations. In addition) domestic coastal service
has been augmented to a limited extent by foreign-flag vessels.
Since mid-1955, however) coincident with stepped up Nationalist
interference with foreign-flag vessels) almoat all vessels formerly
active in Chinese Communist domestic service have been withdrawn.
Presently, foreign-flag vessels operate on line service between Hong
Kong and Swatow and between Hong Kong and various North China ports,
but there have been only a few reports of these vessels calling point
to point in Chinese Communist domestic trade. There have been no
recent reports of Bloc ships aiding in Chinese Communist domestic
commerce.
The Chinese Communists are completely dependent upon
foreign registered vessels, both Bloc and Free World, to handle
longer international trade. It is believed, however, that about
half of the 23 Polish ships on the Baltic-China run, having been
purchased by Poland actually for Chinese Communist use, may be effec-
tively owned by the Chinese Communists.
In 1955 there was a continuing substantial increase in
the amount of merchant shipping engaged in trade with Communist China.
Seaborne commerce in 1955 carried less than 10 percent of the tonnage
of China's trade with the USSR but carried over 95 percent
of European Satellite trade tonnage and nearly all of the non-Bloc
trade tonnage. 128/ Seaborne imports comprised primarily such bulk
commodities as fertilizer, cotton, and rubber from the Free World,
and in addition iron and steel products) industrial-machinery) trans-
port equipment, and the like from the European Satellites. Direct
Imports of POL by sea decreased in 1955. Sizable increases in POL
shipments to the Soviet Far East, however, indicate that much POL
tonnage was probably unleaded there and transshipped overland to
Communist China. Exported seaborne tonnage consisted of agricultural
and industrial raw materials, such as salt, soybeans, other oilseeds)
rice, nonferrous metals and ores, iron ore, and the like. Non-Bloc
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vessels provided 81 percent of the tonnage arrivals in 1955 in
chartered tramp and scheduled liner services. Whereas charterad
shipping carries the bulk of the cargo, liner services are of more
importance than the volume of cargo carried might suggest because
they provide regularity of shipment and enable the Chinese Com-
munists to engage space and move smaller lots of import and export
cargoes promptly, without having to wait for charter arrangements.
Non-Bloc vessels are extremely important in meeting Chinese Com-
munist seaborne transport requirements, as the combined fleets of
the Soviet Bloc are not able to meet adequately the over-all trans-
portation requirements of the Bloc.
5. Air.
Air transport in Communist China as yet plays a very
limited role in freight movement, but it is important in the move-
ment of high-value, low-tonnage cargo and for high-priority-personnel
transport. The acquisition of new aircraft of greater capacity and
better performance and the adoption of international standards and
operating procedures will undoubtedly increase the importance of
civil aviation in the economy. During 1955 and early 1956 the un-
duplicated basic civil air network increased more than 21 percent
from the 1954 figure of 15,700 km to over 19,000 km and route explora-
tion was carried out on several additional routes includng Peiping to
Lhasa. During the first half of 1956 the total volume of air trans-
port had increased by nearly 75 percent over the same period of 1955.
New routes have been opened from Canton to Hanoi in North Vietnam,
from Kunming to Mandalay and Rangoon in Burma, from Urumchi to Khotan,
and from Fort Bayard to Hoihow on Hainan Island.
The inventory of the Chinese civil air fleet has undergone
an almost complete changeover in type of aircraft. The American-built
aircraft which had formed the nudleus of the inventory used on the
domestic network have been replaced by new Soviet aircraft -- IL-12's,
IL-14's, and L1-2's. In December 1956 the TU-104, a Soviet jet trans-
port, began scheduled services on a route from Prague to Moscow to
Peiping. It is probable that the Chinese civil air fleet will receive
jet aircraft in the near future to fly the Moscow-Peiping route which
It shares with Aeroflot, the Soviet carrier.
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6. Telecommunications.
Postal and telecommunications services in Communist China
as yet do not have the capability of meeting concurrently economic,
political) social, and military requirements. The Chinese are attempt-
ing to overcome this inadequacy, but because of the narrow communica-
tions base and the size of the problem of increasing system capacity,
telecommunications services may not be able to keep abreast of the
growing economy. Organizational changes during 1955 in the Ministry
of Posts and Telecommunications and emphasis on technical training
should improve the efficiency of operations.
' Growth of postal facilities has paralleled growth in
agricultural cooperatives, and it is estimated that the volume of
mail in 1962 will increase about 500 percent over 1955. Newspapers
and periodicals still account for 90 percent of mail volume.
Domestic telephone service is expected to reach all
communities by 1962, and the telegraph system is continuing to grow.
Wirelines are the primary telecommunications medium with point-to-
point radio used as a supplementary medium.
D. Domestic Trade.
Table 33* gives absolute figures for the value of retail
sales for 1950 and 1952-55 which are available in Communist statistics)
together with absolute figures for planned retail sales in 1956,
1957, and 1962. The average increase from 1950 to 1954 is about 15
percent. This rate of increase reflects the general recovery of both
agriculture and light industry in the period from 1950 to 1952. It
also reflects large increases in wage income for industry, transpor-
tation, construction, and government. The increase in 1955, however,
was only 2 percent as a result of the poor year following the 1954
floods. Table 34** shows the breakdown of retail sales for 1952-54
between rural and urban retail sales. Trends in wages of office and
factory workers are used to estimate the 1955 proportion and make
rough estimates for 1957 and 1962. Estimates of retail sales to the
nonagricultural rural population are included based on estimated in-
come of the nonagricultural rural population and on the estimates of
farm cash income in Table 35.***
*
Table
33 follows on p. 120.
**
Table
34 follows on p. 121.
Table
35 follows on p. 121.
***
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Table 35 shows the estimated relation of net farm income
and disposable cash income in the years 1953 and 1954 for which
we have direct information from an article on the proportion of
the total value of agricultural output marketed) and estimates
for the years 1950-52 and 1955. For the years 1957 and 1962 the
estimate of cash income is based on estimated trends in cash
sales by peasants based on estimates of meat production, produc-
tion of industrial crops, and cash sales of other crops. This
index shows a level of cash income for 195/ and 1962 in 1955
prices that is well below the expected level of farm retail sales
figures based on a breakdown of the figure for total retail sales
In 1957 and 1962.
The discrepancy highlights an important problem. Retail
sales (in 1955 prices) to farmers will increase as farm income
rises at a slower rate than is probably provided for in the Second
Five Year Plan. In 1955, state trading companies were already ex-
periencing difficulty in meeting their quotas for rural sales, and
much was said about the impact of socialization on farm supplementary
income affecting the cash income available for purchase of industrial
consumer goods. The effect of socialization on normal means by which
farmers supplemented their cash income was only one of the factors
involved. Meat production in 1955 was seriously affected by excessive
slaughtering in 1954 due to the grain shortage. Light industry pro-
duction had expanded rapidly at the expense of quality and trading
companies were overstocked with commodities of poor quality that
could not be marketed. Finally, the drive to increase the purchase
of fertilizer) farm tools, and other production materials made serious
inroads on farm cash income available for purchase of consumer goods.
This situation by which farm cash income was not sufficient to main-
tain demand for available consumer goods accounts for two develop-
ments that have taken place. In the first place, loans made to
peasants increased by 2.6 billion yuan in 1956 to a total level of
3.6 billion yuan. In the second place) planning announcements have
shown the intention to raise the prices of oilseeds) industrial crops,
and livestock) which will stimulate their greater production and at
the same time increase farm cash income. This admittedly will reduce
state income from trade in these products but will help to solve the
problem of increasing farm cash purchasing power. This situation --
in which farm cash income is not likely to rise sufficiently to meet
retail sales figures -- also affects the increased purchase of fer-
tilizer and other production materials needed to increase production.*
* Continued on p. 122.
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Table 33
Communist China: Retail Trade !../
1950-57 and 1962
Billion Yuan
Retail Outlets
1950
1951
1952
1953
1954
1955
1956 Plan
1957 Plan bi
1962 Plan
State-operated
1.331
2.39
4.384
5.941
7.611
10.785
27.83
10.22
N.A.
Supply and marketing cooperatives
2/
.819
1.75
5.051
8.519
14.901
12.211
17.15
N.A.
State-capitalist 91/
.031
.05
.077
.152
1.827
5.065
11.73
11.95
N.A.
Private
14.613
17.61
18.153
20.429
14.623
11.941
6.44
10.51
N.A. E/
Total
16.794
21.80.5/
27.665
35.041
40.002
46.00
12/
49.83 (Plan)
74.75 (Plan)
Value in 1952 prices 1/
20.410
22.71
27:665
33.030
.38.962,
36.480
37.280
42.87
46.44
69.66
a. Figures taken from statistical data, lulless otherwise noted. 129/
b. 130/
c. Figures for supply and marketing cooperatives include a negligible amount of trade going through consumer cooperatives.
d. State-capitalist units include public-private businesses, such as transformed urban stores and former private vendors
now serving as state commission agents.
e. Because of the speedup in socialization of domestic trade in the winter of 1955-56, a much greater part of private trade
will have been transformed to public-Private status than was envisaged in the First Five Year Plan. This figure will probably
turn out to less than 5.0 billion yuan.
f. 131/
g. 132/
h. 133/
i. A retail price index is secured for 1950 and 1953-55 from figures on avbrage money wages and real income.2312/ The
price index for 1951 is based on trends in production of commodities against unit sales in the Five Year Flan.
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Table 311.
Communist China: Rural and Urban Retail Sales in Current Prices
1952-55, 1957, and 1962
Billion Yuan
1952 1953 1954 1955 , 1957 ')./ 1962 iLL/
Value Percent Value Percent Value Percent Value Percent Value Percent Value Percent
Urban retail sales
12.25
44
16.07
46
16.94
43
18.76 LI/
47
19.60 f.../
39
32.30 9/
43
Rural retail sales
15.42
56
18.97
54
22.02
57
21.24
53
30.20
61
42.45
57
Tbtal retail sales
27.66..
100
35_,04
100
38.96
100
40.00
100
49.80
100
74.75
100
a. In 1955 prices.
Table 35
Communist China: Relation of Net Farm Income and Disposable Cash Income in Current Prices
' 1950-55, 1957, and 1962
Billion Yuan
1950
1951
1952
1951
1954
1955
1957 e/ 1962 e/
Farm income
23.4
28.8
32.9
35.5
35.1
39.0
41.2 49.3
Cash income after taxes
8.3
10.1
12.0
13.5
16.2
16:2
18.3 24.7
Percent of total income
of cash income after taxes
35
35
36
38
46
42
44 50
a. In 1955 prices.
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It is likely that large government loans to agriculture will continue
to be needed over the period from 1956 to 1962.
The small rise in total retail sales for 1955 of almost 3
percent over 1954 was not occasioned simply by shortages of light
industry production resulting from the poor cotton and tobacco
crops in 1954. Indications are that cigarette production targeted
for 1957 was in excess of demand. Large stocks of cloth were prob-
ably on hand in 1955 to carry over the period of a drop in textile
production. The large increases in demand for cotton cloth and other
staple items) which occurred in the period from 1950 to 1954, are
not likely to continue over the next 7 years. Production of higher
quality consumer goods and a greater range and variety of products
is probably required if the increases targeted for retail sales are
to be met. Toward this end a step has been taken toward freeing
about 25 percent of the total retail sales volume from state trading
controls and from price controls. This step toward a freer market
in these goods and greater control over the standards of production
for staple commodities of light industry are indications that this
problem may be solved. The sharp rise in mbney wages for office and
factory workers in 1956 is also in part a reaction to the poor show-
ing in 1955 by state and cooperative trading organs.
Considerable discussion has been devoted in Communist planning
utterances on the food situation) but the picture is far from clear.
ConfuSion is introduced by the difference between calendar year state-
ments and statements on the basis of the crop year. A statement on
total marketed output of basic food crops is available for 1950-55
and serves as the basis for the figures given in Table 35 135/ for
those years. Indexes for 1950-55 for sales of basic food crops can
be secured from published statements and the State Statistical Bureau
Reports for 1952-55) but the absolute figures must be derived from
general discussions on the proportions of grain sold by the state in
1952.
The general picture that emerges for 1950-55 is as follows:
In 1950 and 1951, taxes and state purchases) although not monopolizing
total sales of marketed output, furnished a comfortable relation to
demand for basic food crops. By late 1952 a situation emerged in which
the demands for basic food crops, as the result of development in the
nonagricultural sectors) outran state supplies for ncrmal purchasing
practices plus the grain tax. By late 1953 the forced purchase program
was undertaken to guarantee the necessary supplies of basic food crops,
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and since then the state has monopolized all procurement and sales
of the surplus over farm home consumption and has determined the
amount of grain to be marketed and to be left in farm areas. The
1954-55 grain year was characterized by an abnormal jump in rural
retail sales to cover redistribution of food crops for farm deficient
ateas due to the serious floods in 1954. In the First Five Year
Plan, this redistribution process in rural areas was considered ab-
normal and to be met by taking payments of the grain tax in money
and by moving into commercial channels only that grain which would
not in turn need to be sold back to the peasants. This move was
taken partly to counter peasant resentment and partly to reduce the
strain on the transportation and trading system that such resales
required. The 1957 retail sales target for basic food crops was
set in the First Five Year Plan at 29.75 million tons. The final
figures for 1955, however, show only a 2-percent reduction in state
sales, which is far short of the reduction that would be required
If 1957 retail sales were to drop to the level called for in the
First Five Year Plan. In all likelihood the actual level of retail
sales will be on the order of 36 million tons as shown in Table 36*
well over the original retail sales target for 1957.
The probable level in 1962 of the marketed portion of avail- ,
able supplies of grain can only be roughly indicated. The Second
Five Year Plan agricultural targets would give by 1962 about 180
million tons of commercial grain after deductions for seed, feed,
and waste -- a production that would furnish 23.5 million tons over
and above the expected available supply in 1962, and the increase
in available grain would be double the increase of 21.7 million tons
which is actually likely to be achieved during the period of the
Second Five Year Plan. The Communist targets would mean that food
consumption would rise roughly in proportion to personal income. It
Is clear, therefore, that the situation with respect to supply of
basic food crops will be tight throughout the period of the Second
Five Year Plan. How the available supply will be apportioned depends
to a large extent on Communist policy decisions as to how the pressure
of rising income on food supplies will be met. Considerable flexi-
bility in meeting the situation is possible through changes in rela-
tive prices and by direct rationing and other control measures.
The projected levels for 1962 given in Table 36 are based on
increases in retail sales and nontrade uses that are roughly half of
* Table 36 follows on p. 124.
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Table 36
Communist China: Disposition of Basic Food Crops 11
1950-55, 1957, and 1962
Million Metric Tons
1950
1951
1952
1953
1954
1955
1957
1962
Total production after deducting
for seed, feed, and waste
107.4
110.3
117.8
119.6
118.2
129.7
134.8
156.5
Nonmarketed portion
82.6
80.7
88.1
77.9
74.1
86.1
89.4
98.5
Marketed portion
24.8
29.6
29.7
41.7
44.1
43.6
45.4
58.0
State procurement
Tax
15.6
20.6
19.4
17.6
19.0
19.0
21.0
25.0
Purchase
3.4
6.8
10.3
21.4
25.1
22.7
24.4
33.0
Nonstate purchase and unaccounted
for procurement
5.8
2.2
0
2.7
0
1.9
0
Sales
State sales
4.9
10.8
20.5
28.6
36.1
35.4
36.0
44.8
Total retail sales
19.4
21.0
26.25
31.3
36.1
35.4
36.0
Urban
N.A.
N.A.
16.25
N.A.
18.1
19.0
20.0
25.6
Rural
N.A.
N.A.
10.00
N.A.
18.0
16.4
16.0
19.2
Disposition of tax grain
Retail channels
10.2
12.0
15.95
7.2
11.0
10.8
11.6
11.8
Exports
1.4
1.5
1.6
1.6
1.8
-1.8
2.0
2.2
Nontrade channels
1.4
2.1
2.8
3.4
3.7
4.o
5.0
6.4
Changes in stocks and grain
unaccounted for
2.6
5.0
-0.95
5.4
2.5
2.4
2.4
3.8
a. Commercial grain estimated at 86 percent of unprocessed grain.
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the expected increase in personal income for the groups concerned.
This projection for 1962 is not likely to overstate the marketed
portion, which may actually be higher. If the demands of the non-
agricultural population cannot be held down to these increases in
:ash sales, the farm population will have to bear the difference
in reduced consumption.
E. Gross National Product.
1. Size of Gross National Product, 1955.
In 1955 -- the midpoint of Communist China's First Five
Year Plan -- gross national product (GNP) in current prices was al-
most 90 billion yuan. This output, converted at the current ex-
change rate, is about.$36 billion, a per capita product of about $60.
A detailed comparison of Chinese and US prices, however, indicates
that the value of Chinese production of goods and services if
valued in US prices would be almost $90 billion, or a per capita
product in US prices of about $150. Chinese production, however,
is concentrated in relatively few consumption items and heavy In-
dustry is small and limited in technology. High Chinese prices for
a large range of goods in ample supply in the US show a ratio in
Chinese prices between Chinese and US GNP of 3.56 yuan to 1 dollar,
well below the yuan value at the exchange rate of 2.46 to 1. Thete-
fore, 90 billion yuan expended for the full range of US goods and
services would be worth only about $25 billion. Even the highest
conversion rate based on a direct dollar valuation of Chinese output
shows a very low standard of living in which the pressure of popula-
tion on agricultural resources and a lack of capital have resulted
in an extremely low level of labor productivity.
2. Trends in Gross National Product, 1950-57.
Tables 37* and 38** give two indexes of GNP from 1950
through 1957, the last year Of the First Five Year Plan (1953-57).
Estimates through 1955 are based on actual reports of performance
and are much more reliable than preliminary figures for 1956 or
projected output for 1957. The two indexes give a consistent pic-
ture of trends in China's GNP although they have been estimated to
a considerable extent by different methods. In 1950 -- the first
full year of complete Communist control over the economy -- China's***
Table 37 follows on p. 126.
** Table 38 follows on p. 127.
*** Continued on p. 128.
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Table 37
Sector Indexes, for the Gross National Product at Factor Cost
in 1955 Constant Prices
1950-62 2/
Sector of Origin
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
Agriculture, forestry, fishing,
and rural subsidiaries
Industry
Modern transportation and
communications
Trade (including native trans-
portation and miscellaneous
business services)
Construction
Government
Miscellaneous services and rent
Rural
Urban
GNP (at factor cost)
Percent increase over previous
year
87
53
69
63
49
82,
90
64
76
92
74
85
80
87
89
92
73
86
14
loo
100
100
100
100
100
100
loo
loo
17
99
125
129
120
136
105
99
118
109
9
99
150
158
137
161
111
98
126
117
7
107
158
172
141
157
116
105
131
125
6
110
186
193
158
215
122
105
142
136
9
114
205
222
170
224
128
no
148
144
6
117
226
250
184
260
134
115
162
154
7
121
256
277
201
301
142
118
177
166
8
125
294
305
220
350
152
120
193
3.8o
9
128
330
338
237
405
158
125
211
193
7
134
375
373
258
472
165
130
231
211
9
a. Prices for 1950-57 are estimates; those for 1958Z2 are proposed.
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Table 38
Communist China: Gross National Product, by End Use
1950-62
Billion Yuan at 1955 Prices
1950
1951
1952
1953
1954
1955
1956
?1957
1958
1959
1960
1961
1962
Consumption
41.6
46.6
54.1
57.2
60.1
64.2
68.5
72.9
77.8
82.8
88.2
94.0
100.1
Government purchases
6.8
9.5
8.4
9.7
9.8
10.4
10.2
10.7
11.2
11.8
12.6
13.0
13.4
Net foreign investment
-0.1
-0.7
-0.6
-1.4
-1.0
-1.2
-0.1
+0.0
t0.1
+0.2
+0.2
+0.3
+0.3
Domestic investment
3.9
6.9
10.0
13.1
17.0
17.5
19.9
19.9
23.2
25.0
29.8
33.8
38.4
Total ONE at 1955 market prices
52.2
62.3
71.9
78.6
85.9
90.9
98.5
103.5
112.3
2/
119.8 EL/
130.6 a/
141.1 a/
152.2 a/
Index by end use at market prices
73
87
100
109
119
126
137
144
156 s/
167 s/
182 s/
196 2/
212 si
Annual increase in GNP estimated
by end use
19
15
9
9
6
6
5
6
7
9
8
8
Estimate of GNP EV
109.6
116.1
laill
136.0
146.4
Index
150
161
176
189
204
Percent of annual increase
6
6
9
8
8
a. Based on a reduction in investment of 15 percent below that proposed in the Second Five Year Plan.
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GNP stood at slightly less than the level of 1936 output. Agri-
culture and trade were slightly below the 1936 level despite the
long period intervening; industry, modern transportation, and
construction were roughly the 1936 level for these sectors; and
the government sector was probably double that of 1936 due to the
size Of the Communist military and administrative establishment.
The average annual increase in GNP from 1950 to 1952 was 13 to 14
percent) reflecting the unification of the country, recovery of
agricultural output, restoration of industrial output, particularly
heavy industry, and mobilization of an under-employed labor force
by the government for its administrative, military) and investment
programs. These same factors operated in favor of a high rate of
increase for the nonagricultural sectors during 1953 and 1954, al-
though agricultural production did not increase and actually de-
clined in 1954. During the period of the First Five Year Plan, GNP
at factor prices is increasing at an average annual rate of nearly
8 percent. A rate of growth of 7 to 8 percent for China implies
considerable success for the Communist economic program. This rate
is twice as fast as the average annual rate achieved by India during
1951-55 during its First Five Year Plan. It is slightly higher than
the rate of 7 percent for the USSR from 1950 to 1955 and two and a
half times the 3 percent rate for the US GNP for these years. On
the other hand, Japan -- which had also not achieved its 1936 level
in 1950 -- has increased its total output from 1950 to 1955 by a
little less than 10 percent a year, only slightly lower than the
rate of 10 percent achieved for Communist China for 1950 to 1955.
3. Trends in Gross National Product, 1958-62.
Table 37 presents an index of GNP in the period of the
Second Five Year Plan if and only if the following conditions are
met: (a) industrial targets as set forth in the Second Five Year
Plan are substantially fulfilled and (b) agricultural production
of basic food crops, livestock, and nonindustrial crops achieved
a rate of increase that is only about half those set forth in the
Second Five Year Plan, while cotton and industrial crops substan-
tially fulfill the goals set in the Second Five Year Plan.
The question of the feasibility of this projection depends
on two interrelated factors. The first is the adequacy of the pro-
jected investment expenditures given in Table 38 to give the increases
in production embodied in the projected industrial targets for 1962.
The second is the possibility of raising investment in relation to
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total output to the level set forth in Table 38* without affecting in-
centives for peasants and workers and without undue strain on the
economy. The data pertaining to these factors are given in Table 42.**
The unrealistic rate of increase in agricultural produc-
tion set forth in the Second Five Year Plan obscures the actual eco-
nomic policies which would need to be followed to carry out the level
of investment embodied in the projection in Table 38. In the first
place) Table 34*** gives estimated rural retail sales planned for 1962
compared with expected cash income based on a more realistic pro-
jection of agricultural production as given in Table 35.*** These
figures indicate a gap of 5 billion to 6 billion yuan. Of the pro-
jected total farm cash income of about 25 billion yuan in 1962, more
than 10 billion yuan would be for fertilizer, tools, and other pro-
duction leaving 14 billion to 15 billion yuan for cash purchases of
consumer goods. Imputed home consumption would be about 17.5 billion
yuan, yielding a total farm consumption of about 32 billion yuan.
This is less than 20 percent higher than in 1955, or an average annual
rate of increase in 1955 constant prices of about 2.5 percent and
an average per capita increase of less than 1 percent annually. In
view of the rapid socialization of the farm population and the in-
creased efforts for water conservancy and other uses of farm labor
it is most unlikely that such a small rate of increase in per capita
consumption is feasible. On the other hand, incentives for increased
production in the nonagricultural sectors call for some such rise in
real income as that projected for urban workers. Therefore, it is
possible if not probable that the Communist leaders will not enforce
the austerity embodied in doubling investment in the Second Five Year
Plan period over the planned level for the First Five Year Plan. If
prices were adjusted so that budget revenue were affected by the full
amount of the probable shortfall in farm cash income, 1962 budget
revenue would be lowered by nearly 10 percent and since other budget
expenditures are projected at levels likely to prove the minimum fea-
sible, the ruduction would be almost entirely at the expense of budget
expenditures for economic construction. This amount would be a reduction
of about 15 percent in these expenditures in 1962. Since investment in
light industry and agriculture could not be reduced without affecting
the consumption level and the incentives implied in these levels of
production, most of this reduction would fall in investment in heavy
industry. The investment expenditures for 1958-62 are therefore reduced
*
P.
127,
above.
**
P.
13o,
below
***
P.
121,
above.
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by 15 percent to secure the estimate of trends in GNP that is actually
expected for the Second Five Year Plan Period.
4. Trends in Sector Composition of Gross National Product.
Table 39* gives the estimates of income originating by
major sector in 1955 prices for the period under consideration.
Figure 3** shows percentage contributions by major sectors for 1952,
1957, and 1962. Agricultural production excluding consumer services
will probably contribute less than a third of GNP in 1962 compared
with more than half in 1950. Industry will contribute about one-
quarter of total GNP in 1962 compared with a little over 10 percent
in 1950. The projected level of industry of about 25 percent of GNP
in 1962 is only a little less than industry's contribution to Japan's
GNP which has remained at about one-third of total output. These
projections are in 1955 Chinese prices, which still favor industrial
products relative to agricultural commodities, and current price
estimates would show industry somewhat lower in its contribution to
GNP. Therefore, the period from 1958 to 1962 will show considerable
progress toward industrialization.
The sector indexes in Table 37 are based on detailed esti-
mates of gross value of production by particular industry, from which
estimated costs of production in 1952 are subtracted to secure an
estimate of income originating in each industry sector. In the case
of agriculture, industry, and transportation these estimates of value
added by sector have been used to weight physical production data in
order to derive the indexes given. In the case of trade, gross reve-
nue originating in trade in agricultural products has been moved by
an index of farm procurement, and trade in heavy and light industry
products, by the production indexes. Therefore these indexes are
based on value added weights derived by subtracting from the esti-
mated producer's value of output the costs of raw materials and
fuel, thus securing the proper contribution of individual commodities
and industries to the economy. Communist statistics and all targets
for increases in the value of industrial production are based on
gross value, and specifically include in the valuation raw material
and fuel costs, indirect taxes, and other producer taxes. This means,
for example, that in the Chinese Communist statistics for trends in
industrial production the value of raw cotton is included in the value
* Table 39 follows on p. 131.
** Following p. 130.
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COMMUNIST CHINA
GROSS NATIONAL PRODUCT, BY SECTOR OF ORIGIN
1952, 1957, and 1962
(1955 Constant factor prices)
1952
67.5 billions of yuan
1957
97.1 billions of yuan
Irsi Agriculture, Forestry, and Fisheries Egg State Construction
leer,41 Industry
MEM
lood
Modern Transportation and Communications
Trade, Native Transportation, and
25784 5-57 Other Business Services
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Figure 3
F-1 Government (Including Health and Education)
Miscellaneous Consumer Services and House Rent
1962
135.7 billions of yuan
50X1
50X1
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Table 39
Communist China: Income, by Sector of Origin W
1950-62
Billion Yuan at 1955 Prices ?
Sector 1950 1951 1952 12/ 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962
Agriculture 28.3 29.8 .32.41 32.2 32.0 34.8 35.8 36.9 37.9 39.2 40.5 41.5 43.4
Industry 5.4 7.5 10.18 12.7 15.3 16.1 18.9 20.9 23.0 26.1 29.9 33.6 38.2
Modern transportation and com-
munications 1.4 1.7 2.03 2.6 3.2 3.5 3.9 4.5 5.1 5.6 6.2 6.9 7.6
Trade, native transportation,
and miscellaneous business
services 5.7 7.3 9.08 10.9 12.4 12.8 14.3 15.4 16.7 18.3 20.0 21.5 23.4
Construction 0.8 1.4 1.66 2.3 2.7 2.6 3.6 3.7 4.3 5.0 5.8 6.7 7.8
Government 2.8 3.1 3.46 3.6 3.8 4.0 4.2 4.4 4.6 4.9 5.3 5.5 5.7
Consumer services and house rent
Agricultural 3.6 3.7 4.00 4.0 3.9 4.2 4.2 4.4 4.6 4.7 4.8 5.0 5.2
Nonagricultural 3.0 3.4 4.66 5.5 5.9 6.1 6.6 6.9 7.5 8.2 9.0 9.8 10.8
Total GNP at factor cost 51.0 57.9 67.48 73.8 79.2 84.1 91.5 97.0 103.7 112.0 121.5 130.5 142.1
Estimated value of indirect taxes 2.2 3.0 3.92 4.8 5.3 5.3 6.4 6.9 7.5 8.3 8.9 9.8 10.7
GNP at 1955 market prices 53.2 60.9 71.40, 78.6 84.5 89.4 97.9 104.0 111.2 120.3 130.4 140.3 152.8
a. Estimated for 1950-57; proposed for 1958-62.
b. 1952 figures are carried to two places for use with indexes.
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of cotton yarn produced and the value of cotton yarn is in turn in-
cluded in the value of cotton cloth produced. In some cases, for ex-
ample, cotton ginning, rice polishing) and oil extraction, where proc-
essing costs are very small in relation to the market value of the
finished product, the gross value greatly overstates the importance
of the processing that has taken place. Also, cigarettes, wine, and
salt with high commodity tax rates have high figures for gross value
in relation to value added in production.
The definition of gross value in Communist statistics
makes a distinction between creating a new "use value" in processing
and "restoring" or "improving" the use value of a commodity. There-
fore the gross value figures for dyed or printed cloth do not in-
clude the value of cotton cloth but printing and dyeing are added at
cost since they do not "change" the "use value" of cotton cloth.
Similarly the gross value of repair work is added at cost. An ex-
ample given is that of an electric motor which, when combined with
equipment to make it power-driven, secures a new "use value" and the
gross value will include the price of both motor and equipment. The
gross value of repair or improvement in an electric motor itself is
limited to the charges for the work done.
The pyramiding implicit in this use of gross value in Com-
munist figures of industrial production is avoided in the indexes used for
this estimate. On the other handy it is important to evaluate and com-
pare the estimates being used in this paper and the official figures
for annual production and 1957 and 1962 targets found in Communist
planning speeches. An important effect of the use of gross value
figures in Communist statistics is to overstate the importance of in-
dustrial output in relation to agricultural output. In 1954) for ex-
ample, the contribution to national income of agriculture is given as
75 percent of gross value and the contribution of industry as 50 per-
cent of gross value. In 1954 official figures give agriculture as
50 percent of the total value of industrial and agricultural produc-
tion in 1954, but these percentages for production costs give 60 per-
cent of total income originating for agriculture. Even then almost
all commodity taxes, which are for the most part on industries proc-
essing agricultural products, remain to overstate industry's contri-
bution to the economy.
The second important effect of the figures on gross value
of production is to overstate the share of industrial output for light
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Industry with its heavy load of indirect taxes and lower percentages
of gross value for income originating, and to understate heavy in-
dustry's share. In the situation in China where heavy industry is
increasing more rapidly than light industry) this means that official
statistics for increases in total industrial production understate
the industrial increases that have actually taken place. By and large
the value added index and the gross value/index for light industry
or for heavy industry taken separately are not grehtly different (see
Tables 4o* and 42**). The value added index for industry as a whole
excluding individual handicraft, however, is 215 (1952 = 100) in 1957
and 409 in 1962. The same physical production estimates used for the
value added index but applied against gross value weights gives a
gross value index of 182 for 1957 and 361 for 1962.
Table 40 makes a comparison of the gross value index on
which trends have been estimated with Communist absolute figures for
gross value of production. The use of physical production data for
the indexes does not incorporate improvements in the product mix of an
industry that would raise its gross value even in constant prices. On
the other hand) regional variations in September 1952 prices -- the
prices used for Communist figures -- probably are higher for small
plants outside the main industrial concentrations and may be reflected
in the increases presented. Furthermore, 1952 prices of more complex
products are probably high in relation to costs of production in
volume. By and large, physical production data against gross value
weights would somewhat understate trends in gross value in constant
prices as Chinese industry grows and increases take place in the range
of products produced. This factor does not account for all of the
greater increases in the Communist gross value indexes compared with
this estimate. The main difference lies in the trend from 1952 to 1954
where light industry is shown in Communist figures to rise much more
rapidly than physical production figures justify. The difference seems
to be mainly due to inclusion of light industry production, probably for
the most part food-processing industries, in 1953 and 1954 figures as
the result of the forced purchase of basic food crops -- production
which was not included in 1952. The impact on the estimated trends in
value added is much less than appears from the gross value indexes since
value added is small for food processing in relation to other light
Industry production.
* Table 40 follows on p. 134.
** P. 138, below.
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Table 140
Communist China: Index of Gross Value of Production
1950-57 and 1962
1952=100
1950
1951
1952
1953
1954
1955
1956
1957
1962
1962
Increase
over 1957
(Percent)
Average
Annual Rate
1954-62
(Percent)
Industrial production
(excluding individual
handicraft)
Chinese Communist data
78
loo
132
154
166
198
235 2.1
421 J
79
13.4
CIA estimate
54
75
loo
124
145
152
182
201
361
80
12.1
Heavy industry
Chinese Communist data
100
137
164
192
236
276
610
121
17.8
CIA estimate
49
73
loo
137
166
187
226
252
516
105
- 15.4
Light industry
Chinese Communist data
loo
128
147
148
174
207
296
43
9.2
CIA estimate
57
77
loo
116
131
129
153
167
259
55
8.9
Agricultural production
Chinese Communist data
100
103
107
115
125
(Plan)
130 (Plan)
166
28
5.6
CIA estimate
87
91
100
loo
99
110
111
116
139
20
4.3
a. Based on individual handicraft meeting its original target and similar Increase occurring during the Second Five
Year Plan.
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The figures for the gross value of agricultural production
reflect the extent to which some of the figures for agricultural produc-
tion have.been discounted and the unlikelihood that 1962 goals can be
achieved. In any case Communist estimates of the value of agricultural
production, particularly for production other than basic food crops and
important industrial crops, are not nearly as reliable as their statis-
tics on industrial production, because of the vast extent of the farm
population, the difficulties of estimating production of innumerable
small households, and political pressures to hide the true situation
from the peasants. Inclusion of production in later years that were
not included in figures for previous years is inevitable. In this con-
nection Communist 1952 statistics for agriculture have not been revised
In spite of greater coverage and greater control over the countryside
achieved since 1954.
5. Trends in Distribution of Gross National Product, by End Use.
Estimates of Communist China's GNP by end use have been made
In current prices for 1950-550 based on retail sales figures adjusted to
secure total final sales of goods to consumers, on estimates of the
imputed value of farm home consumption derived from procurement figures
for the basic food crops and cotton, and on scattered information on
other agricultural crops. Budget data furnish relatively reliable fig-
ures on government purchases and state investment. Estimates of short-
term loans levels for industry and trade and estimated private farm
Investment, based on typical rural per capita budgets) are used to esti-
mate other gross investment expenditures. Finally, consumer services
and house rent other than budget expenditures for education and other
services are estimated on the basis of probable relationship to purchases
of consumer goods. Net foreign investment is estimated on the basis of
the import surplus from foreign trade figures. These estimates of cur-
rent expenditures are then deflated by price indexes to secure an esti-
mate of GNP by end use in constant prices.
Retail sales figures planned for 1956, 19570 and 1962 give
projected levels fdr sales of consumer goods. The 1956 plan budget and
other information on budget expenditures planned for the rest of the
First Five Year Plan and for the Second Five Year Plan are available.
The recent Party Congress was concerned with the proper proportion of
budget expenditures to total national income and with the level of
military and other government expenditures in the budget, as well as
with the planned level of state investment for construction and install-
ation of equipment as a proportion of total budget expenditures. These
discussions permit a relatively meaningful projection of budget
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expenditures over the period of the Second Five Year Plan. These pro-
jections for retail sales and budget expenditures have been checked
against trends in available consumer goods and available investment
goods based on the production targets given. The industrial production
targets for the Second Five Year Plan and the trends in retail sales
and budget expenditures are in balance with each other. Table 38 shows
the trends in GNP, by end use in 1952 prices, to be expected for the
period from 1956 to 1962 if the Second Five-Year Plan is carried out as
proposed at the Eighth Party Congress except for a more realistic esti-
mate of increases in agriculture.
The pattern for expenditures for the period concerned shows
a slow rise in the value of government purchases of goods and services,
but a decline in the percentage of total expenditures that are devoted
to government purchases. Net foreign investment in China by the USSR
has been significant in the period from 1951 through 1955, but is expec-
ted to cease and Communist China is expected to begin repayments on
Soviet loans during the period of the Second Five Year Plan. Consump-
tion expenditures would steadily decline as a percentage of total out-
put, although the expected level in 1962 of about 68 percent of total
GNP shows the intentions of ComMunist planners to raise the level of
consumer goods production to avoid popular discontent.
The Second Five Year Plan as announced calls for a steady
rise in investment, most of which is budgeted state investment, as
shown in Tables 38 and 41.* In the 12-year period, gross investment
expenditures would rise to nearly one-quarter of total output. In
1957, at the end of the First Five Year Plan, about 30 percent of the
total increase in output over 1952 would be devoted to investment, and
by 1962 nearly one-third of the increase in output over 1957 would go
for the investment program. The planned level of investment is believed
adequate for the production increases scheduled. The ratio of state
Investment planned for 1958-62 to increases in output based on production
trends are the ratios given in Table 42.** Twenty-five percent of
Five Year Plan investment expenditures in the last year of each Plan is
taken to be effective for the full year's production to allow for incom-
pleted projects and projects finished durihg the final year. The
volume completion figures are used rather than total expenditures for
capital construction. Available data are far from conclusive, but some
Table 41 follows on p. 137.
** Table 42 follows on p. 138.
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Table la
Communist China: Percentage Distribution of Gross National Product
In 1955 Prices, by End Use 2/
1950-62
Percent
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
Consumption
79.7
74.8
75.2
72.8
70.0
70.6
69.5
70.5
71.0
71.3
69.8
69.1
68.4
Government purchases
13.0
15.2
11.7
12.3
11.4
11.4
10.4
10.3
10.2
10.2
10.0
9.6
9.2
Net foreign investment
-0.2
-1:1
-0.8
-1.8
-1.2
-1.3
-0.1
0.0
0.1
0.2
0.2
0.2
0.2
Domestic investment
7.5
11.1
13.9
16.7
19.8
19.3
20.2
19.2
18.8
18.3
20.0
21.1
22.2
Total GNP at 1955 market prices
100
100
100
100
100
100
100
100
100
100
100
100
100
a. Based on a 15-percent reduction in investment proposed in the Second Five Year Plan.
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Table 42
Communist China. Relation of State Investment
to Increases in Industrial Production
1957 and 1962
Billion Yuan
1957
Investment
During
First Five
Year Plan
Increase in
Production
Over 1952
(1952 Prices
1962
Investment Increase in
During Production
Second Five over 1957
Ratio Year Plan (1952 Prices) Ratio
Industry
19.6
9.6
2.0
:
1
51.0
16.5
3.1
:
1
Heavy industry
17.6
7.4
2.4
:
1
45.9
13.5
3.4
:
1
Light industry
2.0
2.2
0.9
:
1
5.1
3.0
1.7
:
1
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S
construction cost data are available for certain industries. A compar-
ison of these cost figures with the probable value added (in 1952 prices)
for full production for these projects gives the following ratios: an
Integrated steel mill, 1.8 to 1; coal industry, 2.2 to 1; a thermal
electric power plant) 3.9 to 1; cotton textile mill, 2.2 to 1. Indus-
trial increases from 1952 to 1954 are known to be largely due to greater
utilization of capacity, particularly in light industry) and this explains
the lower ratios for the First Five Year Plan. In the Second Five Year
Plan, some of the increases in light industry production seem to be
predicated on greater utilization of existing capacity. The level of
heavy industry investment shows that almost all the projected increases
for 1962 are based on investment expenditures to be undertaken during
the Second Five Year Plan. In general, the figures indicate that the
level of investment planned Is adequate for the increases in production
targeted.
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V. Foreign Trade and Aid Programs.
A. Direction and Composition.
The foreign trade of Communist China has been increasing rap-
idly since 1950, and the value of total trade in recent years has sur-
passed the highest prewar level. By 1955 the value of foreign trade
had reached about $4,485 million,* an increase of 30 percent over the
1954 level. The physical volume of China's foreign trade in 1955 is
estimated to have been about 13 million tons, an increase of about 25
percent over 1954. 13?/ Total foreign trade and its direction from
1950 through 1955 are shown in Figure 4.4E4
The primary flow of trade is between Communist China and the
Soviet Bloc. Whereas total trade has increased about 2-1/2 times dur-
ing the past 6 years, trade with the Soviet Bloc has increased by 7
times. Redirection of trade to the Bloc appears to be a planned effort
by Communist China) in conformity with Mao's "lean to one side" policy,
rather than a reaction to Free World'trade controls.
Ordinary trade with the Bloc under barter agreements is nearly
In balance, lay/ but in trade with the USSR, including long-term credit
and aid agreements and military receipts under loan or grant, 21Y Com-
munist China in 1955 had an export deficit of more than $600 million.
In trade with the Free World in 1955/ Communist China had an export
surplus of about $35 million. The balance of trade in 1955 is shown
in Table 43.***
By 1955 the Chinese Communists had increased exports to nearly
four times the 1950 level, largely by expanding exports of traditional
agricultural and mineral products, which make up over 75 percent of
* In the absence of US - Communist China trade and currency remit-
tances carried on directly in yuan and US dollars, there is no genuine
rate of foreign exchange between the two currencies for trade purposes.
The rate of exchange used as the basis to convert the yuan value of
Communist China's foreign trade into US dollars is the average between
the buying and selling rates for sterling remittances in Canton. The
sterling rate is consistent with the remittance rate for other Free
World currencies in Canton. Use of this sterling cross-rate permits
conversion of yuan into dollars through a currency which actually is
exchanged directly into Chinese yuan.
** Following P. 142.
*** Table 43 follows on p. 142.
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Table 43
Communist China: Estimated Balances
of Imports and Exports 2/
1955
Million $US
Imports
Exports
Total Trade
USSR
1,560 1.1
920
2,480
European Satellites
450
450
900
Asian Satellites
55
175 s/
230
Total Sino-Soviet Bloc
2,065
1,545
3,610
Free World
420
455
875
Grand total
2,485
2,000
b. Includes acquisition of military and other equipment on loan.
c. Includes aid deliveries.
total exports. Although there has been a great deal of propaganda about
increases in export of light industrial manufactures -- such as sewing
machines, bicycles, fountain pens, textile machinery, and handicrafts --
export of such products in 1955 amounted to less than 4 percent of total
exports. 1112/ The general composition of Chinese Communist exports for
1950; 1953, and 1955 is shown in Table 44.*
Sustaining a large export program is necessary because of the
need to import equipment for Communist China's industrialization plans.
As shown in Table 45)** the single largest category of imports consists
of machinery and equipment required for specific industrial projects.
During the Chinese Communist First Five Year Plan, about 15 percent of
total investment in basic construction is allocated to importing equip-
ment. 1L1/ Almost all of this is being purchased within the Bloc, with
* Table 44 follows on p. 143.
** Table 45 follows on p. 143.
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COMMUNIST CHINA
FOREIGN TRADE
1950-55,1957, and 1962
50X1
Figure 4
TOTAL FOREIGN TRADE
(Millions of US dollars)
Total Imparts
Military Imports on Loans
Imports
1310
745
225ii
520
2700
ils0
400
565
I 750
No Trade Controls
--Exports
1550 1540
2840
1140
3300
3450
4485
5050
4800
2,185
2385 2415
isoo I 1450 I 19401 I I I
1800
i500 1500 1500
545
1950 2000
1300
1950 1951 1952 1953 1954 1955 (1957)
6375
6125
'I
(1962)
DIRECTION OF FOREIGN TRADE
(Millions of US dollars)
;151
European Satellites
Asian Satellites
l
iiFree Work
1315
2480
1860
1630
25
10192sa
25783 5.57
1950 1951 1952 1953 1954 1955
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Table 44
Communist China: Composition of Exports
1950, 1953, and 1955
Million $us
1950
1953
1955 bJ
Cereals, oils, seeds
210
600
650
Textile fibers, products
80
150
200
Anima' products
130
300
400
Miscellaneous vegetable products
65
250
350
Coal, metals, minerals
30
loo
150
Other commercial
50
.10o
250
Total
g2. 1,500
2,000
a? 1-2/
b. Includes export of aid materials to North Korea and North
Vietnam.
Table 45
Communist China: Average Annual Imports g
1953-55
Million $US
Equipment for basic industrial construction projects
525
Military equipment on current trade account
150
Essential raw materials and supplies
400
Vehicles) metals, and agricultural and other machinery
200
Consumer goods and miscellaneous
225
Total imports on current trade account
1,500
Military imports on loan from USSR
500
Total average annual import
2,000
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the USSR supplying on the average an estimated $250 million to $300
million annually in industrial equipment) and the European Satellites
about $250 million annually. The Chinese Communists are equally depen-
dent upon imported metals, vehicles) agricultural machinery, and essen-
tial raw materials. In 1956) when Chinese Communist steel production
was officially scheduled to be 4.5 million tons) it was also planned
to import 750)000 tons of steel in order to meet expanding industrial
requirements. 1L-02 Agricultural machinery, particularly tractors) is
being imported in large volume from the USSR and European Satellites,
and at the same time the Chinese Communists have made offers to pur-
chase tractors in quantity from the Free World. The Chinese Communists
will also continue to be dependent upon imports to meet rubber, petro-
leum) and certain chemical requirements.
Soviet and European Satellite assistance to Chinese Communist
industrialization, in.the form of commitments to supply equipment)
technical data, and planning on specific projects, apparently is being.
paid for through normal exports. There is no evidence that the USSR
or the European Satellites have extended aid of Communist China in the
form of outright gifts of nonmilitary equipment, except for sueh small
items as equipment for the first state farm. As long as Communist
China exhibits the, ability to pay for imports, it is improbable that
grants-in-aid for econoMic development will be preferred by Bloc
nations. The USSR has extended two modest loans for Chinese indus-
trialization -- one made under the Sino -Soviet Aid Agreement of
14 February 1950 in the amount of $300 million, 1115.1 and a second
loan announced on 11 October 1954 in the amount of $130 million. 111f/
These loans are being repaid mainly with Chinese exports of agricul-
tural and raw material products.
On the other hand, Communist China has mounted an aid program
to North Korea and North Vietnam with an announced value of about $650
million extending over a 6-year period to supply these countries with
basic industrial products and equipment, as well as with food and other
materials. The amount of Chinese Communist aid amounts to less than
1 percent of GNP, but it has had an impact on the Chinese foreign
exchange position. In 1954) deliveries to North Korea alone are esti-
mated to have been made at a sacrifice of at least $50 million in
exportable commodities. Had these commodities been employed in for-
eign exchange) they would have paid for nearly 10 percent of total
Chinese capital goods imports for 1954. 1111/
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Recent events in Hungary and Poland should have a serious
adverse effect on China's trade pattern with the European Satellites
and on certain parts of China's industrial development program. China
is estimated to have had a trade turnover with Hungary and Poland in
1955 of about $250 million to $300 million, with trade probably bal-
anced. imports from Hungary will likely be completely curtailed for
the next several years. On the whole) however, Hungarian contributions
to the Chinese Communist industrialization effort have been relatively
small. Transportation equipment) especially busses and trucks) have
been the single most significant item furnished by Hungary. Two.
coastal freighters were delivered in China this year, and a number
more were on order. Three ore-dressing plants were scheduled for
completion and delivery in March 1956) and Hungary was also reported
manufacturing power plants, telecommunications installations) and some
other industrial installations, including an aluminum-processing plant.
Poland, on the other hand) was to contribute a relatively large
share of Bloc equipment) and in addition it furnishes the bulk of the
Bloc flag shipping serVibe between Europe and China. Most of the
coastal freighters which China was purchasing in Europe were ordered
from Poland. Several entire plant installations are being supplied to
China by Poland. The largest is a sugar combine consisting of a
refinery, alcohol plant) yeast plant) dry ice plant) and all necessary
power and transportation facilities. In addition) Poland is currently
designing and manufacturing a glider combine which is to be one of the
largest in the world and is constructing plants for bridge fabrication,
synthetic fertilizer) cellulose) cylinder boring) and for other pur-
poses. The extent to which delivery of this equipment will be delayed
or curtailed cannot be determined at this time.
Chinese exports to Hungary and Poland have consisted primarily
of industrial agricultural crops, foodstuffs, and iron ore. On account
of the disruptions in shipping service there will probably be same
delays in scheduling future shipments. There is no indication) however,
that exports to these countries will be curtailed. In early November,
China extended material and financial aid amounting to about $7.5
million to Hungary.
Closure of the Suez Canal has had a substantial impact on
Chinese Communist oceanborne commerce. Delivery through the canal of
Western European and Satellite cargoes supporting Chinese industrial
construction and agricultural development was curtailed and seaborne
deliveries of petroleum products from the Black Sea to the Communist
Far East were also reduced.
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In the last few years about 6o percent of Communist China's
total import trade passed through Suez. In order for shipments to
arrive at the appropriate time, they will have to be diverted to more
costly overland delivery via the Trans-Siberian Railroad. Rail facil-
ities would not suffer appreciably from the additional tonnage of
China-bound industrial products. The impact of an increased movement
of petroleum could present difficulties, however, as the Soviet tank
car park has not kept pace with rapidly increasing petroleum production.
Less urgent deliveries will probably be met by using the Capetown route.
The bulk of the cargo passing through Suez has consisted of
fertilizers. Overland shipment of the bulky fertilizers is impractical,
and the number of vessels being offered for Far East runs is currently
very limited. Deliveries of this type of commodity will thus likely
be curtailed, and a shortage of chemical fertilizers for the agricul-
tural improvement program during 1957 could result. Communist China
has depended on Europe for over two-thirds of its fertilizer require-
ments.
Only about 35 percent of Communist China's total exports would
pass through Suez. The lack of vessels to carry these goods, primarily
agricultural products, could cause a storage problem in China, but
their timely arrival in Europe is not essential. Industrial raw
materials exported to the USSR and the European Satellites are for the
most part transported overland. Waterborne iron ore shipments to Poland
and Czechoslovakia could be curtailed as these countries can purchase
ore easily from the Scandinavian countries.
B. Trade with the Free World and Economic Activities in Under-
developed Areas.
The total value of trade with the Free World changed only
slightly during the period 1950-55, but the proportion of trade with
the Free World declined from over two-thirds of total Chinese Commu-
nist trade in 1950 to less than one-fifth in 1955 (see Figure 4*).
In recent years the Chinese have run a net export surplus in trade
with the Free World which approximates the estimated value of unre-
corded imports from the Free World. Nearly half of China's non-Bloc
trade is with other Asian countries '-- primarily Japan and Hong Kong
and with the Near East. Trade with these areas increased 30 percent
in 1955 over 1954.
* Following p. 142, above.
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The shift in China's trade from the West to the Bloc has
greatly restricted trade with Japan, and the further shift in import
demand from consumer goods to capital goods has almost completely
destroyed the market for one of Japan's major exports, textiles.
EXcept for cement and strategic goods (demand for which is apparently
motivated by political rather than economic objectives), China has
shown little interest in Japanese products, and does not appear to
be seriously attempting to increase trade with Japan.
The commodity composition of Chinese imports from the Free
World has varied sharply each year, probably in response to specific
requirements. In 1955) over one-third of import tonnage from the
West was made up of fertilizers; other principal items were iron and
steel products and machinery, rubber, cotton, and other chemicals.
Western Europe furnished about 53 percent of Communist China's Free
World imports, with Japan supplying about 13 percent, and Hong Kong
11 percent.
In 1955) Japan took over 40 percent by volume of Communist
China's exports to the Free World, receiving salt, soybeans, rice,
nonferrous metals and ores, and other products. Over 30 percent of
these exports went to Hong Kong, but about one-third of this was
probably reexported. Western Europe received about 14 percent of
the exports, including soybeans, peanuts, and other oil seeds; indus-
trial oils; foodstuffs; other agricultural products; nonferrous ores;
and textiles.
Communist China's economic activities in the underdeveloped
countries of the Free World have consisted primarily of efforts to
promote and expand trade relations with these countries. Increased
trade ties and a concomitant increase in the exchange of cultural and
economic delegations have provided opportunities to negotiate for the
establishment of permanent trade missions -- and intermediary step
used by Communist China to gain diplomatic recognition.
In December 1956, Communist China had:trade agreements with
Egypt, Lebanon, Syria, Burma, Ceylon, India, Indonesia, and Cambodia --
only one of which (Ceylon) was in effect before 1954. The Sudan and
Communist China have expressed a mutual willingness to engage in trade
and negotiations for the conclusion of a trade agreement with Pakistan.
In 1955 trade was also carried on with the Gold Coast, French Morocco,
Nigeria, and Malaya.
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Negotiations for the establishment of permanent Chinese Commu-
nist trade missions have often taken place concurrently with the nego-
tiations of trade agreements. Communist China has established perman-
ent missions in Egypt, Lebanon, and Syria. Egypt and Syria officially
recognized the government of Communist China after the latter's trade
missions had been sent. An exchange of "mixed commissions" provided
for in the Sino-Cambodian aid agreement will permit Communist China
to have de facto representation in Cambodia.
As would be expected, imports from the underdeveloped areas
have consisted primarily of industrial raw materials, such as rubber,
cotton, jute, and oils, as well as foodstuffs. In order to promote
trade ties with underdeveloped countries, Communist China has often
offered to pay premiun prices for the raw material exports of these
countries. In late 19521 Ceylon, faced with markedly declining rubber
prices on the world market, accepted Communist China's offer,of premium
prices for Ceylonese rubber in spite of the UN embargo and the loss of
US aid.
In several instances Communist China has selected items of
trade which have had a political impact in view of either their cur-
rent surplus or scarcity. Under the first Sino-Burmese trade agree-
ment; Communist China accepted 150,000 tons of surplus Burmese rice
in payment for Chinese textile machinery and equipment for the expan-
sion of the Burmese textile industry. In the Sino-Indian trade nego-
tiations, it was difficult for India to turn down the Chinese offer
of 50,000 tons of steel in view, of the critical need for steel in
Implementing the Indian Second Five Year Plan.
The traditional agricultural character of Chinese exports to
the underdeveloped areas has changed, and presently exports consist
primarily of textiles, light industrial manufactures, steel products,
and local products. The quality and variety of items offered for export
reflect the growth of the Chinese ecOnomy. The inexpensive Chinese
textiles have found a ready market throughout the. underdeveloped areas,
and light manufactures, such as electric fans, fountain pens, flash-
light batteries, sewing machines, and bicycle, sold at low prices,
are also in demand. Communist China has been careful not to overextend
itself as to the quantity or variety of exports, and the items offered
have generally not been in critical supply in China. The expansion
of trade in these areas is closely related to the regime's political
objectives of building goodwill and selling the "new China."
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A new approach in the Chinese Communist bid for influence in
Southeast Asia is seen in the Sino-Cambodian aid agreement concluded
in June 1956. This agreement provides for a grant-in-aid of about
$22.4 million during 1956 and 1957 in the form of technical equipment)
construction materials, and merchandise. Both countries have stressed
the unconditional nature rather than the amount of the aid. A careful
selection by the Chinese Communists of projects to aid Cambodia in the
fields of irrigation, light industry) transport and communications,
education, and electric power maximizes the Chinese Communists' oppor-
tunities for developing contacts and for firmly establishing economic,
social, and political relations with Cambodia and its people.
The second grant of economic assistance to a non-Communist
country was given in October 1956 when Communist China and Nepal
signed an agreement under which the former is to grant Nepal approxi-
mately $12.6 million over a 3-year period without compensation. The
aid is to be provided partly in the form of technical assistance and
machinery and partly in Indian rupees, and according to the Nepalese
Prime Minister, the agreement contains no conditions on the use of
the aid, no political strings, and specifies that no Chinese technical
personnel will be sent to Nepal.
Communist China will undoubtedly continue to seek to improve
and strengthen its economic relations with the Afro-Asian underdeveloped
countries through measures adapted to current conditions in the indiv-
idual nations and geared to China's awn industrial growth and its plans
for achieving the position of dominant military and economic power in
Asia.
C. Future Trends.
Although the rate of growth will decline, Communist China's
foreign trade should continue to grow from 1957 to 1962. Some
of the elements which have permitted a rapid growth of trade since
1950 are likely to be diminished or eclipsed in the future. As import
requirements continue to increase, however, and exports are pushed
concurrently, there will be a resulting absolute growth of trade, but
at a declining rate. The long-term effect of the Hungarian and Polish
situations as well as of the disruptions caused by Suez has not been
fully estimated and is not considered in projected foreign trade.
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The Chinese foreign trade goal for the First Five Year Plan
is not clearly defined but probably calls for a level of trade of
about $4,725 million in 1957. It appears likely that this goal will
be attained; but not greatly exceeded, with foreign trade probably
reaching about $4,800 million in 1957.
Growth of trade after 1957 will depend primarily upon export
capabilities and will involve a minimum of imports on credit. During
1950-55, exports increased annually on the average of about $285 million
and in order to reach the estimated level for total trade of $4,800
million in 1957 exports must increase about $200 million annually for
the next 2 years. Between 1957 and 1962, it is estimated that the
Chinese Communists will be able to increase exports about $150 million
annually at the expense of domestic distribution of food and consumer
goods. The extent to which the Chinese will exploit this capability
is dependent upon a number of complex, interacting variables, such as
import needs, foreign market position, political gains to be derived
from expanded foreign trade, and the limits placed by the state on
domestic consumption.
A part of the gain achieved in future export earnings will
probably be diverted to repay long-term Soviet loans (industrial;
military, and joint-stock company repayments), requiring from $50
million in 1958 to $100 million annuaLly in 1960. It is estimated
that perhaps $25 million of the postulated annual growth in exports '
may be diverted to these payments. Therefore, assuming a balanced
trade during the period, Chinese Communist foreign trade probably will
increase about $275 million annually, made up of $150 million in in-
creased exports and $125 million in imports, with the exports surplus
used to reduce the long-term debt to the USSR. By 1962, total trade
should reach $6,125 million; and in absence of traae controls could
reach about $6,375 million.
The composition of Chinese Communist foreign trade through
1962 is not likely to change significantly. The major exports will
continue to be agricultural and raw material products; although
attempts are being made to diversify exports; primarily through pro-
moting Chinese agricultural specialties; handicrafts, and light indus-
trial products. Imports will continue to consist of industrial equip-
menteand essential raw materials; although future imports may reflect
greater utilization of advanced types of machinery, metals, and chem-
icals. There is little chance that consumer goods will occupy more
than 10 percent of total imports for many years to come.
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In the event that trona controls against China are partially
or completely removed) the Chinese Communist. position in world trade
would be more favorable than it is at present) and it can be expected
that the Chinese Communists would divert some of their trade from the
Bloc to the Free World. The extent to which this might occur will.
depend upon a number of political and ideological as well as several
economic factors. Requirements of replacement parts for Soviet mach-
inery and equipment and the Chinese Communist reliance) in their long-
range planning) on the USSR as a dependable source of supply of equip-
ment at stable prices are factors that will tend to depress the amount
of possible increase in trade with the Free World. On the other hand)
Chinese Communist desire to take advantage of greater price and quality
variations available in unrestricted world markets; to conserve total
Bloc resources of capital equipment) and to exploit the political aspects
of trade) will tend to increase the volume of Free World trade. It is '
estimated that the Chinese will by 1958 divert some of their trade from
the Bloc and) in the absence of controls) may conduct up to 30 to 4o
percent of total trade with the Free World. The character of this
increased trade would probably be influenced more by Chinese Communist
than by Free World desires. The composition of Chinese Communist
imports from the Free World will continue to be a function of industrial
planning and it is unlikely that the Chinese Communists will permit an
increase in the rate of consumer imports until such time as the more
compelling demands of industrialization have been met. Increased
exports to the Free World would be restricted for the most part to
agricultural and raw material products. The Chinese portion of the
Free World market for almost all commodities that Communist China ,
exports (except vegetable oil and oil seeds) is relatively insignifi-
cant) and it is probable that the Chinese could increase the volume
of exports of these products several times without encountering any
serious softening of world prices.
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