DOMESTIC TRADE IN COMMUNIST CHINA 1950-57

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A000900160002-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 69
• Document Creation Date: December 23, 2016
• Document Release Date: June 6, 2013
• Sequence Number: 2
• Publication Date: December 13, 1957
• Content Type: REPORT

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tinCirleENIUM_.
ECONOMIC INTELLIGENCE REPORT
N?
DOMESTIC TRADE IN COMMUNIST CHINA
1950 - 57
CIA/RR 114
13 December 1957
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
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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
DOMESTIC TRADE IN COMMUNIST CHINA
1950-57
CIA/RR 114
(ORB Project 38.1648)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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FOREWORD
This report describes the conditions and prospects of domestic
trade in Communist China. It deals with an important sector of
the economy that is changing rapidly under the impact of the indus-
trialization program of China. Among the topics discussed are the
changes in ownership and organization of domestic trade, the increase
in volume of domestic trade, and problems such as maintaining the
quality of goods and containing the pressures on the price structure.
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CONTENTS
Page
Summary 1
I. Importance of Domestic Trade 3
II. Domestic Trade Policy 6
A. Major Features 6
1. Socialization
2. Price Control
3. Tax Policy
U. "Free Market"
5. Government Policy Toward the Consumer
6. Rationing
6
7
8
9
11
12
B.
Goals for the Second Five Year Plan (1958-62)
14
III.
Organizational Structure of Domestic Trade
16
A.
Top-Level Government Organizations
16
B.
Staff Bureaus of the Ministry of Commerce . .
17
C.
Trading Companies Under the Ministry of Commerce
18
D.
Complexity of Lower Level Organization
21
E.
Flow of Consumer Goods to the Urban Consumer
22
F.
Flow of Consumer Goods and Farm Equipment
and Supplies to the Rural Consumer
23
G.
Procurement of Agricultural, Industrial,
and Handicraft Products
28
H.
Other Organizations That Share in the Control
Over Domestic Trade
30
IV.
Growth in Volume of Domestic Trade, 1949-57
32
V.
Problems in Administering Domestic Trade Policy ? .
41
A.
Quality of Products
41
B.
Problems of Organization and Control
42
C.
Inflation
44
D.
Incentives
46
E.
Traffic Congestion
47
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Page
F. Control of Costs
'48
G. Shortages and Queues
50
VI. Capabilities, Limitations, and Intentions
52
A. Capabilities
52
B. Limitations
52
C. Intentions
53
Appendixes
Appendix A. Methodology
55
Tables
1. Communist China: Estimated Volume of Retail Sales
in Commercial and Noncommercial Trade, 1950-57,
1957 Plan, and 1962 Plan
33
2. Communist China: Estimated Percentage Distribution
of Retail Sales in Commercial and Noncommercial Trade,
1950-57, 1957 Plan, and 1962 Plan 34
3. Communist China: Estimated Volume of Retail Sales
in Commercial Trade, 1950-57 35
4. Communist China: Estimated Volume of Wholesale Sales
In Commercial Trade, 1950-57 36
5. Communist China: Estimated Percentage Distribution
of Wholesale Sales in Commercial Trade, 1950-57 . . . 37
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6. Communist China: Estimated Production of Twelve
Important Commodities That Move Through Domestic
Trade Channels, 1950-57 and 1962
7. Communist China: Estimated Index Numbers of
Production of Twelve Important Commodities That
Move Through Domestic Trade Channels, 1950-57
and 1962
Figure 1. Communist
Consumer
February
Figure 2. Communist
Consumer
Supplies
1957
Figure 3.
Charts
China: Control over the Flow of
Goods to Urban Consumers,
1957
China: Control over the Flow of
Goods and Farm Equipment and
to Rural Consumers, February
Communist China: Control over the Procure-
ment of Agricultural, Industrial, and
Handicraft Products, February 1957 . . . .
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39
140
Following Page
24
28
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CIA/RR 114 C-0-N-F-I-D-E-N-T-I-A-L
(ORB Project 38.1648)
DOMESTIC TRADE IN COMMUNIST, CHINA*
1950-57
Summary
Domestic trade,** which accounts for approximately 9 percent of
the gross national product (GNP) of Communist China in 1957, is com-
pletely under the control of the state, and commercial .activity is
resolutely directed to promoting the state program of industrializa-
tion. Apparent concessions to the small merchant or to the consumer,
such as the program inaugurated in 1956 for development of a "free
market" for retail trade, should be viewed as attempts to improve
the efficiency of the system, not as relaxation of control or aban-
donment of orthodox Communist economic goals.
Since the establishment of the Chinese Communist government in
1949, success has been achieved in transforming the domestic trade
system to government ownership, in increasing the flow of consumer
goods and agricultural materials through the system, and in averting
mass regional starvation. There remain, however, important problems
such as the restoration of pre-Communist standards of quality, the
balancing of disposable income of consumers with the amounts of con-
sumer goods available, the decentralization of decisions to the ap-
propriate local units, the reduction of marketing costs, and the
distribution of goods in a way that maximizes incentives of workers
and peasants.
The success of the socialist transformation of domestic trade in
Communist China is found in the decreasing importance of the private
* The estimates and conclusions contained in this report represent
the best judgment of ORR as of 1 September 1957.
** Domestic trade in this report is defined as the movement of goods
in relatively small amounts down through a network of wholesale and
retail organs to urban and rural families and the movement in the
opposite direction of agricultural and light industrial products
from millions of small producers up through the commercial network.
Domestic trade involves not only consumer goods but also the move-
ment to rural families of farm tools and supplies and the movement
to industry and export centers of raw materials produced by agriculture.
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trade sector. Private retail trade (including peasant trading) de-
creased from 87 percent of total trade in 1950 to 22 percent in
1956. Private retail trade is expected to remain approximately 20
to 25 percent of total retail trade for some time, depending on the
policy toward the "free market." Private wholesale trade decreased
from 76.1 percent of total wholesale trade in 1950 to 30.3 percent
in 1953 and 1.9 percent in 1956. Operations of the remaining pri-
vate traders are closely regulated by the state.
Under the Second Five Year Plan (1958-62), domestic trade in
Communist China will continue to be directed and developed accord-
ing to the needs of, first, heavy industry and, second, light in-
dustry. The state market is to be the main part of the socialist
market with the "free market," introduced in 1956, serving as an
auxiliary. By 1962 the retail volume of consumer goods is to be
increased approximately 50 percent compared with that of the 3.957
Plan.
The Chinese Communists face many problems in administering domes-
tic trade. A basic problem is one of shortages. Shortages have
plagued the Communists from the beginning and will continue for some
time to come. Shortages of agricultural raw materials adversely
affect the quality of goods because industry stretches the limited
supply. An insufficient supply of agricultural materials brings
about shortages in cotton cloth and grain. Both must be rationed,
and consumers are forced to queue up for goods. Prices go up as
supplies are exhausted, although only within limits tolerated by
the government.
For the last 2 years the Chinese Communists, although admitting
actual shortages in some cases, have used the excuse that increased
purchasing power brought increased demand. They point out that in-
dustrial wages and procurement prices paid in rural areas have in-
creased substantially. The Communists claim that they have stabilized
wholesale prices for the period 1950-55. The cost of living, however,
has not been wholly stable. From 1950 to 1953 the cost of living in-
creased at a rapid rate and then continued to rise, but at a much
slower rate.
Lack of experienced personnel, overstaffing, and bureaucracy have
been some of the faults in the system of domestic trade in Communist
China. There has been a lack of flexibility in the system because
of the centralized control. Retail personnel on the lower levels
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have not had much freedom to cope with local problems, and attempts
are now being made to decentralize decision-making.
I. Importance of Domestic Trade.
In a broad sense, domestic trade in Communist China encompasses
all the internal movements of goods in the vast continental area
under the control of the Chinese Communist government. These in-
ternal movements of goods are outlined below.
First, products of heavy industry (construction materials, ma-
chinery, transportation equipment, chemicals, and fuels) are moved
from the northeastern and eastern industrial areas to other parts
of the country. These products move by waterway and rail.
Second, products of light industry are moved from Shanghai and
the less important centers of light industry in the eastern and
northern areas to other parts of the country. Shanghai, however,
still has 4o to 70 percent of the manufacturing capacity for most
products of light industry. The movement of products of light in-
dustry to the interior is heavily dependent on the Yangtze River
system. Rail transport plays a smaller role. In the western areas,
road transport is especially important. As new industrial centers in
the interior, such as Sian and Chungking, have been built up, they
have become suppliers of products of light industry over a wide area.
Third, food is moved from agricultural areas with a surplus of
food, especially the Yangtze River Basin and the North China Plain,
to the cities and villages of the eastern and central areas where
there is a shortage of food. Inland and coastal waterways mainly
are relied on for this movement.
Fourth, coal, ores, and agricultural raw materials are moved
from their sources of origin to the centers of heavy and light in-
dustry.
Fifth, farm and handicraft products such as foodstuffs, textiles,
farm tools, ceramics, and construction materials are moved locally
by water and highway.
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Sixth, goods, primarily products from important agricultural areas,
are moved to the coastal cities or border rail points for export.
Considered in the broad sense, domestic trade includes a large num-
ber of direct transfers within or between state production ministries:
for example, the procurement of textile machinery and its movement to
the site of a new cotton textile mill. This type of commodity flow
between state ministries is not included within the more restricted
definition of domestic trade ordinarily employed by government officials
of Communist China in discussing the domestic trade problems of the
country. The narrow definition as used in this report confines the
term domestic trade to the movement of goods in relatively small amounts
down through a network of wholesale and retail organizations to urban
and rural families and the movement in the opposite direction of agri-
cultural and light industrial products from millions of small producers
up through the commercial network.
Domestic trade in the narrow sense involves not only consumer goods
but also the movement to rural families of farm tools and farm supplies
and the movement to industry and to export centers of raw materials
produced by agriculture. Official pronouncements on domestic trade em-
phasize its importance in promoting the exchange of the agricultural
products of the countryside for the manufactured consumer products and
farm supplies of town and city.
Several million people in Communist China are engaged full time in
domestic trade. In addition to the government officials, private mer-
chants, peddlers, salesclerks, bookkeepers, warehousemen, and others
directly engaged in the activities of state and private trading enter-
prises, there are numerous peasants who act as part-time merchants in
rural areas and numerous employees of industrial enterprises and trans-
portation agencies. By the end of 1955, China had a total of 3,287,000
commercial organizations and 6,132,000 commercial personnel. Commer-
cial personnel accounted for 1 percent of the population. (In 1955,
commercial personnel accounted for 1.9 percent of the population in
the USSR and 6.5 percent in the US.)
The basic personnel situation in the national commercial network
in Communist China in 1955 was as follows 1/*:
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Organization
Sector (Thousand)
Average Number
Personnel of Personnel
(Thousand) per Organization
State
515
2,490
4.8
Private
2,772
3,642
1.3
Total
3,287
6,132
1.9
The distribution of personnel between rural and urban domestic
trade is as follows:
Organization
Sector (Thousand)
Personnel
(Thousand)
Average Number
of Personnel
per Organization
Urban
1,860
3,708
2.0
Rural
1,427
2,424
1.7
Total
3,287
6,132
1.9
Throughout Communist China, 56.6 percent of the organizations and
60.5 percent of the personnel are concentrated in the cities, whereas
the 500 million peasants in the rural areas have only 43.4 percent of
the commercial organizations and 39.5 percent of the commercial per-
sonnel.
The socialist area of domestic trade was enlarged further in Jan-
uary 1956, when all the private commercial establishments in Peking
came under state-private ownership. The same transformation was made
In nine other large cities in Communist China a short time afterward,_2/
and in 1957 almost all urban commerce is at least nominally under
state-private control.
Income originating in domestic trade is estimated to account for
approximately 9 percent of the GNP of Communist China in 1957 as well
as in the earlier years of the First Five Year Plan (1953-57). Do-
mestic trade should account for approximately the same percentage of
GNP in the next few years, and the need for additional resources in
domestic trade should be proportional to the rate of expansion in
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industry and agriculture. The following considerations are to be
noted: (1) the government plans to increase the volume of farm tools
and fertilizers flowing to the farmers through the domestic trade sys-
tem; (2) the government intends to expand and improve the domestic
trade system in order to exercise more control over the use of goods
through programs of "planned purchases and sales" and (3) in any
nation an era of industrialization is associated with a decline in
self-sufficiency and a corresponding rise in the importance of mar-
keting as a part of total economic activity.
II. Domestic Trade Policy.
A. Major Features.
1. Socialization.
State control of domestic trade in Communist China is not
only an end in itself but also a means of socializing the economy and
of insuring the success of programs for industrialization and construc-
tion. It is the plan of the Chinese Communist government to control
the economy of the country at all points by the use of state trading
and other agencies. State-conducted trade is considered a prerequisite
to price stabilization, proportional distribution of commodities, and
general economic improvement. Control of the market is a basic objec-
tive of the Communist government.
The development of supply and marketing cooperatives in
rural areas in Communist China was hastened by giving members prefer-
ential treatment in obtaining credit and in buying scarce commodities.
Political and social pressure was also used to hasten socialization. 14./
Control of distribution and of price is used to bring
about the socialization of the economy. One of the reasons given by
the Chinese Communists for the introduction of the planned purchase
and supply of grain in 1953 was that these measures were basic to the
socialization of agriculture. The Chinese felt also that if economic
problems of the time had been allowed to continue, these problems
would lead to political difficulties because the worker-peasant alliance
would be undermined and the leading position of the working class
would be lost. 2/
State trading companies are required to support the pro-
gram for industrialization. In rural areas these companies purchase
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agricultural products from the peasants at less than the market
price and sell the peasants available goods at state-fixed prices.
In urban areas, state trading companies perform a similar function
with respect to manufactured goods and handicraft products. Most
of the margin between the purchase price and the sales price is
channeled into the budget in the form of profits and taxes. g In
1953 the planned purchase and sale policy was introduced partly to
promote the program for industrialization. In 1954, cooperatives
were used to promote the increase of agricultural production to
support industrialization. The "three fix" policy* was introduced
in March 1955 to insure industrial construction by increasing agri-
cultural production. This policy was an improvement over the
planned purchase and sale policy and was designed to give an incen-
tive to the peasant by permitting him to keep a greater share of
output above norm. V
During the Second Five Year Plan (1958-62), domestic
trade will be directed toward the consolidation and reorganization
of state control already won during 1949-57. The commercial net-
work will continue to be used in implementation of the program for
further industrialization and construction. pj
2. Price Control.
Up to 1955 the basic task of national price policy in
Communist China was the stabilization of commodity prices. Since
1955 a major effort has been made to maintain this price stability.
The state regulates the legal prices of commodities for unified buy-
ing and selling to which all government, cooperative, and private
enterprises must adhere. The government has the power to increase
the categories of goods under unified buying and selling. Whole-
sale and retail prices of government-operated enterprises have be-
come the determining factor in the market. The official price
quotation of government-operated enterprises is one of the essential
tools for directing and promoting the planned expansion of industrial
and agricultural production. V
In September 1956, Li Hsien-nien, Vice Premier and Minis-
ter of Finance, listed four achievements of the Chinese Communist
price policy: (a) generally stable market prices; (b) appropriate
relative prices for different kinds of farm produce; (c) less price
* See 6, p. 12, below.
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disparity between manufactured goods and farm products; and (d) suc-
cess in the policy of using, restricting, and socializing capitalist
domestic trade. Among problems still persisting he noted that prices
for certain nonstaple foods had gone up and that the policy of pay-
ing more for better quality had not been strictly followed. Among
the proposals to correct some of the problems was the increase in
procurement prices of farm products. This proposal was aimed at
stimulating production and increasing the supply of nonstaple food. 12/
In April 1957 the State Council announced a price rise.
The rise, amounting to about 2 to 3 percent, affected all categories
of consumer goods, including pork, some edible oils, woolen textiles,
the more expensive grades of cigarettes, and salt. The price rise
in most of these commodities and in seasonal vegetables and medicinal
herbs had already taken place.
The price rise was claimed to be necessary to obtain a
balance in the budget and a balance in the relation of consumer pur-
chasing power to supplies of consumer goods. The rise would be kept
within limits, it was announced, as a result of increases in produc-
tion and increased government control of basic commodities. Prices
for the bulk of commodities) including grain, cotton piece goods, coal,
knitwear, and other daily necessities, were not changed.
The shortage of pork and edible oils necessitated the
price rise. Low government purchasing prices had resulted in a
decline in the number of live pigs and in stagnancy in the acreage
sown to oil crops. To end the shortage of pork, the government in-
creased the price paid for live hogs by 13 percent, whereas the public
paid only 7 percent more for pork. To prevent a budget deficit, the
difference was spread over other items.
The main effects of the price rise will be felt by the
better paid workers of the urban population. Peasants will be better
off, it was claimed) because, as a result of the increased prices
for a number of agricultural products, their incomes will rise more
than will the prices of the articles which they purchase. 11/
3. Tax Policy.
Taxation in Communist China has certain functions as fol-
lows: (a) to finance national construction; (b) to adjust the mone-
tary income of the various classes to the amounts of goods available
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to these classes; and (c) to further the socialization of the economy
by using, restricting, and transforming capitalistic enterprises in
all fields.
Industrial and commercial taxes are set as follows:
(a) business operating taxes are based on volume of turnover, (S) rates
for income vary with the size of income, and (c) lines of business
of interest to the national economy and the welfare of the people are
favored with tax discounts. 22/
Private trade in Communist China has been discriminated
against not only by high tax rates but also by unequal methods of
assessment and collection. The amount of business tax to be col-
lected was determined to a great extent by the "self-reporting demo-
cratic assessment" method. A trader submitted his own statement,
but the final amount to be taxed was decided by meetings of fellow
traders and government agents. Under these circumstances and with
the usual Communist prodding, the final amount was usually decided
at a higher level than that legally called for. Li A new set of
regulations, put into effect in August 1956, abolished the democratic
appraisal method in the case of the small merchant and peddler.
Business tax is to be collected from the cooperative stores accord-
ing to their account books, and income tax is to be collected at a
percentage of pure profit (gross profit minus expenses computed ac-
cording to the expenses fixed by the state for different trades).
The amount of tax payable each year by the components of cooperative
teams -- small merchants and peddlers -- is to be determined accord-
ing to the sales targets set by the central stores (wholesale stores).
One of the features of the new tax regulations is the
provision for consideration of the business difficulties of the co-
operative stores and the cooperative teams. In essence these co-
operative stores and teams are to be allowed to survive difficulties
by the use of tax reductions or exemptions. 2W
4. "Free Market."
Although the Chinese Communists have followed a policy
of extending government control to the whole area of domestic trade,
in 1956 Vice Premier Chen Yun proposed the institution of a "free
market" to cover a limited segment of total commercial activity.
This "free market" was introduced in nine provinces in the latter
half of 1956, but after a short trial its scope was restricted.
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Generally the "free market" is a supplementary one operat-
ing within very restricted limits under the leadership of state com-
mercial agencies, including supply and marketing cooperatives. The
"free market" makes it possible for peasants to sell their own produc-
tion of small native products and products from their secondary oc-
cupation and for petty merchants to trade in goods not under state
control. This market also allows direct business transactions be-
tween producers and consumers. 12/ Major commodities such as grain,
cotton, yarn) cloth, coal, paper, and export goods continue to be
purchased and sold only by the state.
Originally the "free market" was not to extend to more
than 25 percent of the total national trade. The total amount of
active produce -- handicraft products and general goods saich were
to be bought and sold on the "free market" -- was about 12 billion
yuan,* or a little more than one-fourth of the 46-billion-yuan worth
of retail sales in Communist China in 1956.
The purpose of the "free market" was to correct the short-
comings both in the manufacture and processing of goods and in the
state purchasing and selling policy. Factories producing daily neces-
sities were to have an incentive to produce more varieties of goods
and to raise the quality of these goods. To sell their goods, the
stores would have had to study the needs of the consumers and select
goods suited to those needs. The "free market" thus would necessi-
tate actions likely to increase production and to expand commodity
circulation. Because of the stimulation of production of certain
agricultural byproducts, the government hoped that the "free market"
would meet the needs of the urban and rural population. 11/
Abuse of the "free market" in the field of agricultural
production and distribution has led to its restriction. In January
1957 the State Council announced that there would be no expansion
during 1957 of the freedom of transactions between industries and
wholesale-distribution cooperatives. District peoples councils were
authorized to restrict the free production and marketing of certain
goods. Reestablishment of the former process of planned orders and
monopoly sales was allowed on goods which have an important influence
on state policy and the livelihood of the people. Restriction of the
* The official rate of exchange of the Chinese Communist yuan to the
US dollar is 2.46 to 1. This rate overstates the value of the Chinese
yuan in terms of purchasing power.
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"free market" has stopped its extension short of the 25 percent of
total national trade originally planned. 1.?/
The shift of government policy toward the "free market"
Is illustrative of the flexibility of the Chinese Communist leader-
ship. Regulation of the various aspects of industry and commerce
Is tightened or relaxed according to the needs of the day, although
the long-term course or policy is toward increased governmental con-
trol over economic decisions.
5. Government Policy Toward the Consumer.
In August 1956, the Chinese Communist periodical Shih-
shih Shou-ts'e (Current Affairs Handbook) carried an editorial on
conditions prerequisite to a lowering of the price level. 1.21/ Ac-
cording to this editorial the welfare of the consumer was less
Important than the accumulation of funds for state construction.
Furthermore, a reduction in the price level) although it might not
mean much to the individual consumer, would reduce greatly the state
income. When the cost of production and charges for transportation
are not reduced to any considerable extent, a general fall in prices
only brings the state a loss and diminishes capital for state con-
struction.
An increase in production and the practice of economy
are two solutions advanced to solve the problem of shortages. The
deficiencies have been caused, supposedly, by the backwardness of
production and the excess of purchasing power. The basic problem
of shortages will take a long time to solve. Socialist industriali-
zation is claimed to be in the long-term interest of the people.
There is a contradiction, however, between this long-term interest
and the immediate interests of the living standard of the people.
To industrialize, the state must divert a part of the national in-
come to industrial construction and must invest more in heavy in-
dustry and less in light industry which meets the immediate demands
of the people. In the official view) present improvement in the
living standard of the people can be achieved gradually only on the
basis of increased production and labor effort. g2/
Not all people are sacrificing material comforts for the
state. Leaders of many enterprises and government organs have be-
come accustomed to purchasing automobiles, expensive furniture) and
good-quality consumer goods. These leaders also have been entertain-
ing guests and presenting them with gifts, cigarettes, fruits, and
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other things. Although editors admit that the leaders should be
given the privileges of using automobiles and of living in better
quarters because of their tasks, they also note that additional
special considerations create dissatisfaction among the people.
Mao Tse-twig has cautioned leading officials to lead a Spartan life
and to oppose extravagance and unnecessary spending of all kinds. 21/
6. Rationing.
Communist China has had the problem of shortages of
consumer goods since 1950. The government has tried to solve the
problem by two complementary means: procurement and incentive
plans for producers and distribution and rationing plans for con-
sumers.
Procurement and incentive plans for grain producers be-
gan in May 1950 when the government introduced the unified distribu-
tion and transfer of grain throughout the country. To restore Chinese
Communist agriculture, the state organized the purchase of grain from
the producers and also exerted efforts to help the peasants increase
production by supplying farm tools and fertilizers to producers.
State control of the distribution of grain enabled urban
inhabitants, grain-deficit peasants, and the army to be supplied at
reasonable and steady prices. The effects of these measures during
1950-52 were to increase the output of grain, thus restoring Chinese
agriculture, and to stabilize commodity prices. 21/
In the latter half of 1953 a serious situation developed
in the grain market. State targets for purchases of grain went un-
fulfilled, whereas targets for sales were topped. Consequently, in
November 1953 the government introduced the planned purchase and sup-
ply of grain. Under this plan the state was to purchase some of the
grain surplus from the peasant. The state also fixed the prices at
which grain was bought and sold. Distribution, purchases, and sales
by private traders were forbidden, and residents in cities were given
ration cards for grain, although rationing was not strictly enforced
during 1954 and early 1955. 23/
Natural calamities and the uncertainty of government
purchases worked against the state plan, however, and the incentive
of the peasant was adversely affected because he never knew how much
the government would take.
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In March 1955 the government decided, to enforce the "three
fix" policy -- fixed production, fixed purchase, and fixed sale --
based on planned purchase and sale of grain in rural areas and a
policy of grain supply according to actual needs of households in
the cities. In the fixing of production, annual output per unit
was determined according to quality of land and conditions of culti-
vation. In the fixing of purchases of grain, the quantity of the
purchase was determined before spring sowing according to conditions
of grain-surplus households. Under normal conditions the fixed
quantity would remain unchanged and would not be increased when
peasants produced more. Having fulfilled their quota of sales to
the state, grain-surplus households were at liberty to dispose of
their surplus grain stocks. Only in the event of serious calamities
would the state increase grain purchase. In the fixing of sales of
grain the quantity of the supply was determined according to the
actual needs of grain-deficit households. The "three fix" policy
represented a further development of the policy of planned purchase
and sale of grain. It was a policy which attempted to make a cor-
rect combination of state and peasant interests to enable the state
to acquire adequate grain stocks to undertake socialist construction
while at the same time heightening the capacity for production of the
peasant. The passivity of the peasant was overcome with the new
policy because he knew how much grain the government would take and
he was at liberty to sell his supplies. Production thus was increased
to a considerable extent.
In August 1955, Communist China published two regulations
which outlined in sharper terms what was to be expected with the
"three fix" policy. There was to be a more rational distribution of
grain among the inhabitants of towns so that the waste of grain would
be eliminated. The quantity of supply was fixed according to persons.
Different supply standards were fixed for the urban population ac-
cording to ages and intensity of labor, and grain was to be supplied
against certificates. Grain required by industrial and commercial
establishments was fixed and supplied according to actual needs. 111/
There have been similar attempts to alleviate shortages
in commodities other than grain. In November 1953, edible oils
were put under the planned purchase and supply system, and in Septem-
ber 1954 the planned purchase of cotton and the planned purchase and
supply of cotton cloth went into effect. 12/
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These systems for planned production and distribution,
however, have not solved the problem of shortages. It was admitted
in 1956 that although total production of grain in Communist China
had increased since 1949, the supply of grain per capita is little,
if any, greater than in the peak years before World War II. The im-
provement lies in a more even distribution of grain now than in pre-
war years 2W and in an avoidance of mass starvation regionally. In
April 1957, however, grain was still rationed. 2// To make proper
arrangements for the planned supply of cotton textiles, the Ministry
of Commerce in November 1956 issued regulations requiring ration
cards for various types and measurements of cotton textiles. New
regulations concerning the use of ration cards for cotton textiles
were issued in February 1957, and the practice of economy in the use
of cotton textiles was urged. 28/ Edible oils were still rationed
In certain cities in May 1957. 22/
In addition to trying to solve the problem of shortages
by a system of rationing, the Chinese Communist government must try
to prevent people from circumventing the system. During April 1957,
Chinese newspapers reported instances of irregularities in the han-
dling of ration coupons for grain and cotton cloth. The irregulari-
ties were in violation of the state policy of centralized distribu-
tion of those products. Dealing in tickets for profit or attempting
to cheat the state is forbidden under state decree. 32/
B. Goals for the Second Five Year Plan (1958-62).
At the Eighth Congress of the Chinese Communist Party in
September 1956, goals for domestic trade under the Second Five Year
Plan (1958-62) were given in general terms of the needs of Communist
China during the industrialization period. Domestic trade is to con-
tinue to be directed and developed according to the needs of heavy
Industry (the priority task), and light industry is to be developed
as energetically as funds and raw materials permit. The state market
Is to be the principal part of the unified socialist market, with
the state-sponsored "free market" serving as an auxiliary. Domestic
trade will be directed toward the goal of carrying through socialist
transformation, but its emphasis will be on the consolidation and
reorganization of state control already achieved. Living standards
will improve gradually, it is claimed, but patience is needed until
the industrialization program is well advanced.
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In the procurement of industrial products the method adopted
will be that of offering prices according to trades and the quality
and grade of the products concerned and of purchasing some commodities
selectively in order to encourage backward factories to improve pro-
duction; to raise the quality of their products; and to increase the
variety, patterns, and colors of products.
The Eighth Congress of the Chinese Communist Party planned
that by 1962 the retail volume of consumer goods would be increased
by approximately 50 percent compared with that of the 1957 Plan.
There is to be a corresponding increase in the volume of daily neces-
sities such as grain, meat, fish products, vegetable oils, sugar,
cotton textiles, knit goods, coal, and kerosine. The volume of pro-
duction supplies which are sold to the agricultural and handicraft
producer cooperatives by state-operated and privately operated do-
mestic trade also is to be increased.
The continuation of unified procurement and marketing of
grain, oil-bearing crops, and cotton textiles and of unified procure-
ment of cotton are among other official proposals. "Free markets"
are to develop in a planned manner to promote the exchange of goods
between urban and rural areas and to supplement state-operated mar-
kets. An effort is to be made to intensify the procurement and sup-
ply of exportable goods to insure a balance in the import and export
of commodities. To insure the even and planned progress of the state
construction program, an attempt is to be made to strengthen the sup-
ply of state-distributed goods, to control the balance of supply and
demand, to streamline supply and marketing organizations, to improve
the distribution of supplies, and to strengthen the work of stock-
piling major commodities.
Other proposals concerning domestic trade were made at the
Eighth Congress of the Chinese Communist Party. It was proposed that
more attention be given to the various forms of management, that
under the guidance of state-operated and cooperative-operated commerce
commercial enterprises be allowed to maintain their present dispersal
and that an appropriate nutber of petty merchants and dealers be
allowed to remain in urban residential districts and rural areas to
meet the daily needs of the people. 11/
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III. Organizational Structure of Domestic Trade.
A. Top-Level Government Organizations.
Chinese society under the Communists is minutely controlled
through five major chains of command -- Party, government, economic,
military, and secret police. These chains of command are bound to-
gether at national and local levels through the device of having key
Party members simultaneously fill leading offices in the different
chains and through establishing duplicate sets of offices. For ex-
ample, a provincial government may have a commercial control bureau
that duplicates the supervisory functions of commercial bodies in the
province.
Domestic trade, being primarily an economic matter, is con-
trolled through the economic chain. Next to the chief organizations
of the Party itself, the State Council, headed by Chou En-lai, is the
final arbiter of general policy in the economic and political fields.
Under the jurisdisdiction of the State Council are 41 ministries,
many of which are economic ministries, each overseeing an important
sector of the economy such as railroads, agriculture, labor, and
light industry. Because 41 ministries constitute an unwieldy span
of control, the State Council makes use of 8 staff offices to ad-
minister and direct the affairs of groups of ministries with related
functions. The Fifth Staff Office, headed by Li Hsien-nien, a member
of the State Council, has jurisdiction over finance, currency, and
trade and directs the Ministry of Finance; the Ministry of Food; the
Ministry of Commerce; the Ministry of Foreign Trade; the Peoples Bank
of China; the All-China Federation of Supply and Marketing Coopera-
tives; and, probably, the Ministry of Procurement of Agricultural
Products.
The four ministries which direct various aspects of domestic
trade are the Ministry of Commerce, the Ministry of Foreign Trade,
the Ministry of Food, and the Ministry of Procurement of Agricultural
Products. Of these four ministries, the Ministry of Commerce has the
fundamental responsibility, being charged with "leading the over-all
commercial undertakings in the country." The Ministry of Foreign
Trade, through approximately 20 subordinate corporations organized by
type of commodity, controls the domestic purchase of commodities for
export and the domestic sale of imported goods at the wholesale level.
The Ministry of Food arranges for the storage of grain and other im-
portant foodstuffs and for the transportation of food supplies from
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surplus to deficit areas. Together with local Party and governmental
bodies, the Ministry of Food administers the grain-rationing program
as set forth by the State Council. The Ministry of Procurement of
Agricultural Products was established in 1955 to relieve supply and
marketing cooperatives of the responsibility for purchasing major
crops such as grains, cotton, and vegetable oilseeds.
In November 1956, at a time when the operations of the domes-
tic trade system had been under continuous official criticism, Vice
Premier Ch'en Yun was made Minister of Commerce, probably as a tem-
porary trouble shooter.
B. Staff Bureaus of the Ministry of Commerce.
The duties of the eight staff bureaus of the Ministry of Com-
merce illustrate the economic functions performed by the ministry. 2/
These bureaus have a planning and advisory role but do not actually
deal in the physical commodities. The bureaus and their functions
are as follows:
1. The Economic Planning Bureau conducts market studies
to ascertain the relative surplus or shortage of the various goods
moving in domestic trade. On the basis of these studies and other
information, this bureau drafts the economic plans for the ministry.
2. The Financial and Accounts Bureau controls account-
ing procedures for the purchase and sale of commodities by the sub-
ordinate trading companies of the ministry and presumably audits
their accounts.
3. The Agricultural Products Collection and Sales Bureau
plans for and coordinates the collection and sale of agricultural
products by state-operated companies. Since 1955 the Ministry of
Commerce has shared jurisdiction over the collection of agricultural
products with the newly formed Ministry of Procurement of Agricultural
Products.
U. The Industrial Products Collection and Sales Bureau
plans for and coordinates the collection and sale of industrial prod-
ucts by state-operated companies.
5. The Goods Storage and Transportation Bureau estab-
lishes plans and standards for the storage and transportation of
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goods throughout the country. Goods which do not fall under the ju-
risdiction of this bureau are those major foodstuffs handled by the
Ministry of Food.
6. The Price Bureau sets official prices for the products
of state-operated companies and collects and tabulates price data.
This bureau is not the ultimate authority in pricing) because major
changes in price policy must be either initiated or approved by the
State Council.
7. The Private Enterprises Administrative Bureau guides
and supervises private industrial and commercial enterprises through-
out the country. Where it relates to industrial enterprises, how-
ever, this function is now being taken away from the Ministry of
Commerce, and control over the few remaining private industrial en-
terprises is being assigned to the appropriate industrial ministry.
8. The State-Private Enterprises Administrative Bureau
guides and supervises state-private industrial and commercial enter-
prises throughout the country. Where it concerns industrial enter-
prises, however, this function is being transferred to the appropriate
industrial ministry. Furthermore, jurisdiction over commercial state-
private enterprises is shared with the All-China Federation of Indus-
try and Commerce, a propaganda organization that closely regulates
the conduct and attitudes of the transformed capitalists.
In addition) the Ministry of Commerce has a personnel office;
a statistical office; and a political office, which supervises the
political education and Party activity of employees of the ministry.
C. Trading Companies Under the Ministry of Commerce.
Under the Ministry of Commerce are a number of relative auton-
omous state trading companies, each of which controls the purchase
and sale of a group of related commodities. In 1956 the names and
functions of 22 of the most important of these companies, or corpora-
tions, were as follows 11/:
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Trading Company Commodities Controlled
Chemical Industry Chemical industry raw materials,
Raw Material* varnish, dyestuffs, and paint.
Coal and Building Materials Coal, cement, and building ma-
terials.
Cotton Yarn and Cloth
Cotton yarn and cloth (under the
program of planned purchase and
supply).
Cultural Supplies Office supplies and educational
materials,
Foodstuffs
Subsidiary foodstuffs, cattle,
meats, poultry, eggs, fruits,
and canned foods.
General Merchandise Footwear, cloth, sewing machines,
bicycles, glassware, hardware,
candies and biscuits, and other
general merchandise.
Grain Grain (under the program of
planned purchase and supply).
Grain and Miscellaneous Cereals
Special types of rice and flour,
miscellaneous grains, and ex-
ports of these crops.
Instruments Optical instruments and laboratory
apparatus.
Knitted and Cotton Goods
Cotton and woolen knitted goods,
woolen yarns, read,ymade clothing,
and sundry fabrics.
Marine Products Supply and
Marketing Marine products.
Medical Herbs
Medical herbs and patent medicines.
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Trading Company Commodities Controlled
Medical Supplies
Metals and Machinery
Monopoly Goods
Motion Picture Distribution*
Oils and Fats
Pharmaceutical preparations and
medical and therapeutical equip-
ment.
Domestic and imported metal prod-
ucts, machinery, and tools.
Wines, cigarettes, and other
monopoly goods.
Foreign and domestic motion pic-
tures.
Edible oils, wood (twig) oil, and
oilseeds (under the program of
planned purchase and supply).
Petroleum Gasoline, kerosine, diesel oil,
and lubricants.
Salt Salt.
Tobacco and Jute Tobacco and jute.
Transport and Electrical
Engineering Equipment
Domestic and imported transporta-
tion equipment, communications
equipment, electrical appliances,
and vehicles.
Vegetables Vegetables.
These state trading companies of the Ministry of Commerce
normally have their head administrative offices in Peking and branch
administrative offices in provincial capitals and other commercial
centers. The actual purchasing, storing, and selling of goods is
carried on by a network of 35,000 wholesale and retail branches.
This state-owned trading system employs 660,000 people. 31/
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The wholesaling operation of these trading companies con-
sists of buying goods directly or under contract from a wide variety
of suppliers such as state-operated enterprises, state-private and
private producers, supply and marketing cooperatives, agricultural
producer cooperatives, handicraft cooperatives, independent peasants
and handicraftsmen, and import-export companies of the Ministry of
Foreign Trade. These goods are shipped in bulk to major supply
centers and then broken down into smaller lots for shipment to lesser
wholesale supply centers. Goods destined for export or use in indus-
try may be sent to concentration points and shipped in increasingly
larger lots.
The mission of the Knitted and Cotton Goods Company illus-
trates the complexity of the organizational structure of the trad-
ing company. This company "will establish procurement and supply
stations in large cities with centralized production and will set
up provincial, municipal, and area offices in each province, munici-
pality, and autonomous district. It will establish outlets in the
economic centers of each province and, in general, will set up mu-
nicipal offices in the leading provincial cities. In areas where
organizations are not set up, operations will be carried on by the
General Merchandise Company." lY
D. Complexity of Lower Level Organization.
Because of factors such as the tremendous area of Communist
China, the great variations in climate and topography, the widely
varying density of the population, the diversity of products enter-
ing trade channels, and cultural differences in the-minority areas,
the structure of domestic trade in Communist China is marked by a
multiplicity of special kinds of organizations. The system in early
1957 was a mixed system, public and private elements appearing in
different blends in different areas and for different kinds of goods.
The system also is mixed technologically. In many widespread areas
of China the old system of primitive rural exchange centered about
a small market town continues. In other instances, trade is carried
on by a complex state organization manned by trained administrative
and technical people who arrange for the shipment and sale of goods
procured from many distant producing centers.
At the retail level the distribution of goods, although firm-
ly under state control, involves an important remnant of private en-
terprise. The organization of commerce at lower levels (provincial,
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municipal, county, and town) differs as between urban and rural areas
and as between the supply of goods to the consumer and the procurement
of goods from peasants and handicraftsmen. These differences are ex-
plained in detail in the sections that follow.
E. Flow of Consumer Goods to the Urban Consumer.
State trading companies of the Chinese Communist Ministry of
Commerce monopolize wholesaling operations in the cities of Communist
China. Former private wholesalers have retired from business, in-
vested in some other kind of enterprise, or continued operations as
branch units of state trading companies.
The number and categories of state wholesaling organizations
vary among different cities. In Shanghai, there are major purchas-
ing and supply centers of 6 trading companies (dealing in cotton
yarn and cloth, general goods, petroleum, pharmaceuticals, and other
products) and branch companies of 16 other trading companies (deal-
ing in grain, jute, salt, machinery, and other products). In smaller
cities the organizations are reduced in size and number, and some-
times consolidated branches handle the products of more than one trad-
ing company.
Retailing in large cities is carried on mainly through state-
owned department stores and specialty stores and through formerly
private stores now operated jointly by the state and the former pro-
prietors. State trading companies of the Ministry of Commerce operate
the state-owned retail stores and supply the state personnel who par-
ticipate in the operation of the joint state-private stores. The in-
fluence of former private owners is being systematically eliminated
Th state-private stores and probably will have vanished completely
by 1962, the end of the Second Five Year Plan. Small vendors of un-
important products in urban areas have been left relatively unhin-
dered in the conduct of their business, partly because the state
system has had difficulties enough in absorbing the larger private
stores. These small vendors operate stalls or sell from pushcarts.
Gradually they too are being forced into collective organizations,
although as of 1957 private commercial activity was enjoying one of
its periods of respite from socialization.
Purchases by urban consumers of rice and flour, vegetable
oils, and cotton textiles are rationed. Although the list seems
small, purchase of these items takes up the major part of the budget
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of the consumer, and the purchase of many other items next in import-
ance is limited by exceedingly high prices and/or chronic shortages.
The Ministry of Food, in cooperation with local Party and government
officials, administers the food-rationing program, but apparently
the maintenance, staffing, and operation of food stores themselves
are functions of the Ministry of Commerce.
A further important complication in the organization of the
flow of consumer goods to the urban consumer is that many consumer
goods, especially food, are distributed through stores attached to
factories, commercial enterprises, government offices, and military
units. Insofar as is known, these stores are staffed and operated
by the trading companies of the Ministry of Commerce.
The control over the flow of consumer goods to the urban con-
sumer is shown in the accompanying chart, Figure 1.* This chart is
concerned with the control over the flow, not the flow itself, and
does not show, for example, the many different sources of supply from
which the commercial organizations obtain their goods.
F. Flow of Consumer Goods and Farm Equipment and Supplies to the
Rural Consumer.
In rural areas the trading companies of the Ministry of Com-
merce normally do not maintain retail outlets. Their main function
is to supply goods at the wholesale level to supply and marketing
cooperatives.
Supply and marketing cooperatives nominally are voluntary
organizations of rural people grouped together under local leader-
ship for more economic buying and selling. In actuality, however,
these cooperatives constitute a state administrative system through
which the Chinese Communist government exercises close control over
the economic resources used in agriculture and for consumption in
rural areas. Supply and marketing cooperatives dominate retail trade
in the rural areas,** forming the principal channel through which
* Following p. 24.
** The rural population was encouraged to join supply and marketing
cooperatives by the fact that these cooperatives received a 2- to
6-percent discount from state trading companies. The discounts were
ended in February 1955 by which time more than 160 million people had
been enrolled as members of supply and ffootnote continued on p. 2g
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rural people buy consumer goods (foodstuffs, textiles, footwear, con-
sumer durables, books, and the like) and farm equipment and supplies
(plows, water wheels, pumps, fertilizers, insecticides, fodder, draft
animals, and the like). In 1956, for example, 80 percent of the farm
equipment and supplies going to the countryside were furnished by
supply and marketing cooperatives. 3// Supply and marketing coopera-
tives* play a further important role as state purchasing agents for
most agricultural and rural handicraft products.
At the end of 1955, there were more than 32,000 supply and
marketing cooperatives at the retail level, operating 200,000 retail
sales and purchasing centers and employing more than 875,000 people
(1 million if higher level cooperatives are included). 1W
Supply and marketing cooperatives were formed before the
collectivization of the peasant in agricultural producer coopera-
tives had taken hold. Consequently, in these early years, compared
with the beginning of 1957, the supply and marketing cooperatives
were a relatively more important part of the state system of con-
trol by which the economic behavior of the peasant was tied to the
state plan of political unification and economic development. One
Western observer wrote in 1955 that the supply and marketing co-
operative (together with the growing state credit cooperative)
"overshadows the whole life of the farmer: it lends or sells seeds;
prescribes methods of cultivation; determines the time of harvest;
buys up the crops; fixes the prices; sells salt, fertilizer, and
industrial products; and when funds run short, lends him money." 32/
This author pointed out the manner in which the supply and marketing
cooperatives were aiding the agricultural collectivization movement
by giving priority to mutual aid teams and to agricultural producer
cooperatives in the distribution of scarce farm equipment, fertilizer,
and seed.
In early 1957 the situation, however, was different because
In distributing farm equipment and supplies the supply and marketing
marketing cooperatives. Membership in June 1956 was reported at the
same level. It is not clear why the Communists, who usually insist
on 100-percent enrollment, have stopped short at just 1 in 3 rural
people. It is possible that many individual memberships in effect
represent family membership.
* See G, p. 28, below.
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CONFIDENTIAL
COMMUNIST CHINA
CONTROL OVER THE FLOW OF CONSUMER GOODS
TO URBAN CONSUMERS, February 1957
STATE COUNCIL
Fifth Staff Office
(Finance, Currency, Trade)
Ministry of Commerce
State Trading
Companies
Wholesale Branches of
State Trading Companies
1
Retail Outlets of
State Trading Companies
26181 10-57
Figure 1
Cooperative, State-Private, and
Private Retail Enterprises
Urban Consumers
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cooperatives were dealing with agricultural producer cooperatives
rather than with individual peasants or mutual aid teams. Of the
total number of peasant households in Communist China, 96 percent
were in agricultural producer cooperatives, and 83 percent of these
were in higher agricultural producer cooperatives. *IS From the
organizational point of view the collectivization of agriculture
means that the supply and marketing cooperatives are dealing in-
creasingly with state organs headed by Party members and possessed
of considerably more bargaining power than the cowed individual
peasant. The ultimate effect on the individual peasant is un-
changed, however, as his economic behavior is still tied to state
plans through the agricultural producer cooperative led by Party
metbers.
The complexity of the domestic trade system in rural areas
of Communist China may be illustrated by an example of the manner
in Which household utensils produced in Canton move to a rural con-
sumer in Hainan LI through the following steps: from the small
factory or handicraft cooperative to the purchasing and supply
station of the General Merchandise Company, a state trading company
under the Ministry of Commerce, in Canton; from Canton to the pro-
vincial purchasing and supply station of the same company in Hainan;
from the provincial station to a hsien (county) supply depot of the
same company**; from the hsien supply depot to a general merchandise
store of the local supply and marketing cooperative; and from the
store of the supply and marketing cooperative directly to the con-
sumer or indirectly to the consumer through a rural sales agent.
Each step involves entering and withdrawing the goods from warehouses
or storage rooms, paying interest and handling charges, and keeping
detailed accounting records. With more experience the leaders of
the domestic trade system may be able to reduce the nuhber of steps
through "drop shipments" -- that is, through shipments made in bulk
direct from the producer to the lower level store -- but the diffi-
culties of adopting such Shortcut methods in the rural areas of China
are self-evident.
* In the higher" form of agricultural producer cooperative, all
peasant income is from labor, income from property being eliminated,
and the identity of the property which the peasant originally con-
tributed to the cooperative has been obliterated.
** In some cases the supply and marketing cooperatives themselves
maintain wholesale warehouses at the county or provincial level.
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In addition to the state trading companies and the supply
and marketing cooperatives, private merchants and peddlers are an
Important part of the domestic trade system in rural areas. There
are 2.7 million of these merchants and peddlers, but their private
status is rapidly being lost as the government of Communist China
extends its control to the most remote areas of the domestic economy.
By April 1956, 1,680,000 formerly independent rural merchants and
peddlers, more than 60 percent of the total, had been drawn into the
various forms of collective organization. 112/ Only 2 months later,
in June 1956, a high official of the All-China Federation of Supply
and Marketing Cooperatives stated that 9 opt of 10 private traders
in the rural areas had been linked with supply and marketing coopera-
tives through joint ownership, sales contracts, and commission work
or had joined the cooperatives themselves. 113./ The great increase
in collectivization achieved in 2 months indicates the tremendous
pressure put on the administrative structure to bring these private
traders into the fold, at least on paper, and makes much less sur-
prising subsequent admissions of "blind haste" in transforming rural
domestic trade.
Three of the main types of collective organization are co-
operative teams of small rural merchants and peddlers who pool their
capital and labor, jointly owned state-private stores in rural towns,
and sales commission agents who sell goods and purchase agricultural
commodities in outlying rural areas for a fixed fee per unit of com-
modity. The various forms of collective organization that are used
in the socialist transformation of private rural traders have these
features in common: (1) units of each type are under the jurisdiction
of the supply and marketing cooperatives, which establish prices of
goods, types and amounts of goods handled, and level of profit;
(2) units of each type depend almost exclusively on the supply and
marketing cooperatives for supplies of goods; and (3) units of each
type are expected to develop progressively into more fully socialistic
Tons.
In 1955 an important reorganization of supply and marketing
cooperatives in key provinces indicated that the Chinese Communists
were trying to rationalize the entire rural distribution system by
setting up a series of general and specialized retail outlets which
decrease in size and degree of specialization from the large county
market centers to the outlying areas. In each market town, there
will typically be a general store and half a dozen specialized stores
(dealing in cloth, subsidiary foods, drugs, and other consumer goods).
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In large villages, there will be a general store and in small villages
sales agents. Farther out in the rural areas will be mobile supply
teams and individual commission agents. The number of supply and
marketing cooperatives will be reduced by consolidating Brasil coopera-
tives into larger ones in an effort to reduce the need for skilled
administrators and bookkeepers. Lag
The most important channels of control over the flow of con-
sumer goods and farm equipment and supplies to the rural consumer
are shown in the accompanying chart, Figure 2.* Except for the All-
China Federation of Supply and Marketing Cooperatives, all elements in
this chart have been discussed at length above. This federation is the
top element in the hierarchical structure of supply and marketing co-
operatives, which binds together the more than 32,000 local supply
and marketing cooperatives. Its jurisdiction over the local co-
operatives is largely limited to administrative and educational
tasks, as the functions of supplying and pricing the commodities
flowing to rural areas fall under the province of the trading com-
panies of the Ministry of Commerce. An example of the necessity
of coordination between the All-China Federation of Supply and Mar-
keting Cooperatives and the Ministry of Commerce is the issuance
by these two organizations of a joint directive requiring that all
commercial units of the Ministry of Commerce and all supply and
marketing cooperatives quickly correct the excessively low handling
charges authorized small traders on their commission sales of ciga-
rettes and liquor.112/
Two other features of the organizational pattern for rural
trade are the market fair and the new so-called "free market" discussed
above.** The market fair, which had played an important historical
role in the development of Chinese commerce in pre-Communist days, had
brought together buyers and sellers two or three times a year in pro-
vincial market towns for the exchange of commodities not traded in
sufficient volume to permit a permanent market. These market fairs
grew or declined according to the needs of the rural areas and con-
tinued to operate as usual in the first years of Communist control..
The Communists renamed them commodity exchange conferences and as
rapidly as possible extended control over their operations. State
trading companies and supply and marketing cooperatives, for example,
gradually replaced independent merchants as suppliers of goods. In
* Following p. 28.
** See II) A, 4, p. 9, above.
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the 2 years, 1955-56, there has been almost no mention of market
fairs in Chinese newspapers, and it may be assumed that the complete
reorganization of trade in rural areas has greatly contracted the
importance of market fairs.
G. Procurement of Agricultural, Industrial, and Handicraft
Products.
The movement of consumer goods and production materials to
the peasant in Communist China inevitably involves the procurement
of foodstuffs, agricultural raw materials, handicraft articles, and
industrial consumer goods from rural and urban producers. The supply
of goods necessarily involves their procurement. Members of an agri-
cultural producer cooperative which specializes in raising cotton
must be supplied with food through domestic trade channels, and this
food must be procured from other agricultural producers.
The procurement system is complicated, involving many govern-
ment ministries whose functions are intertwined and sometimes over-
lapping. A simplified representation of the system of control over
the procurement of agricultural, industrial, and handicraft products
is shown in the accompanying chart, Figure 3.* General procurement
policy is set by the State Council, and the coordination of the ac-
tivities of procurement ministries is the responsibility of the Fifth
Staff Office of the State Council.
The Ministry of Commerce plays the most important part in the
procurement system. Purchasing stations of the trading companies of
this ministry cover the whole range of consumer goods, as indicated
by the list of trading companies presented above. In regard to agri-
cultural and rural handicraft products, however, the Ministry of Com-
merce does not operate at the basic procurement level. The most im-
portant purchasing offices for the products of light industry are
located in Shanghai, which produces 40 to 70 percent of the output of
most of the important products of light industry.
Procurement of grain, vegetable oilseeds, and cotton is car-
ried on by the Ministry of Procurement of Agricultural Products,
whioh took over these purchasing functions from the supply and mar-
keting cooperatives in 1955. This ministry establishes appropriate
purchasing stations in rural areas. The purchasing station works
* Following p. 28.
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CONFIDENTIAL
Figure 2
COMMUNIST CHINA
CONTROL OVER THE FLOW OF CONSUMER GOODS
AND FARM EQUIPMENT AND SUPPLIES TO RURAL CONSUMERS
February 1957
STATE COUNCIL
Fifth Staff Office
(Finance, Currency, Trade)
All-China Federation of
Supply and Marketing
Cooperatives
Ministry of Commerce
State Trading Companies
Supply and Marketing Cooperatives
Agricultural Producer
Cooperatives
26182 10.57
Rural Merchants
and Sales Agents
Rural Consumers
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Figure 3
COMMUNIST CHINA
CONTROL OVER THE PROCUREMENT OF AGRICULTURAL
INDUSTRIAL, AND HANDICRAFT PRODUCTS
February 1957
STATE COUNCIL
Fifth Staff Office
(Finance, Currency, Trade)
Procurement
Ministries*
Trading Companies
Subordinate
to Procurement Ministries
Supply and Marketing
Cooperatives
Purchasing Stations
of Trading Companies
Agricultural
Producer
Cooperatives
26183 10-57
1
Individual
Peasants
Handicraftsmen
and Handicraft
Cooperatives
*Ministry of Commerce, Ministry of Procurement of Agricultural Products,
Ministry of Foreign Trade, and Ministry of Food.
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Industrial
Enterprises
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according to quotas set by higher level offices and establishes
prices for different kinds and grades of product within narrow
limits authorized by higher level offices. Agricultural producer
cooperatives, in turn, have production and delivery quotas which
they are expected to honor in their dealings with procurement
agencies. The branch purchasing stations of the Ministry of Pro-
curement of Agricultural Products are gradually taking over the
work of purchasing tea, now performed by the supply and marketing
cooperatives. It is possible that the ministry will extend its
purchasing activity to additional produCts whose purchase is monop-
olized by the state.
Procurement of secondary foodstuffs, agricultural raw ma-
terials, and rural handicraft products is carried on by the supply
and marketing cooperatives. Important products flowing through
these channels are tobacco, tea, hemp, meats, animal byproducts,
fish, fruits, salt, woodworking products, mats and other reed prod-
ucts, and native medicines. Some of these products, like tobacco
and salt, may be purchased only by the state commercial organizations,
but others on the "free market" may be dealt in by private traders.
The Ministry of Foreign Trade has about 15 subordinate pur-
chasing companies, each specializing in a group of related commodi-
ties such as foodstuffs, vegetable oils, animal byproducts, machinery,
and ores. These purchasing companies, together with their local
stations, constitute an important separate procurement network within
Communist China. According to a directive of the Ministry of Foreign
Trade, foreign trade administrative organs at all levels must "pene-
trate the producing areas, supervise and assist relevant supply organs
in purchases and delivery, and unearth and organize latent productive
power." ItY Neither delivery organs nor foreign trade departments
are permitted to violate plans and agreements for the supply of goods.
The foreign trade departments are directed to send inspectors to
processing plants to supervise and inspect the quality and specifica-
tions of goods produced.
The operations of the Ministry of Foreign Trade and its sub-
ordinate trsAing companies complicate the structure of domestic trade.
Although the relationships are not clearly defined in public announce-
ments, in some cases the foreign trade representatives negotiate con-
tracts directly with industrial or agricultural producing agencies
such as handicraft producer cooperatives and agricultural producer
cooperatives and in other cases deal with state procurement organiza-
tions such as the supply and marketing cooperatives, the trading
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companies of the Ministry of Commerce, and the local units of the
Ministry of Procurement of Agricultural Products.
The Ministry of Food manages the grain supply of Communist
China but does not directly procure grain. This ministry supervises
the stockpiling, warehousing, transporting, and rationing of grain.
The immediate source of the marketable grain is the Ministry of
Procurement of Agricultural Products. Although formerly a share of
the grain consumed by rice and wheat farmers was procured by the
state, stored, and sold back to the farmers, this inefficient prac-
tice has been greatly reduced. The Ministry of Food, more than most
economic ministries, must work closely with local Party and govern-
ment officials in carrying out its functions.
H. Other Organizations That Share in the Control Over Domestic
Trade.
Party and government organizations at all levels are respon-
sible for investigating and for seeing that solutions are found for
major failures in the domestic trade system. In December 1956, for
example, when some enterprises of light industry,conspicuously failed
to fulfill production plans and to improve the quality of their prod-
uct, Party and government organizations were urged in an editorial in
Ta Kung Pao to pay attention to the problem of helping procurement
agencies increase the flow of raw materials to light industry.111/
Party and government organizations of the provincial) county, and
municipal level have organized bureaus of commerce and industry to
inspect and supervise domestic trade (and industrial) affairs in their
local area. Besides these horizontal links with state commercial or-
ganizations, coordination is obtained by the fact that leading Party
officials simultaneously hold office in the local Party, government,
and commercial organizations. In some instances the commercial and
industrial bureaus of Party and government organizations have grown
so large that they are publicly criticized as wasteful duplications
of the regular commercial and industrial organizations. Some idea
of the complexity of the system and the potential confusion resulting
from a multiplicity of "bosses" may be gained from the following
example: the bureau of commerce and industry, organized by a hsien
government, receives guidance from (1) the hsien government, (2) the
provincial bureau of commerce and industry, and (3) the bureau of com-
merce and industry of the hsien Party organization.
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The state short-term banking system constitutes a further
control over domestic trade organizations at all levels. Batiks
draw up quarterly credit plans on the basis of the industrial, agri-
cultural) and commercial plans of the various economic ministries.
Since 1953, when the state began the unified purchase of grain,
vegetable oilseeds, and cotton, the banks have incorporated in their
plans funds sufficient to support the purchase of these commodities.
As of January 1956, other kinds of commodities for which the banks
provide large sums for state use in purchasing are tobacco, tea,
hemp and allied fibers, silk cocoons, animAl byproducts (wool, hides,
and the like) and scrap copper and iron. Of all types of loans by
the short-term banking system -- agricultural loans) loans for ad-
vanced purchase of agricultural commodities, loans for handicraft
industry) loans to industrial departments to provide short-term capi-
tal, loans to "commodity turnover departments" (the Ministry of Com-
merce, the Ministry of Food, and supply and marketing cooperatives) --
loans to "commodity turnover departments" made up about 85 percent of
the total in 1954-56. Loans to the Ministry of Commerce and to sup-
ply and marketing cooperatives alone accounted for 56 percent of total
loans in this period. The greatest part of this latter group of loans
Is reported to have been used for "livelihood materials and agricul-
tural production materials." L+Y
The statistical and investigating work of the banks is now
so detailed that it can reveal such deficiencies as the overstocking
of goods by trade organizations. The banks are to use their power
over loans to encourage rapid commodity turnover and integration of
commercial plans with general state plans. "Control by the yuan" is
Increasingly taking hold in Communist China.
State-private organizations in the domestic trade system
are affected by the operations of the All-China Federation of Indus-
try and Commerce. In carrying out its basic task) which is to induce
industrial and commercial capitalists to cooperate in the socialist
transformation of their businesses, this federation publicizes state
plans, persuades businessmen to participate in economy and emulation
drives, recommends the shifting and amalgamation of state-private in-
dustrial and commercial units, recommends wage and price policy for
state-private units, and sponsors ideological study courses. The
federation and its affiliated organizations at various levels have a
full-time staff of about 40,000 people, 222/ an illustration of the
size of the administrative structure of the government.
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Industrial ministries and sometimes individual factories have
marketing bureaus. Under the more liberal provisions for domestic
trade adopted by the government in the second half of 1956, goods not
under programs of unified purchase and supply may be sold directly by
factories or marketed on a consignment basis through commercial de-
partments, provided that the goods first have been offered on a pri-
ority basis to the regular state procurement agencies. Industrial
and commercial ministries have been warned not to promote these more
liberal types of sales to the extent that specialization of economic
functions between industrial and commercial units is impaired. 5.0/
IV. Growth in Volume of Domestic Trade, 1949-57.
Data on the volume of domestic trade in Communist China during
1950-57 and the distribution of this trade among different types of
commercial and noncommercial* trade are shown in Tables 1 through
5.** During the Communist Chinese First Five Year Plan (1953-57)
the volume of retail trade was scheduled to rise 80 percent, from
27.7 billion plan to 49.8 billion yuan. It is estimated that this
goal will be reached. If advance plans for the Second Five Year
Plan (1958-62) are fulfilled, a rise of 50 or 55 percent compared
with the 1957 level is anticipated.
In 1955, retail sales were only 3 percent above the 1954 level,
fulfilling the 1955 Plan by only 94 percent. The reason for this
poor showing was a decline in production by light industry of 3 per-
cent. This decline in turn is explained by the drastic effects the
1954 floods had on the supply of agricultural raw materials to light
industry. Planned retail sales for 1956 were 46 billion yuan, a figure
15 percent above 1955 and close to the planned 1957 level of 49.8 bil-
lion yuan. Although detailed figures are not yet available, comment
in the official Communist press implies that actual 1956 retail sales
were equal to those planned. Retail sales in 1957 should roughly equal
the goal of the First Five Year Plan, but the distribution among the
various types of outlets will not follow the plan. For example, the
new liberal "free market" policy of 1956-57 should result in private
rural traders having a larger share of rural trade than planned and
In the supply and marketing cooperatives having a lesser share.***
* Noncommercial trade is trade undertaken by economic units which
have as their primary function production rather than trade: for ex-
ample, sales by peasants whose basic occupation is farming, not trade.
** Tables 1 through 5 follow on pp. 33, 34, 35, 36, and 37, respec-
tively, below.
*** Continued on p. 38.
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Table 1
Communist China:
Estimated Volume of Retail Sales in Commercial and Noncommercial 2/ Trade hi
1950-57, 1957 Plan., and 1962 Plan
Billion Yuan 2/
1957
1957
1962
Type of Outlet
1950
1951
1952
1953
1954
1955
1956
Plan
Estimate
Plan
State
1.33
2.39
4.38
5.94
7.61
10.79
12.00
10.22
13.00
N.A.
Supply and marketing
2.36
cooperatives di
0.82
Am=
5.05
8.52
14.90
12.21
13.00
17.15
14.00
N.A.
State-private 2/
0.03
005
0.08
0.15
1.83
5.06
11.00
11.95
11.00
N.A.
Private (including
11.00
peasant trading)
14.61
18.15
20.43
14.62
11.94
10.00
10.51
12.00
N.A.
Total
16.79
21.80
27.66
35.04
38.96
4o.00
46.00
49.83
50.00
75.00
a. Noncommercial trade is trade undertaken by economic units which have as their primary func-
tion production rather than trade: for example, sales by peasants whose basic occupation is
farming, not trade.
b. For methodology, see Appendix A.
c. In current prices. No correction for changes in the retail price level has been made.
The official rate of exchange of the Chinese Communist yuan to the US dollar is 2.46 to 1.
This rate overstates the value of the Chinese yuan in terms of purchasing power.
d. Figures for supply and marketing cooperatives include a negligible amount (about 2 percent
of the total) of the retail sales by other kinds of cooperatives.
e. Including such enterprises as transformed urban stores and private traders now serving as
state commission agents.
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Table 2
Communist China: Estimated Percentage Distribution of Retail Sales
In Commercial and Noncommercial a Trade hi
1950-570 1957 Plan, and 1962 Plan
Percent
Type of Outlet
1950
1951
1952
1953
1954
1225_
27.0
30.5
12.7
29.8
100.0
1956
1957
Plan
1957
Estimate
1962
Plan
State
Supply and marketing
cooperatives s/
State-private Eli
Private (including
peasant trading)
Total
7.9
4.9
0.2
87.0
100.0
11.0
)0.8
Aga
' 0.2
7g.0
Ak.d.
100.0
15.8
18.3
0.3
65.6
100.0
17.0
24.3
0.4
58.3
100.0
19.5
38.3
4.7
37.5
100.0
26
28
24
22
100.0
20.5
34.4
24.0
21.1
100.0
26
28
22
24
100.0
N.A.
N.A.
N.A.
N.A.
100.0
a. Noncommercial trade is trade undertaken by economic units which have as their primary
function production rather than trade: for example, sales by peasants whose basic occupation
is farming, not trade.
b. Table 2 is derived from Table 1, p. 33, above. Retail sales as defined in Table 1 include
sales of noncommercial agencies.
c. Figures for supply and marketing cooperatives include a negligible amount (about 2 per-
cent of the total) of the retail sales by other kinds of cooperatives.
d. Including such enterprises as transformed urban stores and private traders now serving
as state commission agents.
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Table 3
Communist China:
Estimated Volume of Retail Sales in Commercial Trade a/
1950-57
Billion Yuan 111/
1957
Type of Outlet 1950 1951 1952 1953 1954 1955 1956 Estimate
State
1.17
2.15
3.84
5.45
7.02
10.20
11.20
12.10
Supply and marketing
cooperatives
0.81
2.35
5.00
8.37
14.44
11.55
12.50
13.40
State-private a/
0.01
0.02
0.04
0.08
1.77
4.92
10.70
10.70
Private
10.09
13.26
12.15
14.08
8.36
5.65
4.10
4.90
Total
12.08
17.78
.21.03
27.98
31.59
32.32
38.50
41.10
a. For methodology, see Appendix A.
b. In current prices. No correction for changes in the retail price level has
been made. The official rate of exchange of the Chinese Communist yuan to the
US dollar is 2.46 to 1. This rate overstates the value of the Chinese yuan in
terms of purchasing power.
c. Including such enterprises as transformed urban stores and private traders
now serving as state commission agents.
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Table 4
Communist China: Estimated Volume of Wholesale
1950-57
Sales in Commercial Trade
Billion Yuan ill
1957
Type of Outlet
1950
1951
1952
1953
1954
1955
1956
Estimate
State
2.45
5.44
11.47
17.54
23.35
22.88
26.93
29.50
Supply and marketing
cooperative
0.06
0.29
0.52
0.77
1.53
3.52
4.13
4.52
State-private sj
0.01
0.05
' 0.10
0.12
0.13
0.23
0.53
0.68
Private
8.03
10.87
6.88
8.02
2.83
1.22
0.61
0.30
Total
10.55
16.65
18.97
26.45
27.84
27.85
32.20
35.00
a. For methodology, see Appendix A.
b. In current prices. No correction for changes in the retail price level
has been made. The official rate of exchange of the Chinese Communist yuan to
the US dollar is 2.46 to 1. This rate overstates the value of the Chinese yuan
in terms of purchasing power.
c. State-private units are former private wholesale businesses which now
operate as jointly controlled state-private businesses.
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Table 5
Communist China: Estimated Percentage Distribution of Wholesale Sales in Commercial Trade Lt/
1950-57
Percent
1957
Type of Outlet 1950 1951 1952 1953 1954 1955 1956 Estimate
State 23.2 32.7 60.5 66.3 83.8 82.2 83.6 84.3
Supply and marketing
cooperative 0.6 1.7 2.7 2.9 5.5 12.6 12.8 12.9
State-private 12/ 0.1 0.3 0.5 0.5 0.5 0.8 1.7 1.9
Private 76.1 65.3 36.3 30.3 10.2 4.4 1.9 0.9
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
a. Table 5 is derived from Table 4, p. 36, above.
b. State-private units are former private wholesale businesses which now operate as jointly
controlled state-private businesses.
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Increases in the volume of wholesale and retail trade may not
necessarily be equated to gains in the livelihood of the population.
Even if the questions of growth in population) rise in prices, and
deterioration of quality are laid aside) the problem remains of as-
certaining how much of the gains reported in the volume of wholesale
and retail trade are real gains and how much represent transfers
from the nonmarket sector of the economy to the market sector. One
important example may be cited: the extensive purchase of farm
products by the state and their subsequent sale back to the peasants
increase the volUme of domestic trade but do not represent an increase
in the supplies of consumer goods. Finally, in seeking to compare
Increases in retail sales with increases in levels of living, it must
be remembered that rural retail sales include a large proportion of
farm equipment and supplies which add to consumer welfare only in-
directly.
Production, in absolute terms, of 12 important commodities that
move through domestic trade channels is shown in Table 6.* From
this table the index numbers of output for the commodities for the
years 1950-57 and 1962 were prepared and then combined into a com-
bined index for the 12 commodities.
Index numbers for the volume of wholesale and retail trade dur-
ing 1950-57 and 1962 are shown in Table 7,** together with index
numbers for GNP and the combined index of the 12 commodities. A
comparison of these series indicates the extent to which increases
In the volume of domestic trade do not represent real economic gains.
Domestic trade is increasing faster than the production of the 12
important commodities in domestic trade channels. GNP is increasing
slightly more than the production of the same 12 items. Both compari-
sons indicate that increases of domestic trade and of GNP overstate
the increases in real economic gains to the consumer.
Tables 2*** and 5XXXX show the increase in socialization of domes-
tic trade in the retail and wholesale markets. Table 2 shows the
rapid increase in growth of the state-private sector in 1955 and 1956
compared with its growth in earlier years. This quick increase is the
result of the government drive in the latter half of 1955 and early
1956 to bring private merchants into the state-capitalist orbit. The
private trade sector in retail trade) although showing a steady de-
cline as a percentage of the total retail market, does not have the
Table 6 follows on p. 39.
Table 7 follows on p. 4o.
P. 34, above.
P. 37, above.
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Table 6
Communist China: Estimated Production of Twelve Important Commodities
That Move Through Domestic Trade Channels EV
1950-57 and 1962
Commodity
Unit
1950
1951
1952
1953
'954
1955
1956
1957
1962
Grain
Meat
Edible vegetable oils
Fish
Salt
Sugar
Cotton cloth di
Rubber footwear
Coal
Kerosine
Machine-made paper
Cigarettes
Million metric tons
Thousand metric tons hi
Thousand metric tons
Thousand metric tons
Thousand metric tons
Thousand metric tons 2/
Million linear meters
Million pairs
Thousand metric tons
Thousand metric tons
Thousand metric tons
Thousand cases 2/
149
5,207
847
911
4,300
376
1,602
45.1
41
12
140
1,185
153
5,359
981
1,252
4,600
4428
2,175
67.6
51
18
241
2,030
164
5,513
1,133
1,710
5,000
630
3,265
61.7
64
43
372
2,650
166
5,665
1,070
1,741
5,300
64o
3,943
69.1
67
65
427
3,552
164
5,819
1,078
2,000
5,600
810
4,474
76.7
80
78
556
3,728
180
5,533
1,263
2,400
6,000
84o
3,770
88.2
93
101
589
3,567
180
5,922
1,364
3,000
6,700
950
4,860
99.0
108
130
724
4,133
187
6,120
1,434
3,450
7,500
1,060
4,800
108.0
120
180
800
4,700
217
7,225
1,625
6,939
11,200
2,000
6,890
200.0
200
700
1,500
6,000
a.
b.
c.
d.
e.
For methodology, see Appendix A.
Carcass weight.
Raw value.
Factory production.
50,000 cigarettes per case.
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Table 7
Communist China: Estimated Index Numbers of Production of Twelve Important Commodities
That Move Through Domestic Trade Channels LI/
1950-57 and 1962
1952 = 100
Commodity 1950
1951
1952
1953
1954
1955
1956
1957
1962
Grain 86
94
100
101
loo
110
110
114
132
Meat 94
97
loo
103
106
100
107
111
131
Edible vegetable oils 75
87
loo
94
95
111
120
127
143
Fish 53
73
100
102
115
140
175
202
4o6
Salt 86
92
100
106
112
120
134
150
224
Sugar 60
65
100
102
129
133
151
168
318
Cotton cloth 49
67
100
121
137
115
149
147
211
Rubber footwear 73
110
loo
102
124
143
161
175
324
Coal 64
8o
100
105
125
145
169
188
312
Kerosine 28
42
100
151
181
234
302
419
1,628
Machine-made paper 38
65
100
115
149
158
196
215
403
Cigarettes 45
77
100
134
141
135
156
177
226
Production of twelve commodities
combined 72
84
100
109
117
115
133
142
210
Wholesale price index 84.7
99.8
100
98.7
99.2
99.7
100.7
2./
100.7
100.7
Value of production of twelve
commodities in current prices y a
84
100
108
116
115
134
143
218
Wholesale sales index in current
prices 56
88
loo
139
147
147
170
185
277 2/
Retail sales index in current
prices 61
Gross nation 76
al d
product i
79
86
100
100
127
111
141
119
145
128
166
139
181
149
271
222
a. Assumed rise of one point because of greater freedom in the private market; assumed to be un-
changed in 1957 and 1962.
b. Assumed that prices of the 12 commodities move the same as all prices.
c. Growth assumed to be proportional to retail trade during the Chinese Communist Second Five Year
Plan (1958-62).
d. In 1952 prices at market cost.
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decided decrease that the private sector of wholesale trade does. In
1956, there appears to be a leveling off resulting from the introduc-
tion of the "free market." In the case of private wholesale trade,
however, its control of the wholesale market decreased rapidly from
76.1 percent of the market in 1950 to 1.9 percent in 1956. Control
of the wholesale market was the first major drive in government con-
trol of domestic trade, and the government now has essentially abso-
lute control of the wholesale market.
V. Problems in Administering Domestic Trade Policy.
A. Quality of Products.
The problem of the low quality of consumer goods in domestic
trade channels in Communist China is the result of production factors
and of commercial policies as follows al:
1. Managers and workers in light industry are forced
to meet ever-increasing production quotas. These quotas are met
by having workers attend more machines and by the adoption of slip-
shod methods of production.
2. The chronic shortage of agricultural raw materials
has led to intense efforts to increase the amount of finished prod-
uct per unit of input. In the case of cotton yarns, the attempts by
various factories to extract higher yields from raw cotton have re-
sulted in yarns weakened by the presence of short fibers and impuri-
ties. In the case of newsprint, the use of a variety of substitutes
for wood pulp has led to a weakening of the finsl product.
3. The resentment felt by private producers at the low
prices set for their output and the resulting squeeze of their manu-
facturing margins is expressed in the use of inferior raw materials
and the adulteration of the product. Even after private producers
are brought under state-private forms of organization, they reportedly
do not cooperate energetically in raising standards.
4. The policy of reserving the best grades of consumer
goods for foreign markets results in domestic consumers receiving
low-grade products.
5. The absence of self-corrective competitive forces
in the economic system itself provides the consumer fewer and fewer
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alternative sources of supply, except for occasional temporary con-
cessions made to the private sector. The government sets prices,
specifications for goods, and ration quotas, with the result that
even in the limited area of private trading enterprise there is
little scope for individual decision.
Government leaders have taken countermeasures to improve
quality. Industrial plants which have bettered the quality of their
product are singled out for public praise. Commercial bodies are
urged to reject goods of poor quality. The problem will continue,
however, as long as the background conditions are unfavorable for
the maintenance of quality standards. "Free marketing,"* intro-
duced in October 1956, has had the effect on the local level of
improving the quality of vegetables on the market. 2/
B. Problems of Organization and Control.
In a general sense the problems of organization and control
of domestic trade in Communist China are inherent in the dictatorial
system itself and in the bureaucracy needed to run it. Some short- '
comings stem from lack of experience.
As state trading companies grew into gigantic organizations,
difficulties in matters of administration and management developed.
In 1953, there were a number of state organizations which recognized
too many grades of products, practiced complicated procedures, and
had excess staff members. 5.3j In 1956, in the Dairen - Port Arthur
area, there were many government organizations which were established
improperly and without a definite assignment. A purchase organization
for agricultural products was established a few years ago to handle
the purchase of cotton, hemp, furs, tobacco, and tea leaves in the
Dairen - Port Arthur area. There has never been much work for the or-
ganization, because the only agricultural crop in the area is cotton.
An overstaffed industrial bureau in Chekiang Province has
many departments) some of which are concerned with trade, light in-
dustry, and consumer goods. In February 1955 it took 46 days for a
document on supply and marketing to go through all the departments
in the bureau before reaching the correct one. Recommendations were
made to reduce the size of the bureau from 667 to 467: it had grown
from a staff of 151 members.
* See II, A, 4, p. 9, above.
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In 1953 the most widespread evil in the Chinese Communist
state trading system was bureaucracy. Bureaucracy and the related
"commandism," "formalism," and the "simple task fulfillment point
of view" are mainly the result of the policy of the Communists in
forcing the members of trading organizations to achieve even higher
norms. Because of the slogan "the task must be fulfilled," crop-
collecting agents have been compelled to use "compulsory orders"
in their collection of crops. For the purpose of clearing unsalable
stock, unwanted articles are sometimes forced on a consumer together
with the article which he wants. 22/
The commercial departments, in accordance with purchasing and
distribution plans approved by the state, originally carried out the
planned distribution and unified supply of goods from the top down.
There was a decrease in quality and a loss in variety of consumer
goods produced in the factories. There were shortcomings in the quan-
tity and quality of raw materials for processing in the factories.
A lack of flexibility in planning became evident, and plans did not
keep up with changing needs. Measures taken in allocation of supplies
from the top down, within the commercial departments themselves, often
made it impossible for units at the bottom to organize supplies in
accordance with the needs of the local residents, thus restricting
the range of operation of these units. In connection with the alloca-
tion of supplies to the units at the basic level, there are instances
of rigid control of the market such as enforced monopolies and re-
strictions. In one hsien, although many articles were out of stock
and the local department store had no supply itself, the commercial
department of the hsien forbade private merchants and peddlers to
make purchases from other districts.
Some of these problems result from the inexperience of the
commercial personnel. In 1953 the majority of the personnel in the
commercial departments were so ignorant of normal business practices
that an enormous number of commodities and man-hours were wasted
through poor planning, mismanagement, and improper handling of goods.
It was the lack of understanding of production and marketing by the
commercial departments that caused shortcomings in the quality and
quantity of raw materials for processing in factories. 5S
The institution of the "free market"* operating within the
limits of the unified socialist market may solve these problems.
* See II, A, 4, p. 9, above.
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As of 30 January 1957, about one-third of all Chinese Communist agri-
cultural commodities, representing about one-eighth of the total
value of all retail sales in 1956, were bought and sold on the "free
market." More variety and better quality in perishable consumer
items were achieved. In the distribution of many commodities the
number of stages between the grower and the user has been reduced.
In Shanghai, up to four processes were cut out in the handling of
vegetables and dried fruits. 27/
A more recent proposal (in March 1957) that will tend to
improve the situation and increase flexibility of control was made
at the national commercial conference in Peking. The basic aim
of the proposal is to decentralize control in matters of domestic
trade and to give more power to the local authorities. It was urged
that national over-all leadership by the Ministry of Commerce remain
unchanged but that the ministry concentrate its direct guidance only
on the big trading enterprises which come immediately under central
control. Under this plan, local enterprises were to be allowed to
come under the control of provincial and county governments. 58/
C. Inflation.
The Chinese Communist government has claimed that wholesale
prices have been stabilized for the period 1950-55. Their wholesale
price index is shown in the tabulation below with the base shifted
to 1952. Comparison of announced money wages with announced real
wages _UV permits the construction of a derived cost of living in-
dex for 1950-55 as follows:
1952 = 100
Year
Official Wholesale
Price Index
Derived Cost of
Living Index
1950
84.7
86.3
1951
99.8
96.0
1952
100.0
100.0
1953
98.7
105.6
1954
99.2
106.9
1955
99.7
107.3
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A similar series is not available for retail prices except
for an official index based on retail prices in eight large cities
for the period 1953-55. With 1953 as 100, this index is as follows:
1954, 100.4; 1955, 101.1.
The two indexes in the tabulation above show a rapid rise
from 1950 to 1952. The derived cost-of-living index rises through
1955, whereas the wholesale index takes a slight dip after 1952 with
a smaller rise to 1955 but never goes up to the 1952 level.
The early part of these indexes to 1953 can be explained by
the government of Communist China's being in the process of gaining
control of domestic trade during this period. Speculative commerce
was restricted and controlled, wholesale merchants were edged out,
and private retail merchants were restricted and regulated. In the
second half of 1953, state commercial organizations began to take
an increasing part in the wholesale and retail business: for example,
state commercial organizations occupied the absolutely predominant
position in the wholesale business. The control of the wholesale
business explains the stability of the wholesale price index after
1953. The control of the retail business was not so great as that
over wholesale business in 1953, but such control grew in the en-
suing years. ?.2/ This difference in degree of control is reflected
In the fact that the cost-of-living index takes a sudden jump in 1953
rather than a dip as does the wholesale price index. As control over
the retail business increases, the rate of inflation decreases in the
cost-of-living index.
It is possible that the cost-of-living index understates the
rise in the cost of living. There are continual complaints of short-
ages, poor quality of goods, and standing in line for consumer items.
There also have been explanations for not reducing the prices of con-
sumer goods. In spite of these complaints, during 1953-55 the in-
crease in the Chinese Communist derived cost-of-living index is only
0.5 percent more than that of the US consumer price index during the
same period.
Sometimes shortages actually bring about a government "planned"
price rise. This happened in April 1957, when a small price rise of
2 to 3 percent was announced on certain items. A few weeks later it
was claimed that these prices had remained unchanged since the in-
crease. L./ These price increases were used as incentives for pro-
ducers to increase production.
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D. Incentives.
Shortages of goods, insufficient variety of items) and the
poor quality of products are defects of domestic trade in Communist
China. Incentive in the form of an appeal to self-interest has been
used to overcome these defects.
The peasant as a producer of food and agricultural raw ma-
terials has been the one most benefited by incentive programs.
Peasants have been offered higher prices to cause them to increase
production. The latest example is the increase of hog procurement
prices in the spring of 1957.* Some procurement policies such as
the original planned purchase and supply program adversely affected
the incentive of the peasant. That program failed to let the peasant
know how much would be taken from him. The more the peasant produced,
the more the government took, and he never knew how much he could
keep for himself. Incentive was restored with the "three fix" policy,
not only permitting the peasant to know how much the government would
take but also permitting him to sell his surplus.**
The state-operated "free market" introduced in the latter
part of 1956 had as its purpose the correcting of shortcomings both
In the manufacture and processing of goods and in the state pur-
chasing and selling policy. Factories would be forced by controlled
competition to produce better products and a wider variety of these
products, and retail shops would be forced by competition to buy goods
more suited to the needs of their customers. Peasants again were to
be encouraged to produce more by being permitted to sell their sur-
plus. Abuses cropped up in the "free market," and although the sys-
tem will be continued, it will not be permitted to grow to the planned
size of 25 percent of the total national trade.*** The "free market,"
however, has yielded the state good results in increasing the amount
and variety of goods.
Sales personnel have been prodded into selling more by the
slogan of the "task must be fulfilled." This increase in sales has
not always benefited the consumer. Sometimes, to get an item which
he wants, the consumer has been forced to take something which he
does not want so that sales personnel can fulfill the quota.****
2) p.
7, above.
*
See II,
A,
**
See II,
A)
6, p.
12, above.
***
See II,
A,
4, p.
9, above.
****
See B,
p.
42, above.
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Some commercial departments have put their sales force on a piece-
work wage system of reward for above-quota sales to give the sales
force an incentive. ..g/
An experiment, which is to be carried out in some hsiens in
1957, to establish commercial enterprises in conformity with local
needs will give incentive to personnel in lower levels of the trade
system. More power is to be delegated to the lower levels.
E. Traffic Congestion.
One of the problems of administering domestic trade policy
in many areas of Communist China is an inability to achieve a smooth
flow of supplies. This problem arises not only from an inadequate
transportation system but also from increased transportation require-
ments resulting from the growth,of the national economy. The short-
comings in the transportation system of China became markedly evident
during July and August 1956, when signs of acute congestion were ob-
served in certain areas of the country.
There is only one single-track railroad line to haul a large
amount of construction materials froth North China to new industrial
projects in the northwest. Increased traffic on this section of the
railroad system causes congestion at the points where other systems
feed into it.
Highways in the western and northwestern areas are unable
to contribute to clearing the congestion. New roads are poorly
constructed. There are not enough trucks and drivers available,
and full use is not made of those trucks that are available.
The Yangtze River system moves materials toward the west and
southwest, but insufficient craft are available for operation on the
river, especially through the Yangtze gorges. There is also a short-
age of mechanical equipment generally and of manpower at the ports.
In addition to the problems of the individual systems, there
Is the absence of an over-all system linking rail, highway, and in-
land river traffic. Such a system might minimize traffic congestion.
It would appear from freight plan fulfillment that the move-
ment of consumer items is of low priority compared with the movement
of goods for the buildup of industry. During the first three quarters
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of 1956, freight plans for crude oil) metallic ores, steel, salt) and
minerals for construction materials were exceeded, but plans for
lumber, grain, cotton, vegetable oils, cotton textiles, and cotton
yarn were not fulfilled. There was no indication during the trans-
portation congestion of 1956, however, that consumer goods had any
less priority than other materials. In September 1956, winter gar-
ments, piece goods, and cotton were given priority during a period
of traffic congestion on the western section of the Lunghai Railroad
from Pao-chi to Lan-chou. These latter facts would tend to indicate
that there is no set priority on the movement of traffic and that the
needs of the moment create the priority. 64/
The transportation congestion of July and August 1956 served
to point up the inadequacy of the transportation system. To over-
come this inadequacy, which still exists, it is planned that the
volume of hauling on the railroad system will be increased at least
70 percent in the Second Five Year Plan (1958-62). Immediate em-
phasis for 1957 is to be on the strengthening and technical improVe-
ment of existing lines. About three-fifths of the entire state in-
vestment in railroads in 1957 will be used to achieve technical im-
provement, to build double tracks, to enlarge railroad yards and
stations, and to increase locomotives and rolling stock for the exist-
ing railroad lines. The transportation congestion of 1956 indicated
that most of the volume of rail transport still had to be handled by
the existing lines. In the case of highway transportation, a short-
age of motor vehicles is still felt. In May 1957 the State Council
admitted that the state was unable to augment the number of motor
vehicles at that time. To solve the critical situation in highway
transportation, the proposal was made for full exploitation of exist-
ing transport vehicles. ?2/
F. Control of Costs.
The Chinese Communists have adopted many Western business
practices which serve as means of control as well as means of in-
creasing the exchange of commodities. These practices include
establishment of firm and widely publicized prices, more general
use of double-entry bookkeeping, expansion of banking facilities,
standardization of grades and measures, and use of statistics. In
their explanation of the use of trade statistics the Communists
show the importance they attach to cost control.
Trade statistics are an important tool of cost control in
Communist China. The scope of trade statistics covers purchases,
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sales, inventories, transportation, prices, circulating expenses,
labor, and the trade network (the sum total, the structure, the
geographical distribution, and the capacity of trade organs).
The purposes of trade statistics are as follows: (1) to
furnish data for preparing trade plans and determining trade
policies, (2) to inspect and control execution of trade plans,
(3) to reveal and explore the unutilized potential of trade estab-
lishments, and (4) to indicate business trends.
Reports are prepared by basic and consolidating organiza-
tions. A basic organization is an enterprise on the hsien level
which either maintains a separate accounting system or is an
agency of such an enterprise. A consolidating organization is
on a level above the basic reporting organ, and it is responsible
for combining the statistical data submitted by the several basic
organs.
Trade statistics are kept on the following commodity cir-
culation expenses: freight charges, loading and unloading ex-
penses, storage fees, expenses for storing and crating, insurance
expenses, salaries and allowances of personnel in the circulation
system, natural losses (losses resulting from causes beyond human
control such as shrinkage or loss of weight of A commodity), in-
terest and remittance fees, depreciation on fixed assets, com-
missions paid to agents, telegrams and stamps, administrative ex-
penses, and expenses not elsewhere classified. Taxes) process-
ing expenses of the manufacturer, and losses resulting from negli-
gence or from accidents are not considered to be circulation ex-
penses. Reducing these commodity circulation expenses to a mini-
mum is a task of those engaged in domestic trade. Successful com-
pletion of this task will increase capital accumulation for the
state and lighten the burden on the consumer. ??/
The Chinese Communists have problems with their cost con-
trol. In early 1956 the Fifth National Conference on Statistical
Work pointed out that the greatest deficit existing in statistical
work was the delay in issuing figures. The timely production of
statistics and their completeness are inadequate to meet the de-
mands of key Party and government organizations. During 1956 and
1957, statistical work was to have achieved goals of quantity,
speed, quality, and economy. ?1/
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Vice Premier Ch'en Yun launched a "production-increase and
economy campaign" in March 1957. In his speech he made certain pro-
posals for commercial departments which indicate weaknesses in cost
control other than those found in statistics. Apparently some plans
are not realistic, for Ch'en Yun urged that practical nationwide
plans for major commodities should be made. He also proposed that
overlapping between commercial agencies be adjusted; that statistical,
fiscal, and accounting systems be simplified; and that the staffs
of administrative organizations be reduced.
The Chinese Communists are very conscious of the importance
of controlling costs, but apparently they are running into problems
of developing appropriate methods and applying these methods effec-
tively in the commercial system.
G. Shortages and Queues.
One of the difficulties involving domestic trade in Communist
China has been an inability to bring about a smooth distribution of
commodities in rural areas. Although 70 percent of the total indus-
trial output of China was said to consist of supplies to rural areas,
stocks of many kinds of,consumer goods and daily necessities were
exhausted in the fall seasons of both 1954 and 1955. In 1954, such
articles as sweaters, matches, woolen yarn, and cigarettes were out
of stock in many areas. On the other hand, unmarketable goods piled
up in various state companies in the cities. yj The phenomenon of
shortages of industrial goods in rural areas occurred again in the
fall of 1955. The reason given for this shortage was that personnel
in the state trading organizations and in supply and marketing co-
operatives had insufficient knowledge about rural markets. As the
purchasing power of the peasants increased, the demand for industrial
goods in rural areas also increased, but the commercial authorities
did not provide additional goods. In the spring of 1956, shortages
In the rural areas again appeared. The same basic reason for these
shortages was given -- increased purchasing power brings increased
demand. In addition, it was also admitted that a drastic reduction
In subsidiary and handicraft production had contributed to the
shortages. Remedies for the stagnancy of the rural market include
adjusting the work of the state trading organizations and supply and
marketing cooperatives to take into account the new developments in
rural markets, enlarging the commercial network, and restoring and
developing subsidiary and handicraft production in the rural areas. 12/
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For several years the queueing up of city customers for sup-
plementary food items has been a normal thing, but in 1956 the situa-
tion became worse. In metropolitan centers such as Peking and Shanghai
the following reasons are given for food queues. First, the merchan-
dising network was not able to meet the requirements which resulted
from new developments. The buying power of factory workers had in-
creased. City populations, which had grown because of new government
organizations and expanding industry with its need for workers, had
not been matched by an increase in the number of shops and stalls.
Some merchandising stores had been set up, but in inconvenient loca-
tions. Second, operational methods had not been satisfactory. Market
controls had been too stringent to allow extended distribution of
vegetables and to provide an incentive to vegetable dealers. Third,
the selling of merchandise was slow because of the inefficiency of
salesmen and the poor packaging of goods. 11/
Shortages continue to plague the Chinese Communists. Ch'en
Yun admitted that the shortage of pork and of egg products was more
widespread in 1956 than in 1955. During the second half of 1956
the supply of woolen cloth, leather shoes, and knitting wool could
not meet the demand in medium and large cities. The shortage of
capital goods resulted in a shortage of hardware supplies. In
northern cities, stoves were in short supply during the winter of
1956. Except for pork, production of the vast majority of goods
in 1956 had increased. The excuse again was given that shortages
had occurred because purchasing power had increased at a greater
rate than the increase of goods. 1g/
In the spring of 1957 the Chinese Communists still admitted
shortages. As noted earlier, cotton cloth and grain are still ra-
tioned.* The shortage of pork and edible oils necessitated the
price rise in April.** The shortage of sugar was reported in Kiangsu
Province in April. Although the old excuse of increased purchasing
power was used, in this case the primary cause of the shortage was
given as decreased production. 12/
* See II, Al 6, p. 12, above.
** See II, A, 2, p. 7, above.
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VI. Capabilities, Limitations, and Intentions.
A. Capabilities.
Firm state control over domestic trade gives the rulers of
Communist China the power to use, restrict, and transform any aspects
of private trade as they wish. Their power is so well established
that they can allow a "free market" to develop with the assurance
that the "free market" can be restricted or abolished if it fails
to promote their ultimate objectives.
Domestic trade can be and is being used to further the in-
dustrialization program of the state. Control over the market is
used to channel real and monetary resources into construction and
heavy industry.
Control of domestic trade is so well developed that aid can
be given to any distressed area of the ccuntry. Disaster areas such
as famine or flood areas now can have all the forces of the domestic
trade network brought to their relief, and, in general, even though
real consumption per capita may be little higher than in the pre-
Communist era, the available consumer goods are distributed in such
a manner that mass starvation is avoided.
There is a high degree of flexibility on a national scale in
the trade network of Communist China. Policies are quickly changed
and the changes quickly implemented to cope with new developments.
The shifts in policy on the "free market" are an indication of the
flexibility of the system.
Thousands of commercial workers are being trained in merchan-
dising, banking problems, rationing, procurement, statistical proced-
ures, and other aspects of domestic trade. This training insures a
constantly rising capability of the trade system for meeting emer-
gencies such as floods, droughts, and war.
B. Limitations.
Shortages of raw materials and commodities constantly hamper
the operation of the domestic trade system of Communist China. Incen-
tives have been offered to get the peasants to produce more food
products and more raw materials for light industry. Cotton textiles
and grain are being rationed.
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Pressures on prices in the domestic trade system have in-
creased in the last year. Urban workers reportedly received an
average wage increase of 13 percent, and the majority of peasants
received higher incomes in 1956 than in 1955. The increase in the
supply of consumer goods, however, was not commensurate. The
leaders cannot go much further in yielding to pressures for higher
money incomes unless they are willing either to relax efforts to
maintain price stability or to allocate more resources to the con-
sumption sector of the economy.
A limitation exists in the centralized control over domes-
tic trade. Although this tight control allows policy changes to
be enforced quickly throughout the nation, it creates difficulties
for those on the lower levels in their daily tasks of trying to cope
with local situations. Probably, as the leaders of the domestic
trade system finish their apprenticeship, they will learn how to
decentralize powers of decision-making to regional and local centers.
C. Intentions.
The Chinese Communists will continue to use their control of
domestic trade to utilize, restrict, and transform capitalistic com-
merce and to channel real and monetary resources to the industrializa-
tion program of Communist China. There are the basic goals of state
control. Other goals include the stabilization of prices and the im-
provement of the quality and the variety of goods. Private trade
will be curtailed or allowed to expand as it fits the needs of the
state.
The Chinese Communists intend to increase the volume of
domestic trade approximately 50 percent during the Second Five Year
Plan (1958-62), and their past economic successes suggest that they
have the resolution and the capability to do so. Part of the in-
crease will be in the form of a greater flow of tools, feeds, and
fertilizers to rural users. Another part of the increase will repre-
sent basic consumer goods to meet the needs of a population growing
at the rate of approximately 2 percent per year. A third part will
represent the amount available for improving the average living
standards of a population whose patience has worn thin during these
present years of austerity and administrative ineptness. The over-
riding policy of the Chinese government, however, remains the distri-
bution to consumers of that minimum of consumer goods necessary to
maintain productive efficiency and social stability.
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APPENDIX A
METHODOLOGY
Tables 1 through 7 are based on official announcements of the
Chinese Communist Five Year Plans.
Table 1.*
The figures for 1950 and 1952-55 are taken from a report of
14 June 1956 of the Chinese Communist National Statistical Bureau. 112/
1951.
State trade in 1952 was 183 percent of 1951, and cooperative
trade was 288 percent of 1951. 15/ State-private trade was assumed
to be halfway between 1950 and 1952. Total trade was 130 percent
of 1950. 1?./ Private trade was found as the residual.
1956.
In September 1956 it was announced that retail trade for the
year would total 46 billion yuan. 11/ In June 1956 the expected
proportion of state and cooperative trade had been given as 60.5
percent, state-private trade as 25.5 percent) and private trade
as 14.0 percent. 19_./ If these figures had held for the year, state
and cooperative trade would have been 27.83 billion yuan, state-
private trade would have been 11.73 billion yuan, and private trade
would have been 6.44 billion yuan. A reversal of government policy
in the second half of 1956, however, brought about a revival of the
private market, with the expectation that the rate of private sales
would ultimately rise to 12 billion ruin, or about 25 percent of
the total. 12/ At the beginning of 1957 it was claimed that total
retail sales in 1956 had fulfilled or exceeded plans. ?211/ Figures
for 1956 have been estimated, taking into account the claimed ful-
fillment of the over-all plan for trade and the change in trade
policy. The decline in private trade, which was to have fallen to
6.44 billion yuan, has been arrested and for the year 1956 is taken
to be 10 billion yuan. State and cooperative trade, instead of
rising from a total of 23 billion yuan in 1955 to a total of 27.83
billion yuan in 1956, is assumed to have risen only to 25 billion
* P. 33, above.
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yuan, with the larger increase going to state outlets. The inten-
sive drive to bring private merchants into the state-private orbit
is assumed to have fallen somewhat short of the 11.73-billion-yuan
total implied in the mid-1956 announcements.
1957 Plan.
Figures are taken from the basic plan document. !1/
1957 Estimate.
These estimates take into account actual sales in 1950-56 and
the announcement that under the new "free market" policy private
sales will be 12 billion yuan per year.
1962 Plan.
The first announcement of the 1962 Plan indicates that its goal
for retail trade represents an increase of about 50 percent above
the goal of the 1957 Plan. 82/
Table 2.*
Table 2 is derived from Table 1.**
Table 3X XX
1950 and 1952-55.
The figures for 1950 and 1952-55 are those releaSed by the
National Statistical Bureau on 14 June 1956. fl/
1951.
Private trade of exclusively commercial agencies was 131.4 per-
cent of 1950. Leiii State-private trade was found by interpolation
between 1950 and 1952. Total trade was computed from the statement
that private and state-private trade together were 74.7 percent of
total trade..1.118.52 The residual of 4.5 billion yuan is the total of
*
P.
34, above.
**
P.
33, above.
***
P.
35, above.
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state and cooperative trade and represents a combined increase of
2.52 billion yuan over 1950 for these two categories. Of this in-
crease, 39 percent has been assigned to state trade and 61 percent
to cooperative trade on the basis that the total increase in these
two categories between 1950 and 1952 was divided in this way.
1956 and 1957.
During 1954-55, state, cooperative, and state-private sales of
commercial agencies averaged, respectively, 93, 96, and 97 percent
of the total sales of commercial and noncommercial agencies. These
percentages were applied to the sales for 1956 and 1957, as shown
in Table 1,* in order to obtain the figures for exclusively com-
mercial agencies for these years. In 1953-55 the volume of private
trade handled by exclusively commercial agencies fell off from 69
to between 57 and 47 percent of total private trade. In 1956, pri-
vate trade by exclusively commercial agencies was expected to be
8.9 percent of all trade (including noncommercial agencies) or 4.1
billion yuan. 21Y This sum is 41 percent of total private sales
and it is assumed in obtaining the figure for 1957 that private
sales by commercial agencies will again amount to 41 percent of
total private sales of both commercial and noncommercial agencies.
Table 4.**
1950 and 1952-55.
These figures are those released by the National Statistical
Bureau on 14 June 1956. !2/
1951.
State-private trade is assumed to lie halfway between the 1950
and 1952 volume. Private trade is calculated from information that
private and state-private together declined in 1952 to 63.9 percent
of their 1951 volume. 88/ Total trade is calculated from information
that state-private and private trade together amounted to 65.6 per-
cent of the total in 1951, L39/ and the remaining 34.4 percent of
the total was divided between state and cooperative trade by assum-
ing that cooperative trade lay halfway between the 1950 and 1952
volume.
* P. 33, above.
** P. 36, above.
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1956-57.
The ratio between the volume of wholesale sales and the volume
of retail sales (including sales by noncommercial agencies) has
been approximately 0.7 in the period 1952-55. In the absence of
direct information about the volume of wholesale trade for 1956
and 1957 it has been assumed that the volume will continue to equal
70 percent of the volume of retail sales. Private wholesale trade,
the remnants of which were greatly curtailed during the last quar-
ter of 1955 and the first quarter of 1956, is assumed on the basis
of official accounts of the magnitude of the changes to have de-
clined by half in 1956 and by half of that reduced volume in 1957.
In each year, state-private trade is expected to gain half the volume
lost by private trade, the rest of the loss being absorbed in the
state and cooperative sectors. The wholesale sales of supply and
marketing cooperatives and the sales by state-operated units are
assumed to be divided in the same proportions as in 1955.
Table 5.*
Table 5 is derived from Table 4.**
Table 6.***
The information in Table 6 is based on official Chinese Communist
statistics.
Table 7.****
The index numbers for the individual commodities are derived from
Table 6.*** The index for the 12 commodities combined was constructed
by multiplying the individuAl indexes by weights based on estimated
value of consumer sales for 1952 and dividing the totals for the years
by the total of the weights. The index of wholesale prices for 1950-
55 was taken from official Chinese Communist sources.t 21/ The 12
commodities in the index of current prices was constructed by multi-
plying the combined index of 12 commodities by the index of wholesale
prices. The index of wholesale sales was derived from Table 4,** and
the index of retail sales from Table 1.tt GNP is in 1952 factor prices.
P. 37, above.
** P. 36, above.
*** P. 39, above.
**** P. 40, above.
t See V, C, p. 44, above.
ft P. 33, above.
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CONFIDENTIAL
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