THE ECONOMY OF COMMUNIST CHINA 1958-62

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A001500140002-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 88
• Document Creation Date: December 23, 2016
• Document Release Date: May 28, 2013
• Sequence Number: 2
• Publication Date: November 1, 1959
• Content Type: REPORT

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CONFIDENTIAL
ECONOMIC INTELLIGENCE REPORT
N? 72
THE ECONOMY OF COMMUNIST CHINA
1958-62
CIA/RR 59-43
November 1959
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
CONFIDENTIAL
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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
TIT ECONOMY OF COMMUNIST CHINA
1958-62
CIA/RR 59-43
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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FOREWORD
This report describes the performance and prospects of the economy
of Communist China during the Second Five Year Plan (1958-62). In-
formation and conclusions about 1958, a year characterized by the
great "leap forward" program for production and by the institution of
the revolutionary new system of communes, are better founded than the
estimates for 1959-62. Because the "leap forward" program emphasized
the rapid increase of physical production almost without regard to
human costs or to the proper balancing of inputs and outputs through-
out the econow, previous benchmarks used by Chinese Communist planners
as well as by Western analysts were swept away. Conclusions drawn
about the last 4 years of the plan period, therefore, should be re-
garded as furnishing not a detailed blueprint but rather a general
outline of present and future economic developments.
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CONTENTS
Page
Summary and Conclusions 1
I. Background of the "Leap Forward" Program of 1958 . ? ? 6
A. Dissatisfaction with the Pattern and Rate Of Eco-
nomic Development 6
1. Lag in Agriculture 6
2. Difficulties in Investment 7
3. Problems in Foreign Trade 9
B. Economic Policies in 1957 and 1958 9
1. Factors Favoring Large Increases in Production
in )_958 9
2. Changes in Economic Policies 10
3. Raising of Production Goals 12
"Leap Forward" Program of 1958 12
A. Performance
1. Agriculture
12
13
a. Main Food Crops 14
b. Other Crops 16
c. Value of Over-All Agricultural Production 16
2. Industry 17
a. Iron and Steel 17
b. Fuel and Electric Power 18
c. Machine Building Industries 19
d. Chemicals 19
3. Transportation 19
4. Trade and Agricultural Procurement 20
5. Foreign Trade 21
6. Investment and Consumption 22
7. Allocations of Investment 23
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a. Allocations of Investment Under the State
Page
Plan
b. Investment by State Agencies Outside the
23
State Plan
c. Industrial Investment Under the State
25
Plan
25
B.
Costs
26
1, Strains on the Labor Force
26
2. Transportation Difficulties
27
3. Shortages in Food Supplies
27
4. Shortages of Producer Goods
28
III.
Communes
28
AL
Introduction of Communes
28
B.
Brief Description
29
C.
Relation Between Communes and the 'Leap Forward"
.Program
30
D.
Ideological Aspects
31
E.
General Economic Aspects
32
F.
Initial Problems
G.
Future Course
35
IV.
Economic Prospects for 1959 and 1960-62 . . ? ? ? ?
37
AL
Factors Favoring Continuation of the "Leap Forward"
Program
37
1. Carryover Effects of Increases in Agricultural
Production in 1958
37
2. Greater Efficiency of Unskilled Labor Brought
into Production in 1958 . . . . .... . , .
38
3. New Level of Investment
39
B.
Factors Not Favoring Continuation of the 'leap
Forward" Program
39
1. Psychological and Social Strains of the
Mobilization Program
39
2. Imbalances in Production and Difficulties in
Planning
40
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C. Probable Trends
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Page
1. Prospects for Agriculture 42
2. Prospects for Industry 44
3. Prospects for Other Sectors 47
Appendix A.
Appendix B.
Appendix C.
Appendix D.
Appendix E.
Appendixes
Changes in the Reliability of Chinese Com-
munist Statistics in 1958
Population Versus Food Supply, 1958-62 . . ? ?
Chinese Communist "Reassessment" of Production
Claims for 1958 and Production Targets for
1959
Statistical Tables
Methodology
49
55
57
61
75
Tables
1. Communist China: Gross National Product, by End Use,
1957-58 62
2. Communist China: Gross National Product, by Sector of
Origin, 1952, 1957, and 1958 63
3. Communist China: Estimated Production of Selectdd
Agricultural Commodities, 1952 and 1957-58 64
4. Communist China: Estimated Production of Ferrous and
Nonferrous Metals, 1952-59 65
5. Communist China: Estimated Production of Fuels, Rower,
and Construction Materials, 1952-59 66
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Page
6. Communist China: Estimated Production of
Selected Machinery and Equipment, 1952-59 67
7. Communist China: Estimated Production of
Electrical and Communications Equipment,
1952-59
8. Communist China: Estimated Production of
Chemical Products, 1952-59
Communist China: Estimated Performance of
Modern Transport, 1952-59
10. Communist China: Estimated Production of
Transportation Equipment, 1952-59
11. Communist China: Estimated Production of
Consumer Goods, 1952-59
68
69
70
71
72
12. Communist China: Estimated Capital Investment
Under the State Plans, 1953-57 and 1958, and
Planned Capital Investment for 1959 73
Illustrations
Following Page
Figure 1. Communist China: Gross National
Product, Rail Freight Traffic, and
Production of Selected Commodities,
Compared with Representative Countries,
1952-58 (Chart) 14
Figure 2. Communist China: Gross National Product,
by Sector of Origin, 1952, 1957, and
1958 (Chart)
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Figure 3. Communist China: Terrain and Trans-
portation (Map)
Following Page
Inside
. Back Cover
Figure 4. Communist China: Budget Revenues and
Expenditures, 1950-59 (Chart) 22
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? THE ECONOMY OF COMMUNIST CHINA*
1958-62
Summary and Conclusions
From the economic point of view, 1958 was a remarkably good year
for Communist China, even taking into account the fact that in some
instances Chinese statistics on production far outstripped actual
achievements. It is estimated that gross national product (GNP) rose,
in what the Chinese leadership publicized as a great "leap ,forward,"
by about 20 percent compared with a rise of about 5 percent in 1957
and about 13 percent in 1956. This substantial rise in GNP was the
result of a favorable year for agriculture; of the success of inten-
sive efforts to increase the production of coal, iron and steel, and
other industrial products; and of the coming into operation of a
large amount of new plant and equipment. These impressive gains,
however, were achieved at-considerable human and economic cost.
Agricultural production in Communist China in 1958 was highlighted
by an alleged doubling of the production of food grains from 185 mil-
lion tons** in 1957 to 375 million tons in 1958. It is estimated,
however, that the actual increase in the production of food grains in
1958 was much lower than claimed -- about 15 to 20 percent above the
level in 1957. Because this increase was achieved partly at the ex-
pense of other crops, notably vegetables, the over-all increase in
agricultural production probably was about 15 percent. To all but
the zealously ambitious leaders of China, an increase of this magni-
tude is an important accomplishment and may even represent a break-
through from the situation in which agricultural production during the
First Five Year Plan (1953-57) barely kept up with the rapidly growing
population.
Industrial production in Communist China in 1958 was marked by a
supposed doubling in production of crude steel from 5.4 million tons
in 1957 to 11.1 million tons in 1958. Only about 7.5 million tons of
* The estimates and conclusions in this report represent the best
judgment of this Office as of 15 August 1959. After this report was
written, the Chinese Communist government announced on 26 August 1959
important revisions in production figures for 1958 and in planned pro-
duction figures for 1959. These new announcements in no way modify the
major economic conclusions presented in the report. (For a brief dis-
cussion of the Chinese "reassessment," see Appendix C.)
** Tonnages are given in metric tons throughout this report.
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the 11.1 million tons, however, are estimated to have been converted
into commercially usable steel. Most of the remainder of 3.6 million
tons, which came from the primitive native, or backyard, furnaces
that sprang up throughout the countryside, probably was remelted in
modern furnaces or consumed by local handicraft industries. Similarly,
production of coal was announced to be 270 million tons in 1958 com-
pared with 130 million tons in 1957, but about 4o percent of the in-
crease was a low grade of coal produced by native workings, and
furthermore this native production may have been overcounted in com-
parison with 1957. It is believed that aggregate industrial pro-
duction actually rose approximately 40 percent in 1958, in contrast
to the claim of 66 percent.
The high priority given by the Chinese Communists to investment in
heavy industry was demonstrated by the events of 1958. Investment was
about 28 percent of GNP compared with 21 percent in 1957. Investment
in industry was about 45 percent of total investment, and investment
in heavy industry was about nine times investment in light industry.
The major beneficiaries of industrial investment in 1958 were the
fuels and basic materials industries such as the petroleum, steel, coal,
chemical, and electric power industries.
Over-all consumption in Communist China in 1958 increased 8 to lo
percent above that in 1957, or 6 to 8 percent per capita, an increase
which did little more than redress the decline in consumption that had
taken place in 1957. One of the most striking features of this in-
crease was how little it compensated for the greatly increased produc-
tive effort of the people, who needed considerably more nourishment
just to maintain the pace. The consumer goods that increased most in
availability during 1958 were basic foods (especially sweet potatoes),
cotton cloth, and rubber footwear, but meats, eggs, and vegetables were
in short supply, and the general quality of the diet was appreciably
lowered.
The substantial increases in Chinese Communist agricultural and in-
dustrial production in 1958 brought about in the transportation sector
of the economy serious difficulties, such as delays in the delivery of
raw materials to the factories and of food to the cities and consider-
able congestion in railroad centers and in inland and coastal ports.
Other costs to the economy were as follows: (1) the labor force was
worked so hard with so little extra compensation that maintenance of
the same work pace through 1959 seems to be unlikely unless enthusiasm
and morale can be sustained and incentives increased by concessions to
the widespread desire for more food and other consumer goods, (2) plant
and equipment (including the rail network) at the end of the year were
battered and worn as a result of the high tempo of production, (3) a
significant part of the crops was lost through poor or untimely har-
vesting, and (4) the quality of much of the industrial production was
poorer than usual.
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In short, any satisfaction derived by the Chinese Communist
leadership from increases in production in 1958 would have to be
tempered by recognition of the resulting serious imbalances in the
economy, such as the lack of sufficient capacity in transportation
to move all of the increased production, the lack of sufficient
processing facilities to use the increased production, and the lack
of an independent and experienced statistical organization to
measure accurately and to account for the increased production.
Certainly the increased tempo of economic activity in 1958 was not
reflected in a similar advance in the welfare of the populace.
The great problems in the organization and control of the economy
which resulted from the rapid but uneven increases in production of
the "leap forward" program as well as from the need to maintain the
momentum of the "leap forward" program led to the formation of com-
munes -- the new monolithic political-social-economic units that are
consolidating all previous controls at the local level under one
tightly knit, semimilitary authority and are rapidly revamping the
traditional patterns of daily life of the 660 million people of Com-
munist China. Although introduced only in mid-1958, the communes
spread so swiftly that by November 1958 Peking was able to claim
that 99 percent of the rural population had been organized into
26,500 communes averaging about 4,750 households each. The momentum
of the commune movement decreased, however, with the announcement in
December 1958 of the necessity for an extended period of "tidying up."
The resultant period of consolidation is continuing and has been
marked by a number of modifications of the more extreme aspects of the
original program.
In a few model communes in Communist China, harsh discipline and
control over every facet of individual existence have brought to life
George Orwell's 1984; in other communes the new order is merely on
paper; and generally the situation falls between these extremes.
Although the pressure toward the ultimate goal has varied, it never-
theless is believed to be inexorable. A major development that can
be expected in the commune movement -- one that may well produce con-
siderable unrest and resistance -- is the extension of the system to
urban areas, but the urban areas will experience communal life only
after the system becomes more thoroughly digested in the rural areas.
The temporary ideological breach with the USSR, caused by intem-
perate Chinese Communist claims that the communes represented a
shortcut to Communism and placed Communist China in the vanguard of
the march to that Elysium, was patched over when the original claims
were watered down. The incident, however, illustrates a growing
tendency of the Chinese leaders to depart 'from received (Soviet) doc-
trine in formulating economic policy. One ideological aspect of pure
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Communism that has made little headway under the commune system is
the withering away of the state.
The importance to Communist China of the communes, from the
economic point of view, lies in the following considerations: -(1) the
commune system, once consolidated, will increase the already great
ability of the regime to allocate increases in,output to investment
and military activities rather than to consumption; (2) the commune
system is a matchless device for increasing the ability of the central
authorities to exercise control over small-scale economic activity
(elements of private enterprise and "localism" now have an even slim-
mer chance of surviving); (3) the commune system makes more feasible
both the elimination of inefficient, tradition-bound methods of pro-
duction and the continuation of large projects that require the quick
mobilization and movement of huge gangs of workers; and (4) the com-
mune system gives the central authorities a considerably better
opportunity to control the rate of growth of the population if they
should wish to reverse the current Party line, which holds that a
large population is an economic asset.
Nevertheless, along with their advantages, the communes bring new
difficulties and uncertainties into the situation facing the economic
planners of Communist China. The elimination of traditional methods
of production during the past decade has meant the loss of much house-
hold and local production that never saw the marketplace or entered
into conventional statistics but yet was an important source of food,
clothing, housing, and tools and utensils in rural areas. The communes
face a difficult problem in organizing the many small-scale activities
necessary for the production of these kinds of goods. The imposition
of semimilitary discipline may prove to be inappropriate when individual
craftsmanship and independence of decision appear to be necessary to
maintain quality of output. The division of income so that energetic
and skillful performance is encouraged presents a hard problem in both
administration and finance -- for example, the proper compensation of
peasants working in gangs on irrigation projects. The relations of
communes to one another, including the maintenance of supplies of food
and raw materials needed by other communes, remain to be worked out.
The communes are now in an experimental stage, and their final form
probably will not be standardized but will reflect the varying local
conditions of climnte and resources as well as the varying local ex-
periences of the first year of operation. Already there have been de-
partures from the extreme "ideal" concepts set down in the original
blueprints. During the first half of 1959, for example, many commune
messhalls were shut down, and rations again were issued on an indi-
vidual basis. In many other instances the extreme forms of compulsion
have been relaxed.
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The year 1959, according to Chinese Communist pronouncements,
will witness another substantial economic advance, nearly equal
in absolute if not percentage terms to the "leap forward" of 1958.
It is believed that much of the momentum of 1958 will carry over
through 1959 but that the new "leap forward" will be from a smaller
base than claimed in official statistics. It is also believed that
the Chinese problems mentioned above -- an intensively driven and
poorly compensated labor force, a somewhat worn capital plant, a
congested transportation system, a poor quality of production, the
difficulty and uncertainties involved in the radically new system
of communes, and a planning system which has to cope with grossly
inaccurate data from important sectors of the economy -- have brought
about the need for another period of slackening of pace and re-
grouping of forces. The gamut of economic problems must be dealt
with, say the leaders, like a "coordinated chess game." The exact
degree to which it has been necessary to slacken the pace of economic
expansion in order to get the chess pieces coordinated is hard to
estimate, and the sparse midyear economic report for 1959 gives few
clues. In August 1959 the regime instituted a new program of exhor-
tation, aimed at eliminating the "hardship-evading and laxity senti-
ments" of rightists who have overdone the slackening of pace.
One of the grosser examples of waste arising out of the frenetic
"leap forward" of 1958 had been the much-publicized construction of
tens of thousands of native furnaces for small-scale production of
iron and steel. At the beginning of 1959 it was publicly admitted
that these furnaces, which had turned out only low-grade iron and
steel at a tremendous cost in raw materials and labor, generally were
being shut down.
The over-all economic gains of 1958 are so striking that it is
now estimated that the GNP of Communist China will rise about 65 to
85 percent during the Second Five Year Plan (1958-62) compared with
an increase of 43 to 48 percent during the First Five Year Plan
(1953-57). As a result, the period of time that it should take China
to catch up with Japan and the UK as an industrial power has been
considerably shortened.
The most dramatic feature of the last 4 years of the Second Five
Year Plan may prove to be tremendous increases in the production of
major industrial commodities, increases which would have been dis-
missed by Western observers as inconceivable before the "leap forward"
of 1958. It is now believed, for example, that the Chinese Communists
may be able to raise production of crude steel as high as 20 million
to 25 million tons in 1962 compared with 5.4 million tons in 1957 and
an original plan goal of 10.5 million to 12 million tons. In spite of
such potential gains in some branches of industry the economy of
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Communist China will remain essentially agricultural because of the
weight of the past. Growth in GNP will continue to go mostly to in-
vestment in heavy industry, and the margin between consumption and
bare subsistence for the population will remain uncomfortably small
I. Background of the "Leap Forward" Program of 1958
A. Dissatisfaction with the Pattern and Rate of ECODOMic Develop-
ment
The events of 1958 show that the Chinese Communist leadership
was dissatisfied with the rate of economic development during the
period of the First Five Year Plan (1953-57). The economic program
for this plan was a close imitation of the Soviet pattern of economic
development, and the leadership's dissatisfaction ultimately led to
important modifications of the Soviet model and to the adoption of a
program more relevant to actual conditions in the Chinese economy.
Important differences in the Chinese situation compared with that in
the USSR are the huge population, the thin margin between consumption
and bare subsistence (or even starvation), the small size of the in-
dustrial plant and transportation facilities, and the willingness and
ability of the regime to extract from the populace a productive effort
that is intense even by Soviet standards.
The changes introduced in 1958, however, were not based on the
assumption that the program for 1953-57 had been a failure. On the
whole, the period of the First Five Year Plan had been one of rapid
growth. It is estimated that the average annual rate of increase in
GNP was between 7 and 8 percent a year. (The Communist leadership
believed that the annual rate of increase was approximately 9 percent.)
Most of the targets of the First Five Year Plan had been achieved in
1956, 1 year ahead of the plan. Socialization,of all sectors of the
economy had been rapidly accomplished with relatively little disloca-
tion in production. Nevertheless, stresses and strains had developed
which had led to retrenchment and consolidation in 1957, and the
regime decided that the pace of economic development must be accel-
erated and that new economic policies would be required in the period
of the Second Five Year Plan (1958-62).
1. Lag in Agriculture
Agricultural production increased during the period of the
First Five Year Plan in Communist China at an average annual rate of
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2 to 3 percent. Although this increase was not in itself a bad show-
ing, there were great pressures on the regime to secure a signifi-
cantly higher rate of increase. First, production of the basic food
crops had increased barely as much as the increase in population (esti-
mated to be 2.0 to 2.5 percent a year), and the pressure of population
on the food supply continued to disturb the Communist planners.*
Secondl production of industrial crops such as cotton had increased
during the period but with considerable variations in production from
year to year. These fluctuations in crops resulted in sharp variations
In the production of light industry, and because state profits and
taxes from light industry and trade were heavily relied. on to finance
state investment, these variations strongly affected the financial
aspects as well as the physical volume of state investment.
As a result of trends in agriculture, per capita consump-
tion had not increased significantly during the first 3 years of the
plan period. A substantial increase of 9 to lo percent in per capita
consumption in 1956 took place, in large part at the expense of a
sharp decline in stocks, and per capita consumption declined by 2 to 4
percent in 1957 from the level in .1956.
2. Difficulties in Investment
The First Five Year Plan in Communist China was based on
a rapid expansion of the resources allocated to the program of in-
dustrialization while the demands of agriculture and the consumer were
pushed aside as much as possible. State control over industry and
trade, state control over prices and taxes, and state rationing of key
consumer goods were used to limit increases in consumption as output
increased. State investment in turn was channeled predominantly to
heavy industry. The main portion of investment in agriculture was to
be of a nonmechanized and labor-intensive type and was to be under-
taken by the farm population itself. This early departure from the
Soviet model, which called for the production by industry of large
amounts of heavy agricultural equipment, was made necessary by the
limitations of Chinese Communist industrial capacity.
State capital investment increased steadily from 1952
through 1955 and increased by 62 percent in the single year 1956, an
increase very close to the 70-percent increase subsequently claimed
for 1958 during the "leap forward" program. The high level of in-
vestment in 1956, occurring at the same time that it was necessary to
raise incomes of workers and peasants, caused inflationary pressures
and shortages of construction materials. In 1957, state investment
declined by 10 percent, and the proposals for the Second Five Year
* For a discussion of the relationship between population and food
supply in Communist China, see Appendix B.
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Plan made in this period of retrenchment and consolidation called
for holding the percentage of total production allocated to state
investment close to the percentage that prevailed in 1957.
In agriculture, difficulties were encountered in the
policy of relying on nonbudgeted investment by the farm population
itself as a basis for increasing agricultural production. During
the rapid socialization of agriculture in 1956 the regime found it
necessary to increase the level of consumption in the rural areas
and was forced to finance farm investment largely through sizable
bank loans. A limited program for introducing two-wheeled plows
resulted in large unused stocks, because peasants could not be
cajoled into using these plows. Many of the wells drilled for the
irrigation program proved unusable. The sown acreage increased to
such an extent that it could not be maintained adequately, and the
targets for sown area in 1957 were reduced accordingly. In the
light of these developments the planners were forced into radically
new approaches to the problems of increasing agricultural produc-
tion and changing priorities in order to allocate a substantially
larger proportion of investment to agriculture at the expense of
investment in heavy industry.
In heavy industry, Communist China followed closely
the example of the USSR, with the emphasis on construction of capital-
intensive, large-scale plants. The large state investment in heavy
industry was in itself capital intensive in nature because heavy in-
dustry required more capital equipment than agriculture or handicrafts
required and because investment in industry was aimed at large in-
creases in the amount of capital available per worker. Fixed assets
in industry more than doubled during 1952-57, while the total number
of employees in industry increased by about 35 percent. These in-
creases in fixed industrial assets permitted large increases in pro-
duction per worker, reduced the rate of increase in the consumption
requirements of the nonagricultural population, and contributed to
easy assimilation of Soviet aid. The program, however, was not adapted
to take full advantage of the large annual additions to the labor force,
nor did it direct sufficient investment into the handicraft sector,
which had a labor force fully as large as that in the industrial sector.
This investment program also was not the most effective way to maximize
production of the domestic machine building industries, which had the
ability to turn out large numbers of relatively simple types of ma-
chinery and equipment but were not so well equipped to produce the more
complex types of machinery and equipment.
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3. Problems in Foreign Trade
During the First Five Year Plan in Communist China, about
40 percent of the machinery and equipment required for state invest-
ment was imported, and because Soviet economic credits were not large
in relation to import requirements, these imports had to be financed
in large measure through exports. The value of exports in 1956 was
double the value in 1952, but state investment had increased to nearly
four times the level of 1952. the value of exports in 1957 declined
somewhat, and it became clear that further increases in exports would
be sill in relation to the potential demand for foreign exchange that
had been brought about by the investment program. At the same time,
in 1956, China became a net exporter of goods as Soviet loans dropped
to negligible amounts and large annual repayments were required on
past Soviet loans, most of which were extended for military purposes.
In view of this trend, it was clear that acty substantial increases in
investment above the level in 1956 would have to depend on domestic
resources and that foreign trade could not be expected to play an in-
creasing role in the economic development of China.
B. Economic Pblicies in 1957 and 1958
In view of these trends during the First Five Year Plan the
Chinese Communist regime in 1958 embarked on an all-out program for
greatly increasing the already intense pace of production. The new
program did not involve canceling or cutting back the investment pro-
gram and other economic programs established during 1953-57 -- in
fact, the construction of large-scale industrial projects was accel-
erated in 1958. Although the general framework of investment and
fiscal and price policies during the First Five Year Plan was to con-
tinue, a new effort was to be undertaken parallel to the existing
program. The Communist sloganmakers described the new policy as
"walking on two legs," with one "leg" to be the type of program on
which, by implication, they had been "hopping along" during the period
of the First Five Year Plan and the second "leg" to be a new program
aimed at a greater utilization of China's abundant manpower by empha-
sizing a thoroughgoing mobilization of labor and its employment at a
backbreaking tempo.
1. Factors Favoring Large Increases in Production in 1958
Even with no change in economic policies, production in
Communist China was likely to increase in 1958 at a rate much closer
to the 12-percent to 13-percent increase in GNP achieved in 1956 than
to the 5-percent increase achieved in 1957. Production of cotton and
other industrial crops, which constituted the supply of raw materials
for light industry in 1958, had increased significantly in 1957. With
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the leveling-off of consumption and the slight decline in capital
investment in 1957, stocks of both consumer goods and producer goods
increased substantially, more than enough to offset the decline in
1956. Because the level of state investment in 1956 and 1957 was
much higher than in 1953-55, significant increases in capacity for
key industries could be expected in 1958, when a larger number of
projects were scheduled for completion.
2. Changes in Economic Policies
The central premise of the changes in economic policies
and of the divergence from the Soviet model used for the First Five
Year Plan in Communist China is that the huge and rapidly growing
population of China could be converted from a liability to an asset.
A growing concern about this increase in population led to official
emphasis in late 1956 and early 1957 on birth control and limitations
on the natural increase in the population. With the new policies,
this emphasis changed. Liu Shao-ch'i put the main target of the new
program succinctly when -- speaking of those who argued that growth
of population was jeopardizing the whole economic program -- he said:
"All they see is that men are consumers and that the greater the
population, the bigger the consumption. They fail to see that men
are first of all producers and that when there is a large population
there is also the possibility of greater production and more accumu-
lation." The new program, therefore, aimed at labor-intensive pro-
grams which would use more fully both the existing underemployed
labor force of China and the large annual increments to the labor
force.
In order to make more effective use of the underemployed
farm population, the regime launched a massive effort to increase
the crop area under irrigation. The Chinese Communist estimate of
the rural manpower required for the irrigation program during Octo-
ber 1957 - September 1958 is equivalent to more than one-fifth of
the total potential manpower of the farm population. Taking into
account the other demands on the peasants' time aside from agricul-
ture -- such as the time needed for household duties, for handicraft
and other subsidiary production activities, and for normal leisure --
such a program would in itself be more than sufficient to eliminate
the underemployment that had previously existed in the rural areas.
In addition, many campaigns, such as deep plowing and other programs,
increased the amount of labor used in cultivating the main crops.
In order to employ more fully the labor force engaged in
handicrafts and to expand local sources of raw materials for industry
and for local construction, the program called for a new emphasis on
local industry and on small-scale and native methods of production.
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The regime accordingly widened the scope of responsibility of local
administrative organs in order to carry out the program. By June 1958,
approximately 80 percent of the industrial enterprises under the
ministries of the central government (enterprises which contributed,
however, much less than 80 percent of total industrial production) were
said to have been transferred to various local levels. A "two-account
system" of planning was set up in which local enterprises and lower
levels, in the economic hierarchy were pressed into setting up new plan
figures which were always higher than those set by the central govern-
ment and which become the new targets for output. The procedure called
for a much larger' role for the local governments in the formulation of
production goals and a larger role for the Communist Party members at
all levels. At the same time that the existing program for large-
scale, capital-intensive construction projects was continued and, in
most instances, even accelerated, investment funds for small-scale
projects were increased substantially. The First Five Year Plan had
called for a total of 2,300 below-norm* projects. During 1953-57, be-
fore the new program was fully underway, about 9,000 below-norm pro-
jects were said to have been completed or under construction, nearly
four times the number originally scheduled under the First Five Year
Plan. The number of above-norm projects said to be completed or under
construction increased by only 30 percent in comparison with those
scheduled in the First Five Year Plan. This large increase in the
number of below-norm projects planned in the 5-year period apparently
resulted from the increased interest with which the regime had begun
to view the construction of medium-scale and small-scale industrial
facilities by local authorities at the end of 1956.
In addition to continued emphasis on medium-scale and small-
scale production, in mid-1958 the regime very strongly encouraged the
establishment of thousands of small-scale industrial facilities using
native and traditional methods of production. For example, backyard
production of steel had become a national fetish in the fall of 1958,
and the press gave widespread publicity to similar programs for chemi-
cal fertilizer and shale oil.
The new emphasis on local industry and native methods of
production was calculated to take advantage of the potential for labor-
intensive industrial production and also was aimed at increasing output
of raw materials and construction materials from sources at the local
level. Because of difficulties in organizing: control over thousands of
small-Scale projects, imbalances and inefficiencies in production were
inevitable. In addition, this new program resulted in large commitments
of labor, raw materials, and transportation facilities in competition
with the requirements of the ministries of the central government.
* The term norm refers to a value for each industry which determines
whether or not a project is large enough to come under the complete
supervision and control of the central planning organs.
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3. Raising of Production Goals
The national plan of Communist China for 1958, as issued
in February 1958, contained relatively conservative targets, but as
these new economic policies took effect, a snowballing of targets
for agricultural and industrial production resulted. Few claims of
increases in agricultural production were made by the regime until
early July, when the regime announced that the harvests of winter.
wheat, rape, and barley and the expected harvest of spring wheat and
early rice would be 80 percent higher than that for the same period in
1957. By late summer 1958, claims were being made that total produc-
tion of staple food crops and cotton would be double that of 1957.
As late as May 1958, targets for industrial production
bore some resemblance to the probable capabilities, but repeated
pledges to "struggle" to exceed targets on local levels resulted in
the official announcement in August 1958 of new targets far in excess
of those of February 1958. By midsummer the official policy of
encouraging construction of small-scale and native plants had re-
sulted in a tremendous proliferation of such facilities, which in
turn encouraged the publication of increased targets for production.
II. "Leap Forward" Program of 1958
An evaluation of the actual performance of the Chinese Communist
economy in 1958 -- a year characterized by government spokesmen as a
great "leap forward" -- is difficult because of the pronounced de-
terioration in the reliability of Chinese statistics in 1958, pri-
marily those covering the agricultural and handicraft sectors.* The
estimates in this report have discounted in large measure claims for
increases in agricultural production during 1958 and to a lesser ex-
tent claims for increases in handicraft production. The problems
created by the changes in the official statistics introduce a large
range of error into the estimates for 1958, but the available evi-
dence -- including official claims, articles in Chinese lournals and
newspapers
is believed to be
sufficient to establish the conclusions presented in this report about
the performance of the Chinese economy in 1958.
A. Performance
In 1958 the GNP of Comminist China increased by approximately
20 percent compared with 1957, more than twice the average annual rate
* For a general discussion of the deterioration in the reliability of
Chinese Communist statistics in 1958, see Appendix AL
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of the First Five Year Plan and well above the 13-percent increase
that occurred in the best year of that plan period, 1956.* The in-
crease in 1958 was more than one-third of the total increase in pro-
duction achieved during 1953-57.** Even after allowing for a tre-
mendous distortion in the claimed increases in agricultural production,
it is clear that both agriculture and industry showed substantial
increases -- a situation which was not true for any year of the First
Five Year Plan. The large increase in agricultural production in
1955, after a very poor performance in 1954 caused by serious floods,
was not matched by large increases in industrial production in that
year. In 1956, however, the very large increase in industrial pro-
duction was accompanied by only a small increase in agricultural
production.
1. Agriculture
The significance of trends in agriculture in Communist
China in 1958 is obscured by the fantastic claims made by Chinese
officials. Production of the main food crops and cotton is claimed
to have doubled.*** It is interesting to note that Chou En-lai in his
speech to the Second National Peoples Congress in April 1959 stated
that even an annual increase in agriculture of between 10 and 20 per-
cent was a "leap forward." Chou's range covers the estimate made in
this report of an increase of about 15 percent in agricultural pro-
duction. This estimate of about 15 percent is far below the claimad
increase of 64 percent in the gross value of agricultural production.
The official claims for 1958 state that production of basic food
crops was double that of 1957, but it is estimated that the increase
actually was about 15 to 20 percent. The percentage increase in
agricultural production in 1958 is rone-ily equivalent to the total
increase in agricultural production during the entire First Five Year
Plan, if 1957 is compared with 1952. The percentage increase in in-
dustrial production in 1958 is, by contrast, about one-third of the
total increase in industrial production during the First Five Year
Plan.
* For the GNP of Communist China for 1957-58, allocated by end
use in current prices, see Table 1, Appendix D, p. 62, below. For
the GNP allocated by sector of origin, see Table 2, Appendix D,
p. 63, below.
** A comparison of Communist China's GNP and production of se-
lected commodities with those of various industrial nations is shown
on the chart, Figure 1, following p. 14.
xxx For the estimated production of selected agricultural commod-
ities for 1952 and 1957-58, see Table 3, Appendix D, p. 64, below.
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a. Main Food Crops
The government of Communist China claims that in 1958
production of basic food crops -- wheat, rice, sweet potatoes, and
miscellaneous food crops -- was 375 million tons, double the 185 mil-
lion tons of 1957. An increase of such magnitude in 1 year is almost
incredible, and there are many reasons for not accepting this claim
at face value.
As late as May 1958 the target for production of basic
food crops was 196 million tons, an increase of 6 percent above the
level in 1957. By September, production for 1958 was estimated to be
350 million tom, and by November this estimate remained at 350 mil-
lion tons. But the estimate of rice production meanwhile had dropped
from 180 million tons to 160 million tons and then to 150 million tons,
implying a claimed increase in miscellaneous food crops from 25 mil-
lion to 45 million and then to 55 million tons. The total production
of basic food crops was claimed to be 375 million tons in December and
January, but the figure for sweet potatoes was lowered again, implying
a further increase in the output of miscellaneous food crops. Such
changes indicate a manipulation of subtotals to maintain an over-all
total rather than a careful estimate of each separate crop.
,Reports of observers traveling in Communist China do
not support the claims of very high yields, nor do they supply evi-
dence of the great increase in grain storage that would be necessary
if such high levels of production had in fact been achieved. Reported
shortages of food in the cities were due in part to transportation
difficulties but, taken in conjunction with continued reports from
some areas that peasant consumption remained below consumption in urban
areas, indicate that the alleged doubling of production was not being
reflected in large increases in food supply. Moreover, procurement of
grains was claimed to be up only 24 percent, a claim which was almost
a tacit admission by the regime that the total of 375 million tons had
not in fact been achieved.
It. is claimed that the average yield per hectare of
rice increased by 60 percent, of wheat by 76 percent, and of sweet
potatoes by 210 percent. If these claims were accepted, they would
involve an average rice yield about the same as in Japan and the US
and an average wheat yield that is about the same as average yields in
the US and only one-fourth less than those in Japan. In both Japan and
the US, however, large quantities of chemical fertilizer and pesticides
are used -- much more than the small amounts available in Communist
China in 1958 -- and yields in Japan and the US reflect many decades
of steady improvement in agricultural techniques. It is most unlikely
that such increases could be achieved in the space of 1 year over such
a vast area as China.
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\
COMMUNIST CHINA
GROSS NATIONAL PRODUCT, RAILROAD FREIGHT TRAFFIC, AND PRODUCTION
OF SELECTED COMMODITIES, COMPARED WITH THOSE OF SELECTED COUNTRIES, 1952-58
TOTAL ....._uCsomsRmunist China
India PER CAPITA
1000
800
600
400
to 300 '
POPULATION
(Mid-year)
500
400
us 200
0"
a 100
GROSS NATIONAL PRODUCT a
?,?+
?????11.
-------------------
Le?. 200 .
z
109
80
60
80 ------- -- -------
ft, 60
040
211 -----------------------
20
..............
Japan ---- UK
RAILROAD FREIGHT TRAFFIC
2000
1000! ?
w ? 600
sz 400
-di ? 200
to
2
O 100
80
co
60
40 ...................... .
4? Le ...... .... ............. ,
30 10. ? - ? ,
30
1952 1953 1954 1955 1956 1957 1958 1952 1953 1954 1955 1956 1957 1958 1952 1953 1954 1955 1956 1957 1958
a The rates of increase of Communist China's GNP given here differ from the rates in
the text; those given here are based on the comparison of US and Chinese prices
in 1955, whereas the rates in the text take account only of Chinese prices.
ELECTRIC POWER
800
600???????
.??????
400
oc 200
0
2,
6
to
BILLION LINEAR METERS
---
60 ........... . .......................... * ..... . ....
40
20,
10,
8
6 ? ?
1952 1953 1954 1955 1956 1957 1958
COTTON CLOTH
10
9
8
7
2
???
1952 1953 1954 1955 1956 1957 1958
C includes mixed fabrics, predominantly of cotton.
27938 7-59
500
400
300.'"'"."
200
Lu
to
2 100
0
80
60
COAL'
..............
50
40
............................ ....
30 -
1952 1953 1954 1955 1956 1957 1958
b Includes anthracite and bituminous coal and brown coal
and lignite.
CRUDE STEEL d
60
40
?/.0
2
1.C2 20
.
E.<
10 r...........
.....
2 8 . ..........
0 .......
6
?????....?
. ... ?
. ......
.... ..........
1952 1953 1954 1955 1956 1957 1958
d Includes only commercial quality steel.
Data plotted on semi-logarithmic grid.
MILLION METRIC TONS
CEMENT
100
80
60
40,
???????
.????????????? ??????????:
30
20
10 8 . .......
....... . ....... ........
6
4
3
2
1952 1953 19.54-- 19'55 19'56 1957 1958
300
200
FOOD GRAINS e,
100 , ???????--?
in
60
40
6 30
:=17
20 - ?
.... ...... .......
....
...............
10
8
6.....
1952 1953 1954 1955 1956 1957 1958
e Includes rice, wheat, miscellaneous grains and tubers.
KILOWATT HOURS
LINEAR METERS
ELECTRIC POWER
4000
2000
.... ... ......
1000
00M:...
.....
6800
........................
400
200
100
80
60
40
20
1952 1953 1954 1955 1956 1957 1958
60
50
40
COTTON CLOTH
.m.???1m.
..........
................ -? ? ? ? .
30""....* ?
20
10
????
--????
8'-
6-----_
1952 1953 1954 1955 1956 1957 1958
US DOLLARS
3000
2000
GROSS NATIONAL PRODUCT
........
1000 ?
800
600...._ ... .............
400
................................................
200
100
80
60
50 ^ -
1952 1953 1954 1953 '
1956 1957 1958
6000
4000 ?
COAL
2000
?-?????????
1000
0?4 800
2
..
600?
. ...................................... .......
400
200 ?
100
1952 1953 1954 1955 1956 1957 1958
CRUDE STEEL
1000
800 _....' ? , . .
600...?..? "7".. ............... - 7'.."?? .......
.... ....... r. ... .......
.- ....
-
200
100
80
60
40
20 ?
........... . ....... ........
Figure 1
RAILROAD FREIGHT TRAFFIC
6000
????????
?
2000
CY
41
14
F.
41
1000 ? i 4- .: .
2 800 . .- ..
. . .
1'2
600" . 7 ..
,2 ....................................... . ........ .
200
100 ,0
1952 1953 1954 1955 1956 1957 1958
CEMENT
-
400
????"''..-. ?
........
200 .
.......... ?
.........
.......
100 .............
60 4 0?
40
30
20 ?
10
8
6
4
3
1952 1953
1000
900 ""'"?????
800 ?
700
600
500 ?
05 400
2 300
1954 1955 1956 1957 1958
FOOD GRAINS
200 ?-:?..eit-377.' .. ........
1 100 - - - - - - ?
1952 1953 1954 1955 1956 1957 1958 1952 1953 1954 1955 1956 1957 1958
EMI
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In estimating the actual level of agricultural pro-
duction in Communist China in 1958, therefore, it has been necessary
to work in large part independently of the official claims for 1958.
The production of basic food crops in 1958 is estimated to have been
roughly 220 million tons, with the increase in production about 15 to
20 percent above that in 1957, or only about 15 to 20 percent of the
increase claimed in the official statistics. This estimate is based
on (1) the Chinese Communist figures for sown acreage, (2) estimates
of increases in average yields resulting from increased application
of chemical fertilizer and improvements in crop cultivation, and
(3) an allowance for the effect of unusually good weather conditions
in 1958.
The acreage sown to basic food crops in 1958 is not
claimed to have increased significantly compared with that in 1957,
but it is claimed that there has been a pronounced shift to sweet
potatoes and a lesser Shift to corn, taking over primarily acreage
formerly sown to wheat and other miscellaneous grains with lower
average yields. These state-sponsored shifts alone would result in
an increase in production of basic crops of nearly 4 percent above
the level in 1957 with no changes of average yields per acre of in-
dividual crops. The total figure claimed for sown acreage, unlike
the claims for average yields, is probably conservative. Because
Communist cadres were expected .to show results in increasing yields,
it is possible that a small part of the fantastic gains claimed for
average yields in 1958 is attributable to some understatement of
sown acreage in 1958.
The increased application of chemical fertilizer from
large-scale industry in 1958 is estimated to have been sufficient to
raise output of basic food crops by not more than 1 percent. The
evaluation of increases in average yields in 1958, therefore, must
depend in large part on the successes and failures of the ambitious
agricultural programa undertaken. First of all, the irrigated area
was claimed to have been raised from about 30 percent of the land
under cultivation in late 1957 to about 60 percent in 1958 -- an in-
crease more than double that claimed for the 5 years 1953-57. Second
it is claimed that 80 billion tons of natural fertilizers such as
manure and pond mud were accumulated in 1958 and that application of
such fertilizers was more than 10 times the application in 1957. A
large increase in chemical fertilizer produced by native methods also
is claimed. Third, deep plowing sua close planting were greatly ex-
tended, and introduction of improved seeds and greater use of insecti-
cides are cited in connection with the spectacular increases in yields
shown in the Communist figures of production. The irrigation program
as claimed was on such a scale that it could not have been carried out
efficiently in the short space of 1 year, as subsequent admissions in
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mid-1959 indicated. In any event, much of the irrigation program
would show benefits only in later years by reducing losses resulting
from adverse weather. The accirmilation of natural fertilizers claimed
is believed to be overstated and is heavily discounted, for most of
such fertilizers have a very low nitrogen content. The deep plowing
and close planting programs are considered to be of little value in
increasing agricultural production. Nevertheless, it is estimated
that the agricultural programs undertaken in 1958 probably raised
the average yield of wheat to the level that existed in pre-Communist
times and raised the average yield of. rice by 5 to 6 percent. These
measures may also have obtained small increases in yields for miscel-
laneous grains and tubers. Therefore, these improvements are esti-
mated to have increased total production of basic food crops by about
7 to 10 percent in comparison with production in 1957.
In addition to increases achieved by shifts in the
sown acreage and by agricultural measures undertaken to increase
average yields, an allowance must be made for unusually favorable
weather. The Chinese Communists claim that 1958 was a poor agricul-
tural year, but neighboring countries in Asia had notable increases
in grain production. It is usual for Communist planners to blame the
weather when agriculture fares poorly and to credit their own efforts
when agriculture registers increases in production. It is estimated,
therefore, that weather conditions actually were quite favorable in
1958, and thus there is allowed an average increase of 5 percent above
the figure that would have been the average yield for all basic food
crops in 1958. These considerations suggest that, instead of doubling,
the production of basic food crops increased by approximately 15 to
20 percent in 1958.
b. Other Crops
Production of cotton and most other industrial crops
in Communist China in 1958 increased much more rapidly than production
of basic food crops, and the percentage increase in many of these crops
is estimated to be twice the percentage increase that occurred during
the whole period of the First Five Year Plan. Production of vegetables,
meat, and other supplementary foods suffered, however, because of the
emphasis on the main crops, and their production in 1958 either failed
to show appreciable increases or actually declined.
c. Value of Over-All Agricultural Production
Based on estimated farm procurement prices in Communist
China, the value of production of basic food crops, industrial crops,
and their byproducts and elementary food processing in farm areas is
estimated to have increased by 20 to 25 percent in 1958. A similar
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increase probably took place in forestry, fishing, and farm production
of producer goods. These categories constituted roughly two-thirds of
total output in 1957. Some increase in the total numbers of livestock
probably occurred, but vegetables, livestock products, and farm supple-
mentary production of consumer goods at best held their own in 1958.
The increase in over-all agricultural production during 1958 probably
falls in the range of 13 to 17 percent and is considered in this report
to be about 15 percent.
2. Industry
Industrial production in Communist China showed an increase
of approximately 40 percent in 1958, about one-third of the percentage
increase that was achieved in the whole 5-year period 1953-57 and
somewhat greater than the increase achieved in the banner year 1956.
In 1958, industry continued to grow at about twice the rate of over-
all GNP at factor cost. In spite of this rapid growth, however, in-
dustry contributed only one-fifth of total GET* in 1958 (less than one-
half the share of agriculture), which reflects the low base from which
it has grown. Production of light industry increased by about 20 per-
cent and that of heavy industry by about 60 percent. The official
claim wag that the gross value of all industrial and individual handi-
craft production in 1958 was 66 percent above that in 1957; the scaling
down of this claim was considerably less than the scaling down of the
regime's claims for basic food crops.
Claimed increases in the unit production of industrial com-
modities cannot be reconciled with the 66-percent increase claimed for
the gross value of industry. The figures for gross value in 1958
probably reflect exaggerations caused by the inclusion of production
previously unrecorded and by greater double counting in the accounting
framework used by industrial enterprises, particularly in local industry
and handicrafts. The estimate in this report of an increase of 40 per-
cent in gross value in 1958 is based on the construction of an index
that employs 1957 prices and on the claimed increases in production
in physical units. Because similar estimates for 1953-57 are con-
sistent with official claims for these years, the figure of 40 percent
is believed to be a sound estimate for 1958.
a. Iron and Steel
Production in the large and medium-sized plants of the
iron and steel industry in Communist China increased substantially in
* Estimates of GNP by sector of origin for 1952, 1957, and 1958 are
shown on the chart, Figure 2, following p. 18, and in Table 2, Appen-
dix D, p. 63, below.
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1958, but the all-out drive for increased production of pig iron and
steel through small-scale methods yielded a product of limited use-
fulness. About 11 million tons of crude steel were produced in 1958,
more than double the 1957 output of 5.35 million tons.* Crude steel
that could be converted into finished steel meeting minimum standards
of commercial acceptability totaled about 7.5 million tons, an in-
crease of more than 4o percent in comparison with the figure of 5.4
million tons for 1957. Most of the remainder, amounting to 3.6 mil-
lion tons, probably was remelted in conventional furnaces or was
consumed by local handicraft industries. Expansion in the production
of steel in 1958, although considerable, did not provide sufficient
finished steel to meet domestic requirements. Because finishing
capacity was insufficient to process all the crude steel produced,
approximately 1 million to 2 million tons of crude steel were stock-
piled. Imports of finished steel were tripled, from 500,000 tons in
1957 to 1.5 million tons in 1958. In line with the "leap forward"
program of 1958, the construction of all modern iron and steel plants
was accelerated, and the scheduled completion dates of large in-
stallations at An-shan, Wu-han, and Pao-tou were shortened. The
small native furnaces, which sprang up throughout much of the country-
side in 1958, fell out of favor and were discontinued toward the end
of the year when it became apparent that most of them represented a
highly uneconomic use of labor and raw materials.
b. Fuel and Electric Power
The production of coal in Communist China expanded
more than 100 percent in 1958, from 130 million tons to 270 million
tons, making China the third largest producer in the world, after the
US and the USSR. The entire period of the First Five Year Plan was
required to accomplish a similar percentage increase.** The output
of mines under the control of the central and provincial governments
contributed about 60 percent of the total increase. The remaining
4o percent came from native workings, representing a tenfold increase
in coal from mines of this type. Coal from native mines is used al-
most entirely for rural household needs and as fuel for native types
of blast furnaces, for oil plants, and for other small installations.
The accomplishments of the electric power and petroleum industries were
less spectacular than those of the coal industry, but the groundwork
apparently has been laid for increases in production for these two
industries through the construction of new capacity in 1958.
* For the estimated production of ferrous and nonferrous metals
for 1952-59, see Table 4, Appendix D, p. 65, below.
** For the estimated production of fuels, power, and construction
materials for 1952-59, see Table 5, Appendix D, p. 66, below.
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GROSS NATIONAL PRODUCT, BY SECTOR OF ORIGIN
1952, 1957, and 1958
28080 7-59
1952
78.0 billion yuan
1:=1
(1957 Constant factor prices)
1957
106.6 billion yuan
Agriculture, Forestry, and Fisheries
Industry
Modern Transportation and Communications
Trade, Native Transportation, and
Other Business Services
1111
Construction
1958
129.3 billion yuan
nGovernment (including Health and Education)
Miscellaneous Consumer Services and House Rent
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c. Machine Building Industries
Considerable advances were made in machine building
in Communist China in 1958 -- for example, production of machine
tools from the more highly organized machine building industries
nearly doubled, rising from 28,000 units in 1957 to 50,000 units in
1958.* This sector benefited from the large investments undertaken
during the period of the First Five Year Plan and from the change
in ,investment policies which, under the "leap forward" program of
labor-intensive investment, called for a much larger output of
simpler types of machinery and equipment for use in agriculture and
in local industry. In addition to the large increase in output from
the organized sectors, native producing units are claimed to have
greatly increased the production of crude tools and machines. Be-
cause of the low quality and limited utility of the products of the
native producing units, it is believed that local production of
machine tools will be increasingly concentrated in well-equipped,
medium-sized plants.
d. Chemicals
The chemical industry in Communist China has expanded
rapidly, but not nearly in proportion to the demands placed on it.
Output of chemical fertilizers increased by more than 60 percent in
1958 above the level in 1957, about double the average annual rate of
growth during the First Five Year Plan, but production in 1958 of
1.3 million tons of chemical fertilizers is still small in relation
to the total area under cultivation.** The chemical industry was
particularly weak and undeveloped at the beginning of the First Five
Year Plan, and the industry was given inadequate investment priorities
in the first few years of the plan. In early 1957, however, the
Chinese Communists recognized the need for rapid expansion in the pro-
duction of chemicals, especially of chemical fertilizers, as part of
a great emphasis on agricultural development and a recognition of the
chemical industry's importance in developing a large industrial base.
3. Transportation
The "leap forward" program placed a heavy burden on the
transportation system of Communist China.XXX Rail and other modern
* For the estimated production of selected
and communications equipment for 1952-59, see
dix D, pp. 67 and 68, respectively, below.
** For the estimated production of chemical
see Table 8, Appendix D, p. 69 below.
*** The railroad system and major highways of
shown on the map, Figure 3, inside back cover.
machinery and electrical
Tables 6 and 7, Appen-
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products for 1952-59,
Communist China are
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types of transport, operating at about 100 percent of capacity,
hauled approximately 229 billion ton-kilometers (tkm), an increase
of 39 percent in comparison with the level in 1957, and originated
633 million tons of freight, an increase of .48 percent compared
with that in 1957.* Even performance of this magnitude proved in-
adequate, however, to handle all the demands made on the transporta-
tion system. Modern transport probably provided sufficient support
to production by large-scale industry but fell behind the increased
demands of state investment and even further behind in supporting
the programs for agriculture and for increasing local industrial
production.
The effort put forth by native transport during 1958
was truly staggering, with native land transport facilities allegedly
moving 529 million tons of goods, an increase of more than 44 per-
cent in comparison with the level in 1957. Junks and other native
craft (both inland and coastal) are estimated to have moved 134 mil-
lion tons, an increase of about 35 percent in comparison with the
level in 1957. A portion of the increase in 1958-may be accounted
for by more complete statistical reporting, which has given the
Chinese Communists a fuller count of the amount of traffic carried by
native forms of transport. In many rural areas, transportation be-
tween farms during the latter part of 1958 absorbed about 30 percent
and sometimes 60 percent of the labor force, and there were cases in
which 70 percent of the total available labor was temporarily used in
transportation to support the small native blast furnace program. The
commitment of such a great proportion of the rural labor force to this
largely unprofitable economic program probably is the reason why some
agricultural crops went unharvested.
The priority given to heavy industry in the use of both
modern and native types of transport in 1958 resulted in disruption of
the established patterns of distribution of consumer goods. This dis-
ruption contributed to serious food shortages in some urban areas; to
a decline in exports, which took place at the very end of 1958 and
early 1959; and to occasional interruption of the movement of raw '
materials to industries with low priority.
4. Trade and Agricultural Procurement
Domestic trade in Communist China grew faster than planned
but still at a rate well below that of industry and transportation.
Retail trade increased about 16 percent compared with a planned increase
* For the estimated volume and performance of modern transport and the
estimated production- of transportation equipment for 1952-59, see
Tables 9 and 10, Appendix D, pp. 70 and 71, respectively, below.
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of 5 percent. Sales of producer goods for agriculture, small in-
dustry, and local construction approximately doubled, accounting for
at least one-half of the total increase in retail sales. Sales of
consumer goods to households increased by approximately 8 percentl,
about one-half of the increase registered in the banner year of
1956.
State procurement of agricultural commodities increased
at about the same rate as agricultural production of these commodities.
Indications are that the state trade probably took control of about
the same share of agricultural production as that controlled during
1955-57.
Foreign Trade
The foreign trade sector in Communist China made a notable
contribution to the economy in 1958, with total trade rising 23 percent
In comparison with the previous year in a period when total world trade
declined by more than 6 percent. The goal for foreign trade was ex-
ceeded by 14 percent as foreign trade totaled an amount estimated to be
$3,770 million,* about 20 percent greater than the total in 1956, the
previous high. After a slight decline in foreign trade in 1957, the
tremendous expansion in 1958 considerably brightened the foreign eco-
nomic position of China.
A record export surplus in 1958 enabled Communist China to
meet a 20-percent increase in debt repayments on Soviet loans and to
continue to expand the level of imports of plant and equipment from
the USSR, the European Satellites, and Western Europe. There was a
substantial decline in foreign aid expenditures in 1958, but the size
of the planned expenditures on foreign aid in 1959 suggests a post-
ponement in foreign aid deliveries. It is estimated that exports
rose 30 percent in 1958, to 6,950 million yuan.** Agricultural prod-
ucts continued to dominate China's exports. Mineral and industrial
products, however, were an increasing proportion of China's total ex-
ports, rising from 22 percent in the First Five Year Plan to 28 percent
in 1958.
It is estimated that Chinese Communist imports rose 16 per-
cent in 1958, to 5,780 million yuan. Investment goods, primarily
machinery and equipment for state construction projects, account for
* Dollar values in this report are expressed in current US dollars.
** Unless otherwise indicated, yuan values in this report are ex-
pressed in current yuan and may be converted to US dollars at the rate
of 2.46 yuan to US $1. This rate of exchange is based on the yuan-
sterling rate for telegraphic transfers and bears no relationship to
domestic price levels.
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more than half of China's imports. To meet the needs of a rapid ex-
pansion of production and construction, the USSR made deliveries
ahead of schedule on Chinese orders for selected investment goods,
such as the No. 1 blast furnace for the Wu-han steel complex. More-
over, 20 complete sets of equipment for metallurgical, machine
building, power, and coal processing plants were reported to have
been delivered by the USSR in the first 10 months of 1958. Never-
theless, the percentage increase in imports of.investment goods in
1958 was only one-third as much as the increase claimed for state
investment.
6. Investment and Consumption
The determination of the Chinese Communist regime to in-
crease domestic investment is reflected in the share of GNP allocated
for this purpose, about 28 percent in 1958 compared with 21 percent
in 1957. Total domestic investment expanded by about 60 percent, or
an absolute increase equivalent to approximately two-thirds of the
total increase in GNP. Capital investment financed through the state
budget increased by about 70 percent. Agricultural investment from
current income is estimated to have been more than double the level
In 1957. Inventories probably increased in 1958, but this expansion
probably was considerably less than the large increase that occurred
in 1957.
As a result of the large expansion in domestic investment,
the proportion of GNP allocated to personal consumption declined from
69 percent in 1957 to 63 percent in 1958, with only approximately
one-third of the total increase In GNP being channeled to this use.
Total consumption in Communist China probably increased by about 8 to
10 percent in 1958, or 6:to 8 percent-per capita, with per capita
consumption probably exceeding Slightly the general level achieved in
1956.
The saving required to support an investment program of
this size was accumulated primarily through the budget.* The profits
and depreciation funds remitted to the state by enterprises increased
by 55 percent, government surplus on current account almost doubled,
and domestic bond sales increased by more than 20 percent. Agricul-
tural business saving -- that is, Investment financed out of the in-
come of the agricultural sector -- probably more than doubled. Per-
sons] savings deposits expanded by more than twice the increase in
1957.
* The budget accounts of Communist China for 1950-59 are shown on the
chart, Figure 4, following p. 22.
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COMMUNIST CHINA
BUDGET REVENUES AND EXPENDITURES
1950-59
(Billions of Current Yuan)
REVENUES
12.967
Other Revenues 6.919
Credits. Loans, and Insurance Zz
Profits of State Owned Enterprises .13%
axes 755
21.762
Ett'
17. 560
..115
v.335