COMMUNIST CHINA: ECONOMIC EXPANSION IN 1970

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600040021-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 19, 2016
• Document Release Date: June 23, 2005
• Sequence Number: 21
• Publication Date: February 1, 1971
• Content Type: IM

25X1
Approved For Release 2005/06/29 :CIA-RDP85T00875R001600040021 4
 Approved For Release 2005/06/29: CIA&?8jz0II$J571M04PPf1I~?
Secret
DIRECTORATE OF
INTELLIGENCE
~,q
ENT Sr,,n
P`F? BRAA
Da NOT LkSTROY
Intelligence Memorandum
Communist China: Economic Expansion In 1970
Zek
RE
h
Copy No.
Secret
ER IM 71-20
February 1971
49: CIA-RDP85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelatiui,. of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
Eaduded ft- aio,naI c
Jownpradinp and
declauifsaIion
Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
February 1971
INTELLIGENCE MEMORANDUM
Communist China:
Economic Expansion In 1970
Introduction
The economic development of Communist China
has been interrupted by two political cataclysms -
the Great Leap Forward (1958-60) and the Great
Proletarian Cultural Revolution (1966-69). Both
of these upheavals caused serious dislocations in
economic planning, production, and investment.
The damage caused by the Cultural Revolution,
however, was much less severe and will leave fewer
permanent scars on the economy.
This memorandum first summarizes the main eco-
nomic aspects of the Cultural Revolution. It then
reviews economic performance in Communist China in
1970, a year marked by the return Lo regularized
planning and to the day-to-day problems of produc-
tion. Finally, the memorandum briefly surveys
major developments in the main sectors of the
economy in 1970 and relates these developments to
prospects for the newly announced Fourth Five-Year
Plan (1971-75).
Note: This memorandum was prepared by the Office
of Economic Research and coordinated within the
Directorate of Intelligence.
Approved For Release 2005/06/29 SE Rl ? T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
Cultural Revolution in Retrospect
1. In retrospect, the main economic effect of
the Cultural Revolution was the sharp decline in
industrial production in 1967-68 when the Red
Guards invaded factories, government offices, and
research institutes. The shattering of much of
the middle-level Party and governmental structure
and the factional fighting -- which cost tens of
thousands of lives -- led to shutdowns of major
factories, rail lines, and docks and to serious
local shortages of coal and electric power. Mili-
tary production was by no means exempt from these
dislocations, and the production of jet aircraft,
tanks, and other military hardware also fell
sharply. The economic effects of this decline in
industrial output were softened by a bumper harvest
in agriculture in 1967. The weather was unusually
favorable, and the permissive policy toward private
activity in agriculture was left undisturbed.
Investment activity continued at a surprisingly
high pace during the Cultural Revolution. Many
important industrial and military projects were
initiated, forwarded, or completed i;i this period.
2. The grassroots economic control apparatus
remained intact during the Cultural Revolution.
Factories, mines, and agricultural units continued
to receive, and to adjust to, production quotas;
grain continued to move into the cities; and wages
continued to be disbursed through the financial
mechanism. And when the sporadic interruptions
to economic life threatened to become serious in
major urban areas, the entrance of the Peoples
Liberation Army (PLA) stiffened the sagging civil-
ian control structure.
Situation at the Start of 1970
3. In general, even though political infight-
ing still raged over the distribution of power in
the new revolutionary committees, the start of
1970 saw the economy in a favorable position for
a resumption of economic expansion. Prospects for
sizable increases in industrial output were espe-
cially good since the expansion of productive
capacity had continued amid the political turbu-
lence of the Cultural Revolution. The level of
industrial output in 1969 had been restored to
Approved For Release 2005/06/$E,P85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
the 1966 level, which meant that essentially all
the new capacity added in 1967-69 plus any slack
in capacity in 1966 was available to support an
expansion of industrial production.
4. Similarly, in agriculture the prospects
for expansion were good. Agriculture had been
spared most of the extremes of the Cultural Rev-
olution and continued to benefit from the "support
agriculture" measures of the post-Leap Forward
period. Inputs to agriculture from the industrial
and foreign trade sectors continued to mount in
the 1960s and by the end o 1969 were sizable, as
illustrated below by the rapid rise in the supply
of chemical fertilizers*:
1960
1966
1969
Domestic production
2.5
5.5
5.8
Imports
1.0
2.5
4.1
Total supply
3.5
8.0
9.9
Industry as a Star Performer in 1970
5. In 1970, industrial production in Communist
China rose by a substantial 15%-20%. The advance
was across the board -- in basic fuels, in indus-
trial equipment, and in military hardware. During
the year, managers and workers felt renewed pres-
sure to beat output quotas, to get new production
facilities in operation, and to sponsor techno-
logical innovation. This pressure, although accom-
panied by radical political verbiage, never ap-
proached the frenetic levels of the Leap Forward.
Political campaigns and political meetings continued
as a fact of daily life but did not interfere with
the return to regularized planning and the renewed
attention to turning out more goods at every stage
'f Tonnages are in metric tons throughout this
memorandum. The tonnages for chemical fertilizer
in the tabulation are on the basis of product
weight as opposed to nutrient eq-ivaZent weight.
Approved For Release 2005/06/29 : S~Ad 5jF00875RO01600040021-4
 Approved For Release 2005/06129 C~1~i,F~QP85T00875RO01600040021-4
of production. (The table presents several key
economic series for 1952 and 1957-70.)
6. Production in the iron and steel industry
advanced approximately as follows:
Million Tons
1969
1970
Pig iron
16
17-18
Crude steel
13
14
Ff.ni shed steel
10
11
Activity in this key, industry continue. to be
affected by the lack of rolling and finishing
capacity in relation to basic capacity. Even so,
the expansion of basic capacity -- large new blast
furnaces at Wu-han and elsewhere as well as new
open hearth furnaces arid oxygen converters at
Pao-t'ou, Wu-han, Shanghai, and other sites --
continues in anticipation of long-term needs.
The capacity of finishing mills also expanded in
1970, largely on the basis of equipment and tech-
nology furnished by Japan and Western Europe.
7. Coal production in 1970 was up from about
250 million to 300 million tons. The increase in
production paralleled an increase in the demands
of the major users -- the railroads and the steel,
chemical, and electric power industries. Much of
the added production came from newly opened or
reopened small mines, many lying south of the
Yangtze in what has historically been a coal-
deficit area. Practically no mention has appeared
in the Chinese press of construction of major new
mines. This apparent absence of large-scale invest-
ment in major mines could be an important constraint
on the continued expansion of this industry through-
out the 1970s.
8. Electric power production jumped from 50
billion to 60 billion kilowatt hours in 1970.
The overall capacity of this industry has run far
ahead of consumption requirements in the last
- 4 -
Approved For Release 2005/06//.tMMP85T00875R001600040021-4
 Item
1952
1957
1958
1959
1960
1961
1962
1963
1964
1965
196
6
1967
1968
1969
1970
Population, mid-year
(million persons)
570
641
657
673
686
698
709
723
738
755
772
789
806
824
843
Grain (million metric
154
185
200
165
160
160
175-
175-
180-
190-
195-
210-
195-
200-
215-
180
180
185
195
200
215
200
205
220
Steel (million metric
tons)
1.35
5.35
8.0
10
13
8
8
9
10
11
12
10
12
13
is
Coal (million metric
tons)
66.5
130.7
230
300
280
170
180
190
200
220
240
190
20C
250
300
Electric power (billion
7.3
19.3
27.5
41.5
47
31
30
33
36
42
47
41
44
50
60
Crude oil (million
metric tons)
0.44
1.46
2.i6
3.7
4.6
4.5
5.t
5.5
6.9
8
10
10
11
14
17-18
Chemical fertilizers
n
(million metric tons,
C'=7
product weight)
Supply
0.4
1.9
3.0
3.1
3.5
2.4
3.1
4.9
4.7
6.8
8.0
8.3
8.8
9.9
11.8
Production
0.2
0.8
1.4
1.9
2.5
1.4
2.1
2.9
3.5
4.5
5.5
4.0
4.8
5.8
7.0
Imports
0.2
1.1
1.6
1.2
1.0
1.0
1.0
2.0
1.2
2.3
2.5
4.3
4.0
4.1
4.8
Trucks (thousand
units)
0
7.5
16.0
19.4
15
1
14
16
26
34
47
34
31
66
75
Foreign trade (billion
US $)
Total
1.89
?.03
3.74
4.26
3.97
3.02
2.68
2.77
3.22
3.85
4.20
3.86
3.71
3.86
4.25
Exports
0.88
1.60
1.91
2.20
1.94
1.52
1.53
1.57
1.75
2.00
2.17
1.92
1.89
2.02
2.15
Imports
1.01
1.43
1.83
2.06
2.03
1.50
1.i5
1.20
1.47
1.86
2.03
1.94
1.82
1.84
2.10
Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
decade. On the other hand, the location of major
powerplants has not always dovetailed with the
location of consumers' plants, and the absence of
a national power grid prevents the efficient
shifting of power to Deficit locations. Thus
shortages of electric power and breakdowns in the
system of distribution continued to occur in 1970.
Small local hydroelectric plants received a greet
deal of publicity in 1970; however, small plants
still supply only a small share of China's electric
power. A few large thermal plants are under con-
struction. Thermal plants have the advantage of
coming into operation more rapidly than hydro
plants and of being easier to locate near the new
industrial p.-ojects now under construction in
scattered areas of the country. No major work in
tying togethe.,. the separate power grids is either
under way or announced for the future.
9. Activity in the petroleum industry in 1970
confirmed China's independence in this strategic
branch of industry.. Production rose from an esti-
mated 14 million to 17-18 million tons. New fields
were opened, new wells sunk, and new processing
facilities placed in operation at every stage of
production. China continued to master a broader
range of intermediate and final products. Outside
of a few chemical additives, China is now able to
supply all the inputs to the petroleum industry
from its own resources. Further technological
advance, however, will continue to depend largely
on the acquisition of foreign equipment and
technology.
10. Imports of crude oil in 1970 were up to
500,000 tons, about 3% of total supply. These
small imports are attributable to special polit-
ical ties with suppliers, to the opportunity to
use foreign currency balances, and/or to the
desirability of obtaining special grades of crude
oil. China appears to have the future potential
to export growing amounts of crude oil to the
nearby Japanese market.
11. Over the broad sweep of the machinery in-
dustry, a similar pattern of expanded production
and improved technology prevailed in 1970. China
turned out larger amounts and a wider variety of
machine tools for industry, pumps and tractors for
- 6 -
Approved For Release 2005/068EP85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
agriculture, trucks for the construction sector,
electronics for defense, locomotives and cars for
the railroads, and ships for the merchant fleet.
Perhaps typical of the increases is the rise in
truck production from about 66,000 to 75,000 units,
with the heavier and more complicated models
accounting for a larger share of output than in
1969. The campaign for innovation and self-
sufficiency in the machinery industry greatly ex-
aggerated aspirations and achievements. In every
major branch of machinery -- machine tools, trans-
portation equipment, electronics, computers, and
so on -- the Chinese rely on foreign suppliers for
models which are larger, more complex, and more
up-to-date than those available from domestic
industry.
12. The production of military hardware ad-
vanced rapidly on all fronts in 1970 in concert
with the general iustrial expansion. Military
production, which lad declined sharply in 1967-68,
is now well beyond the pre-Cultural Revolution
levels. Jet aircraft, submarines and other naval
vessels, tanks, artillery, and small arms are
being produced in greater quantities and at a
higher technological level than ever before. Work
on the testing and development of missiles, which
apparently continued without interruption through-
out the Cultural Revolution, is being steadily
pressed. Large-scale production and widespread
deployment of missiles remain a matter for the
future.
13. In 1970, light industry continued to live
in a separate world from heavy and military indus-
try. The lower priority of light industry is
reflected in less construction, lower wages, and
little access to foreign equipment. Nonetheless,
light industry shared in the industrial advance
of 1970. Increased textile production was re-
flected in an appreciable increase in the cotton
cloth ration. China is starting to master syn-
thetic textiles, which should help alleviate the
clothing shortages in a few years. Much of the
rest of light industry, which is characterized by
local production, the use of simple equip::cnt, and
a large amount of female labor, benefited from the
general. restoration of regularized economic
planning, the orderly supply of raw materials, and
the emphasis on production.
Approved For Release 2005/06/29 : 6Q '00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
The Industrial Advance in Perspective
14. Taken by itself, the 15%-20% rise in indus-
trial output in 1970 over 1969 is impressive. Yet,
since production in 1969 was only at the 1966 level,
a comparison of 1970 with 1966 shows an average
annual rate of growth of 4%. In the preceding
period, 1957-66, industrial production grew at
about 6% on the average, so that in perspective
the industrial growth of the last few years is
low by Chinese standards as well as mediocre by
world standards. Furthermore, whereas Chinesey
industry realized considerable technological gains
in 1970, it remained well behind the modern indus-
trial nations in the design and technology of most
of its heavy industrial output and capital plant
and still further behind in light industry.
Agricultural Production at Record Level
15. The Chinese Communists claimed a record
grain harvest for 1970, both in total amount and
the yield per hectare. An analysis of weather
conditions, inputs to agriculture, and agricultural
policy supports the claim. A preliminary estimate
of grain production in 1970 is 215 million-220 mil-
lion tons, up 15 million tons from 1969 acid 5 m:1l-
lion tons above the bumper year of 1967. This
level of production permitted an increase in per
capita consumption of grain and some additions to
food stocks. Imports of grain, which are designed
to feed the large cities of the north and east and
thus reduce the internal strains of procurement,
amounted to the customary 5 million tons in 1970,
as follows:
Supplier
Million Tons
Canada
2.1
Australia
2.5
France
0.5
Total
5.1
Approved For Release 2005/06/AE ERE&85TOO875
 Approved For Release 2005/06/29 :riT00875R001600040021-4
16. Success in agriculture in 1970 came from
favorable weather, increased material inputs, and
a permissive governmental policy. As to weather,
the harvests were affected, as follows:
Early harvest
-Winter wheat -- mediocre
-Early rice -- excellent
-Late rice -- average
-Corn, millet, and miscel-
laneous grains -- good.
17. Inputs of chemical fertilizer rose from
9.9 million tons to 11.8 million tons, divided
between domestic production of 7.0 million tons
and imports of 4.8 million. The increase in the
nutrient equivalent was proportionately even higher.
Water control projects were highlighted by major
efforts in the Huai River Valley (between the
Yangtze Basin arid the North China Plain) and the
Hai River Valley (in the North China Plain) .
Industry continued to supply agriculture with
growing quantities of pumps, piping, tractors,
pesticides, and general tools and equipment. In
1970 the regime hammered on a campaign to encourage
production of fertilizer and equipment in local,
plants in order to reduce the calls on central
resources and simultaneously to build up the indus-
trial competence of outlying areas.
18. The government in 1970 continued its policy
of permitting private plots, private livestock,
private handicrafts, and private trade in the
countryside. The regime seems persuaded that
tampering with these institutions can reduce agri-
cultural output as has been the case in the past.
Moreover, the weakening of the Party and govern-
mental control structure as the result of the
Cultural Revolution has left the countryside in
a better bargaining position. Tolerance of private
activity by the regime seems a necessary price for
cooperation, especially if the rural area is to
- 9 -
Approved For Release 2005/06/29 ~~~ ST00875RO01600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
assume some of the costs of material inputs and
social services now supplied by the center.
Continuation of Population Pressures
19. Since the near-famine period of 1960-61,
China has had dine successive years of average
to excellent weather in agriculture. In recent
years, the food supply has kept up with population
growth and the quantity, quality, and availability
of nongrain foods seems to have been gradually
rising. Total per capita caloric intake is about
2,000 per day, the same as the middle and late
1950s.
20. In 1970 the food-population problem was
not at front stage in China, because of the record
agricultural harvest and, possibly, because of the
press of other political and economic problems.
The weakened administrative structure was in much
less advantageous a position to enforce a birth
control campaign of later marriages, fewer children,
and greater use of contraceptives. The existing
birth control program ran along in low key in 1970
and almost certainly continued to have no appre-
ciable effect on :?emorraphic rates. Nevertheless,
the changing economic: environment is exercising
important demographic pressures. The higher level
of education, the long-term trend toward urbaniza-
tion of extensive new areas of China, the growing
realization by villagers of the relation between
an expanding population and a fixed amount of
land -- those environmental factors conceivably
are already pushing down growth rates. On the
other hand, the sending of thousands of doctors
and nurses to the countryside and the training of
countless "barefoot doctors" -- young paramedicals
who can treat minor ailments and screen the more
serious ailments -- could lead to a reduction in
mortality rates in the early 1970s. If the cencus
figure of 583 million people in mid-1953 is accepted
as the base and if an average annual growth rate of
2.2% is postulated, the population of Communist
China at year-end 1970 was about 850 million people
and was growing by nearly 20 million persons each
year.
Approved For Release 2005~~2g` bjRDP85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
Transportation on the Upgrade
21. In 1970 the Chinese railroad system carried
the increased volume of industrial and agricultural
commodities with no appreciable strain. Since 1966,
considerable rolling stock has been added and new
construction has closed key gaps in the network
and has pushed lines into remote areas. The most
important railroad construction activity in 1970
was:
a. Completion of the 1,070-km line
between Ch'eng-tu and K'un-ming, linking
Szechwan and Yunnan Provinces.
b. Major construction on the 1,000-
km line between Lo-yang and Lou-ti, which
will provide a third north-south trunk-
line in the interior.
c. Major construction on the 1,200-
km east-west line between Wu-han and
Chung-ch'ing, the first rail line to
unite Szechwan Province directly with
the east.
22. In 1970 the Chinese continued the expan-
sion and improvement of the road network, partic-
ularly in Sinkiang and Tibet and in the northeast
border areas. The steady improvement of inland
waterways continued. A great deal of publicity
was given to the necessity of coordinating the
various forms of transportation in order to speed
transloading and forwarding. Presumably some of
the large potential savings to be found in this
area were realized in 1970 in the general atmos-
phere of speeding up economic activity; China's
abundant resources of labor make this a feasible
policy.
Domestic and Foreign Trade
23. The strong rise in domestic trade in 1970
was a reflection of the general advance in indus-
trial and agricultural production. In addition
to improvements in the diet and the supply of
textiles, "daily use" items, such as kitchen
utensils, household goods, and medicines, were
- 11 -
Approved For Release 2005/06/29 :S1X T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
more plentiful as were baseline consumer durables,
such as bicycles, radios, wristwatches, and sewing
machines. Official reports from various urban
areas and counties tell of increases of 20%-30%
in domestic trade. Even though these claims are
inflated, the economy can be credited with an
appreciable increase in domestic trade in 1970.
24. Foreign trade rose by 10% in 1970 to a
total volume of $4.25 billion. Whereas industrial
production had recovered its 1966 level in 196.9,
foreign trade recovered only in 1970, as shown by
the following tabulation on exports and imports:
Billion US $
1966
1967
1968
1969
1970
Exports
2.17
1.92
1.89
2.02
2.15
Imports
2.03
1.94
1.82
1.84
2 10
Total
4.20
3.86
3.71
3.86
.. 25
25. The most striking feature of China's
foreign trade in 1970 was the sharp increase in
trade with its number one trading partner, Japan --
from a volume of $654 million in 1969 to $840 mil-
lion in 1970. This increase was concentrated on
the import side, imports from Japan climbing from
$415 million to $605 million while exports were
holding even at about $240 million. Imports from
Japan in 1970 were divided as follows:
Million
US $
Chemicals (mainly ferti-
lizer)
Manufactures (featuring
steel products)
Machinery and transport
equipment
Crude materials and
miscellaneous
20
605
Approved For Release 2005/06/gEQ}P85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
26. The increas?9 in trade with Japan illustrates
the dominant characteristic of China's foreign
trade -- that is, the fundamental dependence on
Japan and Western Europe for modern plant and
equipment, advanced industrial products (such as
alloy steels), and industrial technology. If the
current regularization of economic planning and
administration continues into the new plan period,
China may take further advantage of Free World
expertise by increasing the number of foreign
technicians admitted to China. Japan, because of
geographical and cultural propinquity, would appear
to have the advantage over Western Europe in this
respect. Sino-Soviet trade, which once aggregated
$2 billion, was well under $100 million in both
1969 and 1970. China's imports from the Communist
world consist largely of ordinary industrial
materials, equipment, and spare parts. Thus
China now depends very little on other Communist
countries for support in economic modernization.
27. A second main feature of China's foreign
trade is the annual import of about 5 million tons
of Free World grain, starting in 1961. As noted
earlier in this memorandum, this feature continued
in 1970. A third feature of China's trade is the
earning of Free World foreign exchange through the
provisioning of Hong Kong and the use of Hong Kong
as an entrepot. Hong Kong trade earnings, in-
cluding entrepot trade, remained at about the
$450 million level in 1970.
New Guidance for Education
28. China's colleges and universities, which
had been shut down from mid-1966 to mid-1970,
began to gradually re-open in the fall of 1970
under revolutionary management. The college
course is to be shortened to two or three years,
with only a handful of students to go further.
Emphasis continues on mathematics, science, and
engineering interspersed with generous doses of
"Mao thought". Work experience is to be dove-
tailed with study, and factories and research
institutes are to be attached to universities to
give students practical training. The rehabilitated
faculty is to drop its academic airs and face up to
the revolutionary requirements of political struggle
and manual labor. And students with work experience
Approved For Release 2005/06/29 : S;J 100875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
and proper class background are to get precedence
in admission over students of academic and bourgeois
origin.
29. The hiatus in education during the Cultural
Revolution appears to have had no adverse economic
effects in the short run. China already had two
million people with some form of higher level edu-
cation and many of these were not being employed
in jobs suitable to their education. Training and
apprenticeship seem to have continued for the
several hundred bright younger men who must ulti-
mately replace the aging group of top-level scien-
tists and administrators.
30. It is unlikely that the long-run impact
on production of the disruption of education can
ever be clearly distinguished, let alone quantified.
If the Maoist educational reforms do take hold,
the overall results will not necessarily be had
for economic development. Several of the reforms --
such as the insistence on practical classroom ex-
amples and on stints in factories and communes --
could be beneficial to economic discipline and
productive efficiency. The reduction of the
length of formal instruction for physicians, en-
gineers, and other professionals is paralleled by
a similar trend in the United States today. The
ancient tradition of Chinese education -- that the
scholar's hand is never toughened by manual labor --
is incompatible with the regime's insistence on
"revolutionary consciousness" and its strategy for
economic development. The persistence of this
tradition is in large measure responsible for the
widespread disillusion among China's educated youth
whose schooling prepared them for academic or white-
collar careers.
Economic Planning Back in Fashion
31. The winding down of the Cultural Revolution
in 1969 permitted the resumption of regularized
economic planning in 1970. Indirect evidence of
the resumption of planning included the return to
more orderly international trading relationships
and the appearance of more economic directives
and economic claims in the government press.
Direct evidence was the announcement by Chou En-
lai -- in connection with National Day last
Approved For Release 2005/06&E~iJ 3P85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
October -- that a new Fourth Five-Year Plan was to
cover the years 1971 to 1975; Chou exhorted the
Chinese people to make the last year of the old
plan (1966-70) a strong foundation for the launch-
ing of the new plan.
32. In the same anniversary address, Chou noted
that a National People's Congress would be held in
the near future. This Congress would be the normal
forum for the presentation and acceptance of the
new five-year plan. The economics of the plan
seem simple enough -- continuation of the expansion
of output and capacity of the economy in an atmos-
phere of hard work, ambitious economic goals, and
the priority of defense industries. The politics
of the plan, however, seem to be among the factors
delaying the holding of the Congress. Political
infighting continues in China and a final balance
has not been struck between moderates and radicals,
civilians and military, and centrists and provin-
cials. Time is on the side of the economic bureau-
crats, yet many short-run issues still must be
resolved:
-- whether the current permissive
policy toward private activity
in agriculture should be con-
tinued, leaned against, or
disowned.
-- whether the buildup in industrial
output and capacity should pro-
ceed under moderate pressure or
under a full "leap forward" head
of steam.
-- whether material incentives to
urban workers should be given
greater or lesser play.
-- whether the large-scale manufac-
ture and widespread deployment
of missiles and other advanced
weapons systems should be pushed
in the next five years even if
it requires a screwing down of
living standards.
Approved For Release 2005/06/29: 1M4P00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SECRET
Three Shadows
33. This memorandum presents a generally favor-
able appraisal of Communist China's economic posi-
tion at year-end 1970 and its prospects for con-
tinued expansion in 1971-75. The optimistic tone
must be qualified, however, in three major respects.
First, in spite of some striking industrial and
technological advances, China may be falling
further behind the modern industrial nations.
Averare industrial growth has been at an unspectac-
ular rate of 4% in the last few years, and the
industrial base is still small for a nation of
850 million people. The concentration of China's
scarce scientific resources on nuclear/missile
projects and the interruption of education during
the Cultural Revolution are among the factors that
hamper China in the worldwide technological race.
34. Second, the Chinese have benefited from a
string of nine straight years of average to excel-
lent weather in agriculture. Two or three consecu-
tive years of unfavorable weather could eliminate
China's narrow margin for economic growth; this
is especially true since the regime probably will
not undertake any birth control program that could
stem the tide of population growth in the next
five years.
35. Finally, any return to radical economic
policies by the leadership could revive the
economic stresses experienced during the Leap
Forward and the Cultural Revolution an. could
lead to further loss of ground in the struggle
to modernize the Chinese economy in a rapidly
changing international environment.
Approved For Release 2005/06/:&ECI-IRQP85T00875R001600040021-4
 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
SEC EI'
Conclusions
36. Communist China achieved record levels of
industrial and agricultural production in 1970.
The rise in industrial output of 15%-20%, while
impressive in comparison with 1969, represents
only a 4% annual average rate of growth in rela-
tion to 1966. Production of military items ad-
vanced across the board in 1970. Agricultural
production benefited from generally favorable
weather and from record inputs of chemical ferti-
lizer. The transportation system in 1970 was able
to handle the increased volume of agricultural and
industrial goods without appreciable strain.
37. A sharp jump in imports from Japan fea-
tured China's foreign trade in 1970. The total
volume of trade returned to the 1966 level, having
dropped 10% during the Cultural Revolution.
Eighty percent of China's trade continued to be
with the Free World. This trade enables China to
acquire modern equipment, materials, and technology
from Japan and Western Europe.
38. The resumption of regularized economic
planning was an important development of 1970.
Chou En-lai announced a Fourth Five-Year Economic
Plan for 1971-75, and managers and workers felt
the pressure to make 1970 a good base year from
which to launch the new plan.
39. Prospects of continued economic expansion
under the new plan are good. Construction of new
civilian and military production facilities con-
tinued during the Cultural Revolution at a sur-
prising pace, and much new capacity is presently
coming on stream. An expansion is likely in the
flow of Free World equipment and technology, and
the regime may be more amenable to the presence
of Free World technicians within China. Of course,
two or three years of unfavorable weather in agri-
culture or a return to radical economic policies
could rapidly jeopardize these prospects. And,
although China is currently making progress, it
may be falling even further behind in the world-
wide technological race.
- 17 -
Approved For Release 2005/06/29: 1K.WT00875R001600040021-4
 25X1 Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4
Next 1 Page(s) In Document Exempt
Approved For Release 2005/06/29 : CIA-RDP85T00875R001600040021-4