CHINA: THE CONTINUING SEARCH FOR A MODERNIZATION STRATEGY

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• Collection: General CIA Records
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• Document Creation Date: December 12, 2016
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• Publication Date: April 1, 1980
• Content Type: RP

Approved F4 ekMW12/05 : CIA-RDP86B00985R000300050011-3
A ssessmen
China: The Continuing Search
for a Modernization Strategy
Approved For Release 2001/12/05: CIA-RDP86B00985R000300050011-3 ER 80-10248
April 1980
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 Assessment
Center
China: The Continuing Search
for a Modernization Strategy
Research for this report was completed
on 15 February 1980.
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Approved For Release 2001/12/05: CIA-RDP86B00985R000300050011-3
ER 80-10248
April1980
 China: The Continuing Search
for a Modernization Strategy
Summary For the past two years the fundamental problem for policymakers of the
People's Republic of China has been deciding upon the means for
transforming the world's largest underdeveloped country into a modern,
industrialized state. Freed of the dominating influence of Mao Zedong in
1976, the PRC leadership's first attempt at solutions was embodied in the
10-year draft plan (1976-85), unveiled in February 1978. The plan was
intended to lay the groundwork for eventually bringing about the "four
modernizations"-of agriculture, industry, national defense, and science
and technology.
Although the new plan gave more prominence to developing agriculture
than in the past, the plan's central focus on heavy industrial growth
constituted a continuation of Chinese policies of the previous two decades.
The most innovative element in the plan was China's unprecedented
willingness to use massive imports of Western equipment and technology in
the development effort.
Between the announcement of the new plan in February and the watershed
Third Plenum of the Chinese Communist Party in December 1978, the CCP
leadership came to a new and sobering appraisal of the size and nature of the
gap between China's existing capabilities and its ambitions. During 1978,
surveys of PRC natural resources, construction programs, and trained
manpower-together with investigations of how Chinese production proc-
esses and institutions had functioned over the past decade-began to give
the leadership a much better appreciation of China's weaknesses. On the
international side, the knowledge garnered from the surge in delegations
sent abroad and from foreign visitors to China made the government more
aware of the costs and problems involved in exploiting foreign resources.
By the time of the Plenum the central leadership had also concluded that
large segments of the Chinese Communist Party were not oriented toward
the goals of modernization and could not be depended upon to be fully
responsive to orders from the central authority. At the same time, the regime
also concluded that other important institutional changes were necessary-
in legal systems, in educational and cultural policy, and in attitudes toward
population control-for economic modernization to proceed.
At and after the Third Plenum the leadership shelved the 10-year plan and
embarked on a three-year (1979-81) readjustment program. The underlying
theme of Chinese domestic policy since then has been that economic
productivity, consumer welfare, and political stability are interrelated. The
 many changes in economic policy since the Plenum increasing the
material incentives for production and hence the incomes of workers and
peasants, installing new systems of rewards and penalties for individual
managers and economic entities, and experimenting with new and more
efficient forms of industrial organization-are all aimed at productivity
increases.
In effect, the regime is making an unprecedented appeal to the self-interest
of the Chinese population. Incomes are beginning to rise, most notably in
agriculture, but also in industry, and the leadership has already begun to
grapple with the problem of managing and meeting consumer demand for
more and better quality goods and services. The growth of consumer
expectations is now a major problem for the government and will remain so
for years to come.
Political stability enters into the relationship between consumer welfare and
productivity because the leadership believes that its grasp on power and the
permanence of its policies pivots on demonstrating the benefits of the new
policies for most of the Chinese population. In the absence of improvements
in consumer welfare, productivity will remain low and the potential for
political disruption, as well as the leadership's vulnerability to challenges
from within the party, will increase.
Resource allocation policies were also shifted at and after the Third Plenum
by the leadership to support the new policy course. Investment in heavy
industry, particularly iron and steel, was cut back while the allocations to
agriculture, light industry, and the building materials industry were
increased. While maintaining its interest in acquiring foreign equipment
and technology and continuing to solicit and to receive long-term credits to
pay for it, the leadership suspended or postponed a number of planned
purchases from abroad. The domestic construction program was also cut
back, eliminating poorly planned projects and those requiring long lead-
times. The new priorities focus on easing longstanding constraints on
industrial production-electric power, coal and building materials, and
transportation.
The leadership will not be able to complete this "readjustment" within the
planned three-year period and has already indicated that the process will
take more time. First, the new policy course still has not been completely
accepted within the party, in part because the changes are such radical
departures from the policies of the Maoist era and in part because of
bureaucratic resistance to changes of any kind, Since May 1979 a campaign
has been under way to defend the policies of the Third Plenum and to screen
out party members unwilling to adapt to the new tasks of modernization.
Second, although the new incentives policies have given new impetus to
 production in agriculture, the changes in industrial incentives and organiza-
tional policies are being implemented only slowly and have not so far
stimulated industrial output. Third, new construction in the bottleneck areas
of Chinese industry will take three to five years to complete; hence the
present constraints in the energy, raw material, and transportation sectors
probably will not begin to loosen until some time beyond 1981.
Over the next few years, we expect the growth of gross national product to
fall off from the average 6-percent rate of the past two decades to around
5 percent. Moreover, the sources of growth will also change, with industrial
growth slowing, perhaps to around 6 to 7 percent per year, and agricultural
growth picking up significantly to something on the order of 4 to 5 percent
per year. While foreign equipment and technology will continue to flow into
the PRC at higher rates than in the past, deepseated problems in absorbing
these imports will be overcome only gradually. With the exception of
imported fertilizer plants, foreign technology is unlikely to have much of an
impact on production during this period.
The experiences of the past two years have made the Chinese leadership
circumspect in discussing possible development strategies for the 1980s and
1990s. It cannot make systematic, long-term plans for the economy until the
results of the current period of readjustment begin to come in. The sparse
information received thus far on Chinese thinking about the next two
decades suggests, however, that agricultural development will continue to be
viewed as the fundamental basis for economic modernization and the point
of departure for pursuit of import substitution policies. These policies would
gradually decrease the present PRC dependence on imports for food, fibers,
and industrial materials and eventually lead to greater use of export
earnings for purchases of high technology processes and equipment. This
strategy seems aimed at initially heavy exploitation and then eventual
diminution of PRC economic linkages to the developed world to create the
conditions for domestically driven, "self-reliant" economic growth.
In any case, two major variables affect economic as well as all other plans for
long-term modernization: The first is whether the present leadership can
consolidate its hold on power and implement its current and contemplated
economic policies. Success in this endeavor is by no means assured and is
further complicated by the likelihood that many in the leadership will pass
from the scene during the next five to 10 years. The second is whether the
policy of placing a low priority on Chinese military modernization by linking
it to the eventual development of a modern industrial base can be continued.
A serious deterioration in relations with the Soviet Union or Vietnam could
lead to increased allocations of resources to the military at the expense of
economic development.
 The Transient 10-Year Plan
The Great Leap Outward 3
The CCP Change in Course--The Third Plenum, December 1978 5
The Party and the Maoist Legacy
The Rule of Law
Educational Policy
 China: The Continuing Search
for a Modernization Strategy
The Challenge of Modernization
Historical factors and others of more recent origin are
driving the Chinese leadership in its effort to modern-
ize the PRC. The present leadership's perception of the
weakness of China relative to the great powers, the
USSR, Japan, and the United States, was also shared
by their predecessors, going back to the last century.
Similarly, China's present leaders share their prede-
cessors' fundamental conviction that China rightfully
belongs in the front rank of the world powers. The
Chinese Communist achievement has been the unifica-
tion of the state and the mobilization of its potentially
rich human and material resources to a point where the
PRC is now accepted as a major participant in the
international arena and is now less vulnerable to
pressures from outside powers than it has been since
the mid-1800s.
Nevertheless, China remains a huge underdeveloped
country with an economy that has grown at a
respectable rate of about 6 percent (about the same as
the average growth rate of all non-Communist less
developed countries since 1961). With a population of
I billion per capita GNP works out to around $400 per
year (see the table). In recent years the Chinese
leaders, like leaders in a number of other LDCs, have
grappled with slow rates of increase in agricultural
production that only narrowly exceed the 2-percent
annual rate of growth of population and has periodi-
cally been forced to import grain from abroad for
maintenance of consumption levels. As with other
LDCs, China's industry provides only limited opportu-
nities for expanded employment and embodies levels of
technology that with few exceptions range from 10 to
30 years behind those of industry in the developed
countries. Inadequately developed systems of transpor-
tation, distribution, and fuel and power supply also
cause sporadic fluctuations in industrial output.'
Several factors separate the PRC from the rest of the
less developed world. First, China has a modest but
credible nuclear force and maintains a 4 million man
' Detailed appraisals of these and other aspects of the economic
situation in the PRC arc contained in "The Chinese Economy Post-
Mao," Joint Economic Committee of the US Congress, November
1978.
1952
1957
1965
1970
1975
1976
1977
1978
1979
GNP (billion 1978 US $)
99
138
185
263
368
368
398
444
468
Population (million persons, 1 July)
570
640
753
848
952
971
987
1,002
1,018
Per capita GNP (1978 US $)
174
216
246
310
387
379
403
439
460
Agricultural production index (1957= 100)
84
100
101
126
148
148
144
156
160
Total grain (million metric tons)
161
191
194
243
284
285
283
305
315
Cotton (million metric tons)
1.3
1.6
1.6
2.0
2.4
2.3
2.0
2.2
2.2
Industrial production index (1957=100)
48
100
199
316
502
502
574
651
703
Crude steel (million metric tons)
1.3
5.4
12.2
17.8
24.0
20.5
23.7
31.8
34.0
Crude oil (million b/d)
0.01
0.03
0.23
0.60
Coal (million metric tons)
66.5
130.7
232.2
327.4
Foreign trade
Exports, f.o.b. (billion current US $)
0.9
1.6
2.0
2.2
Imports, c.i.f. (billion current US $)
1.0
1.4
1.8
2.2
 conventional armed force that dwarfs those of other
LDCs. While China's capabilities for defending its
territory against conventional attack seem strong, like
other LDCs it has only limited capabilities for using its
forces far beyond its borders. Second, although it
shares many of the problems faced by other predomi-
nantly agricultural LDCs, China has a better cushion
against wide swings in total crop output (as India, for
example, does not), since it grows a large number of
diverse crops under a variety of differing weather
regimens. Yields per hectare for most Chinese crops,
while higher than those in many LDCs, also have some
distance to go before diminishing returns set in. Third,
China's energy and mineral resource endowment
compares favorably with those of the United States
and the USSR; but except for oil the PRC's exploita-
tion of these resources has been slow and difficult.
Fourth, since breaking its close relationship with the
Soviet Union in 1960, China has only recently begun to
develop the linkages with the world economy that
prevail in most LDCs. This has clearly lessened its
vulnerability to foreign economic pressures, kept levels
of foreign debt low, and insulated China from the
effects of adverse developments in the world economy.
Nevertheless, it has also severely limited the PRC's
access to the financial and technological resources of
the developed world.
The PRC appears also to have distributed the sparse
fruits of economic growth more evenly among its huge
population than is the case in almost every other LDC.
This has been accomplished through rationing and
other administrative policies and by promoting a
national ethos that deemphasizes material rewards as
incentives to production. Although this more equitable
pattern of income distribution contrasts strongly with
conditions in other LDCs, that accomplishment has
entailed a substantial if unquantifiable cost. The more
rapid growth and industrial development that marks
such LDCs as South Korea and Taiwan is in part the
result of government policies of emphasizing material
incentives to production despite the consequent widen-
ing of income differentials. Finally, for the past two
decades the PRC has experienced political upheavals
that have brought economic progress to a halt, crippled
the institutions of government-including the ruling
Chinese Communist Party-and led sizable segments
of lower level party and government cadre to avoid,
responsibility and initiative in their work for fear of
political reprisal.
Thus the problem of China's economic, military, and
political backwardness has been only partially amelio-
rated over the past three decades. The current leader-
ship is nominally headed by Hua Guofeng but has been
goaded into seeking new ways of grappling with the
problem by Deng Xiaoping. The leaders appear
convinced that this backwardness must be rectified if
the PRC is to project more forcefully the preeminent
role in Asian and world affairs that they perceive to be
its right. This perception of weakness has been
reinforced by their observation of the rapid rate and
increasing complexity of technological change and its
impact on both defense establishments and conditions
of life in most countries of the world. Further, many of
the leaders now appear to have concluded that the
political institutions and modes of governing that have
evolved in the PRC since the late 1950s have con-
strained growth and are at least partially responsible
for the widening of the gap between Chinese economic
and technological levels and those of the developed
world. The system of government in China from 1949
to 1976 was deeply influenced by the visionary and
sometimes capricious decisions of one man, Mao
Zedong. Both outside observers and, latterly, many of
the current leadership cite Mao's dominance of policy
as the major factor responsible for the political
instability and the poor performance of the economy
after the Leap Forward of 1958, and during the
Cultural Revolution of 1966-71 and the succession
struggles of 1974-76.
The attempt to change the PRC's status from that of
an LDC to a front-rank developed state is described as
the program of achieving the "four modernizations"-
of Chinese agriculture, industry, national defense, and
science and technology-by the end of this century. To
accomplish this, however, it will also be necessary to
achieve what might be called a "fifth modernization."
That is, installing a new political and social order that
will facilitate rather than constrain the leadership's
attempt to overcome the many obstacles that lie ahead.
 The Modernization Effort
All Chinese discussion of the "four modernizations"
since the idea was first broached by Zhou Enlai in
1975 have viewed the process as a multistaged effort to
achieve the status of a "front rank" economic power by
the year 2000. To date this general goal has not been
more precisely defined and the leadership has been
circumspect about announcing specific goals for what
they call the "New Long March." Announced long-
term goals have been few in number and subsequently
revised downward or abandoned. Ongoing discussion
of planning priorities and the clearly evolutionary
nature of current policies suggest that the process of
determining the ends and means of China's moderniza-
tion will remain a practical matter involving much trial
and error.
The Transient 10-Year Plan. Most of the known long-
term economic goals were made public when the draft
outline of the 10-year plan (1976-85) was discussed by
Chairman Hua Guofeng at the Fifth National People's
Congress in February 1978. Grain production was
targeted to reach 400 million tons by 1985, implying
an expected annual rate of growth of 4.3 percent-well
above the 3.2-percent average of 1965-77. The value of
total agricultural output was projected to rise at an
annual rate of 4 to 5 percent, or I to 2 percent above
the rate prevailing between 1965 and 1977. Industrial
production was planned to rise at more than 10 percent
annually, also above the 9 percent average annual
growth of the past decade. Steel production was slated
to nearly double from the 32 million tons produced in
1978 to 60 million tons in 1985. Two goals revealed in
other discussions during 1978 were that coal produc-
tion by 1987 (rather than 1985) would double to more
than I billion tons and that light industrial production
between 1978 and 1985 would grow at a 12-percent
annual rate-sizably faster than the 7 to 8 percent rate
of growth of consumer goods over the previous two
decades.
To attain these ambitious levels of production, Hua
Guofeng noted that agricultural investment would be
stepped up and that "basic" mechanization of agricul-
ture would be achieved by 1980 in order to break the
sector out of its past pattern of slow growth and to
provide impetus for overall economic development. In
addition, Hua sketched out an investment program for
industry and transportation asserting that during the
next eight years "the state plans to build or complete
120 large-scale projects, including 10 iron and steel
complexes, nine nonferrous metals complexes, eight
coal mines, 10 oil and gas fields, 30 power stations, six
new trunk railways, and five key harbors." The
magnitude of the proposed effort to invest in new
capacity was underlined by Hun's statement that the
capital construction effort as a whole in 1978-85, in
terms of funds budgeted, would equal the total for the
previous 28 years r
The Great Leap Outward. The key clement that set this
program of economic modernization apart from such
earlier Chinese pushes for economic growth as the
First Five-Year Plan (1953-57) and the Great Leap
Forward of 1958 was the major role assigned to
massive imports of Western equipment, complete
plants, and technology. Although official pronounce-
ments in favor of expanding foreign trade and making
greater use of foreign technology to speed moderniza-
tion began soon after the fall of the Gang of Four in
1976, during 1978 not only foreign trade and commer-
cial policies but the whole spectrum of PRC attitudes
toward the outside world shifted into more open and
liberal lines.
In February 1.978 an eight-year long-term trade
agreement was signed with Japan calling for an
exchange of $10 billion worth of Chinese oil and coal
for an equal amount of Japanese plant and equipment.
Later in the year Beijing and Tokyo agreed to extend
the agreement for an additional five years. At midyear
a trade agreement was signed with the European
Community setting up a framework for expanded
trade and by yearend several technical cooperation
agreements had been signed with foreign countries and
organizations. PRC investigation of the systems of
industrial and business management used in the non-
Communist developed states as well as in Romania,
Hungary, and Yugoslavia intensified. Beijing also
began sending the first of what were expected to be
large numbers of Chinese students abroad to study
' An overall appraisal of the program is contained in CIA ER 78-
10680, China: In Pursuit of Economic Modernization, December
1978, Unclassified. Detailed analysis of PRC prospects in coal and
iron and steel are contained in CIA ER 79-10092, Chinese Coal
Industry: Prospects Over the Next Decade, February 1979, Unclas-
sified, and CIA ER 79-10245, China: The Iron and Steel Industry in
the 1970s and 1980s, May 1979, Unclassified.
 science and technology and opened China up to foreign
scholars, students, and tourists as well as foreign
technicians and businessmen. Domestically, the PRC
reinstated the study of foreign languages, primarily
English and Japanese, both in the slowly reviving
formal education system and in part-time programs in
factories and in urban areas.
Most attention focused, however, on the PRC import
program. During 1978 the number of Chinese delega-
tions going abroad and foreign businessmen coming in
surged as Beijing stepped up its search for industrial
technology and equipment from Japan, Western
Europe, and the United States. By the end of the year
the PRC had been involved in negotiations for about
$40 billion in complete industrial plants, modern
equipment, and related technology, and had signed
contracts amounting to $7 billion.
I n mid-1978 still more projects were added to the PRC
construction program. These indications that the
timetable for modernization had been accelerated plus
the high level of PRC negotiating and fact-finding
activity abroad fueled speculation that the import
program was carefully worked out and would involve
hundreds of billions of dollars in capital equipment and
technical services. On the other hand, Li Xiannian was
reported in the fall of 1978 as observing that a two-
year period would be necessary before PRC economic
construction programs could get off the ground. At the
same time, a number of foreign visitors noted that the
Chinese were unwilling to discuss the specifics of the
import program.
Uncertainty and an openness to change also marked
other aspects of PRC foreign trade and financing
policies throughout 1978. By midyear the regime had
announced that it would accept such unprecedented
arrangements: (a) long-term credits and the financing
of capital imports through foreign bank deposits with
the Bank of China; (b) barter and compensation deals
for plant purchases; (c) the importing of materials to
reprocess for export; (d) designation of certain fac-
tories to produce goods for specific foreign markets;
and (e) fuller compliance with international standards
on patents, trademarks, and copyrights. At the same
time Chinese officials had also maintained that direct
government-to-government loans, joint ventures with
foreign firms, and private foreign investment were
unacceptable. By yearend, however, the PRC had
dropped these strictures and all three measures were
under consideration.
In summary, the only new element in the draft 10-
Year Plan was the unprecedented readiness of the
PRC to develop closer linkages with the developed
world. While agricultural development received more
prominence than in the past, the plan retained the
PRC's traditional emphasis upon rapid heavy indus-
trial development. In focusing popular attention on this
new and optimistic plan for the future, the leadership
also appeared to be attempting to get the population
"on board" and looking forward-rather than dwelling
on the economic problems and political disruptions
that had occurred since 1967. In any event, it is clear
that the obstacles to carrying out the plan posed by
China's economic problems were not completely un-
derstood by the leadership until after the plan was
announced.
Between the February 1978 announcement of the
10-Year Plan and the watershed Third Plenum of the
CCP in December 1978 the Chinese leadership came
to a new and sobering appraisal of the size and nature
of the gap between China's existent capabilities and its
ambitions. During 1978, surveys of the PRC's natural
resources, construction programs, and trained man-
power as well as investigations of how Chinese
production processes and institutions had functioned
over the past decade had begun to give the leadership a
much better appreciation of China's weaknesses than
was the case earlier in the year. On the foreign side, the
knowledge garnered by delegations sent abroad and
from foreigners visiting the country made the govern-
ment more cognizant of the costs and problems
involved in exploiting foreign resources.
Economic performance during 1978 was also not
reassuring to the leadership in its attempt to modern-
ize. On one hand, the leadership could derive satisfac-
tion from the recovery of agricultural production in
1978-up 8 percent after three years of no increases.
On the other hand, Chinese industrial production,
which had begun to level off during the last three
quarters of the year, was disappointing and appears to
have been a major factor behind the new industrial
policies brought forward in December. By the time of
 the Plenum the central leadership had also concluded
that the Chinese Communist Party apparatus itself
was deeply resistant to the kind of changes required for
modernization. Policies adopted at and after the Third
Plenum strongly suggested that some of the higher
level party leaders and much of the CCP rank and file
were insufficiently responsive to directives from the
center and remained unwilling to depart from the
policies and practices of the past.
All of these problems were examined in depth at
several lengthy conferences on economic and
political problems held between mid-September and
15 December when the Plenum was formally
convened.
The CCP Change in Course-the Third Plenum,
December 1978. At the Third Plenum the CCP
formally announced that the emphasis on political
struggle of past decades had ended and that the
general tasks of the party now would focus on "socialist
modernization." The new focus, however, was not on
pushing for ambitious, long-term goals but rather on
remedying the conditions that constrained rapid eco-
nomic development. Thus the draft 10-Year Plan,
announced 10 months earlier, was not mentioned in the
materials of the Plenum. Rather the Plenum focused
on the national economic plans (ji-hua) for 1979 and
1980. These annual plans were described as parts of
three-year (1978-80) and eight-year (1978-85) pro-
grams (gui-hua) for the "development of the national
economy" as well as part of a 23-year (1978-2000)
outline (she-xiang) for the Four Modernizations. The
semantic distinctions between plans, programs, and
outlines reflected the varying degree of firmness with
which the leadership had come to view its prospects
and goals over time.
With the shelving of the 10-Year Plan at the
December Plenum, the PRC leadership became much
more concerned with the solution of short-term prob-
lems and the establishment of a firm foundation for
modernization than with the attainment of long-term
production goals. Thus the three-year period 1979-81
was to be a time of readjustment and preparation. In
January 1979 Japanese newspapermen asked Hu
Qiaomu, a senior theoretician and close associate of
Deng Xiaoping, if concrete plans for modernization
had been worked out. Hu replied that they had "no
particular blueprint ... the goal we have set is to move
forward step by step and continually gain experience."
December 1978 constitutes a watershed in PRC
history because of the large number of new policies and
changes in old policies initiated at the Third Plenum.
Changes in planning priorities were one of the more
important results of the Plenum. The conferences of
fall 1978, held to draw up economic planning proposals
for consideration by the Plenum, apparently had
recommended a shift of resources away from heavy
industry and toward light industry and agriculture as
well as a cut in the number of industrial capital
construction projects. The Plenum accepted the pro-
posal on raising the priority of agriculture and light
industry; the proposed cutback in industrial projects
apparently was not acted upon until two months later.
On 24 February an authoritative People's Daily
editorial suggested that investment in the steel indus-
try should be reduced in the interest of more balanced
development of other sectors, notably agriculture and
light industry. This was followed in early March by
Li Xiannian's admission that he and others in the
leadership might have been "overhasty" and that some
of the targets for 1985, steel in particular, were too
high and ought to be scaled back.
By the end of March, the proceedings of national
capital construction and chemical industry conferences
revealed that construction plans were to be "adjusted"
through halting and postponing industrial projects. On
24 March People's Daily, paraphrasing Lenin that
"we go one step backward to go two steps forward
later," admitted that construction plans had been too
ambitious and that the process of deciding upon which
projects would be stopped or postponed was under way.
The decisions arrived at are still not entirely known
and their impact has yet to be fully felt, mainly
because both a number of central government minis-
tries and provincial authorities continue to circumvent
the cutback policies. In general, it appears that the
steel, machine building, and chemical industries were
to be most affected and that projects in the coal,
electric power, petroleum, transportation, and building
materials sectors were to be less affected. Agriculture
and light industry and those projects which could be
brought into production within a short time were to be
developed rapidly. Housing, public utilities, scientific
 research, education, and health were also slated to
receive additional attention. Beijing's explanation of
the need for the cutback focused on such factors as
insufficient supplies of power, construction materials,
and skilled manpower and the initiation of construc-
tion projects without paying sufficient attention either
to where raw materials for the new plants would come
from or to how their output would be used. People's
Daily summed up the influence of these factors by
noting that since the early 1960s the value of com-
pleted capacity additions as a proportion of investment
outlays had steadily fallen.
The mid-February suspension of over $2 billion in
contracts with Japan, coming at a time when the PRC
was cutting back on construction plans, raised the
possibility that the leadership was pulling back from
China's new policy of developing increased linkages
with the developed states. However, contracts with
non-Japanese suppliers were not affected and the
suspension was mainly attributable to such factors as
PRC miscalculation of payment requirements, a con-
sequent temporary shortage of foreign exchange, and
Japanese reluctance to provide more favorable credit
terms. The PRC subsequently lifted the suspension in
May 1979; the net effect apparently was to further
delay the timetable for the huge Baoshan iron and steel
complex.
The shift in policy course at the Third Plenum and the
subsequent flux that has marked Chinese moderniza-
tion policies primarily reflected the leadership's realis-
tic appraisal of the dimensions of China's economic
problems. Nevertheless, Deng and the leaders associ-
ated with him also appear persuaded that the perma-
nence of both their hold on political power and their
policies for modernization had become contingent
upon accomplishing two tasks. The first was neutraliz-
ing those within the CCP who would slow the pace of
change and, second, rapidly demonstrating that their
programs were in the best interest of most of the
Chinese population. Thus, the present thrust of PRC:
policy for the short term, that is, the next two or three
years, is fairly clear; that for the years beyond is much
less so.
Short-term Policy
The fundamental premise of PRC economic policy
since the Third CCP Plenum of December 1978 has
been that consumer welfare, economic productivity,
and political stability are indivisible. The premise was
elaborated in detail at the Fifth National Peoples
Congress (June 1979) and the leadership's strong
commitment to it was evident during the Fourth
Plenum of the CCP (September 1979) as well as in
Vice Chairman Ye Jianying's 1 October speech
commemorating the 30th anniversary of the founding
of the PRC. Throughout this period additional empha-
sis has been given to raising personal income and
consumption in rural and urban areas from the
stationary per capita levels of the past decade and to
providing the goods necessary to meet the new demand
that will be generated by increased incomes. Thus
production in the agricultural and light industrial
sectors has been further stimulated both to provide
increased goods for domestic consumption and for
exports. (Agriculture and light industry account for
almost two-thirds of PRC export earnings.) Since
December the already high priority of agriculture in
investment allocations has been further raised. New
investment including imports of foreign technology,
has also been planned for light industry which until
December 1978 has been expected to expand produc-
tion with little new investment. Striking changes in
PRC policies concerning the incentives to produce, the
systems of managing production and political activity
in the economy have also occurred.
In agriculture, for example, prices now paid by the
state for farm produce have been raised and the
quantities procured by the state on compulsory terms
are to remain constant for five years. Prices paid by the
peasant for such industrial inputs as fertilizer, pesti-
cides, and farm machinery are also being lowered.
Taxes on the income from rural industrial and
commercial undertakings have been cut while the tax
exempt periods for newly established rural enterprises
have been lengthened. Production teams in low-
yielding and grain deficient areas are to be exempted
from agricultural taxes altogether. The primacy of
production teams as the locus of economic decision-
making has been strongly reaffirmed to give them
wider latitude for planting the crops they grow best
and thus enhancing their opportunities for increased
incomes. Evidence so far received indicates that this
last measure has led many teams to shift their cropping
patterns away from grain crops and into cash crops-
 vegetables, tobacco, oilseeds, and the like. The govern-
ment is supporting the trend toward establishing more
rational cropping patterns by repudiating past policies
of "onesidely" emphasizing grain production and by
surveying agricultural growing areas in each province
and designating specific zones for specialized crop
production.
Some of these measures will cut into state revenues and
others will make food a more expensive commodity in
the cities. The leadership is willing to accept the
decline in state revenues that may result from raising
farm procurement prices and lowering the prices of
industrial goods sold to farmers even though it may
make the provision of funds for investment more
difficult. The Third Plenum had also noted, for the
first time, that subsidies to offset increased urban food
prices would be necessary. While state retail grain
prices have not so far been raised, Beijing began giving
subsidies to individual urban consumers to partially
cover the cost of the November 1979 rise in state retail
prices for meat, eggs, milk, and other "nonstaple"
foods.
Measures have also been taken to ensure that neither a
poor harvest nor a decline in the flow of grain into the
cities, as a result, for example, of the changes in crop
patterns noted above, will seriously affect urban grain
supplies in the near term. Thus over the past year
China signed three-year (1979-81) grain agreements
with Australia, Argentina, and Canada that will allow
the PRC to import 6 million to 7 million tons of wheat
and corn during each year of the agreements. Further,
the PRC has said that it expects to import 5 million to
6 million tons of grain annually from the United States
over the next five years.
Incentive policies in industry, transportation, and the
services sector are evolving more slowly but neverthe-
less in similar directions. A small wage increase was
granted to about three-fifths of the urban labor force in
1977, and on 1 November 1979 the government
announced that further wage increases would be
distributed to 40 percent of the urban work force on the
basis of promotion for merit. Although an across-the-
board wage increase and establishment of a system for
regular promotions have periodically been discussed,
the government has not so far implemented such
measures. Rather, the leadership appears to be experi-
menting with measures whereby remuneration is more
closely tied to productivity; that is, piece rate wages,
selective promotions on merit, and systems of rewards
and bonuses for individuals and enterprises that meet
and exceed production quotas.
Since December the regime has experimented with a
system under which enterprises that fulfill production
quotas and contracts are allowed to keep an additional
small percentage of profits normally turned into the
state. These retained funds are to be used primarily for
increasing collective welfare-such as housing and
day-care centers-in the enterprises and secondarily to
be used for bonuses to outstanding workers. Many of
these measures have been in operation on a trial basis
for only a short time and evidence so far received
suggests that these changes are having mixed results.
On the one hand, bonus systems have contributed to
increased labor productivity in those enterprises where
they accrue to individuals or small groups of workers.
On the other hand, provision of cash awards to
collective groups-for example, to all members of an
enterprise-have admittedly been poorly received and
have created discontent.
In addition to specific incentives to producers, govern-
ment policy currently continues to emphasize improve-
ment in the quality of life in urban areas. Funds are
being made available for construction of new housing
and renovation of old living quarters. The improve-
ment of urban services-public utilities, restaurants,
retail sales outlets, household goods repair shops-is
also being pushed, in part through encouraging the
formation of new establishments and in part through
allowing service entities to retain a larger portion of
their revenues when they meet quality and perform-
ance standards. The expansion of the services sector
has the additional advantage of providing new jobs for
those younger people in the cities who cannot be
absorbed in industry.
In addition to increasing incentives, Beijing's attempt
to raise productivity also includes experimenting with
changes in industrial organization and management in
order to make the structure of production more
efficient. These experiments include encouraging spe-
cialization of production by factories to eliminate the
wasteful tendency for factories to ensure their sources
 of supply by producing their own machinery and other
input requirements. Corporate forms of industrial
organization are also being tried. In these, government
ministries and bureaus set overall policy and goals and
their subordinate industrial and transportation corpo-
rations are given the main responsibility for and
control over the task of production. The regime seems
particularly enamoured of the uses of legal contracts in
these new systems. Within the framework of overall
state-set goals, the contracts specify details of how and
when goods are to be produced and delivered among
supplying, producing, and marketing units and stipu-
late financial penalties for nonfulfillment of contract
provisions.
New systems of management are also being intro-
duced. Chief among these is the elimination of
management by committees often composed of non-
technical outsiders. In its place the old "single-head"
system has been reinstituted in which technically
qualified factory and enterprise directors are responsi-
ble for day-to-day operation of plants and are only
generally supervised by party authorities. At lower
levels of plant operation, the regime has also continued
to experiment with worker election of their workshop
leaders, section chiefs, and shift foremen. Given
prospects of greater rewards for increased productiv-
ity, these groups presumably will elect individuals who
are believed to be most competent to lead the work:
effort.
These changes in incentive and in management and
organization policies are clearly based on assumptions
that the productivity of both the Chinese labor force
and of PRC industrial and agricultural capital is much
lower than it should be. PRC discussions of industry
have pointed out that in recent years the growth of the
industrial labor force and the rates of addition to
industrial capacity have been higher than the rate of
increase in industrial output. Discussions of agricul-
tural productivity similarly point to the fact that
although supplies of industrial inputs to agriculture
such as chemical fertilizer, tractors, and irrigation
equipment have grown sharply in recent years, agricul-
tural production has only barely exceeded population
growth. Not enough information is available to inde-
pendently test the truth of these propositions. The
available material does suggest, however, that in the
short run higher rates of production are possible for
agriculture but improbable for Chinese industry.
In agriculture, the rapid rise in supplies of chemical
fertilizer, in stocks of powered irrigation equipment,
and in the tractor park since 1970 apparently have not
had great effect on agricultural production (figure 1).
Poor growing conditions, particularly in 1976 and
1977, have been a major factor in offsetting the
influence of these inputs on production. Nevertheless,
the high costs of such inputs relative to the low prices
paid by the state for farm products, coupled with
higher level strictures on the the use of inputs by
production teams, have almost certainly meant these
inputs have not been efficiently used. The current
effort to remedy these disincentives is leading to more
efficient use of these inputs; consequently, sustained if
modest increases in production appear possible.
On the other hand, there is little information that
would bear out the Chinese contention that large
amounts of unused capacity exist in industry. The
leveling out of the rate of growth of industrial
production since 1978 (figure 2) suggests that large
increases in output are unlikely to be forthcoming over
the next few years. Further, the Chinese quest for
increased production through more efficient use of
existing industrial capacity faces two major obstacles.
The first is the experimental nature of new organiza-
tional and management policies which so far have
affected only parts of the industrial establishment. The
second major obstacle is the resistance of the ponder-
ous Chinese industrial bureaucracy to the innovative
changes the central leadership is attempting to bring
about. There is ample evidence that the staffs of
industrial organs, from the ministry level down to
individual industrial enterprises, resist these changes
as profound and perhaps personally damaging depar-
tures from longstanding ways of doing things.
An important element in all these changes is the
Chinese leadership's decision, formalized at the
December plenum, to diminish the scope of CCP
organizational involvement in factories and to limit the
time available for political meetings and similar
activity. The latter limitation comes under the so-
called "five-sixths" rule under which scientists, techni-
cians, and intellectuals, as well as factory hands, are
 - Agricultural Production
.... Chemical Fertilizer Production
Powered Irrigation Equipment Inventory
- - Tractor Inventory
supposed to devote five-sixth of their labor to their
professions and/or production and only one-sixth to
political meetings. The leadership clearly believes that
cutting back political activity in the enterprises,
coupled with the placing of responsibility for produc-
tion on individuals under a system of rewards for
success and penalties for failure, will lead to better use
of existing PRC plant and labor. The quest for greater
efficiency has been underlined by publicizing the
removal of inept managers, the suspension of produc-
tion in individual plants, and the permanent closure of
still other plants for failure to meet production goals,
for turning out below-standard products, and for
excessive consumption of energy and raw materials.
During 1.979 Beijing also bolstered the emphasis on
increased productivity and efficiency by restoring the
banking system to its traditional role as a major
economic control and auditing arm of the central
government. Supervision of factory financial matters
by the People's Bank, which handles the revenue and
expenditure of enterprises and provides loans for
working capital, has been tightened up. The Bank's
financial powers are already being used to withhold
loans from inefficient producers and to rectify abuses
of the incentive system by refusing to release funds for
bonuses judged to be excessive. The central govern-
ment has also moved to ensure that state funds for
agriculture and for capital investment are more
productively used by reestablishing the Agricultural
Bank (abolished in 1965) and by strengthening the
operations of the Construction Bank. The funding of
investment through the Construction Bank is being
changed from the old system of outright grants of
construction funds for projects to a system where the
 Construction Bank judges the wisdom of proposed
projects, monitors their progress, and extends funds as
loans with interest charges which must be repaid.
Short-term Prospects. The economic policies pursued
by the Chinese leadership since the December plenum
constitute an unparalleled appeal to the individual
interest of the Chinese people. Even though these
policies have only begun to take hold they are already
engendering new problems for the regime. In agricul-
ture, for example, the strengthening of the decision-
making power of the production teams has periodically
led to disbandment of the teams in a few areas and a
division of collectively owned farm tools and farm
lands among individual farmers. The government has
moved quickly to eliminate these isolated reversions to
household farming-which prevailed prior to the 11955
cooperativization of agriculture-by reasserting pro-
duction team and brigade authority over such activity.
The regime similarly is finding that production team
decisions on what they plant do not always accord with
state cropping and procurement plans, particularly for
the important cotton crop. The government is also
having trouble controlling the operations of rural free
markets, or village fairs, where both agricultural
products and consumer goods are traded at market
rather than state-set prices. Strong demand and higher
prices in these markets periodically divert goods away
from state procurement and distribution channels.
Aside from the use of the banking system to stop the
"reckless" award of bonuses in excess of gains in
industrial productivity, the government has also found
that the additional leeway given to factory managers
and enterprises is stimulating "unsocialist" activities
that undercut the state material allocation and distri-
bution systems. New restrictions have been placed on
the operations of small, illegal factories and suppliers
that are often able to provide needed goods more
quickly to enterprises than is the cumbersome state
supply system.
The leadership has moved promptly to keep these
activities within bounds and probably will continue to
be able to limit their economic consequences. Never-
theless, some of these departures from past practices
provide an opening for those unhappy about the
pragmatic cast of present policy to criticize the
leadership. Sensitivity to this issue has been amply
documented by the continuing series of "study ses-
sions" conducted throughout the party and the PLA
(People's Liberation Army) to defend the correctness
of the economic policies adopted at the Third Plenum.
Rising consumer expectations now are a problem of the
first magnitude for the government. Notwithstanding
repeated insistence that consumer welfare can be
improved only gradually and should be preceded by
increased productivity, the new policies have stimu-
lated long-suppressed popular demand for more and
higher quality food, clothing, housing, and consumer
durables. One indication of the strength of this demand
is that despite low interest rates urban and rural bank
savings have steadily risen over the past two decades.
The size of these deposits is unknown, but they are
clearly large enough to have become a serious concern
for the government. On 22 March the PRC abandoned
the old system of a uniform annual interest rate of
3.2 percent for fixed deposits regardless of term and
installed a system of six-month, one-, three-, and five-
year time deposits. Interest rates on all deposits were
also increased from 3.6 percent (for six-month depos-
its) to 5 percent (for five-year deposits). In addition to
inhibiting the withdrawal of funds from these ac-
counts, the higher interest rates are also intended to
attract more of the increased money income that is
beginning to be received by the population.
Other indications of the force of consumer expecta-
tions are reflected in disapproving press comment on
greater worker concern for their "lifestyles" than with
production and on conspicuous consumption of food
and drink. A number of observers have noted the
gradual shift in the dress of the urban population from
the uniform drabness of the past to varied styles and
better quality clothing. Still others note the avid
interest of many urban consumers in acquiring wrist-
watches, bicycles, and televisions, often through
"backdoor" or black market transactions.
Meeting this demand will be an acute problem for at
least the next several years. Industrial production
began to slow in 1979 as the economy emerged from
the recovery of 1977-78. The new incentives policies
and more efficient organizational and management
measures have not been in place long enough to have
had much effect on industrial output. While these
 policies may indeed lead to some increases in output
over the next few years, they will only partially remedy
the more fundamental problems of industry. These are
the constraints associated with past periods of Chinese
industrial expansion-shortages of coal and raw mate-
rials, overburdened transportation systems, and insuf-
ficient electric power-which are the outgrowth of past
investment decisions. During 1979 the government has
increased investment in these troubled sectors, particu-
larly in energy and transportation. Nevertheless,
construction of new capacity in these areas will take
between three and five years to accomplish. Thus, a
significant loosening of these constraints in the short
term is not in the offing.
In addition to generating increased output in the short
run from essentially fixed industrial capacity, the
leadership faces a serious problem in adjusting the mix
of industrial output, primarily in the area of consumer
goods production. The PRC set the 1979 target for
growth in the value of industrial production at 8
percent. In a striking departure from past practice, the
target for heavy industry (7.6 percent) was planned to
be less than that for light industry (8.3 percent). At
yearend the PRC announced that the total industrial
output target had been met, that heavy industrial
output had increased by 7.4 percent, and that the light
industrial target had been overfulfilled, with output
increasing by 9 percent. However, Beijing also ad-
mitted, in several December 1979 discussions, that the
increase in the supply of consumer goods still fell far
short of the increased demand for such goods gener-
ated by higher incomes in both urban and rural areas.
Moreover, examination of components of light indus-
trial production suggests that the annual target had
been met more through increased production of such
high value commodities as TV sets, sewing machines,
and bicycles than through production of such basic and
lower value goods as clothing, soap, and household
furnishings.
Further, the production of consumer goods still is not
oriented to popular wants nor is it of acceptable
quality. As in the past, a question remains as to how
much of this production actually is sold and how much
accumulates in warehouse stocks. This problem
underlies continued government attempts-through
encouraging improved market research by and the use
of contracts between producers and marketers of
consumer goods-to ease this situation. This is a new
and exceedingly complicated management problem for
both the government and industrial producers. Thus,
progress has been slow and their efforts will not quickly
meet the expectations of Chinese consumers.
Nevertheless, the attempt to meet rising consumer
expectations quickly, albeit only partially, and to
increase export earnings got off to a good start in 1979,
in the main because of improved agricultural perform-
ance. Foodstuffs account for about one-half of con-
sumer expenditures in the PRC and a large share of the
raw materials used in light industry come from
agriculture. Another record harvest of grain (over
315 million tons) and respectable increases in most
nongrain crops, except cotton, are allowing almost
immediate increases in food consumption and provide
the basis for increased output of consumer goods in
1980. The leadership should be able to cite both
concrete improvements in consumer welfare and an
expanded capability for paying for imports in defend-
ing the correctness of its policies.
The relative political stability that has prevailed since
the fall of the Gang of Four in 1976 has immensely
facilitated the leadership's attempt to grapple with
these complex problems of demand and supply. The
regime can demonstrate initial results from the first
year of these short-term policies and serious threats to
political stability have, for the moment, diminished.
However, the leadership also recognizes that more
time will be needed for the new policies to take hold
than was originally expected at the time of the Third
Plenum. Deng Xiaoping has been reported in the press
as having told a group of overseas Chinese in Septem-
ber and the president of Asahi Shimbun in October,
that the "readjustment" period might be prolonged.
As for the pattern of growth over the next few years,
we suspect that GNP will fall off from the annual
6 percent rates of the past to around 5 percent.
Moreover, the sources of growth will also change with
industrial growth slowing, perhaps to around 6 to 7
percent per year, and agricultural growth picking up
significantly to something on the order of 4 to 5 percent
per year. While foreign equipment and technology will
continue to flow into the PRC at higher rates than in
the past mainly because of China's $7 billion worth of
 purchases in 1978, deep-seated problems in absorbing
such imports will be ameliorated only slowly. Absorp-
tion problems coupled with the general cutback in
investment plans are largely responsible for the sharp
drop in China's whole plant purchases in 1979 to $1
billion. With the exception of imported chemical
fertilizer plants, foreign technology is unlikely to have
much of an impact on production during this period.
Meeting the expectations stimulated by the new policy
course will remain a constant and major concern for
the leadership. Failure would increase popular discon-
tent, with consequent adverse effects on productivity,
and would make wholehearted participation in the
modernization effort even more difficult to achieve.
More important is the impact of failure within the
CCP. Apparently large numbers of CCP rank-and-file
cadres continue to have little enthusiasm for imple-
menting policies that sharply differ from their past
experience. These may become even less responsive to
central direction than they now are. Moreover, if these
policies do not succeed, the ability of those within the
party who resist the pragmatic cast of current policy to
challenge the dominant leadership will be greatly
strengthened.
The outcome of these short-term policies cannot be
predicted with assurance. On balance, the odds favor
their success because they embody an unprecedertedly
rational approach to China's economic problems.
Compared with the Maoist era, the present leadership
appears to be much less bound by ideological con-
straints in its policy choices and more thorough in
thinking through the probable outcomes of new
policies, and is clearly able to react quickly to the new
problems that arise. Moreover, this rational approach
is also manifest in their treatment of longer term
development policies. Even though these policies do not
have direct and immediate impact on the Chinese
economic process, they complement the operation of
shorter term policies and are crucial for the overall
modernization effort.
The Fifth Modernization
The present emphasis upon readjustment and the flux
in long-term economic planning obscures measures
being taken by the leadership to bring about a fifth
modernization-providing the political and social pre-
requisites for economic modernization. New impetus
was given to this effort by the consolidation of political
power in the hands of Deng Xiaoping and his
associates at the Third Plenum of the CCP in
December 1978. Since the Plenum this effort has
centered on four major tasks: reshaping and strength-
ening the Chinese Communist Party as the fundamen-
tal instrument of political power, attempting to estab-
lish some semblance of the rule of law within society,
continuing to upgrade the Chinese educational system,
and intensifying programs for slowing population
growth.
The Party and the Maoist Legacy. Reshaping and
strengthening the CCP is aimed at making party
organizations and members more responsive to direc-
tion from the central leadership and at narrowing the
scope of party operations within society. Most of the
weaknesses in the CCP are the direct result of actions
initiated or condoned by Mao Zedong between the
Cultural Revolution of 1966-67 and his death in 1976.
The events of these years debilitated the party
organization and demoralized most of its older mem-
bers. In 1967 the CCP apparatus was incapacitated by
the Red Guard movement to the point where the PLA
had to be used to restore order. Party affairs were
thereafter dominated by Mao's sycophant Lin Biao
until Lin's death in 1971; subsequently the party's
effectiveness as the instrument of rule was further
diminished by the factionalism that marked the era of
the Gang of Four and the struggle for the succession to
Mao.
During this period, party membership roughly doubled
from the 17 million members of 1967 to more than 37
million in 1978. An unknown but clearly significant
number of these entered the party without going
through the established system of personal recommen-
dation by CCP members, probationary periods, and
review of qualifications by party organizations at the
next higher level. For as much as half of the current
CCP membership, mass movements, inner-party fac-
tionalism, and freedom to operate with a minimum of
control from above have been the accepted norms of
party work. For Deng Xiaoping and his colleagues the
party organization is a poorly disciplined instrument
containing a sizable segment of cadres who either do
not understand or who disagree with many of the new
policies introduced by the leadership. Further, to the
 degree that both these newer members and the older,
pre-Cultural Revolution generation of members are
wedded to Maoist ways, they constitute a potential
reservoir of support for any higher level leader
attempting to reverse Deng's policies.
Measures to remedy these problems were undertaken
at or soon after the Third Plenum in December 1978.
Deng Xiaoping's control over the central organs of the
party was strengthened by the appointment of his
protege, Hu Yaobang, as Secretary General of the
party and the naming of another long-time associate,
Song Renqiung, as head of the Organization Depart-
ment of the CCP, the organ responsible for personnel
assignments. Reestablishment of the party's Commis-
sion for Inspecting Discipline by the Plenum also
underlined the leadership's strong interest in seeking
out and punishing violators of party rules and regula-
tions. Additional weight was given to the Commission
by the appointment of senior party figure Chen Yon to
head the Commission. Chen, who was restored to his
position as vice-chairman of the party and member of
the standing committee of the Politburo at the Plenum,
was a major figure in the party rectification movement
of 1942-44 and is the leader most closely associated
with the pragmatic economic policies of the First Five-
Year Plan period and the early 1960s. The Commis-
sion has not so far been used to undertake "rectifica-
tion" of the party membership by purge and indoctri-
nation on the scale of the 1942-44 campaign.
Nevertheless, since May 1979 a low-key rectification
campaign has been under way featuring increased
attempts by Discipline Inspection Commissions at
ferreting out past and current violations of party rules
1979. A People's Daily editorial of 5 November
revealed that local authorities still had not complied
with the April 1979 orders to suspend or defer
uneconomic and impractical capital construction
projects. A 23 November People's Daily article singled
out this noncompliance with central directives as a
major contributing factor to the "slow progress" of
readjustment. Subsequently, several People's Daily
articles explicitly called for "obedience" to Central
Committee decisions and implied that strong sanctions
would be imposed if such obedience were not
forthcoming.
In addition to attempting to make the CCP member-
ship a more responsive and efficient vehicle for
implementing the policies of the center, the leadership
is also attempting to direct CCP activity into lines that
will facilitate economic modernization. In line with the
Plenum's announcement that the work of the party had
been shifted from political struggle to economic
modernization, CCP political work has been cut back
from past levels and its content has been changed to
emphasize economic productivity and reliance on
material incentives. Similarly, the dispatch of CCP
"work teams" from higher levels down into factories
and farms both to conduct political campaigns and to
exhort workers to greater effort, has also been cut
back. This hallmark of the Maoist era has been pushed
aside on grounds that the burden of feeding and
housing these groups at the working level is too heavy,
that they tend to disrupt rather than stimulate
production, and that they undercut the authority of
local CCP cadres at the working levels.
and a strengthening of Organization Department work In restricting those party activities that have proven
in CCP organs. These organizational measures have counterproductive in the past, the Dengist leadership
been accompanied in recent months by repeated study also appears to be groping its way toward a firmer
sessions, particularly for higher level CCP and PLA differentiation between party and government func-
cadres, aimed at making up "missed lessons." These tions. While the absolute supremacy of the CCP in
sessions are intended to rectify footdragging and formulating policy remains unchanged, more latitude
opposition on the party of CCP members to the new and greater responsibility is to be given to nonparty
economic policy course announced at the Third organs in the implementation of policy. The problem is
Plenum. one of the bureaucracy that has grown up over the past
decade as party committees at every level became the
The problem of the refusal of lower level organs to sole organs for making decisions on all questions no
comply with Central Committee directives was strik- matter how small. In effect, the party has become a
ingly illustrated in November and early December source of bottlenecks that stifle innovation and initia-
tive in political and economic work.
 Preliminary steps toward breaking this bottleneck are
evidenced in the prominence now being given to
nonparty organs-people's government organs at pro-
vincial, municipal, perfectural, and county levels-in
the governing process and the concurrent trend toward
playing down the role of CCP secretaries and commit-
tees in the operations of these organs. In some areas,
provincial party committees have also begun to dis-
band or reduce the staffs of party bureaus and sections,
transferring many of their functions back to govern-
ment organs.
How far this process, which is analogous to the
experiments with "one-head" management in indus-
try, will go is not yet clear. However, the damages
brought by excessive party interference in economic
and other matters in the past plus the immensity of the
task of governing 1 billion people and managing an
increasingly complex economy may be leading the
leadership toward a system that may eventually
resemble that of the Soviet Union; that is, the
development of a separate and equally ponderous
government bureaucracy alongside that of the party.
In such a system, clearer distinctions should begin to
appear between party members whose main occupa-
tion is party work-the apparatchiks-and those who,
while they are party members, are specialists in
government and economic organs. The current effort
and attendant publicity on the recruiting of scientists
and technicians into the CCP may be a precursor of
this trend as well as the attempt to enlarge the
proportion of general administrative and specialist
cadres "of all trades and professions" within the party.
In an environment in which economic modernization is
the paramount objective, a government bureaucracy
staffed by technocrats may eventually become a more
important factor in Chinese politics than heretofore
has been the case.
Lastly, the attempt to make the CCP a more efficient
instrument for modernization also includes exposing
party members at all levels to the contrast between
China's backwardness and the advances made in the
industrialized world. In addition to the travels of the
top leaders themselves, including Hun Guofeng and
Deng, large numbers of provincial party figures have
traveled to the developed world as part of PRC
delegations. Many of these officials have subsequently
convened provincial forums to present their observa-
tions and conclusions. A number of provinces and
municipalities have also held conferences of party and
nonparty figures to hear the experiences and sugges-
tions of scientific and technical personnel who have
also gone abroad as members of various Chinese fact-
finding and negotiating teams. Members of the CCP in
urban areas are being exhorted to study and attend
courses intended to help them understand science,
technology, management, economics, and foreign lan-
guages. In rural areas, similar efforts are under way to
educate party cadres in scientific farm management.
The magnitude of the problem of educating the rural
party rank and file may be particularly difficult if
conditions in the countryside are similar to those in one
county of Guizhou Province. In this county more than
half of the party branch secretaries at the brigade level
are illiterate and only one-third of commune and
brigade party cadres have enough arithmetic to
balance farm accounts.
In many respects, PRC chances for accomplishing the
"four modernizations" over the long run pivot on the
success of the leadership in remolding the CCP. For
the moment, Deng Xiaoping and his colleagues seem
secure from challenges to their leadership from within
the top levels of the party. Nevertheless, the tasks of
expunging Maoist work styles and the "lingering
fears" of many cadres that present policies may be
abruptly changed as well as the tasks of disciplining
and educating the party membership to the point
where they can intelligently carry out policies for
modernization are difficult and will not be accom-
plished overnight. If the party as the supreme political
institution and as the main instrument of policy cannot
be modernized along these lines, the prospects for
accelerating modernization of Chinese society in
general and the economy in particular are not
promising.
The Rule of Law. The instability and disorder of
Chinese party affairs over the past decade has clearly
had its counterpart in society in general. If only a
fraction of the voluminous reporting of past injustices
suffered by the Chinese population are true, then the
relationship between the rulers and the ruled must
have reached a new nadir at the time of Mao Zedong's
 death in 1976. Increased incidence of crime, cadre
corruption, arbitrary arrest and expropriation of per-
sonal property, and capricious official actions in civil
and criminal cases all apparently contributed to a
general deterioration in the quality of life in the PRC.
The primitive state of Chinese legal codes and legal
institutions and their consistent subordination since
1949 to the dictatorial authority of the CCP did little
to mitigate the situation.
For the Dengist leadership, restoration of some sem-
blance of law and order is important to the moderniza-
tion process. First, the use of law to provide an orderly
and more secure environment for the population is a
fundamental requirement for evoking popular response
and support for the modernization effort. New laws,
and institutions to enforce them, are needed if the
leadership's new economic policies particularly regard-
ing foreign investment and business operations in
China and the use of contracts in domestic economic
activity are to be effective.
Although a new constitution was promulgated in
March 1978, the PRC's second in three years, little
progress was made in developing new legal institutions
and legal codes until after the December 1978 Plenum
of the CCP. On the institutional side, staffing of the
revivified people's procuratorial organs and the system
of people's courts picked up momentum in 1979. The
functions of these organs are to limit the powers of
police and security organs regarding investigation and
arrest and to ensure an orderly and fairer disposition of
criminal and civil cases. Movement in this area has
been slow in part because many of the PRC's small
number of trained lawyers have been forced into other
occupations over the past decade and, in part, because
legal work is not viewed as a desirable occupation. This
As for new laws, the main achievements appear to be
the promulgation of a joint Chinese-foreign investment
law, a criminal law, a criminal procedures law, and
organic laws for the people's courts and procu-
ratorates, which came into effect on 1 January 1980.
These laws, coupled with the reactivation of procura-
torial and court systems, are intended to promote order
and stability within society by providing at least a
rudimentary assurance to the population that enforce-
ment of the law will be more equitable than in the past.
Only preliminary work has been undertaken on mak-
ing other aspects of the Chinese legal system more
supportive of the modernization effort. An eight-year
plan (1978-85) for the study of law was adopted at a
national legal conference in March 1978. While this
plan covers research into every facet of law, its focus on
completing legal studies and compiling textbooks and
dictionaries of legal terms implies that the process of
modernizing law is only beginning.
In the meantime, the lack of progress in revamping
systems of Chinese business law remains a con-
straining factor in modernizing the economy. The
concern of foreign businessmen for protecting patents
covering equipment and processes shipped into China
has not been allayed by PRC assurances that a new
patent law will be forthcoming in the near future. The
new joint venture law has only partially facilitated
PRC overtures to foreign firms for new investment.
These efforts continue to be hampered by vagueness in
Chinese terms regarding ownership, taxation, and the
means of remitting profits from such investment out of
the country.
Domestically, the regime's experiments with using a
system of contracts between producers, distributors,
and consumers to ensure efficient provision of goods
last difficulty arises mainly from the past vulnerability and services are unlikely to be effective in the absence
of workers in the legal system to political attack and to of some overall system of contract law. The questions
charges of "rightism." In at least one province,
Heilongjiang, the absence of court buildings and
inadequate funding is also holding back the formation
of legal organs. In addition, the process of setting up
these organs is also being slowed by the reluctance of
party committees to loosen the dominance over legal
matters they have maintained over the past 10 years.
of how the terms of such contracts will be drawn up,
how disputes over contract provisions will be adjudi-
cated, and who will levy penalties for nonfulfillment
have been under continuing discussion within China.
In early 1980, the President of the Supreme Court,
Jiang Hua, noted that "economic divisions" had been
 established at higher court levels and that similar
organs would be set up under lower courts throughout
China. These "economic divisions" apparently are
similar to the courts for economic cases set up in the
city of Tianjin in late 1979. In addition to handling
violations of pollution regulations and prosecuting
assorted economic crimes, Tianjin's economic courts
also hear cases of nonfulfillment of contracts. The
courts, however, will hear such cases only when
contract disputes cannot be successfully arbitrated
within and among the government hierarchies having
interest in the issues. This implies that putting the new
system of contracts into effect will be a slow and
cumbersome process. Such a process will negate much
of the new efficiency which the contract system is
supposed to bring to PRC production processes.
The Dengist leadership faces several problems in
attempting to establish systems of law and order akin
to those that are part of the fabric of the developed
world. The grafting of essentially western legal
concepts and institutions on traditional Chinese society
is a task that has frustrated Chinese reformers for over
a century. The Chinese preference for settling disputes
through private arrangement of differences between
the parties concerned rather than through public
adjudication by outside authorities remains strong in
the PRC. The task is also made more difficult for the
present leadership because the bulk of Western legal
tradition is based on concepts of personal equality
before the law and representative democracy which are
unknown under a Communist political system. The
PRC appears to be slowly developing a system that
incorporates many of the characteristics of Western
legal systems but one in which the CCP remains the
supreme arbiter of justice. Even small progress in this
area will be useful to the leadership in enlisting the
support of the population, in encouraging the flow of
foreign resources into the PRC, and in installing more
modern systems of economic management.
Educational Policy. The crucial role of education in
facilitating both the absorption of modern science and
technology and the broader task of bringing modernity
to a backward rural society has been a consistent
concern of the Chinese leadership since the fall of the
Gang of Four in late 1976. While educational policy
has been focused primarily on remedying the effects of
the 10-year hiatus in formal education and replenish-
ing the supply of trained scientists and technicians, the
Dengist leadership has also given important attention
to the long-term effort to raise urban and rural
education levels in general. In working out policies of
readjustment and scaling back some of its more
ambitious economic plans since the December Plenum,
the leadership has so far continued to emphasize
education in the modernization effort.
One step in the process of developing education was the
January 1979 decision to expand institutions of higher
learning by almost 30 percent. This decision gave the
go-ahead to provincial and municipal authorities to
establish 153 new institutes and colleges and to reopen
16 that had not functioned for some years. The
categories of school envisaged reflect the push for more
trained scientists and technicians-46 schools of engi-
neering, 18 medical schools, 13 schools specializing in
agriculture, forestry, veterinary medicine and meteor-
ology, and 10 economics and financial institutes.
Moreover, the list also reflected a strong commitment
to overall improvement of the educational system by
establishing 77 new teachers colleges to meet the needs
of secondary education.
These 169 new schools will constitute a third track in
the PRC system of higher education and as such their
development will be slow. At present the 88 "key
universities"-model schools that train the best stu-
dents, have the best teachers, and set standards for
first-rate academic work-receive the highest priority
in allocations of resources to higher education. The
remaining 500 existing universities and colleges appear
to have a lower priority. In these schools insufficient
numbers of qualified teachers, shortages of school
buildings, and inadequate supplies of books and
equipment are particularly acute problems. The needs
of existing schools almost certainly will mean that the
new "third track" schools will come into being only
slowly and will not be able to provide quality education
for many years to come.
Nevertheless the decision to establish these schools is a
strong indication of leadership interest in preparing the
ground for modernization and will eventually help to
place the increasing numbers of middle school gradu-
ates who would otherwise have no opportunity for
further education. This past fall the PRC was able to
 enroll less than 1 million of 7 million 1979 middle
school graduates. The potentially disruptive problems
of disaffected and partially educated youth are not
limited to the 6 million who did not gain entry into
college this past year. An unknown but clearly large
number of older candidates-those who could not
enter during the period when university-level educa-
tion was suspended or whose training in politicized
middle schools is weak, as well as those who have been
in rural areas as part of the "down to the countryside
movement"-also remain frustrated by their lack of
access to higher education. The leadership has ad-
mitted that there are no acceptable short-term reme-
dies for this problem. However, a concerted effort is
being made to steer those who will not be accepted by
the college system into vocational schools and into jobs
in factories and agriculture where their education can
at least partially be continued through correspondence
courses and other forms of spare-time education.
The universal emphasis upon China's backwardness
and the need for all to learn more modern ways is not
narrowly limited to training a new generation of
scientists and technicians. Correspondence courses,
short full-time training programs, lecture series, and
TV and radio courses for workers, industrial and
commercial cadres, and secondary school teachers
have proliferated over the past year. A host of subjects
is covered: simple arithmetic and reading, principles of
chemistry and physics, international affairs, industrial
management techniques, and English and Japanese
language courses. At a more general level, provincial
and municipal radio broadcasting schedules continue
to be changed to include more programing on cultural,
artistic, and historical matters as well as on scientific
and technical subjects. Similar liberalizing patterns
are also apparent in book publishing and in the
resurrection or introduction of new academic and more
general periodicals. These policies and programs pri-
marily affect urban areas. Nevertheless, parallel ef-
forts are under way in rural areas, mainly through
upgrading primary and secondary schools and provid-
ing rotational training courses for rural cadres and
spare-time education for peasants. Illiteracy-Beijing
recently noted that almost 100 million peasants are in
this category-and the high rate of school dropouts
have been singled out as particularly serious problems
in rural areas.
In all these areas, as in the formal school system itself,
the time and other resources devoted to political and
ideological matters has been reduced to the point
where the central leadership has recently been forced
to reassert the virtue and necessity of political study
and correct ideological content in educational and
cultural matters. The impressive aspect of these
policies is that while the recent tightening of ideologi-
cal standards and the reallocation of scarce resources
have apparently slowed the liberalization of cultural
life and the expansion of the educational system, the
leadership has not abandoned the effort.
The perils of these policies are well understood by the
leadership. Containing the dissatisfaction generated by
large numbers of young people whose newly whetted
appetites for higher education cannot be appeased will
be a recurrent problem for years to come. Moreover,
other problems will arise because these policies run
directly counter to fundamental Maoist tenets. Most of
the Maoist commitment to preventing the emergence
of a managerial-bureaucratic elite and to minimizing
the differences between intellectuals and factory labor,
between workers and peasants, and between the urban
and rural segments of society will gradually be eroded
by these policies. Like the parallel effort with incen-
tives policies, unless managed carefully the growth of
these differentials will lead to the formation of
disaffected groups who provide a latent source for
political manipulation and consequent instability.
Since both their policies for modernizing China and
the maintenance of their political positions depend
upon minimizing instability, Deng Xiaoping and his
colleagues are likely to remain highly sensitive to these
problems.
Population Control. Policies aimed at eventual casing
of the pressure of population growth on China's limited
resources have been reaffirmed and reinforced by the
leadership since the December 1978 Plenum of the
CCP. After sporadic efforts to promote birth control in
the 1950s and 1960s, the PRC adopted a more open
and forceful approach to the problem in 1973. Despite
setbacks attributed to the succession struggles of 1976,
between 1973 and 1978 more coercive policies appear
to have led to a one-third drop in the rate of population
growth, from 2.3 percent in 1973 to 1.5 percent in
 1978' Evidence of the leadership's strong interest in
further decreasing population growth rates was pro-
vided by the inclusion of government advocacy of
family planning in article 53 of the new PRC
Constitution of March 1978 and Chairman Hua
Guofeng's call in the same month for reduction of the
growth rate to less than 1 percent by 1980.
The Third Plenum further raised the priority of family
planning by formally approving measures decided
upon in late 1978. The most important of these
measures appears to have been the imposition of a new
system of economic rewards and penalties aimed. at
cutting the birth rate. The system promotes the
standard of one child per couple as ideal, permits two
children per couple and penalizes couples who produce
three or more children.
Under trial regulations put into effect by various
provinces and municipalities during 1979, rewards for
""one child" families are to take the form of child care
allowances paid to the parents until age 16 and waiving
of charges in child care centers and miscellaneous
school fees for such children. These couples are also to
be given preference in obtaining housing and in the
allocation of private plots in rural areas. The tradi-
tional Chinese belief that security in retirement is
guaranteed by a large number of children is also
addressed in these regulations. Retired "one child"
couples are supposed to be given augmented retirement
pensions.
Penalties for couples bearing three or more children
include docking of the wages or work points of each
parent by, in the case of Shanghai, 10 percent for each
child born beyond two until such children reach age 16.
Such multiple child families also are to be denied
additional housing and expanded private plots when
these become available. Expenditures for the rewards
program are to be paid by the welfare funds of the
place of employment or local authorities and revenue
from the penalty system is to go into such welfare
funds.
' A detailed appraisal of population policies and the problems of
measuring population growth in the PRC is contained in J. S. Aird,
"Population Growth in the People's Republic of China," Joint
Economic Committee of Congress, Chinese Economy Post-M'ao,
9 November 1978, pp. 439-475.
Other provisions of the program are the prohibition of
marriage to college-level students and to workers
during their apprenticeship periods on pain of expul-
sion. Rewards, in the form of cash and time off from
the job, are also provided for married couples who
undergo sterilization.
The new measures to reduce population growth are
driven by Beijing's recognition that the demographic
factors favoring significant increases in growth
rates have become stronger. The number of women in
the child-bearing ages began to rise sharply in the
1970s and this trend will continue through the 1980s
(figure 3). In addition to using economic coercion to
prevent a potentially rapid rise in the birth rate, the
regime is also giving unprecedented publicity to the
burdens population growth place on food supplies, job
opportunities, educational facilities, and housing.
Similarly, the costs to both parents and the state of
bringing up and educating children is also receiving
more emphasis.
The obstacles facing the leadership in ameliorating
China's most fundamental problem are sizable but not
insurmountable. Success in curbing population growth
pivots on eliminating resistance to planned parenthood
in the rural areas. Part of this resistance is grounded in
economic factors; for example, grain distribution is
largely determined by the size of family. Firm imple-
mentation of the new system of economic rewards and
penalties-in particular, the docking of work points for
multiple children families in rural areas-could meas-
urably diminish the economic incentives for large
families. Changing traditional rural values, for exam-
ple, the strong preference for male children both to
augment family labor power and for support in old age,
will be a much slower process. Improved educational
levels and the growth of closer cultural and economic
links between rural and urban areas-all embodied in
or implied by many of the regime's new policies of
modernization-are likely to facilitate this process.
Nevertheless, both the implementation of the "one
child" program and the effort to change the traditional
Chinese attitudes toward family limitation depend for
their success upon the thoroughness and persistence
with which party and government cadres prosecute
 Figure 3
China: Comparison of Age-Sex Distributions,
1958 and 1988
75+
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
The comparison of 1958 with 1988 shows changes in the
age-sex distribution of the Chinese population, some of which are
now only beginning to be apparent, but will be much more
evident ten years hence.
them. Half-hearted application by lower level cadres of
these often unpopular policies has hampered the effort
in the past. Whether this continues depends upon how
successful the leadership is in the task of making the
CCP a more responsive instrument of central control.
At present, cadres are being exhorted to become
"models" in family planning and instances where
cadres themselves have been prime violators of these
policies are being given publicity as "negative
examples" for the rest of society.
Some years must pass before the impact of these new
measures for slowing population growth becomes
apparent. In any case, there is almost no chance that
the PRC will be able to meet the announced goal of
reducing population growth rates to 1 percent this year
and to half of 1 percent by 1985. Current estimates
suggest that the rate will not fall to the 1-percent level
until late in this decade. Nevertheless, the evidence
suggests that the current leadership is committed to
diminishing the hazard that continued population
growth poses to eventual economic modernization.
All of these tasks, summed up above under the rubric
of the "fifth" modernization, are fundamental ele-
ments in creating the political, social, and cultural
infrastructure required for sustained economic mod-
ernization and growth. Perhaps the best illustration of
Chinese understanding of the close relationship be-
tween all five "modernizations" is contained in
Ye Jianying's 30th anniversary speech of September
1979:
By the four modernizations we mean the four major
aspects of modernization and not that modernizing
is confined to thesefour aspects. Along with the
reform and improvement of the socialist economic
system, we will reform and improve the socialist
political system and develop a complete socialist
legal system. While building an advanced material
civilization we want to raise the educational, cul-
tural, and health levels of the whole nation ...
and thus build an advanced socialist civilization.
These are important objectives as well as necessary
conditions for the realization of thefour moderniza-
tions. [Emphasis supplied.]
 Nonetheless, these problems are not susceptible to
quick or easy solutions. Years of consistent and patient
effort by this leadership and its successors will be
required before these elements begin to reinforce,
rather than hamper, Chinese economic growth.
The Shape of Economic Policy, 1982 and Beyond
The experiences of the past two years appear to have
given the Chinese leaders a much greater appreciation
of the profound changes in political institutions, social
conditions, and cultural life required for economic
modernization. At least for the moment, there is also
an awareness that neither hortatory campaigns of the
"Great Leap Forward" type nor the mounting of
grandiose but ill-founded programs similar to the
10-year plan of 1978 can be used as shortcuts to
remedying China's backwardness. If there is a consen-
sus developing among the Chinese leaders as to how
the modernization effort should go in the future, it
would seem to be one of continuing the pragmatic,
trial-and-error approach used since the Third Plenum
to meet the problems and choices confronting them.
The Chinese leadership cannot work out systematic
long-term plans for the economy until the results of the
current period of readjustment begin to come in. The
sparse information received thus far on Chinese
thinking about the next two decades suggests that
agricultural development will continue to be the
fundamental basis for overall economic modernization
and growth. Although there have been no thorough
Chinese discussions of long-term development strate-
gies, agricultural growth apparently is deemed the
point of departure for the pursuit of an import
substitution program in the 1980s and 1990s. Such a
program seems aimed at initially heavy use and then
eventual diminution of PRC economic linkages to the
outside world to create the conditions for domestically
driven, "self-reliant" economic growth. The elements
of this approach to development appear to be as
follows:
? Maintenance of steady, if unspectacular, increases in
grain production and in industrial crops while
accelerating the output of nongrain foods, particu-
larly meat products. The aim is to more fully exploit
the large areas of China suitable for grazing sheep,
goats, and cattle but which cannot be sown to crops
except at high cost. Thus, the composition of Chinese
diets would gradually shift away from grains and
toward higher intake of vegetables, edible oils, and
meat products, into a pattern akin to those associated
with the higher income LDCs.
As agriculture develops, the PRC apparently hopes
to move to import substitution policies in the mid-
1980s. This is aimed first at eventually eliminating
imports of grain and other food products and natural
fibers, which currently account for over 20 percent of
the import bill. Export growth will continue to be
aggressively pursued. Oil exports will be important
but limited by domestic needs; textiles will be pushed
but held down by quota systems in developed country
markets. Light industrial and agricultural products
will continue to be important components of Chinese
exports. Export expansion may prove to be difficult
to sustain because of low rates of growth in the
OECD markets and the derivative effects of such low
growth on China's LDC trading partners.
As import costs for food and fibers decline and export
earnings increase, PRC imports of complete plants,
equipment, and technology are likely to accelerate.
The pattern of such imports is likely to remain much
like that of the past-spurts of purchases followed by
extended periods of absorption time. New production
capacity for the extractive and industrial processing
industries and the transportation sector is likely to be
a main component of these imports.
Toward the end of the decade the PRC apparently
hopes that imports of new industrial capacity and
expansion of present domestic capacity will have
diminished the importance of imports in meeting the
country's need for finished and semifinished indus-
trial materials as well as transportation equipment.
These now account for over one-third of the import
bill.
? The government recognizes the danger of increased
balance-of-payment problems. The Chinese already
can draw on almost $30 billion in firm credits and
loans through 1985 and are actively seeking more for
the period beyond 1985. We see no reason why they
should not remain adept managers of payments
problems.
 An important if implicit assumption in this scheme is
that investment priorities will begin to place more
emphasis upon heavy industry in the late 1980s.
Whether this can be done without slowing agricultural
and light industrial growth depends upon such ques-
tions as the composition and size of overall economic
growth during the early 1980s, whether or not the
leadership has been successful in achieving momentum
in the agricultural sector, and whether the government
can control consumption without depressing productiv-
ity. In any case, the two major variables that affect
economic as well as all other plans for long-term
modernization do not change. First whether the
present leadership can consolidate its hold on power
and implement its present and contemplated economic
policies. Their success in this endeavor is by no means
assured and is further complicated by the likelihood
that most of the present leadership will pass from the
scene during the next five to 10 years. Second, whether
the policy of placing a low priority on Chinese military
modernization by linking it to the eventual develop-
ment of a modern industrial base, which has been
followed since February 1978, can be continued. A
serious further deterioration in relations with the
Soviet Union or Vietnam could lead to increased
allocations of resources to the military at the expense
of economic development.
Even assuming that the leadership is successful in
carrying out the new course along lines similar to those
postulated above, it is difficult to foresee PRC
attainment of the status of a "front rank" industrial
state by the turn of the century. If China's present
leaders and their successors are able to finally master
the food-population problem, to rectify the imbalances
within industry and between industry and the other
sectors, and to have begun a full mobilization of
China's immense material and human resources by the
year 2000, they will have done well.