COMMUNIST CHINA: AN ESTIMATE OF GROSS NATIONAL PRODUCT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010019-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 22, 2016
• Document Release Date: February 1, 2010
• Sequence Number: 19
• Publication Date: April 1, 1971
• Content Type: IM

Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
Z
eovlu- 2 71--6 Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Communist China: An Estimate Of Gross National Product
Secret
ER IM 71-68`'
April 1971
Copy No. 5 6
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re:
ceipt by an unauthorized person is prohibited by law,
GROUP I
E,cludid from aulomailc
do-" 9 lading and
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
CENTRAL INTELLIGENCE AGENCY
Directorate of 'Intelligence
April 1971
INTELLIGENCE MEMORANDUM
COMMUNIST CHINA: AN ESTIMATE
OF GROSS NATIONAL PRODUCT
Introduction
1. All dollar estimates of the gross national product (GNP) of
Communist China are suspect. The estimate in this memorandum is no
exception. The usual problems of making calculations in two wholly
different price systems are compounded in the case of China by the absence
of reliable statistical data and by the restrictions placed on travelers,
diplomats, and other independent observers. Starting in 1960, the Chinese
regime imposed a statistical blackout, and practically no useful national
economic data have been released for a decade. Recently, however, there
was a slight lifting of the blackout when the American writer Edgar Snow
was given some national economic data for 1970 by Premier Chou En-lai.
2. This memorandum presents an index series for China's GNP in
1952 and 1957-70 and translates this series into a series in 1969 US dollars.
The text describes the estimates and their implications, summarizes the
methodology, evaluates the Chou/Snow figures, and ventures a general
estimate for GNP growth in the Fourth Five-Year Plan (1971-75). An
Appendix sets forth the methodology
Note: This niennorandton was prepared b,r the Office of l:cononde Research
and coordinated within ('IA.
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
COMMUNIST CHINA: GROSS NATIONAL PRODUCT
PART'A
Aggregate GNP
Billion 1969 $ US
Per Capita GNP
1969 $ US
139
?131 125
136 1 131
121
118 1
SECRET,.
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
Survey of Results
3. The GNP of Communist China in 1970 was approximately $119
billion in 1969 US dollars, or $143 per capita. Since 1952, the statistical
base year immediately preceding the First Five-Year Plan period, China's
GNP has doubled. Overall output has thus been growing at an average annual
rate of 4% under the Communists. The advance has been erratic, as shown
in Part A of the chart. The severe damage from the disastrous Great Leap
Forward (1958-60) shows up clearly on the chart, whereas the setback from
the Cultural Revolution represents a much less spectacular interruption to
China's economic advance. The year 1970 is revealed as the best year to
date and a strong launching platform for the new Fourth Five-Year Plan
(1971-75).
4. The annual average rate of growth of population in China during
1952-70 was probably 2.2% plus or minus 0.3%. Therefore, the annual
average rate of growth of per capita GNP in this period was about 2%.
In Part B of the chart, per capita GNP shows the same profile as aggregate
GNP but with a long-time upward trend of 2% instead of 4%. Per capita
GNP in 1969 was only a little higher than in 1957, the final year of the
First Five-Year Plan. The year 1970, however, saw a jump of almost 10%
in per capita GNP.
5. Whereas overall economic activity increased at a 4% average annual
rate in 1952-70, agricultural and related activity advanced at only 2%.
Industrial and related activity, on the other hand, advanced at an average
rate of 8% on the small 1952 base - 6% if the larger 1957 base is taken
as the starting point. In 1957 the ratio of agricultural to industrial activity
was roughly 2 to 1. By 1970, industrial activity had caught up with
agricultural activity.
6. These results are all consistent with the following general
conclusions on the Chinese economy presented in recent intelligence
reports*:
a. Maoist political upheaveals - particularly the Great
Leap Forward - have imparted an erratic quality to
Communist China's economic growth.
b. The regime has pursued a long-run policy of
spurring industrial development, at the same time providing
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
sufficient growth in agriculture to preserve the productive
efficiency and morale of the growing population. Thus both
population and agricultural production have been growing
at a long-term average rate of 2%, whereas industry has been
growing at 8% since 1952, or 6% if 1957 is used as a base.
A corollary is the increasing proportion of industrial and
related activities in GNP in comparison to agricultural and
related activities.
c. With the waning of the Cultural Revolution, the
Chinese are scoring some impressive successes - for example,
in industrial construction, in armaments production, and in
industrial support for agriculture. These achievements are
reflected in a sudden spurt in aggregate and per capita GNP
in 1970.
Some Implications of the Results
7. In both 1957 and 1970 the urban population is believed to have
been about 15% of the whole. If the ratio of agricultural activities to
industrial activities was 2 to 1 in 1957, then the GNP produced by the
average urban dweller was three times the GNP produced by the average
rural dweller. By 1970, when the ratio of agricultural to industrial
production was approximately I to 1, the urban dweller produced six times
the GNP of the rural dweller. This conclusion is consistent with (a) the
buildup of industrial capacity and technology in the modern sector of the
economy and (b) the increase in the proportion of the urban population
working at full-time rather than part-time jobs and/or at higher levels of
skill and productivity. In other words, labor has been so plentiful in the
urban areas that large injections of new capital did not require any additional
labor beyopd the normal population increase. China does not have the
problems of the USSR of building up the urban labor force by drawing
on the rural population and of substituting machinery for labor in the farm
sector.
8. One test of the reasonableness of the dollar GNP figures for China
is to compare the value of imports of various countries - which is accurately
known from international trade statistics as a percent of GNP. Figures
for major countries in 1969 are:
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
Country
Imports as Per-
cent of GNP a/
Communist China
1.7
USSR
2.2
United States
4
India
5
Japan
7
United Kingdom
14
West Germany
14
a. Converted at US pure acing power
equivalents.
The low percent for China is not unreasonable, given its huge and diversified
land area, its large and fairly self-sufficient agricultural sector, and its
long-term policy of economic autarky.
9. The per capita level of GNP of $143, which seems high for the
ordinary underdeveloped country, should be considered in the light of
China's general economic position. In 1969-70 the Chinese economy made
a number of gains which look very impressive when listed down; a few
examples follow:
- the rapid development of new oilfields and new
primary and secondary processing facilities;
- the pushing of rail lines through extremely rugged
terrain and the building of major railroad and highway
bridges;
- the launching of two satellites;
the provision of several thousand workers and
technicians for the Tan-Zam rail project, one of the biggest
development projects in all of Africa;
the serial production of a jet medium bomber, the
TU-16 Badger, and the simultaneous development and
- 5 -
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
production of a surprising range of other modern weapons,
some of indigenous design;
the continued construction and commissioning of
several sizable industrial complexes.
10. This Chinese economy is therefore not a subsistence economy
with a per capita GNP of $100 or less. Rather, it may be regarded as an
economy with, say, a $100 "basic maintenance" sector (consumption plus
maintenance of the consumption mechanism) and a $43 per capita
"development thrust" sector (heavy industrial investment plus modern
weapons). This per capita figure added up over a population of 840 million
gives a powerful absolute push especially in the weapons field. The 2.2%
growth of population in this context can be viewed as constricting this
development margin. And finally, the desire of the population for a steady
increase in material well-being - and the Maoist counter pressure for a
spartan outlook toward material goods can be interpreted as a contest
over this margin. As the chart shows, China broke through the $100 level
by 1957, fell back precipitously as a result of the Leap Forward, and now
is moving ahead with a slowly widening margin.*
11. Many observers have noted the inherent difficulties in collecting
economic data for GNP purposes, especially in the less developed countries,
and the conceptual difficulties in dealing with two often radically different
price systems. Therefore, the following tabulation of per capita GNP for
various countries in 1969 or 1970 can only help to show that the estimate
for China is not unreasonable:
Country
Per Capita GNP a/
(US $)
United States
4,600
West Germany
2,900
USSR
2,000
Japan
2,000
Romania
1,100
Nationalist
China
330
Communist China
143
Pakistan
120
India
80
a. Converted at US purchasing power
equivalents.
* Because of the US inflation, the $100 benchmai?: for per capita GNP
is not a fixed measure. For instance, the $100 figure in this memorandum,
which is in terms of 1969 US prices, would represent only $75 in 1957
prices. Conversely, if in 1957 an observer had believed a $100 per capita
GNP separated the less developed countries with momentum from those
without, today the benchmark would be $130.
6 -
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
Summary of the Methodology
12. The primitive methodology used to arrive at these GNP estimates
may be summed up in one sentence: A GNP index series was constructed
by combining an agricultural and an industrial production index and this
index series was converted to dollars by use of a dollar estimate of Chinese
GNP for 1955.
At this
point, only a few key steps are listed, steps that are illustrated by the
summary information contained in Table 1:
a. A series for grain production was modified in two
ways - by allowing for the produc`ion of subsidiary foods
and non-food crops so that it could serve as an index of
overall agricultural production..
b. The series for agricultural production was
combined with an existing series of industrial output to form
a GNP index, agriculture being weighted twice as heavily as
industry for 1957.
c. An estimate of $48.19 billion for Chinese GNP in
1955 was used to obtain Chinese GNP for 1957 as $79.23
billion in 1969 dollars by noting that: (1) real Chinese GNP
was 16.6% higher in 1957 and (2) the US GNP deflator price
index had risen 41% between 1955 and 1969.
d. The GNP index series was converted to 1969 US
dollars by multiplying through by $79.23 billion and dividing
by 100.
e. A population series was introduced in order to
calculate GNP per capita both in dollars and in index number
form.
Chou/Snow Figures
13. As a result of his long conversation with Premier Chou En-lai
during his recent visit to Communist China, the American author Edgar
Snow has furnished the most useful set of economic claims to have come
out of Communist China since 1960. In articles in the world press in
February and March of 197;,* Snow reports that Chou:
* See, for example, FBI. Daily Report: Communist China, 25 March
1971 (FBIS-CHI-71-58) pp. B-6-11, for Snow 's report in the Yugoslav press;
his reports in the Italian and US press are practically identical.
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875RO01700010019-9
(1957 = 100)
GNP index (1957 = 100)
GNP in billion 1969 US dollars
Population, mid-year
(million persons)
US dollars
154 185 200 165 160 160 175- 175- 180- 190- 195- 210- 195- 200- 215-
180 180 185 195 200 215 200 205 220
83 100 108 86 83 78 90 90 96 101 106 115 106 109 116
51 100 130 163 160- 103- 106- 117- 133- 155- 177- 142- 147- 178- 208-
162 105 109 123 141 165 190 154 162 198 233
72 100 115 112 109 87 96 100 110 120 132 126 122 135 151
57 79 91 88 86 69 76 79 87 95 104 100 97 107 119
570 642 658 674 689 701 710 721 735 751 766 783 800 818 836
101 123 139 131 125 98 107 110 118 127 136 127 121 131 143
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
assessed the general economic situation in China,
including the economic effects of the Cultural Revolution;
- supplied data on the output of half a dozen major
commodities in 1970; and
- gave estimates of the aggregate value of Chinese
national output in 1970.
14. As to the, general economic situation, Chou spoke of stron
g
advances in industry and agriculture. He did admit that the Cultural
Revolution caused industrial production to fall in 1967-68 (Table I shows
a fall of almost 20% in 1967). But he added that the production from
communes never fell during the Cultural Revolution (Table I shows a record
grain crop in 1967). He summarized by stating that the economy suffered
"relatively modest basic damage" during the Cultural Revolution. Chou's
assessment of the economic effects of the Cultural Revolution is in harmony
.h
t
wi
Lite pattern of the GNP series for 1966-69 presented in this
memorandum and with the underlying physical production data from which
the series was calculated.
15. As for Chou's estimates of the output of major commodities in
1970, they appear high but not beyond the realm of reason. For example,
his "over 240 million tons" of grain compares with the 215-220 million
tons used in this memorandum. Either figure would mean that the per capita
food supply in 1970 is in the same neighborhood as the supply in the
statistical base year of 1957. Chou's figure would mean, however, that
agriculture would need less support from the other sectors in 1971-75,
whereas our figure suggests that the pressure on agricultural resources will
not be relaxed in 1971-75.
16. Chou's 20 million tons of crude oil for 1970 com are with o
estimate of production of 18 million tons, with both figures representing
a .sharp rise in the output of this strategic industry. His figure of 14 milli
-
',
n
tons for fertilizer production is double our 7 million, but the problem of
identif i d
n
g an quantifying the output of several thousand little plants
k y
ma
es any estimate roughly conjectural. Chou also gave figures for steel
(annual n>tnnt r,# In i c ...:n:..- .,._- _.- ,.,~..,,,. - -
17. These Chou/Snow figures for individual commodities are bare of
context (such as the underlying provincial data or data from reviou
r s years)
which would help in analysis. However, they do share one feature of
importance fo d
A Ju grog their validity - that is, the use by Chou of Edgar
9
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
Snow as a friendly and effective transmission belt for publicizing as rosy
as possible a picture of Chinese Communist economic achievements.
18. As to the third element in the economic briefing, Chou's estimate
of Chinese national output in 1970, was as follows:
Billion
Us $
Industry and transport
90
Agriculture
30
Total
120
19. Three comments on these figures are especially relevant to this
memorandum:
a. First, the Marxist definition of national output
ordinarily covers the material output of industry and
agriculture. According to Snow, Chou said his figure of $90
billion "includes only the industrial and transport sectors and
conceptually from the coverage of GNP as used in this
memorandum.
does not include the trade and service sector." Thus Chou's
estimate for nonagricultural activity is understated by
Western standards to the extent that he leaves out important
segments of economic activity; at the same time, the estimate
is overstated by an important factor working in the opposite
direction - this is the double-counting of products at
different stages of production, which means that industrial
output as reported by Chou may reflect not only the trucks
produced but also the components that went into them and
the steel that went into the components. similarly, in
agriculture a. large amount of service activity is ignored,
although the amount of double-counting is much less than
in industry. Thus the coverage of Chou's figures differs
Communist data for 1956 for translating gross value data
double-counting. If -- as seems likely the Chou figures
represent data for gross output and if one uses Chinese
to 1 in the present memorandum, largely because of
b. Second, the proportion of industry to agriculture
is 3 to I in the Chou figures for 1970 compared with 1
- 10 -
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
for industry and agriculture into what the Chinese call "net
value of industrial and agricultural output," the results in
1970 would be as follows:
'Billion' US y,
Agri-
culture
Industry
(Including
Transport)
Gross value of output
30
90
Not value of output
25
31
In this case, the not values implied in Chou's figures come
close to the I to I ratio for industrial and agricultural activity
in 1970. It should be remembered, however, that the
definitions of "industry" and "agriculture" used by Chou
differ substantially from the definitions of this
memorandum.
c. Third, Snow reports that Chou's dollar figures were
derived from Yuan values by using the long-standing
international exchange rate of 2.4 yuan to US $1. The
conversion process used in this memorandum, which is
explained in the Appendix, rests upon a dual calculation of
Chinese and US GNP, first in yuan prices and then in dollar
prices.
20. In summary, it is only by coincidence. that the dollar estimate
of national output for 1970 ($120 billion) presented to Snow by Chou
is approximately the same as the estimate in this memorandum ($119
billion). There are deep differences in coverage, in the relation of industry
to agriculture, and in the method of conversion into dollars.
21. The overall impression given by Chou's presentation of China's
economic situation is one of vigorous advance ;n industry and agriculture.
As spokesman for the rcgimc, Chou accentuated the positive features and
soft pedaled the obvious failures such as the decline in industrial production
in 1967-68. HAs statistics on the production of individual commodities in.
1970, while high, cannot be dismissed out of hand. His estimates of national
output ought not to be compared directly with the results of this
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
memorandum, because of conceptual differences. If allowance is made for
the public relations role of the, Chou/Snow team, the independent estimates
of this memorandum are generally consistent with Chou's economic briefing.
Range of Accuracy
22. Several elements should be considered in assessing the range of
accuracy of the estimates presented in this memorandum. First, the accuracy
of the underlying physical output data is a serious problem. The agricultural
series rest mainly on grain, which in turn is a composite of rice, wheat,
miscellaneous grains, and sweet potatoes. Estimates of these quantities
depend on judgments as to acreage, crop patterns, weather, fertilizer and
other inputs, and agricultural policies and incentives -- all subject to
considerable error. The industrial production index rests on estimates of
output for a small number of major industrial products and on a sub-index
of military production. Not only are important products missing but also
estimates for those included suffer from the long statistical blackout.
Estimates of both agricultural and industrial production depend on
increasingly tenuous ties with the statistical base of the 1950s. In spite
of these limitations, the GNP index series with 1957 equal to 100 seems
to give a credible profile of short-term fluctuations in aggregate output and
in long-term rates of growth, 1952-70 or, 1957-70. If Chou En-lai's
production figures for 1970 turn out to be accurate, the whole series for
the 1960s would have to be tilted upward with 1970 being roughly 10%
higher.
23. Second, the translation into dollars of the GNP index series
which is constructed independently 'if any assigned dollar values -- is the
weakest link in the chain. The resulting aggregate and per capita dollar
figures are to be swallowed with considerably less confidence than the index
series itself. Still, the dollar figures are not unreasonable by the simple tests
applied in earlier sections of the memorandum. .
24. Third, the aggregate GNP figures were arrived at independently
of the population estimates for China. The population of 836 million used
for 1970 is probably right within plus or minus 50 million perscns. If so,
the per capita GNP figure of $143 for 1970 would have a range of error
from this source of about plus or minus $8.
Prospects
25. The implication of these calculations and interpretations is that
the short-term prospects for annual growth in Chinese GNP and its
components are:
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
0 ,in industry, from 5% to 10%, with the lower end
of the range more likely;
in supporting sectors, in rough proportion to
agriculture and to industry; and
26. These hypothetical rates present a middle-of-the-road picture. If
Chou En-lai's rosy recital is a more accurate picture of economic reality
in Communist China, the rates would be higher. If China experiences two
or three years of unfavorable weather in agriculture or if radical economic
policies again move front stage, the rates would be lower. The rates are
low in comparison with those of Taiwan, Japan, and West Germany but
perfectly respectable in comparison with the remainder of the developed
and less developed world. Conceivably, China could widen the gap between
itself and the less developed world and at the same time fall farther behind
the leading industrial nations.
SECRET
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
SECRET
Methodology
The estimates for the gross national product (GNP) of Communist
China, 1952 and 1957-70, presented in this memorandum were calculated
by: (a) constructing an index of aggregate physical output by combining
indexcb of agricultural and industrial output, and (b) converting this index
series to a US dollar series by using the calculated dollar value of Chinese
GNP in 1955.
SECRET
25X1
25X1
25X1
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
 Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9
Iq
Next 3 Page(s) In Document Denied
Sanitized Copy Approved for Release 2010/02/02 : CIA-RDP85T00875R001700010019-9