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growth in three ways. First, the output of fertilizer will increase the value of industrial output directly; second, the increased availability of fertilizer will mean increased production of agricultural raw materials and thus have an indirect impact on growth; and third, the foreign exchange currently needed to purchase grain and fertilizer will be freed for the purchase of machinery and equipment. To the extent that population growth is curbed, additional foreign exchange will be available for industrial investment.

In general, Chou called for balanced efforts to promote growth. Thus, the judgment that growth will be relatively slow while the structural imbalances in industry are being corrected seems sound. The Chinese long-run objective is to catch up with the West, and what they are doing now and what they seem to be planning for the next 5 to 6 years could set the stage for a new wave of rapid growth. There are, however, certain hazards. First, the current widespread demands for higher wages appear to be a genuine expression of the workers' desire for a higher standard of living. Holding down material incentives and depending on discipline may do for the moment, but the potential for disruption is always there. Second, if industry falters, or if the current policies do not pay off in higher growth rates by the end of the decade, the pressure for a radical solution may be overwhelming. The Chinese might try a new leap in a desperate effort to achieve the industrial status for which they hunger. These hazards are present during a period in which the People's Republic is grappling with a leadership succession problem. If economic shortcomings become issues in the succession itself, their potential for disrupting Chinese industrial growth is unprecedented.

In summary, the prospects are for a period of moderate growth in industry with emphasis on achieving balance, but with the everpresent possibility of breakdown due to political disruption, worker discontent or a desperate attempt to accelerate the rate of growth.

APPENDIX A

DESCRIPTION OF THE INDEX

The index of industrial production for the People's Republic of China presented here is a substantial revision of the index prepared for the Joint Economic Committee in 1966 18 and brought up to date in 1971.9 The three principal changes are: (1) the number of commodities included in the index for the years since 1957 has been increased from 11 to 27; (2) the development of a new index number technique has made it possible to include physical output series for which the data are not complete ; 20 and (3) the index has been restructured to facilitate comparison with a reconstruction of the official index.21

1. For the Years 1949–57 Indexes showing the growth of production for individual branches of industry, for producer and consumer goods, and for industry and handicrafts are presented in table A-1.

18 Robert Michael Field, “Chinese Communist Industrial Production," An Economic Profile of Mainland China, Joint Economic Committee of the U.S. Congress, Washington, D.C. 1967. pp. 269-295.

19 Robert Michael Field, “Chinese Industrial Development: 1949-1970." People's Republic of China: An Economic Assessment, Joint Economic Committee of the U.S. Congress, Washington, D.C., 1972, pp. 61-85.

20 For a description of the technique, see Appendix C.

21 For an analysis of the reconstructed official data, see Robert Michael Field, Nicholas R. Lardy, and John Philip Emerson, A Reconstruction of the Gro88 Value of Industrial Output by Province in the People's Republic of China: 1949-1973, U.S. Department of Commerce, forthcoming.

TABLE A-1.-DERIVATION OF THE INDEX OF CHINESE INDUSTRIAL PRODUCTION, 1949-57

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Weights

100.00

Coal ..

Total industrial production.

Producer goods.

Consumer goods.
Industry.-----
Producer goods...

Electric power.
Petroleum.
Ferrous metals.
Machine building,
Chemical processing.
Building materials.
Timber.

Paper.
Consumer goods.

Textiles.....

Food processing
Handicrafts......

Producer goods
Consumer goods.

ខ្ញុំជា-=--ខ្ញុំ៖

39. 18

58.56
79.92
74.88

33.03
48.83
45.33
52.39
52.76

24. 60

16.52

114.00 125.78 110.53

A, INDUSTRY The index for industry was constructed from Chinese data on the physical output of 42 commodities produced by 11 branches of industry. These data were weighted in three stages. In the first stage the output series were grouped by branch of industry and indexes were calculated separately for each branch. The indexes for seven branches of industry-electric power, coal, petroleum, ferrous metals, building materials, timber, and paper-were each based on a single commodity. The indexes for the chemical processing, textile, and food processing industries were based on a sample of the commodities produced by these branches weighted by their respective prices.

The construction of the index for the machine-building industry was more complex. For the years 1952-57 the index was calculated from physical output data. Because the commodities produced by the machine-building industry are extremely diversified, they were divided into categories that are more homogeneous than the industry as a whole. Then a two-stage index was constructed in which prices were used as weights within the individual categories and the relative shares of the gross value of output as weights between categories.” For the years 1949–51 this procedure could not be used because the sample of physical output data was restricted to a small number of products that grew much faster than was typical of the industry as a whole. For these years the index was computed by adjusting the official data to allow for the difference in the rates of growth shown during the First Five-Year Plan period by the official index of gross value and the estimated index of value added.

In the second stage of aggregation, indexes for producer and consumer goods were obtained by combining the indexes for the individual branches. The weights employed were the relative shares of the wage bill paid to workers employed in those branches of industry that are included in the index. In the third stage, an index for industry as a whole was derived using wage bill weights that had been adjusted to account for the degree of coverage in the producer and consumer goods sectors. The derivation of the weights is presented in table A-2.

TABLE A-2.-DERIVATION OF WEIGHTS FOR THE INDEX OF CHINESE INDUSTRIAL PRODUCTION, 1949-57

Share of wage bill

among
included
branches 2

Adjusted
share of

Gross value 1

wage bill

Final weights

3 117.66
471.56

Total, excluding repair.
Producer goods.
Included.

Electric power
Coal.
Petroleum.
Ferrous metals.
Machine building-
Chemical processing.
Building materials.
Timber

Paper..
Excluded.
Consumer goods
Included

Textiles.

Food processing-
Excluded.

57, 744
28, 249
520, 725

928 1,510

650 4,113 5, 361 3,652 1,475 1,718

1,318 67,524 29,495 5 22,918

11, 154 11,764 66,577

$ 52.50

2. 18 12. 26

92 5. 96 11.44 2. 88 9.82 5.83 1.21

100.00

60.82 100.00

4.15 23. 36

1.75 11.35 21,79

5.49 18. 71 11.10 2. 30

4 46.10

535. 82

18.04
17. 78

39.18 100.00 50. 36 49.64

1 Tables B-5, and B-6.

2 Robert Michael Field, "Chinese Industrial Development: 1949-71," "People's Republic of China: An Economic Assessment," Joint Economic Committee of the U.S. Congress, Washington, D.C., 1972. p. 76. The branch weights do not add to 100 because the consumer goods portion of machine building, and metal products and repair have been excluded from the metal processing sector, and the producer goods portion has been excluded from textiles.

3 Derived as the sum of producer and consumer goods.

• Derived on the assumption that the relative share of the wage bill paid to workers employed in the included branches was the same proportion of producer goods and consumer goods, respectively, as the share of these branches in the gross value of output.

5 Derived as the sum of the included branches.
6 Derived as producer and consumer goods less included branches, respectively.

22 For a complete description of the machine-building index, see Robert Michael Field, "The Chinese Machine Building Industry: A Reappraisal," Ti

Quarterly, AprilJune 1973, pp. 308-320.

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The index of handicraft production was not calculated from physical output data because data were available for only eight commodities produced by handicrafts and the output of these commodities was not typical of handicrafts as a whole. Instead, the index was derived from official indexes for handicrafts producer and consumer goods. These indexes were weighted by the relative shares of the gross value of handicraft output, excluding repair, in 1956. The value of repair should have been excluded from the index of handicraft producer goods, but information on year-to-year changes in repair was not available.

C. TOTAL INDUSTRIAL PRODUCTION The index of total industrial production was obtained by weighting the indexes for industry and handicrafts by the relative shares of the gross value of output, excluding repair, in 1956. Independent estimates of the values added in industry and handicrafts could not be used as weights because the data on the earnings of handicraft workers necessary to calculate the weights were not available and could not be estimated. The structure of the index for the 1950's and the nature of the weights used in each stage of aggregation is summarized in figure 2.

[graphic]
[graphic]

Structure of the Industrial Index for the Years 1949-1957

Electric power

1 series

Coal
1 series

Power machinery

and equipment price a quantity

Petroleum
1 series

Machine tools

1 series

Ferrous metals

1 series

Specialized

machinery and equipment price x quantity

Machine building
gross value

weights

Producer goods wage bill weights

Chemical

processing price x quantity

Agricultural

machinery and equipment 4 unweighted

series

Building materials

1 series

Railway machinery

and equipment price 2 quantity

Timber 1 series

Industry adjusted wage

bill weights

Shipbuilding

1 series

Paper
1 series

Textiles
price x quantity

Total gross value

weights

Consumer goods
wage bill weights

Food
price : quantity

Producer goods
gross value index

Handicrafts gross value

weights

Consumer goods gross value index

565310 3.75

II. For the Years 1958–74 The system of weights used to calculate the index for the years 1949–57 was not used for the years 1958–74 because handicraft production could not be separated from the production of industrial enterprises and because the number of output series for which estimates are available was reduced. For example, only one complete series was available for such important branches of industry as textiles and food processing. The procedure used was to group the series by sector-namely, machine building, other producer goods, and consumer goods and weight them by their respective prices. The resulting sectoral indexes were then aggregated using an adjusted set of weights. The derivation of the index is presented in table A-3, the derivation of the weights in table A-4, and the physical output series in tables B-1, B-2, and B-3.

TABLE A-3.—DERIVATION OF THE INDEX OF CHINESE INDUSTRIAL PRODUCTION, 1958–74

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TABLE A-4.-DERIVATION OF WEIGHTS FOR THE INDEX OF CHINESE INDUSTRIAL PRODUCTION, 1958–74

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1 Table A-2.
2 The relative share of the gross value of handicraft output, exciuding repair, from table B-5.
3 The relative share of the gross value of industrial and handicraft output from table B-5.

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