The composition of GNP growth mirrors the economic priorities of the Communist leadership. Once a reasonable amount of food has been provided to maintain the morale and productive vigor of the population, the energies of the economy are to go to the expansion of industrial capacity and output. Thus agricultural production has been advancing over the long run at 2 percent in line with population growth, while industrial production has been growing at 9 percent, on the 1957 base. As shown in the second section of figure 1, population has moved steadily upward whereas grain production has fluctuated widely. In particular, in what Peking labels "the 3 disaster years" of 1959-61, grain output dropped by one-fifth through a combination of manmade and natural disasters. Beginning in 1961, the PRC has imported several million tons of grain annually to supplement domestic production.

In addition to consumption and investment, a third major charge against national output is defense. Manpower requirements for defense represent a negligible net drain on resources since (a) only 1 out of 10 males in each age class is selected for service, and (b) the People's Liberation Army grows much of its food, furnishes a great deal of manpower to the civilian economy at harvest time, and supports major construction projects. Military requirements levied on heavy industrial and technological resources, while considerable, have been moderate enough to permit substantial growth in general industrial capacity. In the current 5-year plan period, China has moved into the production of aircraft, submarines, missiles, and other weapons of its own design. Yet its military establishment remains strongest in its tough, frugally maintained ground forces, which give it a formidable capacity for in-depth defense of its territory.

Foreign trade is small compared with domestic production, exports being equal to less than 3 percent of GNP. China is a huge continental nation with the domestic potential for practically all kinds of agricultural and industrial output and with often stated aspirations for economic self-sufficiency. Trade is viewed as a temporary vehicle for obtaining foreign machinery, technology, and grain. The leadership of the PRC-which remembers its experience of the 1950's when it relied so heavily on a single source, the U.S.S.R.-now spreads its orders for modern equipment among several Western suppliers and Japan; and China is rapidly widening its own competence in machine building. The third section of figure 1 shows the switch in trading partners made after the collapse of the Leap Forward and the withdrawal of the Soviet technicians. Whereas the PRC conducted two-thirds of its trade with other Communist countries in the late 1950's, it now conducts four-fifths of its trade with non-Communist countries. As part of its commitment to economic self-sufficiency, the People's Republic has kept internal and external debt to a minimum, In 1973-74, Peking chose to relax this policy and began to arrange for deferred payments on a portion of its imports of machinery.

To summarize these background elements: as of early 1975, the Chinese economy has been shaped by the working out of four interdependent long-term factors:

For a discussion of military-economic issues in the People's Republic of China, see the paper by Sydney H. Jammes in this volume.

GNP growth that has provided a substantial margin over subsistence for use in building up the capacity of the economy and maintaining a formidable military defense;

Agricultural growth that, supplemented by comparatively small imports, has sufficed to feed the expanding population;

Industrial growth that, starting from a small base, has provided rapid increases in capacity and output of industrial materials, machinery, and military equipment; and

Foreign trade growth that for more than a decade has been geared to acquiring advanced industrial equipment, industrial materials, fertilizer, and grain from non-Communist trading partners.

IV. PLANNING: MODERATION IN VOGUE

The economic planning system. which had been partly paralyzed during the Cultural Revolution (1966-69), recovered much of its forcefulness in 1970-72, only to be subject to new political buffeting in 1973-74.

During the Cultural Revolution, a large slice of the ranking Party and government leaders had lost their jobs. Heads of economic ministries and planning agencies dropped from sight; in many cases their posts were not officially filled until January 1975. Farther down the hierarchy, the disruptions of the Cultural Revolution were mild except in a few riot-torn cities like Wu-chou near the Kwangsi/Kwangtung border. In most areas for most of the period, the day-to-day activities of the economy-the collection and distribution of grain, the operation of factories and communes, and the carrying out of financial transactions-continued undisturbed on the basis of institutional roots established over the first 17 years of Communist rule.

After the Cultural Revolution had subsided, economic policy initiatives became possible at the top:

In the fall of 1970, Premier Chou En-lai announced that a Fourth Five-Year Plan for 1971-75 had been drafted.

Formerly discredited bureaucrats began to reappear, most notably the deposed Party Secretary Teng Hsiao-ping;

In 1972-73, agreement was reached within the top leadership on important changes in long-term strategy in agriculture and industry, as discussed below.

In mid-1973, new political ferment began to revive questions about the balance in the continuing radical-versus-moderate confrontation. During the course of the "anti-Confucius, anti-Lin Piao" campaign, attacks were launched against reliance on material incentives, foreign technology, and the leadership of rehabilitated bureaucrats. In the first half of 1974, the political turbulence began to interfere with the rhythm of production, leading to quarrels over incentive systems, scattered slowdowns and stoppages in the factories, and interruptions to rail traffic. Additional questions about the political future came to the fore in early May 1974 when Premier Chou En-lai reduced his grueling workpace because of advancing years and growing physical ailments. In the second half of 1974, however, the official press began to beat the drums for production, and the interruptions to production died down. Chou continued to orchestrate the nation's business from his hospital room. The restoration of a moderate pol

icy was dramatically underscored when Chou was reconfirmed as premier by the Fourth National People's Congress in January 1975. His "state of the union" address at the Congress, while paying due respect to the necessity for continued revolution, stressed increased output and improved technology. Simultaneously, articles in the press noted the importance of labor discipline and the necessity of harder work without additional remuneration.

In the second half of 1974, Chairman Mao, the unique fount of inspiration and authority, had added to the uncertainty about national policy by disappearing from Peking, apparently staying in his native province of Hunan. His failure to attend the January National People's Congress suggests to some observers that differences exist between him and some of the other Chinese leaders on important issues.

While more than pinpricks, the difficulties of the first half of 1974 did not change the general course of the economy and its overall prospects for growth.

The planning and statistical systems in early 1975 have recovered from the battering sustained during the Cultural Revolution. The cycle of planning, including the succession of plan drafts and the bargaining back and forth between government levels, goes on in regular fashion. Statistics on planned and actual production, consumption, and stocks and on financial flows move up and down the line. The 15-year statistical blackout continues, however, with Peking publishing only a few national and provincial statistics and confining most of those to percentages rather than absolute values.3

The political turbulence at the center in 1973-74 increased the importance of provincial and subprovincial organizations in the direction of the economy. This is an advantage to the economy as long as the momentum of established policy carries the economy in the right direction. It is further an advantage, certainly for the short run, when the policy initiatives at the center turn out to be impractical innovations from the radical end of the political spectrum. Part of Chou's purpose in his report at the National People's Congress was to reassert central control over economic planning as well as a tightening of central management of economic affairs.

In the meantime, the lower-level cadres and the rank-and-file peasant, worker, and professional want to settle down. They must be weary of political indoctrination meetings and petty interruptions of the hard daily task of making a living. They look forward to gains in consumption and to opportunities for advancement on the job. The implicit affirmation in early 1975 of moderation in economic policy will be welcome down the line.

V. AGRICULTURE: GROUNDWORK FOR BREAKTHROUGH

The agricultural sector is entering the third stage of its development since the Communists came to power. In the 1950's, when the Soviets were the economic mentors of the People's Republic, the agricultural sector was left largely dependent on its own material resources. Tight control over production and distribution of agricultural output, collectivization of the countryside, and use of rural labor to improve the soil and build water control facilities were counted upon to provide

3 For a review of the current statistical situation, see Appendix B.

(a) needed food, (b) raw materials for industry, and (c) export products to be exchanged for machinery and industrial materials. This initial strategy became bankrupt in the Leap Forward when the leadership established the unwieldly supercollectives (the communes), abolished the private plots, and wasted vast resources on ill-conceived programs.

After having taken emergency measures to bring China back from the verge of mass starvation and political disintegration, the leadership in 1962 adopted a new agricultural policy-the provision of substantial and growing support from the modern industrial sector. For more than a decade now, a mounting volume of chemical fertilizer, pesticides, irrigation equipment, tractors, and improved seeds has been flowing to the agricultural sector. This support has been supplemented by the output of a host of small industrial plants established in outlying areas.

In 1972, in a third great policy decision, the leadership embarked on a long-term agricultural improvement program to free China of the necessity of importing grain and chemical fertilizers. Between November 1972 and May 1974, Peking contracted for 13 large urea plants from Japanese, West European, and United States sources at a total cost of $500 million. Output from these plants, if expeditiously supplemented by improved water control facilities and increased supplies of other types of fertilizer, will boost agricultural output to a new higher plateau by 1980. Production of grain in 1980 could be as much as 30 percent above the 1974 level; the need for imports of grain and nitrogen fertilizers could be eliminated, even in poor crop years. In the meantime, Peking must continue to import sizable quantities of grain. In 1972, grain imports were 4.8 million tons and in 1973, a record 7.7 million tons. Purchases in 1974, originally scheduled at more than 9 million tons, fell off to 7 million tons, distributed as follows:

The grain crop in 1974 was above the 250 million tons of 1973 and may have been as much as 260 million tons. A figure of 255 million tons is carried in the statistical tables in this paper. Weather was average to somewhat below average in both 1973 and 1974. The continued increase in the effectiveness of the water control system and the general increase in inputs into agriculture constitute the key elements in the long-term upward trend in farm output. Results for 1974, as for 1973, can be viewed as falling approximately on the long-run agricultural growth curve with its 2 percent rate of climb.

Improvements in flood control and irrigation facilities continue to yield substantial returns in output in some areas, because many water control projects are only partly finished and major rivers and large tributaries remain to be harnessed. In addition to the improvement of