and output, and simultaneously maintain a powerful military defense. At the same time, progress has been highly erratic because of political turbulence.

Near-term economic prospects, i.e., for the period of the new Fifth Five-Year Plan (1976-80), are comparatively easy to assess. We know the agricultural and capital plant now in place, and we know the general thrust of plans for the expansion of productive capacity. Agricultural output will increase as greater inputs come from industry, especially when the new foreign fertilizer plants are commissioned toward the end of the plan period. Weather will lose some of its force as the major factor determining annual output, since massive effort continues to go into water control projects. As agricultural technology improves, the blending of the productive factors will increase in importance, for example, the provision of the proper soil and moisture conditions for new seed varieties.

In industry, expansion of output in steel, petrochemical, and other priority branches will be determined largely by new plants already under construction. Industrial growth rates will be held down by continuing strains on capacity in basic industries. The high catchup rates of the years following the Cultural Revolution will not be repeated in 1976-80.

As for foreign trade, the momentum gained in exploring for oil, developing new oil fields, and expanding pipeline and port facilities will maintain oil's top billing as the fastest growing major export. At the same time, short-term prospects are poor for sales of China's traditional exports because of the weakening of demand in the recession-hit industrial economies. Trade and other financial dealings with Hong Kong will continue to yield net annual earnings of more than a billion dollars in hard currency, assuming no great change in the political status of the Crown Colony. Peking almost certainly will move cautiously in expanding its debt with foreign suppliers. As for relations with the U.S.S.R., China has no compelling economic reason for welcoming a rapprochement with its former Communist partner.

China, as argued above, has the administrative muscle, the organizational capacity, and the scientific know-how to rapidly curb population growth. However, this program almost certainly will not get the sustained priority over these 5 years necessary to obtain this result. The reasoning here is that a host of other problems (many attendant. upon the fading from power of Mao and Chou) will take up the time of the leadership.

In general, the roots of the PRC economic system-as was demonstrated during the Cultural Revolution-are so deep that only a political cataclysm could dislodge the institutions and practices of everyday economic life.13

Among the critical problems of the transition period is the maintenance of productive incentive and morale. Although most people have been benefiting from gradual improvements in living standards, the absolute level remains austere. As is often the case, the most discontent seems to come from not the poorest groups but comparatively

13 For an authoritative survey of the whole transitional problem-political, economic. military -see A. Doak Barnett, Uncertain Passage: China's Transition to the Post-Mao Era, Washington, Brookings, 1974.

well-off groups who want more rapid improvements. In 1974, for example, spot shortages of consumer goods caused slowdowns and even strikes among industrial workers. Of greater long-run importance is the morale of the urban middle-school graduates, sent to the countryside for a lifetime of service to Chairman Mao. Also of importance to morale is the possibility that hard-liners may come to power and crack down on the private plots and private trade in the countryside. The possibilities fan out rapidly beyond 1980. In some respects China is peculiarly well-situated for the long haul; the People's Republic:

has the natural resources of a superpower with the consumption standards of an LDC;

has instituted tremendous programs of forestation and water control, which ought to ease the Malthusian pressure; and

has encouraged the rank and file to maintain the timehonored Chinese practices of (a) living frugally, (b) recycling human and animal wastes, (c) making good use of discarded equipment and, in general, (d) squeezing the most possible out of limited resources. In other respects, China may run into trouble; the People's Republic:

will find it much harder to run a Soviet-style economy when the product mix becomes more complex and the priorities more difficult to sort out; the Chinese economy today does not require as tight gearing as the Soviet economy and hence has not faced some of the problems fundamental to the system; and

may be unable, without the unifying presence of Mao, to keep the spirit of revolutionary sacrifice alive or, alternatively, may lack the resources to make village life palatable to a new educated generation.

Even if the People's Republic succeeds, and it almost surely will, in further outdistancing most other large LDC's by the year 2000, it can hardly make up the enormous gap between itself and the countries in the front ranks. These countries, like Japan and the leading Western nations, could until the last 18 months have been expected to march rapidly ahead from their own advanced position. Now they are beset with the triple problems of recession, inflation, and huge oil bills, headaches which the Chinese leadership has been spared. Regardless of the difficulties of these other nations, however, Peking will need much. more time to achieve industrial parity.

As a final word of caution, the economic progress of the People's Republic has been interrupted in the first 25 years by two prolonged periods of political turmoil. Wide differences in approach to economic development persist within the leadership and may be the cause of intensified conflict during the transitional period. The observer thus should not expect economic progress over the next 25 years to proceed in steady straight-line fashion.

51-174 O-75-4

APPENDIX A

UPDATING OF SIMPLIFIED GNP ACCOUNTS

15

The dollar estimates of the gross national product (GNP) of the People's Republic of China, 1949–74, presented in this paper were calculated using the same simplified methodology of the author's earlier paper." Briefly, this methodology involves (a) constructing an index of aggregate physical output by combining an index of agricultural production with Field's index of industrial output, and (b) converting this index series to a series in U.S. dollars through use of an estimated value of $48.19 billion for Chinese GNP in 1955. The original JEC-72 series was in 1970 U.S. dollars; the present series is in 1973 dollars; the ratio of the GNP price deflator for 1973 to the deflator for 1955 is 1.6983.18

10. Agricultural index times 2. 11-12. Industrial production index (1957-100).

13. Line 10 plus line 12.
14. GNP index (1957-100).

15. GNP (billion 1973 U.S. dollars)..
16. Population, midyear (million

persons).. dollars).. 18. Index of per capita GNP (1957-100)..

17. Per capita GNP (1973 U.S.

53.75 63.90 71.40 107.49

82.94 83.39 83.83 94.47 96.75 127.80 142.80 165.89 166.77 167.65 188.94 193.49

100.00

200.00

537.9 547.4 558. 1 569.9 582.6 596. 2 610.6 625.5 640.9 74.17 88.78 101.15 117.48 122.15 124.98 134.03 141.09 146.53 50.62 60.59 69.03 80.18 83.36 85.30 91.47 96.29 100.00

14 For a complete description of the methodology, See Ashbrook, JEC-72, pp. 41–47.

15 For the latest computation of this industrial index, see Robert Michael Field's paper in this volume.

16 Economic Report of the President, February 1975, Washington, Government Printing Office, table C-3, p. 252. The value in table 5 of the present paper of $81.84 billion for GNP in 1955 was found by multiplying $48.19 by 1.6983.

TABLE 5.-CHINA: LINE ITEMS IN CALCULATION OF GNP, 1949-74 1—Continued

1 A brief explanation of the methodology and assumptions used in deriving this table is presented in App. A of the present paper; a complete explanation is presented in the author's previous paper (Ashbrook, JEC-72, pp. 41-47). The index number series and the GNP series of this table are presented with 2 extra digits to facilitate intermediate calculations; the extra digits are not themselves significant digits; similarly, the population figures are presented to 4 digits, even though precise data on population are not available.

2 The food production index deviates from the grain index only in the three disaster years, 1959-61. It was assumed that grain represented 85 percent of the value of food production in all years except for these three, when it represented 90 percent.

Comparison of the Old and New Calculations

Table 5 presents line items that represent successive steps in the calculations as set forth in detail in the earlier paper. In the original calculation, the grain estimate for several years was presented as a range in line 1, and the midpoints were presented in line 2; in the present version, the grain estimates are singlevalued estimates for all years; hence lines 1 and 2 are identical. In similar fashion, the industrial production index for several years was presented originally as a range in line 11, and the midpoints were presented in line 12; in the present version, the industrial index estimates are single-valued estimates for all years; hence lines 11 and 12 are identical.

The results of the new computations, in addition to bringing 3 new years into the mold, are (a) to raise the tilt of the GNP curve after 1957, because of higher estimates for grain output starting in 1962 and for industrial production starting in 1958, (b) to introduce a 14 percent inflation element in the monetary value of GNP because of the change from 1970 dollars to 1973 dollars, but (c) to leave the profile of the curve essentially undisturbed. The average rates of growth of GNP and its two components in the new computations (JEC-75) compared with the old computations (JEC-72) are as follows:

The new rates for 1950-57 (1949 base) are little changed; the new rates for 1958-71 (1957 base) are appreciably higher. The higher rate for the agricultural component is more satisfactory if, as is done in this paper, a high population growth rate of 2.1 to 2.2 percent is used; the combination of a high population growth rate with a low agricultural growth rate in the JEC-72 paper was unsatisfactory. The rise in the industrial production estimate primarily stems from the inclusion of several new series for fast-growing machinery items in the Field index.

The new calculations yield the following average annual rates of growth for the 17-year period, 1958-74 (1957 base):

These last calculations are generally consistent with long-term trends implicit in Peking's pattern of priorities and confirmed in qualitative fashion by China watchers." First, agricultural output has been growing approximately in line with population. Long-term improvements in food consumption have been gradual. They have taken the form, not of per capita increases in grain production, but rather of improvements in quality, variety, and availability of many nongrain foods. Many of these small betterments are based on the private plots and private livestock; private activity is not taken account of in the agricultural component of the present index. The agricultural numbers are consistent with Peking's concern to raise agriculture to a new plateau in the 1980's in order to handle bad crop years without recourse to large-scale imports.

Second, the long-term rate of growth of industrial production is closer to the 9 percent of the past 17 years than the higher percentage gains calculated from the small bases of the first decade. A rate of 9 percent is remarkable enough, resulting in a doubling of output every 8 years. This rate will edge downward to judge from problems encountered in 1974, when the leadership began to face up to the need for a large new round of investment in basic industrial branches. Third, the growth in per capita GNP of 3.0 percent reflects the existence of considerable growth potential in the economy, given the effective restraints on the growth of consumption per capita. The absolute per capita GNP figure for 1974 of $240 in this paper is 60 percent above the $150 figure for 1971 in the earlier paper. This results from the shrinkage of the dollar measuring rod, the upward revision of the estimates of agricultural and industrial output used in computing GNP, and the passing of 3 years of moderate economic policy and solid economic growth. The current $240 should be compared to the figure of about $100 in the early 1950's (see table 5). China remains a big poor country— but it is a country that is justifiably proud of its achievements in capital construction and its mastery of modern weapons. China is sui generis, by no means an ordinary LDC, yet not a modern industrial nation either.

Criticisms of the GNP Methodology

Three major reservations on the procedures and results of the methodology

(1) The sparse coverage of individual commodities; in the agricultural component, only grains and cotton are used, and no distinction is made among individual grains, which may vary widely in economic significance per ton; soybeans, pork, poultry, sugar, and ramie and hemp crops are among the important omissions; in the industrial component, the coverage of the Field index has been raised from 11 major items (JEC-72) to 27 major items, with the coverage of machine building being most strongly affected; with this extension of coverage in industry, the sparse coverage in agriculture remains as the more important issue; the focus on basic agricultural and industrial items at the expense of faster growing nonbasic items may result in an understating of GNP growth. (2) The subsuming of all sectoral economic activity under the two grand categoris of agriculture-related and industry-related activity; as the Chinese economy takes on a larger product mix with a growing proportion of technologically advanced products, the relation of transportation, communication, finance, trade, health, educational, and Government services to the material sectors will change;

17 For another estimate of China's national output, see Shigeru Ishikawa, "Prospects of the Chinese Economy: Trends and Cycles," Pacific Community, vol. 4, No. 2, January 1973, pp. 250-264.

18 This discussion depends heavily on a very helpful critique of the methodology by Dr. K. C. Yeh of the Economics Department of the Rand Corp. The author was unable to follow up on some of Dr. Yeh's valuable suggestions. In many cases, improvements must wait upon the receipt and analysis of more detailed information from the PRC.