CHINESE INDUSTRIAL DEVELOPMENT: 1949-70

By ROBERT MICHAEL FIELD

I. INTRODUCTION

The index of Chinese industrial production presented in this paper is an elaboration of the index I prepared for the Joint Economic Committee in 1966.1 For the years 1949 through 1959, because the Chinese published data on the physical output of a large number of industrial commodities, it was possible to construct an index that can still be used with confidence. The index for these years has not been changed. For the years 1960 through 1970, however, the index is a revision and extension of my earlier work.2 The major difference is that the index for these years is presented in the form of a range rather than as a single-valued series because of the deterioration in the coverage and accuracy of the physical output data.

Although data on the output of specific military items were not available, these items had to be included in the index by imputation, because the weights could not be adjusted satisfactorily to exclude military production. Because most military production is concentrated in the metal processing industry, the assumption implicit in the construction of the index is that the military component of the metal processing industry grew at the same rate as the civilian component. It is almost certain, however, that the military component actually grew more rapidly than the civilian component. If the weight for the metal processing industry could have been adjusted, the rate of growth shown by the resulting index of civilian industrial production would have been lower than that of the index presented in this paper. On the other hand, if military production could have been included explicitly, the indexes for the metal processing industry and for total industrial production both would have been raised.

The accuracy of physical output data used to construct the index for the years since 1959 varies considerably from commodity to commodity. In general, it varies directly with the priority assigned by the Chinese to the industry producing the commodity and inversely with the number of enterprises producing the commodity. For example, with at least 200 cotton textile mills in China and the generally low priority accorded to the industry, the estimates for the production of cotton cloth are much less accurate than those for the production of crude steel, 80 percent of which is produced by the 10 largest steel mills. In spite of the deficiencies of the data, the trend in industrial production shown by the index is consistent with the information that is

1 See Robert Michael Field, "Chinese Communist Industrial Production," An Economic Profile of Mainland China, Joint Economic Committee of the U.S. Congress, Washington, 1967, pp. 269–295.

The methodology used in the revised version of the index was published in Robert Michael Field, "Industrial Production in Communist China: 1957-68," The China Quarterly, April-June 1970, pp. 46–64.

available and gives a reasonable picture of the state of Chinese industry.

Section II presents the index of total industrial production during the years 1949-70. The index is essentially the same as the one presented previously extended through 1970, but a series for the production of machine tools has been added, and some of the physical output series have been revised. The net effect of these changes is minor.

Section III presents indexes and relative shares for broad functional sectors of industry during the years 1952, 1957, 1965, and 1970. The growth of industrial production over the last 20 years has been accompanied by a substantial shift in the structure of industry. The data have been reworked in order to present the indexes in a form that makes clear the extent to which the structure of industry has changed. The conclusions are consistent with, but more explicit than, those presented earlier.

Section IV presents indexes and relative shares of industrial production for the coastal and inland areas during 1952, 1957, 1965, and 1970. The historical process of development resulted in an unbalanced geographical distribution of industrial capacity that the Chinese Government has tried to correct. The indexes show that its regional development plans have been quite successful, but that it still has a long way to go to redress the balance. The analysis in this section of the paper is entirely new.

Finally, achievements during 1971 and the prospects for the growth of industrial production during the Fourth Five-Year Plan period (1971-75) are discussed in section V. The construction of the index is described in detail in appendix A and the statistical tables in appendix B present the data used in the calculations.

II. A SUMMARY OF THE GROWTH OF INDUSTRIAL PRODUCTION

Industrial production in China, as measured by the index presented in table 1, grew rapidly during the years 1949-70. The average annual rate of growth was 11 percent for the entire period, but was 8 percent if the first 3 years of abnormally high growth are excluded. The average annual rates for these and other selected periods between 1949 and 1970 are presented in table 2.

A. Economic Rehabilitation, 1949-52

During the period of economic rehabilitation, the index shows that industrial production more than doubled, growing at an average annual rate of 27 percent. This rapid rate of growth was characterized by large increases in employment but by little or no growth in the net. value of fixed capital assets. The capacity damaged by the war or lost through the Soviet removal of equipment from Manchuria in 1945 was repaired or replaced and put back into operation, and supplies of raw materials were improved.

TABLE 2-AVERAGE ANNUAL RATES OF GROWTH FOR CHINESE INDUSTRIAL PRODUCTION, SELECTED YEARS,

There are no reliable indexes of industrial production by branch of industry for the pre-Communist period with which the indexes for the period of economic recovery can be linked. In their absence, the production of key industrial commodities may be used as a rough measure. The percentage decline in the production of key commodities from their pre-Communist peak to the level of output achieved in 1949 is highly correlated with the rates of growth shown by individual branches of industry for the years 1949-52. Thus the rapid growth of total industrial production in this period represents a return to previously achieved levels of output rather than a growth in the productive capacity of industry.

B. The First Five-Year Plan, 1953-57

During the First Five-Year Plan period, industrial production is estimated to have doubled again, reaching a level more than four times that of 1949, but the rate of growth was slower and less steady than it had been during the period of economic rehabilitation. Different factors determined the pattern of growth in the two periods: The relative rates of growth during the period of rehabilitation reflect the extent to which war damage had been repaired, whereas the pattern of growth during the First Five-Year Plan period was determined by the decisions on investment policy made by the Government.

The 25-percent increase in output in 1953 resulted from a 9-percent increase in the net value of fixed capital assets and a 16-percent in

crease in the average number of workers. This slow growth in capital assets and rapid growth in employment, however, are more typical of the period of economic rehabilitation than they are of the remainder of the First Five-Year Plan period, when capital assets increased at a rate in excess of 20 percent annually, and employment at only 7 percent. These data, together with fragmentary evidence on the continued increase in the extent to which existing capacity was used, indicate that the large increase in output achieved in 1953 was a continuation of the rapid growth achieved during the period of economic rehabilitation and suggest that the pre-Communist peak level of production was not reached until 1953. Because 1953 was really part of the period of economic rehabilitation, the average annual rate of growth of 12 percent achieved during the years 1954-57 is a better measure of industrial growth in China than the 14 percent for the First FiveYear Plan as a whole.

C. The Leap Forward, 1958-60

In 1958, after the successful completion of the First Five-Year Plan, orderly industrial development was abandoned and the Leap Forward inaugurated. Industrial production increased about 66 percent in 1958-59, but the Leap Forward proved to be an ill-conceived attempt to speed up the rate of growth by letting "politics take command" and by driving men and machines at a pace that could not be maintained. The rate of growth, which had surged to 31 percent in 1958, dropped to 26 percent in 1959; and production declined somewhat in 1960 as the Leap Forward began to collapse.

Most of the growth in industrial production during the years 1958-60 would have occurred even without a Leap Forward. The acceleration of the existing industrial construction program during 1958 and 1959 resulted in large additions to capacity. For example, of the 921 major industrial construction projects started during the First FiveYear Plan period, 428 were completed and operating normally by the end of 1957, and 109 were in partial operation. But in 1958 alone, many new construction projects were started, and 500 were completed. Merely putting these new plants into operation would have been enough to guarantee China substantial gains in industrial production. Thus the political excesses of the period masked what was a truly substantial achievement in expanding industrial capacity.

D. Recovery and Readjustment, 1961–66

In 1961, industrial production fell sharply to a level slightly above that of 1957 but only two-thirds of the peak reached in 1959. After the withdrawal of the Soviet technicians in mid-1960, the Chinese found that they could not operate many of the heavy industrial plants built as Soviet aid projects, and they were forced to cut production drastically. In light industry, the levels of output achieved during the Leap Forward, could not be maintained, because of shortages of agricultural raw materials. Even without these blows to the economy, however, the dislocation of industry, the exhaustion of the labor force, and the crisis in the food supply would probably have been severe enough to cause the collapse of the Leap Forward