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One may argue that any other assumption would have no sound basis and would be arbitrary. However, to assume the ratio to be unchanged at two to one is also arbitrary, and is probably the worst assumption during a period of obvious structural change. Moreover, the structural changes revealed in the 1952–57 data do provide one with some basis for making assumptions about later changes.

2. On the whole, the estimates put forth in the Assessment are presented with a tone of modesty. Given the poor and scarce data sources, no one who works with Chinese Communist figures can do otherwise. Concerning industrial and handicraft production, however, it is said that "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.” (Assessment, p. 61.) These years 1949 through 1959 include the Great Leap Years 1958 and 1959. For example, it is more than probable that even the Communist regime itself did not, and will never, know what the amount of steel production was during 1958 and 1959. (In the reported figure for steel, how much was pig iron? How much was really steel? How much was useless output from the backyard furnaces? Did the author subtract from the value of the output the rather useful pots and pans people were coerced to throw into the backyard furnaces without getting anything useful back?)

(IV) SOME CONCLUDING REMARKS As an economist, I am mainly interested in the efficiency and the income distribution of the economy of the Chinese Mainland.18 Both in an absolute and relative sense, the period of the best economic performance was 1952–57. Since I have reported to the Joint Economic Committee my evaluation of that period quite in detail,19 I have concentrated on the period 1957–70. This period is particularly important, because it is more recent and it is sufficiently long. Moreover, the estimate of GNP and its components for the initial year 1957 of this period are more reliable than for earlier years, and would serve as a good base for comparison.

From a close look at the statistics and estimates in the Assessment, one must conclude that the per capita food situation on the Chinese Mainland deteriorated from 1957 to 1970 and that the per capita clothing situation may not be better in 1970 than in 1957. It is regrettable that practically no attempt was made to estimate the housing situation in the Assessment. Provision for shelter has lagged behind other consumption needs in practically all socialist countries, and it is unlikely to be otherwise on the Chinese Mainland. The Chinese Mainland is so large that the living conditions in a few leading cities and a few show projects cannot be relied upon to evaluate the standard of living of the entire country.

The data on GNP by end use (including investment) presented in the Assessment (p. 40) are not estimates; they represent expert judgment only. (Assessment, p. 45.) Hence, it is difficult to say whether the Chinese Mainland has succeeded in building a viable "civilian economic base.” (Assessment, p. XIV.) The fact that the production of crude steel and electric power may have increased from 5.4 million tons and 19.3 million kilowatt hours in 1957 to 18 million tons and 60 kilowatt hours respectively in 1970 (Assessment, Table B-1, p. 83) is not a sufficient indication of a sound investment program. Due to the insufficient attention given the interindustrial relationships by the Communist regime and other poorly conceived policies, steel and electric production fell respectively by 36 and 38 percent from 1960 to 1962. Much more research is needed before one can have a reasonably useful evaluation of the structure of capital formation on the Chinese Mainland.

Relative to other Asian developing countries, the performance of the economy on the Chinese Mainland is poor. It was the slowest growing region in Asia during 1957–70 in terms of GNP and per capita GNP. It also had the most erratic movement in GNP.20 This lends doubt to the existence of a iable economic base.

18 The Assessment unfortunately presents no estimate of income distribution, nor are national data available since 1958.

19 Liu, Ta-Chung, “The Tempo of Economic Development of the Chinese Mainland, 1949-65”, in An Economic Profile of Mainland China, Joint Economic Committee of the Congress of the United States, 1967 especially pp. 56-68.

20 In this connection, it is interesting to observe that, in the exploratory estimate I reported to the Joint Economic Committee in 1967, the net domestic product, after the disastrous Great Leap Years, regained the 1957 level during 1962–63. (See Liu, T.C., The Tempo of Economic Development of the Chinese Mainland”, op. cit., p. 50). Thus, in this respect, the Assessment is not “less pessimistic than the assessment of the 1967 Joint Economic Committee study”. (Assessment, p. IX,) For, according to the estimate given in the Assessment (Table 4, pp. 46-47), the 1957 level of GNP was regained in 1963.

Just about the only achievement of the economy of the Chinese Mainland is the attainment of the technical and industrial capability to detonate 13 nuclear devices, to launch two space satellites, and to buld up a war machine of an unknown size. However, these achievements were attained at a terrible cost in terms of the standard of living and economic growth.

Regarding the achievement in the technical and military areas, I would like to quote from my earlier report (1967) to the Joint Economic Committee:21

the productive capacity of the economy as a whole does not reveal the strength of the nation in carrying out a specific endeavor to which a large concentration of resources is devoted. Thus, the per capita product of the Chinese Mainland is low by any estimate and on any standard, but a nuclear and missile program produced successful results in recent years when the economy as a whole was still experiencing difficulties. One must not be misled by the low per capita productivity on the Chinese Mainland to a feeling of complacency regarding her technical capabilities in certain narrowly defined spheres. At the same time. it is equally erroneous to consider the achievement in a specialized field as an indicator of the degree of development of the economy as a whole.”

The same is true today.
Chairman PROXMIRE. Thank you, Professor Liu.
Professor Schwartz, go right ahead, sir.



Mr. SCHWARTZ. As a noneconomist, may I, first of all, pay my compliments to the authors of the study "People's Republic of China: An Economic Assessment." I found the study informative, judicious, and thought provoking. The following remarks are in no small measure based on reflections prompted by it.

I have been asked by Senator Proxmire to make some observations on the relationship between the economic capabilities of the People's Republic of China and its military posture. In terms of its economic resources, does China pose a military threat to America? To what extent do security considerations dominate the domestic priorities of the People's Republic?

While I am far from convinced that either the domestic history or the history of foreign relations of the People's Republic can be explained wholly in terms of economic factors, it is, of course, possible to view this history in strictly economic terms. When viewed in this way, one is struck by one overwhelming fact; namely, that while the period of the early 1950's, after the short period of rehabilitation, was marked by an enthusiastic embrace of the Soviet model of economic development, the period after 1955–56 was marked by a growing realization on the part of the Chinese leadership as a whole, in spite of differences on other matters, that given the nature of China's agrarian economy, given the size of its population, China would have to find its own model based on a fresh analysis of Chinese realities.

The Soviet model, as we know, involved a systematic exploitation and neglect of the agrarian sector in the interests of an enormous lopsided investment in heavy and military industry. While this model was put forth as the socialist model par

excellence, one of its more prominent attractions was its promise of the speedy creation of vast military power.

Whatever its attractions, however, by the mid-1950's it had become obvious to most of the leadership that from the point of view of 31 Liu, T. C., "The Tempo of Economic Development of the Chinese Mainland”, op. cit., p. 47.

sheer survival, China could not afford to neglect the problem of agriculture or the millions of peasants who constitute the bulk of its population. From the strictly economic point of view, the great leap forward of 1958 may be seen as an effort to cope with the newly perceived enormity and uniqueness of China's agrarian problems even while continuing to pursue Soviet-type goals in the industrial sphere.

Thus, the final shift from the Soviet model was to come only in the early 1960's when the decision was made to put agriculture first, to channel major investments into the agrarian sector, and to rest content with a slower rate of growth in the industrial sphere. The profound differences which emerged within the leadership during the 1960's did not, it seems to me, concern this basic shift in economic model but were concerned with the social strategies to be employee in attaining these new goals, and here, I would say, that noneconomic ideological considerations were to play a great role.

Indeed, it is now clear, after the storms and convulsions of the cultural revolution, that this new economic strategy has remained intact. Thus, if one can speak of economic successes in the last few years, these are successes of modesty, of an economic perspective adjusted to the realities and constraints of China's objective situation.

If the Soviet model held the promise of spectacular and speedy growth in military potential-a promise enhanced by the expectation of direct military support from the Soviet bloc—the more modest new economic strategy must also involve a more modest estimate of China's resources in the realm of offensive military power. To be sure, within the limits imposed by this strategy, a heavy priority has undoubtedly been given to military production and to the attainment of a limited nuclear capacity.

It hardly seems conceivable that this priority will be shifted in any near future in favor of the benefits of a high consumer economy. Yet the general austerity of the economy also places limits on military investment. So long as this economic strategy is maintained, it hardly seems likely that the People's Republic will actively seek a military confrontation with either of the superpowers. It is quite clear that its posture of military confrontation with the Soviet Union is essentially defensive and based on fear. It is even more clear that Peking is not seeking a military confrontation with the United States.

To be sure, if Peking should be inclined to involve itself militarily with the small states on its periphery, or even with India, it probably possesses sufficient economic resources and military power to make its will prevail. It seems to me, however, that the present leadership is well aware of the degree to which military involvement in the affairs of these states might lead to a confrontation with the superpowers.

What has been said by no means negates the reality of Peking's more visionary hopes. The leaders of the People's Republic may still envisage a world in which the poor states will look to Peking as their leader, in which revolutions based on the Chinese model will eventually prevail, and indeed a world in which China's new economic model will win over new adherents.

These hopes, however, are not at present based on any faith in China's limitless economic or military capacities. They are based on certain assumptions concerning the movements of history. History, it seems to me, will be quite as successful in hiding its secrets from China as from all the rest of us.

Chairman PROXMIRE. Thank you very, very much.

Professor Liu, Senator Mansfield gave a series of reasons why we should be quite reluctant about accepting gross national product as a measure of Chinese progress or lack of progress. He pointed to the fact that this is largely a labor economy, that the measures would be quite different if it were applied to a technologically advanced economy such as Japan or the United States.

Furthermore, Senator Scott argued that since the early 1960's-I thought he said this; maybe I misunderstood him since the early 1960's, there had not been any reliable statistics published or made available by the Chinese Government that we could use very well.

Now, this would seem to bring your analysis of Chinese economic weakness into question. What is your answer?

Mr. Liu. Well, first of all, I was quoting the estimates as given in this volume. Now, even if you just look at the late 1960's, after the recovery from

Chairman PROXMIRE. Yes, I know.
Mr. Liu. Right.

Chairman ProXMIRE. Again I am undermining our own position. This is our own volume of this committee, and we are very proud of the study we made. So I don't want to appear to be questioning what we have done.

Mr. Liu. Right.

Chairman ProXMIRE. Except that we would like a little reinforcement. The majority leader is an extraordinarily fair and able man; as you know, he is quite a scholar, and I think he does make a point, at least a point which would be quite appealing to many people on the grounds that these are statistics of which we can't be sure.

Mr. Liu. Well, first of all, it is well known that GNP is a hodgepodge, a mixture of many things; but in the production of foodstuffs, the production of food crops is certainly more concrete and there are fairly good estimates of acreage, soil, of the yield, of weather reports. But the most important hard statistics are the foreign trade data, Mr. Chairman.

Now, if you will look at page 343 of your volume, you will see that in the year 1966, the exports of the Chinese mainland are about $2.2 billion; and in 1970, it is $2.005 billion. Now, if the economy has really made a strong recovery with the need for machinery and the capital equipment to build up the economy, and with the eagerness of Japan and some European countries to sell to the Chinese mainland, I do not see why the Chinese mainland would not try to export more if the economy was really doing well to exchange for machinery and capital equipment it very much needed.

Chairman PROXMIRE. Professor Schwartz.

Mr. SCHWARTZ. I think there is a notorious tendency on the part of economic historians to ignore political history.

Now, during this period of the 1960's we did have the turmoil and convulsions of the cultural revolution. I think this undoubtedly brought about a setback, particularly in the industrial sector of the economy, perhaps also to some extent in agriculture and certainly in foreign trade. Since about 1969, there has been a gradual pacification and moderation and a return-more or less—to the previous economic strategy with a consequent recovery in the economy. In fact, I don't think there was ever a serious departure from the strategy which I have mentioned in my statement although the economy was seriously disrupted

I do think, as Senator Mansfield has said, that this strategy will not yield spectacular GNP growth figures in our terms as a continuation of the Soviet strategy might have yielded, but I am not sure that that necessarily is the heart of the matter.

Chairman PROXMIRE. One of the problems we found in addition to the turmoil, was the effect of Maoist ideology on economic progress. After all, when you have a situation in which you have a very long period o' a productive day given over to discussion, discussion as to whether or not the head of the factory is operating under the doctrine of self-sufficiency when he asks for a missing part and instead of closing down the factory until the missing part could be produced within the factory, he wants to get it rather quickly from some other place so the whole operation is stopped.

Then you have the factor that I mentioned before-you have heard it—the egalitarian factor: why assume responsibility in any system Socialist, capitalist, or what not—when your reward is almost precisely the same as if you don't assume responsibility and the economists we had testifying—I don't think there were any American economists who testified on this because they had not had access to China-but those Canadian and European and other economists who traveled within China over the last few years, told us that this did seem to have an adverse effect on economic progress, and it was one of the reasons for the cultural revolution, the pragmatists wanted to change the situation, modify it; but the purist ideologies were in control so even though you have a period of stability, it is stability under a system of ideological purity which does not permit the efficiencies to develop, it would seem there might be a logic behind some slowing down.

Did you have any response to that, Professor Schwartz?

Mr. SCHWARTZ. Yes, I agree with that analysis except that I mistrust the word "pragmatic” because I think that even a pragmatic China will in the end probably not look very much like the United States. Its problems are quite different from those of the United States.

I would draw a sharp distinction between the period of adoption this new strategy of placing first weight on agriculture which I think came into being in the early 1960's and the Maoist cultural revolutionary period. Mao, I think, is not primarily an economist and has always been concerned with noneconomic "ideological" goals.

I do think, however, that since about 1969, there has been a gradual retreat from this overwhelming emphasis on the ideological factors back to a more "pragmatic” approach. But as suggested even a more pragmatic approach in China would not look like a pragmatic approach in the United States.

I think China will not be able to evade the problem of the overwhelming size of its population, and the overwhelming need to give priority to agriculture. Thus even a pragmatic approach in China may continue to embody certain Maoist features.

Chairman ProXMIRE. Professor Liu, one other point in connection with your analysis: You seem to put a great deal of emphasis on a simple measure of caloric consumption. Of course, with the recent attitudes in this country, the view is the less you consume the better off you are, the healthier, the stronger. But leaving that aside for the

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