TABLE 2.-AVERAGE ANNUAL RATES OF GROWTH FOR CHINESE INDUSTRIAL PRODUCTION, During the period of economic rehabilitation, the index shows that industrial production more than doubled, growing at an average annual rate of 34 percent. This rapid rate of growth was characterized by large increases in employment, with 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. B. The First Five-Year Plan, 1953-57 During the First Five-Year Plan period, industrial production doubled again, reaching a level five 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 patern of growth during the First FiveYear Plan period was determined by the decisions on investment policy made by the new government. 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. It quickly 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 45 percent in 1958, dropped to 22 percent in 1959, and was only 4 percent in 1960 as the Leap Forward began to collapse. Most of the growth in industrial production during the years 195860 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 three-fifths of the peak reached in 1960. 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. By 1962, more rational policies prevailed and industry began to recover; by 1965 most major commodities were being produced at earlier peak levels. This recovery, however, consisted primarily of regaining lost ground and resulted from a fuller use of existing capacity. Industrial policy during the period was aimed more at increasing the range of finished products in support of a few major programs than at a general expansion of the industrial base. E. The Cultural Revolution and Its Aftermath, 1967-70 The industrial revival that started in 1962 after the collapse of the Leap Forward was interrupted toward the end of 1966 by a new period of turmoil, the Great Proletarian Cultural Revolution. Unlike the Leap Forward, the Cultural Revolution was not primarily an economic movement; nevertheless, it was the source of widespread, often violent, change that affected the performance of industry. The first large-scale disruptions occurred in the winter of 1966-67, when workers and students were encouraged to conduct political campaigns in factories and mines. Industrial production was affected almost immediately by work stoppages, shortages of raw materials, and disruptions of transportation. Efforts were made to restore production during the spring of 1967, but they were only partly successful. In May 1967 a new and more disruptive phase of the Cultural Revolution began which lasted until September. Civil disorder was widely reported in major industrial centers during the period. Transport in all parts of China became subject to severe, although sporadic, disruption that choked the flow of raw materials to industrial installations. Factories representing a broad spectrum of industry and all major industrial areas were forced to curtail operations or shut down completely for days or even weeks. In September 1967 Chinese military authorities received sweeping authority to deal with civil disturbances and restored a semblance of order to the country. Shortages of coal, however, were extremely serious in the winter of 1967-68 and contributed to a continued low level of production in many other industries. Only in the late spring and early summer of 1968 did industrial production begin to return to normal levels. Thus work stoppages, shortages of raw materials, and disruptions of transportation caused by the Cultural Revolution forced industrial production below the 1966 level in both 1967 and 1968. No accurate measure of the decline in production can be made, but it may have been on the order of 10 to 15 percent in 1967. Production remained at a low level at least through the first half of 1968, and then began to recover rapidly. By 1969, it exceeded the pre-Cultural Revolution peak of 1966, and in 1970 went on to grow at a rate of about 18 percent. The average annual rate of growth for the period 1966-70 as a whole, however, was a modest 9 percent. F. The Start of the Fourth Five-Year Plan, 1971-73 After rapid increases in 1969 and 1970, the growth of industrial output fell off markedly in 1971 as production pushed up against capacity. During the early 1960's, construction was limited primarily to completion of projects that had been started in the late 1950's. By 1964 or 1965, a broader construction program appears to have been started. During the Cultural Revolution, however, when the production of steel, cement, and timber was down and transportation was often disrupted, construction activity suffered. Thus, because of the low level of construction activity that had prevailed in the previous several years, new capacity was not being added rapidly enough to sustain a high rate of growth. In addition, shortages of coal, iron ore and other basic raw materials began to affect production of both producer and consumer goods. These shortages reflect fundamental imbalances in extractive, processing and finishing industries. In metallurgy, for example, investment had been concentrated too heavily on the development of crude steel capacity; the development of mining and finished steel capacity had been neglected. Coming on top of these difficulties, poor performance in agriculture forced major changes in priorities in 1972 and 1973. Whatever the initial goals of the Fourth Five-Year Plan, it is clear that the revisions gave first priority to industrial support of agriculture and to expansion of exports. Thus, the problem of feeding and clothing the population forced Peking to defer grappling with the structural imbalances that have held down the rate of growth in industry until the next five-year plan, which begins in 1976. III. THE REGIONAL STRUCTURE OF INDUSTRIAL PRODUCTION China's natural resources are well dispersed. In contrast, the historical process of development had resulted in a highly uneven geographical distribution of industrial capacity at the time the Communists came to power. Industrial capacity was concentrated in Northeast, North, and East China,12 where a combination of relative political stability, a modern transport system, readily available agricultural and industrial raw materials, and large markets had attracted foreign capital. Smaller industrial centers had developed in Southwest China during World War II when industrial plant and equipment were removed from coastal cities in the face of advancing Japanese armies and in several provinces where enterprising warlords had built small industrial complexes. 12 The groupings of provinces, autonomous regions and centrally administered municipalities used in this paper are as follows: As measured by the indexes presented in table 3 and figure 1, threefourths of total industrial production in 1952 originated in the three relatively well-developed regions. Faced with this unbalanced distribution of industrial capacity the Chinese undertook a deliberately phased policy of regional development. The specific provisions governing the geographical distribution of industrial capital construction were as follows: (1) Expansion of existing industrial bases, especially in Northeast China, in order to support the construction of new industrial areas; (2) construction of new industrial bases in North China and Central China, centering around two new iron and steel complexes to be built in Pao-t'ou and Wu-han; and (3) the construction of a new industrial base in Southwest China. Note: The regional indexes were calculated by deflating gross value indexes derived from the data in table B-8 by the ratio of value added to gross value for the country as a whole. The assumption implicit in the calculation is that the bias in the gross value data is the same in each geographic area. |