To enable our national economy to advance in the front ranks of the world, the majority of our production technologies will approach to, and some of them will catch up with or surpass, the level attained by the most developed capitalist country at that time (the year 2000).36 More recently, the long-term goal was described by Hua Kuo-feng in similar terms: By the end of this century, unit yields of major agricultural products are expected to reach or surpass advanced world levels and the output of major industrial products to approach, equal or outstrip that of the most developed capitalist countries.37 This goal would seem most difficult to achieve for agriculture due to China's still very low level of achievement in agricultural science and basic research. For example, the sophistication of Chinese genetic research is thought to be about 25 years behind the West's.38 The problem is complicated by China's factor endowments and its wide regional variations in climate, soil, water supply, and cropping patterns. Thus scientific findings cannot be universally applied to farming without considerable adaptation to local conditions. But the goal will not be easy for defense and industry to achieve either. In weapons production technology China is probably 15 to 20 years behind the Soviet Union, and even farther behind the United States." Although China has made major efforts in developing the producer goods industry, industrial production technology in most fields still Tags 20 to 40 years behind the U.S. level. Since the technology in the advanced countries will continue to make progress, to narrow the gap will require China to greatly accelerate its technological growth to rates considerably higher than those attained by the advanced countries in the future. 5. Implications for Policy Formulation The major goals of China's long-term development program, as outlined above, call for high rates of capital formation, both physical and human. To create a comprehensive" industrial economy in the first two stages and establish distinctive economic systems in the six regions in the second stage will involve an expansion of existing facilities and construction of new plants, both of which will require new investment and long gestation periods. Most of these additional and new plant facilities will not start to operate until some time in the second stage, and will begin to have significant impact on economic growth only in the third stage. The process of human capital formation through education and training, which is essential to technological progress, is even slower, and is not likely to emerge as a leading source of China's economic growth until some time in the third stage. An important question thus arises: What is to be the major source of accelerated economic growth in stage I? Red Flag, No. 1, Jan. 5, 1978, p. 14. Hua's Report to the Fifth NPC. Alva Lewis Erisman, "China: Agriculture in the 1970's," in Joint Economic Committee, According to a number of available estimates, the technological level in Chinese industry trails that in American industry by roughly 40 years for motor vehicle production, 25 years for certain steel and machinery plants, 20 years for aero-engine design and production, 15 to 20 years for oilfield operations and equipment and more than 20 years for the electric power industry. (Washington Post, Oct. 23, 1977, pp. 1, 3; Hans Heymann, Jr., "Acquisition and Diffusion of Technology in China," in Joint Economic Committee, China: A Reassessment of the Economy, 1975, pp. 678-729; and William Clarke, "China's Electric Power Industry," in this volume.) Chinese planners seem to look to improvements in economic efficiency as a main source of economic growth for the next few years." The Chinese economy is at present operating considerably below full efficiency. Elimination or curtailment of various inefficiencies in economic operations could lead to significant increases in output. To the extent that investment in China will have to be financed out of current output and savings, the degree of success the country experiences in coping with the efficiency problem will have a significant bearing on its ability to achieve the rate of capital formation required by the development program. Moreover, once the overwhelming inertia which seems to have frozen the resource allocation patterns in China in the past decade has been overcome, sustained high economic growth over the long run will be considerably facilitated. III. ECONOMIC PLANNING AND MANAGEMENT In this section we identify some of the most important factors which give rise to inefficiencies in the Chinese economy in five issue areas: (1) material incentives; (2) manpower utilization; (3) industrial management; (4) economic planning; and (5) investment allocation. These areas of concern are interrelated and closely linked to the rate of investment. They were the subject of intense debates before the purge of the "gang of four," and are now the focal points around which new economic measures are being formulated. 1. Material Incentives To motivate work the Chinese have relied on both ideological and material incentives. While China, perhaps more than any other country, uses ideological appeals designed to bring out a sense of commitment on the part of the work force, material rewards remain the most important form of work incentives. But industrial wages and peasant earnings are kept low so that a substantial portion of the net output can be channeled into investment. Average industrial wages have improved very little since 1956-57.42 The level may even have declined because bonuses, which constituted on the average 6 to 8 percent of industrial workers' wages in the 1950's, and overtime pay were almost totally abolished in the latter years of the Cultural Revolution. The virtual standstill in urban per capita consumption gave rise to widespread discontent among industrial workers. There were frequent slowdowns and even strikes. The problem became serious in 1974 when labor unrest in many plants caused production to fall sharply. Plans to raise wages did not materialize that year or in 1975, apparently because of radical opposition." The adverse effect of wage disincentives on production heightened in 1976 in the midst of political uncertainties. 41 Hua Kuo-feng in his report to the Fifth NPC stated, "In the next 8 years, and especially in the next 3 years, our existing enterprises must be the foundation for the growth of production." 42 Prior to the October 1977 raise, the only relatively large increases in industrial wages after the 1956 wage reform took place in 1963. Some minor adjustments were made in 1957, 1959, 1960, 1971, and 1973. (Economic Reporter, No. 40, Oct. 12, 1977, p. 12 and People's Daily, Jan. 2, 1978, p. 1.) 43 Jan 8. Prybyla, "Work Incentives in the People's Republic of China," Review of World Economics, 1976, pp. 767-91. Three separate incentive schemes, based on cash payments and the award of simple consumer items, were reintroduced in a factory in Shenyang of Liaoming Province in August 1975. But they were discontinued the following January. See Peter Weintraub and Ma Chu, "The Wooing of China's Workers," Far Eastern Economic Review, vol. 99, No. 4, Jan. 27, 1978, pp. 46-49. 44 Peking Review, No. 49, Dec. 2, 1977, pp. 3, 27. Much of the drag on wage hikes since the cultural revolution seems to have stemmed from both theoretical and practical difficulties. China's payment system, based on the principle of to each according to his work, came under attack from a group of party dogmatists. They oppose differentiated rewards under the current eight-grade wage system which, in their view, still contains the remnant element of bourgeois right and provides the vital economic base for the emergence of a new elite class.46 Pragmatists, on the other hand, argue that China's current wage system is a product of the old society and cannot be drastically changed within a short period of time. Some of them believe that wage differentials should be gradually narrowed as both productivity and social consciousness grow, while others think that wage differentials will persist for a long time.47 48 The infrequency and small size of wage increases in the past also resulted from economic considerations. An increase in the wage bill would have reduced immediately the fund available for investment, and thus the rate of overall economic growth. It was particularly difficult to raise wages in 1974-76 because the government failed consecutively in those 3 years to meet revenue targets. Further, wage increases would have led to a rise in demand for consumer goods, especially if most of the wage increases went to the low-grade workers who would have higher propensity to consume than high graders." With the increase in consumer goods production hardly keeping pace with the growth of population and export needs, wage hikes would have inevitably created inflationary pressure on the economy. 50 The Hua government apparently felt that the wage issue should not be further delayed. The decision in the summer of 1977 to give Chinese workers a raise, which was facilitated by an increase in state revenue allowed 64 percent of the nonargricultural workforce to receive some increases, effective October 1, 1977.51 The amount of the increase in the total wage bill and the number of workers benefited were both the largest in the 28-year history of the People's Republic. An early 1978 report indicates that price stability has been maintained in spite of the expanded purchasing power due to an increase in state commodity purchases, and that labor discipline has improved considerably.52 As the Chinese econony progresses, future wage increases may 45 Article 9 of the Constitution of the People's Republic of China (adopted on Jan. 17, 1975, by the Fourth NPC at its first session) states: The state applies the socialist principle: "He who does not work neither shall he eat" and from each according to his ability, to each according to his work." This passage has been retained and became part of article 10 of the new Constitution adopted on Mar. 4, 1978, by the Fifth NPC. "Li Hung-lin, "Is Distribution According to Labor a Socialist or Capitalist Principle?" People's Daily Sept. 27, 1977, p. 3; and Su Shao-chi and Feng Lan-jui, "Refute Yao Wen-yuan's Erroneous Theory tha Distribution According to Labor Would Give Rise to a Bourgeois Class," People's Daily, Aug. 9, 1977, p.3t An article in the June 1977 issue of the Nanking University Journal went a step further to state plainly, "Equalitarianism will not work at present, now will it work in the future." See Wu Shan-lin, "We must uphold the Socialist Principle of "From Each According to his Ability, to Each According to His Work," Nanking University Journal No.2, 1977, pp. 43-46, 37. YuChiu-li, "The Conditions of China's National Economic Development," People's Daily, Oct. 25, 1977, pp. 2, 4; and People's Daily. Jan. 9, 1978, p. 1. "Wage increases in the past frequently took the form of promoting workers in grades 1 and 2 en masse. Ibid. In the first 9 months of 1977, state revenue rose 7.8 percent. About 46 percent of the workers and employees received pay raises. The emphasis was on those with many years of working experiences but receiving fairly low pay. Included were industrial workers, workers and employees in trade and other services, teachers, scientific and technical workers, medical personnel, literary and art workers, and government employees. Another 18 percent of the workers and employees were granted pay raises because they had been graded too low for their jobs. Those who received 90 yuan and up were not included. See People's Daily, Jan. 2, 1978, p. 1, and Foreign Broadcast Information Service, Daily Report-People's Republic of China (hereafter abbreviated as FBIS), Nov. 10, 1977, pp. E1-2. FBIS, Jan. 3, 1978, pp. E 16-17. be expected to become more frequent than in the past, especially for low-grade workers.53 It seems that other incentive measures will also be implemented. In his report to the Fifth NPC, Hua stressed his opposition to egalitarianism and the importance of applying the principle of more pay for more work. He stated further that piecework and bonuses should "play a secondary role" in the pay system. 54 Recently, a number of articles have appeared arguing in favor of the bonus and piecework systems. Bonuses and piecework are defended as "a supplementary mechanism for achieving distribution according to labor-making up for the weaknesses in basic forms of labor remuneration." 55 They are considered a "necessary material encouragement," useful in mobilizing the "socialist initiative of the masses," especially in a lowwage situation.56 Until the Fifth NPC, the leadership had not officially endorsed bonuses and other incentive schemes, probably because of their concern over possible accusations of repudiating an ideology bearing Mao's own stamp of approval. But the economic advantages of using material incentives are so great that China's pragmatic leaders may have felt that the reinstitution of the bonus system and other incentive measures should not be delayed further. The industrial wage increase will widen the urban-rural income differential, an effect contravening long-held Chinese policy objectives. Thus, measures to improve agricultural income will have to be considered.57 The bulk of peasant income is derived from work points earned from labor performed for the collectives and based on the amount and types of labor involved. This system, like the industrial wage structure, came under attack from the "radicals" for its inegalitarian tendencies. Payments were disrupted in a number of communes especially in 1976, resulting in a decline in labor productivity and output. Over the past year, the government's effort in this area seems to have focused on the restoration and strengthening of the reward structure based on the principle of "distribution according to labor." 58 Recovery in production has been reported in the press.59 60 Private plots provide an important source of supplementary income for the peasant household. They are also major producers of fruits, vegetables, and certain domestic animals, thus increasing fat and protein production, and providing an important source of organic The "20 Articles" makes the following proposal on wages: "We must gradually raise the wages of workers receiving low wages and reduce the gap between high and low wages. *** Every year or every 2 years we should raise the wages of a number of workers." (The China Business Review, vol. 4, No. 5, SeptemberOctober 1977, p. 9.) 54 When Vice premier Yu Chiu-li announced wage increases in his report to the Standing Committee of the Fourth National People's Congress in October 1977, he also stated: “We must study and settle the problems of how to *** raise labor productivity *** and how to apply better the principle "from each according to his ability, to each according to his work" and to insure "more pay for more work and less pay for less work" in distribution. (People's Daily, Oct. 25, 1977, p. 4.) The People's Daily of Feb. 27, 1978, which published a summary of Hua's report, carried an article by Yen Shi-chih entitled "To Firmly Uphold the Socialist Principle of Distribution According to Labor," advocating more pay for more work. The same theme was also advanced in Li Hung-lin, "To Each According to his Work: Socialist Principle in Distribution," Peking Review, No. 7, Feb. 17, 1978, pp. 6-8. Chao Li-kuang, "Refute the Gang of Four's Erroneous Theory Dealing with the Problems Concerning the Forms of Labor Payments," People's Daily, Nov. 22, 1977, p. 2. "Ibid. See also Wang Hai-po, "To Insist the Combination of Politics in Command with Material Encouragement," People's Daily, Feb. 22, 1978, p. 3. 57 Per capita real income in the rural areas has increased significantly in the past, but their consumption level still remains considerably below that in the cities. Hua's Report to the Fifth NPC: and Commentator, "The Key to Bringing into Full Play the Peasants' Socialist Enthusiasm Lies in Implementing the Party's Rural Policies," People's Daily, Feb. 15, 1978, p. 1. "People's Daily. Nov. 14, 1977. p. 1. "It has been estimated that about 20 to 30 percent of total peasant household income was derived from private plots. See Kenneth R. Walker, "Organization for Agricultural Production," in Alexander Eckstein, Walter Galenson, and Ta-Chung Liu (Eds.), "Economic Trends in Communist China," Chicago: Aldine Publishing Co., 1968, p. 431. 61 fertilizer supply. But their existence has long been a subject of debate. At issue is the competition for resources, particularly labor, between the private plots and the collectivized sector. At times, there have been pressures to eliminate or curtail the private plots. The decline in their production in recent years was blamed in the press on the "gang of four" who were alleged to have vilified private plots as "supplying blood to capitalism.' 63 1 62 64 65 The current leadership regards the continued maintenance of private plots and sideline production as a means of reinforcing material incentives. The range of production activities allowed to be generated from private plots is likely to expand, and local free markets will be liberalized as an outlet for produce from private activities 5 But the Government is confronted with the difficult problem of insuring an adequate supply of labor input in collective production without having disincentive effects on private production. The difficulty is compounded by labor shortages, particularly during peak seasons, as more and more rural labor is absorbed into small-scale industry and is being mobilized to work on farmland construction projects. A significant part of the improvement in China's rural real income in the past has resulted from the Government policy of raising the prices of agricultural products more rapidly than the prices of industrial products. Between 1957 and 1974-75, agricultural purchase prices increased about 65 percent, while the prices of industrial products sold to farmers rose by less than 15 percent. The prices of certain producer goods sold in rural areas, such as chemical fertilizers, pesticides, and diesel oil, have declined significantly.67 Present policy calls for a continued improvement in the terms of trade for farmers.68 The prices of certain producer goods used by farmers will continue to decline.69 66 2. Manpower Utilization Closely related to the wage and incentive issue is the problem of manpower utilization. In the past few years, some communes experienced a decline in farm output resulting from a sharp reduction in the number of agricultural workers directly engaged in production. The reduction was due to several causes. First, many agricultural workers were shifted to perform nonproductive activities allegedly under the "gang of four" influences. The problem became serious enough for Hua Kuo-feng to stress it in his report to the 11th Party Congress in August 1977, and then again to the Fifth NPC in February 70 For example, a tendency exists for the peasant to devote much of his and his family's labor to his plot at the expense of their labor input in the collective. 2FBIS, July 22, 1977, p. E8. Hus's Report to the Fifth NPC, and article 7 of the Constitution of the PRC (1978). A commentary in the July 21, 1977, People's Daily strongly defends sideline production by commune families for "playing an important role in the national economy." But it cautions that "(rural sideline) production should be regarded as proper and not be interfered with if it does not disturb agricultural production, affect collective production and collective labor." See also a New China News Agency commentary entitled "Pig Raising Needs a Big Development," in People's Daily, Feb. 13, 1978, p. 4. "Theoretical Group, Office of Agriculture, Revolutionary Committee of Liaoning Province, "Never Let the Party's Rural Policy Be Undermined," People's Daily, Nov. 16, 1977, p. 2; and Tung Tai, "Is Rural Trade Fair Capitalist Free Market?", People's Daily, Jan. 31, 1978. p. 3. For a discussion of the current policy toward rural trade fairs, see David Bonavia, "Very Private Enterprise," Far Eastern Economic Review, vol. 99, No. 9, Mar. 3, 1978, pp. 22, 25. "Alexander Eckstein, "China's Economic Revolution," New York and London: Cambridge University Press, 1977, p. 303. 67 Peking Review, No. 41. Oct. 10, 1975, p. 9. "Hua's report to the Fifth NPC. "In his summary report at the Third National Conference on Agricultural Mechanization, Yu Chiu-lf disclosed the target of a 20-percent reduction in the cost of production for agricultural machinery. Its retail price also would be lowered correspondingly. (People's Daily, Jan. 29, 1978, p. 3.) "People's Daily, Mar. 15, 1977, and Sept. 3, 1977, p. 1. |