dollars. For the period 1986-2000, the probable ranges fo annual growth rates are assumed to decline to 2.5 to 4 percent for agriculture and 8 to 10 percent for industry, resulting in a range of GNP growth rates from 6 to 7.8 percent a year. China's GNP in the year 2000 is thus projected at a level between 1,367 and 2,094 billions of constant 1976 U.S. dollars. These ranges of estimates for 1985 and 2000 represent reasonable expectations of what GNP levels could be achieved through the modernization effort. The attainment of levels significantly below the lower estimates would indicate the failure of the four-modernizations program to reach its stated economic goal. On the other hand, the probability of achieving levels considerably above the higher estimates will be small without very major ideological modifications, institutional reforms and technological breakthroughs. TABLE 1.-DISTRIBUTION OF GROSS NATIONAL PRODUCTS OF 5 MAJOR POWERS, 1976, 1985, AND 2000 1976 GNP figures are based on Central Intelligence Agency, Handbook of Economic Statistics, 1977, Sept. 1977, p. 31 Average annual growth rates of GNP for both 1977-85 and 1986-2000 are assumed to be 3.5 percent for the United States, 4 percent for the European Economic Community, 4.5 percent for the U.S.S.R., and 7 percent for Japan. China's GNP is projected on the basis of two different ranges of growth rates for 1977-85 and 1986-2000. Projection which gives the lower end of the estimates assumes an average annual growth rate of 6.5 percent for 1977-85 and 6 percent for 1986-2000. Projection II which shows the higher end of the estimates is based on an average annual growth rate of 8.5 percent for 1977-85 and 7.8 percent for 1986-2000. The rationale for the selection of these growth rates and the resulting range of GNP estimates for 1985 and 2000 are explained in the text and in footnotes 2 and 4. The above table shows the GNP distribution of the five major powers in 1976 and the distribution projected for 1985 and 2000 according to the assumptions made above. In 1976, the five major powers combined accounted for about 70 percent of the world's GNP. Of these five major powers' total GNP, China's share in 1976 was only 6.7 percent; it produced less than one-fifth of the level of the world's largest producer, the United States, and some 60 percent of the level of fourth largest, Japan. A successful modernization drive in China could increase its share to 8 to 9 percent by 1985 and 10 to 14 percent by the year 2000. With the most optimistic estimate, China's GNP would still rank last among the five major powers by the end of the century, but could reach over half of the U.S. level and more than 70 percent of the Japanese or Soviet level.5 ♦ On the basis of the estimates of various sectors' contribution to GNP in 1975 and the growth rates assumed for these sectors during 1976-85, as explained in footnote 2, the distribution of GNP among the three main sectors in 1985 can be estimated as 28 percent for agriculture, 49 percent for industry and 23 percent for services. Assuming that during 1986-2000, the range of annual growth rates are 2.5 to 4 percent for agriculture, 8 to 10 percent for industry, and 4 to 6 percent for the service sector, the average annual growth rates of GNP can be derived in the range from a low of 6 percent to a high of 7.8 percent. It should be noted that in terms of GNP per capita China is not a world power, and in all probability will not become a power by the end century. In 1976, GNP per capita in China was only $340, while the figure was $7,860 for the United States, $5,330 for the European Economic Community, $3,590 for the Soviet Union, and $4,880 for Japan, (Central Intelligence Agency, Handbook of Economic Statistics, 1977, pp. 18-19.) Even with the most optimistic assumption that the annual rate of population growth will be reduced to 1 percent within 3 years, as planned, and will remain at this rate in the balance of the century, and that GNP by the year 2000 will reach the higher end of the range estimates, China's GNP per capita by the end of the century will come to only $1,735, a level comparable to the figure for Iran, Hong Kong, and Mexico in 1976. CHINA: SHIFT OF ECONOMIC GEARS IN MID-1970's III. Three political upheavals: Damage assessment.. 210 IV. Agriculture: Expanded capacity, mediocre output gains. 214 217 219 VII. Foreign trade: The cutting edge.. 220 VIII. Living standards: Impatience with moderate advances.. 222 224 225 APPENDIXES A. Updating of simplified GNP accounts.. B. Sources of information on the Chinese economy. TABLES 229 233 1. China: Economic results, 1949-77.. 2. China: Major economic indicators, 1949-77 3. China: Line items in calculation of GNP, 1949–77 I. KEY FINDINGS 207 208 231 1. For much of 1975-77-the 3 years since the publication of the last Joint Economic Committee volume-the economy of the People's Republic of China moved ahead erratically without firm commands from the center. A fierce power struggle over the succession to Chairman Mao Tse-tung precluded unified economic policy guidance. 2. After Mao's death on September 9, 1976, the new governing faction under Hua Kuo-feng moved swiftly to arrest its chief radical opponents, the Gang of Four, and to begin the process of "restoring great order across the land." The Fifth National People's Congress, convened in late February 1978, approved an ambitious 10-year economic plan (1976-85) to accelerate the modernization of China's Marxist-Leninist society. 3. Economic damage from the political turbulence of recent years, while serious, was less than the losses suffered during the 1967-68 peak of the Cultural Revolution and far less than the losses of the Great Leap Forward (1958-60). As the Soviet-style economic system has taken root, political upheavals have had less and less impact on the daily workings of the economy and its growth patterns. 4. Direct economic damage in 1975-77 mainly took the form of sizable losses in potential industrial output, due to transportation tieups, shortages of coal and steel, and failures of economic administrators in coordinating inputs with outputs. Other, less direct, damage stemmed from a lowering of factory discipline, fear of managers to take initiatives, failure to exploit available domestic and foreign technology, the protracted standdown in higher education, and the general irresolution in central economic policy. 5. Even though growth in industry, agriculture, and foreign trade was stunted in the 3-year period, important additions were being made to capital plant. Several big petrochemical plants and other modern industrial facilities were commissioned; major water control and land reclamation projects were pushed forward; and the rail and road networks were upgraded and extended into new areas. Investment amounted to a healthy one-quarter of gross national product. 6. Similarly, despite prolonged disputes over how to reestablish the higher education system, human capital was accumulating on a broad front. Primary and secondary schooling expanded, and millions of Chinese workers increased their on-the-job mastery of modern industrial and agricultural methods. 7. Behind the political turbulence, most households experienced small improvements in living standards, through the growth in the number of higher paying jobs, the greatly increased stock of consumer durables in household use, the self-help improvement of rural housing, and the continued grudging permission for private plots, handicrafts, and trade. 8. While remaining well below the 1970-71 peak, the production and procurement of military hardware rose gradually in 1975-77, and the modernization of the armed forces proceeded at a deliberate pace. 9. The population control program, which is being successfully extended further into the countryside, has helped bring the national population growth rate below the 2.3-2.4 percent rates of 1967-71, with rates under 1.5 percent in prospect by 1985. The program has begun to have substantial impact because its goals are consistent with most of the modernizing trends in Chinese society, for example, improvements in health care, education, benefits for the elderly, and opportunities for women. 10. The post-1960 blackout on economic statistics was partially lifted in early 1978, when several specific national economic targets for 1985 were announced. Otherwise, the planning and statistical organs over the last 3 years continued to release only scattered percentage figures, which implicitly confirm the tentativeness of economic planning and the spottiness of economic results. 11. In addressing the problems of economic modernization, the fledgling Hua government already has stiffened labor discipline, raised the wages of urban workers in the lower grades, begun to restore educational standards, and encouraged the wider import of foreign technology. Vice-Premier Teng Hsiao-ping-brought back from political banishment for the second time, as the de facto executive officer of the PRC-has sparkplugged this revived emphasis on hard work, increased output, and industrial expertise. 12. In the period 1978-80, the goverment expects to break bottlenecks in steel and coal production, move aggregate output closer to the economy's capacity, and further make up for recent neglect of science and technology. 13. By the year 2000, the government hopes to honor the late Premier Chou En-lai's call for the "four modernizations"-of agriculture, industry, national defense, and science and technology. 14. The economic plans and economic events of the next two decades will have a different flavor because of the absence of Mao. As the father figure of the revolutionary government, he had the strength to push the economy in entirely new and unexpected directions. His successors will of necessity have to steer a steadier course. 15. The PRC economy almost certainly will continue to stand out among the world's lesser developed economies in (a) its successful mobilization of rural manpower for land improvement and smallscale industrialization, (b) its concomitant success in controlling rural-to-urban migration, which in other less developed countries (LDC's) has resulted in massive unemployment, widespread crime, and abysmally low living conditions; (c) its avoidance of large-scale foreign debt, with the accompanying financial burdens and loss in financial and political independence; (d) its ability to design modern weapons and to supply the needs of its armed forces from domestic production facilities; and (e) its development of a highly promising system for bringing population growth down toward zero. 16. At the same time, economic growth rates probably will drift downward in the 1980's, after the catchup gains in prospect for 197880. Growth could be quite respectable by international standards, yet still below the long-term PRC rates of 5% percent for gross nationial product and 9 percent for industry. 17. Factors reining in Chinese growth rates include (a) the inability to further expand the effective supply of arable land, (b) the using up of the massive reserves of unemployed and underemployed labor, and (c) the general inefficiency of socialist command economies in dealing with increasingly complex product mixes. 18. The People's Republic almost certainly will continue to widen its margin over most countries of the Third World, while failing to narrow the gap with the leading industrial nations in industrial and military technology, per capita output, and living standards. 19. Finally, China under the Communists has scored signal successes in providing for basic economic wants and creating a mechanism for economic growth. For the foreseeable future, however, the system is not likely to provide the rank-and-file Chinese with a free choice of job, residence, consumer goods, or leisure time activities. 1976-85: 10-yr plan (entries cover 1976-77). Turmoil attendant on death of Mao and Chou; attempt to restore orderly growth. Industrial results Reactivation of idle capacity Increased capacity and output Ruinous increase in factory Rationalization of output, with Sharp dip in industrial output, 1967-68; continued gains Gains in capacity and output; Gains in capacity; output held Agricultural results Return of idle fields to opera- ants. Gains in output from re sources already in sector; Precipitous fall in output due Quick return to growth pat- Continued growth on basis of generally good weather and Continued growth on basis of Further advances in mechani- |