Demonstration plots, discussion meetings, and technical teams sent to the countryside reinforce the dissemination of new information. Nonetheless, contrary to their record in the past, it is most essential that the Chinese undertake a significant program of advanced basic research, in the testing and selection of new seeds if they hope to modernize Chinese agriculture and achieve yields on a par with those in the most advanced countries by the end of the century. 38

Another major obstacle which the Chinese must confront if they are to solve their agricultural problem is the storage and control of water essential for achieving the potential yield response catalyzed by increased use of new seeds and increased applications of chemical fertilizer. Historically, water management was critical to Chinese agriculture's ability to support a large population with limited cultivatable land. It was the existence of an extensive irrigation network, mostly in the southern regions, that allowed for extensive double cropping. By the 1930's, most cultivatable land with no serious. problems of water supply had been irrigated. Since 1949, the Chinese have increased the irrigated acreage significantly by utilizing flood control projects, wells, and electric pumps. They completed the irrigation network in south China, expanded the irrigation and rice double-cropping area northward into central China (north of the Yangtze River), and increased the irrigated acreage in the southwest and northeast.

The rice-growing areas of South China with adequate and dependable water supplies, therefore, are already irrigated and have been provided with new and rapidly growing supplies of chemical fertilizer. While the leadership has some concern over the lack of growth in this region in recent years, yields in China's rice bowl, Szechuan, compare favorably to those of the other rice-producing countries in Asia. Thus, where the Chinese have managed to develop the necessary complement of inputs, the results have been impressive and have been responsible for China's ability to maintain the average annual 2 to 3 percent rate of increase in agricultural production in the past.

The north China plain, China's traditional agricultural region and the home for over one-fifth of its total population, is primarily devoted to dry land wheat cultivation and suffers from inadequate and undependable supplies of water, resulting in low and unstable yields. High silt content of the Yellow River makes water control and irrigation projects costly, difficult, and often inefficient. Similarly, when rainfall is insufficient, droughts occur and the Yellow River may even dry up. In fact, conditions are so unstable that both flooding and drought can occur in the same year.

The Chinese have undertaken the Yellow River project, designed to regulate flooding by means of a series of storage dams closer to the river's source and to alleviate silting by implementing soil erosion control in the wastelands through which the river flows. In addition, attempts are being made to create facilities for the continuous removal of silt downriver. The costs of this project are tremendous and the returns in terms of increased irrigated land is estimated to be only about 7.5 percent of China's irrigated area in 1974. It is perhaps in

"For a detailed discussion of the weaknesses and shortcomings of the process by which innovations have been adopted and implemented by the state in China's agriculture sector in the past, see Thomas Wiens, "Evolution of Policy and Capabilities in Chinese Agriculture Technology," in this volume.

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recognition of this that recent reports indicate the Chinese leadership has reduced the priority they formerly gave to the Yellow River project as a means for solving their agricultural problem in North China. To add to the irrigated area, the Chinese have been rapidly expanding the number of tube wells equipped with electric pumps for tapping the ground water under the north China plain.39 These various projects, however, must be well coordinated and carried out on a very large scale, and their ability to achieve high and stable yields in north China is still constrained by the natural supply of water.

Some observers have argued that China has not been able to achieve more substantial increases in agricultural output due to unfavorable constraints imposed by the reliance on traditional agricultural production techniques and that past growth was largely the result of one-time shifts in inputs which will not be available for sustained growth in the future.40 Obviously aware of these arguments and of the implications they have for China's economic modernization in the 1970's, the Chinese adopted a major policy decision regarding the means for achieving sustained growth and higher yields." This large-scale, nationwide program involves the identification and emulation of "model" communes and countries that have been able to achieve rapid increases in yields. The unit actually selected as the original model for copying is the Tachai Brigade and the Tachai-type advanced county campaign presents a broad-ranging and interdependent package of policies which are to be copied as the "model" for the modernization of Chinese agriculture.

A brief summary of the major features of these model units which are to be transferred elsewhere indicates the bold and radical nature of the agricultural transformation being sought. While there is some questions as to the status of this campaign under the new leadership, Hua's speech still called upon the Chinese to pursue more vigorously the movement to "learn from Tachai" in their efforts to develop agriculture. This is not surprising, inasmuch as Hua is identified as a key figure in the adoption of the Tachai-type or advanced country model campaign for the modernization of Chinese agriculture. Thus, although it may be modified to some extent by the new leadership, the various ingredients of the campaign remain as the major focus of current Chinese efforts to solve their agricultural problem.

One area in which the new leadership has changed the nature of the campaign is in regard to its organizational and incentive objectives.

39 According to the data collected by Dwight H. Perkins, there was no significant increase in irrigated acreage between the mid-1950's and the mid-1960's, and the share of total arable land that was irrigated in the mid-1950's was 31 percent, compared with 27 percent in the 1930's. Between the mid-1960's and mid-1970's, however, the amount of irrigated acreage was increased by almost one-third and the share of irrigated land in total arable land increased to over 40 percent. During this same period, the number of tube wells with power pumps increased thirteenfold. See table 6 in Perkins, "Constraints Influencing China's Agricultural Performance," in op. cit., p. 360.

40 See Perkins, "Constraints Influencing China's Agricultural Performance," and Alva Lewis Erisman, "China's Agriculture in the 1970's, in the previous compendium of papers on China's economy issued by the Joint Economic Committee, "China: A Reassessment of the Economy," 1975.

41 This nationwide ca apaign, known as the Tachai-type or advanced county campaign, includes a great many different, but complementary, activities for achieving modernization of China's agriculture and producing high and stable yields throughout rural China. Furthermore, the emphasis given each of these activities has changed over time. The following discussion in the text in this paper summarizes those activities which are most fundamental to this campaign and which are still important policies of the new leadership for solving China's agricultural problem, whatever the current status of the campaign as a whole. For a discussion of the evolution of the campaign, see Robert F. Dernberger, "China's Economic Future," op. cit., p. 134-138. It is interesting to note that the meeting of national representatives at Tachai Brigade in Shansi Province in the fall of 1975, convened by the State Council and which formally adopted the campaign as national policy, was chaired by Hua Kuo-feng.

Originally, the campaign placed emphasis on the larger production units, such as the brigade, as the basic decisionmaking unit in agriculture and on collectivized activities and distribution. The new leadership, on the other hand, has explicitly recognized the need to rely on the production team as the basic decisionmaking and accounting unit in agriculture and on task-related material rewards for the individual as the basic incentive system. The new leadership also has emphasized its support for the individual household's participation in subsidiary activities, including work on their private plot, and their right to participate in rural, free markets; insofar, of course, as this does not involve speculative behavior or cut into their work obligations for the collectivized activities of the team. In other words, the more radical aspects of the campaign have been removed in favor of greater moderation, but many other elements of the campaign remain.

For example, farmland throughout China is to be considerably remoulded into bigger and level fields to allow for the introduction of mechanization and irrigation. Local networks of water control and irrigation projects are to be completed, collecting water from any and all sources and providing facilities for the storage of water and its distribution to the fields.42 Land reclamation projects are also important, including such innovations as the moving of spring runoff channels and rivers underground through tunnels of considerable length, allowing for the cultivation of crops in the former riverbeds. In addition, cropping patterns are being changed. Where water is available, wheat and corn are being replaced by higher yield crops such as rice, and intercropping is being widely introduced to allow more efficient use of the available sunlight and land, and to lengthen the annual period during which crop growth may take place.

Rural, small-scale industries which rely on local financing, raw materials, and labor are being constructed to supply the cement, chemical fertilizer, electricity, and agricultural machinery required by this program of agricultural transformation. Mechanization is an important ingredient in the program as a means to increase the available supply of labor to help meet the large increase in the demand for labor resulting from the farmland construction, changes in cropping patterns, and the small scale industry undertaken as part of the program. Electrification is being carried out as a source of power for the mechanization of agriculture, to light up the threshing floor at night to allow for continuous threshing, and to mechanize food processing (for example, grain milling), which now places a heavy demand on rural labor.

Finally, and very important, technical innovations are to be made in all aspects of the production process. Originally, these innovations were to be discovered and developed by the peasants themselves; the scientists and technical personnel were expected to go down to the rural areas and work with the masses. The new leadership, however, has put great emphasis on the need to develop China's scientific and

These projects were among the most impressive sights observed by one of the coauthors during his trip to China in 1975. Even though one would have to assume that the real wage and interest rates were close to Zero (the opportunity costs of labor and capital were very small) to justify their construction in a traditional cost-benefit analysis, one could not help but admire the Red Flag Canal (which brought water to Lin County from a river a considerable distance away in another province), children in the mountains chipping rocks for the construction of a large water storage tank, underground dams to trap the underground flow of water, and a network of aquaducts to distribute water from a pumping station throughout the communes' fields by means of gravity.

technological capabilities by relying on the training of experts, of acquiring the most advanced knowledge available abroad, by developing the necessary facilities for basic research, and to test new innovations more carefully and adequately before they are introduced in actual production. In this way, the new leadership obviously believes they can better achieve those innovations which will lead to sustained growth in agricultural production.43

The results of these efforts on a few model communes during the 1970's have indeed been impressive. In fact, it was the observed results for these model communes which led the Chinese leadership to adopt this program calling for the nationwide emulation of what the model communes had done as the means of solving China's agricultural problem. Yet, their failure to appreciate the extent to which locational (being near large cities, having good transportation facilities, et cetera), historical (being located in areas of traditionally high yields), or special (receiving considerable state aid) factors explained these satisfactory results, it is very doubtful that other areas, that is, those with low and unstable yields, will be able to easily emulate the experience of these model areas. Most important is the key role played by the availability of water in the achievement of this hoped for transformation of China's traditional agriculture. Quite simply, there are a good many social, economic, and technical constraints which limit the suitability of Tachai-type or advanced county campaign for serving as the solution to China's agricultural problem; constraints which will at least significantly restrict the kinds of increases in yields which have been observed in the model communes.4 44

In other words, the Chinese are unlikely to achieve a breakthrough during the next decade in their attempt to solve the agricultural problem. As a result, agricultural development will continue at the pace of 2 to 3 percent, remaining as the major constraint on China's overall economic growth and on significant increases in the standard of living of the Chinese people.45

See the speeches by Teng Hsiao-ping and Hua Kuo feng to the National Science Conference, attended by approximately 6,000 representatives, held immediately after the Fifth National People's Congress in March of 1978. These speeches can be found in Peking Review, No. 12, March 24, 1978 (Teng's speech) and No. 13, March 31, 1978 (Hua's speech). The document discussed and adopted by this conference was titled the Outline National Plan for the Development of Science and Technology, 1978-85. As is true of the longrun economic plan, 1975-85, this new policy adopted for the development of China's science and technology is merely the "rehabilitation" of a plan originally sponsored by Teng Hsiao-ping in 1975. Due to pressures from radical leaders, then able to use Mao's critical support, these plans were shelved in 1975 and Teng Hsiao-ping was removed from his positions of power.

"There may appear to be an inconsistency in the argument in this section of the paper. On the one hand it is argued that the Chinese will find it increasingly difficult to utilize the means used in the past (that is, irrigation, double cropping, etc.) to obtain greater agricultural growth in the future and that the marginal productivity of current inputs (that is, fertilizer, et cetera) will decline as their level of use increases. In other words, the Tachai or Advanced County Campaign won't work as a means of achieving a breakthrough in China's agricultural problem. Yet, in the following paragraph in the text, we argue that agricultural growth in the future is likely to remain what it has been over the past decade or so. These arguments are made compatible for the following reasons. Although given increases in agricultural output will become more difficult (that is, more costly), the Chinese leadership has already decided to devote the resources necessary for obtaining increases in output on a much greater scale than in the past. Although the marginal productivity of current inputs on each piece of land declines with increases in the level of inputs used, the growth of agricultural output throughout China in the past was due, in part, to the increase of these inputs in certain areas of China. Thus, diminishing returns should become an important problem in those areas, but Chinese agriculture contains many areas where the use of these inputs still has a relatively high marginal productivity. Quite simply, a'though the expected returns obtained, on the average, from a given amount of investment and effort in Chinese agriculture in the future is smaller than in the past, the expected increase in the total scale of efforts and attempt to create a more balanced and complementary mix of inputs ever a larger area should enable the Chinese to maintain a rate of growth in total agriculture approximately equal to that in the past.

45 The same conclusion was argued in the two articles on agriculture in the previous Joint Economic Committee compendium of papers on the Chinese economy: Dwight H. Perkins, "Constraints Influencing China's Agricultural Performance," and Alva Lewis Erisman, in"China: Agriculture in the 1970's," China: A Reassessment of the Economy, 1975." It also is consistent with the agricultural papers presented in this. volume: Charles Liu, "PRC Agriculture: Performance and Emerging Issues in the 1970's," and James A. Kilpatrick and Henry J. Groen, "Chinese Agricultural Production."

Industry

Increases in industrial production are obtained by increasing either the amount of physical capital, raw materials, and labor used for production or the productivity of these inputs. Since China is adequately endowed with raw materials and labor supply, the dominant constraint on its industrial development is the need to maintain its recent rate of investment in physical capital. The significant industrial growth since 1949 was made possible by a very high rate of investment. Despite the claims made in Hua's speech, that is, more total investment in 1978-85 than in the entire previous 28 years, the Chinese will have greater difficulty in maintaining both that high rate of investment and, more important, the rate of return on that investment in the coming years.

Although a host of arguments can lead to this conclusion, only the signal reasons will be presented here. The damping of the rate of investment will result from the pressures tending to increase the rate of consumption. Because of rationing and the relatively stable real wages that have existed for the past few decades, considerable pent-up demand undoubtedly exists for higher standards of living. In recognition of this problem, the new leadership announced pay increases for approximately 60 percent of the industrial workers, that is, those in the lower wage scales, during the past year. But, if the Government is to continue to use material incentives, it will have to effect steady increases in wages in order to obtain increases in productivity. Since agricultural production is growing only slightly faster than population, rapid increases in manufactured consumer goods, especially durables such as bicycles, sewing machines, watches, radios, et cetera, may alleviate this problem somewhat but will not solve it.

The source of the demand for a higher standard of living is found in both the industrial and the agricultural sectors. Nonetheless, the fact that industrial workers already enjoy a relatively high standard of living has forced Peking to control strictly the rate of migration from the rural areas to the urban industrial centers. Although the recent drive to create rural, small-scale industries has reduced the rural-urban differences in income levels, it has not significantly altered the differences in income between industrial and agricultural workers. The relatively low standard of living of the average Chinese peasant, its slow rate of growth, the longstanding promise of equitable income distribution, and the necessity to sustain both the labor effort and political loyalty of the peasants will create a pressure that the Chinese leadership will be unable to deny to devote a greater share of the total GNP to consumption.

Whatever the rate of investment in the future, the growing importance of several alternative claims on investment will tend to reduce the share that has been allocated to industry-especially the

"Gross domestic capital formation accounted for approximately one-fourth of gross domestic product during the 1950's: more than half of this capital accumulation was in the industrial sector. Reliable data are not available for the 1960's or 1970's, but the Chinese undoubtedly maintained an investment rate above 20 percent and although agriculture has enjoyed a much higher priority since the 1950's, approximately 40 percent of total investment must still go to industry.

This refers to national averages and does not include those individual communes that have become quite prosperous and whose members enjoy a standard of living quite similar to that of industrial workers. Most of these prosperous communes are to be found in the neighborhood of large metropolitan centers; thus they have large markets close by in which to sell their subsidiary products.