SUMMARY

BY JOHN P. HARDT

The post-Mao period seems to be dominated by a pragmatic economic policy which is exemplified by the drive for the "four modernizations": in agriculture, in industry, in national defense and in science and technology. The current goal, first enunciated by Chou En-lai in the 1960's, is to convert China into a powerful and prosperous nation by the year 2000. While Mao is still shown great respect, under the joint leadership of Hua Kuo-feng and Teng Hsiaoping (the man Chou selected to be his successor) Maoist ideology has been deemphasized and the adverse effects of the Cultural Revolution on education, on science and technology and, consequently, on economic growth, are now readily acknowledged. The current focus on economic modernization, technological change, professionalism and measured ties to the Western developed economies may now be seen at all levels of Chinese policy and life. Although the rapid, thoroughgoing pursuit of the letter and spirit of Chou's vision is a fact of post-Mao China, most authors remind us that we may be seeing yet another policy cycle which, under Mao, alternated from periods stressing ideology to periods emphasizing economic priority and pragmatism. No one can predict, for example, whether the policies of modernization will be able to survive the passing of 73-year-old Teng Hsiao-ping, generally regarded as the instigator and implementor of China's push for modernization. Trend or cycle, the Chinese economy and society are in the throes of significant and interesting changes.

This volume follows three earlier compendia on the Chinese economy: "Economic Profile of Mainland China" (1967); "People's Republic of China: An Economic Assessment" (1972); and "China: A Reassessment of the Economy" (1975).

Hearings related to some of those earlier volumes were also published. The current volume updates and expands the coverage of the earlier publications. The 37 contributors number more than any of the previous volumes. The participants represent academic institutions in the United States, Canada, the United Kingdom and Sweden, various departments of the U.S. Government and research institutions. A companion volume to this entitled "Recomputation of Chinese National Accounts" will be published separately by the Joint Economic Committee.

This compendium is organized into five sections: Policy Perspectives; Manufacturing and Extractive Industries; Population and Labor Utilization; Agriculture; and Foreign Economic Relations. Some of the major questions addressed in the studies, with indications of some of the authors' responses are illustrated below:

Question 1. What are reasonable projections of China's economic future? Has the economy of the People's Republic of China settled down to a stable, continuous process of economic growth?

all of the papers in this volume recognize the record of positive rates of growth in both agriculture and industry in China's economic development over the past 28 years, which have created a significant economic base for the new leadership to build on in their attempt to modernize China's economy. More important, all recognize the tremendous potential for future growth and even the more pessimistic of the papers that follow believe the new leadership's economic plans and policies will achieve a considerable degree of success, i.e., further increases in GNP per capita. Perhaps most important of all is that these economic plans and policies of the new leadership indicate domestic economic rationality and stability and a far greater reliance on normal commercial relations with the industralized countries of the non-Communist world than was true in the past. [Dernberger-Fasenfest, p. 47.]

By examining historical growth rates some conclusions on Chinese economic development have been drawn.

This growth tabulation clearly shows the general pattern of economic development, that is, the rapid increases in industrial output, while grain output barely keeps up with population. While the data are not accurate enough to put much weight on this distinction, the main point remains firm-grain output in China has been roughly matching population growth over the long haul.

Several important factors argue for substantial economic growth over the 8 remaining years of the recently announced 10-year plan:

1. The investment of one-quarter of GNP to rapidly build up the nation's productive capacity.

2. The continued existence of rural capital construction projects with a high payoff.

3. The renewed advances of industrial technology, bolstered by the Hua regime's greater acceptance of foreign equipment and its revitalization of domestic science and higher education.

4. The continued restraint in the allocation of high-technology resources to military industries.

5. The potential for further striking gains from foreign trade, via the route of comparative advantage.

6. The continued rise of per capita consumption in a variety of small ways, a trend that permits greater experimentation with material incentives.

7. The existence of an effective and low-cost administrative apparatus for reducing population growth still further, thus reducing pressures to shift resources from investment to consumption.

8. In general, the apparent settlement of leadership issues and the ascendancy of the economic modernizers at the expense of the militant ideologues. Formidable as these progrowth forces seem, they do not guarantee a continuation of 51⁄2-percent GNP growth and 9-percent industrial growth through 1985. While the short-term potential for high growth rates is quite promising because of sizable "catch-up" possibilities, the longer term prospects are for a drifting down of the GNP and industrial rates as opposed to the increases envisioned in the new plan. [Ashbrook, pp. 227-228.]

The primary causes of China's declining economic performance since 1974 appear to be short term and political in character rather than long term and structural. The adverse influence of these short-term elements appears to have receded rapidly, due largely to the decisive actions taken by the new government since late 1976. However, even if we could confidently assume future political stability, the target rates of growth included in the 10-year plan remain quite ambitious The possibility of slightly better future performance cannot be ruled out since the 1964-74 decade included the cultural revolution that had a significantly adverse effect on industrial production and investment. . . .

A return to economic performance similar to that of the 1964-74 decade, however, is dependent on two crucial conditions. First, there must be a stable political environment that is conducive to long-run economic planning. In the absence of automatic mechanisms for determining the allocation of resources, these decisions are made through a direct political process that is extremely vulnerable to disruption. If the political consensus that appears to underlie the 10-year plan should be shaken, there could be a renewed paralysis of the planning process, a deferral of investment decisions, and a decline in the rate of growth.

A second condition for the resumption of sustained growth is the deferral of modernization of China's military establishment. The underlying scarcity of resources and the envisaged increase in the flow of investment to improved social services and transportation infrastructure; to scientific and technical modernization; as well as to industry and agricultural implies that the share of resources

allocated to the military cannot be increased substantially. China's national defense is still to be modernized by the end of the century. But high resource costs and technical difficulties will mean that an across-the-board modernization program will have to be deferred well into the 1980's if goals in other sectors are to be met. This will not preclude either a rising absolute level of defense expenditure or significant improvements in selected weapons systems, but a systematic modernization program will depend on a more developed industrial sector. [Lardy, pp. 60-61.] Question 2. How do the political dynamics post-Mao influence future economic policy? Will this changing political pattern change the character of the Chinese development model formulated under Mao's rule? Guided at home by a search for "moderate" policies, abroad the regime likewise sought means for defining and maintaining an appropriate "political distance" between China and the three major Asian powers. In that endeavor, China's leaders clearly had fewer levers and resources at hand than they had at home. Abrupt changes in the perceived structure of power in Asia or the process whereby crises might be resolved could upset China's economic plans through the workings of the domestic political process. Radical opposition might use such change to mobilize a new coalition of power among impatient younger military leaders, frustrated rural youth and idealists threatened by Teng's new class of professionals to demand still another turn of China's political cycle.

In the light of the past 25 years of change in China, the odds seemed to favor such a shift in Chinese political style before 1980, probably having the effect of constraining the authority of central leadership, increasing the role of the military both in Peking and in the provinces, accelerating military modernization with a consequent delay in the achievement of economic goals, and bring another round of domestic political instability. Unless foreign powers were willing to commit substantial political and economic resources, such changes on China's domestic political stage could not be influenced very much by any single power's Asian policies. Only Soviet determination to go to war with China or American determination to support China in such a war might overwhelm the otherwise independent dynamic of China's internal political system. [Whitson, pp. 78–79.]

Question 3. How do foreign perceptions of the performance and rationale for the Chinese economic model differ? How, specifically, has China's erst-while ally-the Soviet Union viewed the Chinese development?

According to Western perceptions, the future of Chinese economic development remains uncertain but carries great potential.

. . . in a post-Mao-Chou era, power struggles and policy disputes—including economic policy differences-could become seriously aggravated. Therefore, it may be particularly difficult to forecast the future course of China's economic policy. Nevertheless, barring a repetition of great leap forward-or cultural revolution-type measures of China's involvement in a major international conflict, the country should be in position to sustain over the coming decade approximately the same average rate of economic growth as in the past 25 years. This would mean that by the end of this century China's gross domestic product could be quadrupled. In terms of total size it would still lag far behind the United States and the Soviet Union, but could easily be among the five largest economies in the world.

Nevertheless, just as in the past, it will be no easy task to sustain a 6-percent rate of growth. Based on past performance, this will require a rise in farm production of about 2 to 3 percent a year assuming (1) a continued commitment to basic self-sufficiency in food supply, and (2) a rate of population growth of not less than 1.5 to 2 percent a year. This will necessarily pose a major challenge to Chinese agriculture. Over time it will require very large investments in the farm sector and its far-reaching technical transformation. It is far from clear whether such a major transformation can be accomplished within present patterns of economic organization and employment in agriculture. This range of issues will necessarily constitute one of the continuing problems facing the Chinese Communist leadership for the rest of this century and probably beyond.

The successor generation of China will also have to face up to the challenge of sustaining the revolution, its values and spirit, in the processes of production are bound to become more complex. Technical training requirements may also be expected to grow, thus posing a number of dilemmas. Will the educational system as reorganized after the cultural revolution be capable of training the advanced engineering, scientific, and technical manpower required for an industrial society.

If not, can that system be reshaped in such a way as to continue producing "reds" and "experts?" Čan status and income differences be fairly narrowly confined in the face of the growing specialization, division of labor, and functional differentiation associated with industrialization?

Another and closely related range of questions revolves around consumer aspirations. With a fairly rapidly rising product, can household purchasing power in the cities and in the countryside be kept stable or rise only quite slowly and gradually? Alternatively, will increasing product be gradually translated into increasing consumer appetites? Can consumerism be contained and the spirit of frugality and self-abnegation be preserved?

It is also very unclear whether China can maintain a 10-percent rate of industrial growth for several decades with a preponderantly rural population. This of course will crucially depend on the pattern of industrialization, that is, the technologies used, the scale of plant, and the degree of capital intensity. It may also depend on whether it is possible to design a highly decentralized pattern of industrial development in China that would economize on transport and be partly regionally based. Such a pattern might slow down the rate of urbanization and at the same time alleviate some of the dilemmas posed above.

In essence, the fundamental challenge confronting China's leaders in the coming decades will be to maintain the tempo of economic growth, to build a strong and modernizing China, while preserving socialist values and not only socialist forms of organization. It remains to be seen whether China can become a modern industrial state without perpetuating the "new class" that has been gradually emerging since the 1950's and without following the "revisionist" road. If China's far-reaching experiment were to succeed, it would indeed be a historic contribution to the process of modern economic growth. [Eckstein, pp. 113-114.]

The Soviet view of Chinese economic development has been somewhat different from Western or Chinese perceptions.

Soviet Sinologists have to contend not only with a paucity of data (a problem familiar to all China specialists), but also with the ideological and political constraints, which limit their freedom. . . [p. 116].

In reviewing their aid to China, the Soviets conclude that it is the assistance they provided in the 1950's which made it possible for China to experience early successes and which also turned the head of Mao and his entourage, fanned their great-power hegemonistic aspirations and served as fertile ground for nationalistic tendencies in the Chinese leadership... [p. 133].

Undoubtedly the most important theme recurring in Soviet texts on China contends that militarization is the primary characteristic and the foremost priority of China's economy [p. 139].

there seems to be little doubt that most Soviet economists believe that Peking neglects rural development, that state aid is available only in periods of crisis, that local self-sufficiency is a ridiculous policy and that military priorities are the cause of China's poor agricultural performance... [p. 144].

The Soviets describe the development of China's industry as complicated and contradictory. . . [p. 148].

While Chinese industry (both national and local) bad experienced growth in the 1970's, Peking has not been able to solve many of the fundamental problems that affect industrial development, such as insufficient raw materials and energy, outdated industrial facilities, and the shortage of qualified specialists... [p. 148]. The simultaneous development of modern and traditional means of production runs counter to the Soviet passion for bigness. [p. 138].

Although Soviet and Western estimates of China's production figures may differ, there is actually little disagreement about the over-all strength and weaknesses of individual economic sectors or the specific problems facing the planners in Peking. The differences are in perspective, in emphasis, and in evaluations of the rationality (or muddleheadedness) of China's economic policies... [pp. 148-149]. In discussing PRC's most recent drive for modernization, the Soviets say that the new policies are nothing more than "the adaptation of Maoism to altered conditions". . . [p. 134].

"The Soviets themselves recognize and even publicly admit some of the problems and weaknesses in their research on the PRC. [but] "it is very important not to lose sight of the great improvement that has taken place... since the beginning of this decade."... "Unencumbered by political demands for conformity, free to pursue their research and arrive at independent conclusions, Soviet Sinologists should be able to move to the forefront of studies on modern China. If this day ever comes, it will behoove Western China-watchers to pay

much closer attention to what their Soviet counterparts may start saying or writing about China.” [Orleans, p. 164.]

Question 4. What is the Chinese policy on economic modernization? What are the prospects for the Chinese economy in this post-Mao period?

China's economic modernization efforts may be influenced by a number of constraining factors. The speed of economic growth during the balance of the century will depend largely on the ability to remove or minimize the impact of these constraints. Some of them are ideological, political, or institutional in nature while others represent bottlenecks in the economy.

On the ideological front, although the post-Mao leadership has shown flexibility in interpreting the self-reliance principle, changes are likely to be gradual and slow. Further, certain basic tenets are expected to remain inflexible. As long as the preclusion of foreign direct investment in China continues to be one of these tenets, China deprives itself of the benefit that, as the experience of many developing countries has shown, foreign capital could contribute to economic modernization. But a much broader ideological constraint lies in the likelihood of a recurrence of the "two-line struggle." The development of China's economy under Mao showed a deep-seated conflict between ideology and the economic and technical realities of the country leading to a cyclical pattern of economic growth. The Hua government has launched an intense rectification campaign to purge the followers of the "gang of four" at all levels in an attempt to alleviate such a conflict. But it remains to be seen if economic success in the post-Mao era can continue for a prolonged period of time without giving rise to a group of "neo-radicals" to seriously challenge the pragmatic leadership and/or its economic policies.

The failure to stave off such a challenge could greatly jeopardize the political stability which would be absolutely essential to the success of China's modernization efforts. In the short run, political stability also depends on the cohesiveness of the various elements that have made up the post-Mao leadership.

Economically, the greatest bottleneck lies in the agricultural sector. The success of the four-modernizations program will hinge critically on the Chinese ability to expand agricultural output considerably faster than population growth. .

Certain other economic sectors, particularly electric power and transport, have developed into major bottlenecks brought about by years of relative neglect in investment allocation. The slow progress of these two sectors, considered as "vanguards" in the Chinese economy, is likely to constrain China's industrial growth in the immediate years ahead. To assure rapid industrial expansion in the 1980's will require power and transport to grow more rapidly than industry as a whole.

In 1976, the five major powers combined accounted for 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. [Chen, pp. 200–203.]

Question 5. How did the interrelations of political and economic factors affect industrial growth in the decade or so prior to the establishment of current leadership policy?

Whatever the initial goals of the Fourth 5-Year Plan, it is clear that the revisions gave increased priority to industrial support of agriculture and to expansion of exports. Thus, Peking had to defer grappling with the structural imbalances that were holding down the growth of industry.

These fundamental economic problems were soon complicated by a new wave of political trumoil. As Mao grew old and frail, the struggle for succession broke into the open. The campaign to criticize Lin Piao and Confucius (late 1973-74) quickly made itself felt throughout industry. Production dropped far below planned output and by midyear 1974 the situation was serious enough for the central committee to issue directive No. 21, which focused on economic difficulties caused by the excesses of political campaign. The situation improved in the fall when Peking applied the brakes to the campaign to criticize Lin Piao and Confucius, but the rate of growth for the year was only 4.5 percent.