The year 1975 began on an upbeat, with Premier Chou En-lai making a key speech to the Fourth National People's Congress in January, calling for a vigorous modernization of the economy. During the first half of the year, the industrial sector responded well to positive actions taken by the Government to restore order in the wake of the campaign to criticize Lin Piao and Confucius. Nevertheless, the lack of strong production claims from such critical sectors as electric power and iron and steel suggest that the rate of industrial growth tapered off during the year and that any gains were largely based on recovery in the most disrupted areas and enterprises.

The prospects for real progress in 1976 were shattered by the death of Premier Chou En-lai in January, which led to the intensification of the struggle for succession. The raging political storm did not have an immediate impact on industry. During the first quarter, output increased 13 percent over the corresponding period of 1975. But industry faltered during the second quarter, and collapsed in the third. The collapse was made worse by the devastating Tangshan earthquake in July which leveled the city of Tangshan, caused major damage in Tientsin and was felt as far away as Peking. More than 650,000 people were reported killed and billions of dollars' worth of damage was done; moreover, relief and reconstruction preempted normal production and construction activity in other areas of the country.

The death of Chairman Mao in September was quickly followed by the purge of the "Gang of Four" in early October. And later that month, the central committee issued central directive No. 19, which called for strong measures against slowdowns and absenteeism and for a careful accounting of funds available for investment. In spite of these positive actions, industrial production for the year as a whole grew only slightly more than 2 percent.

Peking hoped that 1977-the first year following the purge of the radicalswould show a healthy recovery and provide a firm basis for accelerated growth during the remainder of the Fifth 5-Year Plan period.

Dissatisfaction with the pace of recovery probably figured in the decision in July to reappoint Teng Hsiao-ping to his post in the Government and party. And it is certainly reflected in State Planning Commission Chief Yu Ch'iu-li's statement in late October to party and state cadres that, although "the tide was turning" on the economic front, many difficulties remained.

The findings of the previous section show that politically stable Provinces tended to achieve moderate or strong industrial growth during the mid-1970's, and that politically unstable Provinces-with only one exception-failed to do so. Because the Cultural Revolution (1966-69) was also a period of political instability during which industrial output declined sharply . . ., the two periods are compared in this section.

Mao Tse-tung launched the Cultural Revolution because of his dissatisfaction with what he felt was the growing ossification of the party and Government bureaucracies, and his belief that China's youth required a "revolutionary experience", to renew their faith in a revolution that had taken place before most of them were old enough to participate or even remember it. With the power struggle that broke out between the "radicals" (led by K'ang Sheng, Ch'en Po-ta, and Lin Piao) and the "moderates" (led by party bureaucrats Lin Shao-ch'i and Teng Hsiao-p'ing), the Cultural Revolution quickly became one of modern China's most chaotic periods. The Chinese Communist Party virtually disappeared as an institution, and the turmoil grew so great that PLA main-force units were ordered to restore order in many Provinces and to assume control of a dozen. The economic consequences of the Cultural Revolution were especially serious in the industrial sector, where fractional struggles in the factories and disruptions along the transportation routes caused production to decline precipitously and to remain below trend for 3 years. [Field, McGlynn, and Abnett, pp. 243-244 and 254-255.]

Question 6. How are key industries such as machine building performing to meet the needs of modernizing China?

Chinese leaders have frequently claimed that the machine-building industry is the key to technological transformation of the national economy. Indeed, the industry forms the foundation of China's military and industrial developmentencompassing a broad spectrum of manufacturing trades, ranging from production of ball bearings to ships, locomotives, power-generation equipment, and the like. As outlined in Chairman Hua's report to the Fifth National People's Congress of early 1978 China is launching an ambitious program to revitalize the economy through modernization of agriculture, industry, national defense, and science and

technology. The stated goal is to create a modern industrial economy by the year 2000. Much of the burden of achieving this goal will fall on the machine-building industry.

The core of China's machine-building industry was formed through the massive material and technical assistance provided by the U.S.S.R. and East European countries that began in 1953. During the first 5-year plan period (1953-57), out of the 166 major Soviet-aid projects in industry, nearly 100 were undertaken in the field of machine building. The U.S.S.R. supplied complete sets of equipment for plants and equipment, transportation equipment, agricultural machinery, chemical industry equipment and machine tools. Many of the remaining projects supplied by the Soviets formed the basis of China's military machine-building industry. In this important category were plants to produce aircraft, naval vessels, electronic equipment, land armaments, and nuclear weapons. Additional agreements with the U.S.S.R. and East European countries in 1958-59, nearly doubled the number of modern industrial plants planned for the machine-building industry. Orderly development of the machine-building industry became impossible after the Great Leap Forward was launched in 1958.

The machine-building industry retrenched with the rest of the economy from 1961-63. Production dropped sharply, capacity stood idle, and the regime pared down investment programs to a narrow range of essential industries. A new emphasis was given to the production of agricultural machinery, equipment for chemical fertilizer plants, and machinery for the petroleum industry. High priority moreover, was assigned to the military machine-building sector, particularly to electronics and those industries involved in the development of atomic energy, missiles, aircraft, and naval ships. By 1966 the general status of the machinebuilding industry had improved, production was well above the 1957 level. General improvement can be attributed to increasing imports of machinery and technology from Japan and Western Europe.

Considerable dislocation in the machine-building industry occurred during the political turbulence of the Cultural Revolution (1966-69). Imports of equipment from the non-Communist world declined and technical exchanges were terminated. . .

In spite of the disruptions of the Cultural Revolution, China achieved substantial increases in machine-building capacity during the late 1960's. Under the general slogan of "war preparation" the PRC engaged in a wide-ranging campaign to construct hundreds-and possibly thousands of small, medium, and large-scale industrial projects throughout its remote interior regions.

Reestablishing orderly economic planning, together with the additions to production capacity during the 1960's led to substantial increases in output during 1969-71. Production of military related equipment reached peak levels, and electronics emerged as a favored sector among military industrial planners. The small plant program, which had gained new respectability during the Cultural Revolution, reached boom proportions, while the construction of modern plants gained increased momentum. Self-reliance had become the watchword in the machine building industry, and new products of indigenous design began to emerge at a growing rate.

Evidence of a major debate between military and civilian planners over machinebuilding priorities surfaced in mid-1971. The "electronics versus steel" controversy, which signaled the debate, was quickly followed by the Lin Piao affair. Following the death of Lin, production of military armaments plummeted sharply from the peak levels of 1970-71. The marching orders for the industry during the fourth 5-year plan (1971-75) included increased support to agriculture and the basic industries such as mining, petroleum, chemicals, and electric power. Increased emphasis also was given to purchasing large quantities of Western equipment and manufacturing technology. [Craig, Lewek, and Cole, pp. 285 and 287-288.]

Question 7. What kind of constraints and stimulants do mineral and energy supplies and uses exercise on Chinese economic growth?

China is one of the world's rich mineral areas fully capable of supporting a modern first-rank industrial economy. During 1977, PRC strengthened its position as a leading mineral producer. Its relative importance should grow significantly in the decade ahead, judging from the resource potential and the many developments already underway. As befits a large country with a huge population. China produces a great variety of minerals and metals-many outstanding by world standards. If all minerals were added together in terms of output value,

PRC would rank with the world's first five for crude minerals and only a little behind in terms of total value added for minerals and metals. [Wang, p. 374.]

Electric power is another key sector.

There exists a widespread shortage of electric power in the People's Republic of China (PRC) today that is adversely affecting the economy and which must be corrected quickly if the program to modernize industry, agriculture, science, and technology, and national defense is to be successfully implemented. Electric power is a "vanguard" industry which in a developing country like China must advance at a pace 1.3 or 1.4 times that of industry generally.

The shortrun solution to the power shortage is being sought in the fall 1977 directives of Chairman Hua calling for conservation, fuller utilization of existing generating capacity, and its more efficient operation. In the longer run China will place reliance on the continued development of both hydroelectric and thermal power stations. No nuclear stations are currently operative, but the Chinese will probably soon begin one. Although both large and small power stations will continue to be built, the greater emphasis will be placed on development of China's hydroelectric potential, the largest in the world. Currently, the PRC is the fourth largest producer of primary energy in the world after the United States, the Soviet Union, and Saudi Arabia.

In 1977, the PRC's electric power industry generated about 136 billion kilowatthours of power or 6 to 7 percent that of the United States. This was enough to place China ninth in power output. Installed capacity on December 31, 1977, was estimated to be 40,500 megawatts. The bulk of this capacity is found in the 192 known thermal and hydro stations of 30 megawatts capacity and over. Of these, 126 units are thermal stations and 66 are hydroelectric, some are currently under construction or are being expanded. Additional stations of this capacity or greater are thought to exist. About 62 percent of the capacity is thermal, the balance hydroelectric.

To adequately support a 10-percent rate of industrial growth, the power industry would need to add about 5,300 megawatts to capacity this year, a 13-percent rate of growth, and about 12,700 megawatts in 1985 to provide capacities of 45,800 and 108,000 megawatts, respectively. The domestic power equipment manufacturing industry, while quite substantial, does not appear capable of meeting this requirement. Thus, if a 10-percent industrial growth is to be achieved, Peking will have to import powerplants and equipment from abroad possibly expending as much as $300 million annually during the period 1978–85.

It does not appear that between now and 1980 the electric power industry can accelerate growth to the level to support a 10-percent industrial rate of growth 1978-80. It does seem possible, however, that by 1981 acceleration of developments in industry could support such industrial growth. To achieve this the Chinese will need to:

(a) Invest heavily in the development of the coal industry;

(b) Improve rail transport and develop "mine mouth" thermal plants to reduce coal hauling;

(c) Sharply reduce station construction times, especially on large hydro plants;

(d) Develop higher capacity transmission systems;
(e) Accelerate the development of

turbogenerators;

600-megawatt boilers and

(f) Expand the domestic power equipment manufacturing industry; and (g) Engage in a consistent and planned import of complete foreign powerplants and equipment. [Clarke, pp. 404-405.]

Chinese energetics presents a thoroughly intriguing, highly complex and, in not a few aspects, continuously puzzling case. In absolute terms, the country's fossil fuel and hydropower resources rank with-or even above-those of the United States and the Soviet Union. Globally, China has risen to the fourth place in primary energy production (following the United States, the Soviet Union and Saudi Arabia) and to the third place in consumption (behind the two superpowers) and, in the process, has become not only self-sufficient but also a minor fuel exporter. And yet, at the same time, China's energetics is definitely that of a rather poor, developing country where large segments of rural population still depend on plant fuel and animate power and whose per capita modern energy consumption ranks close to the hundredth place in the global array of some 175 countries and territories.

The future seems no less ambiguous. While the probabilities for retaining the energy self-sufficiency and expanding the crude oil and coal exports are very

high throughout the 1980's, the potential fuel and electricity requirements for the modernization of the Chinese economy are immense and its seems quite improbable that they could be filled satisfactorily with the sole reliance on domestic technology. And even under circumstances favoring a very fast expansion, the country's per capita energy consumption by the year 2000 would equal the levels attained by most of the Western societies already during the first two or three decades of this century.

. . . most of China's rural population continues to live as do hundreds of millions of other poor peasants around the world-in solar-dominated ecosystems, largely independent on external subsidies. Even for the nation as a whole solar energy recently transformed by green plants still predominates: approximately 4.110 kcal of phytomass energy-as food, feed, fuel and raw material-were used to support China's people and animals in 1974, while the total flow of fossil fuels and primary electricity amounted to less than 2.65 X 10 kcal.

.. Perhaps the best current interpretation of the Chinese coal resource figures is that the recoverable reserves are no less than 100 [billion Metric tons] bmt and the total resources are at least 1,500 bmt. . .

. . . Quality of coal is mostly very good and seams are of above average thickness and are predominantly horizontal or only slightly inclined. In sum, China's coal resources are outstanding both in their quantity and quality .

. . . Leaving aside the sizeable shale oil resources, whose oil content and recoverability are largely unknown, the best currently available geological evidence, compatible with production totals and growth rates, would indicate that China's crude oil reserves are certainly no less than 3 bmt and most likely no more than 10 bmt.

. . It is to the Northwest-remote, severely inhospitable, thinly populated (less than 7 percent of the total), unindustrialized (less than 5 percent of gross industrial output) and still only tenuously linked to the rest of the countrywhere the Chinese will have to turn for their future fuel needs, a westward shift of energy centers comparable in its magnitude to the eastward shift of the Soviet energetics: Northwest has no less than half of China's ultimate coal resources and nearly half of her estimated recoverable onshore oil supplies. The only major way to postpone this costly and complicated shift would be to turn offshore first and to plunge into certainly no less expensive and difficult search and production of underseas hydrocarbons.

China's primary energy consumption, which was barely over 20 [million metric tons conventional energy] mmtce in 1949, grew nearly tenfold in a decade, topped, after years of politically induced stagnation, 300 mmtce in 1972 and is now exceeding 500 mmtce. In aggregate terms, China has thus become the world's third largest energy consumer, just ahead of Japan-and very far behind the Soviet Union and the United States. Per capita consumption, naturally, remains rather low: at around 500 kgce annually it is more than double of India's modern energy usage, but less than half of Mexico's figure-and an order of magnitude less than the consumption of developed nations; addition of the still important traditional fuels increases the aggregate value to some 500 mmtce in 1976 and the annual per capita usage to nearly 650 kgce.

. . The most striking feature of the Chinese sectoral energy use is the large share of the industrial consumption; even with power generation requirements classified separately, industry now draws about half of all China's primary energy, a sharp increase in comparison with the early 1959's. On the other hand, relative importance of residential and commercial uses has declined considerably since the late 1950's and, significantly, both the power generation and transportation shares, in spite of large absolute increases, have also diminished. Agriculture consumed about 46 times more commercial energy in 1976 than it did at the end of the First Five-Year Plan two decades ago but in relative terms it is still no more than about six percent. . .

... Expansion of the Chinese primary energy production by seven percent per year for another decade would have to be then termed a success; it would bring the output to just over 600 mmtce in 1980 to some 850 mmtce in 1985, meeting the likely domestic requirements and leaving a small, though valuable, export surplus equal, in crude oil terms, to some 40 mmt in 1980 and 60 mmt in 1985.

Coal industry is to double its output in the next ten years; this means an average exponential growth rate of seven percent per year and the total output in excess of one billion tons of raw coal in 1988. However, as both the Soviet Union and the United States have been finding out, the cost, the environmental problems and the logistics of producing more than half billion tons of coal annually is sharply curtailing any fast growth rates.

27-427 - 79 - 2

Crude oil production will have to be expanded considerably-but exponential growth of no more than ten percent per year would exhaust the Chinese onshore reserves of around five bmt by the mid-1990's. Chinese are, of course, well aware of this fact, as exemplified by Hua's call to discover ten more Ta-ch'ings; even should the required reserves be in the ground, the Chinese investment to discover and to develop them might be of the same order of magnitude as the Soviet oil industry's expenditures during the past twenty years.

.. Chinese planners also face difficult decisions regarding the future state of small-scale technologies which have played such a critical part in the rural industrialization. Their low quality output and inordinate energy cost do not make them very suitable in more advanced stages of modernization-but their total, or near total, substitution by centralized large-scale production would not be an appropriate solution in a capital-short country so badly equipped with good roads and railways.

.. In sum, China's energy development strategy should be multifaceted and flexible. Taking into account the richness, location and quality of resources, ancient traditions of solar energetics and enormous regional disparities within the nation, it should strive to modernize the country-side without cutting it completely off its traditional renewable energies and without abandoning appropriate smallscale industries; it should aim for sustainable growth rates of coal and hydrocarbon production by, among others, tapping the still sizeable economics of scale and introducing as many advanced foreign technologies as practicable; and it should attempt to improve conversion efficiencies and encourage proper final uses and widespread conservation. . . . [Smil, pp. 324, 332, 345, 347, 351–354, and 361-364.] Question 8. What are the likely ranges of population growth and how can Chinese policy control demographic growth?

Almost 30 years have elapsed since Mao Tse-tung declared that China's large population was "a good thing" and that it could multiply "many times" without posing any difficulties for national development. Now birth control has been written into the constitution of the PRC, and Hua Kuo-feng has called for a reduction of the national population growth rate to less than 1 percent within 3 years.

Absolute population totals for the three models as of January 1 and July 1 for the years 1953-80 and every fifth year to the end of the century are given in table 1. Perhaps the most striking implication of these figures is that China's population is close or may already have surpassed the 1 billion mark. The low model reaches 1 billion in 1980, the high model exceeds that figure by 1977, and the intermediate model crosses the line by the beginning of May 1978. The total of 900 million, now at least authorized for domestic use in China, should have been passed at least by the middle of 1974 and possibly as early as the end of 1971.

By the end of the century, the new models show a population of from 1 to 11⁄2 billion people. The projections from 1978 onward assume no major catastrophies or other startling changes in fertility or mortality. Up to now, China's demographic determinants have not shown such a high degree of stability. There have been setbacks from time to time in the efforts to control both fertility and mortality which have been significant enough to affect national levels. There is no reason to suppose, as has often been mistakenly supposed in the past, that the course of Chinese history hereafter will be all smooth sailing. The projections of population growth during the remainder of the century are therefore not predictions but simply the implications of some rather artificial assumptions. They serve mainly to indicate the orders of magnitude that would be generated given hypothetical trends in fertility and mortality. . . .

If China's demographic prospects fall within the range indicated by the low and high model projections presented here, it is obvious that there are significant differences between the two extremes by the year 2000. The size of the totals varies by about 17 percent of the mean value and the annual population growth rates range from 1.1 percent to 1.7 percent. However, either of these rates is sufficient to give continuing cause for concern in a country with finite resources at an early stage of economic development with an already large population. The pressure of population growth on the growth of food production may not be greatly reduced by the anticipated decline in natural increase rates if the expedients used to increase agricultural output yield diminishing returns. Unless the economy is more immune in the future than it has been in the past to political dislocations, population growth will continue to dissipate a significant portion of the gains from economic growth. The difficulties of funding productive employment for large increments to the labor force while mechanizing labor in both the nonagricultural