speed industrialization and modernization but undermine socialism.1 The debate resumed in the early 1970's, and intensified in late 1975 and the first nine months of 1976, culminating in the downfall of the "gang of four" and the rise of the "moderate" group to the dominant leadership position.

The current leadership under Hua Kuo-feng is committed to accelerating economic growth. The "speed of development" is viewed as not purely an economic question, but a political question of greatest importance. At the National Industrial Conference in May 1977 Hua declared: "In the next 23 years the development of the Chinese economy should and will be faster and better than in the past 28 years. The same theme was repeated in other leaders' speeches, articles, and editorials throughout 1977. This theme constituted the framework of the report Hua delivered on February 26, 1978 to the Fifth National People's Congress (NPC), a report which has become the most important and detailed economic policy document emanating from China in recent years.5

An attempt is made in this paper to outline the development program which the current leadership has adopted for achieving accelerated economic growth and to discuss its long- and mediumrange goals and their implications for policy formulation. A major portion of the paper is devoted to an analysis of the major economic issues occasioned or accentuated by the newly adopted development program, and discusses policy measures advanced for resolving these issues. To provide insights into these issues and better understand the rationale of new policies, references are frequently made to the debate over the past few years. The main emphasis, however, is on an analysis of the pragmatic perceptions of the post-Mao leadership from the vantage point of 1977 and early 1978. The final section is devoted to an assessment of the constraints on China's development program and to a projection to the end of the century of China's probable economic position relative to major industrial powers.

II. A THREE-STAGE DEVELOPMENT PROGRAM

1. The Background

To achieve accelerated economic growth, the post-Mao leadership has revitalized the two-stage development program previously enunciated by the late Chou En-lai and has reformulated it into a threestage program. In his report to the fourth NPC in January 1975, Chou outlined a two-stage modernization scheme:

In this paper the term "moderate" is used interchangeably with "pragmatist”, and “radical", with "dogmatist" or the "gang of four". The two groupings represent clearly identifiable political factions in China, formed between the end of the Cultural Revolution and the arrest of the "gang of four" in October 1976. These factions advocated distinctive economic platforms embracing, in addition to the basic issue of economic growth versus socialism, a wide range of other issues to be brought out in the following sections. It may be noted here that while Chinese writers, both radical and moderate, like to depict policy options as diametrical opposites, some of the policy differences are differences in degree or emphasis, not contradictory alternatives. In our discussion of the radical and moderate viewpoints, the present tense is frequently used because although the radical group has largely fallen silent its perception remains germane to the policy debate in China.

Commentator, "The question of Speed Is a Political Question," People's Daily, October 26, 1977, p. 1. "Comrade Hua Kuo-feng's Speech at the National Conference on Industry Learning from Teaching (May 9, 1977)," People's Daily, May 13, 1977, pp. 1-3: quotation on p. 3.

See, e.g., Yu Chiu-li, "The Conditions of China's National Economic Development," People's Daily, October 25, 1977.

Hua Kuo-feng's Report on the Work of the Government Delivered at the First Session of the Fifth National People's Congress (February 26, 1978), in People's Daily, March 9, 1978, pp. 1-5; hereafter referred to as "Hua's Report to the Fifth NPC."

The first stage is to build an independent and relatively comprehensive industrial and economic system *** before 1980; the second stage is to accomplish the comprehensive modernization of agriculture, industry, national defense, and science and technology before the end of the century, so that our national economy will be advancing in the front ranks of the world."

The visualization of a two-stage development was not new; it was first mentioned, also by Chou, in his work report to the third NPC in December 1964. At that time, the Chinese economy had largely recovered from the 3-year depression following the Great Leap. Chou was hopeful that after further improvements in 1965, the economy should be ready for a long-term drive toward modernization beginning from 1966, the first year of the third five-year plan. But the modernization program was rarely mentioned again in the Chinese press. It seems that the Chinese leadership was divided on this issue. The differences probably did not revolve so much around the ultimate goal of economic modernization as around the methods by which it might be achieved.

8

The main opposition could have come from the late Mao Tse-tung. At the time of the third NPC, the governmental and party apparatuses were firmly in the hands of Liu Shoa-chi and Teng Hsiao-ping, later labeled as the first and second "capitalist roaders," respectively, during the Cultural Revolution. Mao was seriously concerned that the policy measures formulated under the Liu-Teng sponsorship to implement the modernization program would very well lead China to "revisionism.”

In any case, the modernization program was shelved during the Cultural Revolution. After a lapse of 10 years, Chou once again presented it to the Fourth NPC for at least two reasons. The Chinese economy, recovering from the tumultuous years of the Cultural Revolution, had made good headway in the early 1970's, and Chou apparently thought that the time was ripe for China to make another attempt to embark upon the modernization drive. Further, suffering from terminal cancer, he wanted to lay down the groundwork for the drive befor his death. Teng Hsiao-ping was entrusted with the responsibility for drawing up plans to implement the modernization program.

During the summer of 1975, a draft uotline of a 10-year economic plan (1976-85) was prepared. The outline was discussed and approved by the Politburo.10 At the same time, three policy documents were drafted under Teng's direction: 1. "Certain Problems in Accelerating

Peking Review, No. 4, Jan. 24, 1975, p. 23.

7 Ibid. In the published version of Chou's 1964 report only a brief reference was made to the desirability of modernizing agriculture, industry, national defense, and science and technology "within a not too long historical period." No mention was made of the two-stage development scheme, nor was the end-of-thecentury objective specified. See a summary of Chou En-lai's report on the work of the Government to the Third National People's Congress in Red Flag. No. 1, 1965.

8 In his 1975 report, Chou En-lai pointed out that the visualization of a two-stage development was made "on Chairman Mao's instructions." Indeed, in the 1950's, Mao already frequently envisaged in his writings a modernized China within a few decades. For example, in his famous 1957 speech on constradiction, Mao spoke of building China into" a socialist country with modern industry, agriculture, and science and culture." ("Mao Tse-tung's Selected Works," vol. V, 1977 (Chinese edition), p. 366). Earlier, he talked about overtaking the United States in 50 to 60 years. At the same time, however, Mao was deeply committed to his ideological goals of socialist revolution. In his view, economic growth and modernization should not be attained at the expense of socialist values. The view became stronger in the 1960's than in the 1950's.

Among the reasons why Chou chose Teng as his successor probably were not only Teng's strong administrative ability and pragmatic economic philosophy but also the same commitment which Teng shared with Chou toward China's economic modernization. Soon after the conclusion of the Fourth National People's Congress, Teng began to take steps to formulate concrete measures for the two-stage development program. See Kung Hsiao-wen, Teng Hsiao-ping and the 20 Articles," Study and Criticism (Hsueh-hsi yu p'i i-p'an), No. 6, June 14, 1976.

10 Hua's report to the Fifth NPC.

27-427-78-13

Industrial Development"; 2. "Outline Report on the Work of the Academy of Sciences"; and 3. "On the General Program for All Works of the Whole Party and the Whole Nation"."

The first two documents, hereafter referred to as the "20 Articles" and the "Outline Report," respectively, represented Teng's and his followers' policy proposals to achieve economic modernization. Called the "three great poisonous weeds," these documents were severely criticized by the "radicals" in their campaign to oust Teng whom now was termed an "unrepentant capitalist roader." Even after Teng was removed from the Vice Premiership following the Tien-an-men Incident in April 1976, the "radicals" kept up a steady attack on Teng's economic views throughout the summer in an apparent effort to throw out the elements of the Teng policy which the Government under Premier Hua Kuo-feng might choose to carry on. For months, political uncertainties plagued China's policymakers and immobilized economic planners. The drive toward economic modernization came to a halt. At the time of Mao's death (September 1976), it would appear that the modernization program which Chou twice presented to the country would again be aborted.

Immediately after the purge of the "gang of four" in October 1976, Chou's year 2000 objective-the so-called four-modernizations program-was emphatically restated by Chinese leaders, including the Party Chairman and Premier, Hua, on numerous occasions.12 Soon, Teng's economic policy proposals were widely praised in the press, to be followed by his return to the Vice Premiership in July 1977. The year 2000 objective was formally introduced into the Constitution of the Chinese Communist Party adopted by the 11th Party Congress in August 1977, and then also into the Constitution of the People's Republic of China adopted by the Fifth NPC in March 1978.

The outline of the 10-year economic plan (1976-85), which was drafted in the summer of 1975, has been revised and approved by the Fifth NPC.13 The State Planning Commission (SPC) is in the process of translating policy goals into operational plans. The balance of the century has been divided into three stages instead of two stages in the original blueprint sketched by Chou. The first stage covers 1978-80, the last 3 years of the Fifth Five-Year Plan; the second stage coincides with the Sixth Five-Year Plan (1981-85); and the third stage is a 15-year period ending in 2000. The available information seems to indicate that a detailed plan formulation for the first stage has largely been completed, and that the operational plan for the second stage is under preparation. For the third stage, however, only a long-range perspective plan is being conceived, and details are not likely to be worked out until the early 1980's. In the past year, Chinese planning workers are said to "have filled out tens of thousands of figures" and "have drawn tens of thousands of diagrams. ." 14 Yet except for a few target figures mentioned by Hua in his report to the Fifth NPC, no detailed information has been released. The remainder of this section is thus confined to an analysis of the

11 For a report of the contents of these three documents, see the article by Ch'i Hsin in "The Seventies" (Ch'i-shih nien-tai), March 1977, pp. 9-12.

12 The first such signal came on Oct. 25, 1976, 2 weeks after the arrest of the "gang of four", in the joint editorial of the People's Daily, Red Flag, and the Liberation Army Daily. See the People's Daily, Oct. 25, 1976, pp. 1 and 4.

13 People's Daily, Mar. 7, 1978.

14 People's Daily, Jan. 3, 1978, p. 2.

broad goals for each stage as articulated in Chinese articles and the types of policies that these goals would entail.

2. Stage I: 1978-80

The goal set for 1980, as indicated in Chou's 1975 report, to build an "independent and relatively comprehensive industrial and economic system," has been a guiding principle of the People's Republic since its inception.15 Having known the pain of dependence from a century of foreign presence in China, the Chinese Communist leaders have come to the belief that political independence cannot be achieved without economic independence, which in turn hinges on the establishment of an economic system capable of creating a domestic supply sufficient to meet increases in demand generated by economic growth. This belief was reinforced by the Western trade embargo instituted in the early 1950's and the withdrawal of Soviet economic assistance nearly a decade later. It is not surprising, therefore, to find China very much opposed to the concept of "international division of labor" or that of "integration with the world economy." 16

The pursuit of an "independent and comprehensive" industrial system requires the creation of a domestic production capacity in the entire range of industries. To achieve this, China must have access to raw materials. Fortunately, the country is endowed with varied and reasonably abundant natural resources." The large resource base, widely distributed throughout the country, makes regional specialization and an internal division of labor possible. Moreover, the large size of the Chinese population provides a market that permits many economies of scale. For these reasons, the cost of not pursuing international specialization should be less pronounced in China than in many a smaller country. But the Chinese have never aimed at building an autarkic system. They are fully aware of the economic benefits that can be gained through foreign trade.18

In the past 28 years, China has made considerable progress in creating an "independent and comprehensive" industrial base. In the producer goods sector, high rates of self-dependency have been achieved for a number of key products,19 but China still has gross deficiencies in, or does not have the capacity or resources for the production of, a wide range of products.

Another goal set for 1980, which was not explicitly mentioned in Chou's 1975 report, relates to agricultural mechanization. In a preponderantly agrarian and labor-abundant economy such as China's,

15 Before the establishment of the People's Republic, Mao already spoke of "solving the problem of building an independent and comprehensive industrial system." See his "Report to the Secondary Plenary Session of the Seventh Central Committee of the Chinese Communist Party," in Mao Tse-tung's selected Works, vol. IV (Chinese edition), p. 1424.

16 See, for example, Mao Wen, "Refute the Soviet Revisionist Theory of 'International Geographic Division of Labor'," People's Daily, Dec. 12, 1976, p. 6.

17 China now has various quantities of verified reserves of 132 minerals, 17 of which, including coal, iron, copper, and crude oil, rank among the top in the world. (People's Daily, July 15, 1977, p. 1.)

18 The Chinese realize, in particular, that there are certain resources which China lacks and, in the pursuit of a comprehensive industrial system, which should be secured through trade. See Tsiang Cheng-yun, "On Self-Reliance," Economic Research (Chin-chih yen-chiu). No. 1, 1965, pp. 1-9.

19 Dernberger's study suggests that the rate of self-dependency in machinery and equipment rose from about 75 percent in the 1950's to more than 90 percent in the 1970's. (See Robert F. Dernberger, "China's Economic Future," in "China's Future: Foreign Policy and Economic Development in the Post-Mao Era," New York, 1977. The rate of self-dependency in crude oil must have improved dramatically as China has changed from a net importer to a net exporter. Also, the ratio of imports to total supply of chemical fertilizers has declined steadily in the last decade. (See National Foreign Assessment Center, "China: Economic Indicators," Washington, D.C., October 1977, p. 12.)

industrial growth cannot be sustained without substantial development of the agricultural sector. Agriculture provides food for the industrial labor force, exports to exchange for capital goods, labor and capital for industry, raw materials for consumer goods production, and markets for industrial products. The Chinese learned important lessons from the hard experience of the 1950's when the relatively slow pace of advance in agriculture hampered and retarded industrial growth. In spite of the high priority assigned to agriculture and those industries producing inputs to it, agriculture remains the greatest bottleneck in the Chinese economy. The success of China's economic modernization, therefore, will depend critically on its ability to sustain steady increases in farm output.

To upgrade agricultural productivity the Chinese seem to have designed a long-range comprehensive program involving farm mechanization, farmland capital construction, water control, chemical fertilizer, improved seeds, and "scientific farming." In the present stage of development, special emphasis is being placed on mechanization. The guiding principle is one of Mao's dictums, "The fundamental way out for agriculture lies in mechanization." At the First National Agricultural Conference in October 1975, Hua Kuo-feng called for farm mechanization to be "basically achieved" by 1980.20 The Central Committee of the Chinese Communist Party issued a document at the beginning of 1977 to renew Hua's call. In January 1978 the Third National Conference on Agricultural Mechanization was convened in Peking reportedly to review the implementation of that document, exchange experiences, and formulate measures for accelerating agricultural mechanization in the next 3 years.21 The conference made a number of major policy decisions and specified several targets to be achieved by 1980.22

The main contribution of mechanization to the growth of agricultural productivity seems to lie not in its ability to raise directly yields per unit of land, but rather in its capacity to substitute for labor. There are indications that rural labor in China is in short supply because it is being increasingly absorbed into the rapidly expanding rural industries and, more importantly, because more and more labor is being applied to a given unit of land as the intensity of land use is greatly stepped up.23 At the same time, a large-scale farmland capital construction movement is under way to reclaim and terrace the land.

20 To "basically achieve" farm mechanization means that roughly 70 percent of farm production and processing operations, encompassing not only transplanting, harvesting, threshing, and grain milling but also a wide range of agriculture-related activities such as land improvement, water control, forestry, animal husbandry, fisheries, and transportation are to be mechanized. For a discussion of the farm mechanization program, see Scott S. Hallford, Mechanization in the PRC", Current Scene, vol. XIV, No. 5, May 1976. People's Daily, Jan. 5, 1978, pp. 1-2. The First and Second National Conferences on Agricultural Mechanization were held, respectively, in 1966 and 1971.

22 For these decisions and planned targets, see a major policy speech delivered by Vice Premier Yu Chiu-li at the Third National Conference on Agricultural Mechanization on Jan. 26, 1978 (People's Daily, Jan. 29, 1978, pp. 1-3). Some of these decisions are alluded to in the following section on planning and management. Among the major targets for the percentage increase of farm machines by 1980 over the present level are: 70 percent for large- and medium-size tractors; 110 percent for machine-drawn farm implements; 36 percent for hand-guided tractors; and 32 percent for drainage and irrigation equipment. In addition, chemical fertilizer output is to be increased by 58 percent in the next 3 years.

23 In recent years the intensity of land use has been increased through the extension of double and triple cropping and through more interplanting and transplanting of crops. Designed to raise unit area yields, these measures absorbed a great deal of labor.