CHINA'S POST-MAO ECONOMIC FUTURE BY ROBERT F. DERNBERGER AND DAVID FASENFEST* CONTENTS Page Past performance and the economic problems of the mid-1970's- Disproportionate growth and the major economic problems of the The fixed parameters over the next decade.. An alternative forecast of China's economic evolution (1975–85). A unique feature of China's emergence as a major world power has been the continued dominance of a relatively small leadership group whose members had gained prominence in the Chinese Communist movement during the 1920's and 1930's. The resulting control over policy formulation and implementation over such a long period by this relatively small group of leaders, their advancing age-most were born in the 19th century-and their failure to groom and share power with a younger generation of leaders, led many Western political analysists to contemplate and offer predictions on the outcome of the inevitable succession crises.' Actual developments in the mid-1970's dramatically set the stage for the succession crises with the death of the three most eminent leaders of the Chinese Communist Revolution-Mao Tsetung, Chu Teh, and Chou En-lai-in a single year. Events over the year and half between the death of Mao (September 1976) and the convening of the Fifth National People's Congress (February 1978) have been both dramatic and unexpected. The attempt of the radical left leaders, who had acquired positions of power during the Cultural Revolution in the mid-1960's, to seize complete control was quickly thwarted by the arrest of "the Gang of Four" and the widespread campaign to expose and remove their 2 Robert Dernberger is a professor of economics at the University of Michigan. David Fasenfest is a graduate student in economics at the University of Michigan. 1 See, for example, Richard Wich, "The Tenth Party Congress: The Power Structure and The Succession Question," China Quarterly, No. 58, April-June 1974, pp. 231-248. 2 The "Gang of Four" is the designation given to the four major leaders of the radical left at the time of Mao's death: Yao Wen-yuan (Shanghai propagondist who gained prominence during the Cultural Revolution and became an editor of "Red Flag," the Party's official journal), Wang Hung-wen (also from Shanghai, leaped into prominence at the 10th Party Congress in 1973 and later became No. 2 in the Party heirarchy behind Hua Kuo-feng), Chiang Ching (Mao's wife, probably most militant of the Gang), and Chang Chunchiao (from Shanghai, Deputy Prime Minister to Chou En-lai, probably less partisan, but more politically potent than rest of gang). China's mineral reserves seem more than adequate: there are large surpluses of antimony, mercury, molybdenum, tin, tungsten, fluorspar, and uranium; and smaller ones of lead, manganese, zinc, asbestos, and bauxite. In addition, China has sufficient deposits of aluminum, iron ore, graphite, and gypsum. China's most serious scarcities are in chrome (imported from Albania), nickel (imported), copper (aluminum presently substituted for copper in electrical uses), and phosphate for fertilizer production (imported).30 This favorable endowment of energy and mineral resources means that China's industrialization and drive for self-sufficiency will not suffer from serious raw-material constraints. Rather, the major problem will be China's ability to accumulate the producers goods necessary to process these resources, which has important implications both for the structure of that industrialization drive over the near future and for China's dependence on foreign trade.31 Undeniably, China's richest resource is the Chinese people. Traditional arguments that "surplus" population is a burden in developing countries may or may not be correct; it depends on the relevant economic circumstances. This argument, however, does not apply in China. Several past studies have all shown that China's reliance on the intensification of traditional means for the expansion of agricultural output has resulted in serious labor shortages during the peak periods of production, such as planting, transplanting, and harvesting.32 Furthermore, due to the scale and level of the efforts to transform China's agriculture by means of rural farmland reconstruction, rural small-scale industries, new patterns of cropping and intercropping, more double cropping, et cetera, these programs have significantly increased the rural labor-force participation rate and the annual workdays of effort per laborer of the agricultural work force during the past two decades. In short, the demands for increased labor efforts in the rural areas can best be described as having led to a situation of "overfull" employment. While China's present population is a valuable economic resource, China's leaders launched a campaign to reduce the birth rate during the 1960's, despite the excess demand for labor in their short-run attempts to increase agricultural production, in recognition that continued efforts to achieve productivity gains through increased labor inputs with a traditional labor-intensive technology would result in very low marginal productivities for labor. The long-run solution of their agricultural problem, on the other hand, must involve the modernization of Chinese agriculture with both higher productivities of labor and lower demands for labor inputs; that is, a problem of "surplus" population. Hence, the present attempt to bring the rate of population growth under control and even to reduce the rate of growth to remarkably low levels for a developing country. There is consider 30 For greater details of China's mineral reserves, see Kung-ping Wang, "Mineral Output and Productivity," this volume. 31 In this regard, China does suffer from a shortage of gold and silver, the major commodity reserve assets used in foreign trade. Not being a major producer of these precious metals, the Chinese are unable to maintain sizable import deficits for any considerable lengths of time without relying on foreign loans. This can have, and has had, serious implications for China's economic development program and foreign trade behavior when an unwillingness to borrow abroad, coupled with a decline or lack of growth in export capacity, leads to a serious constraint on imports. The rapid development of petroleum production has helped to alleviate this constraint on China's development program, but it has not eliminated it. 32 These labor shortages during peak work periods can amount to approximately one-fourth of the labor supply as is indicated in the studies of John Lossing Buck for the 1930's, those of T. H. Shen for the 1940's and the severe labor shortage experienced by the Chinese during the Great Leap Forward in 1958. able debate among Western experts as to the validity of the Chinese claims of success in their birth-control program, but for our purposes in this paper, China's population over the next decade can be reasonably assumed as given, even though our estimate may be subject to a wide margin of error. Taking the results of John S. Aird's "intermediate model" projections, presented elsewhere in this volume, the rate of population growth will decline from 2 percent in the mid-1970's to a relatively stable level of about 1.3 percent by the mid-1980's; total population increasing from approximately 934 million in 1975 to 1,114 million in 1985.33 One serious problem of China's large population during the next decade will be the balance between the supply and demand of foodstuffs. There is currently a very small margin-if any-between increases in agricultural output and the rate of population growth. Even if the results of Aird's "intermediate model" projections are accepted and the Chinese will be successful in reducing the rate of population growth to the relatively low level of 1.3 percent by the mid-1980's, the Chinese will still encounter serious problems if they are unable to raise the rate of increase in agricultural production well above 2 to 3 percent. These higher rates of growth in agricultural production, that is, higher than those experienced in the past, will be a prerequisite for the accomplishment of the new leadership's program for the rapid economic development of the economy during the next decade. These growing surpluses of agricultural products will be required to meet the needs of the hoped-for increases in per capita consumption, the needs for increased supplies of agricultural products as inputs in the more rapidly growing industrial sector, and the needs of significantly higher levels of exports to provide the necessary foreign exchange to finance the rapid growth in imports required by the large-scale investment program planned for the next decade. The results of their efforts in the agricultural sector, of course, will have an effect upon the stability of China's political and economic system. On the other hand, the analysis of the possible evolution of China's economy over the next decade which follows explicitly assumes that the present economic and political system will remain fixed, including the moderate-pragmatic type policies being pursued by the new leadership. The Chinese Communists have proven their desire and ability over the past 25 years to feed the population and to maintain an adequate standard of living through good times and bad. Thus, it is believed unlikely that their efforts to achieve increases in agricultural output over the next decade, even if relatively unsuccessful, will generate forces which will lead to significant changes in the existing economic and political system. Furthermore, if the results of their economic policies did prove unsuccessful, a major feature of the new more moderate-pragmatic leadership is its willingness to react quickly with policy changes for the purpose of restoring economic stability and growth. In addition, the anticipated growth rates of agricultural production over the next decade range between the more pessimistic forecasts presented in this paper (2 to 3 percent a year) and the much more * See John Aird, "Demographic Change in the PRC," this volume. optimistic targets presented by Hua Kuo-feng in his speech to the Fifth National People's Congress (4 to 5 percent a year). The lower forecast would appear to present China's leaders with serious problems, yielding a total grain output in 1975 which is 67 million tons below the target presented by Hua. On the other hand, if the latter target were to be achieved, grain supplies per capita in 1985 will be about 30 percent higher than in 1975. While this swing of 67 million tons of grain is equivalent to one-fourth of China's total grain output in 1975, neither limit of this range of possible results would appear to provide a sufficient reason for expecting a change in China's economic and political system, or the new leadership group in command of that system. While drastic changes in the economic and political system due to economic developments is highly unlikely, on the basis of China's history over the past 25 years one must raise the possibility that political conflicts among the leadership may not only be a source of disruption, but also lead to a significant change in leadership and in the economic and political system as well. The possibility of a capitalist restoration, of course, has steadily diminished since 1949, even though Mao and the radicals often accused the moderates-pragmatists' policies as leading to a capitalist restoration. As for a resurgence of a radical leadership, events have shown that possibility was considerably diminished with the death of Mao, the major source of radical support and power. Equally important, the major radical leaders and their followers who had held positions of power in the party and Government have been removed and the more moderate and pragmatic leadership has greatly strengthened its control over the past year and a half. This control of the moderate-pragmatic leadership is attested to by their ability to put "economics" in command and introduce a wholesale program of economics policies based on the need for greater efficiency and economic rationality. The greatest threat to the new leadership is not their political rivals, but the degree to which they will be able to achieve rapid rates of industrialization and a solution of China's agricultural problem. AN ALTERNATIVE FORECAST OF CHINA'S ECONOMIC EVOLUTION (1975-85) As mentioned in the beginning of this paper, no details of the longrun economic plan, 1975-85, have been released; Hua's speech to the Fifth National People's Congress only referring to a 4 to 5 percent rate of growth in agricultural production, "over" 10 percent in industrial production. His discussion of the planned growth in light industry, heavy industry, the standard of living, and in foreign trade is presented in nonquantitative terms, but clearly indicates that these targets are equally ambitious; Hua describing them as "gigantic tasks." The forecasts presented here as an alternative forecast for 1985 are much more pessimistic. The reason for this is that they are derived on the basis of the actual developments in China's economy in the past, the fixed parameters the new leadership will be working with in the future, and the dictates of economic analyses and theories Western economists have formulated on the basis of the historical experience of economic development in the West. |