gangs of determined men. The pay-off for machinery and equipment remains high at the margin because there is so little of it in relation to the vast countryside. The present campaign for furnishing agriculture with additional equipment employs the slogan "basically achieve agricultural mechanization by 1980." 12

As for labor inputs, no doubt the steadily increasing standards of health, literary, and technical job skill constitute a major force pushing out the production possibilities of the agricultural sector. These positive factors contribute a qualitative element of more relevance than raw manpower to China's agricultural needs. Naturally progress is uneven among regions and communes. As part of the general upgrading, tens of millions of rural youth have been receiving training in seed selection, operation of machinery, paramedical techniques, weather prediction, well-drilling, and other skills. On the other hand, long-term basic research in agricultural science was badly disorganized in 1975-77 because of the fierce political infighting over control of higher education and research; many of the organizations performing long-term agricultural research were broken up and their members scattered about the countryside.

A unique feature of manpower policy in the last 10 years has been the transfer of "well over 16 million" young people, mainly middleschool graduates, from urban areas to the countryside. These young people have sometimes been incorporated directly into existing villages and towns, sometimes in separate units of their own. The press reports that 6 million have subsequently been transferred to "industry, communications, trade, culture, education, and other departments,' with "nearly 10 million *** still working in the rural areas and frontier regions." 13 Many of those transferred did not go back to their home cities but were assigned to the rapidly expanding industrial cities of the hinterland and to rural administrative centers and construction sites.

The system of agricultural organization-the three-tiered commune, with its production brigades and production teams-has proved remarkably effective, especially by the standards of the other Communist command economies of the Union of Soviet Socialist Republics and Eastern Europe. The strengths of the system include its compatibility with the traditional village structure of rural China, its decentralization of day-to-day farming decisions to the village level, and its provision for discreet private activity in the form of private plots, handicrafts, and petty trade. About one-fourth of the total agricultural and subsidiary products purchased by the state network comes from household sideline production." Since no more than 5 percent of the land is worked privately, this attests to both the enthusaism of ths farmer in tilling his private land and the good sense of the authoritiee in tolerating "unMarxist" activity.15

As to actual farm output in 1975-77, aggregate grain production rose 3 percent in 1975, then remained the same in 1976 and 1977because

12 For a major report by state planning chief Yu Chiu-li on agricultural mechanization, delivered at the Third National Conference on Agricultural Mechanization, see Peking NCNA Domestic Service, Jan. 28, 1978 (FBIS-CHI-78-21, Jan. 31, 1978, E6-25).

13 Peking NCNA, Jan. 24, 1978 (FBIS-CHI-78-16, Jan. 24, 1978, E18-19).

14 People's Daily, Peking, Nov. 16, 1977 (FBIS-CHI-77, Nov. 22, 1977, E2).

15 For an account of the status of state farms, which are not considered in this brief assessment of China's agricultural sector, see the People's Daily editorial, "State Farms Must Take a Giant Stride Forward", Jan. 26, 1978 (FBIS-CHI-78-20, Jan. 30, 1978, E6-9).

of serious floods and droughts. Nongrain crops probably did a little better, and collective and communal livestock numbers rose appreciably.

In the assessment of long-term prospects, a bright spot is the growing output and rising technology of small-scale industrial plants owned by communes and production brigades. These plants, which employ 10 percent of the commune labor force, provide a critical addition to rural investment and rural standards of living. They turn out agricultural implements, cement, bricks, low-grade but serviceable chemical fertilizer, small electrical products, textiles, and food products. Some of these plants supply parts for big plants in the cities. Peking claims that 23 percent of commune income is generated by these plants.16

As for the on-going "Learn From Tachai" campaign (the high-pressure campaign for self-reliance in the countryside), a new goal was announced in 1977, namely, that one-third of China's rural counties are to be shaped up to Tachai standards by 1980. Before their fall, the Gang of Four emphasized those features of the Tachai campaign that were especially to their liking and that had been previously put forward under the heading of "developing the new Communist man." These features included the stress on overcoming nature through man's dedicated revolutionary spirit, the scorning of state support even in time of natural disaster, and the focusing on collective rather than individual wants. The new Hua administration, with its pragmatic bent, stresses organization and hard work in the brigades and teams, while denouncing the Gang of Four for begrudging the peasants a few extra chickens."7

V. INDUSTRY: BOTTLENECKS AND UNEVEN GROWTH 18

Industrial production rose 10 percent in 1975, stayed level in 1976 because of the political turmoil, and climbed perhaps 14 percent in 1977. The average annual rate of growth for the 3 years thus was a point or so below the 9-percent annual long-term industrial growth rate. Output of oil, chemical fertilizer, electronics, and motor vehicles sharply increased in the period, whereas coal, steel, and electric power became serious bottlenecks in the economy. The leadership almost certainly was disappointed by the failure to upgrade quality of machinery production and to replace the obsolete models being produced.

For more than a decade, investment in new modern mines and shafts in the coal industry has lagged far behind requirements. Deficiencies have been made up by the intensive working of old mines, economy in the use of coal, and imports. The tenuous supply situation was jolted in July 1976 when an earthquake devastated the area around the northern coal-mining city of Tangshan killing 650,000 people. A mammoth reconstruction effort has gotten the area back into operation.

Extensive investment in basic steel facilities has not been matched by investment in steel-finishing capacity. China thus has had to

18 Peking NCNA, Jan. 3, 1978 (FBIS-CHI-78-4, Jan. 6, 1978, E19).

17 See, for example, the Haikow Hainan Island Regional Service report of Jan. 9, 1978 (FBIS-CHI-78-8, Jan. 12, 1978, H9-10).

18 For a detailed description of developments in the industrial sector, see especially the paper in this volume by Robert Michael Field, Kathleen M. McGlynn, and William B. Abnett.

import millions of tons of steelmill products each year. At the same time, demand for steel for shipbuilding, rails and railroad rolling stock, construction, pipelines, and military equipment continues to mount. Shortages of coal and iron ore have compounded the industry's problems.

Like other Communist countries, the PRC has chronic shortages of electric power, caused by the rapid advances in the needs of industrial enterprises and households, the construction of new industrial towns in remote areas, and persistent shortages of inputs into the industry, such as coal. China boasts the largest hydroelectric potential of any nation; unfortunately for the planners, most of the best sites lie in areas far removed from the leading industrial centers. In 1976 particularly, the political uncertainties resulted in confusion in the industrial chain of command and lax factory discipline, workers spending too much time smoking and watching cricket fights. Since even Chinese officialdom concedes that industrial output stagnated in 1976 and since production of oil, chemical fertilizers, and other leading products was rapidly climbing, output must have declined sharply in many other individual branches. The 14-percent rise in industrial production in 1977 largely represented comebacks in factories where management had stiffened its control and/or supply difficulties had been resolved.

The political ruckus of the last few years served merely to moderate what was fundamentally an enormous investment effort. New oilfields were opened or expanded in north and northeast China; new provincial industrial centers, some numbering hundreds of thousands of people, were extended with the aid of skilled workers from the established centers; deliveries peaked (in 1975) on the wave of new orders for complete sets of foreign equipment that had been signed in 1972-74, the most important being the new chemical fertilizer plants; production of computers and other electronic equipment continued upward, in turn contributing to the general growth in capacity; and the aggregate capacity of small-scale plants at the county and commune level mounted, although without a strong coordinated push from the center.

In short, even though industrial performance fell below expectations in the period 1975-77 as a whole, sizable gains were chalked up in output, capacity, and even technical level. The ingredients for further major advances are in place the vast natural resources, the enormous numbers of skilled and trainable workers, and the constantly expanding capital plant. The Hua administration has already instituted at least four policies that will help exploit this potential: (a) a strengthening of managerial authority; (b) a priority push for high level technical training; (c) an avowed willingness to tap the advanced technology of capitalist countries (provided no infringement of sovereignty is implied); and (d) the granting last October of longdelayed pay increases to three-fifths of the urban work force, most of the increases going to those in the lower pay brackets.

Under the Learn from Taching campaign in industry, the government has been exhorting workers to emulate the work pace and achieve the production results of the great Taching oilfield from which China gets half of its petroleum. This speedup campaign probably contributed little to industrial output in 1975-77, since each industrial enterprise

had to wrestle with its own problems on local terms-how to scrounge supplies of coal or other basic materials, how to deal with specific transport delays, how to get housing for its restless work force, and how to obtain spare parts for its Soviet-built equipment. The Hua government has been sponsoring numerous national and provincial Learn from Taching conferences. The success of industry, however, would seem to depend more on the regime's more specific buttondown-to-work measures and its specific plans to expand capacity, either from domestic resources or with the aid of foreign equipment and technical support.

VI. MILITARY INDUSTRY: CONTINUED RESTRAINT

Production and procurement of military hardware peaked in 197071. In 1972, hardware production fell by 25 percent, probably because of three interrelated factors: (a) reassertion of civilian influence in policymaking, the military leaders having moved into the power vacuum that resulted from the partial shattering of government and party structures during the Cultural Revolution; (b) the preemption of resources for a new wave of investment in agriculture; and (c) a reluctance to devote additional resources to building out-of-date weapons and a willingness to wait upon the development of a new generation of weapons.

Production and procurement of hardware remained at the lower 1972 level through 1974, falling still further as a share of GNP. In the period 1975-77, output gradually increased, although at a considerably slower rate than overall industrial output.

While superior to all other LDC's in ability to produce modern weapons the PRC manufactures jet aircraft, nuclear-armed missiles, and submarines, some of its own design-the Chinese have not succeeded in narrowing the gap separating them from the leading industrial nations. They are experiencing development and production problems on their more advanced weapons for all branches of the service. Their failures have been the result of their general industrial backwardness, their refusal to rely on foreign sources of equipment and technology during periods of political upheaval, and the caution of major military powers in supplying China with the know-how for military production.

Even with the restrained level of military hardware production, the equipment and capabilities of the People's Liberation Army (PLA) were appreciably upgraded in 1975-77: (a) the ground forces, which account for more than 80 percent of the 4 million men under arms, added substantial numbers of tanks, artillery pieces, and trucks to their inventory; (b) the naval forces, in addition to adding dozens of small coastal craft, continued the commissioning of destroyers, frigates, and submarines to forward the development of a deep-water capability; (c) the air forces continued to expand and laid the groundwork for new model fighters (one to be equipped with the recently acquired British Spey engine); and (d) the missile forces continued the deployment of short-range and medium-range nuclear-armed missiles, meanwhile pushing development on long-range models. The PLA's equipment still remains one or two generations behind the equipment of the other leading military powers.

The Chinese military establishment continues to be in an unmatched position with respect to manpower: (a) only 1 youth in 10 is selected from each age cohort, and thus he meets extremely demanding standards of physical fitness and political reliability; (b) recruits are willing volunteers since the military service still excels alternative opportunities in prestige, material advantages, excitement, and travel; (c) recruits have comparatively little problem in adjusting to the rigors of military life; (d) the steady widening of primary and secondary education means that recruits meet increasingly higher educational standards; and (e) the most recently discharged classes form a topflight ready reserve.

At the same time that the production of military hardware is being held under wraps, considerable effort is going into civil defense. This program, which features digging and stocking large underground shelters, uses resources of comparatively low opportunity cost-labor hours that are over and above regular job hours; locally available equipment; simple construction materials, often of local origin; and emergency stocks that probably were going to be held in any case.

VII. FOREIGN TRADE: THE CUTTING EDGE 19

The political infighting of the last 3 years contributed to a reduction in the inflow of foreign machinery and technology. The role of foreign trade in the Chinese economy nonetheless remained fundamentally the same as in the early 1970's.

1. Since the People's Republic can feed itself, produce its own basic machinery, and provide essentially all industrial raw materials out of its own vast natural resources, it has a smaller stake in foreign trade than any other major nation on the globe-with the important exception of certain kinds of advanced technology.

2. Chinese foreign trade involves the exchange of: (a) crude oil, coal, ores, foodstuffs, simple machine tools, textiles, bicycles, sewing machines, and other manufactures for (b) equipment and technologies for oil exploration, coal mining, steelmaking, electronics, chemical fertilizer, power generation, and the petrochemical industry; chemical fertilizer, pesticides, plastic sheeting, crop seed, and domestic animals for breed-stock; grain; and smaller amounts of sugar, chemical fabrics, wrist watches, television sets, and other consumer goods.20 Starting in 1961, the PRC has imported several million tons of grain annually from non-Communist countries, at first on an emergency basis but then later as an economical way of feeding large northern cities. Imports of grain were 3.3 million tons in 1975, 2.0 million tons in 1976, and 6.8 million tons in 1977, and they are expected to amount to 7 million tons in 1978.

3. Foreign trade provides the cutting edge of the general program for economic modernization, with the key imported technologies being those listed in the preceding paragraph. The dislocations in higher education within China makes this dependence much deeper and more protracted than otherwise.

19 For a detailed description of developments in the foreign trade sector, see the section on foreign economic relations in this volume.

20 For a brief account of foreign trade results in 1977, from which most of this list was taken, see Peking NCNA Jan. 15, 1978 (FBIS-CHI-78-10, January 16, 1978, E19).