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was incorrectly translated as "more than 11 times" (which means 11 to 12 times). In this case, the cause of the error could be deduced, but more frequently isolated figures that do not fit into the larger body of data cannot be explained.

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Even after the practical problems with the GVIO data are sorted out, certain theoretical shortcomings still remain. The basic problem stems from the Chinese use of the "factory reporting method" to measure the value of industrial output. This method introduces a substantial amount of double counting, which may affect the gross value of output in a number of ways. First, because the value of output reported by each enterprise includes the costs of purchased raw materials and semifinished inputs, changes in the organization of the industrial sector can either raise or lower the aggregate GVIO. For example, increased specialization of production tends to inflate GVIO (because more semifinished inputs are purchased and the degree of double accounting is increased), whereas mergers that combine enterprises in different stages of production into a single accounting unit tend to lower GVIO, as for example, in the iron and steel and coal industries.

Second, the use of the factory reporting method can also distort the data over time. Consider, for example, the following indexes for 1976 (with 1965-100): *

Crude oil output..

Natural gas output..

Crude oil processing capacity.

GVIO of the petroleum industry.

770

920

570

520

The difference between the growth of crude oil processing capacity and crude oil output is easily explained by crude oil exports and the growing use of crude oil as a fuel. The GVIO index, however, is hard to understand. According to Chinese statistical practice, the GVIO of the petroleum industry should be the value of the crude oil sold plus the value of the refined products sold plus the value of all other sales. Thus, it would seem that the GVIO index should have been much higher than 520.

Despite these practical and theoretical difficulties, the reconstructed GVIO data show the same pattern of growth as a value-added index based on physical output data for 42 commodities produced by 11 branches of industry (see table 1). Moreover, the GVIO data offer several distinct advantages over the value-added index. First, there is a large body of reasonably consistent GVIO data for 1976-77, while the few physical output estimates that are available need to be revised and brought up to date in the light of recently released but still fragmentary information. Second, the GVIO data allow an examination of the geographic pattern of growth. And finally, when used in conjunction with statements on the share of the plan fulfilled at various times during the year, the data make possible an examination of the pattern of growth within the year. For these reasons, the quantitative judgments in this article are based on the provincial GVIO data and the national figures derived from them.

For a detailed description of the factory reporting method, see Robert Michael Field, Nicholas R. Lardy, and John Philip Emerson, A Reconstruction of the Gross Value of Industrial Output by Province in the People's Republic of China: 1949-75, Foreign Economic Report No. 7, U.S. Department of Commerce, Washington, D.C., 1975.

JMJP, Aug. 14, 1977.

Section II provides a brief survey of China's industrial performance since the Cultural Revolution and outlines the regional development policies followed by the Chinese since the 1950's. Section III examines the interplay of political conflict and industrial performance in 19 provinces during the mid-1970's to test a commonly suggested hypothesis that declines in industrial production are closely linked to political instability. Section IV compares the relative impact of political turbulence on industrial performance during the two periods of greatest instability since 1949; namely, the Cultural Revolution (1966-69) and the struggle for succession (1974-77). Finally, in section V the steps taken by the post-Mao leadership to spur economic modernization after a decade of political and economic instability are outlined, with emphasis on the Hua administration's current strategy for industrial development. Statistical data and methods of political analysis are printed in the appendixes.

II. INDUSTRIAL PERFORMANCE

A. Growth Rates

Estimates of industrial production for the years 1965-77 are presented in table 1. By 1965, industry had recovered from the collapse that followed the Leap Forward (1958-60), and most major commodities were being produced at earlier peak levels. However, the Third 5-Year Plan period (1966-70) was soon interrupted by the turmoil of the Cultural Revolution. Work stoppages, shortages of raw materials, and disruptions of transportation forced industrial production below the 1966 level in both 1967 and 1968. No accurate measure of the decline in production can be made from available data, but it probably was on the order of 15 percent in 1967. Production remained at low levels at least through the first half of 1968, and then began to recover rapidly. By 1969, it exceeded the pre-Cultural Revolution peak of 1966, and in 1970 went on to grow by more than 20 percent. The average annual rate of growth for the Third FiveYear Plan as a whole was 11.7 percent.

TABLE 1.-INDUSTRIAL PRODUCTION IN THE PEOPLE'S REPUBLIC OF CHINA, 1965-77

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Sources: Gross value: CIA, "The Gross Value of Industrial Output in the People's Republic of China: 1965-77," June 1978.

Value added: CIA, "China: Economic Indicators," October 1977. The derivation of the index is described in Robert Michael Field, "Industrial Production in the People's Republic of China: 1949-74," in Congress of the United States, Joint Economic Committee, China: A Reassessment of the Economy, Washington, D.C., 1975, pp. 160-174.

After rapid increases in 1969 and 1970, the growth of industrial output in the Fourth 5-Year Plan period (1971-75) fell off markedly as production pushed up against capacity. During the early 1960's investment in industry had been limited primarily to the completion of projects started in the late 1950's. By 1964 or 1965, a broader construction program appears to have been started. During the Cultural Revolution, however, when the production of steel, cement, and timber was down and transportation was often disrupted, construction work suffered. Finally, during the Fourth 5-Year Plan period, new capacity was not being added rapidly enough to sustain the high rate of growth attained during the previous 5 years. In addition, shortages of coal, iron ore, and other basic raw materials began to affect production of both producer and consumer goods. These shortages reflected fundamental imbalances in extractive, processing, and finishing industries.

Poor performance in agriculture also forced major changes in priorities in 1972 and 1973. 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 turmoil. 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 the political campaign." The Central Committee stated specifically that the production of coal in the first 5 months of 1974 was 8.35 million tons short of the national target and that the shortage of coal had affected major rail lines and a long list of industries including iron and steel, nonferrous metals, chemical fertilizer, and cement. 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.

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.7 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. Numerous economic conferences were held, most notably the national railway conference in March; and strong measures, such as the deployment of troops to faction-ridden Hangchow, were ordered. 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. Moreover, structural imbalances and transportation bottlenecks continued to plague industry. In short, the year was marked by a spurt during the first 6 months

7 New York Times, Nov. 15, 1974, p. 3. 1 Peking Review, No. 4, 1975, pp. 21-25.

followed by a gradual slowdown during the second half. The rate of growth was 10 percent for 1975 and averaged 9.1 percent annually for the Fourth 5-Year Plan period as a whole.

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. 19,8 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 full year following the purge of the radicals would show a healthy recovery and provide a firm basis for accelerated growth during the remainder of the Fifth 5-Year Plan period. Performance in January and February was erratic but then improved month by month. However, progress apparently fell short of the leadership's expectations. It appears that those economic problems stemming from factional maneuvering were unexpectedly difficult to solve and shortages of raw materials and electric power made it impossible for many plants to operate anywhere near capacity.

Dissatisfaction with the pace of recovery probably figured in the decision in July to reappoint Teng Hsiao-p'ing to his posts in the government and party. And it is certainly reflected in State Planning Commission Chief Yü 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. He emphasized that, because of severe bottlenecks and the generally chaotic situation, China's economic problems "cannot be solved in 1 year." Although the 14percent rate of industrial growth in 1977 was impressive, it reflected recovery from the poor performance in the second half of 1976 as much as the continued moderate improvement in the third and fourth quarters of the year.

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The historical process of development had resulted in a highly uneven geographical distribution of industrial capacity at the time

Issues and Studies, vol. XIII No. 2, 1977, p. 12.

The post-Mao leadership has divided China into six great regions, as follows:

Northeast: Heilungkiang, Kirin, Liaoning.

North: Peking, Tientsin, Hopeh, Shansi, and Inner Mongolia.

East: Shanghai, Shantung, Kiangsu, Chekiang, Anhwei, Kiangsi, and Fukien.

Central-South: Honan, Hupeh, Hunan, Kwangsi, and Kwangtung.

Northwest: Kansu, Shensi, Ningsia, Tsinghai, and Sinkiang.

Southwest: Szechwan, Yunnan, Kweichow, and Tibet.

the Communists came to power despite the fact that China's natural resources are well dispersed. Capacity was concentrated in Northeast, North, and East China, where a combination of relative political stability, a developed transport system, readily available agriculture and industrial raw materials, and large markets had attracted foreign capital. Smaller industrial centers had developed in several provinces where enterprising warlords had built small industrial complexes, and in Southwest China during World War II when industrial plant and equipment were removed from coastal cities in the face of advancing Japanese armies. More than three-fourths of total industrial production in 1952 originated in the three relatively well-developed regions.

Faced with this unbalanced distribution of industrial capacity the new Communist regime undertook a deliberately phased policy of regional development. The specific provisions governing the geographical distribution of industrial capital construction were as follows: (1) expansion of existing industrial bases, especially in northeast China, in order to support the construction of new industrial areas; (2) construction of new industrial bases in North and Central China, centering around two new iron and steel complexes to be built in Pao-t'ou and Wu-han; and (3) the construction of a new industrial base in Southwest China.

During the First 5-Year Plan period (1953-57), central and western China and the less industrialized areas in North China developed. most rapidly, and growth in East China was the slowest. The indexes in table 2 show that with the exception of the Southwest the pattern of growth has remained the same during the last 20 years. Even so, the Northwest (which has grown the most rapidly) made the smallest absolute contribution to the growth of industrial output while the East made by far the largest. The rate of growth in the Southwest must have been a major disappointment to the Chinese. Although a large number of large-scale construction projects have been completed (especially in Szechwan), the Southwest has been the slowest growing region in China since 1957.

TABLE 2.-GROWTH OF INDUSTRIAL PRODUCTION, BY REGION, 1957-77

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Source: Field, Lardy, and Emerson, 1976, p. 20, and table C-2.

The new post-Mao leadership has reaffirmed the regional development policies of the last 25 years by establishing six great regions which are intended to function "self-reliantly while working in close coordination [with each other]" and to have "a fairly harmonious development of agriculture and light and heavy industry [within the

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