an impact on industrial output approaching that of the Cultural Revolution. It is clear that the Cultural Revolution, which disrupted China with an intensity approaching madness, was more damaging than the struggle for succession of the mid-1970's.

V. THE EMERGING SHAPE OF INDUSTRIAL POLICY IN POST-MAO CHINA 45

In the 18 months since the purge of the "gang of four," the new leadership has taken steps to restore order to the economy and has proceeded to jettison institutional and ideological baggage that stands in the way of improved efficiency and higher productivity. At the Fifth National People's Congress in March 1978,46 Hua Kuo-feng underlined the importance of the modernization drive first publically articulated by Chou En-lai in his work report at the Fourth National People's Congress in January 1975.7 In addition, Hua emphasized aspects of the drive that had been spelled out in a 1975 State Council draft entitled "Some Problems in Accelerating Industrial Development" 48. Chou had stressed the importance of the Fifth 5-Year Plan (1976-80) in completing the first stage of a strategy to modernize the economy by the end of the century. After the inauspicious start on the Fifth 5-Year Plan, however, Hua incorporated it in a 10-year plan that is to run through 1985.

Three recently announced targets for 1985 are presented in table 6. The projected increases of 10 percent per year for the gross value of industrial output and 7.2 percent for coal seem achievable when compared with the record of the last 12 years. Nevertheless, a doubling of industrial production over the next eight years will require accelerated energy production (which will put severe pressure on the petroleum industry) and a large-scale industrial construction program (including stepped up imports of high-technology plant and equipment from Japan and the West).

TABLE 6.-ACTUAL AND PLANNED OUTPUT OF CHINESE INDUSTRY SELECTED YEARS, 1965-85

1965-77: Gross value of industrial output: CIA "The Gross Value of Industrial Output in the People's Republic of China: 1965-1977," June 1978. Coal and crude steel: Preliminary revision of previous CIA estimates.

1985 targets: Gross value of industrial output and crude steel: Hua Kuo-feng, "Report on the Work of the Government," Peking Review, No. 10, 1978, p. 19. Coal: Derived from the statement that output is to double between 1977 and 1987. See Hsiao Han, "Developing Coal Industry at High Speed," Peking Review, No. 8, 1978, p. 6.

45 We are greatly indebted to Bobby A. Williams and Joe W. Hart both of whom gave us invaluable assistance in preparing this section.

Hua Kuo-feng, "Report on the Work of the Government," Peking Review, No. 10. 1978, pp. 18-19. 47 Chou En-lai, "Report on the Work of the Government," Peking Review, No. 40, 1975, p. 23.

48 Draft dated Sept. 2, 1975; translated in Issued and Studies, vol. XIII, No. 7, 1977. The draft is commonly[referred to as the "Twenty Points."

The announced goal of producing 60 millon tons of steel by 1985 (compared with 25 million tons in 1977 and a capacity of about 35 million tons 48a), however, appears unrealistic, implying as it does a 25-million ton increase in capacity within 8 years. Current plans call for expanding the capacity of the Anshan steel plant from 7 million tons to about 12 million tons and for building a new 6 million ton steel combine in Shanghai. It is unlikely that both of these projects, which are to be purchased from Japan, can be completed by 1985. In any event, their completion would add less than half of the additional capacity needed. Chinese efforts to renovate other plants, together with a more effective use of raw materials inputs, could conceivably provide 10 million tons of steel output annually. Under the best of circumstances, annual production is unlikely to exceed 50 million tons by 1985.

Peking recognizes its goals are extremely ambitious but evidently believes that many factories and mines habitually operate well below levels obtainable in more industrialized nations and that greater efficiency by management and labor can yield substantial gains in both the quantity and quality of output. Reforms are already apparent in industrial onganization, factory management, wages and incentives, and the treatment of managerial and technical personnel. At the same time, major revisions are being made in investment priorities to favor persistent trouble spots such as coal and metals mining, steel finishing facilities, electric power, and the transport

sector.

A. Industrial Organization

Some localities and units have ignored the overall interests and the unified regulations of the central authorities by willfully formulating policies in violation of state plans, wantonly changing the direction of production of the decentralized enterprises, discontinuing the relationships of coordination and cooperation previously established, having failed to complete the missions of transferring products to higher levels, arbitrarily adding basic construction projects and enlarging the size of construction, and wantonly securing and expending materials and funds. Wilfully increasing the number of staff and workers, as well as the total amount of wages, and changing commodity prices without authorization are not permissible.49

Several developments indicate that the Government is returning to organizational structures in industry that either were eliminated or severely undermined during the Cultural Revolution. The objective seems to be both greater centralization-at least in the short runand increased efficiency.

One recent manifestation of increased centralization was the revamping of the State council announced at the Fifth National People's Congress in March 1978.50 For example, the Ministry of Petroleum and Chemical Industries was split into separate ministries. for petroleum and chemicals.51

Of particular interest has been the reestablishment in 1977 of the National Petroleum Corp., which reportedly has taken over operational responsibility for the oil industry, leaving the Ministry of

48 Hua Kuo-feng told the Fifth National People's Congress that 28 million tons of steel had been lost during the years 1974-76 (Peking Review, No. 10, 1978, p. 12). If loss is defined as the difference between capacity and actual output, then average capacity (in million tons) should be one-third of the sum of actual output and the reported loss, or 14(21+25+22+28)=33. As additions to capacity during the period were small, current capacity is probably no more than 35 million tons.

49 Twenty Points," p. 101.

50 FBIS, supplement 1, Mar, 16, 1978, p. 73. For discussions of the need to strengthen central control, see "Twenty Points," pp. 99-102; and Hua Kuo-feng's remarks in his speech to the Fifth National People's Congress, in "Peking Review," No. 10, 1978, p. 25.

"FBIS, Mar. 6, 1978, D-13-14.

Petroleum Industry charged mainly with policy formulation. A similar ministerial-corporate structure also may be the next step in the thoroughgoing reorganization of the agricultural machinery industry that has been called for by State Planning Commission Chief Yü Ch'iu-li. Corporations had been set up in these and several other industries in 1964-65 but were later abolished after condemnation by radicals as capitalist "monopoly trusts." 52

Although details are sketchy, the corporate idea seems to have two rationales. As described in 1964-65, the corporations, and the enterprises under their control, were to be relatively free from interference. by local political authorities; especially in matters of policy, they were to be accountable only to the central authorities in Peking. In addition, such enterprises would be "specialized" rather than "self-sufficient" (that is., integrated), thereby reducing redundancy in organization, personnel, and fixed assets. 52a

Another sign that pre-Cultural Revolution organizations are being reestablished is the reappearance of the 6 great regions into which China's 29 provinces had been grouped for planning purposes. While little has been disclosed about how this regional framework operated in the past, oblique references by Yü Ch'iu-li and Hua Kuofeng to a "regional economic system in each of the six major regions" suggests that they have been revived to facilitate long-term planning and to centralize responsibility.53

B. Enterprise Management

There are also some enterprises whose ideological and political work have been fainthearted and flabby, management chaotic, labor productivity low, quality of products inferior, losses great, costs high, and accidents numerous, inflicting serious losses on the state and the people. These enterprises must have their enterprise management rectified and their rules and systems tightened up."

In an attempt to hasten the restoration of economic stability, the new government has called for the abolition of factory revolutionary committees enterprise management bodies formed during the Cultural Revolution.55 These bodies-normally composed of representatives of old party cadres, young revolutionaries, and the PLAhave been a source of disruption in industrial management and planning over the past decade. Day-to-day control of operations is being returned to seasoned managers, each with sole responsibility for his component. Along with this elimination of management by committee is a concerted effort to restore those systems (such as financial and quality control, and adherence to materials consumption norms) needed for effective management.56 These measures, along with improved labor discipline, are intended to be the major sources of production gains during 1978-80.57

Of perhaps more far-reaching consequence are reports that Peking is studying managerial techniques in Yugoslavia and advanced in

52 Current Scene vol. VI, No. 17, 1968, ibid., No. 22, 1968.

52 At the national farm mechanization conference in early 1977, Yü Ch'iu-li unveiled plans to reorganize the farm machinery industry, with "general large-scale" plants and "general small-scale" plants to be replaced by "large-scale specialized" production facilities. One of the experiences cited at the conference was how local authorities in Ch'ang-chou, by combining individual gearmaking equipment from seven tractor plants into one large plant and adopting more up-to-date techniques, were able to double the rate of production in 6 months. See FBIS, Jan. 31, 1978, E-14-E-16.

53 FBIS, May 9, 1977, E-19; and Peking Review, No. 10, 1878, p. 19.

"Twenty Points," pp. 96-97.

See Hua Kuo-feng's speech in Peking Review, No. 10, 1978, pp. 31-32.

See the State Council circular reported in FBIS, Dec. 13, 1977, E-1, and for further details, the remarks of Yu Ch'iu-li in FBIS, May 9, 1977, E-21ff.

57 See Hua's speech in Peki ig Review, No. 10, 1978, p. 22.

dustrial nations.58 The particular aspects of Yugoslavia's unique socialist system that most interest the Chinese are not yet clear; in any event, Belgrade has experienced many of the problems that Peking must face in order to balance centralizing and decentralizing forces. In Japan, visiting Chinese delegations are asking questions that span the entire spectrum of industrial practice-for example: How much iron ore under optimal conditions is required per unit of steel output? How are the skills of craftsmen nurtured? What scheme of wages and premiums best motivates workers?

C. Wages and Incentives

Egalitarianism will not work now, nor will it work in the future. "From each according to his ability, to each according to his work; he who does not work, neither shall he eat" is a socialist principle. At the present stage, it is basically compatible with the requirements of productivity development, and thus must be resolutely carried out. Equal distribution without regard to intensity of labor performed and to different degrees of ability and contribution will be detrimental to mobilization of the socialist initiative of the broad masses.59

Peking's success in bolstering economic growth during the remainder of the Fifth 5-Year Plan period will depend heavily on its ability to improve work incentives and boost labor productivity. When the present government took office in October 1976, it faced a disgruntled work force, which since 1974 had increasingly resorted to slowdowns, absenteeism, and strikes to protest eroding living standards and the inability of government to reach agreement on wage increases. One year later, with low morale and low productivity still serious problems, the new leadership announced pay increases for three-fifths of the urban labor force.60 Peking carefully emphasized that the wage increase was made possible by the improving economic situation, but everyone realized that the move was intended to buy time until a consensus could be built on more comprehensive measures to raise living standards.

The pay hike probably has mollified workers to some extent and reduced absenteeism, but troublesome labor problems continue.61 The wage increase amounting to 10 to 15 percent for the lowest paid workers and 10 percent overall-is probably regarded by many

as token.

Given the magnitude of worker discontent, nothing short of a thorough wage reform, with revised pay scales and provisions for regular promotions and more pay for more work, is likely to halt industrial strife. This was specifically recognized in the "Twenty Points," which repudiated excessive egalitarianism in wage policy and cited the need to (a) build more dormitories for workers; (b) improve the operation of mess halls, nurseries, and medical services; (c) improve the organization of spare-time educational, cultural, and recreational activities; and (d) solve the problem of husbands and wives working in separate places for long periods."

62

Press commentary in recent months leaves no doubt that production bonuses and piece rates (abolished in the late 1960s amid Cultural Revolution condemnation of material incentives) will be readopted."

58 The Washington Post, Apr. 3, 1978, p. A-14; “JMJP," Feb. 23, 1978, p. 5; and FBIS, Feb. 24, 1978, A11-A15.

69 "Twenty Points," p. 108.

60 Peking Review, No. 49, 1977, p. 3.

See, for example, the report of work stoppages in Wuhan during January-February, 1977, in The Economist, Dec. 31, 1977, p. 15.

62 Twenty Points," pp. 109-10.

63 See, for example, the series of articles in Kuang-ming jih-pao, Nov. 21, 1977, p. 3, reported in FBIS, Dec. 2, 1977, E13-E18.

Significantly, the favorable effect of bonuses and piece rates on labor productivity has been cited as a major argument for their revival. Approval of a reform package that meets most of the demands of urban workers is no guarantee that labor problems will not reemerge. Until growth in agriculture accelerates and problems in consumer goods production are ironed out, gains in consumption will remain small. Previous administrations also have assigned high priorities to both agriculture and light industry. Agricultural progress has been slow, however, and the commitment to expand production of consumer goods sometimes has been subordinated in a bureaucracy traditionally geared to expanding output of producer goods.

64

D. Science and Technology

Serious sabotage by the gang of four wrought havoc with China's science and education. Large numbers of universities, colleges, and scientific research institutes were disbanded . . . And basic scientific and theoretical research in particular has been virtually done away with. The quality of education has declined sharply . . . Various fields of work are keenly feeling the shortage of successors for scientific and technical endeavors. Science and education are lagging so far behind that they are seriously hindering the realization of the four modernizations.65 66

Characterizing science and technology as the "key" to its modernization efforts, Peking began early to repair the damage done to education and research by the Cultural Revolution. Meeting the human capital requirements of a modernization program would have been difficult under the best of circumstances; now, the "crisis" 67 in education and science is perhaps the major obstacle to the fulfillment of China's ambitious goals.

For the past 11⁄2 years, the new leadership has been deciding precisely what directions its science policy should take. Two major planning conferences were held in late 1977 and early 1978-one for natural sciences, the other for more general scientific and technical matters.68

69

These efforts culminated in the national science conference, held in March 1978. There, with much fanfare and a speech by Vice Premier Teng Hsiao-p'ing, a draft plan-"Outline Plan for the Development of Science and Technology, 1978-85"-was presented. The plan is broad in scope, covering everything from very basic considerations on education to foreign training for Chinese scientists and the general areas of research to be tackled during the next 8 years. Fang Ï in an earlier speech, had announced that the tentative plan was to concentrate research work "on a number of key problems in industry, agriculture, and national defense." 70 In his discussion of the outline plan at the recent conference, Fang elaborated on those key problems; he focused on eight areas of research, three of which apply directly to industry: energy, materials, and computers. Touching in turn upon oil, coal, and electric power-all of which are priority concerns-Fang also brought up the need to explore new sources of energy, mentioning first the need to step up research on atomic energy. In materials

4 Problems in light industry have been described as "acute"; see the article by the theoretical group of the Ministry of Light Industry in JMJP, Oct. 28, 1977, p. 2, reported in FBIS, Nov. 8, 1977, E15.

65 Vice Premier Fang I in a speech to the Chinese People's Political Consultative Conference, December 1977. See FBIS, Dec. 30, 1977, E-4.

66 Fang I is also a Politburo member, vice president of the Academy of Sciences, and minister in charge of the State Scientific and Technological Commission.