allocated to the military cannot be increased substantially. China's national defense is still to be modernized by the end of the century. But high resource costs and technical difficulties will mean that an across-the-board modernization program will have to be deferred well into the 1980's if goals in other sectors are to be met. This will not preclude either a rising absolute level of defense expenditure or significant improvements in selected weapons systems, but a systematic modernization program will depend on a more developed industrial sector. [Lardy, pp. 60-61.] Question 2. How do the political dynamics post-Mao influence future economic policy? Will this changing political pattern change the character of the Chinese development model formulated under Mao's rule? Guided at home by a search for "moderate" policies, abroad the regime likewise sought means for defining and maintaining an appropriate "political distance" between China and the three major Asian powers. In that endeavor, China's leaders clearly had fewer levers and resources at hand than they had at home. Abrupt changes in the perceived structure of power in Asia or the process whereby crises might be resolved could upset China's economic plans through the workings of the domestic political process. Radical opposition might use such change to mobilize a new coalition of power among impatient younger military leaders, frustrated rural youth and idealists threatened by Teng's new class of professionals to demand still another turn of China's political cycle.

In the light of the past 25 years of change in China, the odds seemed to favor such a shift in Chinese political style before 1980, probably having the effect of constraining the authority of central leadership, increasing the role of the military both in Peking and in the provinces, accelerating military modernization with a consequent delay in the achievement of economic goals, and bring another round of domestic political instability. Unless foreign powers were willing to commit substantial political and economic resources, such changes on China's domestic political stage could not be influenced very much by any single power's Asian policies. Only Soviet determination to go to war with China or American determination to support China in such a war might overwhelm the otherwise independent dynamic of China's internal political system. [Whitson, pp. 78–79.]

Question 3. How do foreign perceptions of the performance and rationale for the Chinese economic model differ? How, specifically, has China's erst-while ally-the Soviet Union viewed the Chinese development?

According to Western perceptions, the future of Chinese economic development remains uncertain but carries great potential.

. . . in a post-Mao-Chou era, power struggles and policy disputes-including economic policy differences-could become seriously aggravated. Therefore, it may be particularly difficult to forecast the future course of China's economic policy. Nevertheless, barring a repetition of great leap forward-or cultural revolution-type measures of China's involvement in a major international conflict, the country should be in position to sustain over the coming decade approximately the same average rate of economic growth as in the past 25 years. This would mean that by the end of this century China's gross domestic product could be quadrupled. In terms of total size it would still lag far behind the United States and the Soviet Union, but could easily be among the five largest economies in the world.

Nevertheless, just as in the past, it will be no easy task to sustain a 6-percent rate of growth. Based on past performance, this will require a rise in farm production of about 2 to 3 percent a year assuming (1) a continued commitment to basic self-sufficiency in food supply, and (2) a rate of population growth of not less than 1.5 to 2 percent a year. This will necessarily pose a major challenge to Chinese agriculture. Over time it will require very large investments in the farm sector and its far-reaching technical transformation. It is far from clear whether such a major transformation can be accomplished within present patterns of economic organization and employment in agriculture. This range of issues will necessarily constitute one of the continuing problems facing the Chinese Communist leadership for the rest of this century and probably beyond.

The successor generation of China will also have to face up to the challenge of sustaining the revolution, its values and spirit, in the processes of production are bound to become more complex. Technical training requirements may also be expected to grow, thus posing a number of dilemmas. Will the educational system as reorganized after the cultural revolution be capable of training the advanced engineering, scientific, and technical manpower required for an industrial society.

If not, can that system be reshaped in such a way as to continue producing "reds" and "experts?" Čan status and income differences be fairly narrowly confined in the face of the growing specialization, division of labor, and functional differentiation associated with industrialization?

Another and closely related range of questions revolves around consumer aspirations. With a fairly rapidly rising product, can household purchasing power in the cities and in the countryside be kept stable or rise only quite slowly and gradually? Alternatively, will increasing product be gradually translated into increasing consumer appetites? Can consumerism be contained and the spirit of frugality and self-abnegation be preserved?

It is also very unclear whether China can maintain a 10-percent rate of industrial growth for several decades with a preponderantly rural population. This of course will crucially depend on the pattern of industrialization, that is, the technologies used, the scale of plant, and the degree of capital intensity. It may also depend on whether it is possible to design a highly decentralized pattern of industrial development in China that would economize on transport and be partly regionally based. Such a pattern might slow down the rate of urbanization and at the same time alleviate some of the dilemmas posed above.

In essence, the fundamental challenge confronting China's leaders in the coming decades will be to maintain the tempo of economic growth, to build a strong and modernizing China, while preserving socialist values and not only socialist forms of organization. It remains to be seen whether China can become a modern industrial state without perpetuating the "new class" that has been gradually emerging since the 1950's and without following the "revisionist" road. If China's far-reaching experiment were to succeed, it would indeed be a historic contribution to the process of modern economic growth. [Eckstein, pp. 113-114.]

The Soviet view of Chinese economic development has been somewhat different from Western or Chinese perceptions.

Soviet Sinologists have to contend not only with a paucity of data (a problem familiar to all China specialists), but also with the ideological and political constraints, which limit their freedom. . . [p. 116].

In reviewing their aid to China, the Soviets conclude that it is the assistance they provided in the 1950's which made it possible for China to experience early successes and which also turned the head of Mao and his entourage, fanned their great-power hegemonistic aspirations and served as fertile ground for nationalistic tendencies in the Chinese leadership... [p. 133].

Undoubtedly the most important theme recurring in Soviet texts on China contends that militarization is the primary characteristic and the foremost priority of China's economy. [p. 139].

...

there seems to be little doubt that most Soviet economists believe that Peking neglects rural development, that state aid is available only in periods of crisis, that local self-sufficiency is a ridiculous policy and that military priorities are the cause of China's poor agricultural performance. [p. 144].

The Soviets describe the development of China's industry as complicated and contradictory. . . [p. 148].

While Chinese industry (both national and local) had experienced growth in the 1970's, Peking has not been able to solve many of the fundamental problems that affect industrial development, such as insufficient raw materials and energy, outdated industrial facilities, and the shortage of qualified specialists... [p. 148]. The simultaneous development of modern and traditional means of production runs counter to the Soviet passion for bigness. . . [p. 138].

Although Soviet and Western estimates of China's production figures may differ, there is actually little disagreement about the over-all strength and weaknesses of individual economic sectors or the specific problems facing the planners in Peking. The differences are in perspective, in emphasis, and in evaluations of the rationality (or muddleheadedness) of China's economic policies. [pp. 148-149]. In discussing PRC's most recent drive for modernization, the Soviets say that the new policies are nothing more than "the adaptation of Maoism to altered conditions". . . [p. 134].

"The Soviets themselves recognize and even publicly admit some of the problems and weaknesses in their research on the PRC .. [but] "it is very important not to lose sight of the great improvement that has taken place... since the beginning of this decade.". . . "Unencumbered by political demands for conformity, free to pursue their research and arrive at independent conclusions, Soviet Sinologists should be able to move to the forefront of studies on modern China. If this day ever comes, it will behoove Western China-watchers to pay

much closer attention to what their Soviet counterparts may start saying or writing about China." [Orleans, p. 164.]

Question 4. What is the Chinese policy on economic modernization? What are the prospects for the Chinese economy in this post-Mao period?

China's economic modernization efforts may be influenced by a number of constraining factors. The speed of economic growth during the balance of the century will depend largely on the ability to remove or minimize the impact of these constraints. Some of them are ideological, political, or institutional in nature while others represent bottlenecks in the economy.

On the ideological front, although the post-Mao leadership has shown flexibility in interpreting the self-reliance principle, changes are likely to be gradual and slow. Further, certain basic tenets are expected to remain inflexible. As long as the preclusion of foreign direct investment in China continues to be one of these tenets, China deprives itself of the benefit that, as the experience of many developing countries has shown, foreign capital could contribute to economic modernization. But a much broader ideological constraint lies in the likelihood of a recurrence of the "two-line struggle." The development of China's economy under Mao showed a deep-seated conflict between ideology and the economic and technical realities of the country leading to a cyclical pattern of economic growth. The Hua government has launched an intense rectification campaign to purge the followers of the "gang of four" at all levels in an attempt to alleviate such a conflict. But it remains to be seen if economic success in the post-Mao era can continue for a prolonged period of time without giving rise to a group of "nco-radicals" to seriously challenge the pragmatic leadership and/or its economic policies.

The failure to stave off such a challenge could greatly jeopardize the political stability which would be absolutely essential to the success of China's modernization efforts. In the short run, political stability also depends on the cohesiveness of the various elements that have made up the post-Mao leadership.

Economically, the greatest bottleneck lies in the agricultural sector. The success of the four-modernizations program will hinge critically on the Chinese ability to expand agricultural output considerably faster than population growth.

Certain other economic sectors, particularly electric power and transport, have developed into major bottlenecks brought about by years of relative neglect in investment allocation. The slow progress of these two sectors, considered as "vanguards" in the Chinese economy, is likely to constrain China's industrial growth in the immediate years ahead. To assure rapid industrial expansion in the 1980's will require power and transport to grow more rapidly than industry as a whole.

In 1976, the five major powers combined accounted for 70 percent of the world's GNP. Of these five major powers' total GNP, China's share in 1976 was only 6.7 percent; it produced less than one-fifth of the level of the world's largest producer, the United States, and some 60 percent of the level of fourth largest, Japan. A successful modernization drive in China could increase its share to 8 to 9 percent by 1985 and 10 to 14 percent by the year 2000. With the most optimistic estimate, China's GNP would still rank last among the five major powers by the end of the century, but could reach over half of the U.S. level and more than 70 percent of the Japanese or Soviet level. [Chen, pp. 200-203.]

Question 5. How did the interrelations of political and economic factors affect industrial growth in the decade or so prior to the establishment of current leadership policy?

.. 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 trumoil. 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 political campaign. 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. 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. 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. .

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, 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 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.

Dissatisfaction with the pace of recovery probably figured in the decision in July to reappoint Teng Hsiao-ping to his post in the Government and party. And it is certainly reflected in State Planning Commission Chief Yu 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.

The findings of the previous section show that politically stable Provinces tended to achieve moderate or strong industrial growth during the mid-1970's, and that politically unstable Provinces-with only one exception-failed to do so. Because the Cultural Revolution (1966-69) was also a period of political instability during which industrial output declined sharply . . ., the two periods are compared in this section.

Mao Tse-tung launched the Cultural Revolution because of his dissatisfaction with what he felt was the growing ossification of the party and Government bureaucracies, and his belief that China's youth required a "revolutionary experience", to renew their faith in a revolution that had taken place before most of them were old enough to participate or even remember it. With the power struggle that broke out between the "radicals" (led by K'ang Sheng, Ch'en Po-ta, and Lin Piao) and the "moderates" (led by party bureaucrats Lin Shao-ch'i and Teng Hsiao-p'ing), the Cultural Revolution quickly became one of modern China's most chaotic periods. The Chinese Communist Party virtually disappeared as an institution, and the turmoil grew so great that PLA main-force units were ordered to restore order in many Provinces and to assume control of a dozen. The economic consequences of the Cultural Revolution were especially serious in the industrial sector, where fractional struggles in the factories and disruptions along the transportation routes caused production to decline precipitously and to remain below trend for 3 years. [Field, McGlynn, and Abnett, pp. 243–244 and 254-255.]

Question 6. How are key industries such as machine building performing to meet the needs of modernizing China?

Chinese leaders have frequently claimed that the machine-building industry is the key to technological transformation of the national economy. Indeed, the industry forms the foundation of China's military and industrial developmentencompassing a broad spectrum of manufacturing trades, ranging from production of ball bearings to ships, locomotives, power-generation equipment, and the like. As outlined in Chairman Hua's report to the Fifth National People's Congress of early 1978 China is launching an ambitious program to revitalize the economy through modernization of agriculture, industry, national defense, and science and

technology. The stated goal is to create a modern industrial economy by the year 2000. Much of the burden of achieving this goal will fall on the machine-building industry. . . .

The core of China's machine-building industry was formed through the massive material and technical assistance provided by the U.S.S.R. and East European countries that began in 1953. During the first 5-year plan period (1953-57), out of the 166 major Soviet-aid projects in industry, nearly 100 were undertaken in the field of machine building. The U.S.S.R. supplied complete sets of equipment for plants and equipment, transportation equipment, agricultural machinery, chemical industry equipment and machine tools. Many of the remaining projects supplied by the Soviets formed the basis of China's military machine-building industry. In this important category were plants to produce aircraft, naval vessels, electronic equipment, land armaments, and nuclear weapons. Additional agreements with the U.S.S.R. and East European countries in 1958-59, nearly doubled the number of modern industrial plants planned for the machine-building industry. Orderly development of the machine-building industry became impossible after the Great Leap Forward was launched in 1958.

The machine-building industry retrenched with the rest of the economy from 1961-63. Production dropped sharply, capacity stood idle, and the regime pared down investment programs to a narrow range of essential industries. A new emphasis was given to the production of agricultural machinery, equipment for chemical fertilizer plants, and machinery for the petroleum industry. High priority moreover, was assigned to the military machine-building sector, particularly to electronics and those industries involved in the development of atomic energy, missiles, aircraft, and naval ships. By 1966 the general status of the machinebuilding industry had improved, production was well above the 1957 level. General improvement can be attributed to increasing imports of machinery and technology from Japan and Western Europe.

Considerable dislocation in the machine-building industry occurred during the political turbulence of the Cultural Revolution (1966-69). Imports of equipment from the non-Communist world declined and technical exchanges were terminated.

In spite of the disruptions of the Cultural Revolution, China achieved substantial increases in machine-building capacity during the late 1960's. Under the general slogan of "war preparation" the PRC engaged in a wide-ranging campaign to construct hundreds-and possibly thousands of small, medium, and large-scale industrial projects throughout its remote interior regions.

Reestablishing orderly economic planning, together with the additions to production capacity during the 1960's led to substantial increases in output during 1969–71. Production of military related equipment reached peak levels, and electronics emerged as a favored sector among military industrial planners. The small plant program, which had gained new respectability during the Cultural Revolution, reached boom proportions, while the construction of modern plants gained increased momentum. Self-reliance had become the watchword in the machine building industry, and new products of indigenous design began to emerge at a growing rate.

Evidence of a major debate between military and civilian planners over machinebuilding priorities surfaced in mid-1971. The "electronics versus steel" controversy, which signaled the debate, was quickly followed by the Lin Piao affair. Following the death of Lin, production of military armaments plummeted sharply from the peak levels of 1970–71. The marching orders for the industry during the fourth 5-year plan (1971-75) included increased support to agriculture and the basic industries such as mining, petroleum, chemicals, and electric power. Increased emphasis also was given to purchasing large quantities of Western equipment and manufacturing technology. [Craig, Lewek, and Cole, pp. 285 and 287-288.]

Question 7. What kind of constraints and stimulants do mineral and energy supplies and uses exercise on Chinese economic growth?

China is one of the world's rich mineral areas fully capable of supporting a modern first-rank industrial economy. During 1977, PRC strengthened its position as a leading mineral producer. Its relative importance should grow significantly in the decade ahead, judging from the resource potential and the many developments already underway. As befits a large country with a huge population. China produces a great variety of minerals and metals-many outstanding by world standards. If all minerals were added together in terms of output value,