China - Economic development



A profound restructuring of China's economy began in 1949 following the founding of the PRC. Adhering to orthodox models borrowed wholesale from the former USSR, the PRC brought all major industrial, infrastructure, and financial enterprises directly under state ownership. Agriculture was collectivized. Management of the economy was closely controlled by central authorities, whose powers extended to the allocation of basic commodities and the basic division of resources into investment, consumption, and defense channels. Centralized planning for economic development was introduced in the form of five-year economic plans.

The first five-year plan (1953–57), belatedly announced in 1957, pursued rapid industrialization along Soviet lines, with a special emphasis on increases in steel and other heavy industries. The plan reportedly achieved its goals of a 5% gain in gross value of agricultural output and a 4% gain in grain production, and exceeded the 19% growth target in gross value of industrial output.

The second five-year plan (1958–62) was voided at its start by the social and economic upheavals of the Great Leap Forward. At the heart of the Great Leap was the establishment of the self-sufficient rural commune; decentralization of industry was stressed, and the rural unemployed put to work in "backyard steel furnaces" and other industrial enterprises of dubious efficiency. Incomes were determined by need, and coercion and revolutionary enthusiasm replaced profit as the motivation for work. Publication of economic data ceased at this time, but Western observers estimated a 1% decline in agriculture for the 1958–60 period, an increase in GNP of only 1%, and no more than a 6% increase in industrial output. After the bad harvests of 1960 and 1961, an "agriculture first" policy was adopted under which large areas of semiarid steppe and other marginal lands in the north and west were converted to agricultural use.

A third five-year plan (1966–70), formulated by governmental pragmatists and calling for rapid growth of all sectors, was aborted by the outbreak of the Cultural Revolution. In 1969, the government published a report calling for a more open approach to foreign assistance and trade. Domestically, it confirmed the use of the "mass line"—the system of calling upon workers and peasants to take responsibility and initiative, and to work without material incentives. It favored the simultaneous use of modern and traditional employment methods (the "walking on two legs" policy), and recommended expansion of industry through investment of profits derived from the sale of agricultural and light industrial products. At the heart of the 1969 policy was a reversion to the commune system of 1958—a program to make the countryside self-sufficient, with every commune not only growing its own food but also producing its own fertilizer and tools, generating its own electricity, and managing its own small handicrafts factories, health schemes, and primary schools. In contrast to the hastily organized communes of 1958–60, however, the new units frequently adhered to the traditional— and more manageable— structure of Chinese rural life.

Long-range economic planning resumed in 1970 with the announcement of a fourth five-year plan, for 1971–75. In late 1975, Premier Zhou Enlai proclaimed the plan successful. Agricultural output was reported to have grown by 51% during the 1964–74 period, while gross industrial output was said to have increased by 190%. Specifically, the following growth rates (1964–74) for mining and industry were reported: petroleum, 660%; coal, 92%; steel, 120%; cotton yarn, 86%; tractors, 540%; chemical fertilizers, 350%; and electric power, 200%.

A fifth five-year plan (1976–80), announced in 1975, gave priority to modernization of the economy and, for the first time, emphasized the development of light rather than heavy industry. Implementation of this new departure was, however, delayed by the deaths of Mao and Zhou in 1976 and did not occur until 1978, by which time the economic pragmatists, led by Deng Xiaoping, had emerged victorious from the subsequent political and ideological struggles.

The sixth five-year plan (1981–85), announced in November 1982, reemphasized China's commitment to the pragmatic line and to the Four Modernizations. Approximately $115 billion was allocated for capital construction, and another $65 billion for renovation of existing infrastructure. GNP increased by an annual average of 10%, industrial output by one of 12%, and agricultural output by one of 8.1%.

The seventh five-year plan (1986–90), announced in March 1986 and called by Deng Xiaoping "The New Long March," featured the following major goals: increasing industrial output7.5% annually (to $357 billion), agricultural output 4% annually (to $95.4 billion), national income 6.7% annually (to $252.7 billion), and foreign trade 40% (to $83 billion); spending $54 billion on 925 major development projects in energy, raw materials, transportation, and postal and telecommunications; and investing $74.6 billion in technological transformation of state enterprises. Rural per capita income was to rise to $151 annually.

Concerns about the unevenness of China's economic development progress, both in geographic and sectoral terms, shaped the country's eighth five-year plan. To ameliorate potentially crippling bottlenecks in the supply of raw materials, energy, transportation, and communications capacity, the government prioritized the financing of infrastructure investments. Streamlining of inefficient state industrial enterprises was targeted as well, with the setting up of an unemployment security fund planned in order to assist laid-off workers make the transition to employment in nonstate industry and the services sector. Direct foreign investment in industry, services as well as infrastructure (especially energy and communications development) were promoted. The plan also emphasized better distribution of the country's development momentum. Inland cities, especially along the Russian, Mongolian, and North Korean borders were targeted for development as export-oriented special economic zones in addition to coastal areas. Particular emphasis was given to developing major infrastructure projects to link Hong Kong, Macao and the Pearl River delta area of Guangdong province into an integrated economic area and major export base for the 21st century.

The ninth five-year plan (1996–2000) called for a shift from a centrally planned economy to a "socialist market economy." It also stressed resource allocation to achieve higher efficiency. The goals included continuing progress toward quadrupling the 1980 GNP by the year 2000 (a goal that had already been met by 1996) and doubling the 2000 GNP by the year 2010, a goal carried of over into tenth five-year plan (2001–2005). By the end of 2002, the Chinese economic growth had come through two major external shocks (the Asian financial crisis of 1997–98 and the global economic slowdown of 2001–02) without seriously faltering, at least according to official government figures. Real GDP growth at 8% in 2000, dipped to 7.3% in 2001, and a growth rate of 7% is forecast for 2002. Inflation has been held near to zero or below, with three of the last five years showing a slight deflation in consumer prices (-0.8% in 1998; -1.4% in 1999 and a forecast of -0.4% in 2002). In 2000 and 2001 inflation was below 1%, at .4% and 0.7%, respectively.

The tenth five-year plan (2001–2005) basically calls for a continuance of these trends: average GDP growth rates of 7% with a goal of reaching a GDP of $1.5 trillion by 2005 in the context of stable prices. Nominal per capita income would reach $1,135, based on a natural population growth rate of only nine per thousand, which would bring China's population to 1.33 billion by 2005. The government estimates that the labor force will increase 40 million by 2005, and that there will also be 40 million surplus rural laborers to be transferred, as the proportion of the labor force in agriculture drops from 50% (2001 est.) to a planned 44% by 2005. Under the tenth fiscal year plan the government sought to improve its "socialist market economy." Priorities include establishing a "modern enterprise system" in the state-owned enterprises (SOEs), improving social security, and increasing the depth and breath of participation in the international economy. Registered urban unemployment, at 3.6% in 2001 and below 4% in 2002, was to be controlled at about 5% under the tenth plan. The CIA estimated that total urban unemployment was about 10% in 2001, and that there was substantial underemployment in rural areas. The tenth fiscal year plan foresaw agriculture's share in the GDP decreasing to 13% by 2005 from 17.7% in 2001, while industry's share was expected to increase from 49.3% to 51%, and the share of services, from 33% to 36%, across the planning period. Educational goals include attaining gross enrollments of 90% at the junior high school level, 60% in high school and 15% in higher education. Environmental targets include attaining a 18.2% forest coverage, a 35% urban green rate, and an overall 10% reduction in pollutants discharged from 2000 levels.

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