Courtesy Reuters

On the Economic Crisis in Communist China

Communist China's drive for major power status-an urge to narrow the gap between herself and the two superpowers-has been the central objective of her campaign for economic development. In pursuit of this goal, Chinese planners have concentrated on expanding as rapidly as possible the country's capacity to produce capital goods and military matériel. For this purpose, a mechanism for institutionalizing a high rate of involuntary saving and for channeling it into the desired lines of investment had to be fashioned.

Concretely, this meant that the different segments of the economy had to be brought under the immediate control of the planners and policy-makers, so as to enable them to mobilize and allocate resources at great speed and with maximum flexibility. Agrarian transformation, nationalization of banking, transport, industry and trade, centralization of fiscal administration, rationing, price and wage control, and a variety of other regulations were all intertwined and designed to assure this goal.

During its first ten years the Chinese Communist régime was singularly successful. It rapidly captured "the commanding heights" in the economy, restored it to working order and launched an industrialization program of vast proportions. Manufacturing plant capacity was expanded at a very fast pace and production rose about 14 to 18 percent annually between 1952 and 1959. As a result, the output of steel increased about tenfold, electric power almost sixfold, coal fivefold and cement fourfold. In contrast, manufactured consumer goods, such as cotton yarn, grew much less rapidly- that is, about two to two-and-a-half times between 1952 and 1959, still a very respectable rate.

This rapid advance was dramatically reversed in the aftermath of the Great Leap. The marked decline of agricultural production in 1959 was soon followed by stagnation and contraction in industry. Thus economic development was brought to a standstill and since 1960 Communist China has been in the throes of a depression. How can this dramatic reversal be explained? What are its background and economic history?

II

In spite of eight years of rapid industrial growth accompanied by relatively non-violent

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