Economic History of The People's Republic of China

Economic History Of The People's Republic Of China

China's economic system before the late-1990s, with state ownership of certain industries and central control over planning and the financial system, has enabled the government to mobilize whatever surplus was available and greatly increase the proportion of the national economic output devoted to investment.

Analysts estimated that investment accounted for about 25 percent of GNP in 1979, a rate surpassed by few other countries. Because of the comparatively low level of GNP, however, even this high rate of investment secured only a small amount of resources relative to the size of the country and the population. In 1978, for instance, only 16 percent of the GNP of the United States went into gross investment, but this amounted to US$345.6 billion, whereas the approximately 25 percent of China's GNP that was invested came to about the equivalent of US$111 billion and had to serve a population 4.5 times the size of that in the United States. The limited resources available for investment prevented China from rapidly producing or importing advanced equipment. Technological development proceeded gradually, and outdated equipment continued to be used as long as possible. Consequently, many different levels of technology were in use simultaneously (see Science and technology in the People's Republic of China). Most industries included some plants that were comparable to modern Western facilities, often based on imported equipment and designs. Equipment produced by Chinese factories was generally some years behind standard Western designs. Agriculture received a smaller share of state investment than industry and remained at a much lower average level of technology and productivity. Despite a significant increase in the availability of tractors, trucks, electric pumps, and mechanical threshers, most agricultural activities were still performed by people or animals.

Although the central administration coordinated the economy and redistributed resources among regions when necessary, in practice most economic activity was very decentralized, and there was relatively little flow of goods and services between areas. About 75 percent of the grain grown in China, for instance, was consumed by the families that produced it. One of the most important sources of growth in the economy was the improved ability to exploit the comparative advantages of each locality by expanding transportation capacity. The communications and transportation sectors were growing and improving but still could not carry the volume of traffic required by a modern economy because of the scarcity of investment funds and advanced technology.

Because of limited interaction among regions, the great variety of geographic zones in China, and the broad spectrum of technologies in use, areas differed widely in economic activities, organizational forms, and prosperity. Within any given city, enterprises ranged from tiny, collectively owned handicraft units, barely earning subsistence-level incomes for their members, to modern state-owned factories, whose workers received steady wages plus free medical care, bonuses, and an assortment of other benefits. The agricultural sector was diverse, accommodating well-equipped, "specialized households" that supplied scarce products and services to local markets; wealthy suburban villages specializing in the production of vegetables, pork, poultry, and eggs to sell in free markets in the nearby cities; fishing villages on the seacoast; herding groups on the grasslands of Inner Mongolia; and poor, struggling grain-producing villages in the arid mountains of Shaanxi and Gansu provinces. The economy had progressed in major ways since 1949, but after four to five decades experts in China and abroad agreed that it had a great distance yet to go.

Despite formidable constraints and disruptions, the Chinese economy was never stagnant. Production grew substantially between 1800 and 1949 and increased fairly rapidly after 1949. Before the 1980s, however, production gains were largely matched by population growth, so that productive capacity was unable to outdistance essential consumption needs significantly, particularly in agriculture. Grain output in 1979 was about twice as large as in 1952, but so was the population. As a result, little surplus was produced even in good years. Further, few resources could be spared for investment in capital goods, such as machinery, factories, mines, railroads, and other productive assets. The relatively small size of the capital stock caused productivity per worker to remain low, which in turn perpetuated the economy's inability to generate a substantial surplus.