Economy of The People's Republic of China - History

History

By 1949, continuous foreign invasions, frequent revolutions and restorations, and civil wars had left the country with a fragile economy with little infrastructure. As Communist ascendancy seemed inevitable, almost all hard and foreign currency in China country were transported to Taiwan in 1948, making the war-time inflation even worse.

Since the formation of the PRC, an enormous effort was made towards creating economic growth and entire new industries were created. Tight control of budget and money supply reduced inflation by the end of 1950. Though most of it was done at the expense of suppressing the private sector of small to big businesses by the Three-anti/five-anti campaigns between 1951 to 1952. The campaigns were notorious for being anti-capitalist, and imposed charges that allowed the government to punish capitalists with severe fines. In the beginning of the Communist party's rule, the leaders of the party had agreed that for a nation such as China, which does not have any heavy industry and minimal secondary production, capitalism is to be utilized to help the building of the "New China" and finally merged into communism.

The new government nationalized the country's banking system and brought all currency and credit under centralized control. It regulated prices by establishing trade associations and boosted government revenues by collecting agricultural taxes. By the mid-1950s, the communists had ruined the country's railroad and highway systems, barely brought the agricultural and industrial production to their prewar levels, by bringing the bulk of China's industry and commerce under the direct control of the state.

Meanwhile, in fulfillment of their revolutionary promise, China's communist leaders completed land reform within two years of coming to power, eliminating landlords and redistribute their land and other possessions to peasant households.

Mao tried in 1958 to push China's economy to new heights. Under his highly touted "Great Leap Forward", agricultural collectives were reorganized into enormous communes where men and women were assigned in military fashion to specific tasks. Peasants were told to stop relying on the family, and instead adopted a system of communal kitchens, mess halls, and nurseries. Wages were calculated along the communist principle of "From each according to his ability, to each according to his need", and sideline production was banned as incipient capitalism. All Chinese citizens were urged to boost the country's steel production by establishing "backyard steel furnaces" to help overtake the West. The Great Leap Forward quickly revealed itself as a giant step backwards. Over-ambitious targets were set, falsified production figures were duly reported, and Chinese officials lived in an unreal world of miraculous production increases. By 1960, agricultural production in the countryside had slowed dangerously and large areas of China were gripped by a devastating famine.

For the next several years, China experienced a period of relative stability. Agricultural and industrial production returned to normal levels, and labor productivity began to rise. Then, in 1966, Mao proclaimed a Cultural Revolution to "put China back on track". Under orders to "Destroy the Four Olds" (old thoughts, culture, customs and habits), universities and schools closed their doors, and students, who became Mao's "Red Guards", were sent throughout the country to make revolution, beating and torturing anyone whose rank or political thinking offended. By 1969 the country had descended into anarchy, and factions of the Red Guards had begun to fight among themselves.