Nigel Harris


The Mandate of Heaven


Part II
The People’s Republic


3. The First Phase


(i) The State

The new government of China faced many problems. For decades, the weakness of the central authority had led to the neglect of vital elements in China’s economy; war, foreign occupation, and civil war had further exacerbated the situation. Industry was paralysed by hyper-inflation and the disorganization of trade and marketing. Agriculture had stagnated, and was now afflicted by drought, flood and typhoon. Most of the country outside the old Liberated Areas was still in the hands of landlords, petty gangsters and warlords. Finally, there was the threat of foreign intervention: the United States blocked the passage of the PLA to the last unconquered province, Taiwan, war threatened in Korea, and the French fought to recover Vietnam on China’s southern border.

In 1920, the Soviet Union had faced comparable problems of devastation and disorganization, but with a much more advanced economy. The availability of foodgrains per head in China in 1952 (after post-war restoration of production) was only thirty-eight per cent of Tsarist Russia’s in 1913 and forty-six per cent of the USSR of 1928. Soviet income per head in 1928 was between three and four times higher than that of China in 1952.

There was another important difference. China’s small cultivated acreage (sixteen per cent of the land surface) was intensively farmed by millions of peasant households, cultivating tiny patches of soil as they had done for hundreds of years. The Soviet Union’s land supply was much larger, including what only recently had been enormous estates which contributed the major part of Russia’s marketable surplus of grain. Much of the land to the east had only recently been cultivated, and there was a vast acreage available for cultivation at low cost. Severe though the losses were as a result of collectivization in Russia, extensive agriculture made State direction infinitely more practicable than would have been the case with an agriculture dependent on a mass of small cultivators. Any efforts to impose detailed control in China involved a vast network of supervisory cadres (themselves consuming a significant share of the surplus appropriated), and could only be brief since increased appropriations directly sapped peasant incentives, producing either a decline in output, or increased concealment. The new government of China accordingly made no sustained attempt to emulate Stalin’s programme of collectivization. Yet neglect was not enough. For the more the State tolerated the leakage of the surplus into consumption, the more pressure on food supplies to the cities (themselves expanding rapidly as a result of industrialization), the stronger the stratum of relatively well-off farmers and accordingly the greater the danger of a political and social challenge from China’s “kulaks”, expressed through demands for greater district and provincial autonomy. The State was thus obliged to intervene, even if briefly, to curb such processes on the countryside, only to draw back rapidly when output or appropriations seemed threatened. It was the problem of intensive agriculture which gave policy the appearance of zigzags and irresolution. The issue was never settled, nor could it be until an adequate flow of investment reached rural China and the supply of jobs outside agriculture expanded rapidly enough to employ a large part of the rural labour force. By contrast, Stalin was not obliged to draw back; once committed to collectivization, he was able to persist. What was a loss to the Chinese State was of considerable value to the Chinese peasants; Stalin’s devastation of the Russian peasantry was not repeated.

Conditions in China were rendered more severe by the care with which the party had avoided or prevented the mobilization of those class forces which could have accelerated the achievement of power and the rehabilitation of China’s economy. Without the spontaneous initiative of the masses – of poor peasants to settle the question of landlordism, of workers to seize factories and start production again under their own control – the régime was dependent on its own administrative capacities, on its followers and those that joined it. All changes were necessarily slow, and dependent on the restoration and expansion of production.

In Russia in 1917, Lenin continually stressed the need to destroy completely the old Tsarist State and those that then directed it, the provisional government. A new workers’ State had to be constructed, a State appropriate to a new order of class power: “The proletariat ... if it wants to uphold the gains of the present revolution and proceed further to win peace, bread and freedom, must ‘smash’, to use Marx’s expression, the “ready made state machine and substitute a new one for it by merging the police force, the army and the bureaucracy with the entire armed people ... the proletariat must organize and arm all the poor, exploited sections of the population in order that they themselves should take the organs of State power directly into their own hands.” [1]

Lenin spoke of the the proletariat, not the Bolshevik party; of a class assuming social power, not a group taking over the old administrative apparatus. It was this which distinguished the socialist revolution – “all previous revolutions perfected the State machine, whereas it must be broken, smashed.” [2]

However, the Chinese Communist party adhered to a united front, a class coalition. The New Democratic State was not to be the instrument of one, exploited, class over the rest. Far from “smashing” the old Kuomintang State machine, the party aimed to absorb it. In 1952, three years after the assumption of power, the régime repeated that “the People’s government has adopted a policy of taking over all the personnel in the former Kuomintang government offices and educational institutions when the reactionary rule of the Kuomintang collapsed.” [3] It followed that there was no question of arming “all the poor, exploited sections of the population” lest they turn their weapons upon the other participants in the United Front.

One cause for optimism was the overwhelming military power at the party’s command. Another was that the Kuomintang government had already appropriated such a large part of the industrial economy – for example, ninety per cent of the metallurgical industries, eighty-nine per cent of power generation and electrical equipment, seventy-three per cent of machine building, and seventy-five per cent of chemicals; indeed, Chiang Kai-shek had had the aim of the State taking over all private capital. [4] Furthermore, the State now acquired the massive share of Japanese industry (eighty-three per cent of all foreign capital in China). With this as the basic economic lever, it was felt industrialization would follow rapidly. A carefully administered land reform would both secure the régime in the loyalties of the rural majority and break the power of the landlords. Beyond that, only industrialization would permit the expropriation of land: “Without the socialization of agriculture there will be no completion and consolidation of socialism. And to carry out socialization of agriculture, a powerful industry with State-owned enterprises as the main components must be developed. The State of People’s Democracy must step by step solve this problem of the industrialization of the country.” [5]

All efforts must therefore be bent to building industry. The Soviet Union provided the model of how this was to be achieved. It included the use of the most exacting mechanisms for raising worker output. As early as 1942, Mao proposed what ought to be done: “Next, there is the implementation of a ten-hour day and progressive piece-rate wage systems – using wages to increase production and raise labour consciousness ... the egalitarian supply wage system obliterates the distinctions between skilled and unskilled labour and between industriousness and indolence – thereby lowering worker activism; we must replace the supply system with a progressive piece-rate system to stimulate worker activism and increase the quantity and quality of output.” [6]



The First Plan

During the period up to 1952, the régime consolidated its power in the countryside. It introduced an agrarian reform to eliminate the old landlord class, and established control of China’s borders. In October 1950, the government despatched “volunteers” to defend areas beyond its borders in Korea. The Korean war imposed an increased degree of centralization on the country and was an important factor in obliging the State to extend the public sector of industry; the State’s share of national industrial output increased from thirty-seven to sixty-one per cent between 1949 and 1952. On the official figures, defence spending took between fifteen and eighteen per cent of the national income even after 1952, and twenty per cent of the national budget in 1956. [7] Defence deterred invaders, but did not prevent a noose of US bases round China’s coastal waters – Korea, Japan, Okinawa, Taiwan, Guam, Philippines and Thailand. The effort took scarce resources out of civil investment, and skilled labour from the civil workforce.

Despite these heavy burdens. China, like many countries, experienced a remarkable expansion in output in the immediate post-war period. By 1952, output in many sectors had been restored to its pre-1949 peak, and the government began to undertake planned growth. The first five year plan (1953-8) embodied the promise of the revolution. Chou En-lai, citing Mao, put it in this form: “The fundamental aim of this great people’s revolution of ours is to set free the productive forces of our country from the oppression of imperialism, feudalism and bureaucratic capitalism and, eventually, from the shackles of capitalism and the limitations of small-scale production.” [8]

The core of the plan was the building of heavy industry in public hands to accelerate industrialization. Fifty-eight per cent of the planned investment went to industry, eighty-nine per cent of it in the State sector. Much of the rest went to communications, transport and defence, with seven to eight per cent for agriculture. Such a plan imposed some hardship on the people, as Chou En-lai admitted: “It is of course true that heavy industry needs more capital, takes longer to build and yield profit, and that most of its products are not for direct consumption by the people. Consequently, in the period when the State concentrates its efforts on developing heavy industry, the people have to bear some temporary hardships and inconveniences, notwithstanding the corresponding development of light industry and agriculture.” Such “temporary hardships” would be alleviated by foreign aid. But this was the period of the Cold War, and assistance could be expected only from the Soviet Union and its allies. However, Russia was itself under pressure in its military competition with the United States and, for what assistance it gave, imposed fairly tough terms. Nonetheless, between 1949 and 1958, Russia and its East European allies made available 12,300 technical experts to work on a number of projects, the costs of which were advanced by Moscow and repaid out of China’s agricultural exports to Russia (thus reducing China’s already meagre domestic supply of foodstuffs). In addition, Russia took some 14,000 Chinese students and 38,000 apprentices for training. By early 1960, there were still some 7,500 Russian experts in China before the unilateral withdrawal of Soviet aid.

The government undertook the first plan without having fully centralized the economy under the State. In 1952, a third of modern industry, two-thirds of trade, and almost all of agriculture was still in private hands. The government tried to direct the economy through its control of the supply of raw materials for industry, government purchases and procurements of grain to feed the city population, tax policy and price controls. In the first Russian plan, control grew as a function of the need to plan, to secure adequate resources in the hands of the State. In China, although the régime had assured private business and trade that it would continue for many years and that collectivization of agriculture depended upon the prior existence of a powerful industrial sector, the logic of State accumulation now forced it to seek control of all activities. It did so hesitantly, pragmatically, preoccupied at every stage with the need not to disturb production. It was this – despite retreats and excessively rapid advances – of which the régime was later proud: “The transformation of national capitalism in our country went through three stages [Mao said]. Each step was carried out by degrees. This kind of method made it possible to suffer no disruption and to develop during the course of improvement.”



Private business

The party had regularly stressed its promise to encourage the growth of private capitalism and, initially, the government was as good as its word. A prominent Hong Kong business journal concluded early in 1950 that: “The new régime has so far brought prosperous living conditions to all and sundry; the bankers and traders have no reason to complain, and, in fact, no substantial complaints are ever heard. Private trade is doing well and profits are high.” [9]

The number of businessmen in eight major cities had increased by twenty-seven per cent by the end of 1951, and the average rate of profit was a remarkable twenty-nine per cent in 1951 and thirty-one per cent in 1953. [10] There were said to be sixty-eight millionaires operating, and the owner of the Sing Sing Spinning and Weaving Company was reputed to be worth JMP 60 million (or nine million pounds sterling) in late 1956. Mao himself acknowledged that “Mr Jung I-jen’s capital is worth half of Peking.” [11]

The prosperity did not lack public approval. In 1952, Vice-premier Chen Yun assured the government-sponsored All-China Federation of Industry and Commerce that “Private factories will be guaranteed a profit of around 10, 20, or even up to 30 per cent on their capital, under conditions of normal and rational operation.” [12] The People’s Daily in like spirit forecast that: “Our economic situation will continue to improve. Private industry and commerce will also have a more glorious future.” [13]

There were warning signs, however, which indicated where the power lay. From the end of 1951 to mid-1952, the “Wu fan” campaign against five business errors (including bribery, tax evasion, theft of State property, fraud) led to the investigation of some 450,000 private businesses in nine major cities, producing some JMP 50,000 million in illegal profits. It also produced, however, a drop in private production, by possibly a third up to February 1952. The government relented by cutting the fines imposed, offering businessmen financial help and increasing the volume of State purchases.

The problem could not be left there as the first five year plan began to expand the economy. Private business tended to expand more rapidly, buying its way into a larger share of scarce raw materials (and so jeopardizing the supply to the State sector), whether this was done officially or through the black market. Skilled labour was scarce, and private firms with high profits were able to attract workers from the State sector. In boom conditions, the government controls collapsed, and public investment was threatened. Control was made particularly difficult by the mass of small private firms, outside State supervision. It needs no “ideological” explanation to understand why the government needed to reverse its former policies and absorb the private sector. It was inhibited only by the wish to prevent a drop in production.

From 1953 onwards, business was rendered dependent through the provision of State finance (culminating in the creation of joint State- private enterprises) and State purchases. Both processes culminated in voluntary – or at least, painless – nationalization. The private share of industrial output declined from thirty-nine per cent in 1952 to sixteen per cent in 1955. By the end of 1955, eighty-two per cent of private output was purchased by the State. By 1956, all private industry had been absorbed into joint enterprises, and some fifteen per cent of shops.

The régime remained sympathetic to private businessmen. It paid compensation, guaranteed interest payments on the private capital appropriated, and it employed the former private businessmen at relatively high salaries as managers of the new joint or State enterprises. Initially, interest on capital was promised up to the end of the second plan (1963), but when many businessmen protested in the spring of 1957, the government relented and promised that interest payments would continue indefinitely. Mao was similarly sympathetic when he addressed China’s leading businessmen in late 1956: “We have reformed all capitalist industrialists and businessmen, eliminating them as a class and taking them all into our fold as individuals ... we cannot say the bourgeoisie is useless to us; it is useful, very useful. The workers do not understand this because in the past, they have had conflicts with the capitalists in the factory. We should therefore explain the situation to the workers. Especially in view of the high tide of learning of the industrial and commercial circles and in view of your desire for learning, the workers would change their attitude towards you.” [14]

Their children were needed in new China. “About 70 per cent of our college students are the sons and daughters of the bourgeoisie and the landlords. We need to rally them and educate them.” Big business was much more important than small, which had “no decisive effect upon the nation’s life”. But would not people say, “the Chairman takes special care of the big capitalists but not the small capitalists. Is this Right opportunism?” Paying interest to big business on its capital would help to keep up output: “The small enterprises and workers will object. The workers will say we are making it too advantageous for the capitalists. In their opinion, the interest payments should be cancelled immediately.” The workers would have to be convinced that “we should not do anything detrimental to the interests of the large capitalists for they are beneficial to the State ... Are we becoming a capitalist party? We have to explain to them that what we are doing is beneficial to the entire nation, to the workers, the peasants, the petty bourgeoisie, and the medium and small enterprises. They may not understand what ‘beneficial’ is at the moment.” [15]

The Cultural Revolution myth that Mao was prevented at this time by Liu Shao-ch’i from liquidating interest payments to private capital seems to have little basis in fact.

Mao’s “fear” was clearly absurd. No doubt his audience laughed politely at his humour. There was as little truth in the proposition that the Chinese State or party was controlled by private capitalists as there was in the idea that workers directed it. If it were the first, private capitalists would not have been slowly eliminated. If it was the second, as Mao admits, there would have been no interest payments, and no delay in expropriation in the immediate aftermath of 1949. Nor was the State balancing’ between these rival claims simply in order to survive, It had another and separate interest, rapid expansion; it made or withdrew concessions entirely in the light of this central aim.



(ii) Agriculture and Employment

The party’s approach to agriculture, to the movement from low-level traditional peasant assistance (Mutual Aid Teams) to State-guided co-operatives, was governed by similar considerations. In this case, it was the urgent need to secure control of industrial raw materials and foodstuffs for the urban population which forced the moves to co-operativization and State monopoly trading in agricultural commodities. By early 1956, a quarter of China’s peasant households were in co-operatives, and by May of that year, ninety-one per cent. The government began to assume control of the grain trade in 1953, and then moved on to establish a monopoly of trade in cotton and cotton cloth, oil-bearing crops and the urban rationing of grain. In August 1953, the first steps in rural grain rationing began.

The first year of real peace was 1954 and, in 1955, industrial output was accelerated, a speed-up that continued through to 1956. By the standards of a poor country, the effort involved was very great. Up to 1957, the level of investment approximated to that of Japan in the last quarter of the nineteenth century (but below that of the Soviet Union in the first five year plan period). The acceleration of 1958-9 carried it up to the Soviet level of eighteen to nineteen per cent of national income, roughly comparable to that of Japan after the Second World War (when Japan was a much richer country). Over the period 1949-57, industrial output grew by roughly a fifth to a quarter on average each year, and industrial employment by 12.6 per cent.

The expansion was curbed by the inadequacy of basic inputs – power, raw materials, transport, foodstuffs – and the increasing disparity in the growth of different sectors. The growth in industrial employment and the flight of peasants from agriculture as a result of co-operativization led to a massive increase in the city population, all needing to be fed from the public granaries. The 1949 city population of 49 million nearly doubled by 1956 and reached 130 million in 1961. [16] The supervisory bureaucracy swelled rapidly. The expansion of higher education produced a stream of educated labour beyond the supply of jobs. Unemployment became severe.

The State’s compulsory procurement of agricultural goods weighed heavily on the peasantry without providing sufficient food for the cities. In the winter of 1955-6 the peasants in certain areas rebelled; as Mao put it: “Old women blocked the way and wouldn’t let the food be taken.” [17] Grain was burned and livestock slaughtered to prevent the government taking it. This added a meat shortage to the grain shortage in the cities. Neither the black market nor early morning queuing resolved the problem, and workers and students took protest action. At the time, Mao warned the cadres to be careful: “Trouble-making by the people is worth looking into. This is a new problem ... In the past, we stood side by side with the people to struggle against the enemy ... The people are staring at us with hostile eyes. We should prepare for constant trouble-making by a small group of people.” [18]

The leadership recognized the problem but kept up the pace. Minister of Finance Li Hsien-nien boasted that “the profit derived from State industries in 1955 was over ten per cent in excess of the target set”; and that labour productivity should increase by seventeen per cent in 1956. [19] But the chairman of the State Planning Council acknowledged that there had been too much pressure on the peasants, and “In 1955, in particular, the adjustment of wages and the construction of living quarters were ignored to some extent, thereby preventing the workers and staff showing enthusiasm for work.” The party congress briefly relaxed controls on small private traders and free markets in 1956, but the basic drive remained the same. Mao urged the cadres: “We should pay attention to foodgrain production. It will be disastrous if we don’t. When we have food, we have everything ... food to eat, raw materials for industry, a rural market for industrial goods, and agricultural exports to purchase imports for the development of heavy industry.” [20]

In November 1957, Mao flew to Moscow, officially for the world conference of Communist parties, but perhaps also to plead for Russian aid to sustain China’s industrialization. Otherwise, there seemed no alternative but retreat. In 1957, the pace was slackened, heavy industry curbed and the output of consumer goods increased. A succession of revolts in Eastern Europe, Poland, East Germany and Hungary in 1956, were danger signals. Mao introduced the “One Hundred Flowers” campaign to allow public expression of grievances. As he put it: “There is advantage in having ‘a hundred schools contending’, for then all the evil elements will be exposed.” [21] Later he claimed “over four hundred thousand rightists had to be purged.”

Between 1955 and 1958, the government developed a set of policies to deal with immediate obstacles to building heavy industry, policies which came to be seen as a distinctive “Chinese model of development”. There were three immediate problems – the growth in consumption by city-dwellers, the growth in their numbers, and rural unemployment. All three were related – rural unemployment produced peasant migration to the cities which strained food supplies. Unemployment – the incapacity of the productive base to provide work for all the available manpower – was particularly pressing. In January 1956 Chou En-lai estimated that agricultural production required 30,000 millions eight- hour labour days, but 45,000 millions were available in the rural areas. [22] The government planned to increase the number of labour days by 15,000 millions, so that all adult males would work 250 days per year, females 120, still a high level of underemployment.

To limit the growth in the city population, the régime introduced: the use of ration cards, residence permits and movement passes to{ prevent newcomers entering the cities illegally; controls over managers to prevent them hiring labour, with occasional bans on hiring rural workers for city work. The government also fixed the volume of output of firms, the number of workers, and the total wage bill, while banks were instructed to exercise tighter controls over firms’ finances; and a new form of “sending down” labour from the cities to the rural areas, hsia fang, helped to thin “non-productive” labour, and strengthened the cadres on the rural “production front”.

These measures limited urban consumption. But in addition, the government tried to achieve overall control of wages through its major wage reform of 1956. With this reform – impossible without State control of all industry – the régime also adopted a policy of keeping the lowest rate of city wages close to rural earnings. However, controls on entry to the cities created an artificial labour scarcity which sooner or later would have produced wage pressure. The government escaped this by diluting the relatively high-cost permanent city workers with much lower cost temporary and contract workers who numbered some 12 millions by 1958. [23]

To tackle urban educated unemployment, the government reformed the educational system to reduce the numbers and relate education more directly to production needs. Mao issued instructions that middle and primary schools should contract with rural co-operatives to supply them with labour; universities and urban middle schools should start their own factories, workshops and farms.

To tackle rural unemployment, efforts were made to create jobs without calling on central funds, through the “decentralization” of 1957, which increased local decision-making powers at the provincial level, but retained central control of heavy industry and accumulation; as Mao put it in 1958: “Concentrate important powers in one hand/diffuse less important ones”; through the dispersal to rural areas of some light industrial, warehousing and storage activities; and through campaigns to reduce rural hoarding so that funds would be available for local investment.

Many of the items will be discussed later. It should be stressed that the measures were not part of any general “model” or plan; they were pragmatic responses to particular obstacles in China’s industrialization programme. Only in retrospect do they form a whole: the maintenance of the drive to build industry in conditions of great backwardness.




1. CW23, pp.325-6, stress in the original

2. State and Revolution, CW25, p.406

3. Decisions on Employment, GAC of the Central People’s Government, 25 July 1952, in Labour Laws and Regulations of the People’s Republic of China, Peking, 1956, p.65

4. China’s Destiny, London, 1947, p.173

5. On the People’s Democratic Dictatorship, 1 July 1949, SWIV, p.419

6. Economic and financial problems, Ching chi wen t’i yü ts’ai cheng wen t’i, Hong Kong, 1949, cited Christopher Howe, Wage patterns and policy in Modern China, 1919-1972, Cambridge, 1973, p.59

7. Report of Li Hsien-nien, Minister of Finance, 3rd session, 1st National People’s Congress, 1956, in New China Advances to Socialism, Peking, 1956, p.65

8. Report on the work of the government, 1st session, National People’s Congress, 23 September 1954, Peking, 1954, p.1

9. Far Eastern Economic Review, 26 January 1950

10. Development of State capitalism in China’s industry, Statistical Work Bulletin, Peking, 29 Oct. 1956, cited Gluckstein, op.cit., p.198

11. Address to the All-China Federation of Industry and Commerce, 8 December 1956, Miscellany I, pp.43-4

12. NCNA; Peking, 24 June 1952

13. JMJP, 1 July 1952, in CB, 1952, p.199

14. Address, op.cit., Miscellany I, p.38

15. Ibid., p.43

16. For 1949 and 1956, see Data on China’s population from 1949 to 1956, Statistical Bulletin, No.11, 14 June 1957, ECMM 1957, pp.22-5, and Table I, John S. Aird, Population growth and distribution in Mainland China, in An Economic Profile of Mainland China, Washington, February 1967, 2, p.353; 1961 from Po I-po, Chairman State Planning Council, in Anne Louise Strong, Letter from China, Peking, 1964

17. Symposium, 21 February 1959, in Miscellany I, p.160

18. January 1957, in Miscellany I, p.47

19. New China Advances, op.cit., p.40

20. January 1957, Miscellany I, pp.51, 61

21. January 1957, Miscellany I, p.57

22. Edgar Snow, Red China Today: the other side of the river, London, 1963, p.426

23. Note 31 (with official sources), in John Wilson Lewis, (ed.), The City in Communist China, Stanford, 1971, p.404


Last updated on 9.7.2001