National independence – the ability of a State to secure and defend its territory, to deter potential threats and safeguard its future in conditions of competition between the world’s dominant powers – requires a level of military preparedness commensurate with the nature of the threat. But the conditions of warfare are laid down by the existing level of development of the world defence industries. Even in the late nineteenth century, the development of defence industries required the transformation of economies. Engels noted this in the 1890s: “From the moment warfare became a branch of the grande industrie (iron clad ships, rifled artillery, quickfiring and repeating cannons, repeating rifles, steel covered bullets, smokeless powder, etc.), la grande industrie, without which all these things cannot be made, became a political necessity. All these things cannot be had without a highly developed metal manufacture. And that manufacture cannot be had without a corresponding development in all other branches of manufacture, especially textiles.”  In sum, national independence requires “economic development”.
The Chinese leadership were fully aware of this. Indeed, the justification of the 1949 revolution was that it “set free the productive forces” to provide the basis for “national independence”. Mao was even prepared to put a figure on the required target: “During the transition period, it is necessary ‘to enable the productive forces to obtain a guarantee of the development required by a socialist victory’. In so far as China is concerned, we require at least about 100 million to 200 million tons of steel [production annually]. Prior to this year [1959?], what we did was principally to clear the way for the development of our productive forces. The development of the socialist productive forces of our country actually has just begun.”  Steel alone was not enough; the whole range of modern output was required as soon as possible, all the components of contemporary national power, including the most advanced weapons: “Yes, we must have them ... no matter what country, no matter what missiles, atomic bombs, hydrogen bombs, we must surpass them. I have said before, when the atomic bomb is exploded, even if one half of mankind perishes, there will still be one half left.” 
In Marx’s terms, “economic development” is a long process whereby capital is accumulated in the competition between capitalists – the productivity of labour is continuously raised and a mainly low-productivity, agricultural society transformed into an urban industrial one. The capital is derived from the surplus of unpaid labour appropriated by the employers from those “with nothing to sell but their labour power”, and from the ransacking of agriculture and colonies. In the process, production, population, power, ownership and control are centralized on an unprecedented scale.
The accumulation of capital imposes upon society a division of labour which is quite new – between those who personify capital, whose social function is to accumulate and to organize society in order that accumulation should take place, and those whose surplus is the basis for accumulation. The two social roles cannot exist without each other – on the one hand, “an independent social power, i.e. as the power of a part of society, it maintains itself and increases by exchange for direct living labour power. The existence of a class which possesses nothing but its capacity for labour is a necessary prerequisite of capital.”  The whole of society is, then, organized around this central division. All other divisions – among them, Mao’s Three Great Differences – are subsidiary to this core in so far as the capitalists are successful in establishing their discipline over society as a whole.
However, what happens where the dynamic of domestic competition between private capitalists does not exist, where the driving force – the struggle of each individual capital to secure its survival – does not operate? If a society could completely isolate itself, State ownership of the means of production would end the dynamic of competition and so the drive to accumulate. What would this mean in a backward economy? A return to pre-industrial stagnation in which the consumption needs of the ruling class would determine the level of output, not the drive for supremacy of the capitalists. The same situation would occur if the whole world economic system were directed from one centre: it would spell the end of what Marx calls “capitalism” in so far as competition ceased.
However, neither state of affairs is a practical possibility in the contemporary world without a major political transformation. The competition of private capitals within one country is replaced, where the State owns the entire national economy, by the competition between the world’s national capitals, States. The “capitalist economy” today does not refer to a national, but to a global, system, subordinating each national capital as formerly the national market subordinated each private firm. It is for this reason that each economically backward State is compelled, as the condition of its survival, to industrialize, to accumulate capital.
Can a different “ideology” defeat this logic? Only in the sense that a private employer can defeat the logic of the market. Very large capitalists can to some extent attain greater autonomy, provided they are protected by the local State. The richest world powers can, when the system booms, similarly afford greater leeway. The poorer an economy – the smaller and more dependent a firm – the more its reactions become predetermined by external forces. Of course, every ruling class justifies its existence on the grounds that it can control events, it can master its environment. Its power, it says, is not dependent upon the surplus it can extract from the people but on its capacity to embody the wishes of the people. If it were possible, simply by willing, for a régime to transform objective circumstances, then the axioms of Marx’s materialism would become false – ideas, not the material basis of society, would determine events. But surely, it might be argued, this means there are no alternatives to capitalism, regardless of local fashions? That is the case if we restrict ourselves to national power, just as it would have been the case if someone in the nineteenth century had talked of “organizing socialism” in a single firm, as if it could escape the discipline of the market in which it operated. We will return to the question in Part VI.
Competition between States differs from that between firms. Each State must be capable of defending itself but military competition is not the sole influence on a domestic State-owned economy. The need to finance imports, whether of foodstuffs – as in the case of the Soviet Union’s massive imports of grain in 1974 – or industrial equipment and Components of advanced technical quality is another form of discipline imposed by the world system upon all its parts. The 1974-8 slump illustrates this. Soviet borrowing from advanced capitalist countries to finance its imports has become in recent years, with rising interest rates and a growing trade deficit, an important factor in Russian domestic planning. World market prices govern its external trade even with its Eastern Bloc partners. The trade agreements utilize world prices, and transactions are increasingly settled in Western currencies in order to help the Soviet Union overcome its difficulties with the West.
The more backward an economy, the less it depends on external forces for immediate economic survival, but the more it depends upon them to overcome domestic backwardness, to promote modernization. Since all the State-owned economies are devoted to industrialization,  the dependence of the smaller and more backward countries on external assistance to achieve domestic transformation is great. [1*]
Involvement in world trade, in capitalism itself, assists domestic growth and development when the system booms. But in slump, it imposes contraction on the national economy, whether the means of production are owned by the State or not. National planning can offset some of the effects of the crisis, but basically it must also transmit the external disciplines of the “law of value”, rather than frustrate them.
Despite the difficulties, the Societ Union did accomplish the process of domestic transformation in the 1930s and 1940s, and did so despite, for much of the time, a world slump of unprecedented severity. Can every country repeat that process? The conditions have changed. The advanced capitalist powers dominate the world market more than ever before. In all fields, the production of the advanced concentrations of capital defeat smaller rivals in any open contest. The early stages of industrializaton are jeopardized unless a backward State can exclude competition; but excluding competition shuts off the sources of technology and advanced inputs, so that the process becomes more costly, inefficient and long-drawn-out.
Furthermore, the technology has changed. Not only does it cost more, it produces relatively few jobs. It also produces a faster stream of output. This is the source of the contemporary paradox: the mass of backward countries have increased their industrial output more rapidly than did the European powers in the nineteenth century, but with decreasing success in employing the existing labour force. Enclaves of high productivity industry, colonies of advanced production, coexist in a sea of urban and rural poor. The ruling class certainly secures an industrial basis for its power, but without being able to implement the “historic task of the bourgeoisie”: the tranformation of society or what Marx called the “socialization of the labour force”.
Some of the statistics illustrate the nature of the problem. For example, between 1925 and 1960, the countries of Latin America experienced a decline in employment in manufacturing industry (as a proportion of the non-agricultural labour force) – from 35.4 to 27.1 per cent. In the period of most rapid industrial growth, from 1950 to 1965, employment in manufacturing industry (as a proportion of the total labour force) declined, albeit at a slower rate, from 14.2 to 13.8 per cent. Latin America is the most advanced of the backward continents. Nonetheless, the overall picture is not impressive. Between 1920 and 1950, the proportion of the total labour force employed in manufacturing in all the backward countries together showed a slight decline, from 8.5 to 7.6 per cent, and then a slight increase up to 1960 (to 8.9 per cent).  Yet this has been the period of the most rapid growth in history. The next quarter of a century looks unlikely to repeat the performance of the last. World capitalism falters long before it has touched the lives of the majority of the world’s population.
Thus, if China – one of the poorest countries of the world – can provide a different model of economic development, can steadily narrow the gap between backward and advanced, and transform the real material conditions of the majority of Chinese, it would be a staggering achievement. The Chinese Communist party would have shown itself to be a totally new force, capable of defeating the imperatives of backwardness in the peculiarly obdurate circumstances of the second half of the twentieth century. To do so on an isolated national basis, denied access to the accumulated resources of the world economy held by the advanced powers, would be a triumph indeed.
There is little evidence for the existence of a different model of development in the statements of China’s leadership. Consistently they have measured their success by Stalin’s central criterion – the growth of heavy industry, and in particular of steel. Such a policy imposes the maximum rate of accumulation, but, on the theory, promises the most rapid process of transformation. What distinguishes China from Russia is not so much the chosen strategy of development, but the different conditions imposed on that strategy by the greater backwardness of China – the growth of heavy industry is continually restrained by the incapacity of intensive agriculture to feed the population without receiving a greater share of investment. Within heavy industry, the régime, like Stalin, has been single-mindedly dedicated to raising labour productivity and the profit rate, at the expense of employment and consumption.
Mao has been one of the chief architects of this approach, and his writings and speeches give no indication of a “different model”, only of the necessity to make greater tactical concessions. During the first plan, Mao made steel the key to China’s performance: “Our country is poor, very poor. This year, steel production amounts to only 4.5 million tons ... Japan’s production is seven million tons.”  By 1975, China’s steel output had reached around twenty-five million tons, a very creditable achievement in view of the difficulties, but far below Japan’s 102 million tons (let alone the United States’ 106 million and the Soviet Union’s 141 million tons).
Steel and heavy industry could only expand if the population was being fed. Mao continued to stress the need to ensure an adequate harvest – then there would be food for the people, raw materials for light industry, a market for heavy industry, exports to earn foreign exchange with which to purchase imports for heavy industry, and funds for accumulation : “While developing industry, especially heavy industry, we must at the same time give agriculture a certain status by adopting correct policies for agricultural taxation and for pricing industrial and agricultural products.”  The emphasis is the same in the first plan and in the Great Leap Forward – the two key targets were for steel (Mao hoped for 100-120 million tons by 1962) and grain.
The setbacks of 1960-62 led to a temporary shift of emphasis towards agriculture and light industry. But the change was justified, for Mao, as a method of assisting heavy industry. Thus: “The experience of the Soviet Union and our country show that if agriculture and light industry are not developed, it will be harmful to the development of heavy industry.”  There was no question, despite the disasters, of giving up the struggle for accumulation and increased production: “The accumulated capital of the Soviet Union constitutes approximately one-fourth of the national income [per annum]. The ratio of our country’s accumulated capital to national income was twenty-seven per cent in 1957, thirty-six per cent in 1958, and forty-two per cent in 1959. It appears likely that the ratio of our accumulated capital to national income henceforth can be maintained at over thirty-nine per cent or higher. The most important question is the rapid development of production.”  This was a staggering scale of accumulation for a poor country, particularly at a time when there was evidence of famine.
Quite a number of people in China and outside interpreted the retreat to a greater stress on agriculture as an agriculturally based strategy of development, whereby industry was subordinated to the demands of agriculture. If this had been the case, the régime would indeed have sacrificed the growth of the material foundation of its power to the immediate welfare of the majority. Two writers in 1962 made this mistake (or were covertly arguing for a different policy): “As the foundation of the national economy, agriculture demands that all production departments, including those of industry, all construction departments and all cultural and educational undertakings develop themselves with the actual conditions of agricultural production as the starting point and give due consideration to the quantities of commodity grain and industrial raw materials and to the sizes of the market and the labour force which agriculture can supply ... National economic plans should be formulated in the order of agriculture, light industry and heavy industry.”  Another urged that investment in agriculture should be higher than that in industry: “the accumulation used for agriculture will increase at a faster rate than that used for industry ... The State must plan the emphasis of its economic work on agriculture and invest heavily in agriculture and give it massive material support.” 
The national leadership was not so easily seduced from its self-appointed historic task. The most it would concede to these demands was the singularly obscure phrase, “agriculture as the foundation and industry as the leading sector”. It did not publish its investment figures to indicate what the phrase meant, and, so far as can be seen, there seems to have been no sudden increase in investment in agriculture, although pricing policies left a little more income in the hands of those peasants with a marketable surplus. What it did was seek to cut urban consumption by reducing the urban population, consigning these extra mouths to the countryside to be fed by the peasants instead of from State procurements; this required a further increase in labour productivity in industry so that output did not fall with the smaller workforce.
Despite the verbal concession, heavy industry expanded at a faster rate than any other sector through the 1960s and into the 1970s. The régime avoided publicizing any strategy as to what it was doing, beyond repeating old phrases, until 1969. Then an authoritative article re-stated the strategy of the 1950s anew. Quoting Mao of 1957: “It must be affirmed that heavy industry is the core of China’s economic construction. At the same time, full attention must be paid to the development of agriculture and light industry”, the writers elaborated: “The realization of socialist industrialization requires priority development of heavy industry. With heavy industry developed and the growth of the means of production enjoying priority, we shall be able to realize socially expanded reproduction, provide advanced techniques and equipment for the technical reform of agriculture and for the development of light and heavy industry and bring into play the leading role of industry in the national economy.” 
The thread throughout the years remains the same. But agriculture’s capacity to support the main priority changes. Mao expressed it in the early 1960s in this way: “How do we plan for our annual harvest? It will be determined by the assumption that in five years, there will be one year of good harvest, two years of ordinary harvest, and two years of poor harvest.”  Only massive investment by the State, diverting the surplus from industrial investment to agriculture, would have slowly flattened this variation and provided some measure of security in the supply of foodstuffs. Yet this the State would not do since it would jeopardize its national power and, thus, China’s national independence. Given the drive to build heavy industry – and, as we shall see, the results have been impressive – all other items became negotiable.
Accumulation can only take place if there is a surplus, and it can be appropriated. How is this done in China? Primarily through the State’s control of wages and prices, exercised through State-owned enterprises (including trading monopolies in agricultural commodities). The central government determines the level of pay, the numbers employed, the allocation of raw materials and equipment for the larger units in modern industry which produce the largest share of national industrial output. Other things being equal, these controls determine the level of enterprise profits which the State appropriates. The State controls the supply of bank credit and the interest charged to borrowing enterprises. The control mechanism is the party, its cadres in factory management, banks and local administration. In addition, the State procures compulsorily a certain proportion of agricultural goods from the communes at relatively low fixed prices and sells it at higher prices, as well as taxing the movement of goods between provinces through its control of trade. Finally, it levies indirect taxes on a number of goods – cigarettes, liquor, and a fifty to sixty per cent rate on goods such as bicycles, sewing machines, radios, etc.
The government claims that the taxation of industry is high and of agriculture low, but it does not divulge any figures. Its revenue, it says (and it is not clear whether this applies to only the central government, or includes provincial and lower authorities), takes about six per cent of farm incomes in comparison to thirteen per cent in the early 1950s. About ninety per cent of State revenue comes from State-owned enterprises.
If the government’s view is accepted, it appears that in the 1960s the bulk of State revenue was derived from the surplus product of industrial workers. Even then, however, the régime was dissatisfied with the size of urban consumption (which reduced the available surplus). Hence the dilution of the urban labour force with temporary and contract workers and the expansion of enterprises outside the large-scale modern sector. Hence also the consistent efforts made to reduce labour costs. In the model project of Taching, for example, there was apparently no provision made for housing and other services when the new township was begun in the bare plains (with winter temperatures reaching –30°C). Workers were required to build their own dwellings after work, with “pounded earthen walls” (kan-ta-lei). Foodstuffs were similarly to be grown locally by workers in their spare time, a practice which the authorities have attempted to generalize to all enterprises. A hundred years ago in Germany, Engels identified the economic meaning of obliging workers to grow their own food: “Since, for the most part, the worker in domestic industry carries on his little bit of agriculture, it becomes possible to depress wages in a fashion unequalled elsewhere. What formerly constituted the happiness of the small man, the combination of agriculture and industry, now becomes the most powerful means of capitalist exploitation. The potato patch, the cow, the little bit of agriculture make it possible for labour power to be sold below its price: they oblige this to be so by tying the worker to his piece of land, which yet only partially supports him.”  In Taching, in the 1950s, workers were initially given higher than average pay to compensate for the lack of social investment, but it seems this was removed in the 1960s (although one visitor reports the average monthly wage of under RMB 60 is still supplemented by an RMB 5 allowance). Workers are expected to complete all work outstanding without overtime pay. No wonder this oilfield was held up as the régime’s proudest achievement; its output is reported to have increased by thirty per cent per year, yielding a ten-fold return to the State’s investment; labour productivity and the surplus appropriated by the State has increased two and a half times over. 
The campaign for everyone to grow their own foodstuffs can similarly be seen as a method of relieving the pressure on State procurements, even though it must be expensive in terms of the labour time of workers. The policy of self-reliance in the villages protects the State’s industrial sector from peasant demand and forces the villagers to use their own savings or go without.
The result of this overall strategy is, in productivity terms, a more marked dualism than in most countries – between a carefully segregated high productivity, capital-intensive enclave and a sea of low productivity, labour-intensive agriculture. The “socially necessary labour-time” in the industrial sector has been reduced to the barest minimum, so that the rate of exploitation must be extraordinarily high. As a result, the State has apparently been able to maintain a very high level of accumulation. It may not be as high as Mao suggested in the early 1960s – thirty-nine per cent of national income – but it still must be exceptional.
In terms of national power, the first call on the government’s revenue must be defence. In turn, heavy industry provides backing for defence as well as inputs to all other sectors. Expenditure must be considerable, given the size of the defence sector – three and a half million men and women under arms (supported by possibly ten million in ancillary production and construction brigades, and many millions more, most of them in the part-time militia), as well as the hugely expensive nuclear and missile establishment. Since the first nuclear test in 1964, there have been over twenty by 1977, and Western estimates suggest China now possesses a growing stock of medium-range missiles, some experimentally based in submarines. If we compare China’s resources and the size of the nuclear programme with other countries undertaking such an exercise, we can guess that possibly one-half of modern national investment goes in part or whole to defence (officially, a quarter of the national budget’s current – as opposed to capital – expenditure was devoted to defence in 1956), and possibly a fifth of total industrial output. The proportions change relative to the government’s estimate of the threat – US sources provide evidence, for example, of a sharp increase in defence spending following the armed clashes with Russia in 1969, and then a falling-off in 1973-5 as the threat receded.  By 1976, China’s defence spending was equivalent to some eight to ten per cent of the gross national product, a much higher level than, for example, the United States, with a gross national product some ten times larger than China’s (China’s GNP is estimated as US $300 billion; the United States as US $1.8 trillion). Whatever the exact figures, China’s defence spending represents a substantial diversion of resources from accumulation.
There are other leakages from accumulation, of which the most important must be the consumption of the bureaucracy. There are no estimates of this component. The régime has shown itself aware of the problem – it must maintain a bureaucracy to supervise the extraction of the surplus, yet the bureaucracy itself absorbs a large share. The campaigns to cut bureaucracy, to transfer “non-productive” labour and administrative cadres to the “production front”, show the efforts made to reduce consumption, yet the drive is constrained by the need to maintain control and supervision. If the bureaucracy is too much reduced, the régime could be threatened by a loss of control, even a major revolt.
What has been the performance of the two main sectors, industry and agriculture, as a result of these policies?
The growth rate of China’s industrial output has been very rapid, if inconsistent. In the period of the first Plan (1952-7), output grew by a fifth on average every year, a remarkable performance. Growth in the 1960s was slower – in the first half, about six to seven per year, and in the second half, between eleven and fourteen per cent ; in the first half of the 1970s, the average rate was about eight per cent per year, fluctuating between twelve per cent (1972 and 1973) and four to five per cent (1974).
Heavy industry has grown much more rapidly. The share of “producer goods” industries in terms of value of output increased from twenty-eight per cent in 1949 to fifty-two per cent in 1957, and an estimated seventy-nine to eighty-three per cent in l971.  Manufactured consumer goods – for example, bicycles, radios, sewing machines – represented about seven per cent of machinery output in 1956, and declined to three per cent by 1971 (of course, the absolute increase in the output of these goods would be large).
What of Mao’s key link industry, steel? Output was 4.5 million tons in 1955, and rose to thirteen million tons during the Great Leap Forward and the following year. This fell back to eight million tons in 1961, before reaching twelve million tons in 1968, twenty-one million tons in 1970, and the record figure of 25.5 million tons in 1974; it fell by about three million tons in 1975-6. In the main the output comes from large and very large plants – a quarter of it from Anshan, seventeen per cent from Shanghai and about thirty-four per cent from other one to two million ton plants. The rapid expansion of output in the late 1960s led to technical difficulties as well as the labour problems mentioned earlier. The rest of industry has expanded, and as a result there is a continuing shortage of steel despite the increase in output. This obliged the régime to make large steel imports in 1974 and 1975 – over 3 million tons in 1975, equivalent to fifteen per cent of steel consumption. About a fifth of the imports were seamless pipes, probably for the oil industry; other imports included steel scrap, pig iron, iron ore, showing that domestic supplies of these items were inadequate. The steel shortage has also been a factor in prompting the government to make major purchases of steel plant abroad – for example, the US $550 million rolling and treatment complex at Wuhan, built and supplied by a West German consortium under Demag, and a sixteen-company Japanese consortium. led by Nippon Steel (the plant is expected to begin production in 1978).
Industrial expansion makes heavy demands on energy supplies. Although the oil industry has experienced a remarkable expansion in recent years – officially, 680 per cent between 1965 and 1975 – it is severely restricted by the lack of pipes and refinery capacity. As a result, the coal industry still supplies about four-fifths of industry’s energy consumption. Like steel, coal output has expanded rapidly – from 290 million tons in 1959 (with an estimated 210 million tons in 1968) to 430 million tons in 1975. Coal output fell in 1974 because of labour troubles, say foreign observers. Like steel, coal is a bottleneck, partly because of wasteful methods of preparing coal for use. Coal depends on the railways for movement, and occasional labour difficulties in the 1970s impeded its use. The government again turned to imports of coal machinery to expand production quickly.
Other heavy industries have performed well. For example, the machine building industry has officially expanded in the 1960s by fifteen per cent per year. The railway network, limited in 1949, has been considerably expanded. The 50,000 miles of highway that existed in 1949 had, by 1976, become half a million miles, and the NCNA claimed that by then eighty-three per cent of all communes could be reached by road. With the considerable imports of motor vehicles and China’s own trucking capacity, this is an important advance.
The expansion has come in the main from modern large-scale industry through increases in the use of capacity and labour productivity rather than increasing jobs. Western estimates of, for example, the producer goods industries put the value of output in 1952 at 10.7 billion yuan, and in 1971 at 246.5 billion yuan, or a twenty-four times increase; whereas employment in the same industries increased between fifty- nine and 182 per cent, or by a half to one and three-quarters.  The government has deliberately invested heavily in machinery while trying to curb or reduce the size of the labour force. As part of this process, the electronics industry has received strong official support, and some visitors report that Chinese industry is relatively advanced in the use of automated techniques. For example, a 1974 visitor reported that over half the horizontal knitting looms in Shanghai’s textile mills are electronically controlled; and a major part of the woollen knitwear mills are in part or whole automated, as is part of the mining industry.  Combined with the use of low-paid temporary and contract labour, this makes for spectacular increases in labour productivity and the surplus accruing to the State.
Agriculture is at the opposite extreme. With half as much cultivated acreage as the Soviet Union or the United States but four times the number of mouths to feed, with a preceding century of neglect, it would have been extraordinary if agricultural output had been capable of rapid expansion.
It is the relative stagnation of agriculture which pulls down all the national statistics. Thus, despite the rapid increase in industrial output in the 1950s, the gross domestic product per head in 1957 was still only twenty per cent above the 1933 level , and consumption per head about the same. 
The major part of China’s agricultural output is grain, and the long- term increase in production has been fairly consistent – about two to three per cent per year.  There are disagreements in detail, but this rate of growth has brought total output from about 110 million tonnes in 1949 to 286 million tonnes in the 1970s, a one and a half times increase in twenty-seven years. It is not clear how reliable these figures are, but they give a picture of the trend. The increases must have stemmed from a few provinces, since the overall picture is more patchy. Officially, only nine provinces and municipalities out of twenty-five had, by 1976, met the 1967 targets of the National Programme of Agricultural Development. six provinces (Shensi, Kansu, Chinghai, Shansi, Liaoning and Ninghsia) were only “self-sufficient in the main”; that is, they were on occasions obliged to import; presumably, the remaining ten were permanently in deficit. 
In the early 1970s, Chou En-lai said that China’s population was growing at “around two per cent” (the urban population, it seems, is increasing more slowly). Grain output is increasing at a similar rate on average, so that the major part of agriculture can make little or no contribution to accumulation – even if, given the difficulties in an intensively farmed country, we assume that the régime could actually appropriate the surplus. The availability of grain per head of the population has been roughly constant since the early 1950s – at most it has increased twelve to eighteen kilograms over the 295 kilograms available in 1957.  If the supply of other foodstuffs, livestock etc., has increased more rapidly than grain output, this relative stagnation can be accompanied by an improvement in the average diet, although that will be limited ultimately by the grain supply (for example the supply of fodder for livestock).
The grain situation has eased surprisingly little over the past quarter of a century, despite massive and sustained efforts through multiple cropping, water conservation, irrigation, improved tools, use of fertilizers, hybrid seeds and pesticides. Fertilizer availability is particularly important here since the use of new hybrid seeds and multiple cropping of the land depend on a large increase in water supplies and fertilizer application. Virtually no chemical fertilizers were manufactured in the early 1950s, but since then there has been a considerable increase, apparently in the main financed by commune savings. There is now said to be roughly seventy kilograms of fertilizer available on average per hectare, roughly two-thirds of it manufactured in small plants (compared to 300 kilograms or more in, for example, South Korea and Japan). The government has imported both fertilizer and large-scale chemical fertilizer plant, and this may raise the fertilizer availability per hectare to 100 kilograms. Not all observers agree that this will raise yields. Some agronomists have argued that the poor long-term performance is because the soil is relatively exhausted, afflicted by salination and alkalinization as the result of intensive cropping of a small cultivated area for many hundreds of years. Others have been impressed by the use of organic fertilizer which raises the total fertilizer applied per hectare closer to the South Korean figure, but also means that output is already near the maximum to be expected under present conditions.
Imports have been used to ease scarcities of grain, raw cotton, fertilizers and equipment. In the bad years of 1960-63, some sixteen million tonnes of grain were imported; and 6 to 7.5 million tonnes were imported annually in 19724 (falling to 4.4 million tonnes in 1975, and 1.7 million tonnes in 1976, the lowest level of imports since 1966). In the early 1970s, grain imports made up between thirteen and sixteen per cent of the total import bill. After two poor years for grain, 1975 and 1976, China’s imports for 1977 – 11.8 million tonnes – were at the highest level since 1961. Raw cotton has regularly been imported, and the import volume has grown by about fifty per cent since 1964 (with a rough value of US $360 million annually). To China’s domestic output of about twenty- five million tonnes of chemical fertilizer, imports have added 6 to 7 million tonnes annually. Furthermore, the régime has imported thirteen fertilizer plants (mainly from the US and Holland, but also from France and Japan), which should begin production in 1977-8.
The poor performance so far has not dissuaded the government from raising its sights. At an important agricultural conference in October 1974 and in the fifth Five Year Plan (which began in January 1976), a set of long-term targets was laid down, apparently for the first time since the 1950s. The stated aim was to achieve a total grain output of 360-400 million tonnes by 1980, to secure the mechanization of agriculture, and to follow the model of the Tachai Brigade (the agricultural equivalent of Taching). The last long-range plan, supposedly in operation from 1956 to 1967, disappeared in the Great Leap Forward and its aftermath, so that the formulation of a plan gives no assurance as to how practical it is. Perhaps at long last the government is to devote a larger share of national investment to agriculture, and it is on this basis that the targets have been drawn up. Otherwise, to achieve the stated grain target after twenty years of roughly two to three per cent annual growth would require agriculture to increase grain output by between five and seven per cent annually up to 1980. Without massive imports, it would seem an unlikely achievement. Indeed, on the past record, the government would have reason to congratulate itself if it could achieve a consistent three per cent annual increase (to reach 330 million tonnes by 1980).
Imports – whether for use in agricultural or industrial production – are an important precondition for releasing China’s capacity for economic growth. When the economy has grown rapidly, the government has permitted rapid increases in imports, curbed by the available reserves and China’s export earnings. Imports – estimated from the accounts of countries which trade with China – increased by eighteen per cent in 1970, were cut back in 1971, presumably to protect the reserves; expanded in 1973 at a rate higher than at any time in the history of the régime, and then were cut drastically in 1974, before expanding more gradually in 1975, and again falling (by ten per cent) in 1976.
What does China import? Grain, raw cotton, fertilizers have been mentioned, but there are other foodstuffs, for example, soya-beans and soya-oil. But the recent major expansion in imports has been in the industrial field, with imports either to relieve domestic bottlenecks or to gain access to advanced technology. Between 1971 and 1976, China imported or ordered a great deal of steel (US $800-I, 200 millions worth annually); 30,000 trucks; 3,000 cars and buses; 170 locomotives and seventy ships. From the United States it imported an RCA Global Communications Satellite earth ship, and ten Boeing aircraft. It contracted for ammonia plants, power shovels, car gear and axle making machines, twenty blow-out preventer stacks (to control oil-well bore pressure), magnetic recording equipment, oil-well boring pumps, photographic and optical equipment, and data processing equipment. It signed agreements for supply with many of the major multinational corporations, including Kellogg, Bucyrus-Erie, Sohio, Amoco, Ioyo Engineering, Mitsui Toatsu. Negotiations in 1975 led to an agreement with Rolls- Royce to build a Spey jet-engine plant in central Sian (at an estimated cost of US $182 million; presumably with United States approval since such a project is banned under the North Atlantic Treaty Organisation). Talks were under way for the purchase of twelve Japanese patrol aircraft, four Sanwa Group nylon fibre plants, three petroleum refineries and three large computers. In late 1975, an agreement was signed for the purchase of a 100,000-ton Japanese oil tanker.
The list illustrates both what the Chinese leadership sees as the main weaknesses in China’s economy, and the fact that in practice, regardless of domestic propaganda or the state of the leadership faction fight, China’s imports were kept high. The total trade – about US $15,200 million in 1976 – imposed a deficit on China with the advanced capitalist nations of about US $2,700 million.
How are the imports paid for? China’s exports in 1973-4 included soya-beans, oilseeds, tea, bristles, feathers, rice, wolfram, antimony, tobacco, silk, tinned pork, mutton, rabbit, cotton goods, wild cat coats, antiquities and some light industrial goods (bulbs, wigs, vacuum flasks); about a quarter of these exports go to Hong Kong. These exports, concentrated in the areas of raw materials or foodstuffs, yield a poor return, and in the mid-1970s were sorely afflicted by the world slump – prices fell while the prices of industrial imports rose under the impact of inflation in the advanced countries. Oil exports, which doubled in 1975 to US$1,000 million and mainly went to Japan, Philippines, Hong Kong, Thailand and Romania, helped balance the trade deficit. But to increase oil exports requires more imports of pipes, refinery and tanker capacity, as well as measures to improve the peculiar quality of Chinese crude oil. Trade earnings are supplemented by the profits of China’s enterprises operating in Hong Kong and cash sent from overseas Chinese families. But even so, the reserves are small in relationship to the scale of current imports (US sources estimate them at RMB 7 billion or US $3,560 million).
In the autumn of 1974, all these factors united to cause a severe and unexpected balance of payments crisis (estimated at US $1,000 million). The régime cancelled orders for grain and foodstuff imports, and to cut the deficit expanded oil exports. The government needs to keep up the level of imports for future growth, but thereby incurs a new range of burdens. In recent years, it has moved into borrowing abroad to sustain import purchases – first, using short-term commercial credit from its suppliers, then medium-terms loans from the Japanese Exim Bank (starting in 1972), reaching deferred payments agreements (twenty per cent payment down, and the rest over five to seven years at six per cent rate of interest), and accepting foreign currency deposits at competitive interest rates in the offices of its banks abroad. At the same time, it sold abroad an estimated 12 to 24 tonnes of gold in late 1975 and early 1976. In early 1977, some 80 tonnes of gold were sold (worth $206 million). For 1976, China’s cumulative foreign debt was estimated to be US $1.3 billion, or twenty-three per cent of hard currency exports.
In sum, the rate of growth of industrial output has been rapid, possibly as rapid as that of the Soviet Union in the first two Five Year Plans (1928-38) – ten to fourteen per cent per year. In the 1970s, it has been less impressive but still substantial – although below rates achieved, for example, in Taiwan, Thailand, South Korea and Malaysia. Over the whole period since 1949, the structure of China’s product has been shifted so that perhaps half or more of China’s national product (in value terms) now comes from industry. The effort has been sustained over a quarter of a century, a period comparable to that in the Soviet Union between 1928 and 1951.
But the social transformation of the Soviet Union that took place in those years has scarcely begun in China. By the criterion of employment – as opposed to value of output – matters have not changed radically since 1952. Then as now, about seventy-five per cent of the labour force was employed in agriculture, in the main at very low levels of productivity and austere living standards. The effects of the dramatic growth in industrial output has been only slight on the rural majority, even though much improvement has undoubtedly taken place.
At the Fourth NPC in January 1975, Chou En-lai revived Mao’s 1964 perspective (at the Third NPC): “to build an independent, relatively comprehensive industrial and economic system ... before the 1980s”; and “to accomplish the comprehensive modernization of agriculture, industry, national defence and science and technology before the end of the century so that our national economy will be advancing in the front ranks of the world”. 
Can it be done? Clearly it is within the capacity of the world economy to achieve this result. If China can continue to expand its imports and world capitalism resumes rapid and sustained expansion, so that the demand for China’s exports increases and China can borrow at relatively low interest rates (all of which assumes world peace and no serious domestic disorder in China), it is a possible target. All provided the Chinese working class continues loyally to deliver up its massive surplus to the régime. But even if the output target could be achieved, could China’s masses be incorporated in such a short time, could the “dual economy” be overcome? The assumptions are all in doubt – world expansion, the continued philanthropy of the Chinese working classes and, above all, the possibility of transforming China while it retains its national isolation.
For many people, China is a splendid triumph because its people are more equal, it is democratic, and the country has made the breakthrough to sustained economic development. Poor it may be now, but its government has the wisdom to make those continued efforts which will ensure that the people of China will in due course “close the gap” with the advanced powers and come to enjoy all that is most valuable in terms of human progress in this century.
This chapter has attempted to assess whether these claims are correct. There is, on the face of it, greater equality in China than in most other countries, but it has been achieved through the rationing system and the basic scarcity of unrationed goods rather than equality of income. In terms of the official income scales, the degree of inequality is striking, nor is there a detectable trend towards more equality in Chinese society as a whole (even if, as some argue, there are efforts to increase the equality of income solely within the eight grade wage system). The reasons for the inequality seem less to do with any government preferences, more with the basic material conditions of the society and the commitment of the régime to accumulation. By any rigorous standard of democracy, there is none in China, although the régime gives the impression of being popular and consulting widely. In terms of the economy, China has experienced a relatively high rate of industrial growth, achieved by tenacious efforts to increase labour productivity. What distinguishes China from most other backward countries is not the, material quality of life, but the structure of control which ensures that, for example, all are fed and clothed. The urban-rural gap and income differentials remain sizeable, but the rationing system – and its maintenance against the corrosive forces at work on the countryside – has ensured that the mass of the population has received tangible benefits. In terms of the productivity of labour, the gap between the permanent industrial labour force and the mass of cultivators is possibly more extreme than in most backward countries, and this – a function of China’s intensive agriculture and its resistance to central supervision – has been to the benefit of the rural population.
China’s future depends not simply on its internal resources, but on the international context in which it exists. The government and the party can secure through external activities both protection and assistance for the tasks it has undertaken. The politics it proclaims are internationalist. How far has the party been able to elicit international support? This is the theme of the following section.
1*. Take, for example, the two richest of the backward countries of the Eastern Bloc, Cuba and North Korea. Both suffered more severely in the current crisis than the Soviet Union, but for the same reasons. Despite continued Russian assistance, Cuba was obliged to reshape its programme of economic development for 1976, to slow down drastically its future growth, as a result of what Fidel Castro calls “the worst [slump] since the 1930s”; all this, despite a loan of £115 million by two hundred international banks in October 1975; for the Cubans, the subordination of their economy to the world crisis is most vividly demonstrated by a cut in the coffee ration from forty-three to thirty grammes a week.  In the case of North Korea, the scale of its current debts (primarily to banks in Japan and eight other Western countries) – about US $430 million – as well its severe balance of payments difficulties has forced it to default on its loan servicing payments, not to mention forcing its diplomats abroad to use their position for smuggling.  Vietnam, far poorer and terribly ravaged by war, is, at the time of writing, appealing for foreign private capital. 
68. Engels to Danielson, Sep. 1892, Selected Correspondence, ibid, p.498.
69. Commenting on a Soviet work, Political Economy, 1961-2, in Miscellany II, p.248.
70. January 1965, in Miscellany II, p.445.
71. Marx, Wage, Labour and Capital, in SWII, pp.265-6.
72. On the Russian debts in 1976, cf. Alec Nove and Dubravko Matko, USSR labours under a huge trade deficit with the West, The Times, London, 22 July 1976; Mary Campbell and David Lascelles, What eastern Europe owes the capitalists, Financial Times, 29 Juy. 1976; and Concern as East steps up borrowing, Supplement on Anglo-Soviet Trade, The Times 21 October 1976.
73. For a discussion of the theoretical basis of this section, see Chapter 8 of T. Cliff, Russia: A Marxist Analysis, London, n.d.
74. On the rescheduling of the Cuban plan, cf. Dr Castro reveals the extent of Cuba’s economic difficulties, Agence-France Press report, The Times, London, 6 October 1976
75. Far Eastern Economic Review, 6 June and 19 December 1975, and 8 October 1976, p.42.
76. On the occasion of the visit to Europe of vice-minister for foreign affairs, Nguyen Co Tach, cf. Hanoi wants foreign capital for Five Year Plan, report Sunday Times, London, 7 November 1976.
77. P. Bairoch and J.N. Limber, Changes in the industrial distribution of the world labour force by regions, 1880-1960, International Labour Review, ILO, Geneva, 98/4, 1968.
78. December 1956, Miscellany I, p.38.
79. January 1957, ibid., p.61.
80. April 1956, in Mao Unrehearsed, p.64; stress added.
81. 1961-2, in Miscellany II, p.280.
82. Ibid., p.293; the translation of Mao’s terminology is poor – the phrase, “the accumulated capital” should be “the rate of capital accumulation”.
83. Lu Hsu’n and Li Yün, On the practice of economy, JMJP, 21 August 1962, SCMP 2817, 1962.
84. Onyang Ch’eng, Concerning the question of harmony or disharmony in the proportional relationship between industry and agriculture, Ta Kung Pao, 22 October 1962, SCMP 2863, 1962.
85. Writing Group, Peking Municipal Revolutionary Committee, The road to China’s Socialist Industrialization, Hung-ch’i 10, 30 September 1969, p.11, SCMM 666, 31 October 1969.
86. 1961-2, in Miscellany II, p.353.
87. Letter to Bebel, December 1884, in Selected Correspondence, ibid., p.432.
88. Report of a visitor, Forming Maoist Man (The Taching Oilfield), Financial Times, London, 2 December 1976, p.2; see also Ta-ch’ing: A Model Industrial Community in the People’s Republic of China, David O. Buck, The China Geographer, Spring 1977.
89. Sydney H. James, The Chinese Defense Burden, 1965-74, in China: A Reassessment of the Economy, Joint Economic Committee, Congress of the United States, Washington, 10 July 1975, pp.459-66.
90. The figures span a range of foreign estimates, based on different assumptions about the official information available; for figures and sources, see Table 6, Thomas Rawski, The growth of producer industries, 1900-1971, in D.H. Perkins (ed.), China’s Modern Economy in Historical Perspective, Stanford, 1975, p.222: cf. also R.M. Field, Civilian industrial production in the PRC, 1949-74, in China: A Reassessment, op. cit.; also, ibid., Rawski, pp.175-98, and Recent trends in the Chinese economy, CQ 53, January-March 1973, p.3ff.; and Alexander Eckstein, Economic growth and change in China: a twenty year perspective, CQ 54, April-June 1973, pp.221-41, and, with Walter Galenson and Tachung Liu (eds.), Economic Trends in Communist China, Chicago, 1968, p.7 passim.
91. Table 5, Rawski, in Perkins, op. cit., p.222.
92. Rawski, in Perkins, op. cit., pp. 222-3.
93. Report, Far Eastern Economic Review, December 1974.
94. Table 3, D.H. Perkins, Growth and changing structure of China’s economy, in D.H. Perkins, op. cit., p.122.
95. “However the estimates are made, there is no way one can make them show a substantial rise in average per capita consumption expenditures between the 1930s and 1950s.” – ibid., pp.125-6.
96. For the official figures, 1952-72, cf. Table, Production of foodgrains, in The economic development of India and China, in my India-China: Underdevelopment and Revolution, Delhi, 1974, p.286; husked grain output for 1973 is put at 213.8 million tonnes (264 million unhusked); for 1974, 228 million (275 unhusked – given by Yang Li-kung, Deputy Minister of Agriculture at the UN Food Conference, Rome, November 1975); 1975, 228 million unhusked; guesses for 1976, 286-92 million unhusked. Figures for the last three years have been challenged on the grounds that soya-bean, formerly counted separately, has now been included in the figures; if this is not so, the rate of growth 1970-76 is raised to nineteen per cent, or 3.6 per cent per year; allowing for the soya-bean inclusion, the growth is thirteen per cent, or 2.4 per cent per year.
97. NCNA Peking, 29 June 1976
98. Giving an average per head per day of 2,280 calories – cf. D.H. Perkins, Supplement on China, Far Eastern Economic Review, 1 October 1976, pp 50-3.
99. Report on the work of the government, 4th NPC, JMJP, 21 January 1975, in PR 4, 24 January 1975.
Last updated on 22.1.2002