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China Chapter 5. Economic Context
IN THE LATE 1980s the Chinese economy was a system in
transition, moving cautiously away from central planning and
gradually adopting some of the institutions and mechanisms of a
market economy. The process of economic reform began in earnest in
1979, after Chinese leaders concluded that the Soviet-style system
that had been in place since the 1950s was making little progress
in improving the standard of living of the Chinese people and also
was failing to close the economic gap between China and the
industrialized nations.
The first major success of the economic reform program was the
introduction of the responsibility system of production in
agriculture, a policy that allowed farm families to work a piece of
land under contract and to keep whatever profits they earned. By
1984 the responsibility system had dramatically increased food
production, and the government had eliminated the people's
communes--the hallmark of Chinese socialism for over twenty years.
In most other sectors of the economy the role of government was
reduced, managers were given more decision-making power,
enterprises were encouraged to produce for profit, the role of the
private sector increased, and experimentation with new forms of
ownership began in the state sector. Constraints on foreign trade
were relaxed, and joint ventures with foreign firms were officially
encouraged as sources of modern technology and scarce foreign
exchange. With rising incomes, greater incentives, and rapid growth
in the service and light industrial sectors, the People's Republic
of China began to exhibit some of the traits of a consumer society.
Movement toward a market system, however, was complex and
difficult, and in 1987 the transition was far from complete.
Relaxing restrictions on economic activity quickly alleviated some
of China's most pressing economic difficulties, but it also gave
rise to a new set of problems. Inflation--the greatest fear of
Chinese consumers--became a problem for the first time since the
early 1950s, and along with new opportunities to seek profit came
growing inequality in income distribution and new temptations for
crime, corruption, and Western cultural styles, regarded by many
older Chinese people as decadent and "spiritually polluting." The
state still owned and controlled the largest nonagricultural
enterprises, and the major industries were still primarily guided
by the central plan.
Thus, the Chinese economy in the late 1980s was very much a
mixed system. It could not be accurately described as either a
centrally planned economy or a market economy. The leadership was
committed to further expansion of the reform program as a requisite
for satisfactory economic growth, but at the same time it was
compelled to keep a tight grip on key aspects of the economy-
-particularly inflation and grain production--to prevent the
emergence of overwhelming political discontent. Under these
circumstances, forces in the economic system worked against each
other, producing what the Chinese leadership called internal
"contradictions." On the one hand, the economy was no longer
tightly controlled by the state plan because of the large and
growing market sector. On the other hand, the market could not
operate efficiently because many commodities were still under
government control and most prices were still set or restricted by
government agencies. Under the leadership of Deng Xiaoping, the
entire nation was "riding the tiger"--making great progress but not
entirely in control--and therefore unable to stop the process
without risk.
Despite the burst of progress in the 1980s, the Chinese economy
still shared many basic characteristics with the economies of other
developing countries. The gross national product per capita in 1986
was -Y849 (for value of the
yuan--see Glossary),
or about US$228
(at the 1986 exchange rate), reflecting the low average level of
labor productivity. As in many countries that did not begin
sustained industrialization efforts until the middle of the
twentieth century, the majority of the Chinese labor force--over 60
percent--was still employed in agriculture, which produced around
30 percent of the value of national output. Agricultural work still
was performed primarily by hand. Modern equipment was in general
use in industry but was largely typified by outdated designs and
low levels of efficiency.
In other respects China's economy was quite different from
those of most developing nations. The most important difference was
that the Chinese economy--although in the midst of far-reaching
changes--was organized as a socialist system, directed by a central
planning structure. The predominance of state and collective
ownership, firm central control over the financial system,
redistribution of resources among regions, rationing of grain, and
subsidized provision of housing resulted in a pattern of income
distribution that was much narrower than those in almost all other
developing countries. There was relatively little true capitalism
in the form of private ownership of productive assets. Agricultural
land was farmed under lease by farm households but was formally
owned by villages, towns, and townships--the collective units that
had replaced the rural commune system.
In the mid-1980s most Chinese were still very poor by American
standards, but several important measures indicated that the
quality of their lives was considerably better than implied by the
level of gross national product (GNP) per capita. According to
World Bank data, in 1984 energy consumption per person was 485
kilograms of oil equivalent, higher than that for any other country
ranked as a low-income country and greater than the average for
lower middle-income countries. In 1983 the daily calorie supply per
capita was 2,620--11 percent above the basic requirement and nearly
as high as the average for countries classified as upper
middle-income countries. Significantly, infant mortality in 1985
was 39 per 1,000, well below the average for upper middle-income
countries, and life expectancy at birth was 69 years, higher than
the average for upper middle-income countries.
Despite the major economic gains made by China since 1949 and
the dramatic advances of the 1980s, serious imbalances and
deficiencies have persisted. Contributing to these deficiencies
were the political turmoil that disrupted the economy during the
Cultural Revolution decade (1966-76), insufficient flexibility in
the planning process, and serious inaccuracies in price structures.
Power shortages, inadequate transportation and communication
networks, shortages of technicians and other highly trained
personnel, insufficient foreign exchange for procurement of
advanced technology from other countries, and inadequate legal and
administrative provisions for both foreign and domestic trade
further hindered modernization.
An important by-product of the reform program since the late
1970s has been an enormous increase in the amount of information
available on the economy. The government collected and published
basic national economic data in the 1950s, but the centralized
statistics-keeping system broke down at the end of the 1950s, and
very little statistical information was available during the 1960s
and early 1970s. It was not until 1979 that the State Statistical
Bureau ended the statistical "blackout" with the publication of an
economic statistical communique. In subsequent years the State
Statistical Bureau published larger and more frequent compendia,
including annual almanacs of the economy and annual statistical
yearbooks, which became progressively more sophisticated and
informative. In addition, most provincial-level units and cities,
as well as the major industries and economic sectors, such as coal
mining and agriculture, began to produce their own specialized
statistical yearbooks. In the early 1980s, numerous new
periodicals, many of which specialized in economic data and
analysis, started publication. Although Chinese statistical
definitions and practices still differed from those in the West in
many respects and the accuracy of some figures was called into
doubt even by Chinese economists, foreign analysts in 1987 had
access to a rich and growing body of data that would support
extensive analysis of the Chinese economy.
Data as of July 1987
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