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The Financing of Public Investment in Communist China

Published online by Cambridge University Press:  23 March 2011

Feng-Hwa Mah
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For underdeveloped countries bent on accelerating their economic development, there are two alternatives: one is a mixed economy compatible with democracy, the other is planned development under totalitarianism. What has been happening in Communist China during the past few years is a striking example of the latter case, and its degree of success will undoubtedly have far-reaching influences on other economically backward countries desiring rapid economic development. Since rapid economic development is unattainable without substantial investment, the sources of investment funds are of crucial importance in the whole development program. The purpose of this paper is to explore how public investment was financed in Communist China, and to estimate which population groups bore the burden of such financing.

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The Journal of Asian Studies , Volume 21 , Issue 1 , November 1961 , pp. 33 - 48
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Copyright © The Association for Asian Studies, Inc. 1961

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References

1 The present paper is an abridged version of the author's study, The Financing of Public Investment in Communist China, Santa Monica: The RAND Corporation (P-2031-RC), 1960. The appendices to this paper, which include detailed documentation, explanations and estimates, are available in RAND P-2031-RC, and therefore are omitted here.

2 The total investment of the peasants during this period was reported to be about 12,000 million yuan. (Far Eastern Economic Review, Hong Kong, January 2, 1958, p. 13.) The First Five-Year Plan estimated that about 60 per cent of this total was investment in fixed assets.

3 For details, see First Five Year Plan for Development of the National Economy of the People's Republic of China in 1953–1957 (Peking: Foreign Languages Press, 1956), p. 28n. (To be referred to as First Five Year Plan.)Google Scholar

4 Hsien-nien, Li, 1957 budget report, Hsin-Hua Pan-Yueh-Kan (HHPYK), No. 14 (Peking, 1957), p. 23Google Scholar; Po I-Po, Speech at the eighth party congress of the CCP (September 18, 1956), Documents of the Eighth National Congress of the CCP (Peking: People's Publishing House, 1957), p. 232n. (To be referred to as Documents.)

5 Shih-Shih Shou-Tse Editing Board, Explanation of Some Terms in the First Five Year Plan (Peking: Popular Publishing House, 1955), p. 29.Google Scholar

6 During 1953–1957, total capital investment amounted to 55 billion yuan. Capital investment within the state plan was 49 billion yuan during the same period, constituting 89 per cent of the total. State Statistical Bureau, The Great Ten Years (Peking: People's Publishing House, 1959), pp. 46–47.Google Scholar

7 Tung-Chi Kung-Tso (TCKT), No. 17 (Peking, September 14, 1957), p. 1.

8 First Five Year Plan, p. 31; Editorial, Jen-Min jih-Pao (JMJP) (Peking, July 9, 1956).

9 Annual rate of state capital investment is given in Appendix C, RAND P-2031-RC, p. 40. The Communist official data gives an average rate of accumulation (total savings) of 23 per cent for the same period. See Yang Po's article in JMJP, October 13, 1958, p. 7. For independent Western estimates of Communist China's rate of investment, a convenient reference is Choh-ming Li, “Economic Development,” in China Quarterly, No. I, January-March 1960, p. 38. It is to be noted that the rate of gross domestic investment computed from Hollister's book, pp. 132–133 (at 1952 prices) is 19.6 per cent, instead of 18.5 per cent.

10 For detailed discussion of the derivation of this table, see Mah, Feng-hwa, “The First Five-Year Plan and Its International Aspects,” in Remer, C. F. (ed.), Three Essays on the International Economics of Communist China (Ann Arbor: The University of Michigan Press, 1959), pp. 76–86.Google Scholar

11 The Great Ten Years, p. 156.

12 Feng-hwa Mah, op. cit., p. 92.

13 En-lai, Chou, “A Great Decade,” Peking Review, No. 41, (October 13, 1959), p. 16.Google Scholar

14 In return, Communist China has also given some blueprints and technical data to Russia. See article by Ah-shi-po-fu, (Chinese transliteration), Ta Kung Pao (TKP) (Peking, September 30, 1959), p. 5.Google Scholar

15 Tze-ying, Wang, “Our Public Finance,” TKP (Tientsin, January 29, 1955). Survey of China Mainland Press (SCMP), Hong Kong, No. 1113 (August 19, 1955), p. 33.Google Scholar

16 Po I-Po, Speech at the Eighth CCP Congress, Documents, p. 234.

17 Chih-cheng, Liu, “On Business Tax at the Time of A Great Leap Forward,” TKP (Peking, May 18, 1958).Google Scholar

18 Over one-third of the grain sold by the state each year was sold to the needy peasants. See Chen Yun's speech at the first session of the first National People's Congress, JMJP (September 23, 1954). For an account of the terms of trade between industrial and agricultural products, see “Changes of the Scissors Gap of the Prices Between Industrial and Farm Products Since Liberation,” TCKT No. 17 (September 14. 1957). P. 4.

19 Strictly speaking, this item also includes depreciation charges transmitted by state enterprises and the state's profit of enterprises under public-private joint ownership. Although no detailed figures are available, it has been indicated that the depreciation charges had been rather small and that the bulk of the “revenue from state enterprises” as reported in the budget consisted of the profits from state and joint enterprises. See Tze-Ying, Wang, “Financing the Five Year Plan,” People's China, No. 20 (October 16, 1957), p. 15.Google Scholar

20 “Decision on the Productive Construction of State Industries in 1951,” (Promulgated on April 6, 1951, by the Government Administrative Council), as quoted in Yu-wen, Ho, An Analysis of Public Finance of Communist China (Hong Kong: The Asia Press, 1953), pp. 155–156.Google Scholar

21 See Hsien-nien, Li, “Report on 1956 Final Accounts and 1957 Draft State Budget,” HHPYK, No. 14 (1957). P. 27.Google Scholar

22 To show the decline of private industry and commerce, we may note that the share of private industrial output in total industrial output was 39 per cent in 1952 and 2 per cent at the end of January 1956. (Official figures, taken from SCMP, No. 1260, April 4, 1956, pp. 4–6.) In the field of commerce, private commerce took 36.3 per cent of total wholesale volume in 1952 and 4.4 per cent in 1955. (1956 figure not available.) It took 57.8 per cent of total retail trade volume in 1952 and only 3 per cent in 1956. See State Statistical Bureau, “1955 Communiqué,” Current Background (CB), No. 429 (Hong Kong, November 26, 1956) P. 25Google Scholar; “1956 Communiqué,” HHPYK, No. 17 (1957), p. 201.

23 See, for example, Wang Tze-ying, op. cit., p. 15.

24 A Communist economist also admitted this point. See Wang Tze-ying, op. cit., p. 18.

25 Commodity tax may be defined broadly as comprising approximately the total mark-up over cost, i.e., the total receipts of state enterprises minus their explicit commercial costs, as used in Holzman's study on Soviet taxation. See Holzman, Franklyn D., Soviet Taxation (Cambridge: Harvard University Press, 1955), p. 87. Defined this way, profit from state enterprise is merely another form of commodity tax.CrossRefGoogle Scholar

26 See Appendix H, RAND P-2O3I-RC, p. 45.

27 Tung, Kiang, “We Want Both the Heavy Industry and the People,” Hsueh Hsi, No. 11 (Peking, June 3, 1957), p. 20Google Scholar. See also Li Hsien-nien, 1957 Budget Report (June 29, 1957), HHPYK, No. 14 (1957). P. 20.

28 United Nations, Measures for the Economic Development of Underdeveloped Countries, (Document E/1986, ST/ECA/10, May 1951).

29 This estimate was made by Simon Kuznets in 1946 for the National Resources Commission of China, on the basis of Ta-chung Liu and Pao-san Ou's national income studies. See Cheng, Yu-kuei, Foreign Trade and Industrialization of China (The University Press of Washington, D. C., 1956), p. 373.Google Scholar

30 Liu, Ta-chung, “Structural Changes in the Economy of the China Mainland, 1933 and 1952–57,” American Economic Review, Papers and Proceedings (May 1959), p. 86, p. 93.Google Scholar

31 Computed at 1952 prices. (See footnote 9 above.) If 1957 prices were used, this rate would be 21 per cent, because the prices of capital goods were higher in 1952 than in 1957. Mu-chiao, Hsueh, “National Construction and Overall Arrangements for People's Livelihood,” Hsueh Hsi, No. 3 (February 3, 1958)Google Scholar. Translated in Extracts from China Mainland Magazines, Hong Kong, No. 129 (May 19, 1958), p. 36.Google Scholar

32 See Appendix C, RAND P-2031-RC, p. 40.

33 The Chinese Communists reported that it was lower than that of the Soviet Union, “Where the rate of accumulation in the past twenty years has been around 25 per cent.” Kuang, Lu, “China's National Income,” Peking Review (April 8, 1958), p. 8.Google Scholar

34 Liu, op. cit., p. 86.

35 Lockwood, William W., The Economic Development of Japan (Princeton: Princeton University Press, 1954), P. 26.Google Scholar