Chapter 3
The First Decades of the People’s Republic: The Soviet Model … and Worse
Lacking both vitality and incentive.
—Gao Shangquan, a senior Chinese government
official commenting, shortly after the reforms
began, on the impact of Soviet-style planning on
Chinese enterprises.
Chaos under heaven is a good thing.
—A slogan plastered on the wall of a
Chinese factory visited by the author in
1974 during the
Cultural Revolution.
The period 1949–1978, from the CCP’s takeover to the beginning of the reforms following Mao’s death, was marked by wave upon wave of revolutionary change that left China’s economy severely damaged. Through understanding the depths of the social and economic dysfunction and the institutional cruelty meted out to intellectuals, educators, and scientists, we can appreciate just how remarkable was the subsequent success of the CCP under Deng in unleashing radical change and permitting the emergence of what we term the China paradox.
As we examine how China embraced the Soviet-style economic model in the 1950s and then sought to drive China farther along the “socialist” road, we shall find that this massive adventure was neither theoretically sound nor effective in practice. It led to disaster and untold human suffering. This is not to deride the legitimate efforts of citizens and officials as they rebuilt China. Nor is the goal to prescribe what kind of economic order China should adopt. Indeed, after taking power, the CCP had few options open to it, other than relying on the Soviets. But we shall demonstrate that the perverse and dysfunctional system that China adopted was not remotely “scientific,” and that it left economic activity in chains, systematically stifling innovation and creativity.
When the CCP triumphantly took power in 1949, it was on the back of the Chinese people’s broad-based rejection of Chiang Kai-shek’s Republic of China, which had become discredited and despised. To further consolidate its power, the CCP then systematically set about creating a clean break with the past and negating the legitimacy and track record of the previous regime, much as newly established Chinese dynasties had traditionally rewritten history to justify their own rebellion. That break with the previous regime is delineated by terms such a “New China” and “After Liberation.” Generations of Chinese have been brought up on the slogan “I recall the bitterness of the past and think about the sweetness of today.” The CCP’s contribution is celebrated by the words “if there had been no CCP, then there would have been no New China.”
The Fate of China’s Capitalists: From Ally to Enemy
The CCP came to power with a broad popular mandate for change, based on its platform called New Democracy, but quickly abandoned the promises it had made and accelerated the pace of social revolution.
In 1940, in a well-written essay entitled “On New Democracy,” Mao Zedong defined the New Democratic Revolution as a stage that would lead to socialism, but “at a later date.” New Democracy, the first step, “will need quite a long time and cannot be accomplished overnight. We are not utopians …,” he stressed.1 While he said that the state would own the large banks and large industrial enterprises, he also stressed that the government would neither “confiscate private property” nor “forbid the development of such capitalist production.”2
The essay, widely reprinted as a pamphlet and distributed across China including in the areas still controlled by the Nationalist government, proved to be highly effective in creating a broad multiclass alliance, albeit under CCP leadership. It is easy to see how Chinese businessmen were lured into imagining that they had a role to play in the new order.
Foreigners were also impressed by the program. In 1945, Gunther Stein, a German journalist, visited the communists in their remote base and interviewed Mao Zedong who stated,
“We are firmly convinced that private capital, Chinese as well as foreign, must be given liberal opportunities for broad development in postwar China: for China needs industrial growth.”3
Stein completely bought Mao’s deceitful charm offensive and became a conduit for communicating to the world the myth that Mao was some kind of liberal reformer.
By 1947, with total control of China in his sights, Mao was ready to abandon New Democracy in favor of a more radical and accelerated approach to the revolution. Ironically, it was Stalin who leaned on Mao and got him to continue with the original, more inclusive, transitional policy.4
So, as the CCP came to power, New Democracy remained the party’s platform. In May 1949, five months before the establishment of the PRC, Liu Shaoqi, number two in the CCP hierarchy, made a speech5,6 to a forum of Chinese businessmen in Tianjin that set out a program for a mixed economy within which private industry and commerce would be retained and protected. Tianjin, located on the North China coast, close to Beijing, was a modern, westernized city second only to Shanghai. It had a strong industrial base in textiles and chemicals, was a major port and trading center, and, like Shanghai, had a race course! Support from Tianjin’s industrialists was critical to getting the economy back on its feet. Liu set out the key task of “reviving and developing production,” and stated that “probably the private sector will surpass the state-owned sector, but the government does not fear that.”7
Seeking to allay the anxieties of his audience, he emphasized that socialism was “several decades” away and added, “You have the right to hire and fire workers.” For private businessmen, exhausted from years of war and moved by the patriotic drive to “Revive China,” the CCP’s platform was compelling and eminently reasonable.
But by 1952–1953 the political mood had changed dramatically. Mao Zedong made it clear that the transition to socialism was to begin during the New Democratic period. The collectivization of farmland and the nationalization of industry and commerce were to begin immediately. The Korean War and the encirclement of China by the Western powers likely influenced this. Moreover, the goals of the united front with other classes had been achieved. First, the main enemy (the Nationalist Party) had been isolated and driven off the Mainland. Second, the rehabilitation of the economy had gone much faster than expected. The tactic of a multiclass alliance was cynically discarded and the CCP proceeded to turn up the heat of class warfare. It began its assault on its erstwhile class ally, China’s business class.
In the cities, the “Five Antis” campaign was launched against the business class, directed at the “five poisons”—bribery, tax evasion, the theft of state property, theft of state secrets, and cheating on government contracts. Capitalists were urged to “confess all their crimes.” and suffered “a routine of denunciation, study, confession, and final deposition.”8
By 1956, the nationalization of industry was complete. Having brutally coerced factory owners to give up their property, the CCP smartly kept many of them on to run the enterprises.9
Nationalization was extended from industry to commerce: trading companies, retail stores, restaurants all came under government ownership. This also meant the end of much of China’s traditional, bustling, vibrant street life. Food stalls, cobblers, tinkers, scribes, palm readers, and the like simply melted away. The dreariness and drabness that shocked visitors to China at that time reflected not only the nation’s real poverty but also constraints imposed by the CCP which cherished control, uniformity, and blind obedience while punishing diversity and creativity.
Since the economic reforms that began in 1978, the old pattern of life has re-established itself with passion. Back are the sellers of Sichuan snacks, the street dancing, fortune tellers, knife sharpeners, plus of course the new arrivals, those selling DVDs, mobile phone covers, and apartments. Once again you can hear the cry of the scrap metal collector as he passes through the Hutongs (alleyways) in a donkey-drawn cart. Color has returned to the formerly pallid cheeks of city life.
The Dysfunctional Soviet Model Is Embraced
From 1952 onward, having rehabilitated the war-ravaged economy through a process greatly helped by the goodwill of China’s private business class, the CCP abandoned the notion of a mixed-economy (state and private) and adopted the Soviet economic model pretty well lock, stock, and barrel.
In 1929, Soviet Russia adopted a “hyper-industrialization” economic strategy, giving priority to heavy industry—metallurgy, machinery and related industry—but only after a protracted debate in which another faction had called for the use of market mechanisms and the development of agriculture, light industry (consumer products), and commerce as a way to create a market that would support industrialization.10
In China, there was no such debate. With the Korean War and the encirclement of “Red China” by Western powers as the Cold War intensified, the CCP “leant to one side,”—that is, to the Soviet Union and its heavy industrial model. China may have had no alternative. But it was nonetheless a fateful choice.
The Soviet model was a poor choice, given China’s economic backwardness. In 1949, China’s gross output of industry and agriculture (a reasonable proxy for GDP) was only RMB2 47 BN (about US$ 10 BN) with per capita output at RMB 66. Agriculture accounted for 70% of output and 80% to 90% of the population consisted of farmers, many living in poverty. Heavy industry was less than 8%.
A heavy industry strategy “conflicted with China’s economic reality”11 since it is extremely capital-intensive, and China’s capital was scarce and its economic surplus small. It required the import of equipment, but China had virtually no foreign exchange.
Since China could not rely on the transfer of the economic surplus through fiscal revenues from the backward rural economy, industry had to achieve its own accumulation of revenue to fuel its growth. To this end, macroeconomic policy was “to completely suppress the functions of market mechanisms and to distort artificially the relative prices of factors and products.”12 Input costs were rigged to favor heavy industry whether in terms of access to low-interest loans, low wage rates, cheap raw materials, or energy. Prices for agricultural products and food were kept artificially low to help the urban residents who worked in heavy industry.
The emphasis on heavy industry created a variety of economic distortions. Though economic growth did occur, it was at the expense of construction, transportation, and commerce, all of which stagnated.
Within heavy industry, performance measures stressed simple volume or weight, creating an emphasis on basic materials rather than higher added-value processed or refined materials. Thus, China’s steel industry produced sufficient raw steel but had to import rolled steel. That imbalance continued to plague China after the reforms, as it ramped up its auto industry, a big consumer of steel sheet.
The Soviet-style economic strategy was enshrined in China’s First Five Year Plan (1953–1957), during which heavy industry accounted for 85% of industrial investment. Having systematically driven Western engineers, businessmen, and educators out of China, the Chinese government replaced them with a host of Soviet and Eastern Bloc experts. Soviet loans and aid supported 156 key industrial projects—steel, cement, pharmaceuticals, machine tools, railway locomotives, trucks, and so on.
The sheer scale and speed of the adoption was remarkable. Soviet style organizational structures, official posts, and job titles were faithfully translated from Russian, becoming all-pervasive from the central organs of power down to the remotest rural village, even to this day.
The First Five Year Plan did produce significant achievements whether in creating a comprehensive industrial base or in establishing a new infrastructure in science, education, and health. But the organizational principles of the Centrally Planned Economy, which permitted this initial rapid industrial transformation, in the longer run hampered China’s development over the 30 years that it was in operation. Its legacy still creates barriers to progress.
The very principles of central planning lay at the heart of its failure. As the Chinese economic reformer, Professor Wu Jinglian, puts it, state-owned enterprises (SOEs) were:
“Appendages of high-level executive administrative organs: people, finance, materials, supplies, production, selling all were decided by the State Plan, and [the SOEs] lost their vitality and vigor. At the same time, the quality of service from industry and commerce was creating consumer frustration.”13
It compartmentalized economic activity into vertical administrative silos or stove pipes. Liu Guoguang, a Chinese economist who should know about Soviet planning since he received a doctorate in 1955 from a Soviet economics institute, in 1984 explained that,
“The emphasis on vertical leadership created heavy barriers among different departments, trades and areas hampering the development of proper economic connections”14
Within the silos, factories that manufactured goods had no control over their destiny. Their governance was entirely in the hands of officials in a central ministry (or its local bureau) to which it reported. The factory was not constituted as a corporation. It had a Chief Accountant but there was no treasury function, and it was not responsible for its own profit and loss. The government injected working capital for salaries and materials, and provided long-term investment funds while it took out surplus cash as it was generated or replaced it if the factory was loss-making. China’s SOEs were devoid of any real decision-making power.15
In the modern economy, business achieves efficiency and responsiveness to market needs through an integrated supply chain within which information flows freely. In stark contrast, under central planning, factories were not permitted to have direct contact with their suppliers or customers.
Take, for example, a factory producing bicycles. To obtain raw materials, such as steel, it would first have to send the order up through the bureaucratic layers of the silo to its ministry, the First Ministry of Light Industry. The order was then agreed upon at one of the biannual “product ordering meetings” with the Ministry of Metallurgical Industry (which controlled the steel mills) and the Ministry of Materials (which handled all in-bound logistics) after which the decision was communicated down through those other silos so that the steel was delivered to the factory. This ponderous and slow process made it difficult for the factory to respond to changes in consumer demand. It encouraged the factory to err on the side of safety and to over-order and carry excessive inventory.
When it came to selling the finished product, there was a similar process. Information on the bicycles produced was communicated up through the layers to the ministry, which then agreed upon a sale with the Ministry of Commerce, which in turn handled the entire distribution of products through its exclusive control over outbound logistics, wholesalers, and retail stores. Likewise, with export products, there was no direct contact with customers. The factory’s ministry worked with a specialist state Foreign Trade Corporation, which had exclusive export/import rights in its sector and met the foreign traders at the biannual Guangzhou (Canton) Trade Fair or at the dreary “Negotiations Building,” in northwest Beijing. Cross-border freight forwarding was handled exclusively by a separate state corporation.
As Professor Wu puts it:
“There was a lack of direct relationships and feedback between producers and consumers and between producers and producers.”16
A deep irony of the planned economy was that it was very poorly planned. It could be argued that the Chinese economy functioned despite, not because of, the planned economy. The bureaucratic process entailed the State Planning Commission drafting the Five Year Plan, including detailed production targets, which were then approved by the State Council and passed to the State Economic Commission for execution. In fact, China often failed to finalize the Five Year Plan in time for the first year of the plan. Essentially, China worked to the rhythm of a series of rolling one-year plans.
The planning cycle was often disrupted by political campaigns and upheavals that punctuated the Chinese political scene. The gathering of statistics to support the decision-making under the plan were (and still are) severely compromised by local authorities cooking the books by reporting either what they thought the “Center” wanted to hear or what best served their local interests.
Short of dismantling the whole system, one route open was the decentralization of economic power, something that occurred periodically but with little success:
“Each of the multiple attempts at decentralization during the period 1958–76 created chaos and subsequent recentralization. According to the principle of “as soon as you relax things, there is chaos, as soon as you control things, it dies,” so we created the vicious circle of relax-chaos-take back to the center-death.”17
Ponderous and inflexible, the strictures of central planning predictably led to informal “back door” local arrangements, and with them, a culture of deception and corruption. At the local level in such a vast country, life simply went on despite central planning. Informal, direct relationships with other economic silos at the local level were forged, bypassing the centralized flows of the command economy.
Another side effect, in response to the dysfunction of this form of “planning,” was the creation of a series of largely self-sufficient economic areas, or autarky, based on major cities. Each area sought to mitigate the inefficiency of the central planning cycle, to assure supply, and to avoid being held hostage by out-of-province agencies and the railway bureaucracy as Chinese economist Xue Muqiao explained:
“Many of our enterprises, large and small, tend to be all-inclusive because the present system of management compels them to rely on no-one but themselves.”18
Thus, redundant and subscale industrial capacity was created. Each locality created a comprehensive range of plants, whether iron or steel or motor vehicles, plus all their materials or components suppliers. Autarky led to “duplicate investment and products.” In 1978, 80% of China’s engineering factories produced their own iron castings. Since it was too risky to outsource, plants aimed for maximum self-sufficiency.19 The legacy of this today is an economic landscape where regional hubs dominate their own neighborhoods and obstruct firms from other parts of China, a phenomenon termed by the Chinese as “local protectionism” (difang baohu zhuyi). This hampers the development of an integrated national economy in which industry can achieve efficiency and economies of scale.
The Soviet model adopted by China was intrinsically flawed since it replaced lively, rational, and constructive contacts between customers and suppliers with a system of administrative processes that disrupted normal commerce and concentrated power in the hands of bureaucrats. On top of this, the use of government groups, rather than the productive entities, to control the information flow was increasingly ill-fitted to the modern economy, where information on consumer needs, products, technology, competition, talent—everything—needs to be communicated quickly and efficiently.
And Worse … Beyond the Soviet Model
What could be worse than that dysfunctional Soviet-style economic model? The Chinese found out painfully during the Great Leap Forward (1958–1961) and the Cultural Revolution (1966–1976). Mao led China’s society through waves of chaos and campaigns designed to force-march the economy to what was perceived to be a more advanced stage of socialism. During the disastrous Great Leap, China lurched to the left, discarding any semblance of economic reality and embarking on a voluntarist, almost religious, search for economic liftoff. It was hoped that any practical constraints, whether technical, human, or financial, would be compensated for by a mystical belief in the power of the people led by Mao’s philosophy, “the spiritual atom bomb.” In industry, steel was produced in a myriad of backyard furnaces but it turned out to be unusable. Agricultural collectives were merged into the People’s Communes where farmers were forced to destroy their home-cooking vessels and eat in communal kitchens. Bogus science was used to justify unsustainable crop-growing techniques. Economic targets were constantly raised and statistics falsified to fit. What followed was the Great Chinese Famine (1958–1961) during which as many as 45 million Chinese died of “unnatural” causes. State grain stores were left untouched while farmers ate tree bark, died an agonizing death from edema or swelling resulting from starvation, or survived through widespread cannibalism.20
Though, on the surface, Mao successfully pushed back within the CCP leadership against the bitter criticism of his Great Leap; this left fissures that would precipitate the Cultural Revolution (1966–1976). Mao may have won the battle but not the war. He was relegated to the role of “philosopher king” and for a time was excluded from the day-to-day affairs of state. He plotted his return to power through the Cultural Revolution when he launched the Red Guards in order to attack and demolish the government and the CCP infrastructure, essentially conducting a coup d’état against his own party.
Mao’s actions were driven by two interrelated factors, his opposition to the post-Great Leap measures (backsliding as he saw it) that, for instance, had reinstated workers’ incentives; and his desire to win back control of the CCP and to exact revenge on those who had opposed him.
In 1973, I went to study in China as a member of the first batch of British students after the UK normalized relations with China. As we walked down the steps from the plane in Beijing on a chilly October evening and were greeted by officials holding out a long cotton-padded coat for each of us, we entered a world of strict frugality and incessant propaganda, where the day began at 6 a.m. with loudspeakers blaring out the first bars of “The East Is Red,” a paean to Mao, China’s Red Sun and “savior.” We were given the standard student issue of bed quilt, towel, enamel washing bowl and padlock for our room. When summer came around, we were also issued a mosquito net.
By then, the violence of the Red Guards had subsided, though political tensions and “red terror” (people were arrested, sent to prison camps, executed, or otherwise “disappeared”) by the Left continued. On the surface, the political scene was going through a period of relative calm. There were signs of a return to a more rational approach to development, in particular the rehabilitation of senior officials who had been exiled from the capital.
On Mao’s instructions, Deng Xiaoping, the future architect of China’s economic reforms, was brought back from exile in Jiangxi Province to Beijing early in 1973 and rehabilitated in the leadership.21 During the 1974 January 1st New Year celebrations, we were taken to Beijing’s largest gymnasium to see a table tennis tournament. In the VIP row, just across from us, was the unmistakable Deng Xiaoping and, next to him, also diminutive but with a more angular face, Chen Yun, Deng’s close mentor on economic matters who had also been brought back from banishment. As my fellow Chinese students and our teachers realized what we were witnessing, there was excited murmuring and finger pointing. The reemergence of Deng was a pivotal moment in modern Chinese history.
But within a few months of my arrival in Beijing, a renewed bout of factional fighting within the CCP broke out, manifesting itself in a new “mass movement” of criticism and denunciation. The Left faction in the CCP felt undermined by more moderate educational and economic policies, not to mention the restoration of officials such as Deng. Moreover, Mao’s health was fading and he at times was clearly gaga. So, in early 1974, Mao’s wife and others on the Left launched the campaign to “Criticize Lin Biao and Confucius.”22 Lin Biao had been Mao’s chosen successor but had died in a plane crash in 1971, allegedly fleeing from a failed attempt at a coup d’état. The denunciation of Confucius was a thinly veiled attack on Premier Zhou Enlai whose efforts to revive the economy were anathema to the Left.
I had the dubious privilege of visiting a number of Chinese institutions that were celebrated as “models” during the Cultural Revolution. One was The Xinhua Printing Works in Taipingzhuang, Beijing, then on the outskirts of the city, among the fields. It had been selected by Mao as a model for the “cleansing of class ranks,” a brutal struggle waged against officials and managers deemed to be “class enemies.” A classic SOE, set up in 1949, it was responsible for printing 1.8 million copies annually of the Red Flag, the theoretical journal of the CCP. As part of the political campaign, long essays written by its workers on foreign policy were posted on the walls. Hand-painted slogans were draped across all the walls: “Chaos under heaven is a good thing,” “Carry the Criticism of Lin Biao and Confucius through to the End.” I visited other factories, the Beijing Jeep Factory (see photo below), for instance, which likewise was festooned with slogans and “big character posters” handwritten by the workers.
During the period 1969–1973 (after the initial period of Red Guards chaos) the economy had shown some recovery. In 1974, economic output stagnated due to the political campaigns. On the consumer side, there were shortages of food, cotton, even matches. During the first five months of 1974, at the height of the campaign, there were sharp declines in the production of coal, steel, chemical fertilizer production, as well as a decline in goods shipped by rail.25
Some places suffered more severe disruption than others. For the Lunar New Year break in February 1974, we were flown down to the Zhejiang provincial seat of Hangzhou. Our cadre minders had a full program of activities, but we clamored for some time to ourselves (“free activities”). Despite calls for us to “respect the collective” (that is, “Do what you are told!”), we simply said goodbye and headed off on public transportation to explore things.
Downtown Hangzhou was covered in handwritten “big character posters” attacking the city government, calling on the citizens to “Fight People’s War,” which in China is code for civil war. When we got back to Beijing, the national press had headlines praising the “excellent situation in Hangzhou.” This was a good lesson on how to interpret China’s Party-controlled press. We knew from close up that things in Hangzhou were on the edge of outright rebellion. The historical record shows that it took over two years for the faction entrenched in Hangzhou to be rooted out. Meanwhile, industrial production in Hangzhou’s factories was regularly halted by fighting and strikes. The combined output of Hangzhou’s Iron and Steel Works during the three years 1974–1976 was lower than that recorded in the single year of 1973.26 A senior Zhejiang official has stated in his memoirs that due to disruption caused by the Criticism of Lin Biao and Confucius, grain had to be shipped into that province from North China to avoid famine.27
The Brutal Assault on Intellectuals and Science
In 1949, Hu Feng, a well-known writer and literary critic, wrote his poem Song of Joy to celebrate the CCP’s coming to power:
“Motherland,
My motherland
Today
At this sacred hour of your new birth
The entire world salutes you
The entire universe congratulates you.”29
But soon his joy turned to disillusionment, and he expressed concern at the political controls placed on writers. He was subjected to violent attacks in the press, made a series of abject self-criticisms, and in 1955 was imprisoned as a counterrevolutionary and head of a “secret anti-party clique,” emerging from prison only in 1979, physically and mentally damaged.
The CCP insisted on starting with a clean slate. It fueled its rise to power through fomenting national outrage against all aspects of Western influence, including Christians, who had established many of China’s top hospitals and universities. During this cleanout of society, valuable social infrastructure was obliterated, foreigners were deported or fled, while the Chinese who had worked with them were treated as suspect for the rest of their lives.
During the Republican period, the Harvard-trained Minister of Health implemented a program aimed at establishing nationwide healthcare coverage at the county level, with an emphasis on preventive medicine. But on taking power, the CCP swept this system away and started afresh with help from Soviet advisors.
Centers of medical excellence, such as West China Union Hospital in Chengdu and Peking Union Medical College in Beijing, which were founded and flourished during the Republican period, were taken over by the new government and the foreign staff expelled from the country. The same happened with foreign-run universities. Any Chinese with connections to the West became the CCP’s punching bag over decades of political campaigns.
As the CCP took power, there was a flight of talent that included many industrialists from Shanghai and Tianjin who ended up in Taiwan, the US, and Hong Kong. The move of Shanghai textile mill owners and their wealth to Hong Kong was largely responsible for fueling the British colony’s post-World War II takeoff. During the 1950s, 100,000 refugees a month fled from Mainland China into Hong Kong, some by surviving the short but hazardous swim.
This exodus was counterbalanced by returnees from abroad, who were motivated by patriotism, by the opportunity to help “revive China” after a century of decline. But many became victims of political campaigns.
China opened the door to ethnic overseas Chinese fleeing the violence unleashed against them first in Malaya, then Indonesia and Vietnam. About 210,000 refugees settled in 84 “Overseas-Chinese State Farms” dotted across South China, bringing with them skills in tropical crops, such as rubber and coffee. One refugee from Malaya told a reporter,
“The seeds brought back by Huaqiao [overseas Chinese] were of superior quality, and together with their technical know-how, the first generation was able to plant high-grade rubber trees and harvest top-quality latex.”30
But during the Cultural Revolution, ethnic Chinese refugees again became victims of violence, this time in China, accused of being spies and even “foreign devils.”31 For example, in one overseas-Chinese state farm in Guangxi, hundreds of farmers (including returned refugees) were brutalized until they became disabled or died.32
Leading scientists were among the many who returned to help build the “New China.” Many fell afoul of the CCP at some stage in their careers. The mathematician Qian Weichang was labeled a “rightist” in 1957 and for the next 26 years, until the verdict was reversed, he repeatedly “received all kinds of humiliation and suffering.”33 During the Cultural Revolution, he was sent to work at the Capital Iron and Steel Works in Beijing.
With regard to the role played by returnees from the West, it is instructive to look at how, in 1965, China made a stunning breakthrough in biochemistry, beating teams in the US and Europe in the race to be the first to achieve the artificial synthesis of crystalline bovine insulin.
In 1938, Wang Yinglai left China for Britain to study biochemistry at the University of Cambridge, gaining a Ph.D. in 1941. He returned to China and after the CCP took power became head of the Institute of Biochemistry of the Chinese Academy of Sciences (CAS). In 1958, collaborating with other returned students, such as Zou Chenglu (Ph.D. from the University of Cambridge), as well as with locally trained scientists, he led the effort that on September 17, 1965, resulted in that extraordinary scientific achievement with insulin. In Spring 1966, Wang, Zou, and another colleague presented their findings to a conference in Warsaw. As Zou put it, “Little did we know that we were to face the ‘Cultural Revolution’ only two months after we returned home.”34
During the decade of the Cultural Revolution, Wang and his colleagues were largely cut off from the international scientific community, missed out on being nominated for the Nobel Prize in Chemistry for their breakthrough, and were unable to continue their research. This is one of many examples of how knowledge and ability were squandered and wasted, to the detriment of China’s progress.
Through the 1950s China absorbed Soviet science and technology in a variety of ways: through the import of complete plants, Soviet blueprints, Soviet advisors in China, and the training of Chinese in the Soviet Union.35 This highly integrated approach permitted the speedy assimilation of the technology and a rapid impact on China’s industrial infrastructure.
In this period, China sent 38,000 people to the Soviet Union for training, of which 28,000 were technicians. The Soviet Union sent 11,000 scientific and technical personnel to China. China established its Chinese Academy of Sciences modeled exactly on the Soviet Academy of Sciences, whose director, Sergei Vavilov, served as consultant to the Chinese. From 1954 to 1963, China and the Soviet Union met annually regarding more than 100 scientific projects, including those in nuclear science.
Soviet science and technology faced political constraints under Stalin, for instance, when biological research was stymied by Lysenko’s pseudoscientific theories on genetics. But it is generally accepted that in the fields of theoretical chemistry, materials science, mathematics, and physics (including nuclear) the Soviet Union did make significant advances.
China itself went through bouts of pseudoscience. In 1960, at the peak of the Great Famine, CAS was instructed to develop food substitutes and came up with a number of pseudofoods, including acorn flour, powdered roots of corn and wheat, leaf protein, man-made meat essence (from enzymes), dried algae, and insects.36
Michael Kochko, the Soviet chemist and academician who spent several years as an advisor in China, criticizes the way China assimilated science and technology in the 1950s, arguing that it “blindly” and “slavishly” followed the Soviet system, focusing on specialized institutes and not on universities. There were not enough trained scientists and China would have been better off teaching new scientists instead. “Better [use] one to train 10. But instead they set up many research institutes, equipped them, but could not staff them.” “Instead of a good university in each province … they have set up in each province ‘branches’ of the China Academy of Sciences, which consist entirely of bureaucrats.”37
He also faulted the Chinese leaders for their negative attitude to basic research:
“[They] do not see that basic, pure research is the cornerstone of all applied science. Instead projects of pure science are mercilessly tossed out by the bureaucrats. This dooms Chinese applied science from the start and forces it to imitate foreign prototypes and borrow alien ideas.”38
Most damning was his view that “the party and government consider all scientists, especially those of the older generation, as ‘class enemies’ who cannot be trusted.”
China also set up a broad range of Soviet-style design institutes that housed China’s engineering capabilities. But their high degree of specialization, whereby they operated in one of the ministry-led silos, obstructed rational horizontal expertise and collaboration.
Just as factories were kept separate from R&D, China’s universities also were not permitted to conduct research and had to focus on teaching. Research was conducted in separate research institutes. The solid-state physicist Huang Kun returned from the UK to China in 1951 and was “allocated” to the physics department at Peking University where he taught but was prevented from engaging in his own research. It was only in 1977 that Huang Kun could get back to his research, which was to have an important impact on China’s semiconductor industry.
Although the Soviet assistance was a poor fit with China’s stage of development, presenting challenges in absorbing skills and technology, it did deliver results in kick-starting the construction of a broad industrial base. But in 1960, with the Sino-Soviet Rift, Khrushchev abruptly withdrew some 1,400 Soviet technicians and experts from China.39 The Chinese, making virtue out of necessity, turned to the concept of “self-reliance.”
By the early 1970s, China was repairing relations with the Western powers and Japan (in part to counter the threat from the Soviet Union), bringing opportunities to acquire foreign technology. But this in turn fell foul of China’s Left, which deemed such imports to be contrary to the principle of “self-reliance.”
This is illustrated by how the issue of chemical fertilizers became a political football. In the 1960s, China made its own significant advances in producing ammonia for fertilizer in small plants using not just coke, but also lignite and coal dust. In the period 1964–1973, production of nitrogenous fertilizers grew almost threefold. Most of this growth came from small plants.40
But when compared to Japan, China’s wheat and rice yields were low, the ratio (China/Japan) being 100:219 and 100:181, respectively.41 This was due to the intensive application of chemical fertilizers in Japan (in kilograms of plant nutrients per hectare of crop area: China 60, Japan 425). A nationwide survey in China showed that 80% to 96% of land was deficient in hydrogen, compared to 40% to 55% being deficient in phosphorus, and 15% to 24% in potash. 42
In 1973, Premier Zhou Enlai started the import of complete industrial plants. High priority was given to nitrogenous fertilizer and in 1972, China contracted to import 19 dual ammonia and urea plants. Chinese were sent abroad for training, while staff from the suppliers helped with the construction in China.
China wanted to reduce its dependence on imports of both fertilizers and hydrocarbons and make them in China. Due to the oil crisis in 1973, the world market price of urea (high-analysis nitrogenous fertilizer) rose in 1974 from US$ 46/ton to US$ 250–280.43
The Left started its attacks. In 1976, after he was purged for a second time, Deng Xiaoping was accused of attempting to “negate the Cultural Revolution” and to “strangle” small fertilizer factories. The same year, the policy of exporting oil to pay for the import of large fertilizer plants was heavily criticized. Jiang Qing (the wife of Mao) is said to have “decried” an imported ammonia plant as “comprador slavishness” and “national betrayal” and “even wanted the Taching [Daqing, a major oil field] to dismantle the plant, which was nearing completion.”44 In October 1976, Jiang Qing and the rest of the “Gang of Four”3 were arrested. The Daqing urea plant was completed and came on stream.
There were other incidents of this kind. One of the most bizarre cases was that of a second-hand 10,000-ton passenger/cargo vessel bought as scrap on the world market, repaired, refitted, and made ready for service. But the Left is alleged to have said, “The ideology of worshiping foreign things is now spreading everywhere unchecked.” The vessel was forced to be left moored in Shanghai, and it was not until six months later, after the “Gang of Four” was arrested, that it could finally set out to sea again.45
Farcical though that incident may appear (and putting aside the propaganda rhetoric, which sought to nail the “Gang of Four”), it was a manifestation of a serious pattern of factional political infighting that hampered the absorption of technology and undermined economic development.
The Dead End of the Mao Years
China’s economic planners, armed with the towering confidence derived from “scientific Marxism,” coupled with massive Soviet support for a time, sincerely believed that they could somehow sidestep basic economic principles.
There were indeed some laudable results. Except for the period of the Great Famine, China was largely able to feed its huge population. From 1952 to 1978 (the first year of the post-Mao economic reforms) China’s GDP and output of industry and commerce grew at average annual rates of 8.2% and 6%, respectively. Moreover, this was accompanied by major progress in areas such as women’s rights, education and literacy, healthcare coverage, and disease control.
But growth was uneven and certainly not a straight line. After 9% GDP growth during the period 1952–1957, it declined by 2.2% in 1958–1962 due to the Great Leap Forward and the famine it precipitated. In 1963–1965, GDP growth surged back to 14.9%, only to fall back to 6.2% during the Cultural Revolution.46
But the growth did not translate into wealth creation. China’s per capita GNP, starting from a pitifully low base of US$ 52 in 1952, reached only US$ 210 in 1978, 25 years later. How was it that the economic development did not lead to a major improvement in China’s living standards or, put another way, “Why did China fail to achieve economic modernization?”47
Part of the answer lies in serious structural imbalances. Industry grew annually at an average rate of 11%, while agriculture and commerce grew at only 3% and 4%, respectively. Heavy industry grew 15%, at the expense of light industry. During the First Five Year Plan, investment in heavy industry was nearly 6 times that of investment in light industry and that rose more than 8 times by 1976–1978. China’s economy was also highly inefficient. Energy consumption was much higher than that of other developing economies, let alone the developed ones, while the working capital of Chinese enterprises accounted for as much as 26% of total assets due to excessive inventories of raw materials and finished goods.
As a prominent Chinese economist puts it:
“Because of the bias in the distribution of national income, personal income and people’s living standards were persistently suppressed at a low level…. Living standards improved little over more than 20 years. Maximum resources were allocated … to the production of capital products while the production of consumer products was severely restricted.… In urban areas, people faced the policy of low wages and wage freeze.… In rural areas, because of the urban and rural segregation, people suffered from insufficient employment and lacked incentive for agricultural production.”48
Some observers still argue that the problem with the Soviet economic model was its faulty execution in China rather than its intrinsic weaknesses.49 But there is abundant evidence that the Soviet system was not only a poor fit with China’s low-level of development, but was also per se an irrational construct that hampered human economic activity.
For many sympathetic observers outside China, China had represented the hope that “socialism” could transcend the defects witnessed in the Soviet Union. The book “The Chinese Road to Socialism” (1971),50 applauded the Maoist model, taking at face value what the authors were told or shown, while ignoring its fundamental faults. For some, it came as a surprise and a disappointment that China eagerly seized the chance, post-Mao, to ditch both the Soviet economic model and Mao’s own variant of it.
So the root of the problem lay in the wholesale and unquestioning import of the intrinsically flawed Soviet economic model, compounded by the Maoist variant, which made a virtue out of poverty. In 1974, the loudspeakers I heard blaring out over the campus in Beijing urged citizens to “pass a frugal New Year” and to avoid “eating or drinking a lot.” There was a deep bleakness about that vision of society. Even after several decades of peace and modest economic growth, citizens still had to present ration coupons alongside money, as they purchased rice, cooking oil, wheat flour, and cotton-cloth.
In 1976, shortly before Mao’s death, the Chinese government published the eye-catching pamphlet entitled “Why China Has No Inflation.”51 Of course, the answer to this question was blowing in the wind. China’s economy had been run into the ground and was largely excluded from the global trade (in part through no fault if its own). The result was no path to wealth creation, but instead bleakness and poverty. As Deng observed later, China’s development had been set back several decades.
So the early decades of the PRC, far from ushering in a new dawn, saw China sail to economic ruin. As an ode to Mao Zedong from the Cultural Revolution puts it, “sailing the seas depends on the helmsman.” The irony of that revolutionary anthem is now painfully apparent.
The year 1976 was pivotal for China. After Premier Zhou Enlai died, the Left was able once again to remove Deng Xiaoping. But its days were numbered. After Mao died later in the year, the Left found itself isolated and within a month, the “Gang of Four” (as the remaining leaders of the Left became known)52 had been arrested and, following a show trial, were sent to prison. After a two-year transition, by 1978, Deng Xiaoping had full control of the CCP. He embarked on earthshaking reform of the economy and presided over a rebirth of the Chinese entrepreneurial spirit.