By Liu Dian Source: China Pictorial Published: 2019-7-10
Since the People’s Republic of China was founded in 1949, the Communist Party of China (CPC) has consistently performed strategic exploration of economics. From 1949 until the end of the first Five-Year Plan period (1953-1957), China completed a series of remarkable economic achievements.
If you compare the economy of China to a computer, its economic system serves as the operating system. The backward system of old China was collapsing in terms of software: The old economic system was in poor shape and couldn’t keep up with China’s needs to build a modern country. In terms of hardware, many key components were already damaged. Back then, the Chinese economy, which had been plagued by war for decades, was in a state of paralysis: Industrial and agricultural production was severely damaged, domestic and foreign trade was stagnant, goods and resource shortages plagued both urban and rural areas, inflation was severe, and people endured difficult lives. The most urgent task for the newly founded People’s Republic of China was to wipe the outdated data from its obsolete system and to reboot and revive the broken Chinese economy as soon as possible.
Focusing on “Unification”
In the eight years from 1949 to 1957, the economic work of the Chinese government could be divided into two phases. The work focus at each phase was different. The first stretched from 1949 to 1952, and the focus of this period was restoration and adjustment.
This period was also known as the recovery period of China’s national economy, with the core of economic work on “unification.” At the time, China’s economic situation required the country to take effective measures to unify economic management. The heart of the task was to unify the country’s financial and economic work to stabilize its monetary and financial system.
This was a silent “war.” In fact, this battle was already raging even before the founding of the People’s Republic of China. Faced with China’s chaotic economic situation at that time, the CPC used the battle to curb the price hike of commodities in Shanghai as an opportunity and launched three major economic “wars,” including a war on the silver dollar, a war on cotton yarn and a war on grain. The victory in these three wars paved the way for the unification of China’s finance and economy.
However, the overall situation remained grim. For some time after the People’s Republic of China was established, grain deliveries and tax revenues were still received by local governments. The central government couldn’t carry out unified collection of funds by the state, only unified allocation. Healthy development of the economy required this situation to change.
To solve the problem, the National Financial and Economic Work Conference was held in February 1950. The conference focused on the major issues of unified financial and economic regulation, staff reduction, monetary management, and balanced allocation of material resources. Specific measures were made to target these problems. In March 1950, the three main tasks to unify China’s financial and economic work were promulgated: unifying management of national fiscal revenues and expenditures, unifying nationwide material distribution and unifying national monetary management. In just a few months, China realized the unification of financial and economic work, fundamentally changing the fragmented situation in finance, economics and fiscal revenues and expenditures as well as the unstable financial situation and commodity prices. Since then, China’s economy has maintained normal and regular operation.
After solving the “unification” problem, China strove to restore and adjust the economy from 1949 to 1952. The country gradually established a state-owned economy, creating the material foundation for restoring the national economy and carrying out large-scale economic development.
Development and Construction
The focus of the second phase of China’s economic development in the early days after 1949 was development and construction. Due to a weak industrial foundation, the prevalence of the small-scale farmer economy, low agricultural productivity and an underdeveloped commodities economy, China was quite lagging in terms of overall economic development as well as social and economic structure. In 1953, the country implemented its first Five-Year Plan to develop its national economy.
During the first Five-Year Plan period, China launched large-scale international economic cooperation primarily with the Soviet Union. A total of 156 key construction projects assisted by the Soviet Union were carried out during the first Five-Year Plan period. After years of effort, China made great achievements and completed targets ahead of schedule in 1956. By 1957, China’s national industrial output value reached nearly 79 billion yuan (US$11.5 billion), exceeding 21 percent of the original plan, an increase of more than 128 percent over 1952. By the end of 1957, various targets of the first Five-Year Plan had been overfulfilled. The achievements in industrial production during China’s first Five-Year Plan period far exceeded those of the previous 100 years. The country’s growth rate was also among the best in the world during the industrial take-off period.
China made great achievements during its early days of construction. The period served as the foundation for the country’s economic development over the past seven decades. From the period of national economic recovery to the completion of the first Five-Year Plan, China’s economy encountered many difficulties. In terms of economic development and social supply and demand, China faced shortages in funds and professional and technical personnel. It couldn’t provide people with sufficient food and clothing, and supply from the market couldn’t be increased during a short time. To cope with the situation, the Chinese government strengthened the unified economic management and gradually formed a highly centralized system of planned economy. This system met China’s need to concentrate on the development of heavy industry and played an active role at that time.
Today, looking back at different economic policies for different historical periods over the past 70 years, it should be clear that both market forces and planning are effective means of economic development. Planning is not the essential feature of socialism, and the market is not only for capitalist economies. Both are instruments for economic development. Many economic initiatives in the early days after the founding of the People’s Republic of China were unprecedented explorations and practices in selecting the development path toward a publicly owned economy. They held great and profound significance, leaving behind immeasurable historical value and experiences for generations to come.
Liu Dian is an assistant research fellow with Chongyang Institute for Financial Studies at Renmin University of China.