The present situation in China's heavy industry is a strange sequel to the programme for rapid industrialisation that took place from 1950 to 1960. Production of steel and other heavy industrial products were once proudly broadcast to show China's progress. Now the Chinese planners stress only the ways in which heavy industry can support agriculture. The priority once given to heavy industry is now a political liability rather than a basis for feelings of national pride. Behind the euphemistic description of present objectives in industry as “work to readjust, consolidate, fill out and raise standards” is a situation where the planners show little interest in maximising production in heavy industry. This serious setback to the programme for rapid industrialisation needs to be interpreted in the light of the trends in capital formation that have occurred since 1950.

The development of the ideological controversy between Communist China and the Soviet Union in recent years has aroused increased interest in a more careful evaluation of Sino-Soviet economic relations. In this paper, I attempt to deal with one specific aspect of this broad area, that is the price problem in Sino-Soviet trade.

A sharp contrast stands between the mood of optimism in 1958 and 1959 when official as well as unofficial reports of industrial progress continued to pour out of Communist China and the silence and complete black-out of statistical information which has characterised the Chinese scene since 1960. If the principal landmarks are retraced, the first major sign of a change in official policy appears to have come in early 1961 when the Chinese Communist Party decided to reverse the policies which had characterised the “leap forward” of 1958–59. This was followed by a drastic policy of retrenchment in investment and reorientation of industrial production during the latter part of 1961 as the economic crisis deepened. Since then the new slogan has been “adjustment, consolidation, reinforcement, and improvement”; the new order of priorities is agriculture, light industry and heavy industry; the new approach is to regard agriculture as the economic base and industry as the “leading factor.”

China had no Second Five-Year Plan (1958–62) only five ad hoc annual plans during that period. In basic construction and industrial production a great leap forward did take place in the first three years, only to be followed by collapse and readjustment in the last two years. In agriculture, the period started with an unprecedented bumper crop in the first year, after which there commenced an agricultural crisis that grew in intensity from year to year until 1962 when the output of food grains and green vegetables began to show recovery. This was in sharp contrast to the First Five-Year Plan period which concluded with spectacular achievements in heavy industry, moderate success in light industry and slow but steady improvement in agriculture.

In their concerted and ardent efforts to industrialise and develop the economy rapidly, the leaders of the Chinese Communist Party have given work incentives an important role—a role which operates narrowly within the limits set by economic necessity and ideology. The pendulum has swung from an emphasis on material incentives (First Five-Year Plan, 1953–57) to a stress on non-material incentives (1957–60) and back again (1960 on). These major changes in incentive policy have reflected the significant turns in the grand socio-economic strategy of the Chinese Communist Party.

At the beginning of the “Great Leap Forward” campaign of 1958, Mao Tse-tung declared the now much publicised “eight-character constitution of agriculture” for the technical transformation of agriculture. This “constitution” was essentially a condensed and more appealing version of the National Agricultural Development Programme for 1956–67, promulgated in 1956, which contains twelve important measures to improve agricultural production. The eight Chinese characters referred to are: shui, water conservation; fei, fertilisation; t'u, soil conservation; chung, seed selection; mi, dense planting; pao, plant protection; kung, tool improvement; and kuan, field management.

Until a short time ago, it appeared that much of what was going on in China could be characterised by the cynical aphorism plus ça change plus c'est la même chose. Many things became manifest in the country that were reminiscent of themes centuries old. China had gone through two radical phases, one during the First Five-Year Plan period when the Chinese Communists tried to repeat the Soviet experience of industrialisation, and the second during the Great Leap Forward when they used their own mobilisational means to try to achieve economic break-through. The ninth Plenum in January 1961 called a dramatic halt to the extreme policies of the Great Leap Forward, and launched a period that bears strong similarities to the N.E.P. (New Economic Policy) period of the early 1920s in the Soviet Union. Many traditional patterns that were effaced during the years of radicalism began to reappear. There was talk of the need “to study very well traditional economic relationships.” It seemed that for a while the leadership had decided that only a truly voluntary response from below, and not coercion of any sort, could rescue China from the morass in which it found itself. But as of the time of the writing of this article, there are ominous signs that China may be approaching another “1928.” The Party drums are rolling once again, and the themes are not those of the N.E.P., but more like those which preceded the great Soviet collectivisation drive of 1928. During the last few years, the leadership made no attempt to hide the facts of China's poverty and isolation. But now a new note of defiance, of toughness has crept out. Where it will lead is hard to say.

Economic planning in China was pioneered by Kao Kang, Chairman of the North-East Administrative Area in the early days of the Communist régime, who controlled the region formerly known as Manchuria. This was the region which the Japanese had developed into China's foremost centre of heavy industry. It came under Communist rule before most of the country and as early as 1949 the North-East Financial and Economic Commission had made a rough plan for rehabilitating its industry. Two years later a regional planning commission was established.

The second National People's Congress of the Chinese People's Republic held its fourth session in Peking between November 17, and December 3, 1963. Altogether 1,012 deputies attended the session.

Even though it is a truism, it is worth pointing out that with relatively little foreign trade and even less foreign aid, Communist China's economic growth must in the main result directly from the development of her indigenous resources. In her comparatively backward economy, most of those resources were to be found initially in two traditional sectors of production: in agriculture, and in various crafts and trades. Due to limited division of labour, these two traditional sectors were not separated sharply from each other, but overlapped in the person of the peasant-craftsman who was relatively common in the countryside.

The importance of examining the location of China's steel development is not confined solely to the steel industry. It reflects to a large extent, the Communist policy on industrial location in general. The new steel centres have been planned to form the nuclei of industrial complexes. To counteract the pre-Communist concentration of industry in the coastal areas, the Communist régime has emphasised from the beginning that a wide dispersion of industry is desirable from the standpoint of economic development and national defence. In planning new capital construction, therefore, regional development constitutes a key-note while sources of raw materials and fuel supply, consumption centres, future mechanisation of agriculture and national security become the major determinants of industrial locations. As a result of adherence to this policy, a new pattern has emerged for the location of China's steel industry.

The annual sessions of the National People's Congress have always been more like a national rally than the parliamentary institution outlined in its own constitution. The leaders meet a large selected group deemed to represent the nation, outline their picture of national and international affairs, describe their plans and hopes for the future and call on the citizens to rally to the flag. From the floor of the house deferential speeches assure the leaders that all sections of the nation agree with them and will obey their call with alacrity. For the student outside China the first consideration is of course not what is said but how much is published. Six or eight years ago he had to wade through reams of material to catch the general flavour and find the occasional grain of fact in drifts of formal and repetitive chaff. In 1962, and now again in 1963, the problem was very different. The published documents are very brief and many passages are so generalised and indeed abstract that only an initiate can be sure of their meaning. The student's task is to expand these generalities and to suggest their context and their real meaning.

It is generally known that the exchange rates in Soviet-type economies are disequilibrium exchange rates in the sense that without controls they do not tend to lead to a balance on the international current accounts. Of the two economies involved, it is also known that these exchange rates are unrealistic, in the sense that they have no relation to the gold content of currencies involved, if the currencies have a gold content, and that these rates do not reflect the relative domestic purchasing power of the two currencies on internationally traded commodities. In the case of the exchange rate between the Soviet rouble and the Communist Chinese yuan, even this disequilibrium and unrealistic exchange rate has in the main been veiled in secrecy since 1950. This secrecy has caused considerable difficulties in working with the Communist foreign trade statistics.