The setting

Chapters 5 to 8 deal with the different aspects of China's economic performance shaped by the factors discussed in the earlier parts of this book. In a fundamental sense, one could view China's economic development as a dialectic process based on a continuous confrontation and interplay between scarcity rooted in the country's economic backwardness and ideology shaping the new regime's goals and objectives. Scarcity and ideology were both, to a greater or lesser extent, conditioned by the legacy of the past explored in Chapter 1. At the same time, ideology and the aspirations arising therefrom influenced the development strategies examined in Chapter 2. All these then molded the system of economic organization described in the two subsequent chapters.

Expressed in Marxist terms, this development process could be considered the product of both the base and the superstructure, that is, the mode of production and the relations of production on the one hand, and of ideas, cultural style, motivation, and revolutionary will on the other. The effectiveness of these inputs from the past, from ideology, and from the system of economic organization can thus be expressed by measuring its impact on economic stability, on growth and structural change, on international economic relations, and on income distribution.

Within this analytical framework, the degree of economic stability attained in China was appraised in the preceding chapter. Therefore, here we will examine how rapidly the economy grew and some of its most significant growth characteristics. This appraisal will be based on an analysis of aggregate and per capita GNP trends and changes in GNP composition.

The historical roots

As shown in preceding chapters, the Chinese Communist leaders dedicated themselves to transforming China into a modern socialist state. They had certain images of what the broad contours of that future state might be. These images were shaped by their ideology and world view on the one hand and by the realities of China's economic backwardness on the other. Both the ideas and the economic realities were to a large extent the legacy of the past. Therefore, one of the key problems facing the new leaders was how to build an economic system best adapted to attain their goals and objectives given the conditions inherited from the past. These were the issues addressed in Chapters 3 and 4.

Having constructed this economic system, what were its performance characteristics? How effective a vehicle did it turn out to be in pursuing and implementing the new regime's objectives? It is clear from the preceding chapters that to attain their goals, Chinese leaders pursued a high investment–growth strategy of development. Such a strategy was bound to generate inflationary pressures. Yet, as will be shown here, these pressures were contained very effectively. How this was done and what factors contributed to this outcome will be examined in this chapter.

With worldwide inflation and deep recession characterizing the mid-1970s, we are much more concerned about economic stability than we were some years ago. Policy makers and economists rather complacently assumed that they had at their disposal effective instruments for controlling inflation and unemployment in market economies.