Arsalan-MidTerm Paper - Chinese Economic Reforms

CHINESS ECONOMIC REFORMS
RURAL
INDUSTRIALIZATION
AND
THIRD FRONT
An assessment of Mao`s ear
Mid Term Paper
Submitted to: Yanqiang Ding, School of Economics, Shandong

University
Submitted by: Arsalan Ahmed PhD student, School of Economics,
Shandong University
Page 1 of 6
INTRODUCTION:
Historically many experiments had been conducted on the Economy on china by the leaders of
People Republic of China, but if we analyzed the historical perspective of Chineses economic
reform at the larger canvas than we can divide the Chineses economic reform into two major
periods, First the Socialist era (1949-1978) and the 2 nd so called Economic Reform ear (1979
Present). In 1949 during the Chinese civil war, Communist Party of China (CPC) under the
leadership of Mao Zedong defeated Chinese National People's Party and proclaimed the
establishment of the People's Republic of China. After the end of war chairman Mao stared to
focus on the economic policies to recover the Chinese economy and try to accelerate it toward
the positive directions. The Chineses economic reform (1949-1978) was solely consisted on the
economic policies of Mao, started from the economic recovery period of 1949-1952 following by
The First Five Year Plan (1953-1956), The Hundred Flowers(1956-1957), The Great Leap
Forward( 1958-1960), The Third Front and Rural industrialization (1964-1966), The
Cultural Revolution (1967-1969), and Rural Industrialization in l970s etc. Among these polices
the rural industrialization is one of the major economic reform by Mao. Rural Industrialization
was the part sequentially part of rural education and Collective farming.
Historically the
Industrial base of China was located near the coastal areas such as shanghai etc.
OBJECTIVES OF RURAL INDUSTRILIZATION:

The objectives of this the rural industrialization are multiple, the first object was to provide a less
vulnerable third front industrial base to the country which will be used in the need of defense at
the war time. Mao had been already started the heavy industrial production in 1950s but in 1960s
china has been isolated in the region as cooperation from soviet union has broken, United States
had formed air base in Taiwan, Japan and Korea, so in 1970s Mao has decided for expanding the
industrial base to the western provinces and the mountainous interior of central coastal
provinces. This shifting of industrial base to the rural area provided china a support in the line of
defense. The 2nd objective of this rural industrialization is to provide a industrial input of
chemical and fertilizer to the agriculture sector of the country so that it reduced the transportation
cost for the agriculture sector. The 3rd objective of rural industrialization is to exploit the
resources of rural area and that would work as the complement to the urban industrialization.
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PRESPECTIVES OF RURAL INDUSTRIALIZATION:

Rural Industrialization has first started from the economics police of so called the Great Leap
or walking on Two Legs the first five years plan has only focus to the Industrialization of the
urban areas but after in the 2 nd five year plan it was decide by the Mao to run the rural and urban
Industrialization simultaneously, According to th Mao this simultaneously approach will quick
the pace of industrialization, quicken the pace of mechanization of agriculture and
the
development gap between the city and the country side will be reduced. Mao`s government had
known that in the rural area it was impossible. to move the labor force from agriculture sector to
the industrial sector because if all the labor move from agriculture sector to the industrial sector
it will a huge set back to the Economy so Mao planed that these rural industries will shut down
on key harvest months agriculture sector and will work on speed when the labor is available in
off agriculture season. Rural industrialization provides a low cost to the agriculture input to the
agriculture sector as the chemical and fertilized will be available in the rural area. This rural
industrialization had remarkable increased the industrial production of steel from 4.5 million
tones (1956) to 100 million tones (1962). But this rural industrialization badly affects the
agriculture sector of the country and cause the great famine in the country. The first reason of
this famine was that the labor force of rural area prioritize to work in industry as compared to
work on the farm while secondly as the rural labor start focusing on the production on steel so
the agriculture inputs were not produced in this rural industrialization so the mechanization of
agriculture did not worked. This famine posted a make of fail to the face of The Great Leap.
Mao was not totally disappointed from the failure of The Great Leap, he start focusing on the
rural industrialization once the famine ended but this time Mao used some precautions to avoid
the causes of famine. In1970s Mao once again promote the rural industrialization with a new
approach this time he restricted the counties, commune and brigade to the agriculture production
through limiting access to bank loan. As mentioned above one of the major reason of this rural
industrialization was the initial the thirst front program of defense industrialization. Mao
believed that agriculture and defense are the first two important things for the country and the
basic industry come 2nd to these two things, with the good relationship from soviet union the
defense budget reduced to 10 percent in 1964 from 40 percent in 1950s but From the early
1960s, with its Soviet ties deteriorating and the Vietnam War escalating, China became
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concerned of a possible nuclear attack so the defense budget increased to the 25 percent in
1970s. Moa focused to locate the industries in the rural areas because if china attacked from any
other country then these rural industries will be more protected as compared to the costal urban
industries. Third Front projects followed the principle Close to the mountains, dispersed, and
hidden (kaoshan, fensan, yinbi). This principle was motivated by national defense
considerations; plants were required to be hidden in the mountains and were not allowed to be
geographically clustered to minimize the damage of air strikes. This principle was first used to
guide the location choices of some highly confidential firms, but was quickly used as the guiding
principle for location choices of essentially all Third Front projects. According the Third FiveYear Plan passed in September, 1965, investment in the Third Front region accounted for 42.2%
of the national total. In sections such as heavy industries, national defense industries, and
transportation industries, the share of the Third Front region was about 74%. In the rural
industrialization some major constructions includes the steel city of Jiuquan located in Gansu,
the coal center at Liupanshui in Guizhou, the Automobile Plant(lorry production) in Shiyan
located in Hubei. Also new railways constructed across the countryside of western china linking
Chengdu and Kuming through Panzhihua. Rural industrialization significantly affect the growth
of some rural area as the Growth of Industrial Output (GVIO index) of Panzhihua increased from
26 (1965) to 11,477(1978), for Tianshui GVIO index increased from 21 (1965) to 1,346 etc.
ASSESSMENT OF RURAL INDUSTRIALIZATION POLICIES:

1. RURAL INDUSTRIES`S EFFICIENCY IN TERM OF PRODUCTIVITY?
Is has been discussed in the literature that Rural Industries was inefficiency in term of
productivity, there can be multiple reasons that these industries are inefficient first due to the
state ownership, second due to the fiscal decentralization, third is that these industries were
infant. Another argument for the inefficiency of rural industries is that the rural industries were
on the small scale and these industries were dispersed, here we should note that the Rural
Industrialization follow the principle of Close to the mountains, dispersed, and hidden
(kaoshan, fensan, yinbi) which shows that for Mao economics consideration is second. The
argument of infant industries is also valid to some extent because these industries grow at the
faster pace in 1980s and 1990s.
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2. EFFICIENT AT THE WIDER MACROECONOMICS/ SATISFYING CHINA

DEMAND OF MANUFACTURES?
As it is discussed that rural industrialization was inefficient in term of productivity but one
question is still remain and that Is it Efficient at the wider Macroeconomics thus satisfying
China Demand of manufactures? The World Bank data shows that the in 1980 the industrial
share in china was 49% which is much higher than the low-income and middle-income countries,
but this data is not correct. The reason is that the relative price structure of china was totally set
by the state and the state was forcedly put the high prices of industrial products and set a very
low prices of agriculture products.so the industrial products were overvalued and the agriculture
products were undervalued. Maddison (1988) estimate the industrial share by using the current
prices and found that the industrial share in china was 38% in 1978, which shows that after the
Mao rural industrialization china was still under industrialized. Another fact which shows that
china was under industrialized was the employment rate; in 1978 the employment in secondary
sector was only 17 % which shows that the industrialization was underdeveloped. Thus this rural
industrialization was also inefficient at the wider Macroeconomics thus dont able to satisfying
china demand of manufactures.
3. PROVIDED ADEQUATE FOUNDATION FOR CONTINUING GROWTH AFTER
1978?
The third major question regarding the rural industrialization is that, Was that rural
industrialization provided adequate foundation for continuing growth after 1978? Mao rural
industrialization was mainly active on the heavy industrial product which were used in the
military products, but after the Mao, Dengist regime used that rural industrialization in the
civilian use product and thus boost the economy at a fast speed, also the rural industrialization
provide human capital to Dengist regime, without that human capital it will be difficult to the
Dengist regime to follow the success in such a short period. The post Mao ear development was
very fast in those parts of china which were already have rural industrialization, as compared to
the other areas.
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4. HELPING IN REDUCTION OF SPATIAL INEQUALITY?

As a result of rural industrialization in third front the spatial inequality were reduced to some
level as before the rural industrializing and third front most of the development is concentrated to
the coastal areas, but this rural industrialization spread the growth to the other parts of the
country, but still that rural industrialization promote at the higher level only on those areas which
had favorable geography and large access to the urban areas.
REFERENCES:
a. Chinese Economic Development by Chirs Barmall

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CHINESS ECONOMIC REFORMS

Submitted to: Yanqiang Ding, School of Economics, Shandong

OBJECTIVES OF RURAL INDUSTRILIZATION:

PRESPECTIVES OF RURAL INDUSTRIALIZATION:

ASSESSMENT OF RURAL INDUSTRIALIZATION POLICIES:

2. EFFICIENT AT THE WIDER MACROECONOMICS/ SATISFYING CHINA

4. HELPING IN REDUCTION OF SPATIAL INEQUALITY?

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