The Economy, 1949–1978

The Chinese economy during the first three decades of rule by the Chinese Communist Party was organized in a fundamentally different way from that of market economies in much of the rest of the world and from what the Chinese economy became in the 21st century after three decades of market-oriented economic reform. Beginning in the mid-1950s, China introduced a centrally planned command economy patterned on that of the Soviet Union. This economic system involved the abolition of household agriculture in favor of collectives, first called “agricultural producer cooperatives” and, later, “Rural People’s Communes.” Industrial inputs and outputs were allocated by administrative means in accordance with a plan developed by the State Planning Commission, and market forces were largely eliminated in industry and large-scale commerce. Wages were set, and skilled workers were allocated to jobs by the government rather than by a labor market. Even many consumer goods were rationed, although some were allocated to households through the market; prices paid to farmers also played a limited role in government procurement of agricultural products. This highly centralized nonmarket, Soviet-type system, however, was introduced into the very different context of a developing country that was extremely poor. From the beginning, China’s leadership and that of Chinese Communist Party Chairman Mao Zedong, in particular, explored alternatives to these rigid central controls. The result of these explorations more often than not was economic disaster, leading to the 1959–1961 famine in which roughly thirty million people are believed to have died. The government and the leadership also pursued political goals, notably during the Cultural Revolution (1966–1976), that disrupted the economy and slowed economic growth. Economic studies during this period thus focused on how the economy was organized, how it made the transition from a market economy to a nonmarket command economy, and how the institutions and performance of this command economy performed in various periods. Describing the institutions was easier than measuring performance because, from 1958 to 1960, China published data that grossly exaggerated China’s economic performance. After 1960, given the reality of famine and a poorly performing economy more generally, the government simply stopped publishing statistical data on economic performance. Many analysts outside China thus had to piece together the data that did leak out, and much of their work managed to capture what was happening. The publication of increasing amounts of official data, beginning in 1979, filled in some of the gaps in the earlier literature. Most Chinese economists from 1949 through 1978 were expected to follow the government/party line at the time in anything they published; however, there were exceptions in which individual economists and officials stated views on economic matters that did not reflect the dominant government/party line.