When I was growing up in HK, I heard many bad things about China during the 1960s, like government induced famines, and the “Great Leap Backward” instead of Forward. Reading Wen Tiejun’s book was quite an eye opener. All these supposedly bad things should be placed in the context of China’s situation at the time. 當我在香港長大時，我在 20 世紀 60 年代聽到了許多關於中國的壞話，例如政府引發的飢荒，以及「大躍進」而不是「前進」。 讀了溫鐵軍的書，真是大開眼界。 所有這些所謂的壞事，都應該放在當時中國的情況來看.

Our study notes of Eight Crisis, Lessons from China, 1949-2009 (in Chinese) pp. 35-78 八次危机:中国的真实经驗 北京东方出版社 2012.10

China is the only developing nation which has accomplished primitive capital accumulation and proceeded into industrial expansion and adjustment. Why is this the case? Let’s review how the PRC did it since its founding in 1949, until Deng’s reform starting 1978-80.

All developing countries face the same problems in industrialization: extreme lack of capital and technology for manufacturing. All will have to go through a period of primitive capital accumulation. This capital accumulation can be foreign in origin or domestic, by internal cost transfer. The imperialist countries did this by plundering underdeveloped countries and reviving slavery. Developing countries have no such choice.

Many developing countries have been able to start industrialization, relying mostly on foreign capital as the primitive capital for starting factories, but stumble part way because of financial and political crises. China faced the same issue (e.g. complete withdrawal of Soviet investment and technical help by the end of the 1950s), and was not able to obtain help from the western block until the thaw in relations with the US in the 1970s. China overcame the crises it faced. How did China do it?

1949

China had indeed reached its nadir in 1949 for the last couple thousand years. 90% of its population were illiterate or semi-literate; 70% of its cadres in northern China were also. The country was devastated by wars, foreign and domestic, for over 100 years, with little industry left. The Chiang regime absconded to Taiwan with all of China’s gold, foreign reserves, and the educated and merchant classes.

1950s and the Korean War

Then in the summer of 1950, the Korean war broke out. The PRC aligned itself with the USSR, and sent armed forces to Korea to fight the allied forces commanded by the US. In order to boost production of military supplies and equipment, the Soviets and China agreed to start a speedy industrialization program (156 projects) in China in the areas of coal, steel, metals, petrochemical, machinery, and ordnance (i.e. heavy industry), for a total of 68394 rubles. With Soviet aid, Chinese industrial production for the first time accounted for over 40% of its GDP.

In 1956, China insisted on the Soviets’ return to the PRC, the control of railways and special zone in Dalian, and removal of Soviet military bases in Northeast China, to safeguard its sovereignty. China also refused to let USSR control its armed forces, leading to a Sino-Soviet split in 1958. The Soviet promptly withdrew all its investments and technical assistance to China, and demanded that China repay its 5.4 billion US dollar loan, which included the munitions supplied to China to fight the Korean War. China had to repay the loan with agricultural and mineral products.

1960s

To make up for the extreme lack of capital, in the 1960s, China mitigated the problem by mobilizing a large amount of labor at a low cost into the construction of state projects. Apart from China, it is rare to find another developing economy in which one or two generations of people are willing to sacrifice themselves for the primitive accumulation of state capital. There is a saying in China that the one or two generations of Chinese who bore the brunt of this mitigation as “one generation has eaten the bitterness of several generations.” For the millions of peasants mobilized during the land revolution, this sacrifice was not unconscious.

Meanwhile, the PRC was threatened with nuclear blackmail, twice by the US, once during the Korean War and a second time in 1958. The USSR came close to conducting a surgical strike on China’s burgeoning nuclear program in 1969. China decided that concentrating its industries along the Chinese coast is too risky, and started to move and distribute them over a large area in western China. During 1964-1975, China spent about half of its infrastructure allocation for this purpose, without realizing any return for this money. In fact, the fact that these industries were widely distributed over a large area made it very difficult to achieve efficiency in manufacturing.

Chiang Kai Shek in Taiwan was planning an invasion of the PRC. India tried to take advantage of China’s weakness and instigated a war at the border, and the US escalated the Vietnam war.

China had to also use its scarce surplus extracted from the countryside to maintain the heavy defense related industries and invest in a nuclear program, which did nothing to improve people’s lives. Food became scarce in some years during bad harvests, while precious food products had to be diverted to repay the Soviets. (Surplus value is extracted from the agricultural sector through low purchasing price of agricultural products and high pricing of industrial products.)

China copied the Soviet model in the early 1950s lock stock and barrel, by localizing industries. That means local governments used its own resources to develop industries. But the Soviet withdrawal of technical assistance left the local officials without enough knowhow, and resulted in the backyard steel furnaces in the Great Leap Forward. It is estimated that in 1958, about 90 million people were engaged in steel making, with another 10 million in supply or related work for steel making. High cost and high waste form of production. This even adversely impacted agricultural production.

Under the banners of class struggle and continual revolution, China mobilized almost all of its officials, intellectuals and masses to construct needed infrastructure for industries, and successfully substituted labor for the extremely lacking capital in such projects. Because industrial production is localized, the local government spending increased from 29% in 1957 to 55.7% in 1958. The central government budget amounted to only 20% of total, but increased to over 50% after 1961.

The central government printed too much money which led to a fiscal crisis in 1960. Investment by local authorities in industries could not be maintained at the 1950s level, which led to a recession in the cities Urban employment fell from 130 million in 1960 to about 4537 million in 1962, a reduction of over 80 million. Starting in 1961, the Chinese government had to reduce infrastructure spending and sent students and young people from the cities to the countryside, to at least have them fed in exchange for their labor. This greatly relieved the pressure on Chinese cities, and allowed a soft landing in the cities. This has the same effect as imperialist countries dispersing their excess population to their colonies.

Rural China had undergone an exercise of mass mobilization for the nation-building of a new China via a land revolution. Rural China was relatively stable at that time and benefited from an all-round agrarian reform which represented the fundamental appeal of peasants in China for a few thousand years. In the name of Land Revolution, the government distributed land to some 400 million peasants and property rights were defined by the natural boundaries of villages. Rural China thus could absorb the tens of million youngsters sent and acted as a safety valve or shock absorber for China. Without such thorough land reform this would have been impossible. Altogether about 20 million youngsters (mainly high school students) were sent to the Chinese countryside during the three crises of primitive capital accumulation: 1960, 1968 and 1975.

China was able to systematically purchase food products, provide assistance to veterans and take on irrigation projects because of the collectivization in the rural areas.

China was able to maintain and grow its industries even after the Soviets totally withdrew their assistance. This was made possible by substituting labor for the extremely lacking capital, requiring a whole generation to endure hardship. Peasants making up 88% of the Chinese population were fully supporting the Chinese government in this process, because they benefited from the land revolution. This marks a fundamental institutional difference between China and other developing countries that have not undergone a similar popular land revolution.

Consequently China had built a complete set of heavy industry sectors, which are either totally lacking (such as in Vietnam) or rather incomplete in other developing countries. By the end of the 1960s, China had a relatively complete industrial structure comprising of the primary, secondary and by then incomplete tertiary industries, which laid the foundation for development after 1978.

It may be said that the social conflicts China experienced in the 1960s were the painful repercussions of primitive accumulation of capital in the 1950s (two forms of capital: national capital and state capital). The costs were being transferred as the burdens of urban and rural citizens.

file:///C:/Users/mpmsp/Documents/Documents/China/Economy/10%20Crisis%20Wen%20TJ/Wen-Tiejun_Ten-Crises_Online-PDF_20210619_REVISED.pdf (file:///C:/Users/mpmsp/Documents/Documents/China/Economy/10%20Crisis%20Wen%20TJ/Wen-Tiejun_Ten-Crises_Online-PDF_20210619_REVISED.pdf)