Building an Independent National Economy

How China Raises Funds for National Construction

by Li Cheng-jui

China finances its socialist construction out of its own resources.
The following article describes why and how this is done.

[This article is reprinted from Peking Review, #1, Jan. 1, 1966, pp. 19-23.]

      THE People’s Republic of China has risen to its feet like a giant. In the short space of 16 years it has radically transformed the face of old China. Its great achievements in industry, agriculture, conupunications, transport and other fields inspire its friends and dismays its enemies. Today it is marching forward with lengthened, firmer strides.

Where Investment Funds Come From

      To build one must have funds to invest. Old China was known for its poverty. New China, however, has successfully accumulated and invested a large amount of funds in the course of construction over the past decade and more. In the First Five-Year Plan period (1953-57), state investments in economic and cultural construction alone were equivalent to 700 million taels of gold. Where did these funds come from?

      Modern industrial enterprises were established in China in the latter years of the Ching Dynasty and during the subsequent Northern warlords’ regime and the Chiang Kai-shek regime. Including those privately-owned by the national bourgeoisie and those set up in northeast China under Japanese rule, the total value of the fixed assets of enterprises built during these 70 years (1880-1949) amounted to only about 20,000 million yuan. Yet in the First Five-Year Plan period alone, 46,000 million yuan of new fixed assets were added. The amount of fixed assets added in the Second Five-Year Plan period (1958-62) was even much greater. How was this achieved?

      By foreign loans? The loans which New China received from the Soviet Union and their accrued interest totalled only 1,406 million new rubles. It must be noted that these debts were mostly incurred in the early days of the People’s Republic. If state revenue from 1950 to 1959 is taken as 100, only 2 per cent of this was made up of foreign loans. That is to say, 98 per cent of the revenue came from internal sources. Moreover, these loans, received from the Soviet Union, and the accrued interest had all been paid off ahead of time by 1965. China is now a country without any foreign debts. Furthermore, New China has provided in aid to other socialist and nationalist countries a much larger amount in funds and material than the foreign loans it itself received.

Road of Self-Reliance

      A study of history shows that nations have followed different paths in carrying out industrialization and the modernization of agriculture and in tackling the problem of raising funds for construction.

      Britain relied on savage plunder of its colonies over a period of several decades or even several centuries. Marx pointed out: “Speaking only of the value of the commodities the Indians have gratuitously and annually to send over to England—it amounts to more than the total sum of income of the sixty millions of agricultural and industrial labourers of India!”¹ Germany depended mainly on war indemnities. After defeating France in 1870, it extorted 5,000 million francs from the vanquished. The number of factories, mines and railway lines built in the four ensuing years exceeded what could have been built in 25 years under normal conditions.

      Tsarist Russia relied mainly on enslaving loans, with the result that it steadily reduced itself to dependence on foreign capital.

      Many other capitalist countries more often than not employed all three methods at one and the same time. The United States, for instance, brutally slaughtered the Indians, engaged in the slave trade, ceaselessly expanded its colonial interests and exploited other countries.

      New China could never adopt the methods of the capitalist countries. Plunder, extortion, exploitation and fleecing are as incompatible with the socialist nature of New China as fire and water.

      What therefore should be done? Some people proposed that China should be developed with the aid of foreign capital. But history has proved that far from speeding up the tempo of construction, reliance on foreign investments could only plunge China into a colonial abyss. That road could not be taken.

      The path New China chose was the road of self-reliance pointed out by Chairman Mao Tse-tung.

Three Revealing Figures

      Can such a poor country as China rely on its own efforts? Has it got internal sources for the accumulation of funds for construction?

      The answer is: Yes. And the most important reason for this is that the national democratic revolution has been accomplished in China, and so has socialist transformation of ownership of the means of production. As a result of these two revolutions:

      Imperialist rule in China has been uprooted. The wealth which used to be carried off by the imperialists can now be invested in construction.

      Feudalism has been overthrown. The wealth seized in cold-blooded exploitation by the landlords to indulge their lavish way of life can now be used partly for construction, with the bulk being set aside to improve the peasants’ livelihood.

      Bureaucrat-capitalism has been overthrown. The national wealth grabbed by the bureaucrat-capitalists to squander on luxury and loose-living can now be used for construction too.

      Socialist transformation of capitalist industry and commerce has been carried out. Following the conversion of capitalist enterprises into joint state-private enterprises, the profits of these enterprises are mostly used for national construction with only a small part going to the capitalists as a “fixed rate of interest” on their shares.

      In a word, China is not without funds of its own for construction. The fact is that in the past the bulk of these potential funds were pocketed by the imperialists, landlords and bureaucrat-capitalists. The victory of the Chinese revolution has enabled the real owners—the people—to regain what belongs to them. The labouring people are now building their own country with the wealth which they themselves have created.

      To understand this in more concrete terms, let us examine three figures found in modern Chinese history: 450 million taels of silver; 500 million taels of gold and 70,000 million jin of grain.

      The 450 million taels of silver was the war indemnity imposed upon China in 1901 following the armed invasion of China by the Eight-Power Allied Army. This was merely one of many such indemnities. In addition to this, an incalculable amount of wealth was seized by the imperialists through such other means as dumping, exports of capital, unequal tariff rates and smuggling.

      The 500 million taels of gold was the wealth amassed through exploitation by the Four Big Families of Chiang Kai-shek, T.V. Soong, H.H. Kung and the Chen brothers over 22 years of Kuomintang rule.

      The 70,000 million jin of grain was the aggregate total of rent paid by the peasants each year to the landlords before the land reform. Because of the exorbitant rents which they paid, the peasants were unable to expand production; they were even unable to keep their farms going or eke out a bare livelihood.

      These figures indicate how considerable were the riches which the industrious and courageous Chinese people could use for construction once they became the masters of their country!

Develop the Economy and Ensure Supplies

      But the possibility of making use of the wealth which used to be seized by the imperialists and the exploiting classes at home is only one aspect of the matter. Still more important is this other aspect: When the broad masses of the labouring people shake off exploitation and oppression and get organized on the basis of a generally high level of political consciousness, they can give full play to their initiative and creativeness, and, in the words of the slogan of the general line for building socialism, “go all out and aim high” to carry forward the national economy “with greater, faster, better and more economical results.” Under the socialist system, with its superior advantages, the working people, once their wisdom and talents are brought into play, can raise the productive forces ten or even a hundred times above that of the old society, and thereby give continuous drive to the development of the entire national economy. The growth of the economy and expansion of production and circulation in turn provide more financial resources.

      As early as the revolutionary war period, Chairman Mao Tse-tung pointed out: “The general policy guiding our economic and financial work is to develop the economy and ensure supplies.” He added that “while a good or a bad financial policy affects the economy, it is the economy that determines finance.”² The history of the revolutionary wars and the present-day reality of socialist construction alike testify to the correctness of this policy.

      The First Five-Year Plan period, for instance, averaged a yearly progressive increase of 18 per cent in industrial production, 4.5 per cent in agriculture, and 12.1 per cent in financial revenue (somewhere between the tempo of industrial and agricultural advance). Financial revenue amounted to 17,500 million yuan in the year preceding implementation of the Plan and increased to 31,000 million yuan in the last year of the Plan (1957).

      During the Second Five-Year Plan period, China’s national economy met with temporary difficulties as a result of three consecutive years of natural calamities and the Khrushchov revisionists’ perfidious withdrawal of Soviet experts, and scrapping of hundreds of agreements and contracts. Such difficulties naturally found expression in the scale of state accumulation of funds. But with thorough implementation of the Party’s policy of “readjustment, consolidation, filling out and raising standards” and a series of other measures, the national economy quickly achieved a turn to an all-round improvement. The scale of accumulation also saw a corresponding increase. The 1965 state plan provided that total agricultural and industrial output value would go up by about 5 per cent and 11 per cent respectively over the previous year and budget revenue and expenditure by more than 10 per cent.

      To develop the economy means developing not just any type of economy but socialist economy. Our finances can be consolidated only if they are based on a socialist economy.

      In the early days of the People’s Republic, China’s economy comprised five sectors, namely, the state-owned economy, co-operative economy, individual economy of peasants and handicraftsman, state capitalist economy and capitalist economy. In 1950, 34.1 per cent of state revenue came from state-owned enterprises and co-operatives, 29.6 per cent from the individual peasants and 32.9 per cent from capitalist industry and commerce.

      As socialist transformation (so far as ownership of the means of production is concerned) of our agriculture, handicraft industry and capitalist industry and commerce was in the main completed in 1956, China’s economy was then mainly composed of the socialist state-owned economy and the socialist collective economy. Thus in 1959, 91.8 per cent of state revenue was derived from state-owned economy; 7.4 per cent from the people’s communes and other collective enterprises, and less than 1 per cent from the remnants of the capitalist economy and individual peasant economy. This shows that China’s financial revenue comes almost entirely from the socialist sector, and that, more significantly, over 90 per cent of the receipts from the socialist sector comes from the state-owned enterprises. This is also indicative of the rock-firm foundation on which China’s financial revenue is built.

Building the Country With Diligence and Thrift

      Chairman Mao Tse-tung has said that “factories, stores, state-owned and co-operative enterprises, all other enterprises—each should be run in keeping with the policy of diligence and frugality. This is a policy of economy, one of the basic policies of socialist economics.”³ Ever since it was founded, New China has stressed the importance of running enterprises with thrift and diligence so as to accumulate funds for the state for national construction. We can rely on our own efforts in accumulating such funds because of the great strength represented by the diligent labour of the 650 million Chinese people and their practice of industry and economy in all their undertakings.

      In the past few years, many outstanding units characterized by diligence, thrift and tireless effort in the struggle have emerged on every construction front.

      On the agricultural front, the Tachai Production Brigade⁴ of Shansi Province has long been an example of self-reliance and hard work. Today, production brigades of the Tachai type are spread all over the country. The Xiadingjia Brigade of Huanghsien County, Shantung Province, is one of the many farming units of this fine type. This brigade is situated in the mountains on the north of the Chiaotung Peninsula among barren hills. It has some 2,400 mu of arable land, 80 per cent of which is scattered on the hill slopes. The arable topsoil in many places was only three to four inches thick. In rainstorms water poured in a destructive flood down the mountainsides; in the dry season, the river-beds dried up.

      Following the setting up of the people’s commune in 1958, the Xiadingjia Production Brigade began the radical transformation of their farmland. Mobilizing their own resources—labour power, materials and funds—they built dams to create reservoirs, cut canals and ditches, set up pumping stations and an irrigation system from the river banks to the mountains. At the same time, they organized large-scale work to level up their fields and afforest the bare mountain slopes. On more than 1,600 mu of arable land they have thickened the topsoil to about one metre. They planted orchards on the mountainside. In pre-liberation days, under normal conditions, this brigade raised some 200 jin of grain per mu. Its years of hard work paid off with an average per-mu yield of grain of 920 jin in 1964 and all-round advances in forestry, animal husbandry and side-occupations.

      On the industrial front, the Taching Oilfield is a typical big enterprise that persists in self-reliance and hard work. This was a vast waste land when the builders of this oilfield arrived. At the start of construction, they slept in tents and with their own hands built huts for wintering. When the cranes came late, to save time, they manhandled huge drilling machines from the trains. This was the spirit that built the Taching Oilfield in record time. The deposits were fully surveyed in a little over a year and a big modern oil enterprise was built up in a short three years.

      The Lanchow Oil Refinery, Kansu Province, is another enterprise characterized by diligence, thrift and hard work. Since it went into production in 1959, this refinery has overfulfilled its plan each year; output has risen year by year; its range of products has increased fivefold and more over what was originally planned for it, the quality of all its products is up to standard and production costs have been reduced year by year. This refinery has always maintained a strict system of business accounting. In the four years between 1959 and 1963, it accumulated funds for the state amounting to over 60 million yuan more than the total sum the state invested in its construction.

      China is relatively poor and this seems to be an unalloyed disadvantage; but as a matter of fact advantage can be taken of this very fact. Poor people want a change, they are full of enthusiasm for it and so are ready to make a great effort to bring that change about. It is by relying on this spirit of building their country with diligence and thrift and through hard work that the Chinese people are promoting their nation’s economic growth and accumulating investment funds.

Concentration of Funds in State Hands

      The worker and peasant masses create capital accumulations in the course of production. But such accumulations are scattered in the hands of all their various enterprises and people’s communes. It is, therefore, necessary to concentrate them in the hands of the state by appropriate methods so that the state can use them in a unified, planned way.

      This is done mainly by two methods:
      1. Each state enterprise is required to turn in its profits to the state on schedule.
      2. Different kinds of taxes are levied. The main taxes are as follows: consolidated tax of industry and commerce; industrial and commercial income tax; the salt tax; customs duties; the agricultural tax; animal husbandry tax, etc. Except for the agricultural tax and the animal husbandry tax which are paid by the production teams or brigades of the rural people’s communes, most of the rest of these taxes are paid by state enterprises. No personal income tax is paid in New China.

      The funds collected by the two above-mentioned methods have varied in ratio at different periods in the past.

      In 1950, the profits paid in by state enterprises made up 13.3 per cent of state revenue; industrial and commercial taxes, 36.3 per cent; and the agricultural tax, 29.2 per cent.

      In 1959, profits paid in by state enterprises made up 61.6 per cent of state revenue; industrial and commercial taxes, 29 per cent; while the agricultural tax accounted for only 6.1 per cent.

      This change reflects the growth of the socialist economy and demonstrates, in the financial field, the policy of stabilizing the tax burden which the state has adopted towards the peasants for many years now. This policy provides that over a certain period of time the amount of agricultural tax paid to the state by the peasants remains unchanged. Those who have a short-fall in their harvest caused by natural calamities are either exempted from tax or pay a reduced tax. Increase in production is not followed by increased taxation; extra output remains in the hands of the peasants who may use it to better their life and increase the reserve and welfare funds of the production teams or brigades of the people’s communes.

      State enterprises should not only seek profit because that way leads to revisionism and capitalism and must be resolutely opposed. To make profits by unlawful means, such as speculation or forcing up prices, is all the more impermissible. However, each state enterprise is required to make an earnest effort to improve its business accounting, increase production and reduce production costs and, while fulfilling the state production plan, achieve the quota of profit set by the state and thus provide the state with funds for construction.

      In addition to the main methods mentioned above, the state, with the help of its banks, absorbs temporarily idle funds from enterprises in the form of deposits and uses them to provide credits for other enterprises for use as temporary working funds. At the same time, in accordance with the principle of “making banking deposit on a voluntary basis” and “freedom to withdraw deposits,” the state absorbs and uses the savings of the people to speed up the turnover of funds and thus increase its financial strength. This also helps to promote among the people the practice of “running one’s household industriously and frugally.”

“Do What You Can Afford, Do More With Less Money”

      The question of funds is not confined to how to accumulate them; it also involves how to make the most rational use of them.

      There are always contradictions between the possibilities of capital accumulation and the needs of construction, between the available state revenue and the demands for state expenditure. Our policy for dealing with these contradictions is: Do what we can afford and do more with less money.

      To do what we can afford means to take full account of objective laws and carefully calculate our strength and resources. To do more with less money means to give full play to our initiative and do our best. If we guide our actions by wishful thinking and insist on doing more than our money and other material resources allow, the result will be “more haste, less speed.” On the other hand, if we refrain from doing things which can be done by making an earnest effort, this will retard construction.

      The fiscal policy of the People’s Republic of China has always been to ensure a budgetary balance with a small surplus. The financial deficits which plagued old China and beset capitalist countries have long disappeared in New China as a result of implementation of the policy of doing what we can afford and of doing more with less money.

      To apply this policy in allocating state outlays means putting most of our appropriations into economic and cultural construction and cutting down state administrative expenses as much as possible. Take the First Five-Year Plan for example: of total expenditure, 49.5 per cent went to economic construction; 14.5 per cent to culture, education, public health and social welfare; 22.3 per cent to national defence; and 8.6 per cent to administration.

      Since the winter of 1964, China has carried out on an extensive scale the movements to revolutionize management of enterprises and designing work. One of the objectives of these movements is to realize the aim of doing more with less money. To revolutionize management of enterprises means mainly to reform management systems, streamline administrative structures, reduce the number of non-productive personnel, organize cadres to take part in productive labour and thus enable leading and functional organs of enterprises to serve the work teams and shifts as well as production better, maintain closer contact with the masses and rely on them to get the work done. This will reduce non-productive expenses of enterprises, overcome bureaucracy, improve efficiency, strengthen the unity between leadership and rank and file and thereby ensure that enterprises will continue consistently to develop along socialist lines.

      The revolutionization of designing work mainly requires that designers should go out of their offices to join in physical labour, make investigations and studies at the construction sites themselves and in drawing up their designs integrate the efforts of cadres, specialists and the masses. Working in this way, designers are able to gear their designs closely to actual conditions in China, free themselves from the shackles of outmoded ideas or unsuitable foreign conventions and formulae, bring their professional knowledge and skills into fuller play, and, at the same time, draw on the valuable experience of the masses. This not only makes for better designing but leads to economies in the use of investment funds.

      Implementation of the policy of doing what we can afford and of doing more with less money makes it possible to achieve greater results in economic construction with a given amount of funds. The economy is the basis of finance. As the economy grows, more funds are accumulated. The increased accumulations of funds can then be used to further the development of the economy.

Bettering People’s Livelihood Goes Together With Construction

      A foreigner once said: The economic development of China is really amazing; it is like the miracle in which a mountain is built overnight. But, though the mountain is there, large tracts of ground in the neighbourhood have sunk under the digging. He clearly meant that the construction was going on all right with great rapidity, but that this building was exhausting the resources of the people.

      Is that true? No, it is quite untrue.

      In New China, the distribution of national income takes into consideration the interests of the state, the collective and the individual. For instance, in 1954, 78.4 per cent of the national income was allocated for consumption as against 21.6 per cent for accumulation; in 1955, the corresponding figures were 79.5 per cent as against 20.5 per cent; and in 1956, they were 77.2 per cent as against 22.8 per cent.

      It is true that the living standards of the Chinese people are still not high. But they all have enough to eat and to wear. Unemployment and hunger can no longer be found anywhere in China. today. Compared with the utter destitution which the Chinese people suffered before liberation, this is a remarkable achievement.

      In the past 16 years, the living standards of the Chinese people have improved year by year. The average wage of workers and staff rose by 70 per cent during the period of economic rehabilitation (1950-52); it increased again by 42.8 per cent during the First Five-Year Plan period (1953-57). The state besides has earmarked large sums for labour insurance and housing projects for workers and staff.

      The income of the peasants has also increased steadily. It rose by more than 30 per cent during the economic rehabilitation period, and again by nearly 30 per cent during the First Five-Year Plan period.

      A look at China’s domestic market also proves this point. Commodities are in relatively abundant supply on the market today and we can see signs of prosperity everywhere. Supplies of pork, mutton, vegetables and other non-staple foodstuffs in 1964 were more than 30 per cent greater than in 1957; supplies of machine-made paper, aluminium utensils, enamelware, bicycles, radios and other important consumer goods were more than 50 per cent larger.

      At the same time commodity prices in China have long remained stable. Prices of grain, cotton piece goods, coal and other main daily necessities are not only stable but also low. The Chinese people no longer need to worry about price fluctuations.

      New China’s currency, renminbi, is stable in value and enjoys high prestige both at home and abroad. The running inflation of the days of reactionary Kuomintang rule was ended soon after the founding of the People’s Republic.

      These facts are eloquent. It is not the People’s Government of New China but the rulers of old China—the imperialists, landlords and bureaucrat-capitalists—who “dug up the ground” and exhausted the resources of the people.

      What we have achieved in our national construction is only a beginning. We still have to overcome many difficulties and shortcomings in our work. We must be modest and prudent and guard against arrogance and impetuosity. Under the leadership of the Chinese Communist Party and Chairman Mao Tse-tung, we must devote still greater efforts to building our great motherland and giving support to the struggles of all the oppressed of the world. This is our glorious task. As Chairman Mao said in July last year: “Our cuntry is somewhat stronger than it was before, but it is still not very strong. We need to build it up for another 20 or 30 years at least in order to make it really strong.”⁵

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