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Published online by Cambridge University Press:  17 February 2009

Nicholas R. Lardy
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The China Quarterly , Volume 66 , June 1976 , pp. 340 - 354
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Copyright © The China Quarterly 1976

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References

1. Fu–ch'un, Li, Report on the First Five–Year Plan for Development of the National Economy(Peking, 1955), p. 21.Google Scholar

2. Tsai–hsing, Liu and Hsiüeh-ch, Chang' in, “Several problems in the socialist industrialization of our country,” T'ung–chi kung–tso t'ung-hsün (Statistical Work Bulletin), No. 21 (1956), p. 6.Google Scholar

3. In 1956 and 1957, for example, 70 and 73% respectively of all social programme expenditures were made by provincial and local governments; see Li Hsien–nien, “Report on the state's 1956 final account and the 1957 state budget,”Hsin–hua pan yueh–'an (New China Semi–monthly,) No. 14 (1957), p. 17, and“Report on conditions of implementation of the 1957 state budget and the 1958 draft state budget,”ibidNo. 5 (1958), pp. 6, 7 and 9.

4. This analysis is based on central–provincial revenue sharing rates for 21 provinces in 1956 and 1957; see Lardy, Nicholas R., “Centralization and decentralization in China's fiscal management,” The China Quarterly (CQ), No.61 (March 1975), p. 32.Google Scholar

5. Above, p. 330.

6. In 1953 and 1954 these extra budgetary funds were 92 and 120 million yüanrespectively; see “Communique of the State Statistical Bureau on the implementation of the state plan for 1954,“statistical tables translated in Current Background, No. 382, p. 21. These funds, if all were used, would have been equal to 2–7 and 3–4% of budgetary expenditures for social programmes in 1953 and 1954 respectively. Estimates for 1955 through 1957, based on the assumption that the growth of the funds was proportional to the increase in the number of workers covered by labour insurance, range from 3·6 to 5·5% of budgetary expenditures.

7. A Ministry of Finance directive for 1959 included labour insurance funds in the budget under the functional classification of “worker and staff welfare expenditure.”See Ministry of Finance, “Kuo–chia yü–suan shou–chih k'omu”(“State budgetary revenue and expenditure classifications”), in Chung–yangts'ai'cheng fa–kuei hui–pien (Collection of the Financial Laws and Regulations of the Central Government) (Chung–yang),1958, Vol. 2 (Peking: Finance Publishing House, 1959), p. 89.Google Scholar Labour insurance funds were not included in “worker and staff welfare expenditures”in a similar directive published for 1956. Directives are not available for 1957 and 1958 but qualitative statements suggest that labour insurance funds may have been incorporated into the budget in 1958. Li, Wei, “Fu–chia kung–tzu ying–kai ta kai–ko”(“The supplementary wage system should be greatly reformed”), Chi–hua ching–chi (Planned Economy), No. 5 (1959), pp. 12–13.Google Scholar

8. State Statistical Bureau, Ten Great Years(Peking: Foreign Languages Press, 1960), p. 23. The 49 million yüanor 35% increase in social expenditures in Kansu and Sinkiang in 1959 over 1957 also compares quite favourably with the national increase of 26% during this period. Professor Donnithorne compares the increase in social expenditures in these provinces to total national outlays for social programmes. The relevant comparison is clearly the comparative growth of social expenditures across provinces.

9. Above, p. 330.

10. Ministry of Finance, “State budgetary revenue and expenditure classifications,”pp. 82–85. The practice of not specifically listing expenditures for these relatively small programmes in annual fiscal reports was also evident in earlier years. See, for example, Li Hsien–nien's 1956 final account and 1957 budget report, Hsin–hua yüeh–pao (New China Monthly), No. 14 (1957), and Ministry of Finance,“I–chiu–wu–liu nien ko chi ts'ai–cheng shou–chih yü–suan kapos;o'mu” (“Each level's 1956 financial income and expenditure categories”), in Chung–yang,1956, pp.42–69, especially pp. 58–64.

11. Expenditures for science and pensions ranged from 7 to 14% of social expenditures during the first Five–Year Plan period. This overstates the importance of military–related social expenditures since pensions include retirement pay for government personnel which probably accounts for a very large share of total pensions. Budgeted expenditures for science and pensions as a portion of social expenditures were unchanged between 1957 and 1958. See financial reports by Li Hsien–nien in Hsin–hua yüeh–pao, No. 8 (1955), and in Hsin–hua pan yiüeh–k'an, No. 5 (1958); “Statistical tables of state budgetary revenue and expenditure during the first Five–Year Plan period,” Ts'ai–cheng (Finance), No.9 (1957), p. 32;Google ScholarCh'i–hsi, Feng, “The growth of our national economy as seen from the state budget,” T'ung–chi kung–tso (Statistical Work), No. 1 (1957), p. 31.Google Scholar

12. Above, pp. 334–35.

13. Since early 1950 both government agencies and state enterprises have not been allowed to hold more than three days operating expenses in cash. Further more all inter–enterprise transactions must be settled by bank transfer rather than by cash payment. The use of cash is limited primarily to wage payments in the urban sector and the purchase of agricultural products in the rural sector.

14. Economic decentralization regulations were announced for financial, commercial and industrial management, taxation, price control, grain management, materials distribution and economic planning. However, there is no evidence that any decentralization directive dealing with the banking system was promulgated.Although there was some leakage of State Bank loans to enterprises for working capital into fixed capital investment, there is no evidence that a significant amount of loan funds were used for social programmes or that substantial unaccounted budgetary funds were made for social programmes. The crucial role of the State Bank in managing budgetary funds and the limited use of cash are confirmed for more recent years in Pierre–Henri Cassou, “The Chinese monetary system,”CQ, No. 59 (1974), pp. 559–66.

15. Beginning in 1958 the central government collected only 20% of all revenues. Since central expenditures in 1958 and 1959 were about 45 to 50% of total government expenditures, over half of the central government's expenditures were financed by remissions from local governments. In addition a substantial portion of the local expenditures of backward provinces came from the Centre in the form of subsidies. The ultimate source of most of these funds was also remissions from the richer provinces.

16. Provinces for which investment probably includes extra–budgetary funds are Honan, Hupeh, Kiangsi, Kiangsu, Kirin, Kwangtung, Kweichow, Liaoning, Shanghai, Shansi and Shensi.

17. Above, p. 337.

18. Hsiao, Liu (vice–chairman, Liaoning Provincial Planning Committee), “Firmly implement the execution of the Party's ‘Walk on two legs’ principle,” Li–lun hsüeh–hsi (Theoretical Study), No. 12 (1959), pp. 16–19.Google Scholar

19. Lardy, “Centralization and decentralization,”p. 29.

20. Tze-ho, Jung, “Several problems in the reform of the financial management system,” Ts'ai–cheng, No. 1 (1958), p. 2.Google ScholarMin–li, Li, “The main significance of the reformed system of financial management,” Ts'ai–ching yen–chiu (Financial and Economic Research), No. 10 (1958), p. 44.Google ScholarYün, Lin. “A discussion of the reform of our country's financial management system,“ Ching–chi yen–chiu (Economic Research) No. 10 (1958), p. 42.Google Scholar State Council, “Directive concerning improvement of the financial management system,”Jen–min jih–pao (People's Daily),18 November 1957; State Council, “Directive concerning the improvement of the plan management system,”Chung–hua jen–min kung–ho–kuo fa–kuei hui–pien (Collected Laws and Regulations of the Chinese People's Republic)(Peking), Vol. 8, pp. 96–99. State Council, “Directive concerning the improvement of the materials distribution system,”ibid.pp. 100–101.

21. New China News Agency (NCNA), 22 and 25 September 1975, in BBC,Summary of World Broadcasts, Part III: Far East Weekly Economic Report(FE/W) 847, p. A/3. Saifudin, , “Sinkiang marches forward triumphantly under the guidance of Chaiman Mao's revolutionary line,” Peking Review, No. 42 (1975), p. 27.Google Scholar

22. NCNA, 22 September, 1974, in Survey of the People's Republic of China Press (SPRCP7–15 October 1974, p. 27.

23. NCNA, 25 March 1975, in SPRCP, 7–11 April 1975, p. 26.

24. NCNA, 18 May 1975, in SPRCP,27–30 May 1975, p. 147.

25. Above, p. 339.

26. Foreign Broadcast Information Service, Daily Report, PRC, 30 September 1974, p. G3.

27. Lardy, Nicholas R., “Economic planning in China: central provincial fiscal relations,” in Joint Economic Committee, Congress of the United States, China:A Reassessment of the Economy(Washington, D.C.: Government Printing Office, 1975), p. 112.Google Scholar

28. Lardy,“Centralization and decentralization,”p. 41.

29. Chih-ch'ung, Liu, “On the situation in Shanghai's industry and several problems,” Ts'ai–ching yen–chiu, No. 1 (1958), p. 61.Google Scholar

30. Eckstein, Alexander, China's Economic Development: The Interplay of Scarcity and Ideology(Ann Arbor: University of Michigan Press, 1975), p. 364.Google Scholar

31. NCNA, 25 August 1971.

32. Williamson, Jeffery G., “Regional inequality and the process of national development: a description of the patterns,” Economic Development and Cultural Change, Vol. 13, No. 4, Part 2 (July 1965).CrossRefGoogle Scholar

33. Alan A. Green, “Regional inequality, structural change and economic growth in Canada, 1890–1956,”ibid. Vol. 18, No. 4 (July 1969), pp. 567–83. Cleaver, Thomas W., “Regional income differentials in Japanese economic growth ” (unpublished Ph.D. Dissertation, Harvard University, 1971).Google Scholar The long–term record for the U.S. is analysed by Williamson, “Regional inequality,“based on data presented in REasterlin, ichard A., “Interregional differences in per capita income, populations, and total income, 1840–1950,”in Trends in the American Economy in the Nineteenth Century (Princeton: Princeton University Press, 1960).Google Scholar

34. See Lardy,“Economic planning in China,”p. 108.

35. For a discussion of the particularly deleterious impact of the Soviet with drawal on the Wuhan (Hupeh) and Paotou (Inner Mongolia) steel plant see Clark, M. Gardner, The Development of China's Steel Industry and Soviet Technical Aid(Ithaca: New York State School of Industrial and Labor Relations, 1973), pp. 27–29 and 31.Google Scholar

36. Chao, Kang, Capital Formation in Mainland China,1952–1965 (Berkeley: University of California Press, 1974), p. 69.Google Scholar

37. For an illuminating analysis of the ability of these older industrial centres to achieve impressive growth largely through the accumulation of skills rather than fixed assets, see Rawski, Thomas G., “Problems of technology absorption in Chinese industry,” American Economic Review, Vol. 65, No. 2 (May 1975), pp.383–88.Google Scholar

38. Based on official data in Field, Robert M., Emerson, John P. and Lardy, Nicholas R., Industrial Output by Province in China, 1949–1973, Foreign Economic Report No. 7 (Washington, D.C.: Foreign Demographic Analysis Division, Department of Commerce, 1975), reprinted in part in CQ, No. 63 (1975).Google Scholar

39. Naturally there has been some variation in the comparative performance of individual provinces between these two periods – not all poor provinces have consistently out–performed all rich provinces. However, less developed provinces, as a group, out–performed more developed provinces, as a group, in both periods.

40. In 1957 for example, retained profits were 7·3% of enterprise profits. Of this 2·8% was bonus funds while 4·5% was retained for re.investment purposes;see Keng–mo, Lo, “The problem of transition from socialism to communism,” Hsin chien–she (New Construction), No. 8 (1959), p. 17.Google Scholar

41. Richman, Barry M., Industrial Society in Communist China: A First Hand Study of Chinese Economic Management and Development (New York: Random House, 1969), pp. 503 and 814.Google Scholar

42. The enhancement of local authority in these areas following decentralization is discussed in more detail in Lardy,“Economic planning in China,” pp. 113–15.

43. This was reflected in statements that the Centre's continued control of investment within each province was required to prevent increasing inter provincial inequality. See particularly Yün, Lin, “A discussion of the reform of the financial management system,” Ching–chi yen–chiu, No. 10 (1958), p. 45, and No. 11 (1958), p. 46.Google Scholar

44. This conclusion is based on comparative provincial performance in the industrial sector only. Unfortunately data on the value of provincial agricultural output since 1960 have been released only in a few areas. Thus it is possible that these conclusions could be slightly modified in the future, when data on the agricultural sector become available.

45. Professor Donnithorne's comment suggests that any redistribution that has occurred has been motivated primarily by defence policy. While defence considerations have played a supplementary role, I believe that the underlying policy has been motivated by broader fundamental economic and political goals. My view is based on the breadth and variety of industries being developed in back ward areas and the substantial simultaneous investment in social overhead facilities.