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Prices in Communist China

Published online by Cambridge University Press:  23 March 2011

S. H. Chou
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Extract

This paper will study the nature and behavior of prices in Communist China from the price data available in various government publications. It will seek to answer such pertinent questions as how prices have changed under the Communist regime, and what possible economic implications underlie such changes. Section i examines the nature of Chinese price and price indices; Section 2 examines absolute changes in prices; Section 3 studies the relative changes of agricultural and non-agricultural prices, of producer and consumer prices, of wages, profits, and prices. The final section compares Shanghai prices and those of Tientsin.

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Articles
Information
The Journal of Asian Studies , Volume 25 , Issue 4 , August 1966 , pp. 645 - 663
Copyright
Copyright © The Association for Asian Studies, Inc. 1966

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References

1 Shanghai chieh-fang chien-hou wu-chia tzu-liao hui-pien 1921–1957 [Shanghai: The People's Publisher, 1958].

2 Economic Research Institute of Nankai University, Nankai chih-ssu tzu-liao hui-pien [A Collection of Nankai Indices] (Peking, 1958), pp. 38–47.Google Scholar

3 See the footnotes of various price tables in A Collection of Shanghai Prices, pp. 470–563.

4 Koh, Tan, “Problems Relating to Ex Factory Pricing of Products of Light Industries,” Chin-chi yen-chiu [Economic Research], September 1963, pp. 1–7.Google Scholar

5 Communist China does not have die turnover taxes comparable to those of Soviet Russia. The Communist government, however, did inherit from the Nationalist administration a system of commodity taxes, consisting of excise taxes on selected commodities. The commodity taxes were later combined with a few minor taxes (such as taxes on business turnover and on butcheries) to form me so-called consolidated taxes on industry and commerce. Commodity taxes under die Nationalist system and consolidated taxes on industry and commerce under the Communist system (both will hereafter be referred to as “commodity taxes”) were payable by producers when goods left their hands. The producers, in turn, might recover their tax payments by adjusting their selling prices accordingly. For this reason, the Shanghai wholesale prices of 1949–57 are normally gross of such tax charges. See “The Statutes for the Consolidated Taxes on Industry and Commerce,” Hsin-hua pan-yueh-k'un [New China Semi-Monthly] 1958, no. 23, pp. 88–94Google Scholar. Chou, Shun-hsin, The Chinese Inflation, 1937–1949 (New York and London: Columbia University Press, 1963), pp. 46–50Google Scholar. In comparison with the turnover taxes of Soviet Russia, die commodity and consolidated taxes of Communist China had much lower rates and a simpler rate structure. For the Soviet tax rates, see Holzman, Franklyn D., Soviet Taxation (Cambridge, Mass.: Harvard University Press, 1955)CrossRefGoogle Scholar, chapter 6; and Jasny, Naum, The Soviet Price System (Stanford: Stanford University Press, 1951), pp. 164–7.Google Scholar

6 Data limitations make it impossible to segregate price variations attributable to changes in payments to the government in the form of taxes or profits from changes in payments to the nongovernment sector. Available information relating to the commodity taxes, however, shows that changes of the tax rates during 1949–57 were small in comparison with the corresponding changes in prices or in profits of government enterprises. For changes in the rates of commodity taxes, see references given in footnote 5.

7 Ten Great Years (Peking: Foreign Language Press, 1960), pp. 87 and 118.Google Scholar

8 Based on the official price indices published in A Collection of Shanghai Prices, pp. 448–459.

9 Chou, , The Chinese Inflation, p. 269.Google Scholar

10 Kwang, Ching-wen, “The Budgetary System of the People's Republic of China: A Preliminary Survey,” Public Finance, XVIII, No. 3–4 (1963), pp. 280–283.Google Scholar

11 Chou, , The Chinese Inflation, p. 72.Google Scholar

12 Based on the statistics given in Ten Great Years, pp. 16 and 21. The percentage ratios for 1952 and 1957 were computed on the basis of the “combined gross output value of industry and agriculture” as reported by the Communist government. These percentages should be considerably higher, if the net value added concept of national product is used in the computation.

13 See Perkins, Dwight, “Price Formation in Communist China,” unpublished Ph.D. thesis, Harvard University, 1963Google Scholar, for an excellent discussion of the policy relating die fund control in Communist China. In the 1940's, the Nationalist government made similar but unfruitful attempts to control die flow of funds. See Chou, , The Chinese Inflation, pp. 197–198Google Scholar; and Chun-cheng chi-kuan kung-k'uan t'sun-hui pan-fa [the Rules and Procedures for Handling Government Deposits and Remittances], in Research Department, Central Bank of China, Chin-jung fa-kwei ta-ch'uan [A Collection of Financial Laws and Regulations] (Shanghai, 1947), pp. 39–40.Google Scholar

14 See Cagan, Phillip, “The Monetary Dynamics of Hyperinflation,” Studies in the Quantity Theory of Money, Friedman, M. éd., (Chicago: University of Chicago Press, 1956) pp. 25–117Google Scholar; Harberger, Arnold C., “The Dynamics of Inflation in Chile,” Measurement in Economics: Studies in Mathematical Economics and Econometrics in Memory of Yehuda Grunfeld, Christ, Carl ed. (Stanford: Stanford University Press, 1963) pp. 219–250Google Scholar; idem., Comments relating to “The Dynamics of Inflation in Chile,” Inflation and Growth in Latin America, Werner Baer and Isaac Kerstenetzky, ed. (Homewood, I11.; Richard D. Irwin, Inc., 1964), pp. 330–336; Chou, , The Chinese Inflation, pp. 18–39 and 275–285.Google Scholar

15 The official indices show the ratios of agricultural to nonagriculturai prices as follows:

16 Because of data limitations, wholesale prices of Shanghai, rather than prices actually received and paid by farmers, are used in my study. Since the crop prices are usually lower and prices of goods purchased by farmers are higher in the rural markets than they are in cities, the use of the prices actually received and paid by farmers will likely make the terms of trade even less favorable to the rural sector than what the Shanghai wholesale prices indicate.

17 See the table in footnote 15.

18 To rationalize the inadequate “corrective” adjustments made during the 1950's, Chinese academicians stressed the institutional differences between pre-Communist and Communist China. According to their reasoning, while the high industrial prices during the pre-Communist era usually resulted in high profits for foreign and Chinese capitalists, such profits have been converted into productive capital accumulation under the Communist system. The total welfare derived from the relations between agricultural and industrial prices therefore should not be assessed solely on die basis of price statistics. See Po, Jen, “A Preliminary Study of Ratios of Industrial to Agricultural Prices,” Ching-chi yen-chiu [Economic Research], September 1958, pp. 50–59.Google Scholar

19 The lack of detailed information makes it impossible to decompose the official index into separate price indices for consumer and producer goods.

20 June 1949, instead of 1949, is used here as the base period for the indices, because the official cost-of-living index does not give the average index for 1949. Source of data: A Collection of Shanghai Prices, pp. 448–463.

21 “The weighted prices of all consumers’ goods [of Soviet Russia] in 1948 were probably close to, perhaps above, 30-fold their 1926–27 base. … The weighted prices of all producers’ goods, fully free of turnover tax, may also have been above the 1926–27 base only by about 200 percent.” See Jasny, Naum, “The Soviet Price System,” The American Economic Review, XL (December, 1950), p. 849Google Scholar. See also his The Soviet Price System (Stanford: Stanford University Press, 1951) pp. 36–41 and 168–169.Google Scholar

22 Keng-me, Loh, “A Study of the Role of Profit and Profit Rate in Commodity Pricing,” Chi-hua ching-chi [Planned Economy], January 1956Google Scholar; idem., “The Problem of Transaction Tax on the Products of Heavy Industries,” Ching-chi yen-chiu [Economic Research], March 1956; Jo-i, Fan, “On the Problem of Reducing the Transfer Prices of Materials Used in Production,” Chi-hua ching-chi [Planned Economy], February 1956Google Scholar; Ping, Nan and Ch'en, So, “On the Pricing of Materials Used in Production,” Ching-chi yen-chiu [Economic Research], February 1957.Google Scholar

23 See footnote 21.

24 In addition to the comparisons made in section III(b), the relative changes the wholesale price indices for 1946–57 and the corresponding cost-of-Iiving indices both of Shanghai are shown in the following table. For further details concerning the behavior of wages, profits, the cost-of-living indices, and the wholesale price indices during the Chinese inflation, see Chou, The Chinese Inflation, 1937–1949, Chapter 7.

25 See Chapman, Janet, “Consumption,” in Economic Trends in the Soviet Union, Bergson, A. and Kuznets, S. ed. (Cambridge, Mass.: Harvard University Press, 1963), pp. 235–282Google Scholar, for her study of die levels of consumption in die Soviet Union in terms of goods and services available for such use.

26 I shall compare in detail the compositions and weighting systems of various price indices of China in a separate study.

27 See the regulations and procedures relating to the transfer of profit of public enterprises to the government treasury in the Ministry of Finance, the People's Republic of China, 1957, 1955 nien chung-yang tsai-chen fa-kwei hui-pien [A Collection of Statutes Relating to the Central Government Finance for 1955] (Peking, 1957), pp. 372–387.Google Scholar

28 Budgetary receipts 1952 1959

Source: Ching-wen Kwang, “The Budgetary System of the People's Republic of China: A Preliminary Survey,” p. 282.