4. Intelligence Report Prepared in the Office of Economic Research, Central Intelligence Agency1
China: Economic Situation Facing the New Leadership
China’s new leadership headed by Communist Party Chairman Hua Kuo-feng has begun its reign with economic issues high on the agenda.
Hua’s immediate problem is to restore socioeconomic stability following a year of extraordinary domestic turmoil and devastating natural disasters. Growth rates for most economic sectors slipped badly in 1976, reflecting the impact of political infighting, indecision over economic plans, labor unrest, adverse crop conditions, and several major earthquakes.2
Hua and his moderate allies, who continue to be primarily occupied with consolidating their political victory over the rival radical faction, apparently have agreed on the broad shape of economic policy for the next several years—that the long-term modernization program alluded to by the late Premier Chou En-lai should be revived as the basic blueprint. With little evidence to go on, we can only adduce Hua’s past practices and recent pronouncements as indicators of how he will proceed with the modernization of agriculture, industry, national defense, and science and technology.
Modernization of agriculture to be given continued top billing in the allocation of resources. China must increase crop yields to keep pace with its rapid population growth and provide a surplus that can support investment elsewhere in the economy.
More rapid and balanced growth in industry to begin. This is likely to show up in a more expansive foreign trade policy—with sizable imports of whole plants and high-technology items as well as some small wage increase or productivity bonus for the urban work force.
Science and technology to be upgraded by reducing the party’s role in education in these fields. This would include a return of more aca[Page 18]demically, as opposed to politically, qualified personnel to positions of prominence.
Modernization of China’s national defenses will continue, but debates over priorities and the pace of programs probably will intensify. While most military leaders now appear to support Hua’s economic policies, Hua eventually may be forced to bow to mounting pressures to increase the defense budget or risk losing the support of important segments of the military hierarchy.
Important to all four “modernizations” will be reforms in planning and management designed to strengthen local planning capabilities, curb excessive party involvement in enterprise management, and crack down on labor indiscipline. Such reforms almost certainly will be undertaken cautiously since many go to the heart of measures that were adopted under radical pressure during the Cultural Revolution and are still supported by sizable segments of the bureaucracy.
With emergence of a consensus on the direction of economic policy among the leadership, one of the first tasks is to translate the generalities into specifics. The year-long paralysis of economic planning at the central level because of interference and attacks by the radicals apparently has now ended; Peking expects that the Fifth Five-Year Plan, originally due out in late 1975, will appear by mid-1977. The economic drift of the past year, together with the major reconstruction effort necessitated by the earthquakes, almost certainly means that major progress on the four modernizations will not be made until the eighties. While growth rates in the economy should edge upward in an improved political milieu, solutions to basic structural problems that must pave the way for steady growth over the long run are several years away.
[Omitted here is the discussion section of the report.]
- Source: Central Intelligence Agency, Office of Economic Research, Job 78T02549A, Box 1, Folder 46, ER 77–10049. Secret. A footnote on the title page indicates that comments and queries regarding the report were to be directed to the Office of Economic Research.↩
- An earthquake struck China in July 1976 devastating the city of Tangshan and causing thousands of deaths.↩