The Chinese Economy in 1978

The following article was submitted to The Marxist-Leninist by the author, Professor Toad:

This is part of an occasional series of articles on China. I started with a theoretical discussion about the word socialism. Now I am turning to history. Any Marxist worth their salt knows that to understand a thing, you have to understand its history and its development. To understand China today and the process of reform and opening up, you have to understand the problems China faced in 1978.

The Chinese economy in 1978 was startlingly different from the economies of Eastern Europe in the same period. It was different in the degree to which the control of production had been devolved to local authorities. But more than that, it was different in that China had a much, much lower level of development. It is undoubtedly popular among the bourgeoisie to attribute this low level of development to the policies of Mao, but the facts are otherwise. China had experienced a rapid rate of development since 1949. The degree to which it remained underdeveloped in 1978 is simply evidence of the very low level from which it started and the extreme difficulty of developing a country of such a size.

Electricity in China in 1978

The amount of electrical energy consumed in a country is a rough indicator of its overall level of development. For instance, it can be seen that in the ten years following the reintroduction of capitalism to Eastern Europe, electrical consumption in every single Eastern European country fell as the countries became less and less developed.

China in 1978 had an extraordinarily low level of electrical consumption per capita. Though the population of China was 960 million, the total electrical consumption was only about 227 terrawatt hours per year. In contrast, the Ukraine, with a population of only 50 million, produced about 236 terrawatt hours. Japan — like the Ukraine, a highly developed country — had a similar level of electrical consumption per capita. Other Eastern European countries fell in general somewhat below the Ukraine, but still many times as high as China. Some comparative figures on electrical consumption are shown below. ^[1]

Country	Electrical consumption KWH/capita/year	Notes
China – 1978	252
Cuba – 1958	455
Hungary – 1980	2736
Romania – 1980	2860
Bulgaria – 1980	3961
Ukraine – 1980	4729	Shows production not consumption
Japan – 1980	4960

Note in particular the figures for Cuba in 1958. These figures are twenty years earlier than the year we are talking about. They concern a colonized nation which was woefully underdeveloped and mostly rural. Yet per capita consumption of electricity was nearly twice as high.

Farming in China in 1978

While the developed world had mostly passed the point of being at least half urban in 1978, four out of five Chinese people still lived in rural areas. Some comparable figures are shown below:^[2]

Country	Rural Population As a percentage
China – 1978	81%
Albania – 1978	67%
Romania – 1978	55%
Belarus – 1978	46%
Bulgaria – 1978	40%
Ukraine – 1978	40%
Hungary – 1978	37%
Cuba – 1978	33%

But it is not simply a matter of the fact that China remained a rural economy. A rural economy is inevitably heavily dependent on agriculture. China, however, is in a uniquely poor position to depend on agriculture because of the scarcity of arable land. About a quarter of China is desert, and other large stretches are unplantable for one reason or another. Furthermore, of course, China has a huge population. As a result, we get the figures on arable land per person, in hectares, shown below:^[3]

Country	Arable Land Per Person (Hectares)
China – 1978	.10
Albania – 1978	.23
Cuba – 1978	.31
Bulgaria – 1978	.45
Romania – 1978	.45
Hungary – 1978	.47

Thus, a country heavily dependent on its agricultural sector, unfortunately, had about a quarter of the arable land per person of most Eastern European countries. Yet four fifths of the Chinese workforce was involved in working this minimal amount of land.^[4]

Industrial production

In discussing industry in China in 1979, the first thing that has to be said is that the country’s industry had grown by leaps and bounds since the Chinese revolution in 1949. Of course, the first couple of years after the triumph of the revolution were a matter of restarting industry after the two wars more than growth as such. But if we start our figuring from 1952, the growth is still very startling.

Heavy industry in China in 1979 was producing at thirty times the level that it had in China in 1952; industry as a whole was producing at ten times the 1952 level.^[5]

Still, from what we have seen above concerning China’s rural nature; the portion of the population still involved in agriculture; and the low level of electrification; we can hardly expect that industrial production will be at all high by international standards. And indeed, looking at steel production, we can see how far behind China still was.

Steel production had been a major focus of the Great Leap Forward, in which Mao attempted to spur small-scale production. In addition, the communist government had built a number of huge steel plants, some with Soviet aid. Nevertheless, Chinese steel production had reached only 34.5 million tons in 1979.^[6] Per capita, this comes to 35 kilograms per head. It is difficult to find steel production data for a given year, but the following data should give a general context to this number:

Country – Year	Annual Steel Production (Million tons)	Population (Millions)	Annual Steel Production Per Person (Kgs)
China – 1979	34.5	975	35
Romania – 1970[7]	6.5	20	325
Bulgaria – 1975[8]	2.27	8.7	260
Hungary – 1990[9]	2.96	10	300
Poland – 1990	13.6	38	360
DPRK – 1990	8	20	400
USSR – 1990	154	290	530
Czechoslovakia – 1990	14.8	16	930

 Clearly the data is less than ideal for comparison purposes. Nevertheless we can see that in 1978 Chinese steel production was a tiny fraction of the steel production of most Eastern European countries, when compared on a per capita basis.

On the other hand, looking at the absolute numbers, we can see one of the problems with developing China. During the all too brief period of Soviet cooperation, the Soviets helped the Chinese to build several steel mills with an annual capacity of more than a million tons. In any Eastern European country, those plants would be enough in itself to give the country a solid steel industry. But in China, they were a drop in the bucket. Building a Chinese steel industry would have been an incredible undertaking for Soviet industry — not impossible, but as spectacular as the industrialization of the Soviet Union itself.

Also, of course, we have seen that growth of heavy industry far outstripped the growth of light industry in China during this period. So, if heavy industry was still far behind the rest of the world, light industry must have been farther behind still.

Poverty

China, as we have seen, remained overwhelmingly an agrarian nation in 1978. Nevertheless, it was very poorly provided with arable land. Of course this means that China as a country was poor.

In communism, the distinction between town and country will be abolished. But under socialism, it remains. In communism, inequality of development will be abolished. But under socialism, it remains. Of course, this means that poverty in China in 1978 was not evenly distributed; that is to say, everyone was not equally poor.

China had been a semi-colonial nation for a period. Colonial nations follow a certain pattern of development. In particular, the development is enormously oriented toward export. Infrastructure and industry are developed near the coast. If natural resources are a major factor in the colonization, roads and railroads are constructed to bring the natural resources to the coast. Areas away from the coast remain undeveloped.

In 1949, the Chinese communists had inherited just such a pattern of development. Although they had worked diligently to correct it, by 1978, the contradictions were still very sharp. The eastern coast of China was the center of Chinese industry. Shanghai, Beijing, Dalian, and other eastern cities were modern, industrial centers with a high level of development. In the West, people lived much as they had five hundred years ago. Tibet, for instance, was not linked to the outside world by a single railroad.

In 1978, the official poverty line in China was an income of 100 Reminbi per year.^[10] Based on the then prevailing exchange rate of 1.58 Renminbi to the dollar, this gives the terrifyingly low income of $63.29 per year, or seventeen cents a day. Even allowing for a considerable difference in purchasing power, and even allowing for the number of things which were not monetarized in China in 1978, this is an appallingly small income.

Nevertheless, even by this extremely strict standard for poverty, 250 million rural Chinese lived below the poverty line in 1978, accounting for over 30% of the total population.^[10]

The World Bank for many years used a basic poverty line of one dollar per day of income. This standard is obviously much looser than the Chinese poverty standard, but it is by no means generous. According to the World Bank poverty standard, in 1980, there were 542 million poor people in China.^[11] Given a Chinese population in 1980 of 996 million, this meant that 54% of Chinese people were poor.

China of course had a very well-developed food distribution system, and outright starvation was more or less unheard of during this time. However, there were definite symptoms of poverty nevertheless. By 1982, some 22% of the population was still illiterate or semiliterate.^[11] The general state of health care can be judged from the infant mortality rate, which in 1980 was still 49 per thousand live births.12] An Eastern European baby in the same period was approximately one half as likely to die in their first five years of life.

Understanding Foxconn

A company called Foxconn has been in the news a great deal lately. Foxconn makes parts for Apple products, including the screens for Ipads. Much of this manufacturing work is done in factories in China, some of which are quite huge. One factory in Shenzhen, China, employs 400,000 workers.

Foxconn has been in the news because of a series of suicides among its workforce. The workers are under a great deal of stress because they work a lot of overtime and because the workplace regime is very draconian. There are rumors that workers are not even allowed to talk to one another during shifts. And the workers live in dormitories owned by Foxconn. Until very recently, wages at Foxconn were only about $130 per month, plus overtime.

We know why factories in the United States are allowed to pay their workers low salaries and to impose bad working conditions: our government is ultimately not our government at all, but the government of the capitalists. But unless this is also how things are in China, it seems at first glance hard to understand how Foxconn could be allowed to operate.

Still, it can hardly be suggested that the government of China was beholden to Foxconn when Foxconn opened its factories in China. In 1984, when the Shenzhen factory was formed, private enterprise in China still barely existed. Further, Foxconn is not even owned by mainland Chinese, but by Taipei capitalists. Even in recent years, relations between China and Taipei are rocky. It is hardly to be suggested that the capitalists who are undoubtedly the masters in Taipei are also the masters in the rest of China. Still less can it be suggested that this was the case in 1984.

So, if Foxconn is not allowed to operate in China for the benefit of Foxconn’s owners, for whose benefit is it allowed to operate? The answer, bizarrely enough, is the workers. We saw before precisely how low the income of Chinese farmers was in 1978. By comparison to that, the $4 a day which Foxconn was until recently paying its employees was a lot of money. Add into this overtime, and it was possible for workers to put aside a small stake by working at Foxconn. And, indeed, that is what workers have traditionally done: Most of the Foxconn workforce is people in their twenties hoping to put aside some savings. In fact, although Western commentators are concerned at the amount of overtime, people interviewing the workers invariably find that the overtime is what draws workers to Foxconn.

But if the workers at Foxconn are so glad of the jobs, why are there so many suicides? The answer to this is simply that times change. In 1984, a young person coming from a communal farm where it was never possible to have very much looked at the long hours and difficult working conditions in Foxconn as a small price to put aside some savings. But as China has gotten more and more prosperous, the contradiction between the difficult conditions at Foxconn and the increasing prosperity of the country as a whole has become far more acute.

Foxconn recently promised a substantial hike in wages. They have said that this wage hike was long planned as a response to labor shortages. That statement is not to be taken seriously. The wage hike is a result of political pressure. The Western media has given a great deal of attention to the pressure exerted on Foxconn, and on its major customer, Apple, outside of China. But there has been enormous political pressure within China, as well.

Conclusion

The State Owned Enterprises in China in 1978 provided to their workers a standard of living which would have been the envy of most of the world’s population. Unfortunately, it was also the envy of most of China’s population. The overwhelming majority of Chinese in 1978 made their income from agriculture, in the communal farms. Given the minimal amount of arable land per capita in China, their income was inevitably very low.

The end of exploitation in China, which came in the few years after 1949, had brought about vast improvements in the lives of Chinese. The government development programs over the next 29 years had brought further improvements. Chinese growth rates during the period between 1949 and 1978 averaged over 6%. This is a healthy growth rate by any standard, and it is especially impressive considering the problems which China had to overcome. These problems included economic isolation, war and the threat of war, and unstable domestic politics.

But the facts remain: In 1978, China was terribly underdeveloped, with a majority of its population living in dire poverty. In 1978, the Chinese worker was the exception, and the great majority of Chinese were farmers.

In light of this, when foreign owned companies established a factory in China, many peasants were very eager to work for them. The low wages of the factory produced enormous profits for its owners. But even those low wages were a vast improvement for many Chinese peasants.

There can be no doubt that the reasons that allowed the existence of Foxconn and the like are becoming less and less valid. But it would be a mistake to overstate the prosperity of China. The country still has 150 million people below the new World Bank poverty line of $2 per day. And it still faces considerable developmental obstacles. The current per capita GDP of China is much less than half the per capita GDP of Cuba, for instance.

There is no doubt that pressure is building inside China to put an end to the reform and opening up. The pressure is the result of abuses of companies such as Foxconn; of the world economic crisis which was largely forced on China from the outside; and of the corruption and inequality which reform and opening up have brought.

But there are countervailing pressures. On one hand, of course, there is pressure from the capitalists within and without China who have made vast fortunes from the so-called reform and opening up. But on the other, there is also the need for a continued high rate of growth to lift China’s remaining poor out of poverty and to develop China into what the Chinese leadership has called a moderately prosperous nation.

^[1] The figures are taken from Country Nuclear Power Profiles – 1999, produced by the International Atomic Energy Agency, available on the web here and accessed on May 24, 2010.

^[2] Figures are taken from the World Bank website, http://data.worldbank.org, accessed with an appropriate query on May 24, 2010.

^[3] Figures are again taken from the World Bank website, http://data.worldbank.org, accessed with an appropriate query on May 25, 2010.

^[4] From Why is China Growing So Fast, by Zuliu Hu and Mohsin S. Khan, published by the International Monetary Fund in 1994, available on the web here and accessed on May 27, 2010.

^[5] A Country Study: China, published by the Library of Congress in 1988 and available online here. Accessed on May 25, 2010.

^[6] Technological Independence – The Asian Experience, by Saneh Chamarik and Susantha Goonatilake, published by the United Nations University in 1994. This is available on the web here and accessed on May 27, 2010.

^[7] Steel production data for Romania is from A Country Study: Romania, published by the Library of Congress in 1990 and available online here. Population data for Romania, and elsewhere unless otherwise noted, is from the World Bank, http://www.worldbank.org/data. Both were accessed on May 25, 2010. Accessed on May 25, 2010.

^[8] Steel production data from Development of Ferrous Metallurgy in Bulgaria, A. S. Nikol’skii, originally published in Metallurg No. 12 in December, 1978, and available online here. Accessed on May 25, 2010.

^[9] Steel production for Hungary and the following countries is taken from Iron and Steel, by Gerald W. Houck, published by the U.S. Geological Survey in 1995. It is availalbe online here, and was accessed on May 25, 2010.

^[10] From Poverty Statistics in China, published by the Rural Survey Organization of the National Bureau of Statistics of China in September, 2004. Available on the web here and accessed on June 11, 2010.

^[11] From China’s Economic Growth and Poverty Reduction (1978-2002) by Hu Angang, Hu Linlin and Chang Zhixiao. Available on the web here and accessed on June 11, 2010.

^[12] From the Globalis interactive world map, available on the web here and accessed on June 11, 2010.