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
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
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
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
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
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
1 Marx and Engels, Selected Correspondence, Eng. ed., International Publishers,
New York, pp. 335-86.
2 “Economic and Financial Problems in the Anti-Japanese War,” Selected Works of Mao
Tse-tung, Eng. ed., Foreign Languages Press, Peking, 1965, Vol. III, p. 111.
3 Socialist Upsurge in China’s Countryside, Eng. ed., Foreign Languages Press,
Peking, 1957, p. 67.
4 See Peking Review, No. 25, 1964.
5 See Peking Review, No. 31, 1965, p. 3.
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