On looking closely into the changes in Chinese Communist economic policy in the past 30 years, this overriding pattern is discernible: If mistakes of policy lead to economic deterioration, the Chinese Communists implement changes. These changes provide an excuse for internal power struggle, thereby completely negating the purpose of the changes and leading to further economic deterioration, more changes or another round of power struggle. In the course of these power struggles, the economy always suffers. The Chinese Communist economy is thus caught in a vicious circle.
The Chinese Communist regime led by Hua Kuo-feng and Teng Hsiao-ping presented the "Outlines of the Ten-Year Economic Program" at the first session of the "Fifth National People's Congress" last year. This program, centered on realization of the "four modernizations," fundamentally changed the economic policy to which the Chinese Communists have adhered since the "cultural revolution." To attain the program's goals, the Chinese Communists convened a series of conferences, including those for "learning from Tachai in agriculture" and "learning from Taching in industry," the "conference on science" and "learning from Tachai and Taching in finance and trade." These meetings ostensibly were designed to explain future policies to be adopted in Chinese Communist economic development, but the changes actually represented only a link in the vicious circle.
The facts have shown that after implementing the 10-year program for one year and three months, the Chinese Communists declared at the second session of the "Fifth People's National Congress" a readjustment of economic policy for the next three years and revised the sixth "Five Year Economic Plan." This negated the program, and will plunge the Chinese Communist economy into another vicious circle of deterioration and power struggle. This is the basic and growing cancer in the Chinese Communist economy. The lives of the mainland people can never be improved under such conditions.
Hua Kuo-feng pointed out in his "government work report" to the first session of the "Fifth National' People's Congress" that the "four modernizations" were the main aim of the 10-year program. He dreamed of accomplishing by the end of this century the so-called "modernizations of industry, agriculture, national defense and science and technology as required by a socialist power." Hua also declared that by 1985, food production would reach 400 million tons and steel production 60 million tons. The annual growth rate of farm production would average 4 to 5 percent between 1978 and 1985, he said, and that of industrial production more than 1 percent. Some 120 important construction projects would be carried out. This ambitious planning is reminiscent of the "great leap forward" movement launched by Mao Tse-tung in 1958 after the failure of the first "five-year economic program" carried out between 1952 and 1957. The Chinese Communists had to pick up the pieces, and then advanced the eight-character policy of "readjustment, consolidation, augmentation and promotion." A similar policy of "readjustment, reform, reorganization and promotion" was advanced at the second session of the "Fifth National People's Congress." The "great cultural revolution" started after the economic policy change in 1962. Judging from the nature of the Chinese Communists, further internal power struggle can be anticipated in the foreseeable future.
Red China's economic system following the second session of the "Fifth National People's Congress" remains based on implementation of the "national program." Material rewards for workers are permitted to a limited extent, and foreign trade policy will be stressed. The so-called "four modernizations" will require capital investment of about US$700 billion. The Communists can never raise this huge amount from their own resources, and must therefore obtain European, American and Japanese loans. In recent years, they have seduced foreign manufacturers and businessmen in Hong Kong into establishing plants on the mainland through "cooperative production." By this method, they employed the economic strategy of labor export through processing and assembling operations. Limited productive machinery could be obtained in this way. The Chinese Communists consider that foreign trade is imperative if they wish to make the mainland market more prosperous, and realize that development of this market and light industry depends on imported materials. Thus they paid attention to export of commodities in both large and small quantities. As they increased exports of agricultural by-products, they made proportionate increases in exports of industrial and mining products and durable consumer goods by taking advantage of their large labor force.
The Chinese Communists often adopt economic measures to attain their political purposes. For example, they used oil exports as a bait to seduce Japan to establish diplomatic relations with them. In 1978, Peiping promised to import large quantities of steel to entice Japan to sign the "Sino-Japanese Peace Treaty" implying "anti-hegemonism." Later, however, the Chinese Communists suspended or delayed fulfilling nearly US$3 billion worth of purchases from Japan. This has a strong political significance which may be explained as follows: (1). Peiping wants to effect a sort of political retaliation. During his second visit to Japan on his way back from the United States, Teng Hsiao-ping asked Japan to join in Red China's military action against Vietnam. Japan refused for fear of offending the Soviet Union. Furthermore, the Japanese signing of a pact with Russia for joint exploitation of resources in Siberia greatly provoked Red China. (2). As a result of American and Japanese economic contradictions and U.S. diplomatic and economic conciliatory moves, the Chinese Communists considered changing their market from Japan to the United States as a gesture of encouragement and friendship. On April 3 this year, they terminated the 1950 ''Treaty of Friendship, Alliance and Mutual Assistance" with Russia as a further gesture of friendship with the United States and Japan. Red China then asked the Kremlin to start negotiations on the matter. By taking advantage of these negotiations, Peiping also intended to blackmail the United States and Japan politically and economically. In short, the foreign trade of the Chinese Communists is conducted according to "united front" tactics aimed at both the economically advanced countries and countries of the Third World. Their promotion of foreign trade is also aimed at breaking up Soviet attempts to isolate them, causing contradictions between the Soviet Union and the United States and weakening Soviet and American influence over Third World countries. Chinese Communist trade in this region is aimed not only at earning much-needed foreign exchange, but also at attaining the political objectives of the "anti-colonial and anti-hegemonist struggle."
It should be pointed out that despite the Peiping-Moscow schism, the Chinese Communists have maintained close trade relations with the Soviet Union. Two-way trade volume increased 10 times from 1970 to 1977. About 11 percent of the machinery imported by the Chinese Communists comes from Russia, and the two signed a trade agreement on July 27, 1977. Judging from their increasingly closer trade relations, it is clear that the two do not basically oppose each other, since they have adopted similar economic revisionism in their Communist ideology. The Western countries have committed basic logical mistakes in adopting a diplomatic strategy of "uniting with Red China to contain the Soviet Union." Chinese Communist and Soviet Communist relations have "come to an end but started over again" while Washington-Peiping relations have moved "from honeymoon to disagreement." This can serve as a warning to the free world.
Chinese Communists have been actively expanding trade with foreign countries. Their ability to do so, however, is restricted by the following factors:
1. Inflexible trade system: Trade in the free world is determined by the rule of market supply and demand, and organized by international traders. Under the Communist system, mainland China's foreign trade comes under the unified planning and control of the "ministry of international trade" and is carried out by its subordinate trading companies for textiles and light industrial products as well as the "International Trade Promotion Commission." Under the regime's monopoly, the system is inflexible and the mainland people lack incentives. Foreign traders therefore find it difficult to do business according to Chinese Communist practice. Consequently, the mainland's foreign trade can hardly be expected to develop. This situation goes against the optimistic Western notion that mainland China, with its 900 million people, amounts to a huge market.
2. Low productivity: As an economically backward land, mainland China lacks adequate technology, capital, equipment and infrastructure to increase its productivity. Steel production provides a good example. Per capita steel production on the Chinese mainland is only a fraction of that in Western countries. As for food, per capita production is about one fiftieth that in the United States. Chinese Communist productivity in the agricultural and industrial sectors is very low. Because of high costs, production cannot meet the demands of the ever-changing international market.
3. Unbalanced trade structure: The Chinese Communists export mining, agricultural, light industrial, handicraft products and medicines at low prices, and import capital-intensive machinery and equipment at high prices. This assures that they will suffer deficits. As a trade imbalance cannot be allowed to continue for too long a period, exports must be increased to permit a continuing high level of imports. Since the Chinese Communists' export potential is low, the total amount of their foreign trade has also remained at a low level.
Red China's foreign exchange reserves amount to only some US$2 billion. For the future, the Chinese Communists will have to rely on oil production to increase their foreign trade potential. At present production levels, however, the Chinese Communists cannot use oil exports to offset their foreign trade deficit and provide the needed capital. Since 1975, oil production growth rate has averaged 10 percent and reached 11.7 percent in 1978. At the same time, the oil consumption rate continued to grow, reaching 15 percent a year recently. The Chinese Communists are not prepared to join the Organization of Petroleum Exporting Countries. In this way they can enjoy the benefits of oil price increases while avoiding the obligations OPEC membership would involve. They can also use a low-price policy in exporting oil in small quantities to Eastern European and Third World countries to gain their support.
Future development of the Chinese Communists' foreign trade is limited. It is estimated that mainland China's trade with the United States will not surpass US$3 billion by 1981 and will still be less than US$6 billion by 1985. In contrast, the bilateral trade between the Republic of China and the United States will surpass US$12 billion by 1981 and US$20 billion by 1985. With a population of 900 million, mainland China's foreign trade accounts for only a little more than 1 percent of the world total. Even by 1985, it will not have surpassed US$60 billion. The Republic of China's foreign trade will amount to US$70 billion by that year. Chinese Communist exports are still made up of such cheap products as textiles, electrical appliances, canned food and so on, while the Republic of China's exports will include large quantities of high-priced heavy industrial and chemical products. If the Republic of China maintains a correct course of economic development and strategy and negates Chinese Communist efforts to isolate it economically, the Taiwan economy and trade will continue to play an important international role.
After U.S. President Nixon's visit to the Chinese mainland in February of 1972, the United States and other economically advanced Western countries began to harbor "first illusions" about the mainland market. A few years later, they began to realize that trade with the mainland could not be profitable. The United States nevertheless recognized the Chinese Communist regime in January, 1979. At the same time, the Chinese Communists loudly proclaimed the "four modernizations" as the basis of their economic policy. These events confused the economically advanced countries, arousing "second illusions" about the mainland market. These illusions again will fade away because of the limits of Chinese Communist foreign trade potential.
Yu Chiu-li, chairman of the state planning commission, and Chang Ching-fu, "minister of finance," submitted the economic plan and the budget for 1978 and 1979 to the second session of the "Fifth National People's Congress." The budget estimate showed revenues and expenditures balanced at only US$72 billion. With such financial limitations, the Chinese Communists will find it hard to achieve capital formation. This in turn will make it impossible to eliminate poverty. The Chinese Communists are trying their best to gain foreign loans to finance the "four modernizations." After the second session of the Congress, the Communists promulgated a new law permitting foreign businessmen to establish joint ventures with local companies and remit profits in a strong currency to their own countries. They attempted to obtain loans from the United States, Japan and Western European countries. At the same time, they stepped up their blackmail through political and diplomatic means based on the three-world theory.
A "Joint venture law" was passed by the "National People's Congress" on July 1, 1979, and promulgated a week later, with the aim of promoting the "four modernizations" by absorbing foreign capital and technology. The law imposes stern terms for joint ventures and is inflexible in application. The following provisions indicate Chinese Communist schemes and purposes:
1. Article 4 stipulates: "... The investment ratio of foreign partners shall be generally no less than 25 percent... If one party wants to transfer its capital, it must obtain agreement from the other parties." This rigid provision indicates the Chinese Communists' urgent need for foreign capital.
2. Article 5 stipulates: "The technology and facilities introduced by foreign partners as a kind of investment shall be advanced in nature and meet the country's needs. If a foreign partner resorts to deception by using backward technology and facilities, he shall be liable for compensation for any damage caused." This is unfair. Whether technology and facilities are advanced or not cannot be determined at the time the contract is signed. This clause enables the Chinese Communists to declare arbitrarily that foreign technology and facilities are backward whenever they need to renew equipment.
3. Article 8 stipulates that foreign partners must open accounts at the "Bank of China" or any other bank agreed upon by the "Bank of China." This provision is a serious restriction, since it allows the Chinese Communists to control the capital flow of foreign partners. The same article also stipulates: "All insurance involved in the joint enterprises shall be handled by the insurance companies in China." What are the conditions imposed by the insurance companies on the Chinese mainland? Are their operations based on any insurance law? These are unanswered questions.
4. Article 11 stipulates: "Wages and salaries and other proper incomes of foreign staff members and workers may be remitted overseas through the Bank of China only after tax is deducted." The word "proper" has different interpretations, and the Chinese Communists can use this to control the remittance of foreigners' earnings.
5. Article 14 stipulates that only the "National People's Congress" is empowered to revise the "joint venture law." This prevents administrative agencies from using the law flexibly.
To solve economic and capital problems, the Chinese Communists have established export processing zones in Kwangtung and other coastal areas patterned after the Kaohsiung Export Processing Zone in the Republic of China. The economic stratagem to absorb foreign capital is unique among socialist countries, and is designed to solve a basic problem. In organizing these zones, the Chinese Communists have adopted three methods:
The first method involves importing industrial raw materials and machinery, and relying on the cheap labor to make a profit. This method also provides employment and wages. The second method is the so-called "compensatory bargaining," under which the Chinese Communists import the necessary machinery on credit and export products made of cheap raw materials found on the mainland to payoff the debt. The third method is to invite foreign investment, which includes technology, equipment and raw materials. Profits made from labor are used to buyout the investors over a period of years. Few transactions have been achieved through these methods, however, because of the severe Chinese Communist terms and insufficient information on mainland business conditions available to potential foreign investors.
Under the Chinese Communist economic system and policy inherited from Marxism-Leninism, finance is considered as a tool to control economic activities. In other words, it is designed to "reform," "expand" and "mobilize" the economy.
Reforming the economy involves eliminating private property and replacing it with a public ownership system. Expanding the economy means accumulating capital to promote economic growth. Mobilizing the economy means controlling the quality and quantity of resources to develop the efficiency of economic construction or to support war. These notions are essentially different from the financial aims under a free economic system. In free and democratic countries, government revenues and expenditures are adjusted so as to bring about economic growth, full employment, stability, equitable distribution of wealth and the people's welfare. The gross national product of mainland China amounts to only US$200 billion, and in 1978 per capita income was only US$220. Generally speaking, in an economically backward country, consumption tends to be great and savings tend to be small. In Red China, revenues of the regime take up more than 35 percent of the gross national product. As the individual worker is not sufficiently rewarded, the people lack the incentive to work. The remunerative rate of investment is commensurately low.
If the Chinese Communists continue to carry out the "four modernizations," their foreign trade will never be more than 10 percent of the gross national product. According to the most optimistic estimate, the mainland's foreign trade will be worth only some US$60 billion by the time the 10-year economic program is completed in 1985. In that year Red China's gross national product will be no more than one-fourth of that of the United States and per capita income will be one twentieth. By that time, people on the mainland will be enjoying a standard of living similar to that in the Republic of China in the early 1950s. Even if the Chinese Communists can realize the goal of establishing a "socialist power with four modernizations accomplished" in 2000, the mainland people will have a standard of living similar to that of the Republic of China in the early 1960s. But the "four modernizations" cannot be smoothly carried out because of Chinese Communist internal power struggles associated with changes in economic policy. Just as the Soviet Union cannot catch up with the United States in economic development, Red China will not be able to catch up with Free China. The basic reason is the difference in the economic systems. The Chinese mainland cannot catch up with the Republic of China unless the Peiping regime gives up its Communist economic system, abolishes the "people's communes" and return property to the people.
The Chinese Communists consider that under the free enterprise system, production "under anarchism and without planning" is a blind alley which will lead to periodic commercial crises. They also consider that under socialism the state can plan for economic adjustments. The conclusion is that the socialist economies, having higher productivity, efficiency and faster economic growth, are superior to free economies. The facts point to the opposite view. Under a free economic system, competition with productive incentives can promote efficiency as well as the quality and quantity of labor. Lands adopting the Communist economic system are far more backward than those adopting the free enterprise system. The socialist system is an obstacle to economic development.
In planning their economy, the Chinese Communists will never give up the idea of "politics taking command." Thus their economy will always have the characteristics of class struggle. Rapid development will be impossible. The Chinese Communist method of economic development can be likened to the progress of a duck - flat-footed, short-winged and noisy. As the Chinese Communists cannot accelerate economic development, their foreign trade is limited. Western nations will sooner or later wake up from their last illusions about the mainland market.