The Establishment of the Centrally Planned Economic System in China

Before the victory of the Chinese revolution, the program of the Communist Party of China was to establish "a new-democratic society under the joint dictatorship of all the revolutionary classes of China" after achieving the victory of the democratic revolution, guided by Mao Zedong's idea, put forward in his 1940 essay "On New Democracy", of achieving the success of the Chinese revolution in two stages.

The economic base for the new-democratic society would be the new-democratic economy, which was defined as a mixed economy allowing the existence of a private capitalist sector that "cannot dominate the livelihood of the people" in accordance with the principle of "the regulation of capital"and having the big banks and the big industrial and commercial enterprises owned by the state.

In the first few years after the founding of the PRC, when the Agrarian Reform was in progress and the Korean War was being waged, Liu Shaoqi and other leaders, decided that "measures of limiting the private capitalist sector should not be launched too early". When Liu mentioned that socialist policies should not be adopted immediately after the victory of the democratic revolution and that the Communist Party of China could "partner for at least 10 to 15 years" with the bourgeoisie to build the new-democratic economy, Mao added, "When on earth should we launch an all-out attack? We may need to wait 15 years after the victory".

In early 1950s, with both the Agrarian Refom and the Korean War both drawing to an end, the action principle changed significantly. In 1953, Mao indicated that the essence of the General Line was "the solution of the problem of ownership", expanding state ownership and changing private ownership into either collective or state ownership. "Only thus can productive force be expanded and the country's industrialization accomplished".

Despite the original plan to complete the socialist transformation of individual agriculture and private capitalist industry and commerce in 15 years or more, it took only three years to establish public ownership, with state ownership and quasi-state, collective ownership as its major forms, as the only base for the national economy. On the basis of public ownership, a Soviet-style, centrally planned economic system was established nationwide.

The major reasons for its accomplishment in such a short period were as follows. First, after the founding of the PRC, "Soviet experts" completel transformed the Chinese economics education by instilling Stalin's political economy and making it the only prevailing theory of economics.

Second, after the outbreak of the Korean War, China had to give top priority to national defense. Therefore, Chinese leaders chose the institutional arrangement that would mobilize and allocate resources through central planning so that limited resources could be used to build up heavy industry, espcially its core of military industry.

Third, both Chinese leaders and Chinese public belived that by following the example of the Soviet Union, wielding state power, and mobilizing concentrating human, financial, and material resources, China would be able to achive modernization in a very short time.

Fourth, China had been a coutry full of small peasants for quite a long time and government control over society was a deeply rooted tration. After the founding of the PRC, Mao Zedong, by virtue of his high prestige gained in the long revolutionary struggles, established a totalist government under his leadership. This laid the political foundation for accomplishing the socialist transformation and implementing the planned economic system within only a few years.


Source: J Wu, Understanding and Interpreting Chinese Economic Reform (Mason, Ohio: Thomson Higher Education, 2005), 31-36.