ECONOMIC TRANSITION IN HUNAN AND

SOUTHERN CHINA

This book is a comparative economic analysis of the five provinces of the Central-South Region of China: Guangdong, Guangxi (autono­mous region), Henan, Hunan and Hubei. Of particular interest is a study of the impact of the new policy reforms and readjustment measures on these provincial economies. In tracing the influences of these reforms; special attention is given to the questions of labour utilisation and the choice and development of technology.

The book examines the fundamental transition in the Chinese economy from the Mao era to the present Deng regime. It deals with institutional and structural reforms first introduced in 1977-8 and later in 1979. These have brought about several major changes: from a 'command economy' to 'market socialism', from investment to con­sumption planning, from the collectives/communes to the production teams, households and even independent workers, and from collective farming to individual peasant farming, private plots and sideline activities.

The choice of Hunan for special treatment is explained by the author's first-hand experience resulting from field visits and personal interviews, and its special significance as the province of Mao and his successor, Hua. The book explores whether the Mao-Hua 'leftist' influence still prevails in their province, and if it does, whether it hinders the adoption and diffusion of many of the reforms in Hunan compared with the neighbouring provinces free from this influence.

Dr A. S. Bhalla is Chief of the Technology and Employment Branch, International Labour Office, Geneva. Formerly he was a Visiting Research Associate at the Economic Growth Center, Yale University. He has been Research Officer at the Institute of Economics and Statistics, Oxford University, and University Tutorial Fellow at the University of Delhi.

He is the editor of Technology and Employment in Industry and Towards Global Action for Appropriate Technology. He has published articles on development planning, investment allocation, technology choice and employment generation in major economic journals.

Economic Transition in Hunan and Southern China

A. S. Bhalla

M MACMILLAN

© A. S. Bhalla 1984 Softcover reprint of the hardcover 1st edition 1984

All rights reserved. No part of this publication may be reproduced or transmitted, in any form

or by any means, without permission

First published 1984 by THE MACMILLAN PRESS L TO

London and Basingstoke Companies and representatives

throughout the world

British Library Cataloguing in Publication Data Bhalla, A. S. Economic transition in Hunan and Southern China. I. Hunan (China)-Economic conditions I. Title 330.951'215 HC4297 ISBN 978-1-349-07209-5 ISBN 978-1-349-07207-1 (eBook)DOI 10.1007/978-1-349-07207-1

To Chiang Hsieh

and Joseph Stepanek

who aroused my interest in the Chinese economy

Also by the author

TECHNOLOGY AND EMPLOYMENT IN INDUSTRY (editor) TOWARDS GLOBAL ACTION FOR APPROPRIATE

TECHNOLOGY (editor) BLENDING OF NEW AND TRADITIONAL TECHNOLOGIES

(editor with D. James and Y. Stevens)

Contents Preface X

Maps XIII

Glossary of Chinese Terms XV

List of Tables and Figures XVI

Abbreviations xix

1 The Provincial Economy Hunan and the Four Neighbouring Provinces 1

Population and employment 2 Investment allocation 5 Land and agriculture 5 Industry 14 Construction 22 Commerce 24

Concluding Remarks 29

2 The New Economic Policy f'rame 31 Agricultural Pricing 32 Investment Reallocation 34

New measures to promote light industry 35 Heavy industry v. light industry 37

Decentralised Economic Management 39 Production Responsibility System 43 Labour Employment System 51

3 The Technology Policy Frame 56 Technology Choice and Investment Allocation 56

Soviet phase 58 The Great Leap 60 Cultural Revolution 61 Post-Mao period 63

1

viii Contents

Research, Development and Manpower 65 Two-legs strategy in Rand D 66 Linking research and production 67 Shopfloor innovations 68 R and D expenditure 71 Scientific manpower 72

Technology Diffusion 74 Administrative Organisation of Science and Technology 79

4 Technology Imports and I<'oreign Investment 83 A Historical Perspective 83 Share of Foreign Investment 87 A Preliminary Assessment of Impact 89

5 Agricultural Mechanisation 94 A New Policy of Gradual Mechanisation 94 Implications of New Policy 96 Extent of Mechanisation 98 Mechanisation and Employment 105

6 Rural Industrialisation 111 Concepts and Definitions 111 Some Economic Facts 114

Employment and output growth 114 Inputs, Finance and Organisation 118

Labour supply and training 121 Supply of raw materials and equipment 122 Financing 125 Taxes and profits 126 Administrative organisation 127

Creation of New Enterprises 129 Retrospect and Prospect 130

7 Concluding Remarks 133 Competition Between Urban and Rural Industry 134 Exports v. Employment 136

Contents ix

Appendices 1 Statistical Tables 138

11 Notes on Visits to Industrial Enterprises and Communes 146

111 Hunan's Textile Industry 159 IV Farm Machinery Research Institute (Changsha) 161

Notes and References 164

Bibliography 178

Name Index 191

Subject Index 194

Preface

This book is based on data collected during my two trips to China, to Beijing and Guangzhou (Canton), in August-September 1980 (when I visited a large fertiliser factory, the South China Institute of Tech­nology in Guangzhou, and the State Science and Technology Com­mission in Beijing); and to Changsha, Xiantan and Zhu Zhou in Hunan and Guilin in Guangxi in November 1981. These two trips were financed by the ILO, by which I am presently employed. However, the views expressed in this book, which is written in my personal capacity, are solely mine and are not necessarily endorsed by the Organisation.

Much of the information was collected during my second trip when I participated in an International Seminar on the Modernisation of Industry Related to Agriculture held in Changsha. I had an invaluable opportunity to interact closely with important Chinese government officials and scholars from Hunan, its neighbouring provinces and from Beijing, as both the foreign and Chinese participants stayed at the same guest house. I was thus able to indulge in lengthy discussions on several issues besides collecting useful primary data.

The Chinese hosts also organised field trips for the seminar partici­pants to factories, communes and research institutes in Changsha, Shaoyang, Xiantan and Zhu Zhou. I visited a number of small and large factories, a commune, and the Hunan Farm Machinery Research Institute in Changsha. My notes on these visits are presented in Appendices II and IV.

The central focus of the book is on the impact of the new economic policies introduced in 1979 on the provincial economies of Hunan and other provinces of the Central-South Region. This impact is examin­ed particularly in respect of the influence of economic reforms on the employment and technology choice aspects. The economy of the Hunan province is placed in the perspective of its neighbours: namely, Henan, Hubei, Guangxi and Guangdong.

Chapter 1 of the book maps out the economy of Hunan since 1976 in the context of the overall economic situation of the Central-South Region. The population, employment, agricultural

X

Preface xi

and industrial structures of Hunan are compared and contrasted with those of the other provinces in the Region. Chapter 2 outlines the new economic policy framework within which economic changes and policy measures at the provincial level need to be examined. It con­centrates on the following specific policy reforms: agricultural pricing, investment reallocation towards light industry, decentralised economic management, the production responsibility system, and the labour employment system. In Chapters 3-6 we attempt to examine the impact of decentralised economic management and investment reallocation on choice of technology, agricultural mechanisation, and employment. Chapter 3 deals with the broad policies of technology transformation in a historical perspective. It is followed up by an analysis of technology imports and foreign investment. Chapter 5 deals with agricultural mechanisation, and Chapter 6 with rural indus­trialisation and employment. The concluding chapter reviews the issue of competition between urban and rural industry. It also raises some questions of a more general nature, pertaining more particularly to foreign trade and employment.

This book could never have been written or completed without the generous and painstaking help by a large number of Chinese friends in answering questions and providing facts. These persons are too numerous for all to be mentioned here. However, I owe a special debt to three of them - Zeng Dechao of the Beijing Institute of Agri­cultural Mechanisation, Lui Wenwei of the Hunan Bureau of Commune and Brigade Enterprises, and Zhou Guanxuan of the Hunan Bureau of Mechanical Industry, who continued to offer help even after my departure from China. Two other friends, Chiang Hsieh and Joseph Stepanek, to whom this book is dedicated, aroused my interest in China and its economy long before my trips to that country. Joseph Stepanek actually arranged my participation in the Changsha seminar. William Choa, Chiang Hsieh and Shyam Saran helped me with several translations from Chinese into English.

The writing of this book started mainly in March 1982 in the serene and rural environment of Beas, a village in the north of India. A first preliminary draft of the book was completed in August 1982 in the South of France. It was read in full by Chiang Hsieh, Carl Riskin and Shigeru Ishikawa. All of them gave very penetrating and valuable comments and criticisms. Other China specialists such as Dwight Perkins of Harvard University, and Jon Sigurdson of Lund University, read parts of the manuscript. Zeng Dechao reviewed Chapters 2 and 6. Their comments and suggestions led to a substantial revision of the

xii Preface

earlier draft and improved its quality considerably. Needless to say, any remaining errors and deficiencies are my sole responsibility.

Finally, I am grateful to Praveen Bhalla, my wife, and my family for patiently suffering from periodic quarantine due to my 'China fever'. Last but not least, Ita Marguet and Gabrielle Thevenon, who typed parts of the manuscript cheerfully, and Josianne Capt who provided research assistance, also deserve my gratitude.

Commugny, Switzerland A. S. SHALLA

Maps

The People's Republic of China National and provincial boundaries

Province of Hunan

xiv

Glossary of Chinese Terms

UNITS OF MEASURE

Catty 0.5 kg Dan 50 kg liao 0.10 yuan lin 0.5 kg Mou or mu 0.0667 hectares or 0.1647 acres 100 jinlmou 0. 75 tons/ha Picul = Dan 50 kg

OTHER TERMS

Hu lie Dao Lao Qu Ren Min Gong She Shedui qiye Sheng Chan Da Dui Sheng Chan Dui X ian Zhen

Households Streets Labour District People's communes Commune and brigade enterprises Production brigades Production teams County Small town

XV

List of Tables and Figures

TABLES

1.1 Population of the Central ~South Provinces ( 1981) 1.2 Sectoral employment: Central~South Provinces

( 1981) 1.3 Sectoral investment in the Central~South Provinces

(1981) 1.4 Land area and gross agricultural output 1.5 Gross value of agricultural output ( 1981) 1.6 Agricultural and industrial output per capita:

Central~South Provinces 1.7 Hunan's industrial structure 1.8 Gross industrial output in the Central~South

Region (1981) 1.9 Rates of growth of industrial output in the

Central ~South Provinces ( 1957 ~ 79) 1.10 Industrial enterprises by size in the Central ~South

Region: number, gross output and investment 1.11 Light v. heavy industry: number, output and

investment 1.12 Investment, employment and labour productivity in

construction: Central~South China (1981) 1.13 Total value of retail sales in the Central~South

Region (1981) 1.14 System of ownership in retail trade in Hunan

and all China (1950~ 75) 1.15 Agricultural price changes in Hunan 2.1 Distribution of total gross output of Hunan

productions teams ( 1965 ~ 79) 2.2 Diffusion of different types of production

responsibility system 2.3 Adoption of the production responsibility system by

form and province

xvi

4

6

7 8 9

11 15

18

19

20

21

24

26 28

43

44

46

List of Tables and Figures xvii

2.4 Increase of fixed assets in Wanyu commune (Hunan) under the rural responsibility system 48

3.1 Capital-labour and gross output-labour ratios in Chinese state industrial enterprises 62

3.2 Investment -employment ratios by sector in state-owned units: Central-South Provinces ( 1981) 64

3.3 Investment in scientific research: Central-South Provinces (1981) 72

3.4 Natural scientific and technical personnel in state-owned units: Central-South Provinces (1981) 73

3.5 Science and technology institutes in Hunan 82 4.1 Share of foreign investment in industrial projects

in the Central-South Region 88 4.2 Distribution of investment projects by type of

industries (China) 90 5.1 Farm mechanisation by rural institutions 96 5.2 Relative importance of agricultural mechanisation:

Central-South Region ( 1979) 102 5.3 Tractors and power tillers in selected Asian countries 103 5.4 Labour requirements by crops in Hunan (1979) 107 5.5 Input costs by crops in Hunan Province (1979) 109 5.6 Hunan's multiple-cropping index over time

(1952-79) 110 6.1 Number, employment and output in commune and

brigade enterprises by sector (all China) ( 1979) 116 6.2 Changes in number, employment and output in

commune and brigade enterprises by sector (all China) (1978-9) 117

6.3 Output and employment in commune and brigade enterprises in Hunan Province (1976-80) 119

6.4 Output of commune and brigade enterprises in the Central South Region (1978-80) 120

APPENDIX TABLES

A.1 Total population of the Central-South Provinces of China 138

A.2 Output of major farm products of the Central-South Provinces 139

A.3 Average unit area yield of major farm crops: Central-South China ( 1981) 139

xviii List of Tables and Figures

A.4 Key agricultural indicators by provinces of the Central-South Region (1979) 140

A.5 Mechanisation: farm machinery stock in the Central-South Provinces (1979-81) 141

A.6 Data on commune and brigade enterprises by provinces of the Central--South Region (1979) 142

A.7 Commune and brigade enterprises: economic data (1976-9) 143

A.8 Gross value of industrial output by provinces of the Central-South Region (1957 -79) 144

A.9 Investment in large, medium and small construction projects: Central-South Region (1981) 145

A.IO Basic data on a bicycle factory in Hunan (1981) 147 A.11 Staff of the Institute 161

FIGURES

3.1 Technology variations i11 China 59 3.2 Administrative structure of science and technology

(SandT) in Hunan 81 5.1 Interaction between farm mechanisation and rural

commune industry 100 6.1 Rural, 'light' and heavy industry by levels of

administration 114

Abbreviations

CCP FBIS HQ JETRO JJGL JJYJ JMJP NCNA OECD

RMRB SCMP SCR SSB SWB UNCTAD UN IDO ZGJJNJ

Chinese Communist Party Foreign Broadcast Information Service Hongqi (Red Flag Biweekly) Japan External Trade Research Organisation Jing-ji Guan-li (Economic Management Monthly) Jing-ji Yan-jiu (Economic Research Monthly) Jen-min Jih-pao (People's Daily) New China News Agency Organisation for Economic Cooperation and Development Ren-min Ri-bao (People's Daily) Survey of China Mainland Press (Hong Kong) State Council Reports State Statistical Bureau BBC Summary of World Broadcasts United Nations Conference on Trade and Development United Nations Industrial Development Organisation Zhongguo Jinji Nianjian (Annual Economic Report of China, 1981)

xix