Article 26 of the Common Program

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Article 26 of the Common Program outlines the foundational principles guiding the economic policy of the newly established PRC. It articulates a vision of economic development rooted in a balanced integration of public and private interests, the harmonization of labor and capital, and the reciprocal support between urban and rural sectors. Additionally, the policy encourages international trade as a mechanism to support national growth. Central to this framework is the role of the state, which is tasked with coordinating and regulating the operations of diverse economic forms—including state-owned, cooperative, private, and individual enterprises. These sectors were expected to function in alignment, particularly in domains such as production, resource allocation, marketing, labor standards, and fiscal policy, under the overarching leadership of the state-owned economy. This integrative model was conceived not only as a mechanism for equitable distribution but also as a strategy to promote cohesive national economic development.
At the inception of the PRC in 1949, the new government inherited a fragmented economic structure comprising three largely disconnected regional economies. In the interior, a predominantly subsistence agrarian economy persisted, shaped by centuries of traditional agricultural practices and limited market integration. Along the eastern seaboard, particularly in Treaty Port cities (see Article 55), semi-industrialized enclaves had emerged under foreign influence, primarily geared toward light industry and export-oriented trade. In the northeast, the Manchurian economy—heavily industrialized under Japanese occupation—was centered on large-scale heavy industry and mineral extraction. The challenge of economic unification and integration across these distinct systems was a defining task of the early PRC leadership.
A critical analysis of China's prewar economic structure reveals several key insights. First, while foreign imperialism imposed constraints, it did not wholly obstruct the process of economic modernization; rather, development proceeded in a selective and uneven manner. Second, although certain elements of industrial growth and infrastructural expansion were present, institutional weaknesses—including the absence of coherent national policies, ineffective governance, and fragmented markets—limited the scale and impact of modernization efforts. Third and most consequentially, the stagnation of the agricultural sector served as a significant bottleneck, impeding broader economic transformation and reinforcing structural underdevelopment.
An essential cultural and ideological dimension influencing economic behavior and policy in China was the enduring legacy of Confucian political economy. As the dominant socio-philosophical system for over two millennia, Confucianism profoundly shaped Chinese views on governance, social order, and economic roles. Its emphasis on hierarchical relationships, respect for authority, moral conduct, and the primacy of the family unit provided a stable framework for imperial administration and societal cohesion. However, this same ideological stability was accompanied by a marked conservatism that often resisted structural innovation. The prioritization of social harmony and adherence to traditional roles may have curtailed receptiveness to economic disruptions associated with industrialization and capitalist transformation. Confucian doctrines also constructed a moral hierarchy of occupations that deeply influenced economic priorities. Agriculture was extolled as the most virtuous and essential economic activity, while commerce, industry, and manual crafts were frequently viewed with ambivalence or even suspicion. These sectors were often regarded as morally inferior or potentially destabilizing, capable of fostering luxury, inequality, and social dislocation. Consequently, this normative bias likely exerted a constraining effect on state policy and intellectual attitudes, discouraging investment in trade and industrial infrastructure, and limiting the social legitimacy of entrepreneurial activity. Talented individuals may have been dissuaded from pursuing careers in commerce or manufacturing, further entrenching the agrarian orientation of the economy.
The cumulative effect of these cultural, institutional, and structural dynamics was a persistent underdevelopment of non-agricultural sectors and a resistance to the transformative changes required for sustained modernization. The post-1949 economic strategy of the PRC, therefore, must be understood not merely as a technocratic response to material conditions, but as a complex negotiation with inherited historical legacies, ideological continuities, and deeply embedded socio-economic hierarchies.

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While subsequent sections of this study explore the economic policies of the PRC in greater detail, it is essential to first contextualize the economic situation of the Chinese mainland at the time of the Communist victory in 1949. The Chinese economy at the dawn of the PRC was markedly underdeveloped, fragmented, and heavily agrarian in structure. Industrial activity was concentrated in a limited number of coastal cities and Manchuria, with much of the interior remaining economically stagnant and infrastructure chronically underdeveloped.
The national industrial landscape was characterized by small-scale, labor-intensive enterprises, many of which lacked mechanization or efficient organization. The most modern sectors—particularly those involved in finance, shipping, textiles, and rail—were disproportionately under foreign control, often through enterprises located in treaty ports such as Shanghai, Tianjin, and Guangzhou. This spatial and structural imbalance between coastal urban centers and the rural hinterland accentuated regional inequalities and impeded economic integration.
Approximately 90 percent of the population was engaged in agriculture, which remained the dominant sector well into the early years of the PRC. During the early 1950s, the Communist Party adopted a cautious approach toward rural reform. Farmers largely retained autonomy in cropping decisions, with state involvement limited to setting relative price ratios for certain cash crops and grain varieties. This policy, though initially moderate, had clear strategic objectives—especially the incentivization of cotton production for the textile sector. Hebei Province, for instance, witnessed a 5.4% increase in cotton acreage and a 210% rise in output by 1952 relative to pre-war levels (Lardy, 1983).
However, between 1953 and 1957, the state imposed compulsory delivery quotas for major agricultural goods. Despite these demands, farmers were permitted to sell surplus produce on the market, reflecting a transitional model that blended socialist planning with remnants of market logic.
The dominance of agriculture reflected a broader lack of economic diversification. Compared to economies with substantial industrial and service sectors, China’s agrarian structure translated into lower productivity and constrained economic modernization. Industrial production, where it existed, remained focused primarily on consumer goods. In 1952, only 26 percent of factory output was attributed to producer goods, while similar trends held for handicraft industries. Modern industrial capacity was largely absent outside of key urban nodes and the heavy-industry complexes of Manchuria. In provinces such as Jiangsu and Guangdong, economic activity centered around traditional agriculture and small-scale commerce. Western China, with the partial exception of wartime Chongqing, had not experienced significant industrialization. The deficiency in industrial development was compounded by inadequate transportation infrastructure; notably, Sichuan—a province comparable in size to France—had no railway network aside from a limited coal line in Chongqing.

To rehabilitate the national economy, the new Communist government undertook sweeping institutional changes. Key among these was the nationalization of foreign-owned enterprises and large-scale industries controlled by Kuomintang-aligned capitalists. Yet, private ownership of small and medium enterprises was preserved during this early stage, as such businesses were seen as essential to national recovery and as potential allies of the revolution. The level of industrial modernization in pre-1949 China can also be gauged through the trajectory of indigenous engineering development. This progression occurred in three discernible phases:

1. Post-Opium Wars Era (after 1842): Chinese scholars and officials began translating Western scientific texts, founding technical academies, and experimenting with basic industrial technologies. However, these efforts often retained a Confucian epistemological framework and were therefore limited in their transformative potential. Furthermore, the imposition of unequal treaties following the Opium Wars constrained state sovereignty, subjected domestic markets to foreign domination, and diverted national energies away from endogenous industrial growth.
2. The Self-Strengthening Movement (1861–1895): This Qing dynasty initiative aimed to modernize China's military and industry through selective adoption of Western technologies. While it yielded arsenals, shipyards, and educational institutions, the movement ultimately faltered due to entrenched conservatism, fragmented authority, and fiscal constraints. Its emphasis on military hardware over broader economic reform limited its transformative impact
3. Interwar Industrial Policy (1920s–1930s): During the Nationalist government’s tenure, particularly the Nanjing decade (1927–1937), attempts were made to institutionalize industrial policy. The Ministry of Industry introduced regulatory frameworks to support business development, and universities increasingly offered structured curricula in engineering and science. However, the impact of these reforms was undermined by recurring civil conflict, regional warlordism, and escalating Japanese aggression, all of which destabilized the foundations of long-term economic planning.
Despite brief periods of relative stability, particularly under Chiang Kai-shek's government, these reform episodes failed to reverse the long-term structural stagnation of the Chinese economy. The warlord era (1916–1928) disrupted trade and fragmented administrative control, while World War II and the civil war drained state resources and decimated infrastructure. As a result, by 1949, China remained a predominantly rural society with a bifurcated economy and a limited industrial base.
Figure 26.2 shows China's relative economic position with several major world powers around 1900 and 1930. This comparison clearly demonstrates the extent to which China lagged behind the major global powers in terms of economic development by the turn of the 20th century and in the lead-up to World War II.

By 1947, 55 universities, including 33 engineering institutes, supported China’s modern engineering education and industrial policy. Article 43 of the Common Program makes a statement about the target of the development of science and technology. Yet, planned development of scientific and technological ideas were absent. However, from the perspective of the social and economic structure, after almost one hundred years’ development, Chinese modem industrialization still lagged behind and China was still an underdeveloped agricultural country. In 1949, Chinese industry as whole only contributed 15.5% of the gross value of the national industrial and agricultural output, with heavy industry taking only 4.5%.
The apparent ease with which Mao's China adopted the Soviet economic model was not due to its proven track record. Instead, the model's appeal lay in the absence of viable alternatives. Previous attempts to break China's cycle of poverty and underdevelopment throughout the 19th century had yielded limited results. Moreover, the "demonstration effects" of the Great Depression, which discredited Western capitalism, coupled with the Soviet Union's triumph over Nazi Germany and the subsequent geopolitical division of the world, significantly lowered the perceived risks associated with implementing a Stalinist economic system. Essentially, the lack of success of other models, and the perceived success of the Soviet model created a situation where the risks were deemed to be lower.

Although figure 26.3 gives an impression of the situation in 1953, it shows clearly the spatial difference in development. In 1953, China's per capita GDP was 142 yuan, with significant regional disparities. Shanghai, the most developed area, boasted a per capita GDP of nearly 600 yuan. Wealthier provinces generally possessed abundant resources and low populations, like Gansu and Inner Mongolia, or had benefited from pre-1952 industrialization, notably Manchuria. Conversely, the southwest region was exceptionally poor, with Sichuan, Guizhou, Hunan, Guangxi, and Yunnan ranking as the five lowest provinces. These areas, despite large populations, suffered from severe industrial underdevelopment.
At the Central Committee meeting on March 5, 1949, Mao outlined the economic strategy as follows: first, the confiscation of all GMD government assets, estimated at between $10 billion and $20 billion; second, cooperation with urban and rural capitalists, who held the second largest share of China’s modern industries; third, devising methods to modernize and collectivize the fragmented, individual economies of agriculture and handicraft production; and fourth, swiftly asserting control over foreign trade and the broader economy. See Article 37

Following the 1949 communist victory, China relied heavily on the Soviet Union as its main supplier for rebuilding its war-torn industry and economy. However, this dependence was complicated by the legacy of China's technological development. Many factories inherited by the communist regime were originally built with Western machinery and adhered to Western operational standards. The new regime insisted these factories adopt Soviet technological and operational norms. The transition was further complicated by the influence of Western and Japanese industrial practices, as many Chinese industrial elites were trained in these systems. The process of transferring Soviet technology in the early 1950s thus became a contested political and institutional challenge, shaped by national policies, local contexts, and historical influences. While a few major industrial projects received substantial Soviet support, most regional factories experienced Soviet influence indirectly, as a political and institutional transformation rather than a purely technological or economic shift. Local forces often played a decisive role in shaping the adaptation to Sovietization.

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Section VII of the First Five-Year Plan For Development Of PRC-1953-1957 is dedicated to handicraft. It states "China's handicrafts play an important part in meeting the needs of the people in town and ~ountryside, and especially in meeting the peasants' demands for farm tools and daily necessities. They also play a very definite role in meeting the needs of our export trade. Working on the principle of achieving a proper balance and co-ordination both on a national scale and locally, we should guide handicraft production according to plan, see that the necessary materials are available, encourage initiative in serving agricultural production and the daily needs of the rural and urban population. At the same time, we must protect handicrafts involving special skills, and improve and raise the level of specialized handicraft production. " Rural industrialization is often considered a defining characteristic of Chinese socialism under both Mao and his successors. However, it's less commonly recognized that this didn't emerge in a vacuum. A significant degree of rural industrialization already existed in China before 1949, though it primarily consisted of unmechanized "proto-industries"—small-scale, decentralized, and household-based operations. Modernizing governments, including both the GMD and CCP regimes, generally viewed these existing rural industries as obstacles to their vision of industrial modernity, which was centered on mass production in urban factories.

Maoist policy further complicated this landscape by prioritizing local grain self-sufficiency and discriminating against communities that relied on specialized production and exchange. The mandate for all rural people to grow their own grain—a policy stemming from the simplified notion that rural inhabitants were solely "peasants" in an undifferentiated countryside—had uneven consequences. While some localities could leverage this to their economic advantage (initially in grain, then cash crops and modern industry), others were forced to abandon their comparative advantages and engage in low-yield farming on marginal land.
Take, for example, the handicraft papermaking industry in Jiajiang county, Sichuan. Communities in such areas had historically specialized in crafts to compensate for challenging natural environments, much like many upland regions. However, Maoist policies often penalized these already disadvantaged communities, sometimes with disastrous outcomes. Rural industries were also viewed with suspicion because they were associated with the rich peasant economy, speculation, and illicit gains. It was believed that suppressing them would lead to a more rational economic order and greater equality.
Rural handicraftsmen were rural by residence, they belonged to one of the standard rural classes: landlord, rich peasant, middle peasant, poor peasant or hired farm hand. These were household labels, unchangeable, inheritable and valid for all members. Under certain conditions, individuals could be classified as workers (gongren), small artisans (xiao shougongyezhe), or industrialist-merchants (gong-shangyezhe).

Handicraft production can be categorized into three distinct types based on their skill and tool requirements:
Basic Handicrafts At the most basic level, the skills and tools needed are so minimal that there's no necessity for occupational specialization or even commodity production. These handicrafts are often performed as domestic subsistence activities, supplementing other forms of subsistence or commodity production. This was particularly common among peasant households, at least until 1957, who engaged in many such "subsistence activities."
Intermediate Handicrafts For intermediate handicrafts, the skill and tool requirements are complex enough to warrant occupational specialization and commodity production, even if only in a rudimentary, part-time form (e.g., a peasant-craftsman). However, these requirements are still limited enough that they don't lead to individual specialization within the production process or a corresponding social division of labor. A craftsman in this category typically owns their means of production and practices their craft individually or with family, possibly with the help of a journeyman or apprentice. The Chinese Communists referred to these as individual handicrafts, classifying any establishment with fewer than four gainfully occupied persons (including family members) as such.
Advanced Handicrafts At the highest level, the skill and tool requirements are considerably more complex, usually necessitating at least some individual specialization and social division of labor within the handicraft production process. Production is organized in handicraft workshops, which require capital investments beyond the means of most individual craftsmen. Historically, the majority of establishments in this range were small capitalist handicraft workshops, employing at least four but fewer than ten gainfully occupied individuals, including proprietors, their assisting family members, and wage-laborers. Generally, the greater the skill and tool requirements, and the corresponding degrees of individual specialization and social division of labor in handicraft production, the higher the value and surplus value generated per craftsman. These different levels of technical advancement and social organization in handicraft production necessitate distinct approaches to technical change and socialist transformation, all aimed at achieving complete socialist industrialization.
a) Capitalist handicraft workshops, already capitalist in nature, must be converted into industries. This requires the expropriation of handicraft capitalists, who will then rely on wage income. The Chinese Communists believed this could be achieved through a gradual process of "utilizing, restricting, and reconstructing," a strategy applied to all members of the national bourgeoisie.
b) Individual craftsmen, who are not yet capitalists and haven't reached the workshop stage, need to advance in a non-capitalist manner under Communist rule. This transformation, according to the CCP, is best accomplished through a phased collectivization process. This would begin with joint tool groups, progress to marketing cooperatives and small handicraft groups, and culminate in handicraft production cooperatives. These cooperatives would then evolve into cooperative factories or handicraft workshops, turning the craftsman-cooperator into a wage laborer, thus completing the transition to a socialist distribution system. Finally, cooperative handicraft workshops are to be developed into modern industries.
c) Subsistence handicraft activities performed by peasant households must be phased out in favor of individual occupational specialization in either agriculture or handicrafts. The Chinese Communists asserted that this immediate goal could be best met through the gradual process of agricultural collectivization. This approach would increasingly involve peasants in agricultural work and necessitate more comprehensive and complex handicraft activities related to agriculture.  12-06-1950 Instructions from the CC on Handicraft Industry Policy

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During the inaugural year of the five-year plan, a notable deficit in inter-departmental communication between planning and statistical operations was evident. This manifested as a pattern of decentralized, ad hoc methodologies, wherein planning and statistical offices independently derived indicators without requisite authorization. Consequently, this contributed to a proliferation of disparate and conflicting data and analytical outputs.
In the early days of the People's Republic of China, numbers weren't just numbers. They were weapons in a political battle. Driven by a strong ideological shift, the nation decided to ditch "Western" statistical methods, viewing them as tainted by "bourgeois" thinking. Instead, they embraced a Soviet-style approach, fundamentally changing how data was collected and interpreted. This wasn't just a theoretical debate. It had real-world consequences. The field of statistics was essentially split in two. "Socialist statistics" focused on gathering raw data, while the more complex mathematical side, dealing with probabilities and analysis, was pushed aside. This division hampered the development of sophisticated analytical tools. Figure 26.10 shows the differences between the two methods.

The practical methods used to gather information also created problems. The nation relied heavily on "complete enumeration," essentially trying to count everything. In a country as vast and populous as China, this led to a tidal wave of paper reports, overwhelming officials with raw data they couldn't effectively process. Imagine trying to analyze every single farm's output in a nation with a massive agricultural sector—the sheer volume of information became a major hurdle.
Furthermore, when complete enumeration wasn't feasible, they used sampling techniques that often resulted in inaccurate estimates. By assuming a single village represented an entire region, they introduced significant errors that compounded as the data moved up the chain of command. The State Statistics Bureau came in operation in September 1952. The Northeast region had already a statistics bureau, in the other five regions statistics bureaus started in 1953, likewise the provincial statistics bureaus.

Essentially, the pursuit of ideological purity led to a statistical system that struggled to accurately reflect reality. This resulted in data that was often unreliable, hindering effective planning and decision-making. This period reveals a critical lesson: even in the seemingly objective world of numbers, ideology can have a profound and detrimental impact.
To solve problems, the State Planning Commission (SPC) of China enacted "Uniform Provisions for a number of Problems [Encountered] in Planning and Statistical Work," a six-page directive designed to rectify systemic and coordinative deficiencies between planning and statistical units. The document of August 1954 identified several key issues: Discrepancies in Inter-Unit Coordination: A lack of consistent interaction between planning and statistical entities resulted in incompatible data sets and compromised indicator reliability. Secondly, deviation from Central Directives: Subordinate administrative bodies frequently disregarded joint SPC and State Statistics Bureau (SSB) regulations, implementing localized and often contradictory modifications. Thirdly, data Set Proliferation: The existence of multiple, unharmonized planning data sets within single units obscured accurate plan implementation assessment. To address these, the SPC mandated five provisions:
• Enhanced Inter-Agency Collaboration: Statistical offices were required to align with corresponding planning committees at all administrative levels, with a defined data provision and validation protocol.
•Indicator Standardization: The congruence of indicator definitions and calculation methodologies across planning and statistical domains was emphasized, with national catalogs and classification schemes serving as normative frameworks.
•Conformity in Plan Implementation Monitoring: Statistical reporting and summary units were obligated to adhere to planning unit directives, particularly those pertaining to the National Economic Plan (NEP), and to utilize SSB periodical reports and survey estimates.
•Uniformity in Plan Implementation Methodology: Nationally approved numerical data was to be used for plan implementation verification, with a hierarchical data sourcing protocol for cases of data absence.

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In March 1950 two important decisions are made:  March 3, 1950 Decision on Unified National Financial and Economic Work and 7 days later  March 10, 1950 GAC Decisions on Procedures Governing the Unification of State-Operated Trade. The first decision aimed to unify the national financial income and expenditure, to unify the dispatching of the national materials, and to unify the national cash management. The second decision aimed to unify the accounting system, because untill now the accounting systems within the business entities were very confused. Before 1949, China’s accounting theory and methods were heavily influenced by Western accounting theories. The new accounting systems represented a hybrid approach, integrating scientific methods from contemporary Western accounting theory with elements of Soviet-type accounting. This unique blend was specifically developed to address the characteristics of China's state-operated economy and the country's financial management needs. At that time, a key objective for accounting professionals was to overhaul the existing business accounting and accounting systems, which were seen as "backward and confused" remnants of the old, private-ownership-based society. The goal was to transform them into an effective instrument for China's economic recovery and construction. Henceforth, China’s accounting went into a period of continuing revision, implementation, and introduction of the newest achievements of the Soviet’s accounting development.
From 1952 onwards, in succession, The Accounting Systems for State-operated Industrial Enterprises, State-operated Construction Business and State-operated Contract Enterprises, as well as The Accounting System for State-operated Supply and Marketing Enterprises, Agricultural Business, as well the Enterprises of Commerce, Railway, Transportation etc. These systems changed the situation of different department issuing its affiliated state-operated industry business’ accounting system, and realized the setting up of the unified accounting system by different national economic sectors. In January of 1954, the Mininstry of Finance issued the Unified Accounts and the Patterns of Accounting Statement for State-Operated Industrial Enterprises and the Simplified Unified Accounts and the Patterns of Accounting Statement for State-Operated Industrial Enterprises to enable different businesses of different levels and sizes to use different accounting systems. This changed the method of every business employing one set of accounting system.
The early PRC years saw a complete rejection of Western accounting, branded as "capitalistic" and inappropriate for a socialist nation. Consequently, only Soviet-style socialist accounting was permitted in higher education. This ideological shift was quickly institutionalized. Throughout the 1950s, newly formed financial and economic colleges nationwide replicated Soviet teaching plans and curricula, from fundamental accounting principles to financial management. Textbooks largely consisted of Soviet translations or adaptations.
The "Sovietization" of China's educational system was cemented by a major reform in 1952. Russian experts were instrumental, particularly at the People's University of China, where they helped establish the Accounting Group. All Western accounting textbooks were systematically replaced by Soviet models, integrating accounting education into the national central planning framework. Beyond traditional university settings, on-site training for accounting professionals became common. By 1953, universities offered various adult education options, including specialized courses, night schools, and correspondence classes, leading to a comprehensive two-level system by 1956. This era also witnessed the downscaling or elimination of management education. The new system produced accounting graduates trained in a "very rigid process," characterized by standardized charts of accounts and prescribed financial statements, specifically designed to meet the highly specialized demands of a planned economy.

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Not only efficient statistic and accounting systems were necessary for the realization of the Five-Year Plan, but also that an adequate number of specialized and scientifically educated personnel were available. The education of specialists was therefore given high priority. Alongside a strong belief in the power of statistics, science, and planning, there was an equally firm conviction in the benefits of specialization. Much like in traditional China, the challenge was seen as attracting talented individuals, but talent was now redefined as technical competence. Cadres were encouraged to develop specialized skills, and older cadres were cautioned that the government would no longer require those who lacked the specific expertise needed for their roles. The technician rose to prominence as a new cultural ideal. This represented a vision of modern science and society, marking a significant shift away from a "guerrilla mentality." See Chapter 5
China's health system, modeled after the Soviet Union, emphasized urban specialist concentration. The initial plan targeted significant growth in hospital beds and doctors.See Article 48 Integrating traditional medicine, with its vast practitioner base, was difficult, encountering resistance from Western-educated doctors. See Article 48 The government's strong 1954 criticism forced a shift. Industrialization also necessitated substantial housing construction, (see Article 45) with plans for 46 million square meters. The 1954 Constitution further demanded the expansion of social security. See Article 32
The 1953 census, revealing a population exceeding 580 million and rising unemployment, forced the Chinese leadership to address family planning. This represented a significant policy shift, as the CCP had previously rejected birth control, attributing population-food imbalances to feudal or bourgeois economic failings, in line with Marxist theory. See Article 48
Initially, large administrative regions were created to link Beijing with the provinces. However, they began to exhibit increasing centrifugal tendencies, even after the transfer of influential regional leaders to Beijing. To solve this problem and strengthen central control, the eventual dissolution of these regions was considered necessary. See Article 14
To support agricultural and industrial growth, plans were made to expand transportation and communication infrastructure. This expansion aimed to ensure food and raw material supplies and integrate the nation through inland railway construction. While political and strategic factors were present, the railway's primary purpose was to connect new inland industrial centers to existing urban conglomerates.Article 36

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Chapter 4 of Common Program