As early as 1949, the authorities began to draw private businesses into a close partnership with the government by establishing "joint public-private enterprises." This new organizational model essentially created a state-controlled partnership, marking a decisive move towards complete socialization. While initially introduced gradually, this campaign eventually became the primary method for bringing all private enterprises under state ownership. The regulations governing these new enterprises clearly established the government as the dominant partner.

---

State capitalism developed in two main phases: elementary and advanced. Elementary state capitalism represented a "lower form" of state control, primarily focusing on the circulation of goods. In this stage, the state influenced the private sector by placing orders and purchasing products. Private companies retained management of their operations, but their transactions with the state were contract-based, without direct state involvement in day-to-day enterprise management.
In industry, this "lower form" meant the state either provided raw materials to private enterprises for processing into finished goods or placed direct orders for goods. Both methods operated within a "unified purchase and distribution system" organized by the state. After 1953, nearly all industrial trade involved fulfilling government orders. Processing of goods involved state entities supplying raw materials or semi-finished products to private companies, with contracts ensuring the return of finished products by a specified date. Payments covered wages, taxes, reasonable profits, and other expenses. Placement of orders meant state entities ordered specific goods from private companies, detailing quality, quantity, delivery dates, and prices, allowing for reasonable profits. The "unified purchase" aspect meant the state bought certain goods exclusively from private enterprises through orders, preventing their sale on the open market, although products made from state-provided raw materials could be sold openly.
Advanced state capitalism, a "higher form," involved direct state control over a firm's production processes and direct participation in enterprise management. This led to mixed state-private enterprises, also known as Joint state-private enterprises. In these entities, capitalist assets were converted into private shares, while government investments became state shares. This arrangement resulted in the joint ownership of the means of production by both capitalists and the state, effectively eliminating purely private enterprises.

The Chinese government gradually integrated private entrepreneurs into the state-controlled economy through a three-step process: utilization, restriction, and transformation.
Utilization (1949-1952) This initial phase involved offering preferential measures to the private sector to encourage production and economic activity. The state boosted orders to private factories for manufacturing and processing, and it purchased their products, enabling entrepreneurs to continue and expand their businesses profitably. Private merchants were also permitted to engage in some import and export, and they were incentivized by price differences to transport goods for sale, which stimulated market transactions. The state bank provided loans to capitalists, boosting their confidence in investment. Additionally, commodity taxes were reduced, lowering costs for merchants.
These policies led to a significant recovery in private factories. Production surged, with flour increasing by 54%, rice by 290%, cotton yarn by 130%, and cotton cloth by 230%. The total output value from private factory processing, manufacturing, and state purchases reached 2.1 billion yuan, a 2.7-fold increase from 1949's 810 million yuan. Taxes collected from private industry and commerce also saw substantial increases in late 1950, rising by 90% and 80% respectively compared to the first quarter.
Restriction (1952-1953) Despite the positive economic outcomes of the "utilization" phase, a period of "restriction" was implemented simultaneously. In December 30, 1950,  Interim Regulations on Private Enterprises were issued, mandating that private businesses submit their production and sales plans for state approval. These regulations also stipulated fixed proportions for the allocation of private business earnings, covering dividends, welfare funds, taxes, and reserve funds.
Further tightening controls, the "three-antis" campaign in August 1951 aimed to reduce the connections between private entrepreneurs and officials. This was followed by the "five-antis" campaign in 1952, which significantly curtailed the private economy's scope. While ostensibly targeting "imperialist, feudal, bureaucratic 'compradors'," the campaigns' true purpose was to curb the growth of the private sector and confiscate its profits. Private entrepreneurs were coerced into "self-confession" and "self-criticism," publicly acknowledging workers as their "masters."
By 1953, the effects of these campaigns were evident: the working capital of private factories and firms decreased from 232 to 182. In the wholesale trade, the private share plummeted from 76.1% in 1950 to just 30.3% in 1953. Conversely, state commerce's total retail sales surged by 306%, and cooperatives' by 529%, between 1950 and 1952. In retail, the private sector's share dropped from 85% in 1950 to 49.9% in 1953, while state commerce's share in wholesale trade increased from 23.9% in 1950 to 63.8% in 1952. These figures demonstrate that the restriction process largely achieved its goals.
Transformation (1954-1957) The final stage was "transformation," which began in September 6, 1954 with the GAC promulgation of  Provisional Regulations for Joint State-Private Industrial Enterprises. These regulations designated "mixed state-private enterprises" as the "advanced form of state capitalism," requiring private businesses to integrate with state investments or other mixed enterprises under the joint direction of capitalists and state-appointed functionaries.
From this point, state capital investment in these enterprises became increasingly common, with private assets converted into private shares. The government directly influenced production processes by assigning representatives to participate in and control management. This effectively transformed private capitalists into de facto state-appointed employees. By the end of 1954, there were over 1,700 joint state-private industrial enterprises, employing more than 5.3 million workers (a significant increase from 193 enterprises and about 0.1 million workers in 1949). These enterprises generated an annual output value exceeding 5 billion yuan.
In its early form, state control over commerce aimed to rein in the private sector through a system of state-managed distribution and a surrogate market. Private retailers essentially became agents for the state, which dictated the goods they sold and their operational terms. The compensation for these private businesses came in the form of commissions or handling charges, all set by state enterprises. The unified market meant that private factories had to sell their entire output to the state within a set timeframe, based on contracts with state enterprises.
The distribution market involved state commerce delegating the sale of its products to private retail shops. The state enterprises determined product prices, and private shops were required to pay cash upon receiving the goods. Their profit came from the difference between the wholesale and retail prices. Critically, these retail shops could no longer buy commodities directly from the open market, leading to nearly complete state control over the finished products market.
The surrogate market operated similarly, with private retailers acting as agents. They had to provide a security deposit to the state before selling the state-supplied products. Prices were state-fixed, and the dealers' commission was predetermined. Like in the distribution market, retailers were barred from purchasing products directly from the open market. See for more details on domestic commerce Article 37.

---

After 1949, many cadres of the CCP held a left sentiment to crush capitalism in a rush and eliminate the national bourgeoisie. They believed that the historical role of the national bourgeoisie had ended, and that the future struggle is mainly aimed at the national bourgeoisie. They also thought that the more prosperous the state-run economy develops, the more necessary it is to squeeze the private sector.
On June 6, 1950, at the Third Plenary Session of the Seventh Central Committee of the CPC, Mao Zedong made a speech  "Don't hit out in all directions", in which he warned against these left ideas; the CCP aims to strengthen its united front by rallying the petty bourgeoisie and national bourgeoisie under the leadership of the working class and the worker-peasant alliance. While acknowledging that the national bourgeoisie will eventually cease to exist, the current strategy is to unite with them rather than alienate them. This involves a dual approach of struggle and unity. It is crucial to educate cadres on the necessity and correctness of this alliance, demonstrating through practical examples the benefits of uniting with the national bourgeoisie, democratic parties, democratic personages, and intellectuals. Despite past enmities, those who have defected from the opposing camp and joined the Party's side should be welcomed. This broad unity is deemed to be in the best interest of the working people, and these tactics are considered essential for the current stage.
On July 5, 1951, Liu Shaoqi stated "...development benefits the whole people, especially workers and the Communist Party, and aligns with our ideals—we must strive toward it. But for the bourgeoisie (large, medium, small), there are both favorable and unfavorable aspects. Their attitude will be mixed—supportive and resistant. Our policy must be one of both unity and struggle. In the later stages, commercial capitalists may face more challenges, requiring a policy of both exclusion and accommodation. The above describes the situation during the entire New Democratic stage, estimated to last at least 10 years, possibly 15 to 20 years"

Shortly, after these statements, the Sanfan and Wufan started and as Mao zedong stated "Party committees at all levels are requested to meticulously plan and deploy for this matter, and to treat this as a large-scale class struggle." Some months later, on June 6, 1952, Mao Zedong wrote "With the overthrow of the landlord class and the bureaucrat-capitalist class, the contradiction between the working class and the national bourgeoisie has become the principal contradiction in China; therefore the national bourgeoisie should no longer be defined as an intermediate class."
In Mao Zedong's  "On new democracy", he asserted that the two phases of the Chinese revolution—the New Democratic Revolution and the Socialist Revolution—were inextricably linked. This represented a Marxist theory of revolution specifically adapted to China's unique circumstances. Leading up to the establishment of the PRC, Mao dismissed the characterization of the new democratic economy as "new capitalism." Following the PRC's founding, he believed the transition period was dynamic, with socialist elements emerging daily. Mao consistently emphasized that the concept of "establishing a new democratic order" was out of step with the ongoing struggle and, in fact, impeded the advancement of socialist initiatives. Instead of waiting for ten or fifteen years, the transition could be made immediately.
The rapid acceleration of socialist transformation post-1952, which saw the abandonment of the "ten years or more" gradualism, reveals a profound tension between the pragmatic, multi-class New Democracy and Mao's deeper, more radical ideological commitment to immediate socialist construction. The initial plan for New Democracy was conceived as a prolonged transitional phase, spanning over a decade, allowing for a mixed economy and class collaboration. However, after 1952, the CCP swiftly adopted the Soviet model, leading to widespread collectivization and nationalization of industry by 1956-1957.
Several factors contributed to this dramatic shift. The explicit adoption of the Soviet model, following Liu Shaoqi's 1952 visit and Stalin's advice, played a significant role. Stalin subsequent proposed a one-party constitution. This led to the abolition of the coalition government and the establishment of the CCP's one-party system under the 1954 constitution. As a direct consequence, some of the ideas discussed in On New Democracy and On the Coalition Government were discarded.
Furthermore, Mao's growing impatience and fear of the emergence of "new rich peasants" and "capitalist elements" within society, coupled with his conviction that socialist factors were emerging daily, suggested an imperative to seize the moment. Internal party dynamics also played a part, with divisions regarding the speed of collectivization, and Mao strongly advocating for rapid transformation. This indicates that the "compromise" inherent in New Democracy was always viewed by Mao as a temporary tactical necessity, not a long-term goal. Once state power was consolidated, the ideological imperative for a more rapid, direct path to socialism superseded the gradualist approach. This shift also highlights the CCP's increasing centralization and Mao's growing assertiveness in directing policy, even at the expense of earlier theoretical formulations.
Furthermore, while essential for achieving revolutionary victory, the methods of mass mobilization and the subsequent drive towards centralized party control, particularly in the post-1949 period, inadvertently undermined the very democratic elements initially envisioned in New Democracy. Mao's On New Democracy had advocated for "democratic centralism" and "universal and equal suffrage". The early years of the PRC did see achievements such as the abolition of feudal hierarchy and the equalization of gender differences. Mass movements were indeed powerful instruments for revolutionary victory, igniting political enthusiasm and participation among the populace. However, after 1949, Chinese democracy experienced a "severely degraded situation". The socialist transformation between 1953 and 1957 led to the establishment of a "party-state regime that controlled all aspects of society and economic life". The "mass line," originally intended to foster a dialectic between leaders and masses, shifted towards "mass mobilization" directed by top leadership, effectively eliminating any social force capable of checking the expanding party-state. The imperative for rapid socialist transformation and the consolidation of state power led to an increasing emphasis on centralism over democracy. Mass mobilization, while initially empowering, became a tool for top-down policy implementation and class warfare, rather than genuine democratic participation.
In June 1953, Mao Zedong abandoned the earlier promise of New Democracy and introduced the "General Line of the Transitional Period." This new major policy, modeled after a Soviet precedent, was closely tied to the Five-Year Plan and socialist industrialization. The adoption of the General Line initiated a "socialist transformation," which involved a dramatic shift in the ownership of private industry. 15-06-1953 and 23-06-1953: Politburo on General Line of the transition period
 28-12-1953 Struggle to mobilize all forces to build our country into a great socialist country - Outline for studying and promoting the Party's general line in the transition period  05-01-1954 Propaganda of the General Line in Minority Nationality Areas

---

From 1949 onwards, the Chinese authorities began integrating private businesses into the state economy through "joint public-private enterprises." This new organizational model was essentially a partnership with the state, marking a definitive move toward complete socialization. Initially, the push for these joint ventures was gradual, but it eventually became the primary method for bringing all private enterprises under state ownership. Under this new structure, the government was the dominant partner. Private businessmen, while contributing all their assets, did not retain direct control. Instead, they participated in management as salaried employees, with the government primarily seeking their technical and managerial expertise. Initially, private owners received a percentage of annual profits as compensation.

The CCP initially emphasized the need for public support and voluntary agreement from private owners to join these enterprises. However, subtle pressures, such as offers of cheaper raw materials and increased business opportunities, likely influenced private firms. The Chinese press often reported positive outcomes after conversion; for example, a Shanghai foundry claimed a 12% cost reduction and 18% output increase, while nine woolen knitting shops reported a 60% increase in turnover. Despite these reported successes, only about 1,000 joint firms had been established by 1954. These were predominantly larger industrial companies, which the authorities stated accounted for 13.3% of the combined industrial output of capitalist and joint enterprises.

Between 1953 and 1956, Shanghai underwent a significant shift in its industrial landscape, moving from a predominantly private-sector model to one dominated by jointly owned and state-controlled enterprises. In 1953, 29,485 private industrial enterprises were the backbone of Shanghai's industry, responsible for a remarkable 99% of the city's total industrial output. However, by 1956, this had dramatically changed. These private businesses were consolidated and transformed into 16,768 jointly owned enterprises, which, by then, produced 66.5% of Shanghai's industrial output value.

In 1952, not all State-Owned Enterprises (SOEs) were under the direct control of Beijing. Out of 9,517 total SOEs in China, local governments at various levels owned the majority. However, the 2,254 SOEs (23.7%) that belonged to the central government were far more significant, accounting for a remarkable **71.6% of the total industrial output**. This meant that while local governments managed a larger number of smaller SOEs, Beijing's control was concentrated on larger, more crucial enterprises like the Angang steelworks. During the same period, the number of state-owned industrial enterprises in Shanghai saw a modest increase, growing from 246 in 1953 to 279 in 1956. Despite their smaller number, these state-owned entities contributed significantly, accounting for just over 33% of Shanghai's industrial output value by 1956. China's shift towards socialism, beginning with the "General Line" in October 1953, didn't unfold as a meticulously planned progression. Instead, it accelerated unexpectedly, outpacing even the Communist Party leaders' initial projections. This rapid pace was not solely a result of Mao Zedong's ideological drive or personal urgency. It was significantly influenced by the practical incentives that factory owners encountered under the New Democracy.
While these capitalists rarely embraced socialization due to genuine ideological conviction, they had their own compelling reasons to expedite the transition. Operating as private enterprises within a state-controlled economy proved to be an ambiguous and often unworkable arrangement. Moving towards joint state-private enterprises, managed by state companies, offered a more defined and potentially stable future. This arrangement provided a stable income and reduced the operational responsibilities of private owners. Notably, some entrepreneurs actively sought joint venture status, recognizing the benefits of state support in areas such as supply chain management and labor relations.
However, this transformation was far from a smooth, predetermined path. It was a highly contested and contingent process, more so than previously acknowledged. The policies concerning private industry often appear to have been ad hoc responses to emerging economic challenges in 1950s China. The unforeseen consequences of these policies ultimately propelled both the Party and private businesses toward socialization at a speed no one had anticipated or planned for in that pivotal decade's early years.

---

Chapter 4 of Common Program

• Road to Common Program
• Common Program
• Bibliography
• Documents