The Central People's Government shall strive to draw up, as soon as possible, a general plan for rehabilitating and developing the main departments of the public and private economy of the entire country.
It shall also fix the scope of the division and co-ordination of labour between the central and local governments in economic construction, and shall undertake centralized regulation of the interrelationship between the economic departments of the central and local governments.
Under the unified leadership of the Central People's Government, the various economic departments of the central and local governments should give full play to their creativeness and initiative.
In industrial policy the GMD government was also was indebted to the SU and made their own long-term economic plans. For example, Reconstruction Ministry's Ten-Year Plan of 1928, the Industry Ministry's Ten-Year Plan of 1930 and Four-Year Plan of 1932, the National Economic Council's Three-Year Plan of 1931. However, none of these enjoyed the political support, financial resources or technical expertise needed to meet their objectives.
Two key areas of planning were crucial: the war economy itself, encompassing the production and distribution of coal, iron, petroleum, chemicals, transportation equipment, and various spare parts, alongside the critical task of funding these activities amidst rising inflation. Secondly, and perhaps even more intricate given its scope, was the planning for China's postwar economic development. Government control and the growth of the state industrial sector were intended to continue at an even greater pace after the war, and to affect areas of the economy that had been largely outside of government control before 1937, including light industry and foreign-owned enterprises. After the end of the war, the GMD government continued, despite US demands to privatize the Chinese industry, in the direction of increased economic control and expanded the state sector and the planned economy at a rapid rate.
Five year plan
On April 19, 1954, the Central Committee of the Communist Party of China issued the "Decision on Establishing an Eight-Member Working Group for Compiling the Draft Outline of the Five-Year Plan" The working group is composed of Chen Yun, Deng Xiaoping, Deng Zihui, Xi Zhongxun, Li Fuchun, Zhou Enlai etc., and Chen Yun is the team leader. The resolution pointed out that the task of the working group is to further study the speed of industrial development in the outline of the first five-year plan, the 141 construction projects aided by the Soviet Union, the proportion of investment, the degree of socialist transformation of agriculture, handicrafts and private industry and commerce, and market stability.
Planning the First 5 Year Plan...
Mao's implementation of socialism in 1950s China was heavily based on the Soviet model of the 1920s and 1930s. The "Short Course on the History of the All-Russia Communist Party (Bolshevik)," published in 1938 under Stalin's direction, served as the central ideological guide. This book, widely translated and distributed, promoted the idea that socialist success required the eradication of capitalism and the rapid development of industry through state-led Five-Year Plans and that collectivized agriculture provided inputs for rapid industrialization. It asserted that the USSR had achieved a fully socialist, industrialized state by 1937. Mao used this text to impose ideological uniformity within the CCP, effectively adopting the Soviet blueprint for Chinese socialist construction.
The Party's 1953 decision to replace its "New Democracy" postwar reconstruction strategy with the Soviet economic model stemmed from a convergence of factors. The end of the Korean War allowed for a renewed focus on domestic economic development. Furthermore, the unexpectedly successful Three and Five Antis campaigns solidified the CCP's power, making Soviet-style economic planning feasible. Crucially, Mao Zedong's critique of New Democracy, citing policy ambiguity and internal Party strife, provided the impetus for this major shift.
In August 1952, Mao Zedong declared, “After two and a half years of hard work, the national economy has recovered and is now entering a period of planned construction.” By September, China began laying the groundwork for a planned economy, with the State Development Planning Commission initiating preparations for the First Five-Year Plan. In February 1951, The enlarged meeting of the Political Bureau decided to implement the first five-year plan for the development of the national economy ( 1953-1957 ) from 1953. The Central Committee set up a leading group for the compilation of the five-year plan (a six-member group), consisting of Zhou Enlai, Chen Yun, Bo Yibo, Li Fuchun, Nie Rongzhen, and Song Shaowen .
In January 1952 , the Central Financial and Economic Committee issued the Provisional Measures for the Preparation of National Economic Plan.
In August 1952 ,a Chinese delegation, headed by Premier Zhou Enlai and represented by Chen Yun, Li Fuchun, Zhang Wentian,Su Yu and also included heads of relevant party, government, and military departments, went to the Soviet Union to exchange views with the Soviet Union on the "Outline (Draft) of the First Five-Year Plan" and strive for comprehensive assistance from the Soviet Union. Li Fuchun and a part of the delegation spent 10 months conducting more in-depth exchanges and negotiations with the Soviet government, after returning from the Soviet Union in June 1953, Li Fuchun organized the State Planning Commission and relevant departments to make major revisions to the " Draft " and re-arrange it. On May 15 , 1953 , Li Fuchun and Soviet Mikoyan signed eight documents and related annexes , including the Agreement on the provision of assistance by the government of the USSR to the CPG of PRC in the development of the national economy of China.
The preparation of the First Five-Year Plan took four years, starting with the organization's trial preparation of the first draft, and after six revisions, the report was formally passed at the National People's Congress.
This period also marked a significant shift as scientific research was gradually incorporated into the planning process. Following discussions with Zhou Enlai in late 1952, Stalin agreed to provide economic assistance, though specific projects required approval from Soviet departments. China proposed large, complex projects but faced challenges due to missing documentation, limited baseline data, and lack of negotiation experience. In the above mentioned agreement the SU committed to build or upgrade 91 enterprises and complete 51 Soviet-assisted projects by April 1953, totaling 141 projects. Li Fuchun later acknowledged that China’s economic development would have been much slower without Soviet support during this period.
Fig. 33.1 The logic chain of the Stalinist industrial strategy
Source: Pei (2018). Page 93 consumption was squeezed in order to make resources available for investment
However, numerous project details required clarification and further negotiations, with the Soviets conducting site investigations. China’s frequent requests for revisions added delays. Originally, the First Five-Year Plan was to start in September 1953 , but due to the extended negotiations, Mao Zedong demanded a draft plan by February 25, 1954, allowing only minimal extensions. Finally, on April 15, Vice-Premier Chen Yun submitted a revised draft to Mao.
Fig. 33.2 Total planned investment by the state for the five-year period 1953-7
Source: Riskin (1987). Page 56
The first Five-Year Plan (1953-1957) outlined a substantial state investment of ¥76,640 million, equivalent to $31,154 million at the prevailing official exchange rate of ¥2.46 to the dollar. This investment strategy was heavily skewed towards industrial development, particularly heavy industry, reflecting the adoption of the Soviet economic model.
Wang Guangwei sets out three main goals: the launch of 694 major industrial projects (156 with Soviet aid, largely in heavy industry); the cooperative organization of one-third of agricultural households and one-fifth of handicraft households (retaining private land ownership under centralized management); and the initial socialization of half of private industry and commerce through state-capitalist conversion.
The key investment allocations are:
•Capital Construction:
o Approximately 60% of the total state investment was designated for capital construction, signifying the development of infrastructure and fixed assets.
o Within capital construction, a similar 60% was allocated to industrial sectors, demonstrating the plan's focus on rapid industrialization.
o The majority of this industrial investment was directed towards the ministries of heavy industry, fuel industry, and machine-building industry, emphasizing the development of core industrial capabilities.
Fig. 33.3 The industrial development component of the First Five-Year Plan
Source: Zhou (2015). Page 89 •Agriculture:
o Direct state investment in agriculture was limited, with just over ¥1 billion, or 2.4% of planned capital construction investment, allocated to this sector.
o An additional 3.3% of capital construction investment was earmarked for water conservancy projects.
•Limitations and nuances of the official figures:
The official figures for agricultural investment present a potentially misleading picture due to several factors:
•Excluded Expenditures:
The stated figures do not account for miscellaneous expenditures allocated by the state to agriculture, which, while not categorized as capital construction, still contributed to agricultural development.
•Private and Cooperative Investment:
The plan anticipated approximately ¥10 billion in additional investment from individual farmers and agricultural cooperatives, significantly augmenting the overall investment in the sector.
•Indirect Agricultural Investment:
The plan's impact on agricultural modernization extended beyond direct investment. Critically, investment in industrial sectors supporting agriculture, such as the expansion of farm input and equipment manufacturing and the development of agricultural scientific research, was also important. However, the plan's investment in these indirect areas was also modest.
•Traditional Inputs:
The bulk of the goods used in the agricultural sector, despite the planned investment, would be traditional inputs produced by handicraft enterprises. This highlights the slow pace of agricultural mechanization and modernization in the initial phase of the plan.
Soviet assistance in managing China's modernized enterprises was crucial to the development of the First Five-Year Plan, particularly in establishing essential industrial standards, technical procedures, and financial quotas
China’s first Five Year Plan (FYP), greatly assisted by the Soviets, was a programme for import-substituting industrialization. The Plan was launched without a comprehensive vision with an aim to fine-tune it by making annual plans every year. During the Mao era, China's economic reforms followed a decentralized model. The Politburo established national goals, but implementation was delegated to provincial authorities, regional committees, and local managers, fostering diverse local experimentation. Successful initiatives were then propagated through exhibitions, media, and knowledge-sharing, enabling organic diffusion of effective micro-level reforms.
However, the 1950s planning system suffered from regional fragmentation. Enterprises at different administrative levels operated independently, hindering national integration. For instance, national and provincial coal mines were centrally planned, while local mines were under local control, resulting in a disjointed national coal allocation. This division was further emphasized by the classification of coal as either "commodity" or "merchandise," depending on the planning level. This fragmented structure complicated interactions between enterprises and planning authorities, often preventing direct collaboration across regional boundaries. The presence of diverse ownership structures hindered comprehensive centralized planning. State control was limited to the state sector, while joint state-private ventures retained decision-making autonomy. Private and cooperative entities were influenced indirectly through price, credit, and financial controls, managed by the GAC, ministries, and local authorities. This fragmented control persisted until the 1956 socialist transformation of industry and commerce, which eliminated these alternative ownership forms.
Furthermore, central planners faced significant information challenges. The sheer size and complexity of the Chinese economy made it difficult to obtain timely and accurate data, hindering precise planning and responsive policy adjustments.(see below) This information deficit underscored the limitations of excessive centralization.
Recognizing the potential pitfalls of blindly replicating the Soviet Union's highly centralized model, the CCP acknowledged the need to balance centralization and decentralization. While some decentralization efforts were made, ultimately, key decision-making power remained concentrated within a small group of leaders. This political centralization effectively undermined economic decentralization, suppressing local initiative and leading to significant consequences.
Fig. 33.4 First Five Year Plan: planned output and actual output of raw materials
Source: https://www.historylearningsite.co.uk/modern-world-history-1918-to-1980/china-1900-to-1976/china-and-the-first-five-year-plan/
Figure 33.4 and 33.5 indicate that actual results surpassed even the ambitious targets, with industrial production growing by an average annual rate of 18 per cent
Fig. 33.5 Major First Five Year Plan targets and results
Source: Riskin (1987). Page 58
The five-year plan appeared to be developmental, aiming at bridging the ‘three major gaps’ between the industrial working class and the peasantry, between urban life and rural life, and between mental labour and manual labour.
Fig. 33.6 Industrial output value, proportion, growth rate and per capita GDP 1949-1954
Source: Li (2024). Page 6
Figure 33.6 shows that China's industrial output value increased significantly, especially the proportion of heavy industry in the industrial output value. The growth rate of heavy industry has been kept at more than 10%, and the per capita GDP from 1952 to 1960 also increased year by year. CCP leadership members advocated for China’s self-reliance. The drive for industrial growth and national self-sufficiency ("import substitution industrialization") came at the direct expense of the population's material well-being. Promises of improved living standards were hollow. The state forcibly seized private land and capital, imposing collectivization and nationalization, and replaced market mechanisms with centralized resource allocation to fuel its industrial ambitions. The economic engine, fueled by high investment and low consumption, operated on the principle of suppressed wages. Aligned with the Soviet model, planners prioritized industrial growth, neglecting consumer needs. Their focus was limited to maintaining subsistence levels, reflecting a systemic disinterest in improving the material lives of the general population.
The "First Five Year Plan" was developed in response to a confluence of factors: strategic considerations, including learning from Soviet models and securing Soviet aid; economic imperatives, such as stabilizing the economy during transition and pursuing rapid development; and ideological influences, encompassing Marxist planned economy theory and the established tradition of planned work. The Soviet Union's Five Year Plan served as a direct and influential precedent.
Scholarly analysis has largely converged on the interpretation that the initiative, while termed a "plan," functioned more akin to a set of broad directives. A key factor contributing to its informational shortcomings was the compromised integrity of the underlying statistical data.
Fig. 33.7 Regional allocation of industrial investment, 1953–57 (in millions ¥)
Garver (2016). "Mao and most of his comrades were inspired by the rosy image of Soviet agriculture portrayed by the Short Course, and pushed ahead with the Stalinist agricultural model in spite of Stalin’s warnings." "The Short Course described the collectivization of Soviet agriculture as
a major component of the transition from capitalism to socialism, and as creating an essential basis for successful socialist industrialization. It also described the putative enthusiastic welcome for, and happy lives of Soviet peasants under, collectivized agriculture. Deeply impressed by Soviet experience as explicated in the Short Course, Mao came to see individual peasant farming as a backward phenomenon, and collective farming as “socialism” and as a way of “liberating” the productive forces of agriculture." Page 52 30-07-1955 First Five-Year Plan For Development Of PRC-1953-1957."Agriculture furnishes the conditions for the development of industry. Just like comrade Mao Zedong has said in his ‘On coalition government’: ‘The peasants the mainstay of the market for China's industry. Only the peasants can supply an abundance of foodstuffs and raw materials and consume manufactured goods in huge amounts.’" Page 113[↩][Cite]
King (2015). Page 93 "In a bid to inject new economic ideas into the Party and to strengthen his own political control, Mao began to politicise economic planning.13 In late 1952 and early 1953, Mao stepped up his control over economic affairs. Until then, Chinese economic policy had been largely controlled by a ‘managerial elite’ of leaders including Zhou Enlai, Chen Yun, Li Fuchun and Bo Yibo.14 Seeking to wrest control over this ‘managerial elite’, Mao began to criticise this group for following the policy of ‘New Democracy’. He argued that if left unchecked, ‘New Democracy’ would lead to a capitalist economic future for China.15" Page 94 [↩][Cite]
Zhou (2015). "Soviet government leaders, having looked at the draft, were of the opinion that “it is not yet a Five Year Plan. It is not only not a plan, it is insufficient even to serve as guidelines.” Zhou Enlai and Chen Yun stayed more than a month and had two meetings with Stalin, who made some proposals on matters of principle. He believed that the 20 % average industrial growth rate envisaged by the draft would be difficult to achieve and suggested lowering it to 15 or 14 %. He emphasized that the plan could not be packed too full—some forces must be kept in reserve to deal with unforeseen difficulties." Pages 87-88
"On April 4, 1953, Mikoyan cabled feedback to Li Fuchun from the Soviet National Planning Committee and economic experts, on the China’s First Five-Year Plan. The chief points were:
1. Considered in terms of the interests of China and the rest of the socialist camp, the basis of the First Five-Year Plan was industrialization, beginning with
heavy industry, and this task was correctly orientated;
2. Considered in terms of politics, and public opinion and the public mood, the Plan must not only be guaranteed successful completion, but the planned
results must be exceeded. For this reason, it would be advantageous to lower the projected industrial annual average growth rate to 14–15 %;
3. It was important for China to train its own experts;
4. Efforts to carry out basic work such as geological exploration must be intensified;
5. Great efforts must be made to develop craft industry and small-scale industry, in order to compensate where there was insufficient heavy industry;
6. The greatest attention should be paid to developing agriculture. Not only should good quality, low-cost farm tools and fertilizer be produced in large
quantities, but the supply of industrial goods to the countryside and the exchange of materials between town and countryside must also be ensured;
7. The currency, the reminbi (¥), must be strengthened, and purchasing power and the flow of goods must be increased;
8. Overall industrial production must increase faster than the numbers of working people, in order to ensure an increase in labor productivity; the latter must be
greater than the rate of increase in wages, in order to ensure an accumulation of funds nationally; the numbers of technicians must increase faster than the
number of workers, in order to ensure that skills levels would rise." Pages 88-89 [↩][Cite]
Zhao (2024). "After reading the relevant documents, Stalin made it clear during the meeting that first of all, "it is necessary to make plans according to what can be done, and leaving no reserve forces is not enough. There must be reserve forces to deal with unexpected difficulties and events." Secondly, "in the five-year plan, you did not include civil industry and military industry and equipment together, which is not appropriate. Only by putting them together can we grasp the situation and schedule." Finally, he believed that "the growth rate of industrial construction can be reduced to 15% annually, and the annual production plan should be set at 20%. Workers should be mobilized to complete and exceed this plan. Unexpected situations will always occur, and leaving some reserve forces will always be beneficial." Pages 8-9 [Cite] Kong (2010) writes "Yuan Baohua, a participant in the talks, recalled that, “The goal of this visit to the Soviet Union was to discuss the projects for our first five-year plan which needed Soviet assistance. Therefore, in order to align our five-year plan with the program of the Soviet fifth five-year plan, we started to study and to discuss the Soviet plan.”14 The fifth five-year plan (1951–1955) was the Soviet Union’s second postwar five-year plan. On the basis of the preceding plan (1946–1950), it aimed chiefly at completing the reconstruction and reorganization of the post-war economy, and at restoring its fixed capital stock by a means of a large-scale process of redistribution of capital and the determination anew of the speed and proportions of the national economy.15 “By studying and discussing the draft of the Soviet Union’s fifth five-year plan, we could systematically understand the formulation of the policy and content of the plan, and it helped us in enriching and improving our own five-year plan.”16" and Yuan Baohua continues after visiting several industrial complexes "“By visiting these industrial and mining establishments, we acquired a personal feel for what modernized big industry looked like and we studied
their management experience. Although the time spent was short, it truly enriched our knowledge.”18 Pages 158-159 [↩][Cite]
Wang (1955). Page 4 [Cite] Brødsgaard (2017). "Essentially, the Plan contained five main points:
(1) Highest priority was assigned to the development of heavy industry (producer goods industries);
(2) Main attention was paid to 694 above-norm projects, the core of which were 156 projects to be constructed with Soviet help and assistance;
(3) New industries were to be located close to raw material bases;
(4) Increases in wages were to be kept below increases in the productivity of
the working force in order to maintain capital accumulation;
(5) Agriculture was to concentrate on the production of grain and industrial
raw materials. Focus was to be put on the need of increasing the agricultural surplus product in order to finance industrialization " Page 28 [↩][Cite]
Hirata (2018). "In spite of Gao Gang’s disgraced death, the drafting of the Five-Year Plan continued apace, as Mao pressured the working group and the SPC to speed up the process. The entire text of the Five-Year Plan was finally approved at the meeting of the People’s Congress in July 1955—two and half years after the official start date of the Plan period.152" Page 175 [↩][Cite]
Herrmann-Pillath (2009). Pages 17-179 [Cite] Heilmann (2008) "By the early 1950s, the terms “model experiment” (dianxing shiyan 典型实验) and “experimental point” (shidian), as well as “model demonstration” (dianxing shifan), “proceeding from point to surface” (youdian daomian or yidian daimian 以点带面) and “integrating point and surface” (dianmian jiehe 点面结合) had emerged as key terms in the Chinese Communists’ repertoire of policy experimentation.40" Page 10 He argues "Though central control over many sectors of the economy remained patchy, the proliferation of central decrees, investment plans and production quotas weakened the correcting mechanisms inherent in the “experimental point” approach. “Experimental point work” undertaken in agriculture and industry over the 1953–57 period was designed to contribute to cooperativization, plan fulfillment and overall technical
and organizational innovation by producing “advanced units” for national popularization under central guidelines.49 The political leeway for generating new policy approaches through decentralized experimentation became substantially circumscribed." Page 13[↩][Cite]
Research team (2019). Page 65 One of these consequences is the great leap forward movement from 1959 to 1961 which caused serious damage to the national economy [↩][Cite]
Chen (2022). Page 592 "Soviet industrial products, such as matches were forbidden in the Chinese market so as to protect domestic production.66 Meanwhile, Chinese factories imitated German technology and products for making completely Chinese products.67 By the mid-1950s, the Soviet and East European officials started to worry about patent protection and Chinese “catching up”.68" [Cite] "..., China imposed a relatively high degree of economic autarchy on lower-level administrative units. This was further enhanced by repressing the use of money to a degree unfamiliar to the Soviet model. In particular, China implemented a system of coupons in the consumption-goods sector, corresponding to the abandonment of monetary incentives in the labor system."Herrmann-Pillath (2009). Page 177 [↩][Cite]
30-07-1955 First Five-Year Plan For Development Of PRC-1953-1957. "Agriculture furnishes the conditions for the development of industry. Just like comrade Mao Zedong has said in his ‘On coalition government’: ‘The peasants the mainstay of the market for China's industry. Only the peasants can supply an abundance of foodstuffs and raw materials and consume manufactured goods in huge amounts.’" Page 113
