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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.

The CCP began decades before the formal establishment of the People's Republic with informal economic planning in China. This approach was rooted in the principle of "centralized leadership and dispersed operation," a concept developed by Mao Zedong. He articulated this principle in his report, Economic and Financial Problems, during a conference of senior party leaders in the Shaanxi-Gansu-Ningxia Border Region between October 19, 1942, and January 14, 1943.
Mao argued that the significant economic and financial challenges of a vast, geographically dispersed region with a population engaged in rudimentary agriculture and handicraft (representing "dispersed operations") necessitated strong governmental coordination of production and consumption (embodying "centralized leadership"). He emphasized the importance of decentralized production while maintaining central oversight. As Mao wrote,

"Adopting the policy of 'dispersed operation' is correct and ideas aimed at centralizing everything are wrong."

He further elaborated,

"Dispersal makes it possible to use the activism of various branches when setting something up, and centralization enables the various branches to get better supplies. But it is very important that dispersed management does not lead to forgetting centralized leadership."

This foundational principle was later integrated into the formal centralized planning and operations at county and provincial levels during the 1950s and beyond.

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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 CCP could choose between two development strategies: The “East China Model” in the port cities functioned effectively at the enterprise level but lacked mechanisms for large-scale coordination beyond market exchange. By contrast, the Northeast represented the only significant experiment in a non-capitalist direction, though shaped by cautious engagement with Soviet theory and assistance. While it is partly accurate to frame these as competing models, they in fact evolved through mutual adaptation and were periodically reshaped by worker-driven pressures. Even so, the notion of fixed “models” overstates coherence; both were improvised systems formed under shifting constraints.
In the Northeast, the legacy of Japanese-built heavy industry, reinforced by Soviet aid, favoured centralized management, strict labour division, and standardized administration. In contrast, the East China system—dominant in the early post-1949 years—rested on a heterogeneous mix of firms coordinated through markets and informal networks, requiring flexible and localized governance ("New Democracy"). The First Five-Year Plan (1953–1957) marked the gradual ascendancy of the Soviet-oriented approach over this earlier pattern.
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,

“Our country has a bright future and is full of hope. In the past we wondered if the economy could recover in three years. As a result of two and a half years of hard struggle, it already has, and what is more, planned construction is under way. Let us all unite, clearly distinguish between ourselves and the enemy and strive for the steady progress of our country. ”

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, the defense industry was represented by Su Yu. The delegation included heads of relevant party, government, and military departments, They 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. On March 8, 1953, the CCP reduced the figures for the Five-Year Plans of Agricultural Production Increase and the Development of Mutual Aid and Cooperation. The directive explicitly cited the Soviet Union’s First Five-Year Plan (1928–1932) as a cautionary example, noting that agricultural growth targets must not be set too high. This reference reflected the CCP’s heavy reliance on the Soviet Union as a model in the early 1950s, but also a recognition of the difficulties encountered in Soviet agriculture under rapid collectivization and industrialization. The CCP leadership was aware that the Soviet Union had suffered from excessive targets, poor implementation, and disastrous results in agriculture during the early 1930s (including famine). Thus, invoking Soviet precedent here served both as legitimization for reducing targets and as a warning against overreach. The CCP realized that Chinese agriculture in the early 1950s would see “basically no machinery” and would continue to depend on labour mobilization, water conservancy, and traditional or semi-improved tools. This reflected both the priority given to industrialization (in line with the Soviet heavy-industry-first model) and the practical reality that China lacked tractors, combines, or fertilizers in significant quantities. The document stressed that the three-year “recovery period” (1949–1952) could not be taken as a reliable model for planning growth in the new “development period” (from 1953). This distinction reflected Soviet economic planning theory, which differentiated between short-term recovery from war or crisis and long-term developmental transformation.
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. Even though Article 33 in the Common Program was adopted in September 1949, the drawing up of the First Development Plan did not begin until 1951. After many revisions and adding supplements, the writing of the First Five-Year Development (1953-1957) ended in February 1955. The main reasons for the delay in finalizing the Plan were the paucity of data, inexperience in development planning, and inadequate skilled workers. The First Five-Year Plan was not formally approved until April 1955, and its original draft underwent substantial revisions in mid-1956. As a result, the Chinese economy was effectively managed through provisional annual plans for roughly twenty-seven months (1953–March 1955). The initial version of the Plan was implemented for approximately fourteen months, after which a revised version guided policy from mid-1956 to 1957. There are indications that even this modified framework began to be abandoned in the final months of 1957.
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, totalling 141 projects. Li Fuchun later acknowledged that China’s economic development would have been much slower without Soviet support during this period.

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. A day later, the CC issued a decision to establish an eight-member working group for drafting the outline of the Five-Year Plan, with Chen Yun as the group leader and members including Gao Gang, Li Fuchun, Deng Xiaoping, Deng Zihui, Xi Zhongxun, Jia Tuofu, and Chen Boda.

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. 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 determined 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.

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The key investment allocations are:
▉ Capital Construction:
● Approximately 60% of the total state investment was designated for capital construction, signifying the development of infrastructure and fixed assets. Both heavy and light industry—accounted for 40.9% of the budget, transport and communications 11.7% and circulating capital for economic departments 9%.
● Within capital construction, a similar 60% was allocated to industrial sectors, demonstrating the plan's focus on rapid industrialization.
● 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.

▉ Agriculture:
● Direct state investment in agriculture was limited, with just over ¥1 billion, or 2.4% of planned capital construction investment, allocated to this sector. Agriculture, water conservancy, and forestry departments, 8% of the budget
● 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 presented a potentially misleading picture due to several factors:
▉ Excluded Expenditures: The stated figures did 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
▉ Trade, banking, and stockpiling departments: These sectors received 2,8% of the budget.
▉Cultural, educational and public health departments : received 18,6%.
China’s first Five-Year Plan, 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. Figure 33.5 indicates that actual results surpassed even the ambitious targets, with industrial production growing by an average annual rate of 18 per cent 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. 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 Korean War (1950–1953) constituted a critical catalyst in the consolidation of the CCP’s ideology of self-reliance. Its outbreak reinforced the Party’s conceptual framework and imparted new urgency to strengthening national defense through the rapid development of defense-oriented heavy industry. On 25 May 1951, Li Fuchun, then deputy director of the Central Financial and Economic Commission, emphasized that basic construction must be approached from a nationwide, integrated perspective, aligned with the dual imperatives of economic development and defense. The exigencies of war help explain why, in August 1952, the CCP moved to initiate the construction of new industrial bases in China’s interior, and why, in December, it elevated heavy industry to top priority—ensuring the allocation of resources to key projects deemed essential for rapidly enhancing national defense capacity.
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, fuelled 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.

Guangzhou was far from the only city to experience tensions with Beijing over the allocation of resources, but it was notably neglected under the First Five-Year Plan. In that plan, certain cities—particularly medium-sized inland ones—were designated as priority sites for industrial expansion. As investment funds and materials were funnelled into these locations, local Party committees actively lobbied on behalf of their regions to secure central support. Industry carried not only practical importance but also powerful symbolic weight: within Marxist doctrine it represented progress and socialism, whereas commerce was associated with capitalism. For both ideological and material reasons, officials and residents in Guangzhou alike hoped the city would be designated as a new industrial center.
Guangzhou, as the capital of Guangdong province, was not designated a ‘key-point construction city’ in the Five-Year Plan. This status further reduced its ability to absorb the influx of labor compared to other cities. Additionally, Guangzhou faced the challenge of reintegrating returning overseas Chinese—93.800 of whom returned to the city between 1950 and 1955. Like other Chinese cities at the time, Guangzhou also experienced rapid natural population growth, with rates possibly reaching four percent annually. While many newcomers found employment, these jobs were often temporary and paid significantly less than those held by the permanent workforce.
Yet, the plan sought to shift China’s industrial center of gravity away from the coastal enclaves by directing most major projects to the interior and the Northeast: nearly all of the 156 large projects, and 472 of 694 industrial enterprises overall, were to be located inland. With access to global markets curtailed and trade largely confined to socialist partners—above all the Soviet Union—the strategy also aimed to situate industry closer to raw materials and consumption zones. At the same time, the dismantling of handicraft sectors and market networks linking city and countryside concentrated industrial activity in urban areas, while rural populations were absorbed into agricultural collectives. This process sharpened the urban–rural divide into a geographic distinction between grain-producing and grain-consuming regions, with the latter becoming the primary focus of industrialization.
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.

The newly unified and strengthened China after 1949 sparked widespread optimism. Hopes were high for eradicating illiteracy within years, achieving industrialization in just over a decade, mechanizing rural areas, and fulfilling consumer needs. Communist leaders fuelled this optimism by rallying public support for their cause.
However, the First Five-Year Plan, while not entirely dismissing these utopian aspirations, forced a pragmatic re-evaluation. As the first serious attempt to implement these grand visions, it demanded a confrontation with economic reality. Limited funds, materials, and personnel necessitated scaling back many programs and postponing others indefinitely. The concrete plans seemed rather ordinary compared to the initial lofty visions, and the process of lowering expectations was so painful that these reduced goals were never fully embraced. Not only did ambitions have to be curbed, but greater effort was required across all sectors.

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Local Five-Year Plans in the 1950s were primarily based on the national First Five-Year Plan (1953-1957). Under the unified deployment of the central government, local areas combined local resources with industrial layout and agricultural transformation. Provinces and municipalities mainly focused on the 156 key projects aided by the Soviet Union, emphasizing the establishment of a heavy industrial base, the transformation of ownership of the means of production (joint public-private ownership), and the increase of agricultural output.
Characteristics of Local Five-Year Plans in the 1950s:
▉ Closely Following the Central Government and Prioritizing Heavy Industry:
● Local plans were an integral part of the national First Five-Year Plan, focusing on achieving the industrial targets assigned by the central government and laying the initial foundation for socialist industrialization.
▉ Concentrating Resources on Major Projects:
● Each province and municipality established planning committees, concentrating resources on building key factories, mines, and transportation networks in specific industrial regions (such as Northeast and North China).
▉ Simultaneous Transformation of Agriculture:
● In addition to industrial production, local plans also included rural collectivization and the socialist transformation of private commerce.
▉ Learning from the Soviet Model:
● A large amount of Soviet experience and technical standards were introduced during the formulation and implementation of local plans. The plans of this period laid the foundation for the later industrial landscape of various regions in China.

"...,since a great deal of the planning is indirect, local Party committees should invite more people to discuss the plan, and local governments must use their initiative in implementing it. "

While the central government was discussing the draft, local authorities were also taking simultaneous action. On October 29, 1954, the CPC Central Committee distributed the draft to various regions and departments for comments. Localities offered numerous suggestions for revision based on their specific circumstances, and these grassroots experiences were highly valued.

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