Some surprising continuities in Chinese economic history

Three economic historians–Loren Brandt, Debin Ma, and Thomas Rawski–have produced a very nice overview of China’s development over the past century, titled simply “Industrialization in China.” While the story of China’s post-1978 boom has been told so often it risks becoming over-familiar, the pre-1978 and pre-1949 economy is usually skipped over quite rapidly. The great virtue of this paper is how it creates a complete narrative that links the more recent period with developments as far back as the late 19th century. Standard accounts tend to focus mainly on the dramatic 1980s reforms and risk turning into hagiography of Deng Xiaoping; a different perspective helps show how China’s emergence as a global economic force was a truly long-term process:

The unusual speed of China’s post-1978 industrial growth is well known. Much less appreciated is that rapid industrial growth extends back at least to 1912. Over a period spanning nearly a century, Chinese manufacturing has grown at annual rate of more than 9 per cent.

The paper is at its best when making illuminating comparisons between different eras of Chinese economic history. In the 1920s, China became a net exporter of textiles, as local firms rapidly adopted new techniques and caught up with the productivity of British and Japanese firms–clearly a preview of post-1978 developments. But textiles were not the only success story:

Matches present a similar picture, with imports giving way to domestic production first by foreign and then by Chinese-owned firms. Liu Hongsheng, China’s “match king,” built his business in small cities ignored by foreign rivals, where customers put a premium on price over quality, and only later challenged the Japanese and Swedes in the Shanghai market, China’s largest. Liu’s strategy foreshadows the recent success of PRC start-ups in telecom equipment (Huawei) and construction machinery (Sany, Zoomlion, Liugong) that used capabilities accumulated through selling lower quality goods to less demanding markets to break into high-end global markets initially dominated by prominent multinationals like Caterpillar and Ericsson.

Another interesting continuity is between the wartime economic strategy of the Nationalist government and the industrialization drive launched after the Communist victory in 1949; indeed some of the same people were involved in both efforts:

The Nationalists and Communists shared a common vision of an industrial sector oriented toward military strength, directed by government technocrats, and dominated by state-run firms. When Communist forces routed their Guomindang rivals, the large majority of Nationalist industrial planning personnel, including the entire senior leadership of the National Resources Council, the KMT’s lead agency for economic planning, remained on the mainland, imparting a strong element of continuity to the establishment of Soviet-aided socialist planning by the incoming PRC government.

Chiang Kai-shek and Mao Zedong in 1945

Chiang Kai-shek and Mao Zedong in 1945

This probably should not be too surprising given the large role that SOEs had in Nationalist-run Taiwan until the 1980s, but the increasing divergence of the Taiwan and China models in more recent years makes it easy to overlook their historical links.

More on this theme can be found in the interesting work of Morris Bian, who has documented how the Communist state-owned enterprise system in many ways built on institutions that were created by the Nationalist government. Even the very distinctive and Soviet-influenced industrial strategy of the early 1950s–developing heavy industry in inland provinces a safe distance away from any invading force–had parallels in similar wartime efforts by the Nationalists. Here is an excerpt from chapter 2 of his The Making of the State Enterprise System in Modern China:

The Japanese invasion of Manchuria in 1931 and their attack on Shanghai in 1932 shocked the nation. Japanese aggression aroused strong Chinese nationalism and forced the Nationalist government to take a firm stand against Japan. In a speech delivered in October 1932, Chiang Kai-shek stated that ‘the Chinese nation has reached a critical moment and the fate of the nation is about to be decided’; his only purpose was to ‘revive the nation and save China.’ He proposed economic reconstruction and education as two means of saving China. What Chiang failed to mention in his public speech, however, was the fact that he was about to create a secret national defense planning commission as a first step toward resistance against Japan. …

In April 1935, the National Defense Planning Commission was renamed the National Resources Commission…what occurred was more than a name change. It marked an important change in purpose and direction. …In effect, the organization was transformed from Chiang Kai-shek’s brain trust to an organization in charge of industrial development. The development of a ‘Three-Year Plan for Heavy Industrial Reconstruction’ in 1936 best embodies these changes. … Heavy industry would receive the lion’s share of investment capital. Geographically, most planned factories were to be built in interior provinces such as Hunan and Jiangxi for fear of future Japanese aggression.

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