- Email: [email protected]
Chinese industrial productivity in an international context
WorldDevelopment, Vol. 11, No. 4, pp. 381-387,1983. Printed
in Great
0305-750X/83/040381-07$03.00/0 0 1983 Pergamon
Britain.
Chinese
Industrial Productivity International Context
Press Ltd.
in an
ERIK DIRKSEN*
University of Amsterdam,
The Netherlands
Summary. - The paper aims to find out and evaluate in an international context the level and growth rate of labour productivity in China’s industry. In the course of this investigation it transpired that the data used often in the West, i.e. those of Field et al., lead to results that are
rather implausible. However some new official Chinese data imply much more satisfying results. The other aim of the paper is to comment on recent radical changes in Chinese economic policy, in the light of her productivity performance.
1. INTRODUCTION At the present time the community of China-watchers has been thrown into confusion regarding Chinese economic statistics, in particular those concerning economic growth. The problem is as follows: the Chinese themselves (in the one and only official statistical handbook they published: Ten Great Years) have given statistics up to and including the year 1958. In 1960 a statistical blackout was imposed, which resulted in a nearly total absence of any systematic statistics. Even plan targets (if ever there was a five-year plan) were not known. This situation persisted until 1979 when some summary statistics for 1978 were published. In 1971 Zhou Enlai revealed, in an interview with Edgar Snow, some hard figures for several items, but it was difficult or impossible to link them with the official statistics of the 1950s. This has led to a situation in which through a variety of procedures several agencies and scholars in the West (e.g. CIA, US State Department, Liu and Yeh, Rawski, Field, Lardy and Emerson) derived numerous estimates for products and major economic indicators for the years 1958-1975. Alas, most of these differed considerably from each estimates other. The figures given by R. M. Field in his various publications (e.g. in JEC, 1975; Field, Lardy and Emerson 1975, 1976) have been used often in the literature. Lately some new official Chinese economic data for the years 1958-1965 have been released (Kang Chao, 1980) and these differ from Western estimates. This raises the question: which data are more reliable, the official or 381
the Western ones? In this article I try to answer the question whether the new official Chinese statistics for growth figures of industry are more plausible than the figures generated by Field et al. I come to the conclusion that they are. The second purpose of this paper is to evaluate the economic performance of China using the new macroeconomic data. Income distribution, basic needs, employment and self-reliance are obviously important, but are not considered. This part of the paper is concerned only with exploiting a particular type of data in the hope of throwing light on the static and dynamic efficiency of Chinese industry. (By static efficiency in industry we mean here the level of labour productivity in industry; by dynamic efficiency in industry we mean the growth rate of average labour productivity in industry.)
2. LABOUR
PRODUCTIVITY
IN INDUSTRY
(a) Rate of growth of labour productivity Field’s figures
using
Data on the rate of growth of labour productivity are set out in Table 1, which is derived from Howe’s Table 32 (1978, p. 97). Howe’s figures, however, are based on the index given by Field (JEC, 1975, pp. 149, 165-167). Howe uses two sources as he estimates labour productivity: ‘in China increased labour productivity is estimated to * The author
thanks Dr. M. Ellman and an anonymous referee for many helpful suggestions.
382
WORLD
DEVELOPMENT
Table 1. Average rate of growth of industrhl production and average rate of growth of labour productivity in different periods (2) Growth of industrial production, average (%)
(1) Period
(3) Growth of labour productivity (45% of column 2) (%)
19.56 13.80 8.37 6.74 4.05 4.50 7.50 9.43
1949-1958 1952-1957 1953-1963 1955-1965 1958-1967 1958-1968 1960-1967 196.5-1974
8.8 6.2* 3.8 3.0 1.8 2.0 3.4 4.2
Source: Calculated from Howe (1978, Table 32, p. 97). The figure of 6.2% for the period 1952-1957 is in accordance with the figures given by Hoffmann (1974, p. 58) for the period 1953-1957. In Peking Review, No. 46, 17 November, 1978, a figure of 8.7% is cited as the annual increase of labour productivity during the First Five-Year Plan (1952-1957). It is stated, however, that in this period 59% of the growth of industrial production is caused by growth of labour productivity. The figure of 45% which is used here, is an average for the whole period 19.52-1974 and can differ substantially
in different sub-periods. If 59% instead of 45% is taken from the average increase of industrial production of 13.8% for the period 1952-1957, one gets a figure of 8.1% as the average rate of growth of labour productivity, which is only slightly different from the figure given in Peking Review. The difference may result from different calculation
methods
have accounted for 40-50% of the industrial growth that occurred between 1952 and the mid-1970’s (Howe, 1978, pp. 95-96). In this paper the arithmetic average of these figures is used: 45% of growth of industrial production’ is accounted for by growth of labour productivity. (Hoffmann, 1974, p. 56, also uses this figure.) From Howe’s Table 32 (1978, p. 97) an average rate of growth of industrial production in the period 1952-1975 of 8.94% can be calculated.3 Using the figure of 45% of this growth to be accounted for by growth of labour productivity, this means an average rate of growth of labour productivity of 4%. Subdivided in different periods the figures are as set out in Table 1.
(b) Absolute
value of labour productivity using Field’s figures
For reasons which will be made clear in Section 4 our emphasis will be on the year 1965. For calculating the labour productivity (and its logarithm) the following figures were used: gross value of industrial production4 in 1965: 153, 194,000, 000 yuan in 1952 prices (source: Field in JEC, 1975, p. 171); total of industrial workers and employees in 1965: 14,000,OOO (source: JEC, 1967, p. 445). Using the exchange rate of 1 US $ = 2.355 yuan (Mah in Eckstein, Galenson and Liu, 1968,
p. 696), the gross value of production per labourer in 1965 is $4646.4 in 1952 prices. However, we need value-added figures to be able to compare Chinese per capita figures with those of other countries. From statements by Liu, who quotes Chao (JEC, 1967, p. 69), and from a table in Field, Lardy and Emerson (1975, p. 2), we come to the concluson that value-added in industry (including handicraft) is about 30% of gross value of production. This amounts to $1427.2 per labourer in 1965 in 1952 prices. Production per capita is rather high and is, of course, totally dependent on the figure of 14,000,OOO industrial workers and employees From Table 15 in the mentioned above.’ article of Hou in Eckstein, Galenson and Liu (1968, pp. 366-367) a total of 37 million ‘employees’ in ‘manufacturing and mining’ and the ‘trade and food and drink industry’ in 1958 can be calculated. Hou (Eckstein, Galenson and Liu, 1968, p. 354) refers to a report from 1961 which states that after the autumn of 1960 20 million (sic) people were transferred to agricultural production, so that about 17 million are left. The figure given in Rabochii
Klass
Kitaya
(1949-1974
g.g.)
(see
below) is more or less in line with this. In the West there is much confusion regarding employment figures in Chinese industry. The problem partly arises from the fact that ‘industry’ has different meanings in different statistics. Recent publications give the following figures:
CHINESE
INDUSTRIAL
-The Far Eastern Economic Review 1973 Asia Yearbook (p. 109) gives a figure of 60 million people in industry in 1972. This implies that with an industrial production of 319,609 million yuan (in 1975 prices) (JEC, 1975, Table B-7, p. 170), gross productivity per capita amounts to 5327 yuan. This is half of the gross productivity calculated for 1965 (10,942 yuan per capita). The 60 million figure therefore probably applies to large-scale industry plus rural and urban collectives. -Similarly, Jon Sigurdson (1978, p. 670) gives a total industrial employment of 50 million in 1973 (!) (state sector 32 million, urban collective 6 million, rural collective 12 million). -One can imagine, that, given these figures (differing by 10 million for one year) the author eagerly awaited Thomas Rawski (1978). But Rawski subtracts another 10 million and gives a figure (total for state industry, collective industry and handicrafts) of 39.3 million in 1975. For 1957 he gives a figure of 8.0 million people in state industry and 6.6 million in handicrafts. -The author has found two other sources which give figures for the year 1965. The first one, called Rabochii Klass Kitaya (1949-1974 gg.) (1978, p. 187), gives a figure of 18 million workers and employees in industry. This implies a gross productivity per man of US $3613.9 and a value added productivity (again using the figure of 30% of gross value of industrial production) of US $1084.2. -The second one, M. I. Sladkovskii (1979, p. 80) gives a figure of 15 million workers and employees in industry, but it is explicitly stated to be only an ‘estimate’. The best solution in the present author’s opinion is to settle for a range of 14-18 million industrial workers and employees in 1965, which means that productivity figures also must fall into a rather wide range.
3. NEW DATA In the March 1980 issue of China Quarterly, Kang Chao gives us some new official figures: taking as index of Official Gross Value of Industrial Output 1957 = 100, he gives indices for 1962 and 1965 of 120.4 and 151.3 respectively, while average growth rates of gross value of industry (he surely means industrial output) were 3.8% for 1958-1962 and 7.9% for 1963-
PRODUCTIVITY
383
1965 (Chao, 1980, pp. 97-98). Also from Ten Great Years (SSB 1974) the official figure of Gross Value of Industrial Output (GVIO) in 1957 (in 1952 prices) is known: 78,390 millio,r yuan. (Field also accepts in his tables the official Chinese figures for the period 1949-1957.) From this we can compute that GVIO in 1965 was 118,604,070,000 yuan (in 1952 prices). Taking again the exchange rate 1 US $ = 2.355 yuan this means a GVIO of US $50,362,662420. If we take as industrial employment the figure of 14 million this means that GVIO per worker is $3597; if we take the figure of 18 million GVIO per workers amounts to $2798. On a value-added basis (30% of GVIO) this gives an absolute level of labour productivity in 1965 (in 1952 prices) of $839 if we take the 18 million figure for industrial employment and $1079 if we take the 14,000,OOO figure. Using the data for the period 1949-1957 in Ten Great Years (p. 16) and the growth figures above we can calculate (taking 45% of the growth rate of GVIO as average rate of growth of labour productivity) that average rate of growth of labour productivity for the period 1949-1965 was 3.65%, for the period 1957-1965 was 2.76%, and for 1952-1965 was 3.37%. Using official Chinese data for labour productivity and its growth rate, the results are much more modest. All this raises the question: what data are more reliable, the official or the Western ones?
4. A THEORY Considerable effort has been devoted to estimating macroeconomic statistics for China and to making comparisons with other countries. In order to evaluate the data, and to interpret the comparisons, however, one needs a theory, which can tell us what data China would generate if its efficiency were similar to that of other countries. Otherwise, suppose that it is found that for certain years Chinese industrial growth was faster than that of India, but slower than that of Japan. It is impossible, without a suitable theory, to evaluate this finding. Is it favourable (because better than India) or unfavourable (because worse than Japan)? A useful theory for this purpose has been developed by Stanislaw Gomulka(l971, 1977). The essential innovation of the theory is
384
WORLDDEVELOPMENT
to make technical progress endogenous. A country is able to induce technical progress by way of practically costless diffusion of technology, which is caused by the technological gap between countries, Gomulka assumes that technology can be represented by average labour productivity (1971, p. 12).6 The influence of diffusion on the growth of the technological level of a country is less in countries where the technological gap with the technology leading country - in the post World War II period the USA - is very big (because of lack of possibilities of ‘absorption’), or very small (because the level of productivity is already very high). Hence it is the countries with a medium level of economic development that have the greatest possibility for rapid economic growth. On the basis of the theory and of the available economic data Gomulka argues that we can expect a ‘hat-shaped’ relationship between the growth of labour productivity and the average level of labour productivity (Gomulka, 1971, pp. 71-77).7 In Fig. 1 China’s position in this relationship is shown. If we take for example India, the average labour productivity in manufacturing in 1964 was US $820 and the average rate of growth of labour productivity in the period 1958-1965 was 5.5% (Gomulka, 1971, p. 75).8
rote
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Using Howe’s data (based on Field), the figures for China are: an average labour productivity in industry in 1965 of US $1427.2 (or $1084.2 according to Rabochii Klass Kitaya) and an average rate of growth of labour productivity in the period 1958-1968 of 2%. From this we immediately see that the absolute level of productivity (if we take the 14,000,OOO figure for industrial employment) is very high and approaching that of Southern Europe. It is also not much lower than that of Japan ($1570 in manufacturing). Even if we take the 18,000,OOO figure for industrial employment, productivity seems very high. This is clearly implausible, so we suspect the used figures are wrong. Of course the figures used for average rate of growth of labour productivity in the period 1958-1968 also are affected. We have to keep in mind that China’s position is also influenced by the fact that the period 1958-1968 is chosen as the base, a period which included the economic crisis of 1959-1961. If labour productivity in 1965 is plotted against the average rate of growth labour productivity in the whole period 19521974 (4%), China’s position is still below the international ‘mainstream’. Now we plot the two figures generated
dCze
‘\\
Gke
p*+ 0 0 Den ‘YeGEe ‘cr. -.“p” UK
Chino
\Fr \
--o,__ Co
221
‘,
productwtty
2.720 I I
I,000
366 I -,
\ ‘\
----__
(US
-1.5
\
OAustralio
O”sA
oS.Af Lobour
0.
\
0
I” 1964
(Chino
in 1965)
dollars) 7,400 I 2
12.200 I
In 10-S 1. The relationship between the rate of growth of lubow productivity and the level of labour productivity (using Kang Chao, 1980). Source: Gomulka, 1971, p. 73. For China see text and Kang Chao (1980). 0 = manu-
Figure
facturing, a = total industry (E. European countries, USSR, Israel and Finland). n = China, v = China, M = China, 8 = China,
industry industry industry industry
(1965; (1965; (1965; (1965;
1957-1965) 1952-1965) 1957-1965) 1952-1965)
industrial employment 14,000,OOO industrial employment 18,000,OOO
CHINESE INDUSTRIAL PRODUCTIVITY
earlier (a growth of labour productivity for 1957-1965 of 2.76% and for 1952-1965 of 3.37%) against an absolute level of labour productivity (using both 14 million and 18 million for industrial employment we obtain respectively $1079 and $839). (It is impossible to do this for the period 1958-1968 because figures for 1966, 1967 and 1968 are lacking. Chao only mentions that output declined in 1967 and 1968.) The picture we now get is much more satisfying. During the whole period 19521965 China is just on the lower end of the international mainstream. Probably the figure of 18,000,OOO industrial employment in 1965 is the more plausible. In that case the absolute level of labour productivity is comparable with other LDCs (notably India). Given very considerable uncertainty concerning the actual level of employment in 1965, it might be preferable to allow for the productivity to fall in a rather wide range (as indicated in Figure 1). For the period 1957-1965 the growth record of course is influenced by such factors as the withdrawal of Soviet technical aid, the Great Leap Forward and the agricultural crisis, but these adverse factors are levelled out if we take the whole period 1952-1965. According to Gomulka’s theory, growth of industrial production would speed up in the years after 1965. However, in 1966-1968 there occurred the Great Proletarian Cultural Revolution so that only in the years after 1970 can we expect figures to show a tendency to pick up. Chao is unable to give us much more information than that ‘the sources also state that the decline in industrial production persisted after 1966 and only began to turn upward in 1970. . .’ (Chao, 1980, p. 97) and to provide growth rates of GVIO in 1974 and 1976 of 0.3 and 1.3% respectively. But from Gomulka’s theory we can see that there are two inherent factors that positively influence growth rates. First, because China’s position is to the left of the ‘hat-top’ in Figure 1, and because of technical progress induced by foreign trade, the growth rates of labour productivity could pick up in the future. Second, because China’s position is on the lower boundary of the international mainstream (or below it, depending on what figure for industrial employment is used) it is understandable that radical reform of the economic mechanism has been embarked on in the hope of improving China’s position relative to the international mainstream. The economic institutions and policies of Maoist China were clearly unsuitable from the stand-
385
point of stimulating economic growth. (This is in comparison with all other countries rather than with its own past.) Hence, it is entirely understandable in the light of Figure 1 that the post Mao-leadership embarked first on a large-scale import of technology and then on a radical reform of the economic mechanism. Given these factors there is a distinct according to Gomulka’s theory, possibility, for China to generate some impressive growth rates in the future.
5. CONCLUSION The application of the Gomulka growth theory to the available data leads to the conclusions that: (a) the data on industrial output given by Field et al. are rather implausible and biased upwards. They lead to figures for labour productivity in Chinese industry in 1965 approaching those of Southern Europe. If it is indeed accepted that Field’s figures are wrong this means that a lot of work done in this field is close to worthless.’ (b) the official data given by the Chinese, however, generate figures for level and growth of labour productivity that are in the lower part of the international mainstream (if the industrial labour forces comes to 18,000,OOO) or just below it (if the industrial labour force is reckoned to be 14,000,OOO). These new figures are much more plausible. (c) in the period under consideration (1952-1965) China’s dynamic efficiency (growth of labour productivity) was rather poor, but because China’s position is to the left of the ‘hat-top’ in Figure 1 and in the lower part of the international mainstream there are two inherent factors that in the future could speed up dynamic efficiency and hence static efficiency ; (d) the combination of the new data with the Gomulka model lends support to two important policies of the post Mao leadership. The first such policy is the large-scale import of technology from overseas. This should contribute to the rate of growth of labour productivity. The second such policy, the radical reform of the economic mechanism now underway, is clearly aimed at raising China’s industrial growth rate relative to the international
386
WORLD
DEVELOPMENT
mainstream. To be right at the bottom of the international mainstream as Maoist China apparently was, is clearly a very poor performance. These conclusions are based on a theoretical interpretation of certain data and are, of course,
sensitive to errors in the theory and the data. Sensitivity analysis of the effect of using exchange rates based on purchasing power parities rather than actual rates showed that the conclusions were not significantly affected by this factor.
NOTES 1. Nicholas R. Lardy, ‘Economic plannina and income distribution in China’, Current Scene (November 1976).
a.
3: and
T. C. Liu
and
K. C. Yeh
in JEC
(1967j, ;. 65. 2. In the international literature the concept of industrial production often is not very clear. Howe (1978), p. 97, in his table of total industrial output, gives the following note: This index is the product of many year’s work by R. M. Field and his staff in Washington. This version includes factory industry and handicraft activity. The index for factory industry has been calculated using information on physical output for 42 commodities grouped in eleven branches of industry (electric power, coal, petroleum, ferrous metals, machine building, chemical processing, building materials, timber, paper, textiles and food processing). The ‘group’ indexes were constructed using prices as weights for individual commodities and then combined in a composite index in which the groups themselves were weighted using value added shares. The index excludes defence industries narrowly defined. This concept of industrial output is compatable with an official Chinese definition of industrial production [N. R. Lardy (ed.), 1978, p. 1331: Industrial production is one kind of material production. It can generally be divided into three parts: (1) The extraction of natural resources or minerals. Examples are the extraction of coal, petroleum, black metallic ores (iron and manganese ores), nonferrous ores (copper, lead, zinc, tungsten, antimony, tin, and molybdenum ores), rare metallic ores (radium, uranium, vanadium, and titanium ores), nonmetallic ores (asbestos, mica, and graphite ores), chemical ores (sulphur, pyrite, fluor-spar ores), and so forth; the cutting of timber; the harvesting of wild fish, shellfish (shrimp, crabs, clams, and mussels), seaweeds (kelp and purple seaweed), and other marine products; the making of sea salt and the extraction of rock
salt; the generation of hydroelectric power, and so forth. (2) The processing of agricultural products, such as flour miIling, rice milling, oil pressing, sugar making, spinning, livestock slaughtering, milk refining, leather tanning, and so forth. (3) Manufacturing or repairing, such as the smelting of metallic ores into metals, the making of machines from metals, the generation of electricity from various fuels (coal, petroleum, and uranium), machine repairing, and so forth. Probably mention
this definition is used in Peking Review’s of industrial production (see Table 1, note).
3. In calculation of growth figures I have used throughout the exponential least-squares method. 4. This is a statistical concept used by state socialist countries. An excellent description of it is found in Field, Lardy and Emerson (1975), pp. 5-7. See also R. V. Greenslade (1972). 5. In ‘workers and employees’, workers in handicraft workshops are included according to the official definition. See Hou in Eckstein, Galenson and Liu (1968) p. 384. 6. This assumption is not always correct. In Latin America and in India part of the industrial capacity is not used. This is because of lack of raw commodities and/or spare parts, both of which are caused by the balance of payments situation, or as a result of an inadequate market. Therefore the labour productivity is lower, but this is not the result of any difference in technology. This possibility is ignored by Gomulka in so much as he assumes a constant capital-output ratio. 7. Readers who cannot obtain a copy of Gomulka (1971) can benefit from a description of his model in Ellman (1979). 8. Gomulka in his calculations mainly used the year 1964, but because for China there are available only data for the year 1965, these are used here. 9. This is similar to work done on Soviet defence expenditure. See the review article by Philip Hanson in Soviet Studies (July 1978), pp. 403-410.
REFERENCES Chao, K. ‘The China-watchers tested’, The China Quarterly81. (1980), pp. 97-104. Eckstein, A., W. Galenson and T. C. Liu (eds.), Eco~omit Trends in Communist China (Chicago: Aldine, 1968). Ellman, M., Socialist Planning (Cambridge University Press, 1979).
Eastern Economic Review, I973 Asia Yearbook (Hongkong: 1973). Field, R. M., N. R. Lardy and J. P. Emerson, A Reconstruction of the Gross Value of Industrial Output by Province in the People’s Republic of China: 1949-73, Foreign Economic Report No. 7, (Washington D.C.: US Dept. of Commerce,
I;ar
CHINESE
INDUSTRIAL
1975). Field, R. M., N. R. Lardy and J. P. Emerson, Provincial Industrial Output in the People’s Republic of China: 1949-75, Foreign Economic Report No. 12 (Washington D.C.: US Dept. of Commerce, 1975). Gomulka, S., Inventive Activity, Diffusion, and the Stages of Economic Growth (Aarhus, Denmark: Institute of Economics, Aarhus University, 1971). Gomulka, S., ‘Economic factors in the democratization of socialism and the socialization of capitalism’, Journal of Comparative Economics, Vol. 1, No. 4 (1977) pp. 389406. production statistics Greenslade, R. V., ‘Industrial in the USSR’, in V. G. Treml and J. P. Hardt, (eds.), Soviet Economic Statistics (Durham, N. C.: Duke University Press, 1972). Hoffmann, C., The Chinese Worker (Albany: State University of New York Press, 1974). Howe, C., China’s Economy, A Basic Guide (London: Elek Books, 1978). Joint Economic Committee, An Economic Profile of Mainland China (New York: Frederick A. Praeger. 1968) (in text abbreviated to JEC, 1967).
PRODUCTIVITY
387
Joint Economic Committee, China, A Reassessment of the Economy (Washington D.C.: USGPO, 1975) (in text abbreviated to JEC, 1975). Lardy, N. R. (ed.), Chinese Economic Planning, Translations from Chi-Hua Ching-Chi (White Plains USA and Folkestone UK: Sharpe .Inc./Dawson, 1978). Peking Review No. 46 (1978). Rabochii Klass Kitaya (1949-1974 gg.) (Moscow: Nauka, 1978). Industrialization, Technology and Rawski, T. G., Employment in the People’s Republic of China, World Bank Staff Working Paper, No. 291 (Washington D.C.: August 1978). Promvshlennost ’ KNR Sladkovskii. M. I. (ed.). (Moscow: Nauka, 1979). _ a comparison Sigurdson, J., ‘Rural industrialization: of development planning in China and India’, World Development, Vol. 6, No. 5 (1978) pp. 667-680. State Statistical Bureau, Ten Great Years, (Bellingham, Washington: 1974) (English language reissue of official Chinese statistical handbook).
in Great
0305-750X/83/040381-07$03.00/0 0 1983 Pergamon
Britain.
Chinese
Industrial Productivity International Context
Press Ltd.
in an
ERIK DIRKSEN*
University of Amsterdam,
The Netherlands
Summary. - The paper aims to find out and evaluate in an international context the level and growth rate of labour productivity in China’s industry. In the course of this investigation it transpired that the data used often in the West, i.e. those of Field et al., lead to results that are
rather implausible. However some new official Chinese data imply much more satisfying results. The other aim of the paper is to comment on recent radical changes in Chinese economic policy, in the light of her productivity performance.
1. INTRODUCTION At the present time the community of China-watchers has been thrown into confusion regarding Chinese economic statistics, in particular those concerning economic growth. The problem is as follows: the Chinese themselves (in the one and only official statistical handbook they published: Ten Great Years) have given statistics up to and including the year 1958. In 1960 a statistical blackout was imposed, which resulted in a nearly total absence of any systematic statistics. Even plan targets (if ever there was a five-year plan) were not known. This situation persisted until 1979 when some summary statistics for 1978 were published. In 1971 Zhou Enlai revealed, in an interview with Edgar Snow, some hard figures for several items, but it was difficult or impossible to link them with the official statistics of the 1950s. This has led to a situation in which through a variety of procedures several agencies and scholars in the West (e.g. CIA, US State Department, Liu and Yeh, Rawski, Field, Lardy and Emerson) derived numerous estimates for products and major economic indicators for the years 1958-1975. Alas, most of these differed considerably from each estimates other. The figures given by R. M. Field in his various publications (e.g. in JEC, 1975; Field, Lardy and Emerson 1975, 1976) have been used often in the literature. Lately some new official Chinese economic data for the years 1958-1965 have been released (Kang Chao, 1980) and these differ from Western estimates. This raises the question: which data are more reliable, the official or 381
the Western ones? In this article I try to answer the question whether the new official Chinese statistics for growth figures of industry are more plausible than the figures generated by Field et al. I come to the conclusion that they are. The second purpose of this paper is to evaluate the economic performance of China using the new macroeconomic data. Income distribution, basic needs, employment and self-reliance are obviously important, but are not considered. This part of the paper is concerned only with exploiting a particular type of data in the hope of throwing light on the static and dynamic efficiency of Chinese industry. (By static efficiency in industry we mean here the level of labour productivity in industry; by dynamic efficiency in industry we mean the growth rate of average labour productivity in industry.)
2. LABOUR
PRODUCTIVITY
IN INDUSTRY
(a) Rate of growth of labour productivity Field’s figures
using
Data on the rate of growth of labour productivity are set out in Table 1, which is derived from Howe’s Table 32 (1978, p. 97). Howe’s figures, however, are based on the index given by Field (JEC, 1975, pp. 149, 165-167). Howe uses two sources as he estimates labour productivity: ‘in China increased labour productivity is estimated to * The author
thanks Dr. M. Ellman and an anonymous referee for many helpful suggestions.
382
WORLD
DEVELOPMENT
Table 1. Average rate of growth of industrhl production and average rate of growth of labour productivity in different periods (2) Growth of industrial production, average (%)
(1) Period
(3) Growth of labour productivity (45% of column 2) (%)
19.56 13.80 8.37 6.74 4.05 4.50 7.50 9.43
1949-1958 1952-1957 1953-1963 1955-1965 1958-1967 1958-1968 1960-1967 196.5-1974
8.8 6.2* 3.8 3.0 1.8 2.0 3.4 4.2
Source: Calculated from Howe (1978, Table 32, p. 97). The figure of 6.2% for the period 1952-1957 is in accordance with the figures given by Hoffmann (1974, p. 58) for the period 1953-1957. In Peking Review, No. 46, 17 November, 1978, a figure of 8.7% is cited as the annual increase of labour productivity during the First Five-Year Plan (1952-1957). It is stated, however, that in this period 59% of the growth of industrial production is caused by growth of labour productivity. The figure of 45% which is used here, is an average for the whole period 19.52-1974 and can differ substantially
in different sub-periods. If 59% instead of 45% is taken from the average increase of industrial production of 13.8% for the period 1952-1957, one gets a figure of 8.1% as the average rate of growth of labour productivity, which is only slightly different from the figure given in Peking Review. The difference may result from different calculation
methods
have accounted for 40-50% of the industrial growth that occurred between 1952 and the mid-1970’s (Howe, 1978, pp. 95-96). In this paper the arithmetic average of these figures is used: 45% of growth of industrial production’ is accounted for by growth of labour productivity. (Hoffmann, 1974, p. 56, also uses this figure.) From Howe’s Table 32 (1978, p. 97) an average rate of growth of industrial production in the period 1952-1975 of 8.94% can be calculated.3 Using the figure of 45% of this growth to be accounted for by growth of labour productivity, this means an average rate of growth of labour productivity of 4%. Subdivided in different periods the figures are as set out in Table 1.
(b) Absolute
value of labour productivity using Field’s figures
For reasons which will be made clear in Section 4 our emphasis will be on the year 1965. For calculating the labour productivity (and its logarithm) the following figures were used: gross value of industrial production4 in 1965: 153, 194,000, 000 yuan in 1952 prices (source: Field in JEC, 1975, p. 171); total of industrial workers and employees in 1965: 14,000,OOO (source: JEC, 1967, p. 445). Using the exchange rate of 1 US $ = 2.355 yuan (Mah in Eckstein, Galenson and Liu, 1968,
p. 696), the gross value of production per labourer in 1965 is $4646.4 in 1952 prices. However, we need value-added figures to be able to compare Chinese per capita figures with those of other countries. From statements by Liu, who quotes Chao (JEC, 1967, p. 69), and from a table in Field, Lardy and Emerson (1975, p. 2), we come to the concluson that value-added in industry (including handicraft) is about 30% of gross value of production. This amounts to $1427.2 per labourer in 1965 in 1952 prices. Production per capita is rather high and is, of course, totally dependent on the figure of 14,000,OOO industrial workers and employees From Table 15 in the mentioned above.’ article of Hou in Eckstein, Galenson and Liu (1968, pp. 366-367) a total of 37 million ‘employees’ in ‘manufacturing and mining’ and the ‘trade and food and drink industry’ in 1958 can be calculated. Hou (Eckstein, Galenson and Liu, 1968, p. 354) refers to a report from 1961 which states that after the autumn of 1960 20 million (sic) people were transferred to agricultural production, so that about 17 million are left. The figure given in Rabochii
Klass
Kitaya
(1949-1974
g.g.)
(see
below) is more or less in line with this. In the West there is much confusion regarding employment figures in Chinese industry. The problem partly arises from the fact that ‘industry’ has different meanings in different statistics. Recent publications give the following figures:
CHINESE
INDUSTRIAL
-The Far Eastern Economic Review 1973 Asia Yearbook (p. 109) gives a figure of 60 million people in industry in 1972. This implies that with an industrial production of 319,609 million yuan (in 1975 prices) (JEC, 1975, Table B-7, p. 170), gross productivity per capita amounts to 5327 yuan. This is half of the gross productivity calculated for 1965 (10,942 yuan per capita). The 60 million figure therefore probably applies to large-scale industry plus rural and urban collectives. -Similarly, Jon Sigurdson (1978, p. 670) gives a total industrial employment of 50 million in 1973 (!) (state sector 32 million, urban collective 6 million, rural collective 12 million). -One can imagine, that, given these figures (differing by 10 million for one year) the author eagerly awaited Thomas Rawski (1978). But Rawski subtracts another 10 million and gives a figure (total for state industry, collective industry and handicrafts) of 39.3 million in 1975. For 1957 he gives a figure of 8.0 million people in state industry and 6.6 million in handicrafts. -The author has found two other sources which give figures for the year 1965. The first one, called Rabochii Klass Kitaya (1949-1974 gg.) (1978, p. 187), gives a figure of 18 million workers and employees in industry. This implies a gross productivity per man of US $3613.9 and a value added productivity (again using the figure of 30% of gross value of industrial production) of US $1084.2. -The second one, M. I. Sladkovskii (1979, p. 80) gives a figure of 15 million workers and employees in industry, but it is explicitly stated to be only an ‘estimate’. The best solution in the present author’s opinion is to settle for a range of 14-18 million industrial workers and employees in 1965, which means that productivity figures also must fall into a rather wide range.
3. NEW DATA In the March 1980 issue of China Quarterly, Kang Chao gives us some new official figures: taking as index of Official Gross Value of Industrial Output 1957 = 100, he gives indices for 1962 and 1965 of 120.4 and 151.3 respectively, while average growth rates of gross value of industry (he surely means industrial output) were 3.8% for 1958-1962 and 7.9% for 1963-
PRODUCTIVITY
383
1965 (Chao, 1980, pp. 97-98). Also from Ten Great Years (SSB 1974) the official figure of Gross Value of Industrial Output (GVIO) in 1957 (in 1952 prices) is known: 78,390 millio,r yuan. (Field also accepts in his tables the official Chinese figures for the period 1949-1957.) From this we can compute that GVIO in 1965 was 118,604,070,000 yuan (in 1952 prices). Taking again the exchange rate 1 US $ = 2.355 yuan this means a GVIO of US $50,362,662420. If we take as industrial employment the figure of 14 million this means that GVIO per worker is $3597; if we take the figure of 18 million GVIO per workers amounts to $2798. On a value-added basis (30% of GVIO) this gives an absolute level of labour productivity in 1965 (in 1952 prices) of $839 if we take the 18 million figure for industrial employment and $1079 if we take the 14,000,OOO figure. Using the data for the period 1949-1957 in Ten Great Years (p. 16) and the growth figures above we can calculate (taking 45% of the growth rate of GVIO as average rate of growth of labour productivity) that average rate of growth of labour productivity for the period 1949-1965 was 3.65%, for the period 1957-1965 was 2.76%, and for 1952-1965 was 3.37%. Using official Chinese data for labour productivity and its growth rate, the results are much more modest. All this raises the question: what data are more reliable, the official or the Western ones?
4. A THEORY Considerable effort has been devoted to estimating macroeconomic statistics for China and to making comparisons with other countries. In order to evaluate the data, and to interpret the comparisons, however, one needs a theory, which can tell us what data China would generate if its efficiency were similar to that of other countries. Otherwise, suppose that it is found that for certain years Chinese industrial growth was faster than that of India, but slower than that of Japan. It is impossible, without a suitable theory, to evaluate this finding. Is it favourable (because better than India) or unfavourable (because worse than Japan)? A useful theory for this purpose has been developed by Stanislaw Gomulka(l971, 1977). The essential innovation of the theory is
384
WORLDDEVELOPMENT
to make technical progress endogenous. A country is able to induce technical progress by way of practically costless diffusion of technology, which is caused by the technological gap between countries, Gomulka assumes that technology can be represented by average labour productivity (1971, p. 12).6 The influence of diffusion on the growth of the technological level of a country is less in countries where the technological gap with the technology leading country - in the post World War II period the USA - is very big (because of lack of possibilities of ‘absorption’), or very small (because the level of productivity is already very high). Hence it is the countries with a medium level of economic development that have the greatest possibility for rapid economic growth. On the basis of the theory and of the available economic data Gomulka argues that we can expect a ‘hat-shaped’ relationship between the growth of labour productivity and the average level of labour productivity (Gomulka, 1971, pp. 71-77).7 In Fig. 1 China’s position in this relationship is shown. If we take for example India, the average labour productivity in manufacturing in 1964 was US $820 and the average rate of growth of labour productivity in the period 1958-1965 was 5.5% (Gomulka, 1971, p. 75).8
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Using Howe’s data (based on Field), the figures for China are: an average labour productivity in industry in 1965 of US $1427.2 (or $1084.2 according to Rabochii Klass Kitaya) and an average rate of growth of labour productivity in the period 1958-1968 of 2%. From this we immediately see that the absolute level of productivity (if we take the 14,000,OOO figure for industrial employment) is very high and approaching that of Southern Europe. It is also not much lower than that of Japan ($1570 in manufacturing). Even if we take the 18,000,OOO figure for industrial employment, productivity seems very high. This is clearly implausible, so we suspect the used figures are wrong. Of course the figures used for average rate of growth of labour productivity in the period 1958-1968 also are affected. We have to keep in mind that China’s position is also influenced by the fact that the period 1958-1968 is chosen as the base, a period which included the economic crisis of 1959-1961. If labour productivity in 1965 is plotted against the average rate of growth labour productivity in the whole period 19521974 (4%), China’s position is still below the international ‘mainstream’. Now we plot the two figures generated
dCze
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Chino
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productwtty
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oS.Af Lobour
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in 1965)
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12.200 I
In 10-S 1. The relationship between the rate of growth of lubow productivity and the level of labour productivity (using Kang Chao, 1980). Source: Gomulka, 1971, p. 73. For China see text and Kang Chao (1980). 0 = manu-
Figure
facturing, a = total industry (E. European countries, USSR, Israel and Finland). n = China, v = China, M = China, 8 = China,
industry industry industry industry
(1965; (1965; (1965; (1965;
1957-1965) 1952-1965) 1957-1965) 1952-1965)
industrial employment 14,000,OOO industrial employment 18,000,OOO
CHINESE INDUSTRIAL PRODUCTIVITY
earlier (a growth of labour productivity for 1957-1965 of 2.76% and for 1952-1965 of 3.37%) against an absolute level of labour productivity (using both 14 million and 18 million for industrial employment we obtain respectively $1079 and $839). (It is impossible to do this for the period 1958-1968 because figures for 1966, 1967 and 1968 are lacking. Chao only mentions that output declined in 1967 and 1968.) The picture we now get is much more satisfying. During the whole period 19521965 China is just on the lower end of the international mainstream. Probably the figure of 18,000,OOO industrial employment in 1965 is the more plausible. In that case the absolute level of labour productivity is comparable with other LDCs (notably India). Given very considerable uncertainty concerning the actual level of employment in 1965, it might be preferable to allow for the productivity to fall in a rather wide range (as indicated in Figure 1). For the period 1957-1965 the growth record of course is influenced by such factors as the withdrawal of Soviet technical aid, the Great Leap Forward and the agricultural crisis, but these adverse factors are levelled out if we take the whole period 1952-1965. According to Gomulka’s theory, growth of industrial production would speed up in the years after 1965. However, in 1966-1968 there occurred the Great Proletarian Cultural Revolution so that only in the years after 1970 can we expect figures to show a tendency to pick up. Chao is unable to give us much more information than that ‘the sources also state that the decline in industrial production persisted after 1966 and only began to turn upward in 1970. . .’ (Chao, 1980, p. 97) and to provide growth rates of GVIO in 1974 and 1976 of 0.3 and 1.3% respectively. But from Gomulka’s theory we can see that there are two inherent factors that positively influence growth rates. First, because China’s position is to the left of the ‘hat-top’ in Figure 1, and because of technical progress induced by foreign trade, the growth rates of labour productivity could pick up in the future. Second, because China’s position is on the lower boundary of the international mainstream (or below it, depending on what figure for industrial employment is used) it is understandable that radical reform of the economic mechanism has been embarked on in the hope of improving China’s position relative to the international mainstream. The economic institutions and policies of Maoist China were clearly unsuitable from the stand-
385
point of stimulating economic growth. (This is in comparison with all other countries rather than with its own past.) Hence, it is entirely understandable in the light of Figure 1 that the post Mao-leadership embarked first on a large-scale import of technology and then on a radical reform of the economic mechanism. Given these factors there is a distinct according to Gomulka’s theory, possibility, for China to generate some impressive growth rates in the future.
5. CONCLUSION The application of the Gomulka growth theory to the available data leads to the conclusions that: (a) the data on industrial output given by Field et al. are rather implausible and biased upwards. They lead to figures for labour productivity in Chinese industry in 1965 approaching those of Southern Europe. If it is indeed accepted that Field’s figures are wrong this means that a lot of work done in this field is close to worthless.’ (b) the official data given by the Chinese, however, generate figures for level and growth of labour productivity that are in the lower part of the international mainstream (if the industrial labour forces comes to 18,000,OOO) or just below it (if the industrial labour force is reckoned to be 14,000,OOO). These new figures are much more plausible. (c) in the period under consideration (1952-1965) China’s dynamic efficiency (growth of labour productivity) was rather poor, but because China’s position is to the left of the ‘hat-top’ in Figure 1 and in the lower part of the international mainstream there are two inherent factors that in the future could speed up dynamic efficiency and hence static efficiency ; (d) the combination of the new data with the Gomulka model lends support to two important policies of the post Mao leadership. The first such policy is the large-scale import of technology from overseas. This should contribute to the rate of growth of labour productivity. The second such policy, the radical reform of the economic mechanism now underway, is clearly aimed at raising China’s industrial growth rate relative to the international
386
WORLD
DEVELOPMENT
mainstream. To be right at the bottom of the international mainstream as Maoist China apparently was, is clearly a very poor performance. These conclusions are based on a theoretical interpretation of certain data and are, of course,
sensitive to errors in the theory and the data. Sensitivity analysis of the effect of using exchange rates based on purchasing power parities rather than actual rates showed that the conclusions were not significantly affected by this factor.
NOTES 1. Nicholas R. Lardy, ‘Economic plannina and income distribution in China’, Current Scene (November 1976).
a.
3: and
T. C. Liu
and
K. C. Yeh
in JEC
(1967j, ;. 65. 2. In the international literature the concept of industrial production often is not very clear. Howe (1978), p. 97, in his table of total industrial output, gives the following note: This index is the product of many year’s work by R. M. Field and his staff in Washington. This version includes factory industry and handicraft activity. The index for factory industry has been calculated using information on physical output for 42 commodities grouped in eleven branches of industry (electric power, coal, petroleum, ferrous metals, machine building, chemical processing, building materials, timber, paper, textiles and food processing). The ‘group’ indexes were constructed using prices as weights for individual commodities and then combined in a composite index in which the groups themselves were weighted using value added shares. The index excludes defence industries narrowly defined. This concept of industrial output is compatable with an official Chinese definition of industrial production [N. R. Lardy (ed.), 1978, p. 1331: Industrial production is one kind of material production. It can generally be divided into three parts: (1) The extraction of natural resources or minerals. Examples are the extraction of coal, petroleum, black metallic ores (iron and manganese ores), nonferrous ores (copper, lead, zinc, tungsten, antimony, tin, and molybdenum ores), rare metallic ores (radium, uranium, vanadium, and titanium ores), nonmetallic ores (asbestos, mica, and graphite ores), chemical ores (sulphur, pyrite, fluor-spar ores), and so forth; the cutting of timber; the harvesting of wild fish, shellfish (shrimp, crabs, clams, and mussels), seaweeds (kelp and purple seaweed), and other marine products; the making of sea salt and the extraction of rock
salt; the generation of hydroelectric power, and so forth. (2) The processing of agricultural products, such as flour miIling, rice milling, oil pressing, sugar making, spinning, livestock slaughtering, milk refining, leather tanning, and so forth. (3) Manufacturing or repairing, such as the smelting of metallic ores into metals, the making of machines from metals, the generation of electricity from various fuels (coal, petroleum, and uranium), machine repairing, and so forth. Probably mention
this definition is used in Peking Review’s of industrial production (see Table 1, note).
3. In calculation of growth figures I have used throughout the exponential least-squares method. 4. This is a statistical concept used by state socialist countries. An excellent description of it is found in Field, Lardy and Emerson (1975), pp. 5-7. See also R. V. Greenslade (1972). 5. In ‘workers and employees’, workers in handicraft workshops are included according to the official definition. See Hou in Eckstein, Galenson and Liu (1968) p. 384. 6. This assumption is not always correct. In Latin America and in India part of the industrial capacity is not used. This is because of lack of raw commodities and/or spare parts, both of which are caused by the balance of payments situation, or as a result of an inadequate market. Therefore the labour productivity is lower, but this is not the result of any difference in technology. This possibility is ignored by Gomulka in so much as he assumes a constant capital-output ratio. 7. Readers who cannot obtain a copy of Gomulka (1971) can benefit from a description of his model in Ellman (1979). 8. Gomulka in his calculations mainly used the year 1964, but because for China there are available only data for the year 1965, these are used here. 9. This is similar to work done on Soviet defence expenditure. See the review article by Philip Hanson in Soviet Studies (July 1978), pp. 403-410.
REFERENCES Chao, K. ‘The China-watchers tested’, The China Quarterly81. (1980), pp. 97-104. Eckstein, A., W. Galenson and T. C. Liu (eds.), Eco~omit Trends in Communist China (Chicago: Aldine, 1968). Ellman, M., Socialist Planning (Cambridge University Press, 1979).
Eastern Economic Review, I973 Asia Yearbook (Hongkong: 1973). Field, R. M., N. R. Lardy and J. P. Emerson, A Reconstruction of the Gross Value of Industrial Output by Province in the People’s Republic of China: 1949-73, Foreign Economic Report No. 7, (Washington D.C.: US Dept. of Commerce,
I;ar
CHINESE
INDUSTRIAL
1975). Field, R. M., N. R. Lardy and J. P. Emerson, Provincial Industrial Output in the People’s Republic of China: 1949-75, Foreign Economic Report No. 12 (Washington D.C.: US Dept. of Commerce, 1975). Gomulka, S., Inventive Activity, Diffusion, and the Stages of Economic Growth (Aarhus, Denmark: Institute of Economics, Aarhus University, 1971). Gomulka, S., ‘Economic factors in the democratization of socialism and the socialization of capitalism’, Journal of Comparative Economics, Vol. 1, No. 4 (1977) pp. 389406. production statistics Greenslade, R. V., ‘Industrial in the USSR’, in V. G. Treml and J. P. Hardt, (eds.), Soviet Economic Statistics (Durham, N. C.: Duke University Press, 1972). Hoffmann, C., The Chinese Worker (Albany: State University of New York Press, 1974). Howe, C., China’s Economy, A Basic Guide (London: Elek Books, 1978). Joint Economic Committee, An Economic Profile of Mainland China (New York: Frederick A. Praeger. 1968) (in text abbreviated to JEC, 1967).
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387
Joint Economic Committee, China, A Reassessment of the Economy (Washington D.C.: USGPO, 1975) (in text abbreviated to JEC, 1975). Lardy, N. R. (ed.), Chinese Economic Planning, Translations from Chi-Hua Ching-Chi (White Plains USA and Folkestone UK: Sharpe .Inc./Dawson, 1978). Peking Review No. 46 (1978). Rabochii Klass Kitaya (1949-1974 gg.) (Moscow: Nauka, 1978). Industrialization, Technology and Rawski, T. G., Employment in the People’s Republic of China, World Bank Staff Working Paper, No. 291 (Washington D.C.: August 1978). Promvshlennost ’ KNR Sladkovskii. M. I. (ed.). (Moscow: Nauka, 1979). _ a comparison Sigurdson, J., ‘Rural industrialization: of development planning in China and India’, World Development, Vol. 6, No. 5 (1978) pp. 667-680. State Statistical Bureau, Ten Great Years, (Bellingham, Washington: 1974) (English language reissue of official Chinese statistical handbook).