CHINA'S ECONOMY AND FOREIGN TRADE 1976-77
RE. AS. July 1978
Political upheavals and uncertainty in the wake of Chou En-lai's death and Mao's failing health made 1976 a poor year economically for China. Problems such as structural imbalances in industry, transport bottlenecks, declining labour productivity and slow agricultural growth were allowed to develop. Production was also disrupted by natural disasters; severe earthquakes in July in North East China, and a lesser earthquake in central China, affected the whole economy. Industrial growth rate could have been no more than 2-4 per cent (9-10 percent in 1975) and agricultural output virtually marked time. However, in trade with non- Communist countries China turned a deficit in convertible currency of over $700 million in 1975 to a surplus of about the same amount in 1976.
The new leadership embarked on a course designed to transform and modernise the economy. Teng Hsiao-ping, a leading advocate of pragmatic economic policies, was rehabilitated in July 1977 and restored to leading posts in party, government and military hierarchy. The leadership of Chairman Hua Kuo-feng was legitimised in August at the 11th Party Congress which also approved the broad lines of economic development. At a series of national economic conferences during 1977 covering major sectors of the economy, the central theme was the need for increased growth and production. The announcement of wage increases for the lower paid from 1 October was a major step towards improving labour morale.
Industry
The good performance of 1975 continued until the beginning of April 1976, but growth then declined for the rest of the year. Political disputes at the centre were reflected in local rivalries, managerial indecision, apathy among workers and in some cases sabotage. Lack of incentives and dissatisfaction about pay, plus the earthquakes, made the situation worse. The severity of the problems was underlined by the reported deficit in the State budget an unusual event in China where balanced budgets are an important element of fiscal policy.
Despite claims that there had been some growth in the provinces, the leadership admitted that 1976 was a poor year and that industry did not achieve the expected results. No figures were published for overall national growth.
In 1977 a gradual recovery began. The new leadership's determination to tackle economic problems was shown for example on the railways, where troops were used to restore discipline and clear the backlog of deliveries. The limited capacity of the transport network, however, remained a major constraint. It was not until June 1977 that industrial output was said to have surpassed the highest previous monthly level. Overall, industrial growth for 1977 was reported to be about 14 per cent.
Steel output declined in 1976 by as much as 16 per cent to 21 million tonnes. The steel industry has always been vulnerable to worker unrest and factional rivalries. These problems were accentuated in 1976 and the position was worsened by earthquake damage to the Tangshan steel plant. Speeches at the industrial conference in April/May 1977 revealed that steel production was still a major