SOME ECONOMIC FACTORS AFFECTING PRODUCTION OF CAPITAL EQUIPMENT IN COMMUNIST CHINA

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01093A001100080001-8
• Release Decision: RIPPUB
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• Document Creation Date: December 12, 2016
• Document Release Date: January 22, 2002
• Sequence Number: 1
• Publication Date: June 29, 1956
• Content Type: REPORT

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SECRET
PROVISIONAL INTELLIGENCE REPORT
SOME ECONOMIC FACTORS AFFECTING
PRODUCTION OF CAPITAL EQUIPMENT IN L
COMMUNIST CHINA
CIA/RR PR-144
29 June 1956
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
DOCUMENT NO. .-__-
NO CHANGE IN CLASS. LI
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18,' USC, Sees. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorised person is prohibited by law.
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S-E-C-R-E-T
PROVISIONAL INTELLIGENCE REPORT
SOME ECONOMIC FACTORS AFFECTING PRODUCTION
OF CAPITAL EQUIPMENT IN COMMUNIST CHINA
CIA/RR PR-144
(ORR Project 34.502)
The data and conclusions contained in this report
do not necessarily represent the final position of
ORR and should be regarded as provisional only and
subject to revision. Comments and data which may
be available to the user are solicited.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
S-E-C-R-E-T
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S -E -C -R -E -T
FOREWORD
This report has two objectives. Its first objective is to
present the latest estimates of the production and the inventory
of machine tools, textile machinery, and agricultural equipment
in Communist China. Its second objective is to offer a tentative
explanation of certain economic phenomena in China. Specifically,
this report suggests that the types of commodities being offered
for export by the Chinese Communists are in part a function of
short-term domestic imbalances in production -- in terms of the
relationship both between capital equipment and final products and
among types of capital equipment -- and represent a short-term
factor which should be added to the generally accepted list of
political and propaganda factors in the discussion of Chinese
Communist trade.
This report further suggests that there are also long-term fac-
tors which are operating broadly in the same direction as the
short-term imbalances. It should be reasonable, for example, to
expect continued emphasis on the export of certain items of capital
equipment as a result of the comparative advantage which the Chinese
Communists may enjoy in the production of these items.
The commodities discussed in this report constitute a small part
of all capital equipment produced in Communist China. Consequently,
the explanation offered can be regarded only as provisional -- to be
confirmed, refuted, or modified in the course of further research.
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CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . . . . . 1
I. Introduction . . . . . . . . . . . . . . . . . . . . 3
II. Production . . . . . . . . . . . . . . . . . 4
A. Machine Tools . . . . . . . . . . . . . . . . 4
B. Textile Machinery . . . . . . . . . . . . . . . . 6
C. Agricultural Equipment . . . . . . . . . . . . . 8
D. Retardation of Growth . . . . . . . . . . . . . . 11
III. Foreign Trade . . . . . . . . . . . . . . . . . . . . 16
IV. Inventory . . . . . . . . . . . . . . . . . 22
A. Machine Tools . . . . . . . . . . . . . . . . 22
B. Textile Machinery . . . . . . . . . . . . . . 23
Appendixes
Appendix A. Geographic Distribution of Production
of Machine Tools, Textile Machinery,
and Agricultural Equipment in Communist
China . . . . . . . . . . . . . . . . . . . 29
Appendix B. Methodology . . . . . . . . . . . . . . . . 37
Appendix C. Gaps in Intelligence . . . . . . . . 11.7
Appendix D. Source References . . . . . . . . . . . . . 49
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S-E-C-R-E-T
Tables
1. Growth of Industrial Production in Communist China,
195 2 -57 . . . . . . . . . . . . . . . . . . . . . . 3
2. Estimates of the Output of Machine Tools in Communist
China, 1949-55 . . . . . . . . . . . . . . . . . . . 5
3. Estimates of the Output of Textile Machinery
in Communist China, 1951-57 . . . . . . . . . . . . 7
4. Estimates of the Output of Agricultural Equipment
in Communist China, 1952-57 ? ? ? ? ? ? ? ? ? . . .
5?
Comparison of Indexes of Industrial Output
in Communist China, 1952-57 . . . . . . . . . . . . 11
6. Availability of-Spindles for Export by Communist
China, 1951-57 . . . . . . . . . . . . . . . . . . 17
7. Availability of Looms for Export by Communist
China, 1951-57 . . . . . . . . . . . . . . . . . . . 18
8. Estimates of the Inventory of Machine Tools
in Communist China, 1949-55 . . . . . . . . . . . . 23
Estimates of the Inventory of Textile Machinery
in Place in China, 1930, 1937-41, 1945, 24
and 1949-57 . . . . . . . . . . . . . . . . . . . .
10. Physical Productivity of Spindles and Looms
in Communist China and in India, 1950-54 . . . . . . 27
11. Estimated Geographic Distribution of the Output
of Machine Tools in Communist China, by Region,
1954 and 1957 . . . . . . . . . . . . . . . . . . . 30
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12. Estimated Geographic Distribution of the Output
of Spindles in Communist China, by Region,
1954 and 1957 . . . . . . . . . . . . . . . . . . . 31
l3. Major Plants Producing New-Type Agricultural Equip-
ment in Communist China, 1954 . . . . . . . . . . 34
14. Estimated Geographic Distribution of the Output
of New-Type Agricultural Equipment in Communist
China, 1954 . . . . . . . . . . . . . . . . . . . 35
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CIA/RR PR-144 S-E-C-R-E-T
(ORR Project 34.502)
SOME ECONOMIC FACTORS AFFECTING PRODUCTION
OF CAPITAL EQUIPMENT. IN COMMUNIST CHINA*
Summary
By 1957 the gross value of industrial production in Communist
China is expected to be about twice that of 1952. The large de-
ficiencies in capital equipment which had to be overcome, the
rapidity of the recovery, and the durability of capital equipment
have brought temporary imbalances, or structural maladjustments,
in China's economy.
The annual rate of increase in industrial production in Com-
munist China has not been uniform, and sharp decreases in the
rate of increase in 1954 and 1955 have occurred. A cessation, or
even a decrease, in the rate of increase such as China has experi-
enced results in downward adjustments in the production of
numerous industries which have been developed to a level which
can be maintained only if other industries, or the economy as a
whole, continue to expand at a given rate. The decreases in the
over-all rate of industrial production in China have had reper-
cussions on the capital equipment industries of China as illustrated
by the experiences of the machine tool, the textile machinery, and
the. agricultural equipment industries. Reflecting the decrease in
the rate of increase, the estimated output of machine tools showed
an actual decline, dropping from approximately 16,700 units in 1953
to 16,000 units in 1955. The shortage of cotton in China has
necessitated a decrease in the rate of increase in the production
of textiles. The decline in the production of textiles, in turn,
has resulted in a decreased demand for textile machinery for purposes
of expansion. In 1954 and 1955, production of textile machinery
continued to increase, but at a sharply reduced rate. Substantial
increases in production of agricultural equipment are estimated to
have taken place during 1953 and 1954, to be followed by decreases
in the rate of increase or even actual declines in production during
1955-57.
* The estimates and conclusions contained in this report represent
the best judgment of ORR as of 15 May 1956.
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On the other hand, these imbalances have had a favorable effect
on the ability of Communist China to export capital equipment.
While temporary imbalances exist, China is trying to substitute
foreign demand for domestic demand for certain capital goods,
especially for such goods as machine tools and textile machinery.
Even when many of the difficulties resulting from an unbalanced
growth disappear, however, it is expected that the ability of China
to export simpler types of capital equipment will increase during
1956-57, although, in absolute terms, exports will be small.
Industrial goods are expected to become increasingly -important
in Communist China's schedule of exports, especially to under-
developed countries in Asia and Africa. Paradoxically, China
probably will have a comparative advantage in the field of certain
industrial goods rather than in agriculture. The cost of additional
increases in agricultural production probably will be very high
relative to the cost of obtaining increases of equal value in the
production of industrial goods. Furthermore, the underdeveloped
areas generally want semifabricated-and finished goods rather than
primary products.
Communist China's estimated inventory of machine tools was about
150,000 units in 1955, compared with an inventory of 90,000 units
for all China in 1937. By 1957 the planned inventory of spindles
for China will be over 7 million units and of looms, almost 123,000
units.
The most important regions in Communist China for production of
machine tools are Northeast, East, and North China. North China,
with 50 percent of total production of textile machinery, and East
China, with 35 percent of such-production, are the most important
producers of textile machinery. Northeast, East, and Central and
South China are the principal producers of agricultural machinery.
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S -E -C -R-E -T
I. Introduction.
The growth of industrial production in Communist China -- actual
and proposed -- from 1952 through 1957 is shown in Table 1.
Growth of Industrial Production in.Communist China a/
1952-57
Index of the Gross Value
of Industrial Production
Percentage Increase
Year
_1952 =
100)
over Previous Year
1952
100
1953
131
31
1954
154
18
1955
162
5
1956
180
11
1957
198
10
a. For the methodology used to compile this table,
see Appendix B.
During 1952 and 1953, growth generally was rapid because of the
employment of previously underemployed resources such as unemployed
urban workers and idle plants. After 1953, growth resulted chiefly
from increased investment which incorporated basic technological
changes. The machine process supplanted labor to a considerable
extent, and industry grew rapidly as the new techniques permitted
increased production. Although further improvements have been
taking place continually, the earlier vigorous expansion has
slackened, and during the latter part of the First Five Year Plan
(1953-57) growth will not be so rapid if the Chinese Communists
adhere to their plans. The sharp falls in the rates of increase
in industrial production in 1954 and especially in 1955 will have
serious repercussions on the capital equipment industries and may
make the plans for expansion during 1956 and 1957 more difficult
to attain.. In this report are examined the effect of the retarda-
tion of growth on the capital equipment industries -- particularly,
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the machine tool, textile machinery, and agricultural equipment in-
dustries -- and the possible implications for foreign trade in such
retardation of growth.
II. Production.*
Before the Chinese Communists gained control of the Chinese
mainland in 1949, the Chinese were making machine tools such as
small lathes, grinders, and shapers in small establishments. These
machine tools generally. were made in small quantities, although in
Manchuria, under the Japanese,-some machine tools were made on a
production-line basis. The highest countrywide output ever at-
tained was not over 2,000 units per year. During 1953, however,
important advances were made in production of machine tools, and
although production included many types never before produced in
China, the Chinese Communists were still making principally gen-
eral-purpose, basic machine tools.** A possible explanation for
the emphasis on this type of production is the lack of a need by
Communist China for special-purpose machine tools. China doesnot
have a capital equipment industry mass-producing automobiles,
trucks, tractors, agricultural equipment, and similar heavy equip-
ment which would require more complex machine tools. The basic
types which are manufactured reflect the technological level and
the methods of production of the industries which use them.
The Chinese Communist machine tool industry is significantl;T
influenced by Soviet design and practice. Technological assistance
from the USSR and the European Satellites is evident in the pre-
dominance of machine tools patterned after Soviet models. Many of
the machine toolsproduced in Communist China even retain the same
identification numbers as those on the Soviet prototypes. /***
Assi-stance from the European Satellites has been limited principally
to deliveries of machine tools and equipment rather than of blue-
prints and technical personnel.
For geographic distribution.of production, see Appendix A.
** General-purpose, basic machine tools include. lathes, grinders,
and shapers and are to be distinguished from special-purpose,. fully
automatic machine tools.
*** For serially numbered source references, see Appendix D.
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-Since 1953 the Chinese Communist government has exhibited
its machine tools at many international trade fairs. The Leipzig
Trade Fair in East Germany has been used by the Chinese Communists
as a propaganda forum for their machine tools. At this fair in 1953
and 1954 the Chinese'exhibited machine tools of advanced types which
were unrepresentative of Communist China's present technology.* Sev-
eral competent engineers even have alleged that the Chinese have
attached name plates to machine tools which were originally produced
elsewhere. 2/
Estimates of the output of machine tools in Communist China
from 1949 through 1955 are shown in Table 2.
Estimates of the Output of Machine Tools in Communist China a
1949-55
Year
Units
Percentage Change
over Previous Year
1949
1,589
1950
3,321
+109
1951
5,879
+77
1952
11,202
+90
1953
16,716
+49
1954
16,365
-2.7
1955
16,000
-2.2
a. For the methodology used to compile this table, see
Appendix B.
The big increase in the output of machine tools from 1949
to 1950 is attributed principally to better and more efficient use
of existing facilities. Increases in output of 77 and 90 percent
in 1951 and 1952, respectively, were caused by the gradual expan-
sion of facilities as well as. by the renovation and modernization
of existing plant. Although there is no indication of any significant
* Photographs of the machine tools which the Chinese Communists are
producing and of those which they are exhibiting are available -- the
tools are not the same.
5-
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increases in plant facilities during 1953, the percentage increase
in output nevertheless was fairly large and probably was a result
of more experience and skill on the part of the workers and more
intensive use of existing facilities. In 1954, on the other hand,
because of imbalances and dislocations in the economy, there was
an absolute decrease in the output of machine tools. 3 Despite
little information and the haziness of the situation in 1955, it
is estimated that the sharp decrease in the rate of increase in
over-all industrial output from 18 percent in 1954 to 5 percent
in 1955 may have resulted in an absolute decrease in the output of
machine tools during 1955.
The Chinese Communists state in their First Five Year Plan
that the output of machine tools by 1957 -- the end-of the Plan --
will be 12,720 units and that these units generally will be heavier
and more complex. In terms of weight, output will be 80 percent
higher than in 1952. / By 1960, as a result of the construction
or expansion of it. machine tool plants, an annual output of 30,000
machine tools is expected to be achieved. / Be-cause machine
tools are basic instruments of production and because progress in
their design and manufacture leads to lower production -costs,
machine tools probably have a high priority in Communist China's
program for industrialization.
B. Textile Machinery.
Although China has had a textile industry for almost 70
years, the Chinese Communists claim that up to the end of 1949
the Chinese textile mills were supplied with imported machinery
and that no textile machinery had been,produced in the country. 6*
By 1955, Communist China asserted that textile machinery no longer
had to be imported and in April 1955 agreed to export to Burma
complete sets of machinery for spinning and weaving mills. In
* According to a report published by the South Manchurian Rail-
way, 7/ during the Japanese occupation 30 loomsand 10 machine
tools had been produced in what is now the Tsingtao Textile Ma-
chinery Plant, known before the Japanese surrender as the Nitto
Ironworks. In 1940 and 1941 this plant produced textile machinery
parts. Furthermore, a CIA report Sl lists several plants which
produced, or at least seem to have produced, textile machinery and
parts. It is possible that the Chinese Communist claims are true
and that the plants mentioned here may have merely assembled the
machines.
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addition, Burma has requested that China send technicians to assist
in the installation of equipment and the training of personnel. 9
In 1955, China also made textile machinery available to Egypt. If
China actually can export and fulfill its needs simultaneously,
such a change would imply a spectacular rate of progress. (See
III, below.)
Shown in Table 3 are the progress in the output of textile
machinery in Communist China in terms of spindles* and power looms
from 1951 through 1954; an estimate of output in 1955; and pro-
jections of output through. 1957, which is the last year of China's
First Five Year Plan. There is no evidence that there was any
significant . production. of textile machinery before 1951, and the
big relative increases, both actual and projected, through the
end of 1957 can be attributed to a very small base'at the.start
of the expansion. program.
Table 3
Estimates of the Output of Textile Machinery in Communist China a
1951-57
Year
Spindles
Units)
Percentage Change
over Previous Year
Power Looms
(Units)
Percentage Change
over Previous Year
1951
64,ooo
4,000
1952
250,000
+288
6,000
+50
1953
286,000
+14
8,500
+42
1954
325,000
+14
13,000
+53
1955
425,000
+31
14,820
+14
1956
575,000
+35
15,709
+6
1957
675,000
+17
16,337
+4.
a. For the methodology used to compile this table, see Appendix B.
* The term spindle, when used to denote spinning capacity, refers
not only to a steel rod on which a bobbin is plac.ed but also to the
whole complement of spinning machinery. The problem, then, is
whether a spindle in Communist China includes all the machines
which constitute a spindle in the US and the UK. For example, the
spinning process in the UK includes throwing machines and doubling
machines, which increase the quality of the thread or yarn and
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The output of both spindles and looms in 1951 was produced
in existing machinery plants converted to the manufacture of tex-
tile machinery..10 In 1951 the Chinese Communists had just be-
gun production of complete sets of textile machinery and were not
yet operating at full capacity. The big increase in output from
1951 to 1952 occurred because of the repair, re-equipment, and
more efficient use of existing facilities.
The increase in the output of spindles from .952 to 1953
was moderate and was a result of more experience on the part of
the workers, more intensive use of plant and equipment, and a
small amount of production by the new Ching-wei Textile Machinery
Plant in North China at the end of 1953. The 14-percent and 31-
percent increases in the output of spindles in 1954 and 1955,
respectively, were a result of the production issuing from the
Ching-wei plant on a 1-shift basis. This large plant will gradually
work up to a 3-shift basis in 1957 and to an output of about
400,000 spindles.* When the base is small initially, the addition
of one more plant can make a large relative contribution to total
production.
The big increase in the output of looms in 1954 was a
result of the modernization and enlargement of existing plants,
such as the China Textile Machinery Plant in Shanghai; the better
organization of production through the consolidation of small
plants; and the more intensive use of_plant and equipment. It is
expected that output will increase in 1955, 1956,?and 1957 by 14,
6, and 4 percent, respectively. Increases of this size will be
sufficient to build up Communist China's planned loom inventory.
C. Agricultural Equipment.
Communist China does not possess an agricultural equipment
industry in the sense that the term is used in the US. Much agri-
cultural production in China is carried on by primitive methods.
which might well be omitted in the spinning process in CMiina. It
is not known whether a spindle in China is the same as in other
countries.
* It is assumed that both domestic and foreign demand will warrant
,such a large output. Such an assumption may not necessarily be
realistic.
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Although animal-drawn (horse or oxen) equipment is in increasingly
greater use, the hoe, scythe, and rake are still the most important
equipment used in Chinese Communist agriculture.
Estimates of the output of the new-type (animal-drawn) and of
the old-type (hand-tool) agricultural equipment* in Communist China
from 1952 to 1957 are shown in Table 4.
Table 4
Estimates of the Output of Agricultural Equipment in Communist China 1
1952-57
Year
New Type
(Thousand Units)
Percentage Change Old Type
over Previous Year (Thousand Units)
Percentage Change
over Previous Year
1952
300
1953
343 f
+14.3
71,000
1
1954
429 /
+25
120,000
/
+69
1955
1,200 /
+180
150,000
+25
1956
1,300 1
+8.3
130,000
-15.3
1957
1,400 f
+7.7
110,000
-18.2
a. For the methodology used to compile this table, see Appendix B.
b. 11
c. E2/. This figure includes a reported output of 150,000 to 200,000 plows
and harrows, mostly the former.
d. 133
e. /. This figure includes a planned output of 250,000 to 300,000 plows
and harrows, mostly the former. It is assumed that the plan was fulfilled.
f. 15
g. This figure includes a planned output of 1- and 2-bottom animal-drawn
plows. 16 Planned output of animal-drawn equipment during 1955-57 amounts
to 1.5 million to 1.8 million units. 17
* Press and radio coverage of production of agricultural equipment
in Communist China regularly uses such terms as tools or implements
to cover everything from scythes to animal-drawn plows. These terms
occasionally are broken down into "new-type" and "old-type" imple-
ments. The former category is believed to include larger items such
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Until about the end of 1952, agricultural equipment in
Communist China was produced in plants whichexisted at the time
the Communists assumed control and which subsequently were re-
constructed. Beginning in early 1953, however, a program of new
plant construction was initiated, and a number of existing plants
were enlarged. Construction activities reached their height in
1954. Press and radio reports indicate that-at least 25, and
possibly as many as 50, plants were involved in the construction
program, which included China's largest agricultural equipment
plant in Peiping. Although most of these plants were rather
small, they were important in the aggregate. Moreover, agri-
cultural equipment was added to the production schedules of
plants which ordinarily produced other commodities, but these
plants made only a minor contribution to total production.
Increases in Chinese Communist production of agricultural
equipment from 1952 to 1953 and from 1953 to 1954 were relatively
modest and were realized while the construction program was still
under way. The big planned increase in 1955 was a result of the
expected completion of the new plants. Reports on production for
1955 indicate that the planned levels of production probably were
attained. 19/ Production plans through 1957 indicate that further
construction on the 1953-54 -scale is not expected.
The estimated decreases after 1955 in production of old-
type equipment merely reflect the decreasing need for such items
as more new-type equipment becomes available. The many black-
smith shops and handicraft producers cooperatives which now pro-
duce at least one-half of the old-type equipment probably will
produce spare parts for the new-type equipment and will devote
increased attention to production of small consumer items, such
as pots and pans.
In expanding production of agricultural equipment as
rapidly as possible, Communist China has duplicated Soviet and
European Satellite models, particularly the former. China's com-
plete line of animal- and tractor-drawn equipment is composed of
as plows, seed drills, harrows, cultivators, reapers, and threshers.
The latter category includes the remainder of production, such as
scythes, hoes, rakes, and the like, and probably also includes
plows with wooden rather than steel shares. In this report, the
term equipment has been used to include both tools and implements.
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duplicated models. A major step forward in China's agricultural
equipment program was the beginning of production of the first
Soviet-type tractor-drawn grain combine in December 1954 at the
North China Agricultural Equipment Plant in Peiping. 20 Although
this plant is the only agricultural equipment plant now capable
of producing a piece of equipment as complicated as a tractor-
drawn grain combine, the fact that this plant is now in production
is an indication of the long-range goals which are being set up
for the agricultural equipment industry in China. Soviet tech-
nical advisers in China have contributed immeasurably to the
speed with which China has realized the advantages of duplicating
Soviet equipment.
The production of textile machinery and new-type agricul-
tural equipment is advancing at diverse rates, as is shown in
Table 5. The machine tool industry, however, suffered an absolute
Table 5
Comparison of Indexes of Industrial Output in Communist China
1952-57
a
Textile Machinery
Industrial
Machine
New-Type Agricultural
Year
Sector
Tools
Spindles
Looms
Equipment
1952
100
100
100
100
100
1953
131
149
114
142
114
1954
154
128
130
217
143
1955 b
162
134
170
247
400
1956 f
180
230
262
433
1957 f
198
270
272
467
a. For the methodology used-to-compile this table, see Appendix B.
b. Planned.
decline in output in 1954. Because of the sharp decrease in the
rate of increase in over-all industrial production in 1955 compared
with that in 1954, another absolute decline in output of machine
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tools in 1955 is likely. Moreover, even in those industries in
which production is increasing, growth seems to be neither uni-
form nor unretarded. Because of the decrease in the rate of
increase in various industries, questions arise as to (1) what
are, and have been, the forces of growth and development in those
industries and (2) what are the processes tihich cause either a
retardation in their rate of growth or an absolute decline in
output.
During 1952 or 1953, progress generally was rapid be-
cause of the employment of previously underemployed resources
such as unemployed urban workers and idle plants. After 1953,
advances were made chiefly because of increased investment which
incorporated basic technological changes.- In this period the
machine process supplanted labor to a considerable extent, and
industry grew rapidly as the new techniques permitted increased
production for most commodities. Although further improvements
are taking place continually, vigorous expansion has slackened.
Consequently, toward the latter part of the First Five Year Plan,
growth will not be so rapid as in the earlier years of the Plan.
Production in an industry consists of a series of separate
operations that lead in an invariable sequence from the raw ma-
terial to the finished product. Once the methods of production
of one important operation are changed by the addition of modern
machinery, pressure is exercised upon the other operations to
become more efficient. Any disparity in performance in the dif-
ferent stages of production will limit the exploitation of the
original innovation, thus resulting in an imbalance in the economy.
New industries and new techniques require the development
of a more efficient labor force, the improvement of which is an
important element in technological progress. In Communist China,
teaching formerly unskilled workers the operations and maintenance
of,expensive and complicated machinery has been a difficult and
slow task and has limited the rate of technological progress.**
The output per worker is a good indication of trends in tech-
nological changes. The Chinese Communists have been emphasizing
increases in the productivity of industrial workers.
** "The low technical level of workers has-contributed greatly
to the breakdown of machinery. Many new machines and much equipment
of various plants and mines have been wrecked by inexperienced workers,
particularly youths who lacked technical or scientific background." 21
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Because most industries are interconnected, the slow growth
of one industry can eventually exercise a check upon the growth of
the others. If the industriess supplying the raw materials grow
slowly, the growth of manufacturing industries, which are more
favored by the benefits of technological development, will be re-
tarded. The rate of increase in textile production in Communist
China, for example, has been exceeding that in cotton production,
resulting in the curtailment of plans for the enlargement of the
textile 'industry. 22 It is a peculiarity of capital goods,* fixed
and movable, that, because the demand for them is derived and
because they have a relatively long life, a decrease in the rate
of increase in the production of final goods* tends to cause an
absolute decrease in production of capital goods intended for
current output. Retardation in the rate of increase in the pro-
duction of textiles, for example, tends to cause an absolute
decrease in net investment in capital goods for the textile in-
dustry.
The aggregate requirement for capital goods, however, will
not necessarily decrease. Because the Chinese Communists are un-
doubtedly working with some very old equipment, replacement** of
obsolete equipment at a higher than normal rate could usefully
occur when the rate of expansion of capacity decreases. The rate
of replacement will depend upon the expectations of the adminis-
trators. For example, if the cotton shortage is expected to last
for some time, real investment may well decrease, and a considerable
volume of replacement will be postponed. In addition, there prob-
ably will be some excess capacity for capital goods production.
An attempt on the part of the Chinese to export textile machinery,
in small quantities at first, should therefore not be unexpected
or surprising. The most likely initial result in an importing
country like Communist China, however, probably will be a curtail-
ment of imports, thus releasing foreign exchange for other purposes.
The Chinese, in fact, already have announced that they no longer need
to import textile machinery.
* The terms final goods and capital goods are not used in any
absolute sense but are relative to each stage of production. What
is final goods at one stage of production may be capital goods for
another product at another stage.
- Frequently it is difficult to distinguish between expansion
investment and replacement. A substantial amount of net investment
takes the form of replacing existing machines with better or larger
ones.
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Similarly, a retardation in the rate of increase in pro-
duction of the industrial sector of an economy as a whole tends
to be magnified into a diminished absolute demand for machine
tools which are the basic instruments of production. This
diminished absolute demand for machine tools may be revealed
(1) by an absolute decrease in the production of machine tools,
(2) by an increase in the rate of replacement of obsolete equip-.
ment, (3) by a decline in the volume of imports of machine tools,
(1i) by an ability to export machine tools, and/or (5) by excess
capacity for the production of certain types of machine tools.
In addition to experiencing an absolute decrea-se in the output
of machine tools in 1954 compared with 1953, the Chinese Com-
munists already have begun exporting machine tools in small
quantities and apparently want to increase exports in the
,future. There is some inconclusive evidence that imports of
machine tools have diminished, but there is little information
on China's replacement policy.
In-any economy, relationships among and within the forces
of production, distribution, and consumption are constantly changing,
and these changes, in turn, are exaggerated or mitigated by the
responses to these changes. There are usually lags between the
original changes and the subsequent responses to these changes.
During these lags, imbalances in the relationships of the various
sectors of the economy toward the economy as a whole and toward
each other scarcely can be -avoided. The lags may be divided into
the following three categories 23/:
1. The lag between the need for action and the
recognition of that need.
2. The lag between the recognition of the need
for action and the taking of -action.
3. The lag between the taking of action and the
effects of the action.
In.an economy where there is some degree of price flexibility,
where, prices react to changes in the forces of supply and demand,
and where prices perform their allocative function, imbalances are
quickly noticed. The first lag can be avoided to a4 appreciable
extent. Iags 2 and 3-are present in any economy., although there is
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a better chance of avoiding them in an unplanned economy. In Com-
munist China, however, with its policy of maintaining an almost
rigid price system, there is no way to determine whether an indus-
try is being overbuilt or whether an important commodity is being
overproduced relative to the needs of the rest of the economy
until the situation becomes serious. In China these imbalances
have resulted in a piling up of inventories and unemployed re-
sources in some parts of the economy. 24 An indirect result of
the piling up of inventories and unemployed resources has been
an increase in the capital-output ratio, although it is impossible
to give numerical precision to this increase. The economy is
getting less out of its capital than it might get -- a situation
which the Chinese Communists can ill afford.
There is evidence that in Communist China's economy
considerable overproduction and. excess capacity exist in many
lines, including some kinds of machinery. The Chinese Communist
government itself admits that overproduction in 1953 and 1954
has been its most critical production problem. 25
On the other hand, the situation in the production of agri-
cultural equipment in Communist China is different. The rate of
increase of agricultural production has decreased, but the prin-
ciple of derived demand cannot be used to explain changes in the
production or accumulation of agricultural equipment. In industry,
machines are added to obtain more production, but in agriculture --
especially in China, where the land is intensively worked -- ad-
ditional machinery probably will not raise the yield per acre.
Machines merely replace human beings even in those areas where
there is no scarcity of labor only because such replacement seems
fashionable. The "demonstration effect"* is strong in underdeveloped
countries, and China is not an exception.
* The term demonstration effect was applied originally to the hy-
pothesis that consumption functions of different countries are inter-
related in the same way as individual consumption functions. 26
Knowledge of, or contact with, new consumption patterns widens the
horizon of imagination and desires, encouraging imitation. This
hypothesis is illustrated by the seemingly overwhelming desire of
many underdeveloped areas to imitate US production methods as well
as US consumption habits. In the cases of Pakistan and Burma, for
example, it can be said that US production methods have been too
closely imitated. Highly mechanized equipment, suited to conditions
in the US, where labor is relatively scarce, but not suited to
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A retardation in the growth of industry in general, and of
textiles in particular, affects the production of both textile
machinery and machine tools. A decline in the rate of growth of
the textile machinery and the machine tool industries causes an
absolute decline in the need for capital goods with which to pro-
duce textile machinery and machine tools. Furthermore, the
diminishing rate of growth in the production of agricultural equip-
ment implied in Communist China's plans will also be a contribu-
tory factor in decreasing the demand for machine tools within
China, at least temporarily -- that is, until the imbalances among
various industries are mitigated. It is to be expected that the
Chinese Communist authorities will attempt to avert a decrease in
domestic production and the resulting unused capacity by an attempt
to export, by a curtailment of imports, or perhaps by embarking
on an ambitious replacement program.
III. Foreign Trade.
The Chinese Communists have insisted that they do not have to
import textile machinery, but there is evidence that theyare still
importing textile machinery in small quantities.* Furthermore, given
Chinese domestic production and a desire to increase the inventory
of spindles and looms as planned,** the need for imports or the
ability to export will depend upon the rate of replacement. Column (1)
of Table 6*** and Column (Li) of Table 7* show the quantity of
imports needed --- the deficits -- if the Chinese are to build up
the productive capacity of their textile industry,, or the surplus
available for export if production were greater than the needs for
replacement and planned expansion. During 1956-57, spindles may
easily be exported if a less ambitious policy of replacement is
adopted. Exports of looms, however, are more likely because of
greater potential surpluses. It is evident that Communist China
conditions in countries where labor is plentiful, has been employed
by Pakistan and Burma.
* The Chinese Communists may be importing types of machinery
which they do not produce, or they may be importing machinery which
was ordered 2 or 3 years ago.
The inventory figures given in IV, below, include the cut
made by the Chinese Communists in their inventory plans.
Table 6 follows on p. 17.
* Table 7 follows on p. 18.
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Table 6
Availability of Spindles for Export by Communist China
1951-57
(1)
(2) (3)
(4+)
Estimated
Estimated
Number of Spindles
Year
Net Addition
to Inventory
of Spindles _t
(Zero Retirement)
Needed to Increase
Inventory, Assuming Estimated
a 5-Percent Domestic
Retirement Rate -a/ Production
Deficit (-) or Surplus (+)
1
1951
162,000
423,000 64,500
-97,500 to -358,500
1952
270,000
541,000 250,000
-20,000 to -290,000
1953
221,000
50+,000 286,000
+65,000 to -218,000
195+
529,000
823,000 325,000
-204, 001 to -x+98, 000
1955
471,000
792,000 425,000
-46,00o to -367,000
1956
250,000
594,000 575, 000
+325,000 to -19,000
1957
179,000
536,000 675,000
+196,000 to +139,000
a. These figures are derived from Table 9, p. 24, below.
b. Depending upon replacement policy.
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Table 7
Availability of Looms for Export by Communist China
1951-57
(1)
(2)
(3)
(1+)
Estimated
Net Addition
to Inventory
Estimated
Number of Looms
Needed to Increase
Inventory, Assuming
Estimated
Year
of Looms a/
(zero Retirement)
a 5-Percent a/
Retirement Rate :l
Domestic
Production
Deficit (-) or Surplus (+)J
1951
6,300
5,1+60
1.,00o
+2,000 to -1,460
1952
. 1+, 500
8,060
6,000
+1,500 to -2,060
1953
6,300
10,000
8,500
+2,200 to -1,500
1951+
15,000
19,200
13,000
-2,100 to -6,200
1955
13,500
18,1+00
15, 730
+2,230 to -2,670
1956
7,100
12, 600
17,1+60
+10,36o to +4,860
1957
5,100
1+, 000
18, 500
+13,11-00 to +7,500
a. These figures are derived from Table 9, p. 24, below.
b. Depending upon replacement policy.
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will be in a position to offer textile machinery in small quantities
beginning in 1956,* with the possibility of greater offerings in
subsequent years, if planned objectives are attained.
The underdeveloped countries generally prefer semifabricated
and finished goods rather than primary products. Consequently,
the trade agreements with Burma, India, and Egypt include the
stipulation that Communist China will export textile machinery and
machine tools. China's current ability to export machine tools
and even textile machinery, a commodity which reportedly was not
manufactured in China 6 years ago, probably will have a strong,
favorable effect on other underdeveloped countries of Asia and per-
haps Africa. China has shown that a totalitarian government can,
if it wishes, achieve large and rapid gains in the industrial pro-
duction of an underdeveloped country. Such a government is in a
* Because the annual additions to the inventory of spindles and
looms are subject to error, a better idea of Communist China's
ability to export textile machinery can be gained by comparing the
estimated domestic output of textile machinery in 1953 and 195+
with the report of Li Fu-ch'un, the Vice Premier of Communist
China. 27 Li Fu-ch'un stated that 700,000 spindles were added
to the national capacity during the first and second years of the
First Five Year Plan. Domestic output was about 611,000 spindles;
hence there was a deficit, probably supplied by imports, of about
89,000 spindles.
If the objectives of the First Five Year Plan are met, by the
end of the Plan period there will have been an increase in in-
ventory of 1,650 million spindles and 47,100 new looms over 1952. 28
Total domestic output during 1953-57 will have been 2,286 million
spindles and 73,190 looms. Thus approximately 636,000 spindles and
26,090 looms would be available for export or replacement.
Because the need for spindles and looms has been decreasing and
the production of textile machinery has been increasing, two general
observations may be made: (1) During the early years of the First
Five Year Plan, domestic production was needed for expansion; during
the later years a great amount will be available for export.
(2) Domestic production was too small to permit substantial replace-
ment in the early years; in the later years, more machinery can be
replaced. It is possible to conclude, then, that Chinese Communist
claims of self-sufficiency in textile machinery appear to be in-
creasingly justified.
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better position to change the character of an economy-* than a rela-
tively democratic government, which finds it difficult to impose on
the population the necessary restrictions on consumption. The
prestige gained by the Chinese Communists may well compensate for
any possible economic losses which might result from exporting
commodities which could be employed more usefully-at home.
There are several reasons for Communist China's desire to ex-
port textile machinery and machine tools. There is considerable
prestige to be gained, if the Chinese Communists eventually force
out of the South Asian markets a good part of US, UK, and
Japanese industrial products, particularly those industrial prod-
ucts which do not have a high degree of capital intensity.
Moreover, forces on both demand and supply act as stimuli to
exports. Supply has already been discussed.** It was pointed out
that a retardation of growth in the production of textiles and in
industrial production as a whole has a tendency to cause, at least
temporarily, an absolute decrease in the domestic demand for tex-
tile machinery and machine tools for purposes of expansion. This
decrease in domestic demand for expansionary purposes may be re-
-flected solely by a decrease in imports. Because imports of ma-
chinery, however, now probably consist largely of those types which
are not produced in Communist China, a decrease in the demand
for machinery more probably will result in underemployed resources
in the textile machinery and machine tool industries in China
rather than in -a decrease in imports of machinery, unless foreign
demand for Chinese machinery can be substituted for domestic
demand.xxxx The efforts of the Chinese Communists, therefore, are
directed at the inclusion of textile machinery and, to a certain ex-
tent, machine tools in their trade with the underdeveloped areas of
Southeast Asia.
* The character of the economy, for example, may be changed
from a predominantly agricultural economy to one in which the in-
dustrial and services sectors make larger contributions to total
national production.
See Section II, above.
A decrease in demand does not mean that the forces of growth
and development have exhausted themselves. Growth generally is
not continuous but proceeds unevenly. It should also be understood
that the decrease in demand is not general but "structural," center-
ing in certain industries only.
**** Replacement also must occur at a more rapid rate.
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Another factor also influences the Chinese Communist desire to
export textile machinery and machine tools. The Chinese are having
serious difficulties in expanding agricultural production. The
already large population is increasing at a faster rate than food
production, and pressure on the food supply is great and will be-
cdme even greater. The costs of increasing agricultural production
probably will be greater than the costs involved in increasing in-
dustrial production. Thus Communist China will have a comparative
advantage in industry rather than in agriculture. This comparative
advantage will impel China to export industrial goods and import
food and other agricultural commodities.* This hypothesis does
not mean that China will not be importing any industrial goods or
will not export any agricultural commodities but merely implies
that, in general, China will be importing land-intensive commodi-
ties and will be exporting labor-intensive and more or less capital-
intensive commodities.
There are certain strategic advantages to this course of action.
Textile machinery and machine tool plants, as well as agricultural
equipment plants, can easily be converted to the manufacture of war
materiel. Textile machinery and other machinery plants are equipped
chiefly with general-purpose machine tools, capable of producing
many types of metal products. This capability is confirmed by ex-
perience during World War II when both Soviet Bloc and US machinery
plants were converted to war production. Items produced in the
USSR included ammunition,. small arms, mortars, and.components for
other military end items. US plants were converted to the produc-
tion of machine tools, ammunition components, artillery pieces,
magnetos, steam engines, rifles, and other items. Through inter-
national trade the Chinese Communists can avoid the great costs of
maintaining a large industrial plant designed solely for the manu-
facture of war materiel because textile machinery exports can be
cut off at any time and the plants converted to the production of
military end items. It is therefore logical that China should try
to attain a position in which it can export relatively simple textile
machinery, machine tools, and other similar items if it should
desire to do so.
* For a predominantly agricultural country like Communist China to
have a comparative advantage in the field of industrial goods may
sound paradoxical. The explanation, however, lies in the marginal
concept. Given the present highly intensive use of agricultural
land, the costs of additional increments of agricultural production
are likely to be very high relative to the cost of obtaining in-
crements of equal value in industrial production.
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Demand factors also contribute to the export of manufactured
goods rather than of primary products by Communist China. Many
Southeast Asian countries are food-surplus areas and are eager to
import manufactured goods. Moreover, as real income in the under-
developed areas increases as a result of diversification of in-
dustries and the realization of developmental plans, there will
be an increased demand for industrial goods. The demand for in-
dustrial goods is much more sensitive to changes in income than
is the demand for agricultural commodities.
IV. Inventory.
Communist China's estimated inventory of machine tools at
the end of 1955 was about 150,000 units, which is to be compared
with an inventory of 90,000 machine tools for all China in 1937. 29
Types of machine tools used in China varied with the country of
origin of the machine tools. Japanese control of Manchuria after
1937 led to the adoption of Japanese types in that part of China.
The Chinese Nationalists, on the other hand, controlled the
southern and western areas of China during the Japanese occupa-
tion of Manchuria, and the machine tools they acquired were
chiefly from Germany, the US, and the. UK. In 1949, when the Com-
munists took over the government, China's stock of machine-tools
had decreased to approximately 60,000 units, most of which had
been manufactured in Japan.
The specific number of machine tools now being imported
by Communist China is not available. It is estimated that from
1950 to 1955 an average of 2,500 to 3,000 units were imported
annually. The composition of imports appears to be changing in
favor of the more complex, special-purpose types, which China
does not manufacture.
During the first few years of the Chinese Communist regime,
exports of machine tools were insignificant. Indonesia purchased
a few units which were shipped to a trade fair by the Chinese,
and a few units were shipped to the North Koreans during the
Korean War. Recent trade agreements with Burma, India, and Egypt,
however, call for shipments of machine tools, but the number to
be shipped probably will not be great.
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. S-E-C-R-E-T
The estimated size of, and changes in, the inventory of
machine tools in Communist China from 1949 to 1955 are shown in Table 8.
Estimates of the Inventory of Machine Tools in Communist China
1949-55
Year
Production
Imports
Inventory
1949
60,000
1950
3,300
3,000
66,300
1951
5,900
3,000
75,200
1952
11,200
3,000
89,4oo
1953
16,700
3,000
109,100
1954
16,4oo
3,000
128,500
1955
16,000
3,000
147,500
No provision has been made for retirements and losses of
machine tools. Although there is no indication that the Chinese
Communists have an official retirement policy, machine tools
eventually wear out and are scrapped. The probability is that the
number of retirements of machine tools during a year is small be-
cause the Chinese move machine tools from regular production lines
to less precise work and repair shops. This practice does not
affect the number of machine tools but does affect the productive
capabilities of the stock of machine tools. In a sense, this is a
type of retirement. When a machine tool is transferred to less
precise work, the value of its output decreases.
B. Textile Machinery.
From 1930 to 1937 (1936 for looms) the inventory of spindles
in China increased at the rate of about 4 percent per year, and the
inventory of looms, at about 10 percent, as is shown in Table 9.*
Because of the devastation of war, the inventory of looms in 1945
was only 60 percent of the 1937 total. From the end of World War IT
in 1945 to 194), the year in which the Communists came to power in
China, the inventory of spindles and looms rose at an average rate
of 11 and 31 percent per year, respectively. Since 1949, however,
* Table 9 follows on p. 24.
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Table 9
Estimates of the Inventory of Textile Machinery in Place in China a
1930, 1937-41; 1945, and 1949-57
Year
Spindles
(Thousand Units)
Percentage Change
over Previous Year
Looms
(Thousand Units)
Percentage Change
over Previous Year
1930
3,905
29.6
1937
5,042
+4
58.4
+10
1937-41
1945
3,000
23.4
1949
5,144
+11
68.2
+30.6
1950
5,228
+o.5
69.2
+1
1951
5,390
+3
71.2
+9
1952
5,660
+5
75.7
+
1953
5,881
+4
82.0
+8
1954
6,410
+9
97.1
+18
1955
6,881
+7
llo.6
+14
1956
7,131
+4
117.7
+6
1957
7,310
+2.5
122.8
+4
a. For the methodology used to compile this table, see Appendix B.
b. It is estimated that almost 2 million spindles were destroyed during this period.
c. From 1937 to 1945 there was a decrease of 41 percent in'the inventory of spindles.
d. From 1937 to 1945 there was a decrease of 60 percent in the inventory of looms.
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increases have been moderate and are expected to remain so through
the end of the First Five Year Plan. No great fluctuations in
the rates of change in the inventory of textile machinery are ex-
pected in the immediate future.
Because China did not manufacture much textile machinery
before the Communist regime, it acquired its inventory through
imports. During the 1930's the UK and Japan contributed more than
90 percent of China's textile machinery and parts, and. the other
10 percent came primarily from the US, Switzerland, and Germany. 30/
From the end of World War II in 1945 to the withdrawal of the
Kuomintang Government from the Chinese mainland in 1949, China
received about US $12 million worth of textile machinery from the
UK and an equal amount from the US. 31 From 1950 to 1954, at
least US $25 million worth of textile machinery reached Communist
China from the Western countries. 32 More than 75 percent of
this total came from Hong Kong and the UK. Of Hong Kong re-
exports, at least 50 percent originally were received from the UK
and Japan, thus accounting for the sizable decrease over the pre-
war years (1930-38) of indirect exports to China from Japan.
Hong Kong reexported textile machinery which originated in the
US, Switzerland, West Germany, France, and Italy. These Western
countries also shipped textile machinery directly to China. 33/
Because 80 percent of China's trade is with the Soviet Bloc, the
quantity of textile machinery coming from East Germany and Czecho-
slovakia easily could be larger than that coming from the Western
countries.
Production of textiles depends upon the number of textile
machines in use and their productivity. Comparisons of the physical
productivity of the spindles and looms in Communist China with the
physical productivity of those in other countries are very difficult.
The production of yarn is generally given in pounds and that of
cloth in meters, thus abstracting from quality differences -- an
important factor in determining the value of production and hence
the productivity of the capital equipment. Chinese cotton is the
short-staple variety and very dirty. 34 The greatest portion of
China's cloth production, which is for domestic consumption or for
export to Southeast Asia, is low-grade cloth. China's yarn, there-
fore, is considerably heavier than an equal quantity of UK, US,
or Japanese yarn. Similarly, it takes a great many more picks
(movements of the shuttle from one side to the other) to weave high-
count British broadcloth than to weave the coarser cloth produced
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by the Chinese. Consequently, if the available data were used in-
discriminately, it might be concluded that the Chinese equipment
is more efficient -- which could be a highly erroneous conclusion.
Because the type of cloth manufactured in India_probably
is nearest to Chinese Communist cloth in quality, comparison of
Chinese cloth with Indian cloth probably would not introduce too
much error. The number of spindles needed to produce 1 metric
ton of yarn and the number of looms needed to produce 1 million
meters of cloth in Communist China and in India are compared in
Table 10.* From this comparison it appears that China is getting
more out of its spindles and looms than India. India needed 17
spindles to produce 1 metric ton of yarn in 1953, for example,
whereas China needed only 8 spindles for the same output. As
stated above, this comparison abstracts-from quality differences.
Nevertheless, the great difference in output per spindle and per
loom is-chiefly a result of the greater intensity of use by the
Chinese, who are pushing their capital equipment to the limits
of its capacity. China's textile mills are operated on a 3-shift
basis; India's mills on no more than 2 shifts, and many possibly
on 1 shift. The intensive use of equipment in China results in
the additional cost of more frequent repairs and replacement. As
a result of a shortage of cotton, however, textile mills in 1955
will be working at considerably less than full capacity, and the
disparity between the physical output per spindle and per loom in
India and China will decrease.
* Table 10 follows on p. 27.
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Table 10
Physical Productivity of Spindles and Looms in Communist China
and in India a
1950-54
Number of Spindles Needed to
Number of Looms Needed to Produce
Produce 1 Metric Ton of Yarn
1 Million Meters of Cloth
Year
China
India
China
1950
12
18
55
58
1951
11
21
45
60
1952
9
19
42
.52
1953
8
17
42
46
1954
8
17
42
46
a. For the methodology used to compile this table, see Appendix B.
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APPENDIX A
GEOGRAPHIC DISTRIBUTION OF P$ODUCTION OF MACHINE TOOLS, TEXTILE MACHINERY,
AND AGRICULTURAL EQUIPMENT IN COMMUNIST CHINA
Although machine tools are produced in every region of Communist
China with the exception of Northwest China, the significant regions
are Northeast, East, and North China. In the number of plants and
in production, Northeast China, which the Japanese built into a
large industrial center, is predominant. The Chinese Communists
are now locating new machine tool plants in other regions, particu-
larly North China.
It is estimated roughly that in 1954 at least 45 percent of all
machine tools produced in Communist China were produced in Northeast
China. The next region in importance was East China, where most of
the production was concentrated in Shanghai and its vicinity.
Shanghai has long been identified as an industrial-commercial center
and until recently was the only significant producer of machine
tools outside of Northeast China. As of 1954, approximately 30
percent of the machine tool industry was located in the Shanghai
area.
Heavy industry reportedly is being expanded in North China, especially
in Shansi Province. An expanded heavy industry would be in a. better
position to service the consumer goods and other industries which are
rapidly developing in Northwest China and in Central and South
China.* There are various implications in the expansion of heavy
industry in North China. Although Sinkiang is nominally part of
Communist China, the USSR has great influence in this region which
is far from China's industrial centers. To extend and to maintain
its influence in its peripheral areas, China is building an indus-
trial complex nearer to them. In addition, such a complex is needed
farther from the coast, in a region which would be less vulnerable
* According to one source, the present geographic distribution of
industry in Communist China is illogical. 35 This source implies
that historical factors -- present and past location -- will have
no bearing on future location.
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to enemy attack in the event of hostilities. Because the production
,of machine tools in China is small, the completion of the projected
plant in T'ai-yuan could cause a noticeable change in geographic
distribution of the industry. It is therefore believed that the
contribution of Northeast China to the total Chinese Communist
production of machine tools will be about the same at the comple-
tion of the First Five Year Plan as in 1954 but that North China
will contribute about 10 percent more, chiefly at the expense of
the Shanghai area in East China.
The estimated geographic distribution of the output of machine
tools in Communist China in 1954 and 1957 is shown in Table 11.
Estimated Geographic Distribution of the Output of Machine Tools
in Communist China, by Region a/
1954 and 1957
Region
r
1954 1957
45 45
30 20
North
Central and South
Southwest
a. For the methodology used in compiling this table, see
Appendix B.
. Textile Machinery.
There are 5 state-operated and 2 public-private* jointly operated
textile machinery plants in Communist China.
* The term public-private is applied by the Chinese Communists to
those enterprises taken over by the state in which the former owners
are retained as managers or technicians and share in the profits.
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The state-operated plants include the following 36/:
Region
1.
Ching-wei Textile Machinery Plant
North
2.
Tientsin Textile Machinery Manufacturing
Plant
North
3.
Tsingtao Textile Machinery Manufacturing
Plant
East
4.
Shanghai Textile Machinery Plant No. 2
East
5.
Cheng-hsien Textile Machinery Plant
Central and South
The public-private jointly operated plants include the following 37/:
Region
1. China Textile Machinery Plant East
2. Liaotung Kang-ting Cheng-pu Northeast
The relative contributions of each region to the output of
spindles in Communist China in 1954 and in 1957 are shown in Table 12.
Estimated Geographic Distribution of the Output of Spindles
in Communist China, by Region a/
1954 and 1957
Region
1954
1957
Northeast
5
5
East
55
35
North
30
50
Central and South
10
10
a. For the methodology used in compiling this table, see
Appendix B.
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In 1957 the percentage contribution of Northeast China and
Central and South China to the total Chinese Communist output of
spindles probably will be about the same as in 1954. Because the
Ching-wei Textile Machinery Plant, the largest in Communist China,
will be in full production by the end of the First Five Year Plan,
the relative contribution from North China, as in the case of the
output of machine tools, probably will increase at the expense of
East China.
Very little is known-of the geographic distribution of the
production of looms in Communist China. The Ching-wei plant pro-
duces spindles only. On the other hand, looms generally seem to
be produced in multiple-products plants, either with spindles or
with other types of machines. The geographic distribution of the
production of looms in China is similar to that of spindles
because, to a certain extent, looms and spindles are comple-
mentary.
The textile machinery industry is new in China and probably
not located because of historical factors but rather because of
current economic factors. Most of the new textile mills reportedly
are being built in North, Northwest, and Central and South China, 38/.
and the number of spindles and looms produced in Northwest-China
is increasing at a rate more than three times that of the national
average. 39/
The most important center of the textile machinery industry,
both for the production of spindles and of looms, probably will
shift to the southern part of North China for the following reasons:
1. Plants in North China will be able to serve
Northwest China and other areas more efficiently.
Transportation charges are important, and an
area such as south Shansi Province would be
nearer the center of the country.
2. T'ai-yuan is already an area of supply of
raw materials and an industrial center. A
large machine tool plant is being erected
in south Shansi Province, and machine tools
are used in the production of textile machinery.
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The Shanghai area, however, will not be neglected but probably
will lose its relative importance.
C. Agricultural Equipment.
The production of new-type agricultural equipment in Communist
China is concentrated in the following administrative regions:
Northeast China (7 plants), East China (3 plants), Central and
South China (3 plants), Northwest China (2 plants), and North
China (1 plant). These 16 plants are listed by region and city
of location in Table 13.* The largest plant is the North China
Agricultural Equipment Plant in Peiping in North China. This
plant produced about 23 percent of the total output of new-type
equipment in 1954. Over-all plans for plant expansion and for
the building of new plants have not been announced, but the
trend appears to be toward the establishment of at least one
plant for the production of new-type equipment in each province
of China. Over one-half of the provinces already have such a
plant.
The estimated gcugraphic distribution of Communist China's
output of new-type agricultural equipment in 1954 is shown in
Table 14.** As producers of the larger and more complicated new-
type agricultural equipment, North China and Northeast China turn
out an even larger percentage of the total production on a value
basis, perhaps as much as 80 percent.
No attempt has been made to make a regional breakdown of the
production of old-type agricultural equipment, such as scythes,
,,rakes, and hoes, which are manufactured throughout Communist China
by blacksmith shops and handicraft producers cooperatives as well
as by the producers of new-type equipment.
Table 13 follows on p. 34.
* Table 14 follows on p. 35.
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Table 13
Major Plants Producing New-Type Agricultural Equipment
in Communist-China
1954
Location Region and Plant
Anshan Lingshan Agricultural Equipment Plant
Chihfeng Chihfeng Agricultural Equipment Plant
Dairen Dairen Agricultural Equipment Plant
Harbin Harbin Agricultural Equipment Plant
Kirin Chia-mu-ssu Agricultural Equipment Plant
Mukden Mukden Agricultural Equipment Plant
Tsitsihar Heilungkiang Agricultural Equipment
Plant No., 1
North
Peiping North China Agricultural Equipment Plant
East
Ho-fei Ho-fei Agricultural Equipment Plant
Shanghai Shanghai Agricultural Chemicals and
Equipment Plant
Tsinan Shantung Agricultural Equipment Plant
Canton Kwangtung Agricultural Equipment Plant
Hankow Hupeh Agricultural Equipment Plant
Kaifeng Kaifeng Agricultural Equipment Plant
Sian Northwest Agricultural Equipment Plant
Urumchi Sinkiang Agricultural Equipment Plant
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Table 14
Estimated Geographic Distribution of the Output of New-Type
Agricultural Equipment in Communist China a/
1954
Region
Percent
Northeast
40
North
25
East
15
Central and South
10
Southwest
6
Northwest
Inner Mongolia Autonomous Region
4
a. The breakdown shown is based on reports of unit output
at the individual plants in 1954. The most useful report
was one which gave an output at the Peiping plant in 1954
of nearly 100,000 pieces of new-type equipment, or about
23 percent of the total unit output in 1954.
b. Output in the Inner Mongolia Autonomous Region was
estimated to be less than 1 percent of total output.
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APPENDIX B
METHODOLOGY
A. Table 1 "Growth, of Industrial Production in Communist China,
1952-57."
For the methodology and sources used in compiling Table 1, see
the discussion of Table 5.*
B. Table 2, "Estimates of the Output of Machine Tools
in Communist China, 19 9-55?
1949: Chou En-lai reported 40 that the output of machine
tools in 1954 would be 13,513 metal-cutting machines and that this
output was 8.5 times that in the base year of 1949, which gives a
figure of 1,589 for output in 1949?
1950, 1951, and 1952: The following series are the revised
1953 industrial production indexes 41 for the production of metal-
cutting machines in Communist China 1949 = 100):
1949 - loo
1950 - 209
1951 - 370
1952 - 705
Communist China's First Five Year Plan 42 gives 1952 output
as 13,734 machine tools, a figure which probably includes the out-
put of small shops and other units not included in the modern**
sector of the economy. Another figure -- 11,202 units -- also
comes from official sources and has been selected because this
figure seems to include only the modern sector of the economy and
is consequently comparable with figures for other years.
P. 1, below.
The term modern industry, as defined by the Chinese Communists,
refers to those enterprises which employ modern production tech-
niques and equipment (including power) in the production process.
This term does not include the handicraft industry, which depends
chiefly upon hand labor or simple machinery.
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1953: The output of machine tools in Communist China in 1953
was 149 percent of the output in 1952. L3/
1954: One source reported that the output of machine tools
in 1954 was 97.9 percent of the output in 1953, 44 and another
source reported that the output of machine toolsin 1954 was
lower than that in 1953. 45
1955: It is believed that the sharp decrease in the rate of
increase from 18 percent to-5 percent in the over-all output of
Communist China will result in an absolute decrease in the out-
put of machine tools in 1955.
C. Table 3, "Estimates of the Output of Textile Machinery in
Communist China, 1757-5-7.7-
1. Output of Spindles.
1952: At the end of 1953 the Chinese Communists announced
that the Ching-wei Textile Machinery Plant,when in full production,
would be capable of producing 200,000 spindles per year per shift, 46
a quantity equal to 80 percent of Communist China's "present"
total annual output of textile machinery. L7/ If it is assumed
that the term present meant 1952 output, the total output of spindles
in 1952 was 250,000 units.
1951: On 1 October 1953 the Minister of the Textile Indus-
try stated that the domestic output of spindles in Communist China
in 1952 was 388.48 percent of 1951 -- an increase of 288.48 percent.
Thus the output of spindles in 1951 was 64,353 units, or 64,000
units in round numbers. Output in 1951 was considerably less than
in 1952 because in 1951 China inaugurated the production of com-
plete sets of textile machinery and did not operate at full
capacity.
1953: According to one report, the Chinese Communist textile
machinery plants produced 600,000 spindles during 1951-53 to equip
9 new cotton mills and to expand the capacity of several dozen old
cotton mills. 48 Thus the output of 600,000 spindles during 1951-53
minus the outputs of 250,000 and 64,000 spindles in 1952 and 1951,
respectively, gives an output of 286,000 spindles in 1953.
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1954: The Chinese Communists have stated that the Ching-wei
Textile Machinery Plant was to go into partial production in 1954
and to turn out about 50,000 spindles. 49 Some production also
may have occurred during the latter part of 1953, 50 and between
10,000 and 11,000 units may have been produced at that time. Thus
the Ching-wei plant would have produced about 39,000 more spindles
in 1954 than in 1953, and Communist China's output in 1954 would
have been about 325,000 spindles, in round numbers.
1955 and 1956: It is estimated that the Ching-wei Textile
Machinery Plant produced 150,000 spindles in 1955 and will produce
300,000 in 1956 and that the total output of spindles in Communist
China was 425,000 in 1955 and will be 575,000 in 1956. The possible
margin of error in these estimates is plus 25 percent to minus 20
percent. These estimates are based on information that the
Ching-wei plant may have trebled its 1954 output in 1955. 51
S.P. Lee, the original organizer of the Ching-wei Textile Machinery
Plant, stated in 1953 that it would take 4 or 5 years before this
plant could produce at an annual rate of 200,000 spindles. 52
The large estimated increases in the output of spindles in 1955,
1956, and 1957 reflect the approach of the Ching-wei plant to a
state of capacity production.
1957: It is estimated that the 17-percent increase in the
production of spindles from 1956 to 1957 will be a result of the
Ching-wei plant's going on a 3-shift basis, which will account for
about 400,000 spindles for the year. The Chinese Communists prob-
ably will use their capital equipment as intensively as possible
if the demand for textile machinery warrants such activity.
2. Output of Looms.
1951-53: The output of looms in Communist China during
1951-53 was calculated from the following information:
a. During 1951-53, more than 18,500 power looms were pro-
duced by the textile machinery industry of Communist China. 53
b. On 1 October 1953 the Minister of the Textile Industry
stated that the domestic output of looms in Communist China in
1952 increased by 52.51 percent over that in 1951. 54/
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c. Evaluation of ChineseCommunist reports indicates that
the output of new textile machines in 1953 is unlikely to have
exceeded 250,000 spindles and 6,000 power looms. 55 Although these
figures are stated to be applicable to 1953, they more probably
refer to 1952 over 1951 for the following reasons: (1) It has
been established that the figure for spindles given with the loom
figure refers to 1952 over 1951 and not to 1953. (2) If 6,000
looms were produced in 1953 and domestic output in 1952 increased
by 52-51 percent over that in 1951, the total output during 1-951
53 could not have reached a total of 18,500, the figure given by
the Chinese Communists. To satisfy the given conditions -- that
is,, 18,500 looms as the total output for 1951-53 and output in
1952 as 52.51 percent greater than output in 1951 -- the stated
figure of 6,000 looms would have to refer to 1952.
There are two items of information which come from impor-
tant sources but which do not fit in with the other data which are
-available.
a. he output of looms in Com-
munist China is given as 2 percent higher than that in 1952. 6
It is believed that the 2-percent increase in the output of looms, as
stated, is too low. Acceptance of this percentage is incompatible with
other official statements.
b. It has been reported that the Chinese Communist textile
plan for 1951 was to increase the number of spindles by 162,000 and
to produce 2,000 power looms, / 57/ but this report can be disposed
of 'quickly. If only 2,000 looms wereproduced in 1951 and output
in 1952 was 52.5 percent higher than that in 1951, a tremendous
increase in output in 1953 (about 13,500 units) would have been re-
quired to attain the total output of 18,500 looms for the 3 years.
The estimate of 6,000 looms also would be out of line. The
figure of 2,000 units was only a plan; it could have been either
changed or overfulfilled, although the former is more probable.
In view of the Chinese Communist boasts that they no longer
;need to import textile machinery, their offers to export such ma-
chinery to Burma and other South Asian countries, their tremendous
need for replacements, and their increasing textile production,
the output of loomsin Communist China probably was more than 2,000
in 1951, and the increase from 1952 to 1953 was more than 2 percent.
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1954: Between 1951 and 1954, Communist China's textile
machinery industry produced 31,500 power looms. / Because out-
put in the period 1951-53 was 18,500 power looms, output in 1954
must have been at least 13,000 looms.
1955, 1956, and 1957: Estimates of the output of looms in
1955, 1956, and 1957 were made by adding the approximate percentage
increases in the loom inventory -- that is, 21, 11, and 6 percent,
respectively.
D. Table 4, "Estimates of the Output of Agricultural Equipment
in Communist China, 1952-57.
1. New-Type Equipment, 1955-57-
Estimates of Chinese Communist output of new-type agri-
cultural equipment were taken from the sources indicated in
Table 4.
2. Old-Type Equipment, 1955-57?
There have been no pronouncements concerning the output of
old-type agricultural equipment planned for 1955-57, other than the
general statement of an increase in output in 1955 over that in
1954- 59 The estimates given for 1955-56 are in accord with the
general development of the Chinese Communist agricultural equipment
industry as shown by the growth in the production of new-type
equipment. Because these estimates have no precise statistical
basis in terms of planned goals, they must be considered as first
approximations.
E. Table 5, "Comparison of Industrial Output in Communist China,
1952-57.
1953: The total value of industrial output in Communist China
in 1954 was 17 percent higher than that in 1953. 60
1954: The total value of industrial output in Communist China
in 1954 was 53.7 percent higher than that in 1952. 61
. 1955: The total value of industrial output in Communist China
in 1955 was expected to be 62 percent higher than that in 1952. 62
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1956: The total value of industrial output in Communist China
in 1956 is the arithmetic average of 162 and 198.
1957: The Chinese Communists claim that the aggregate gross
value of industrial output in 1952 was 27.01 billion yuan and
that in 1957 it will reach 53.56 billion yuan, an increase of
198.3 percent. 63
Index numbers for machine tools, textile machinery, and new-
type agricultural equipment were derived from the output figures
in Tables 2, 3, and )4.*
Table 6, "Availability of Spindles for Export by Communist
China. 1951-57?
This table was derived from the information in Table 3*W and
in Table 9.XXX
Table 7, "Availability of Looms for Export by Communist China,
1951-57."
This table was derived from the information in Table 3** and in
Table 9.xxx
Table 8, "Estimates of the Inventory of Machine Tools in Com-
munist China, 1949-55-"
The methodology used to compile Table 8 is described in IV,
'A, above.
Table 9 "Estimates of the Inventory of Textile Machinery
in Place in China, 1930, 1937-411 1945, and 1949-57."
1. Inventory of Spindles.
1930: The figure was given as an absolute figure. 64+
1937: The figure was given as an absolute figure. 65
1950: The figure was given as an absolute figure.
1951: The Chinese Communists stated that the textile plan
for 1951 was to increase the number of spindles by 162,000, 66 and
it is assumed that the plan was fulfilled.
Pp. 5, 7, and 9, respectively, above.
P. 7, above.
P. 24, above.
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1952: The figure was given as an absolute figure. =[.!
1953-57: By the end of 1957 the number of spindles in place
is to be 1,650,000 above the number in 1952, 68 or a total inven-
tory of 7,310,000 spindles. The announcements by the official Chinese
Communist press and radio about the progress made in construction
reveals that expanded or planned plants accounted for 1,533,000
of the 1,650,000 spindles. By assuming a capacity for spindle
production for plants on which data were lacking, the total figure
was brought to 1,650,000, and the series for 1953-57 was obtained
by adding up figures on plant output according to the date on which
the plants went. into operation.
Reports on individual plants indicate that the additions for
spindle production capacity for the First Five Year Plan are as fol-
lows: 1953, 221,000; 1954; 529,000; 1955, 471,000; 1956, 250,000; and
1957, 179,000. / Other data are consistent with this pattern of in-
crease. First, in one announcement, _L/ the figure for 1953 was given
as 14.52 percent above that for 1949, or 5,891,000, which is to be
compared with 5,881,000 obtained by totaling plant announcements. Sec-
ond, the figure for 1954 is. given in the Li Fu-ch'un report as 7 million,
which is to be compared with 6,410,000 obtained by the plant announce-
ment method. Third, the decline in the rate of growth in 1956 and 1957
fits in with the announcement that the original expansion plans for the
5-year period were but by 800,000 spindles. 71/ (Such a cut would have
more effect in the later years because it is to be expected that plants
being constructed would be completed but fewer new ones would be started.)
2.
Inventory of Looms.
figure.
1930:
The figure of 29,582 was given as an absolute
figure.
1937:
The figure of 58,439 was given as an absolute
figure.
194?:
The figure of 68,155 was given as an absolute
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1950: It was estimated that the additions to the number
of looms in 1950 were small, perhaps 1,000 looms, because indus-
trial expansion plans under the Chinese Communists had had little
time to go into effect. The estimate of 1,000 looms was made by
assuming a figure equal to one-half of the 2,000 looms which were
to be added to capacity in 1951-
1951: The textile plan for 1951 called for an increase
in the number of spindles of 162,000 and for the manufacture of
2,000 power looms. 75 Because the figures on spindles given in
this statement refer to additions of spindles to capacity and
because other sources give loom output as 4,000 in 1951, it is
reasonable to assume that the "2,000 machine looms" in the quota-
tion refer to additions to inventory, not to output.
1952: This figure was given as 111 percent of the inven-
tory in 1949. l It should be noted that the figure for 1952 is
independent of the estimates made for either 1950 or 1951-
1953-57: The inventory planned for 1957 is given in the
'First Five Year Plan as 47,100 looms above that in 1952. 77
The addition of 47,100 looms is believed to be distributed among
the 5 years in the same proportion as is the addition of the
1,650,000 spindles which are to be -added under the Plan because
the Chinese Communists tend to add spindles and looms to their
textile mills in fixed proportions.
Table 10, "Physical Productivity of Spindles and Looms
in Communist China and in India, 1950-5
1. In Communist China.
Figures for yarn and cloth were taken from official Chinese
Communist statistics
2. In India.
Figures for 1950 to 1953 were derived from a report pub-
lished by the Ministry of Information and Broadcasting of the
Government of India.
Figures for 1954 were obtained from source 80,/.
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K. Tables 11, 12, and 13, on Geographic Distribution of Production.
Information about the geographic distribution of the production
of machine tools,* textile machinery, and agricultural equipment in
Communist China has been based on material available on the in-
dividual plants. The best way to present geographic distribution
would be to base it on the value of output emanating from the
various regions. Because this information is not available, the
percentages given can be considered only as first approximations.
The estimated shift in relative importance from the coastal
regions to the interior should be especially noted.
* The estimate that Northeast China contributes about 45 percent
to the total production of machine tools was based on other sources
besides plant data. Kao Kang 81 in 1950 stated that the output
of machine tools in Northeast China in 1949 was 497 units. An out-
put figure for 1954 was obtained by using an index number series up
to 1953, 82 and then output was projected to 1954.
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APPENDIX C
GAPS IN INTELLIGENCE
Because machinery is a heterogeneous product, the presentation
of machinery production and inventory in terms of units can be
misleading. The products discussed in this report differ widely
in various machine sizes and qualities. At the minimum, the sizes,
general characteristics, and production of each type should be
known. Prices probably would indicate both qualitative and size
differences, but unfortunately, except for a few scattered cases,
prices are not available. In addition to data on prices, sizes,
and quality of machinery items, information on trade in machinery
within the Sino-Soviet Bloc is lacking. Other specific gaps are
data on distribution of machine tools to consuming industries,
about which little is known, and more reliable estimates on the
machine tool inventory, a first approximation of which was attempted
in this report.
The problem of finding a benchmark with which to compare the
capital equipment sector of Chinese Communist industry has been
particularly frustrating. For example, an adequate notion of
Chinese gross national product (GNP) is lacking. In fact, be-
cause the Chinese do not have a market-oriented economy, it is
extremely doubtful whether the GNP concepts and conventions,
originally designed for such industrialized economies as the US
and the UK, are appropriate for Communist China. Perhaps labor force
estimates with adjustments for possible, differences in productivity
would be better, except that these, together with wages, also
represent gaps in the knowledge of the area.
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APPENDIX D
SOURCE REFERENCES
Evaluations, following the classification entry and designated
"Eval.," have the following significance:
Source of Information
Doc. Documentary
1 - Confirmed by other sources
A - Completely reliable
2 - Probably true
B - Usually reliable
3 - Possibly true
C - Fairly reliable
4 - Doubtful
D - Not usually reliable
5 - Probably false
E - Not reliable
6 - Cannot be judged
F - Cannot be judged
"Documentary" refers to original documents of foreign govern-
ments and organizations; copies or translations of such documents
by a staff officer; or information extracted from such documents
by a staff officer, all of which may carry the field evaluation
"Documentary."
Evaluations not otherwise designated are those appearing on the
cited document; those designated "RR" are by the author of this re-
port. No "RR" evaluation is given when the author agrees with the
evaluation on the cited document.
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