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No Inflation in China

Long-Term Balance in Revenue and Expenditure

by Hsia Wei

[This article is reprinted from Peking Review, #20, May 16, 1975, pp. 15-17.]

This is the second of three articles explaining why there is no inflation in China. The first appeared in our last issue. [The third article will appear next week in issue 21.] —Ed.

UNDER the guidance of Chairman Mao’s revolutionunary line, socialist China has kept its revenue and expenditure in balance for a long time. Old China left a poor legacy—an empty treasury, inflation and financial and economic bankruptcy. This was radically changed in only two or three years after the founding of the People’s Republic of China in 1949. New China rapidly restored production, balanced its revenue and expenditure and brought about a fundamental turn for the better in the states financial and economic situation. In the more than two decades that followed, both revenue and expenditure have shown enormous increases and have been balanced with a slight surplus for a long time. China now has neither domestic nor foreign debts. Production and construction funds have been steadily increased and the state’s reserves tremendously strengthened.

Maintaining Independence and Keeping The Initiative in Our Own Hands

Imperialism, feudalism and bureaucrat-capitalism had long sucked the blood of the Chinese people in old China. This had been the fundamental reason for the production recession, miserable livelihood of the people, ever-growing deficits in state finances and soaring inflation. Since the middle of the 19th century, imperialist countries had launched many wars of aggression against China. Take the Sino-Japanese War of 1894 and the invasion of the ”eight-nation allied army” in 1900 for instance. The war indemnities paid to the aggressors by China after the two wars amounted to 20,000 tons of silver. As to the wealth plundered by imperialists through dumping commodities, capital exports, unequal tariffs and other methods, that came to figures too huge even to calculate. In the 22 years between 1927 and 1949, the four big families of Chiang Kai-shek, T.V. Soong, H.H. Kung and Chen Li-fu alone—who belonged to the bureaucrat-comprador class dependent on imperialism—accumulated more it than 15,000 tons of gold. Another pillar supporting imperialist rule in China was the feudal landlord class which squeezed land rent from, the peasants amounting to over 35 million tons of grain every year before 1949.

Economic recession and depleted financial resources plus graft and waste and the counter-revolutionary civil war set off by the reactionary ruling classes in old China caused inevitable deficits in state finances for years on end. The reactionary Kuomintang government’s financial deficit in 1936 was 74 times as high as in 1927. And deficits generally accounted for more than 70 per cent of the annual budget from 1937 to 1947.

The system of ownership has changed since the founding of New China. We have abolished all imperialist privileges in China, taken over and put under control imperialist banks and enterprises in the country, eliminated bureaucrat-capitalist and feudal ownership, gradually transformed national capitalist ownership and ownership by individual labourers, and replaced them with socialist ownership by the whole people and socialist collective ownership by the working people. Consequently, imperialism and the domestic exploiting classes can no longer oppress and exploit the Chinese people and China has taken the road of independence and self-reliance politically and economically. This has created the prerequisites for tne rapid development of the national economy, the continual increase of revenue and the accumulation of funds for socialist construction by relying on our own resources.

China’s finances entered an entirely new period of development after liberation. The main feature of this change is the replacement of financial deficit by balanced revenue and expenditure. Soon after the founding of the People’s Republic of China, Chairman Mao pointed out the need to consolidate the balance in revenue and expenditure and at the same time stressed that attention should be paid to the three key links for consolidating finance—increasing production, practicing economy and putting aside more reserves. Our practice in the last 20 years or so has proved the absolute correctness of this instruction of Chairman Mao’s.

Developing Production

Chairman Mao has said: “To increase our revenue by developing the economy is a basic principle of our financial policy.” (Our Economic Policy.) According to this principle, increasing production is the first link in consolidating the balance in revenue and expenditure. Our revenue has now increased more than tenfold compared with the early post-liberation days. Revenue from state enterprises has risen from 34.1 per cent of the total shortly after liberation to about 90 per cent at present. This is a result of implementing this principle.

Agriculture is the foundation of the national economy. Soon after the land reform in the countryside after liberation, the Party led the hundreds of millions of peasants to organize mutual-aid teams which later developed into co-operatives and then people’s communes. By turning to account the advantages of the socialist collective economy and unfolding the mass movement to learn from the Tachal Brigade, national pace-setter in agriculture, the peasants have battled the elements, changed production conditions and increased the ability to combat natural calamities and thus steadily raised farm production. Since liberation output of grain has risen 2.4-fold, cotton 5.7-fold, oil- and sugar-bearing crops, bast fibre crops and tobacco doubled or more than doubled; and forestry, stock-breeding, side-line occupations and fisheries also have made big advances. All this provides a growing supply of raw materials for light industry and an ample supply of commodities for the market, thus ensuring funds for state construction.

In collecting agricultural tax, China carries out a policy of not raising the amount of tax when farm yields go up. Our country has had rich harvests for 13 successive years. Agricultural tax now accounts for 5 per cent of the actual yields as against 12 per cent in 1952, and makes up only a small portion of the total revenue.

Chinese industry also has made big progress on the basis of rapid agricultural growth. Apart from an insignificant colonial and semi-colonial light industry in the coastal areas, old China had practically no heavy industry. We have built and developed since liberation metallurgical, petroleum, coal, machine-building, chemical and building material industries and developed light industry. Industry has shown fairly big increases especially since the start of the Great Cultural Revolution. Gross industrial output in 1974 was 2.9 times that of 1964, and output of major products went up by big margins. State enterprises have been providing the state with more and more accumulation. Accumulation provided by state industrial enterprises increased more than tenfold in 1974 compared with 1952.

While building new industrial enterprises, special attention is paid to developing the workers’ creativeness, strengthening the technical transformation of existing enterprises and continuously raising their productive capacities. A great part of the yearly increases in state revenue is provided by the existing enterprises through tapping their potential or through expanded reproduction. The Taching Oilfield, national advanced model on the industrial front, is an outstanding example. Since it was put into operation in the early 1960s, the oilfield has actively unfolded a mass campaign to introduce technical innovations, with the result that output of crude oil has increased by big margins every year. The Taching Oilfield today is five times what it was before the Great Cultural Revolution started in 1966. For more than the last decade it has accumulated huge funds for the state, amounting to more than ten times what the state invested in the oilfield.

In existence for nearly 100 years, the Kailan Coal Mine is an old mine. But after the start of the Great Cultural Revolution, the workers and staff members criticized such fallacious ideas as ”output having reached its peak” and made technical innovations to transform the old pits. More than 3,600 technical innovations have been adopted since 1970. Coal output in 1974 nearly doubled the designed productive capacity and Kailan thus has made new contributions to accumulating construction funds for the state.

Practising Strict Economy

Practising economy is one of the fundamental principles of socialist economy as well as another important link in consolidating the balance in revenue and expenditure. Chairman Mao pointed out in 1957: “To make China rich and strong needs several decades of intense effort, which will include, among other things, the effort to practise strict economy and combat waste, i.e., the policy of building up our country through diligence and frugality.” (On the Correct Handling of Contradictions Among the People.) Following this principle, it is necessary to persist in rationally arranging financial expenditure. In working out an annual budget, revenue and expenditure have to be balanced and a deficit budget is impermissible. In the course of implementing the budget we must make efforts to advocate economy in all aspects and guard against waste so as to do more things with less money.

In the allocation and use of financial funds, we must first ensure the needs of large-scale economic construction and actively support the growth of industrial and farm production. Annual state appropriations for capital construction at present are several times the total annual revenue in the early post-liberation days. In the decade between 1964 and 1974, the nation built more than 1,100 big and medium-sized projects. Many units undertaking capital construction not only did careful designing and construction but practised strict economy through careful calculation. It took less than ten months from designing the Shanghai Minhang Power Plant to its commission. Designing, construction and power generation were all completed within a year. Commissioning was completed six months ahead of schedule and more than 10 million yuan in investment were saved.

State enterprises carry out the principle of ”running enterprises with diligence and frugality.” Relying on the workers, many plants and mines have scored remarkable results in strengthening business accounting and saving on raw and other materials and expenditures. In 1974 alone the nation saved more than 10 million tons of coal, over 1.6 million tons of fuel oil, more than 5,000 million kwh. of electricity, more than 700,000 tons of rolled steel and over 2 million cubic metres of timber. The Peking Power Plant and the Peking Printing and Dyeing Mill are neighbours. After six months of arduous work, the workers succeeded in conducting the plant’s surplus heat to the mill. As a result the mill saved the state more than 50,000 tons of coal used for the boilers and more than 2 million kwh. of power last year. Because it had let out the surplus heat in time, the plant produced over 36 million kwh. more power last year.

In order to turn more funds to production and construction, the state has strict financial regulations on non-productive expenditures. For instance, it strictly controls the building of offices, auditoriums, guest houses and reception houses; in particular, it controls the social purchasing power of government organs, army units and enterprises through various links.

Practising strict economy and building up the country diligently and frugally not only enables us to do more things with less money but is of great significance in carrying forward the revolutionary tradition of hard work and resisting corruption by bourgeois ideas.

Putting Aside More Reserves

An important link ensuring the long-term balance in revenue and expenditure in our country is building up necessary reserves in state finances.

In arranging the budget every year, we always put aside a big amount of reserves to meet unexpected expenditures in the course of implementing the budget. In case of serious natural calamities, for example, additional expenditures by the state will be necessary. Our budget is decided according to the needs of socialist construction and the possibility of state financial resources and therefore generally reflects the objective reality at the time. But balance is relative and imbalance is absolute in the development of things; cases of new imbalance often appear in the course of implementation. To turn imbalance into balance calls for adjustments in the plan. In the process of making adjustments it is necessary sometimes for the state to add some new expenditures. State financial reserves should be built up to meet the above-mentioned unplanned expenditures so as to prevent newly increased expenditures from affecting the balance in revenue and expenditure.

China’s financial reserves consist of three parts. First, the state puts aside a certain proportion of the budget as general reserves while drafting the annual budget. For instance, general reserves made up 3.42 per cent of the budgetary expenditure in the 1955 state budget and 2.57 per cent in the 1956 state budget. Similar percentages have been kept for general reserves in other years too. Financial departments of the central and local authorities all have their own reserves. In case of unexpected need, the various localities first use their own reserves, and if they are still unable to cover the expenses, they will be helped by central reserves. Second, there generally are some surpluses after the state budget has been implemented. These accumulations over the years are generally not used. Third, our rapid economic development and continuous expansion of state financial power enable the state gradually to hold more and more commodities and stocks of other materials. These also actually constitute the financial reserves of the state.

* * *

Hit by economic instability and inflation, the capitalist world is caught in ever-worsening financial and economic crises. Our economy, on the contrary, has been solidly advancing and prospering, prices and the value of Renminbi have remained stable and revenue and expenditure have been balanced for a long time. This fully shows the superiority of the socialist system. Going ahead along Chairman Mao’s revolutionary line, we will continue to consolidate the balance in revenue and expenditure and create the conditions for building China into a powerful modern socialist country before the end of the century.

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