History of Chinese Economic Development 1949–78

The Communist Party of China (CPC) began economic reform immediately after it ascended to power on October 1, 1949, realizing that a modern economy is che key to national salvation, improving people’s lives, building a strong national defense, and preventing foreign interventions. However, it was interrupted by the Korean War (1950–53). In the aftermath of the war, the government adopted the Soviet-style five year plan model, focusing on industrialization. The model, yielding mixed results, was quickly abandoned and replaced with a model known as the “walking on two legs” policy, allocating resources equally to modernize industrialization and agriculture.1 This model, however, was derailed by Mao’s Great Leap Forward movement, which proved disastrous for the country, pushing the economy almost to the brink of disaster and causing massive starvation. Mao’s policy failure prompted the leadership to stop the Great Leap Forward and called on Liu Shaoqi, Zhou Enlai, and Deng Xiaoping to revive the economy. The new leadership forged the material incentive program, allowing very limited free enterprise and appointing key positions to government departments and state-owned enterprises on the basis of merit and competence. Its success raised the ire of Mao, who feared that the rightist (a label for those who heeded the capitalist line) initiatives were promoting class distinction and other economic problems.