When the Chinese Communists assumed power in October 1949, they inherited an economy that can be called backward by any quantitative criterion. Prolonged external war and subsequent civil strife had inflicted immeasurable damage. Confronting this situation, the new government set forth two major economic goals: first, to restore the deteriorated economy as soon as possible, and second, to begin a rapid, forced-draft industrialization program to break the vicious cycle of backwardness and poverty.

In the course of industrialization, the economy experienced acute inbalances, strains, and supply bottlenecks, which forced the planners to alter their scheme. In terms of scale of priority, rate of capital formation, and investment technique, the development strategies followed between 1949 and 1969 can be roughly divided into four consecutive stages.

The Unbalanced Growth Strategy, 1949-57

During the early years of the industrialization program, the Chinese development strategy almost completely duplicated the Soviet model. The features of this strategy consist of (1) a high rate of capital formation, with overwhelming emphasis on industrial development; (2) a high priority on the expansion of the capital goods industry; and (3) a preference for larger plants and for capital-intensive techniques. During China's First Five-Year Plan (1952-57), the ratio of gross investment to gross domestic product in terms of 1952 constant prices was about 20 percent, compared with only 6 percent in the prewar period. Of the investment in capital construction, 48 percent was concentrated in industry, of which 85 percent was for heavy industry. Since agriculture provided the lion's share of total savings, the essence of this development policy was simply a continuous squeeze of the agricultural sector to support heavy industry.

In the choice of technique and scale, the Chinese planners also followed the Soviets, by investing in relatively large and capitalintensive projects. More than 85 percent of the capital investment was allocated for the 694 large industrial projects, leaving only 15 percent for the more than 10,000 small projects.