RECONSTRUCTION AND CONTROL: 1949-1952
The purpose of Chinese Communist economic policy in the first three years of the Communist regime was to prepare the way for a sustained process of industrialization. The technical task of the regime over this period was to restore agricultural output, industry, and trade to the maximum levels consistent with the existing framework of China's resources. Its institutional task was to reorganize economic institutions under intimate and sensitive state control.
The Communists inherited an economy in which productive capacity was appreciably curtailed: first by the Sino-Japanese War, and, later, by Soviet occupation and civil war. Manufacturing capacity was impaired -- particularly in Manchuria, where over half of the capital stock in industry had been dismantled and carried off by the Soviets in 1945.1 Industrial capacity was shrinking in China proper, though to a much lesser extent, owing to depreciation and obsolescence and to the flight of some movable facilities to Hong Kong and Formosa. The situation was aggravated by a constant shortage of raw materials throughout 1949, particularly in Shanghai, where many industries depended on imported materials cut off by the Nationalist blockade of the port. At the same time, owing to the disruption of internal trade and transport, domestic supply difficulties were multiplied. Industrial output was further curtailed by a gradual demoralization of labor under the impact of hyperinflation and a breakdown of plant discipline following the Communist conquest of large cities. Urban labor tended to interpret the Communist victory as a signal for asserting its rights and placing its accumulated grievances and demands before industrial management. Several months elapsed after their accession to power before the new authorities were in a position to