China, June of 1951

The Chinese economy had been growing - somewhat - during the 1920s and early 1930s; but corruption, the opium epidemic, the KMT’s decentralized policies of warlordism and in 1937, the Second Sino-Japanese War, destroyed any modicum of achievements that the ROC had to legitimize itself.

During the Second Sino-Japanese War, Kai-Shek had destroyed the dikes of the Yellow River, leading to subsequent flooding which destroyed the livelihood of thousands of Chinese farmers, leaving agricultural output at a shameful level due to lack, or excess, of irrigation; but the main curse that the PRC inherited from the corrupt KMT regime was hyperinflation.

The Problem of Hyperinflation

Prices had begun rising in 1935, accelerating after 1938, when the coastal areas of China were dominated by the imperialists in Japan. The expansion of the expenditure in the Armed Forces in 1940, exacerbated inflationary growth and by 1945, in excess of 80 percent of outlays were financed by monetary expansion. According to official government data, the price level at the end of 1945 was 1,632 times higher than the pre war level. Prior to the collapse of domestic currency in August of 1948, the wholesale price index of Shanghai was 6,600,000 times that of 1937, according to Shun-Hsin Chou’s ‘The Chinese Inflation: 1937-1949’.

In order to break the problem and cycle of hyperinflation, we shall be creating a new, unified system of taxes; stripping the local governments of the power to spend based on tax revenues; develop a new agricultural tax, commodity tax, income tax, as well as industrial, commercial and consumption taxes. Our goal is to increase our tax revenue to 24 percent by 1954, and 30 percent by 1956. The continued growth of tax revenue will curtail the spiral, alongside maintaining the major focus of containing inflation and price spikes.

Implementing the National Recovery Program

The National Recovery Program (NRP) was heavily designed by Premier Zhou Enlai and Liu Shaoqi, with approval of Chairman Mao Zedong, and is, at its essence, a program to restart the Chinese economy while we “mop up” the remainders of the war.

We shall be directing our efforts at rebuilding and repairing damaged rail and other transport routes and factories, rather than a substantial new program of building industry; during this initial stage, as we establish our domination throughout China, we shall not undergo a period of nationalization, and simply inherit the same SOEs as the Kuomintang had during the 1930s.

The CCP will also direct our party cadres to manage the 2,700 large enterprises that currently dominate the modern sector of urban China, and our plans are to expand the CCP from ~2.8 mn to 6.0 mn from 1951 to 1956, with appropriate education and appropriate distribution of Socialist literature.

Liu Shaoqi will be responsible for centralizing political organization and reallocating cadres to the modern economic sector, the educational sphere, and government administration; the remainder sectors will gradually be filled with CCP members from 1951 to 1953.

Using our efficient propaganda machine, as well as Liu Shaoqi’s knowledge and Zhou Enlai’s support, we will be instituting policies calling for labor discipline, managerial authority to limit wages and fire excess personnel and reasonable settlement of disputes. The core here is to appeal to the workers, once again using our highly-effective propaganda machine, to make short-term sacrifices during our War of National Liberation, for long-term gain, in both industrial output and increasing standards of living.

Final Short-Term Solutions

To conclude, the policies of the NRP will provide major inroads to alleviate serious urban unemployment. The revival of industrial production, alongside the liberation of supplies from the hinterland, as the illegal KMT is almost completely expelled from all of China, will help bring down our hyperinflation.

Other measures that will also be included to crackdown on our economic inactivity and bring legitimacy to our regime will be, once again, to remove money from circulating through taxes, as per our reformed taxation, as well as through bonds and forced savings; controlling key commodities through SOEs; and severe punishment of speculation, including imprisonment and large fines.

To capitalize on our economic kickstarting, the unions, combined with labor laws, provide an important tool for the CCP; in addition to that, the leading economic role of nationalized enterprises, state trading companies, and banks, provide a level of control in the private sector that will be imperative, through loans, contracts to purchase products and supply raw materials, designated selling agents, and price controls.