China Begins Its First Five-Year Plan Summary

  • Last updated on November 10, 2022

By implementing the First Five-Year Plan, the new People’s Republic of China moved decisively toward centrally planned, large-scale national economic development.

Summary of Event

The implementation of China’s First Five-Year Plan was the beginning of the country’s centrally planned economic development and industrialization. From 1953 to 1957, production more than doubled; numerous factories, roads, and dams were built. By 1957, 97 percent of land was collectivized, or put under state control. The Great Leap Forward in 1958 attempted to decentralize the economic management system. The Great Leap Forward ended in January, 1961, after poor harvests in 1959 and 1960 and termination of Soviet technical aid in 1960. [kw]China Begins Its First Five-Year Plan (Jan., 1953) [kw]First Five-Year Plan, China Begins Its (Jan., 1953)[First Five Year Plan, China Begins Its] [kw]Five-Year Plan, China Begins Its First (Jan., 1953)[Five Year Plan, China Begins Its First] China;First Five-year Plan[First Five year Plan] Economic policy;China First Five-year Plan, Chinese[First Five year Plan] China;First Five-year Plan[First Five year Plan] Economic policy;China First Five-year Plan, Chinese[First Five year Plan] [g]Asia;Jan., 1953: China Begins Its First Five-Year Plan[04050] [g]China;Jan., 1953: China Begins Its First Five-Year Plan[04050] [c]Government and politics;Jan., 1953: China Begins Its First Five-Year Plan[04050] [c]Economics;Jan., 1953: China Begins Its First Five-Year Plan[04050] Mao Zedong Zhou Enlai Liu Shaoqi Deng Xiaoping Chen Yun Peng Dehuai

The People’s Republic of China was established in October, 1949. Its first three years were a period of rehabilitation. By 1952, the gross value of industrial output had grown to two and a half times that of 1949 and exceeded prewar levels by almost 25 percent. Agricultural output also exceeded prewar levels.

In late 1952, Chinese leaders decided to undertake long-term economic development. Because of lack of experience in both economic planning and advanced technology, Chinese leaders had to rely heavily on foreign aid for their economic development. At that time, the Soviet Union was the only country willing and able to provide China with economic and technical assistance. With little alternative, Chinese leaders adopted the Soviet model for China’s economic development.

The First Five-Year Plan started in January, 1953, although final details were not agreed upon, and the plan was not published, until July, 1955. The most important proposal in the plan was to raise to about 20 percent the share of the nation’s resources to be invested, and to use these resources for the development of heavy industry. The acquisition of investment resources was to be achieved by imposing compulsory purchases and taxes on agriculture and private industry and by earning high profits in state-owned industries. The controlled allocation of resources was to be accomplished through a Soviet-style apparatus for the central planning of state industry and wholesale, retail, and foreign trade. Control of foreign trade was particularly crucial, since the strategy adopted required that China sell agricultural products to pay for industrial goods and materials supplied by the Soviet Union. It is important to note that the plan did not call for immediate nationalization of private industry and commerce.

Planning was adopted gradually in China. The State Statistical Bureau was set up on October, 1952. The chief organ of planning, the State Planning Commission State Planning Commission, Chinese , was established in 1952 and was placed under the State Council when the latter was made the supreme executive body by the 1954 constitution. At the same time, a State Construction Commission was organized to oversee capital investment under the First Five-Year Plan, which covered the 1953-1957 period. The complete title of the plan is the First Five-Year Plan of the People’s Republic of China for Developing the National Economy.

The method of central planning adopted, based on Soviet experience, was that of “material balances,” sometimes referred to as input-output analysis. Tables are prepared to indicate, based on experience and expectations, how the output of each industry or sector of the economy is distributed among all producing industries or sectors, plus final demand. With such a table of intersectoral balances, it is then possible to project the pattern of demand for each sector’s output that will be generated by a given planned rate and pattern of growth and to compare it with the supplies likely to be made available by existing capacities and their planned expansions. If balance between anticipated supply and demand is lacking, the plan is adjusted and the possibility of using foreign trade to fill the gaps is explored.

The fundamental task of the plan was to implement 156 development construction projects that were designed with Soviet assistance. During this period, 145 construction projects were to be started or completed. Eleven others were scheduled to start during the period of the Second Five-Year Plan (1958-1962).

Until November, 1957, China’s planning system was highly centralized, in the sense that a fairly large number of targets of different kinds were drawn up and their fulfillment directly supervised by the central government. These targets applied to an originally small but rapidly growing number of goods. As both the number of commodities and the number of enterprises for which the center assumed responsibility grew rapidly in the course of the 1950’s, the maintenance of such a high degree of centralization of both planning and management became increasingly cumbersome. In 1957 and 1958, the government adopted a series of decentralization measures in order to delegate some of its responsibilities to the localities, increase the scope for local initiative, and strengthen central control of the most important plan targets and enterprises.

Total planned investment by the state for the five-year period came to 76.640 billion yuan ($32.154 billion at the official exchange rate of 2.46 yuan to the U.S. dollar). Some three-fifths of state investment was to be devoted to capital construction. About three-fifths of that was earmarked for industry, most of it for heavy industry, fuel production, and machine building. Agricultural investment was to be limited to a little more than 1 billion yuan, or 2.4 percent of planned capital construction. The Chinese leadership was always acutely aware of the need for agricultural surpluses as a condition for rapid industrialization.

Impatient with the gradual pace of collectivization set by the First Five-Year Plan, Mao Zedong called for an immediate acceleration of agricultural collectivization. Mao’s impact on agricultural collectivization was dramatic. By March, 1956, more than 90 percent of Chinese peasants were in cooperatives, and by 1957 virtually all were in the higher-stage cooperatives. Thus an agricultural collectivization anticipated to take fifteen years according to the First Five-Year Plan was completed in little more than one year. The results, however, were unsatisfactory. Mao’s expectation that changes in ownership and organization would produce immediate economic effects was belied by events. By the fall of 1957, it was apparent that the growth of agriculture was still too slow, that urban unemployment was a serious problem, and that relations with the Soviet Union, on which industrial assistance depended, were worsening. This crisis led Mao to launch the most extraordinary economic adventure that the world has ever seen, the Great Leap Forward of 1958.


The First Five-Year Plan scored major successes in laying the foundations for industrialization strategy in China. The First Five-Year Plan achieved a dramatic increase in industrial production across a broad sector of goods. Most of the plan targets had already been fulfilled by the end of 1956. Political and economic difficulties arising out of the First Five-Year Plan, however, had serious consequences. First, there was inadequate growth of agricultural production and procurement. Grain outlet stagnated. Second, planning and administration, in their highly centralized form, had become increasingly ineffective as the economy grew in size and complexity, and especially after most industry and commerce came under direct state control in 1956. Third, the industrialization strategy of the First Five-Year Plan had proved incapable of solving the unemployment problem.

From 1953 to 1957, China’s population grew from 582.6 million to 646.5 million. According to official statistics, industrial production grew during those five years at an annual rate of 18 percent, while agricultural production rose 4.5 percent a year and the output of food grains by 3.7 percent, barely surpassing the population’s growth rate. Bottlenecks in the production of raw materials forced planners to reconsider the development plan.

In general, economic performance was quite good during the period of the First Five-Year Plan, even though the growth was unbalanced between industry and agriculture. The average annual growth rate of national income reached 8.9 percent. The high level of investment spending in industry resulted in a high rate of industrial growth. Within the industrial sector, the annual growth rate of steel output in terms of quantity was 31.8 percent. Chemical fertilizer production increased by 29.3 percent annually, and electric power by 20.4 percent. The annual increase rate of grain production, in contrast, was only 4 percent, and production of cotton increased by 4.7 percent annually.

The First Five-Year Plan had a number of drawbacks. First, the plan required large forced savings from the agricultural sector. Second, the plan placed undue concentration of investment in such heavy industries as steel at the expense not only of agriculture but also of light and consumer goods industries. Third, the plan required a high degree of centralization and the development of an elaborate bureaucratic structure to implement, control, and check the plan according to fixed targets and quotas.

In establishing urban industries, setting up management systems, embarking on long-term planning, and providing for scientific and technical education, the Chinese in the early 1950’s had only the Soviet Union to turn to for models, assistance, and advice. The Soviet Union was willing to provide assistance in the form of plants, machinery, and systems of organization and management, which inevitably resembled their counterparts at home.

In the latter stages of the First Five-Year Plan, hundreds of thousands of peasants were mobilized to build roads and dredge canals. The Great Leap Forward Great Leap Forward China;Great Leap Forward began in March, 1958, when some sixty million peasants were assigned to build and operate millions of factories and backyard furnaces.

The first people’s commune was organized in April, 1958. In August, the Chinese Communist Party adopted a resolution on the establishment of people’s communes in rural areas. Following its provisions, cooperatives everywhere were merged immediately into communes. By the end of September, 1958, there was 26,425 communes in the rural areas, representing 98.2 percent of the total number of peasant households. The commune was a much larger and more advanced form of collectivization than the cooperative. The people’s commune was the basic social structure combining industry, agriculture, trade, education, and the military.

As the Great Leap Forward went on into 1959, administrative confusion deepened, and the consequences of strain, of the misuse of resources, and of sheer human exhaustion became increasingly serious. When the end came, it coincided with the withdrawal of Soviet assistance and a succession of natural disasters. The results were appalling.

Soviet aid to China was in the form of interest-bearing loans, not grants. Some Chinese leaders were not satisfied with the prices the Soviets set for their equipment and plants or with the interest rate charged for loans. China had to repay these loans with its products, gold, and foreign currencies. Investments thus had to pay off quickly, and at rates above the rate of interest charged by the Soviets, if investment was not to be a drain on the Chinese economy.

Mao spelled out his strategies for achieving the objective of the Great Leap Forward in two simple slogans: “walking on two legs” and the “five dualities.” Walking on two legs meant that growth should be balanced between industry and agriculture. The five dualities were to develop industry and agriculture simultaneously, to develop light industry and heavy industry simultaneously, to develop large enterprises simultaneously with medium-sized and small enterprises, to develop state industry and local industry simultaneously, and to use traditional production technology and modern production technology simultaneously.

In 1958, 700,000 small blast furnaces were built to produce steel, and 100,000 small coal pits were set up. These blast furnaces and coal pits were staffed by inexperienced workers who used old production processes. Mao knew that building modern steel mills would take several years and huge amounts of capital investment. He attempted to substitute labor for capital by using outdated technology.

During the Great Leap Forward, some statistics on increased production were based on exaggeration and fabrication. Millions of tons of pig iron, much substandard and all a long way from being steel, were produced by backyard furnaces. The pig iron accumulated along railways that could not possibly handle its movement, causing serious bottlenecks in the transport system. In 1958, when the Great Leap Forward and commune programs were launched, there was a good harvest. In 1959, heavy floods and drought laid waste to almost half of the cultivable land. Then, in 1960, floods, drought, and pests ravaged millions of acres. To make matters worse, the Soviets withdrew all of their technicians and advisers from China in June, 1960, because of disagreements concerning development strategy. The drastic reduction in agricultural production stalled the drive for rapid development of industry.

The Great Leap Forward ended in failure because the program merely promoted “excessive targets,” with cadres issuing arbitrary decisions. The Great Leap Forward was not carefully planned and was rashly implemented, causing a huge waste of both material and human resources. The estimated loss during the years of the Great Leap Forward, 1958-1960, amounted to $66 billion.

The chaotic situation in China’s economy was exacerbated by the unexpected withdrawal in August, 1960, of all Soviet economists and technicians working in China. China learned a bitter lesson from the surprise Soviet withdrawal. Facing growing criticism from both domestic and foreign sources, Mao resigned from the presidency of the People’s Republic of China and gave the position to Liu Shaoqi. In the early 1960’s, China’s economy entered a period of recovery and consolidation. The relatively peaceful development of China’s economy was once again disrupted by the Cultural Revolution of 1966. China;First Five-year Plan[First Five year Plan] Economic policy;China First Five-year Plan, Chinese[First Five year Plan]

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Chan, Alfred L. Mao’s Crusade: Politics and Policy Implementation in China’s Great Leap Forward. New York: Oxford University Press, 2001. Argues that the Great Leap Forward was the result of Mao’s personal policies and plans for China, rather than being the result of Chinese bureaucratic politics or other collective, cultural and economic phenomena. Bibliographic references and index.
  • citation-type="booksimple"

    xlink:type="simple">Cheng, Chu-yuan. China’s Economic Development: Growth and Structural Change. Boulder, Colo.: Westview Press, 1982. Discusses China’s economic development and the operation of its economic system, with a focus on institutional change as a major determinant of economic growth.
  • citation-type="booksimple"

    xlink:type="simple">Fairbank, John K. The United States and China. 4th ed. Cambridge, Mass.: Harvard University Press, 1983. The best single thematic introduction to China’s history, civilization, and contemporary evolution. Includes an extensive annotated bibliography.
  • citation-type="booksimple"

    xlink:type="simple">Howe, Christopher. China’s Economy: A Basic Guide. New York: Basic Books, 1978. An introduction to China’s economy, including the following subjects: population and human resources, organization and planning, agriculture and industry, foreign trade, and the standard of living.
  • citation-type="booksimple"

    xlink:type="simple">Li, Hua-Yu. Mao and the Economic Stalinization of China, 1948-1953. Lanham, Md.: Rowman & Littlefield, 2006. Crucial background to the First Five-Year Plan, focused on Chinese economic strategies and development during the five years preceding the plan. Bibliographic references and index.
  • citation-type="booksimple"

    xlink:type="simple">Prybyla, Jan S. The Political Economy of Communist China. Scranton, Pa.: International Textbook, 1970. Chapters 3, 4, and 5 directly address issues related to the First Five-Year Plan.
  • citation-type="booksimple"

    xlink:type="simple">Riskin, Carl. China’s Political Economy: The Quest for Development Since 1949. New York: Oxford University Press, 1991. Examines the economy of China between 1949 and 1985. This textbook discusses both the Maoist approach to economic development and the post-Mao economic reforms.
  • citation-type="booksimple"

    xlink:type="simple">Rozman, Gilbert, ed. The Modernization of China. New York: Free Press, 1981. A collective work by nine scholars, integrating modernization theory with Chinese socioeconomic and political development, from historical and comparative perspectives.
  • citation-type="booksimple"

    xlink:type="simple">Tsao, James T. H. China’s Development Strategies and Foreign Trade. Lexington, Mass.: Lexington Books, 1987. A concise account of China’s economic development and foreign trade. Supported by extensive statistical data.

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