By Richard Baum, Ph.D., University of California, Los Angeles
Early in 1978, Hua Guofeng introduced a 10-year plan for national economic development. He wanted to fast-track China’s modernization by constructing 120 industrial projects. However, this hurry led to inattention to such things as feasibility studies, cost-benefit analysis and “due diligence”, leading to a series of industrial fiascos.
The Baoshan Project
Let’s begin with Hua Guofeng-approved Baoshan Project. It was a multi-billion-dollar boondoggle involving the Baoshan Iron and Steel Works. It was financed through Japanese loans and built using Japanese technology along a bank of the lower Yangzi River, near Shanghai.
The Baoshan project was doomed from the very start by a number of basic design flaws.
Flaws in the Baoshan Project
In the first place, the plant was situated on geologically unstable ground, so that the foundation shifted badly after construction work began.
Second, the plant’s Japanese-built blast furnaces were designed to burn a type of high-quality, low-sulfur content-coking coal that was not found in China, and which had to be shipped in at great expense from far-off Australia—and this despite the fact that China had the world’s largest proven reserves of coal.
Third, even if China could afford to import large quantities of foreign coking coal, which was problematic at best, it was necessary to have a deep-water port along the Yangzi River where giant tankers could off-load their supply of Australian coal.
Fourth, even if such a deep-water port were in existence near the plant (which it was not), the amount of electricity needed to run the massive iron and steel complex would exceed the output capacity of the entire eastern Yangzi River energy grid. This meant that the operation of the Baoshan complex would cause massive and prolonged brownouts throughout the entire greater Shanghai area.
For all of these reasons, the project was halted after about a year, pending radical downsizing and redesign. In the process, almost $2 billion was wasted.
This is a transcript from the video series The Fall and Rise of China. Watch it now, on Wondrium.
Other Complications for Hao
Hua Guofeng never fully recovered from the damage to his reputation inflicted by the hugely expensive boondoggle. Committing himself to the pursuit of a wide range of massive new construction projects, whose benefits seemed clear enough, he could only dimly perceive the enormous downstream costs and upstream technical requirements that would prove so intractable.
Further complicating things for the unfortunate Hua Guofeng, the anticipated export boom in oil and natural gas never materialized.
China’s crude oil reserves proved to be rather less plentiful than first estimated. Even worse, the Chinese oil was of rather low quality. It was too heavy and too highly sulfurous to be in demand on international markets.
Learn more about China’s economic development.
Effect on National Economy
In addition to a series of industrial boondoggles, Hua Guofeng’s quick-fix approach to modernization also led to some serious imbalances in the national economy.
In the first full year of the Four Modernizations program, China’s capital investment rate exceeded 38 percent of the national budget—the highest figure since Mao’s calamitous Great Leap Forward.
Such massive capital investments severely overtaxed the country’s existing transportation infrastructure and networks and its resource capacity, leading to huge bottlenecks in construction materials and capital goods.
At the same time, in order to assuage the increasing grumblings of China’s 100 million state-employed industrial workers, who had not received a wage increase in over a decade, China’s workers were granted substantial across-the-board pay and bonus increases in 1978. This created a sharp increase in the amount of money in circulation in China, which in turn triggered a spike in demand for consumer goods.
But in the absence of any significant expansion in the production or importation of consumer durables, the result was, as predicted, that too much money was chasing too few goods—which is the economists’ classic definition of inflation.
Learn more about the key features of Mao’s economic program.
Consequences of Mao’s Backward Policies
It wouldn’t be fair to pin the blame for all these misfortunes on Hua Guofeng. After all, it was Mao’s policies that had kept China in a state of severe economic backwardness. And it was Mao who systematically punished all those who possessed the requisite knowledge, expertise, and experience needed to modernize the country.
If Hua and other party leaders were flying blind in their efforts to induce rapid economic development, it was because Mao himself applied the blindfold.
Now it is also true that many of the flawed policy initiatives introduced by Hua in 1978 had first been proposed by Deng Xiaoping between 1973, when he was rehabilitated, and 1976, when he was purged for the second time. But the policies had been carried out on Hua’s watch, and when some of them turned out badly, because of excessive haste and inadequate planning, and so forth, it was Hua, rather than Deng, who shouldered the blame.
Common Questions about Hua Guofeng’s Economic Development Plan
Following were the flaws in the Baoshan Project: Firstly, the plant was situated on geologically unstable ground; secondly, China did not have the high-quality, low-sulfur content-coking coal required by the plant; thirdly, there was no deep-water port along the Yangzi River; and fourthly, the amount of electricity needed to run the massive iron and steel complex would exceed the output capacity of the entire eastern Yangzi River energy grid.
The anticipated export boom in oil and natural gas never materialized because China’s crude oil reserves proved to be rather less plentiful than first estimated. Even worse, the Chinese oil was of rather low quality. It was too heavy and too highly sulfurous to be in demand on international markets.
Such massive capital investments severely overtaxed the China’s existing transportation infrastructure and networks and its resource capacity, leading to huge bottlenecks in construction materials and capital goods.
