10

Shopping Spree

If the glittering path to communism was to be found in mobilising the masses, large quantities of industrial equipment and advanced technology were nonetheless required to help China transform itself from an agricultural country into an industrial giant. From the moment Mao returned from Moscow, where he had boasted that China would overtake Britain in fifteen years, Beijing started buying liberally from its foreign friends. Steel mills, cement kilns, glass factories, power stations, oil refineries: entire plants and equipment for heavy industry were purchased. Cranes, lorries, generators, motors, pumps, compressors, harvesters and combines, all were imported in unprecedented quantities. Deliveries of metal-cutting machine tools (not including complete factories) rose from 187 units in 1957 to 772 in 1958, planting and sowing machines from 429 units to 2,241, tractors from 67 units to 2,657, lorries from 212 units to 19,860.1 Supplies of rolled ferrous metals, aluminium and other raw materials jumped, while the amount of transportation and communications equipment was also revised sharply upwards.

Most of this came from the Soviet Union, on which China had depended for economic and military help since May 1951, when the United Nations had imposed an embargo on strategic imports. Trade restrictions had been enforced after the United States had branded China an aggressor state in the Korean War. In the 1950s China signed a series of agreements with Moscow for the construction of more than 150 turnkey projects, to be built and handed over in a ready-to-use condition. In January 1958, in order to propel the Great Leap Forward, a further contract provided for an expansion of economic and military assistance. In August 1958 another forty-seven complete sets of equipment for industrial plants, to be built with Soviet technical aid, were agreed upon – in addition to some 200 already signed up to in earlier years. In February 1959 another agreement further widened economic and scientific co-operation, including thirty-one additional large industrial plants: this brought the number of industrial enterprises, factory shops and other plants to be installed to about 300.2

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Beijing also pressed Moscow for early delivery. In March 1958 military veteran Zhu De enjoined the Russians to hasten the completion of the two steel combines at Baotou and Wuhan.3 A similar plea was made to S. F. Antonov, the Russian chargé d’affaires in Beijing, by one of Zhou Enlai’s personal envoys in July.4 Such was the pressure of the Great Leap Forward that entire branches of Soviet industry had to reorganise their production system in order to meet urgent demands and mounting orders for a whole array of commodities, often for delivery ahead of schedule.5 Imports from the Soviet Union rose by an astounding 70 per cent in 1958 and 1959, as shown in Table 1. Where imports were 556 million rubles in 1957, by 1959 they stood at 881 million, of which some two-thirds consisted of machinery and equipment. China also relied on the Soviet Union for large imports of iron, steel and petrol. While Beijing depended on Moscow for half its oil, machine parts and heavy industrial equipment, a large proportion also came from other countries in the socialist bloc, East Germany in particular. In 1958 Walter Ulbricht agreed to build sugar refineries, cement factories, power plants and glassworks, sharply increasing the level of exports to China.6 Imports from East Germany climbed to 120 million rubles, an amount which was followed by a further 100 million in 1959.7

But it was not merely the volume of imports which underwent drastic change during the Great Leap Forward. In pursuit of the best equipment to power its way to communism, Beijing dramatically changed the structure of foreign trade with an overture to Western Europe, made possible by a gradual collapse of the embargo imposed by the United States. Washington was unable to maintain pressure on its allies, as Britain was keen to enter China’s huge market and vigorously campaigned to eliminate the system of export controls from 1956 onwards. Purchases from Britain doubled from £12 million in 1957 to £27 million in 1958 and £24 million in 1959, while West German imports soared from DM 200 million in 1957 to DM 682 million in 1958 and DM 540 million in 1959.8

All of these imports were industrial in nature, but Mao was also dogged in his pursuit of the most advanced military equipment. Starting in 1957 the leadership in Beijing focused on extracting from Moscow as much military equipment and ‘new technology’ as possible. Zhou Enlai wrote to Khrushchev in June 1958 requesting aid in building a modern navy. Two months later, during the shelling of the offshore islands of Quemoy and Matsu in the Taiwan Strait, he asked for the latest technology in aerial surveillance. In May 1959 a purchase order was submitted to the Russians for strategic material related to ‘defence and aviation equipment’. A reminder followed in September 1959, with Zhou Enlai pointing out that Beijing planned to spend a total of 165 million rubles in 1960 on Soviet military equipment.9Just how much Beijing spent has remained something of a mystery, since the published statistics perused by foreign observers did not include ‘invisible’ items such as military supplies. However, archives from the Ministry of Foreign Affairs now provide a clear overview of imports from Moscow of both ‘special goods’, meaning military equipment, and ‘new technology’: as Table 1 shows, these two groups ballooned to over 200 million rubles in 1959, representing close to a quarter of China’s imports from the Soviet Union.

China also had to discharge its debtor’s obligations towards the Soviet Union. The amount lent by Moscow to Beijing between 1950 and 1962 stood at 1,407 million rubles.10 Even before China dramatically increased loan repayments after the rift with the Soviet Union in the summer of 1960, the debt-service instalments must have amounted to more than 200 million rubles a year. China’s limited foreign currency and gold reserves meant that both debt and actual imports had to be paid for in kind through exports, straining its limited resources. The basic trade pattern was the exchange of credit, capital goods and raw materials for rare minerals, manufactured goods and foodstuffs. Pork, for example, was bartered for cables, soybeans for aluminium, grain for steel rolls. Since the amount of rare metals such as antimony, tin and tungsten was limited, Beijing’s shopping spree meant that more foodstuffs had to be extracted from the countryside to pay the bill (see Table 2). Over half of all exports to the Soviet Union consisted of agricultural commodities, ranging from fibres, tobacco, grain, soybeans, fresh fruit and edible oils to tinned meat. The value of the rice exported to Moscow alone trebled from 1957 to 1959, as Tables 2 and 3 indicate. The brunt of the imports, in other words, fell on the farmers.

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Who was the architect of foreign trade in China? In a planned economy imports and exports were normally controlled by annual trade agreements, as the increase in external trade was designed to match the projected growth of the economy. There was thus a direct relationship between the rate of capital investment, the volume of foreign trade and the size of the harvests. The overall economic plan, agreed by the central leadership, determined the volume and structure of imports, which in turn set the level of exports from the country. Trade plans were prepared by the Ministry of Foreign Affairs, which then delegated the import and export to corporations dealing in a defined range of agricultural and industrial products.11

In the bureaucratic maze of communist China premier Zhou Enlai retained overall supervision of foreign trade. He was keen on enhanced economic relations with the rest of the world, not only the Soviet Union but also countries outside the communist bloc. Economic development, according to Zhou, could be achieved only with adequate capital, technology and expertise, all of which had to come from abroad. A close ally of Zhou Enlai, foreign trade minister Ye Jizhuang was also in favour of dramatically increased exports, which could be used to pay for imported machinery and industrial plants. But in 1957 Zhou reined in the enthusiasm of his delegate, sounding a cautious retreat in foreign trade. In October 1957 Ye had to explain to a foreign trade delegation that the population had suffered from the volume of food exports, in particular edible oils, which had led to serious shortages. Zhou Enlai had decided that the volume of trade with all countries would have to be cut in 1958.12

Zhou Enlai’s gradual approach in economic planning jarred with Mao’s vision of a bold Great Leap Forward. As we have seen, Mao angrily swept aside the reservations voiced by the premier, silencing his opponents at the Nanning conference in January 1958. Instead he leaned towards Zhu De. A military veteran of legendary reputation, Marshal Zhu De had joined forces with Mao back in 1928. Both came to rely on each other, Zhu providing military skills while Mao excelled at party politics. A wily politician himself, Zhu De knew how to lend support to the Chairman’s vision of a jump forward into communism. In October 1957, he had already suggested that ‘we must fight to expand exports and imports, so that we can gradually become a large importer and large exporter’. A few weeks later he argued that ‘if we want to build socialism, we need to import technology, equipment, steel, and other necessary materials’.13

‘Larger imports and larger exports’, an idealistic policy that ran roughshod over the actual capacity of the country to export foodstuffs and materials, became a major catchphrase in 1958. It suited Mao, who could show off the success of his policies on the international stage. Once he had asserted his authority over his colleagues and silenced those who were critical of the Great Leap Forward, few leaders thought it wise to argue in favour of financial discipline. As the projected output of industry and agriculture was ceaselessly revised upwards, so the quantity of imports rose. In other words a tightening of foreign trade was feasible only once Mao recognised the failure of the Great Leap Forward. Politics was in command, and an overshoot in imports was seen not as a sign of budgetary indiscipline, but as an indication of boundless faith in the power of the masses to transform the economy. The purpose of spending on capital goods imported from abroad was to create the capacity to produce machinery and manufactured goods, catapulting the economy into a dramatically higher level of industrial development which would ultimately free China from its economic dependence on the Soviet Union.

Mao had few opponents at home. Abroad, in the Soviet bloc, leaders may have harboured doubts about the Great Leap Forward, but increased quantities of foodstuffs shipped from China suited them well. Khrushchev, after all, was shifting the emphasis in the Soviet economy away from heavy industry towards the needs of consumers, and defiantly promising to overtake the USA in per-capita production of meat, milk and butter. In East Germany Ulbricht was desperate to stop the flow of people who voted with their feet by escaping to West Germany. He, too, made extravagant claims, announcing at the Fifth Party Congress in 1958 that a socialist society was in the making, as the per-capita quantity of consumer goods would soon ‘catch up and overtake’ that of West Germany, a process envisaged to be completed by 1961.14 In the meantime, he collectivised the countryside, causing severe food shortages which only increased reliance on imports from China. East German leaders may have had doubts about the size of the 1958 crop in China, but they were keen on more foodstuffs.15 Not only did rice become a staple food in East Germany during the Great Leap Forward, but the margarine industry depended on imports of edible oils from China. Trade delegates pushed hard for greater imports of animal fodder, tobacco and peanuts.16 Such was the pressure that in June 1959 a Chinese trade representative was forced to explain that the fodder exported for pigs in Germany was needed to feed people in China.17

China not only exported more to its Soviet-bloc allies, but also started dumping products in Asia and Africa. At the fortieth anniversary of the October Revolution in Moscow, Khrushchev had triumphantly declared his intention to catch up with the United States in the production of farm products. He also announced a trade offensive. ‘We declare war on you in the peaceful field of trade,’ he threatened, starting a worldwide economic initiative designed to cripple US foreign trade and lure the economies of developing nations into the Soviet embrace. Russia sold tin, zinc and soybean products at prices nobody could match, and delivered lorries, cars and machinery in the Middle East at less than production cost – often with loans offering low interest rates and preferential repayment terms.18 In a planned economy which subordinated economics to politics, the Soviet Union could overpay for raw materials, ignore market prices and sustain heavy losses to win influence around the globe.

China was goaded into its own trade war, dumping goods as if they were all surplus to internal demand in the age of plenty brought about by the Great Leap Forward. Bicycles, sewing machines, thermos flasks, canned pork, fountain pens: all sorts of goods were sold below cost to demonstrate that the country was ahead of the Soviet Union in the race for true communism. In the British colony of Hong Kong, raincoats made in China sold for 40 per cent less than in Guangzhou.19 Leather shoes went for US$1.50 per pair, frozen quail for 8 cents each, violins for US$5.20

But the main enemy in the economic war against imperialism was Japan, and China did its best to undercut its rival in soybean oil, cement, structural steel and window glass. Most of all, clothes became the battlefield where communist supremacy had to be asserted, as products from grey sheeting to cotton prints flooded the market. The cost of exporting goods below economic cost was enormous for a country living on the edge. In 1957 some 8.7 million bolts of cloth were exported for more than US$50 million. In the first nine months of 1958 alone 9.2 million bolts found their way on to the international market, bringing in a mere US$47 million, or 12 per cent less. By the end of the year, as poor farmers in the countryside were facing a winter without cotton-padded clothes, some 14 million bolts had been sold abroad below cost.21 All that was done in order for China to be able to claim the title of the world’s third largest exporter of cloth – instead of being fifth. As Ye Jizhuang acknowledged at a party conference on foreign trade at the end of 1958, flooding the market with goods below cost had been a disaster, as more had been sold than before but for far less revenue: ‘we really hurt ourselves, we frightened our friends and we awakened our enemies’.22

‘I hear that in the Ministry of Foreign Trade some people sign contracts in a very casual way. Who allowed you to export that much?’ Zhou Enlai enquired, distancing himself from the scheme.

‘We thought that we had a big cotton crop and would not encounter any problems so we did not ask for permission,’ interjected Ma Yimin, an administrator from the Ministry of Foreign Trade.23

But neither the cotton crop nor the grain crop, nor, for that matter, industrial output, was anywhere near what had been pledged during the Great Leap Forward. China had a yawning trade deficit. Promised deliveries to socialist allies were not met. Only a third of an agreed 2,000 tonnes of frozen poultry had been handed over to East Germany in 1958, and Walter Ulbricht demanded the rest in time for Christmas. East Germany was owed some 5 to 7 million rubles, Hungary 1.3 million, Czechoslovakia 1.1 million, and all of them requested compensation in the shape of rice, peanuts or animal hides. Zhou agreed to free up an extra 15,000 tonnes of rice and 2,000 tonnes of peanuts for Hungary and Czechoslovakia. He also brushed aside Zhu De’s policy of ‘large imports, large exports’. Noting a shortfall of 400 million yuan in exports to the socialist bloc for 1958, he declared that ‘we are against large imports and large exports, as foreign trade must be measured’.24

How should the shortfall be addressed? Zhou Enlai was the first to state in November 1958 that ‘I would rather that we don’t eat or eat less and consume less, as long as we honour contracts signed with foreigners.’25 ‘To take goods without anything in return is not in the style of socialism,’ he added a few weeks later.26 Deng Xiaoping chimed in: if everybody could just save a few eggs, a pound of meat, a pound of oil and six kilos of grain the entire export problem would simply vanish.27 Li Xiannian, Li Fuchun and Bo Yibo agreed: ‘In order to construct socialism and build a better future, people will agree to eat a little less if we explain the reasons.’28

In order to honour foreign obligations, exports for 1959 were substantially increased from 6.5 to 7.9 billion yuan, while imports grew only 3 per cent to 6.3 billion.29 Grain earmarked for foreign markets, for instance, was doubled to 4 million tonnes.30 Some readers may think that this was merely a few percentages of the total grain output, but in a poor country a few million tonnes made the difference between life and death. As Wang Renzhong bitterly pointed out in 1961, when the country was groping for a way out of the famine, Hubei province (of which he was leader) received 200,000 tonnes from Beijing to fight mass starvation in 1959, but the state exported more than 4 million tonnes the same year.31

The responsibility for reaching export targets was passed on to provincial leaders, each region being given a proportion of the national target. But in the winter of 1958–9 provincial bosses were confronted with growing shortfalls. By January 1959 a mere 80,000 tonnes of grain for export had been procured nationwide. The following month Hubei refused to provide more than 23,000 out of a planned 48,000, while Li Jingquan agreed to come up with two-thirds of Sichuan’s quota, making up the rest in a variety of inferior grains. In Anhui Zeng Xisheng approved the delivery of only 5,000 out of a planned 23,500 tonnes. Fujian handed over nothing.32 In other export commodities too, most provinces met only half of their export quota, and regions such as Guizhou, Gansu and Qinghai slipped to below a third of their obligations.33

Complaints about non-delivery reached Beijing: hospitals and kindergartens in Leningrad, for instance, were out of rice in the middle of the winter.34 As the issue of foreign trade slipped out of control, it was discussed at a party meeting in Shanghai in March–April 1959. Mao stepped in and recommended vegetarianism as a solution: ‘We should save on clothing and food to guarantee exports, otherwise if 650 million people start eating a little more our export surplus will all be eaten up. Horses, cows, sheep, chicken, dogs, pigs: six of the farm animals don’t eat meat, and aren’t they all still alive? Some people don’t eat meat either, old Xu didn’t eat meat and he lived till he was eighty. I heard that Huang Yanpei didn’t eat meat, he too lived to eighty. Can we pass a resolution that nobody should eat meat, and that all of it should be exported?’35 Having heard the Chairman’s command, Peng Zhen, the mayor of Beijing, was willing to go even further, suggesting that the consumption of grain be cut as well in order to increase exports. Zhou Enlai, now emboldened, suggested that ‘we should not eat any pork for three months so that we can guarantee meat exports’.36 Besides meat, the use of edible oil was also curtailed. On 24 May 1959 an order was issued to all provinces: in the interests of the export market and the construction of socialism, no more edible oil should be sold in the countryside.37

But as the pressure to deliver increased, another problem appeared. Local units started cutting corners in order to meet their targets, leading to falling standards in the quality of exports. The Soviet Union lodged repeated complaints about the quality of meat, which was often contaminated by bacteria. Up to a third of the pork tins were rusty.38 Grievances were filed about other goods as well: some 46,000 shoes sent to the Soviet Union had defects, paper exported to Hong Kong was unusable, batteries bought by Iraq were leaking, while the Swiss found that a fifth of the shipped coal consisted of stones. West Germany discovered salmonella in 500 tonnes of eggs, and in Morocco a third of all pumpkin seeds bought from the People’s Republic were infested with insects.39 The cost of replacing tainted merchandise delivered in 1959 amounted to 200 or 300 million yuan, while China also acquired a bad reputation abroad which would prove difficult to shake.40

Still unable to overcome the growing trade deficit, Beijing undertook emergency measures in October 1959. The State Council directed that all commodities which could be reduced or eliminated from domestic consumption be squeezed, while any remaining shortfalls should be replaced by other obtainable goods.41 To back up the readjustment, a special Export Office was established to monitor both the quality and the quantity of all export commodities.42 Trade agreements were made on a calendar basis, and the new arrangements were part of an end-of-year drive to ensure the completion of export targets. This meant that pressure was added just as the country was entering winter. The amount of pork, for instance, was below quota, and in November a campaign was organised to procure an extra 9 million pigs before the end of the year.43

As 1959 came to an end, ruthless extraction meant that 7.9 billion yuan had been exported, in line with Zhou Enlai’s target. Grain and edible oil reached 1.7 billion yuan. Of the 4.2 million tonnes of grain exported that year, 1.42 went to the Soviet Union, a million to Eastern Europe and close to 1.6 million to ‘capitalist countries’.44 But despite all these efforts it was simply not enough. The trade deficit with Eastern Europe in 1958 and with the Soviet Union in 1959 alone amounted to 300 million yuan.45 Tensions would come to a boil in the summer of 1960.

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