CHINESE GROWTH ESTIMATES REVISITED: A CRITIQUE

Created: 4/1/1963

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CIA HISTORICAL REVIEW PROGRAM RELEASE AS SANITIZED

TITLE: Chinese Growth Estimatesritique

AUTHOR: Edward L. Alle

VOLUME: 7 ISSUE: Spring

STUDIES IN

INTELLIGENCE

A ccrccJion ol articles on the historical, or*rational, doctrinal, and theoretical aspects ol intelligence.

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All statements of fact, opinion or analysis expressed in Studies in Intelligence are ihose of

ihe auihors. They do noi necessarily reflect official positions or views of ihc Central Intelligence Agency or any other US Government entity, past or present. Nothing in the contents should be construed as asserting or implying US Government endorsement of an article's factiaiements and interpretations

CIA HISTORICAL REVIEW PROGRAM RELEASE AS SANITIZED

'Lessons from errors past"as inferred from false analysis.

CIIINESE GROWTH ESTIMATESRITIQUE Edward L. Allen

Omphaloskepslsidespread practice, arid nowhere docs It have more dedicated practitioners than among theof the Intelligence profession. Indeed, nationalprocedures have instltutlonalixed this self-contemplation In their "validitys in the production ofrincipal task In these post-mortems is to keep tbe keenly honed scalpels of self-Interest from carving thecorpus into an unrecognizable image of the original Recently the Second Conference on Intelligence Methods held In Washington was privileged to hear the scathing results of an unusually thorough intelligence autopsy entitled

"Seldom has

Western Intelligence been soe said, as it was Inthe Chinese economy. There is no doubtf likely future rates of Chineseerred considerably on the high side.of the facts to be mis-

taken and his aiagnSs^Tthe reasons for the too highto be wide of the mark, at least so fars concerned. If the purpose of the post-mortem Is to learn the lessons of experience, the record should be read straight.

The first Five rear Plan

We may start by reviewing tbe estimative history ofFive Year Plan,

Chinese Estimate,

W allegations with the language In the relative NTE,Communist Capabilities and Probable Coursese find that what wasIs very dlflerent from what he says was

It has become customary wllbln the Intelligence community, whenF-jitltr Year Plan, to describe It as -well conceived and impressively tin pie men ted.'* with Use connote -uoq that the able leadenblp ot Use regimerincipal causal factor. Knowing what we no* know about agricultural eUfflcul-Ucs. Is there JusUflcaUon for per-stating In this formulation? Tbe Plan's neglect of investment In agriculture Iserious black mark against It.

n mld-lMl the regime, alter considerable delay,omprehensive tflfAiflB Year PlanThe Plan Is fairly. Even though tbe Russians nave given extenslvsj technical assistance, tba Chinese Communists ad. mltave encountered great dime ol Ues in Graftinglan. Its delayed announcement was officially attributed to the lack of resource data. dlfficulUes in the coUccueo of slausUcs. lack ot skilled personnel, andIn handling.

When China first began to Issue over .all productione tended to accept them with UtUe.

lthough thelanolng to3 percent Increase Ln total agricultural pro-ducUon during the Five Year Plan period, we believe It will be doing well to0he estimatedIn food outputthe estimated populaUon.

Looking backwardfter completion of the Plan, our Judgment was straightforward. We said In:

lthough the regime hasretense of proceedingto an overall Five Year Plan. It has actually operated from year to year on annual plans which have generally been aimed at correcting the excesses and defects of the previous year. Nevez-tbelesa, the regime demonstrated Its capability to control the economy sufaclcoUy to Limit consumpUoo and to marshalfor

Chiiwie Ertimorts

Chinese frfrmofei

eomraodlUea should probably t* retardedaximum, par. Ueularlyron and crudehe estimatedof Industrial products, as projected for IBS? and mo. depends upon construcUon or Improvement ol capacity, theof advanced techniques by the Chinese Communists, the continuance of Soviet Bloc aid. and continued Importation of capital goods from theith the exception of pig iron, steel trucks and food crops, our estimates of 1WT production are of the approximate order of magnitude of the Chinesegoals. With reipect to crude oil ande believe that the Coauounlat goals are overly optimistic. .

Thus the reader Is given the best estimates possible ofIn agreement with the official Chinese ortold the basis of future projections. He Is also told which estimates had not been cross-checked andmust be considered questionable although still the best available. The analytical procedures werelective. and fully explained. They would not seem toiew that "theyufficiently biassed ture lo make us vulnerable to the claims of the Leap

The validity of the Chinese data continued Inatter prominent in the estimators' minds;eparate annex was devoted toof Chinese Communist economic statisticsto their deterioration caused by the Leap Forward,noted only In hindsight

Why Estimate Where Facts Are Scarce?

If he absolves us of the charge of unquestioning acceptance of Chinese statistics, the reader may still ask. as fflfli LaV Invites him to. why estimate the production of specific com-modi tics in the face of great uncertainty? Why attempt to aggregate these Into totals of Industrial production? Why go further to the construction of estimates of levels of total(QNP)?

If there had been no other reasons, policy considerations at that time made It Imperativeomplete picture of the Chinese economy be developed. Anyone reviewing the tables of contents ofould be struck by the unusual amount of space devoted to International andtrade and transport, the very detailed consideration of the

quantities of goods moving over transportroads, inland waterways, and rnaritimeseems out of place at the National Estimate level. But these were the years of thehose who stronglyaval blockade of the Chinese coast as an allegedly powerful weapon to counter Chinese intransigence.

The Intelligence officers who represented the servicesblockade based their case for the desirability and effec-tivcness ofeasureiew that the railroads were capable of carrying only about half the tonnage announced officially by theiew which could be held only if the level of economic activity in the country were granted to be no more than about hah* of that claimed by theith this low rail capacitymall amount of Imports could be moved over the Inland transport system, and China would be heavily dependent on the import of goods by sea.lockade of her ports would have seriousfor the economy and military strength of Communist China

Those who opposed this view rested their stand on CIA'sand painstakingly constructed statistical arraysthe Chinese economy, which showed that it had indeed expanded very rapidly and that this growth must have been paralleledharp rise in internal freight movement.movements over rail connections with the USSR, on which at least half of China's foreign trade flowed and more could flow if Chinese ports were blockaded. The crucialtoa blockade be effective ordid not require an absolutely precise measure of Chineseactivity. But it did require the careful piecing togetheronsistent picture of the total Chinesesome elementary correlationshow that China had grown very much larger in industrial output, hadmuch of Its trade to the USSR, and had developed the Internal transport services needed. The constructionotal picture of the economy is as essential to economicas the piecing together of skeletal structure in

' Sec the Joint Staff and Air Force footnotes to.

The entire statistical base ofvery fragment of data, was thus subjected to microscopic examination and to serious questioning long before the Leap Forward started. The Intel-llgence community was not cither "belated" orharges, in recognizing the likelihoodry NTE4 to the present time hasthe "numbers problem" and qualified its estimates accordingly.

Faced with-the same kind of Intelligence problem In Cuba' today, we And ourselves turning to the same techniques of analysis. The careful constructionotal picture of the Cuban economy, admittedly from scarce and often Inaccurate data. Is an essential to answer the keyhas happened to the Cuban economy since Castro? how much must the USSR put in this year to keep It going? Theto the quantitative estimate remains today what It was Inis, reliance on impressionistic bits and pieces of evidence that make the attempted over-all estimate no moreallimaufry of trivia.

Stance for the Leap Forward

So much for the situationooking atnow, and considering that they were madecarcity of hard facts, this reviewer concludeshave stood the test of time. This judgmentar^vaVLaVVal somewhat condescending view that"not badlys for the Leapand the immediate yearscer-

tainly quite correct In stating that our estimates of likely rates of Industrial growth have proved to be very wide of the mark. It is both legitimate and Important to ask why this was so.

Every Intelligence estimate of future developments must rest on one or more hypotheses basic to the projection. On the eve of the Leapational Estimate,, wasWhat were its hypotheses? They emerge clearly, as follows:

The leadership of the [Chinese Communist) party continues to demonstrate cohesion and determination and, at the sameonsiderable degree ofp. 1)

] Chinese Estimates

2 "Communist China will almost certainly remain firmly aligned with thelthough there will almostbe some frictions, these are unlikely to Impair Sino-Soriet cooperation during the period of this estimate [through (p. 3)

ecause the regime Is determined to IndustrlaliieIt will have few material goods to offermay be Increased peasant dissatisfaction, *

the net effect on the regime's [social control] programs will be no moreomplicating or retardingp. 1)

The Leap Forward

Within two months of the publication of this estimate the Chinese leadership had embarkedompletely unforeseen course which has effectively brought her pretension to great power status lo an indefinite halt. The carefully considered hypotheses on which our growth projections were based proved lo be very wrong indeed!

First of all. the disruptive commune organizational change and the useless backyard industry program upset theholding program In agriculture The so-called Leapeliminated the thin margin between agriculturaland the population's minimum consumption needs, wiping out the nation's annual savings increment and hence newthe Indispensable ingredient of growth.

Secondly, the all-Important economic gains from thewith the Soviettechnical assistance.sacrificed on the ideological altar of Chinese pretensions to Bloc leadership. The exacerbation of tensionslimax inhen Khrushchev's patience wore thin and the Soviet technicians werewithdrawn from China. This action effectively ended large-scale outside financial and technical assistance, the key to rapid mdustrlallzation.

Thirdly, the Chinese leadership decided to try to keep as many people as possible alive, which means that its smallexchange earnings were (and are) being used up largely to purchase grain and fertiliser in the West.ational policy would be just theto let the leastmembers of society starve, to limit the number of births

- -

frfi'mofti

as severely as possible, and to use the very scarce foreignto import the technical skills which are in shortand are needed to get industry rolling again.

Finally, to the bungling of man was added the unkindnesj of nature, which presented Chinaeries of subnormal growing conditions for food crops. Nevertheless, the Chinese have rebuffed Soviet attempts to patch up the IdeologicalIndeed, the dispute has been inflamed nearly to the point of open break. The result is that Mamland China,hining showcase of Communist success in bringing rapid industrialization and growth to an underdevelopedisery tarnished and discredited model.

This reviewer submits that the incredible blunders of the Chinese leaders could not reasonably have been foreseen.estimates made by mere men cannot hope to beln every case; there is always an element of theabout the future. Prescience, omniscience with regard to the future,aculty denied to mortals.

hat "the West was so slow Ln fully appreciating the outrageous character of the Leaput nine months after the initiation of thisIA report. Evaluation of Mainland8 Agricultural Production Claims, dated, declared:

An examination of the pracUces institutedonsideration of their probable effects strongly suggest that production claims advanced by Pel ping have beenverstated.

This report also gave estimates of the likely levels ofoutput far below the Chinese claimsaid that "The official claimsre patentlyWith respect toclaims this NIEffirmed, "Wetotal industrial output8 increasedercent, about two-thirds of the amountalong (paragraphst concluded: "Therecords8 were achieved at considerablehuman cost. The obsession with quantity and thethe backyard furnace movement ledreatt is almost certain that they [the Chi-

ir a

aimaltt

newt} cmnnot re-establish and maintain either the rate ofor tbe intensity of human effort attained"

Estimates of the Likely future rates of growth werereduced In subsequent NTE's as the situation In China became clearer, particularly the devastating Impact onIndustrial output of the withdrawal of Soiiet technicians and technical assistance. ffM HBbssv*e; should have written these estunates down to tero rather than merely cut back the Chinese claims rather sharply. Be also believes that the pattern making for stagnation and

chaos should have been visible early. How? By having

analyst adoptrankly more intuitive and premonitoryWe cannot, he warns us, use the Inductive method "to obtain confident generalizations about'the ability of Communist China's leadership.'*

Future Research on the Chinese

the future emerge from (JHBHsflLsw'

analysis of past research failures? He Is not optimistic. He concludes that the three most Important factors affecting China's futurehe forces of nature, anhe state of Slno-Sovlet relations, which Is fullhe wisdom and realism of the regime, ansubject. Therefore our estunates will have to be "much less determinate than in theontent withdescriptions and "pointing out theoretical strengths andhat, if anything, useful to thewould Bow from such mWlilgence reports is not dear. Norof the chances forresearch on the main determinants seem to hold up.

By the "lours of nature" "saTfflTfJJBV rr.tan (a: least very largely) future weather conditions and the effect on crop yields. Although the weather In any single futureseason Is not subject to precise measurement, certainly weather-yield relationships over tune are susceptible tonorms can be worked out, and future time periods longerear can be predicted with some confldertce.

The state of Sine-Soviet relations, to be sure. Is full ofBut the economic effectsariety of possiblequo, complete break,

are doable research projects end need lo be done before the fact If the leaderships eitemauves ere to be assessed with any appreclaUon of penalty or fain.

The "wisdom and realism of tbe regime"road subject, but, ha ring laidesearch program to measure the eon-sequences of the various possible levels of Sino-Sovletwe haveood start on the foreign policy side. With respect to other foreign economic activities affecting growth, the Impact ofurrent policy as grain andimports on growthTs mr>asurable. With respect w'dd-mestlc economic and social policy. It Is equally possible tothe factors of basic importance, such as programs which would increase future agricultural output (fertiliser,greater local autonomy) or decrease consumptionbirth control) and to estimate what the regime'sare to carry out each.

This^ prescription *cress rigidess amblUous analyticalowever, it will enable intelligence to provide policymakers with "We think China is moat unlikely toorld power in ten years- rather than an unhelpful "We really don't know what willhe needs for Intelligence assistance do not fade away because the factual data on which to basebecome scares.

One should also stress. In the absence of key facts, the need to work low-grade ores in order to lay the basis for improved future estimates. This takes time and people. An example In the Chinese context Is the book published by Choc-Ming U, Sfafisficol System ot Communist China (University. This very detailed analysis of the Chinese statistical system, mcluding what happened to it during the Leap Forward and subsequently, was made possible by agrant from an mtelligence service. The project, under competent Western supervision, made use of the language skills of native-born Chinese, who combed the press andliterature in exhaustive detail Li's Integration of the thousands of Individual references and examples of Chinese statistical practices over Urns is -must" reading for anyone who hopes to understand recent Chinese economic history or

ErfimolM

Interpret the current day-to-day rtaUitlcal developments in Cbina.

An even more Ume-corisumlng project on agriculture Isway. The objective of this research Is to providecommunity with tha means to assessin China, which are generally admitted tokey to economic success and growth. We currentlyextensive weather data on China, in order to makeuse of it. we need far more complete and reliableon land-use^attems'^ahd historical data onof past effects of climate, fertilizers,improved seeds, etc. on local growing areas. Whenand analyzed, the resulting yardsticks willto knowood deal more precision, and on acurrent basis, what success or failure China isthe crop year develops.

Tlie Big PUture

the organizational set-up in

research was wrong. He tells us:

Fine divisions of research rerponnbUlty had beenthe Leap Forward to pursue research In tome depth.served us IH as InlonnaUoo dried up. Mote andlost theu moorings, fewer people had the bigin the scramble to keep up intelligence production moreuncoordinated conjecture atall

s unaware of the formal and In-formal mechanisms for coordination that existet me citeChina Committee of CIA's Office of Research and Reports. To provide an opportunity for all tbe various functional and area specialists dealing withChina to discuss problems of mutual interest. ORR established this Committeey tbe endt had metimes. Members of the Committee and other interested Individuals from other offices (andother governments) used these meetings to exchange views on developments taking place In Communist China. Tbe Committeeehicle for the Informal exchange ofand ideas rather than for formal research. Ita forum for the discussion of research techniques and

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eans for lmmetuat* group action on any prob-lenii of general concern to ORR,ommon* In which analyau can develop closer working reUtlorishlpa. Theare devoted generally to the discussion of current topics concerning Communist China and to briefings by members and Invited speakers on research problems and other topics of interest.

In view orfmp.^diLo:ul

ducted In isolation" and exhortation to -benefit from the In-rights of poLtUcaJt is noteworthy that the China Committee was addressed by or had access to Just aboutwho knew anything about China and was clearable.geographers, area specialists, and political scientist! (as well as at least one anthropologist) often attendedand participated In discussions. The CorruTuttee was par-Ucularly active. when the Leap Forwardwas at its height. Considerable time was devoted to evaluations of the production claims of China. Long before the official Chinese admission that errors had been made Committee members concluded that the Communists hadtheir production achievementsattention was given In the Committee sessions to the problems and consequences oflanned economyfalse statistical data. In spite of these successes, no one foresaw far Ln advance that China was headed for economic stagnation, that Irrationality rather than reason would rule In Peking prescience failed us in the Western world.

Probably even more Important than the China Committee was the extensive interchange between analysts needed topapers before publication. This goes on all the time, not only within disciplines but also among the specializedcomponents.

To say that. analysts were Isolated Is untrue tothat they should have foreseen China's deep-seateddifferences earlier Is an Idle charge Prornefl^^B

f" one< because in the absence of data they were using his own recommendedmore frankly intuitive and premonitoryt proved to bevery alendcr reed Indeed

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