$Unique_ID{COW00836} $Pretitle{260} $Title{China Chapter 7B. Manufacturing} $Subtitle{} $Author{Michael L. Waddle} $Affiliation{HQ, Department of the Army} $Subject{production industry china plants million tons steel equipment percent large} $Date{1989} $Log{} Country: China Book: China, A Country Study Author: Michael L. Waddle Affiliation: HQ, Department of the Army Date: 1989 Chapter 7B. Manufacturing China's manufacturing sector developed according to the principle of "walking on two legs," a policy of self-reliance introduced in the 1950s. In the 1980s one leg consisted of the state-funded and state-controlled large and medium-sized plants with the most qualified personnel and the most advanced equipment. The other leg was small-scale plants using inferior equipment and large amounts of local labor. Together, the two sectors produced a wide range of industrial products. In most cases the larger plants accounted for the bulk of production, but the smaller enterprises were increasing their share and producing a significant percentage of cement, fertilizers, and farm machinery. Iron and Steel Before 1949 the iron and steel industry was small and dispersed; the Japanese had built the only modern steel facility just after World War I at Anshan, Liaoning Province. Although Japan eventually built nine blast furnaces in Anshan, total steel output by all plants never exceeded 1 million tons annually. Much of the Japanese equipment was either damaged in the Chinese civil war (1945-49) or removed by the Soviets at the end of World War II. Since the establishment of the People's Republic, considerable investment has consistently gone to expand steel output. Steel production, however, has been very sensitive to changes in economic policies and political climate (see fig. 12). Steel output rose steadily in the 1950s, when Soviet advisers helped establish the basis of the iron and steel industry, installing numerous Soviet-designed blast and open-hearth furnaces. The Great Leap Forward saw a significant increase in the number of primitive backyard furnaces producing poor-quality pig iron; numerous new, small, modern plants; overuse of large plants; and exaggerated production reports. In 1961 the industry broke down. Nearly all small plants were closed, and output fell to less than half the amount reported for 1960. From 1960 to 1965, output gradually recovered as equipment was repaired; basic oxygen furnaces were purchased from Austria and electric furnaces from Japan. Production fell in 1967 and 1968 during the Cultural Revolution but grew rapidly in the relative political stability from 1969 through the early 1970s. In the mid-1970s political upheaval retarded output, as did the catastrophic Tangshan earthquake of 1976. That event severely damaged the Tangshan steel plant and the Kailuan coal mines. The latter are major sources of coking coal. After 1976 output climbed steadily, reaching 34.5 million tons in 1979. Steel production for 1986 was 50 million tons. Steel was viewed as the cornerstone or "key link" of both the Great Leap Forward and the Four Modernizations programs (see Economic Policies, 1949-80, ch. 5). But the post-Mao leadership was determined not to repeat the economically disastrous Great Leap Forward policies: in 1978 it called for a period of readjustment and a cutback in steel investment. It had set a goal, however, of producing 80 million tons of steel by 2000. Production targets were to be met by renovating and improving existing facilities, rather than building new ones. Improvements in existing plants reduced steel-industry energy consumption from 73.8 million tons of coal in 1978 to 69.1 million tons in 1983, and production increased by 26 percent. The Chinese realized they would need outside assistance to fully modernize their steel industry. They sought hardware, technology transfer, and managerial and planning assistance. In 1987 China was the world's fifth largest producer of iron and steel but lagged far behind developed countries in production methods and quality. Most steel capacity was in open-hearth furnaces with basic oxygen furnaces, electric furnaces, and side-blown converters. Much of the iron and coking coal used in making steel was of low quality. Approximately 25 percent of the country's coal went for steel production in 1985. In 1985 capital construction, considered excessive by the Chinese, exacerbated existing shortages of rolled steel, and imports filled 25 percent of domestic demand. The Ministry of Metallurgical Industry reported in 1985 that China had 13 plants capable of producing at least 1 million tons per year. Accounting for approximately 65 percent of total production, these mills were built mostly during the 1950s. The Anshan plant was the oldest and most productive of all, producing 7 million tons per year. The next largest was in Wuhan. It was constructed in the 1950s with Soviet aid. China began construction in 1978 on its first integrated steel complex, the Baoshan iron and steel works in Shanghai, but the completion date moved from 1982 to 1985 and finally to 1988. Besides the larger plants, about 800 smaller mills were dispersed throughout the country in 1985. They ranged from specialty mills producing 500,000 tons per year to very small operations under local jurisdiction or other ministries. Many of the smaller mills were legacies of the Great Leap Forward, when local authorities had hurriedly established their own steel-making facilities. In the mid-1980s the government hoped to phase out these inefficient plants in favor of larger, more productive plants. In the late 1980s, it was apparent that steel output would remain insufficient to meet the needs of the Four Modernizations. During the period covered by the Seventh Five-Year Plan, imports were expected to average 41 percent of domestic output. Thin rolled sheets, used to make such items as motor vehicles, washing machines, and refrigerators, were in extremely short supply. In 1984 China had to import about half its steel sheet and about 80 percent of its steel plate. Production of tubes and pipes also was inadequate, and approximately 50 percent of all tubes had to be imported. The country was most proficient in the production of steel bars, but it still had to import an estimated 1.8 million tons of rods and bars in 1984. In 1985 China imported a record 15 million tons of steel, more than two-thirds of it from Japan. Machine Building The machinery industry has been a leading priority since the founding of the People's Republic. The industry expanded from a few small assembly and repair facilities before 1949 to a large, widely distributed machine-building sector producing many kinds of modern equipment. However, as of 1987 the overall level of technology was still relatively backward. In the late 1970s and early 1980s, China intended to use large- scale imports to modernize the machinery industry but later decided that limiting imports to critical areas would be less costly. The former Ministry of Machine-Building Industry's plans called for about 60 percent of the industry's products in 1990 to reach the technological level of the industrialized countries during the 1970s and 1980s. Products built to international standards received priority in allocation of funds, materials, and energy. In 1987 the machinery industry was distributed throughout the country. Nearly all counties and towns had one or more machine factories. Major machinery centers were Shanghai, Tianjin, Shenyang, Beijing, Harbin, Changchun, Taiyuan, Luoyang, Wuhan, Chongqing, Chengdu, Xi'an, and Lanzhou. The machinery industry was selected by the State Council to lead the way in management reform. China's leaders realized that the quality of machinery would determine the success of modernization in all areas of the economy. The industry's extreme compartmentalization (a legacy of the Maoist obsession with self-reliance) showed a lack of communication among government offices or within regions. Skilled managers were also lacking. Machine Tools In 1986 about 120 major enterprises produced most of China's machine tools. Many of the large plants were in the east, north, and northeast, particularly in Beijing, Shanghai, Shenyang, Harbin, and Tianjin. In the early and mid-1980s, a number of agreements with foreign manufacturers aimed to help China upgrade its machine-tool industry. The Shanghai municipal government also asked assistance from the World Bank in preparing and financing a comprehensive modernization scheme for the Shanghai machine-tool industry. Overall, the machine-tool industry was based on 1960s technology. Many of the tools had a service life of only five to seven years, compared with twelve to fifteen years in industrialized countries. The tools were generally unreliable and were poorly suited for precision work because of outdated design, low-quality purchased components, substandard manufacturing facilities, and a lack of production-management expertise. Electric Power Equipment By the early 1970s, major generator production centers in Harbin, Shanghai, Beijing, and Deyang (in Sichuan Province) had built both hydroelectric and thermal generators as large as 300 megawatts. There also were numerous small and medium-sized plants producing generators in the 3.2- to 80-megawatt range. As of 1986 China manufactured condenser-type turbo-generating units with capacities of 6,000 to 300,000 kilowatts; back-pressure extraction generating units with capacities of 12,000 to 50,000 kilowatts; geothermal facilities with capacities of 1,000 to 3,000 kilowatts; and hydroelectric power equipment consisting of generator equipment with an 18-million-kilowatt capacity. Deficiencies showed in power-generating equipment and transmission technology, and significant problems existed in direct-current transmission, particularly in converter technology. China continued to lack experience in design and production of high-volt-ampere transformers and circuit breakers. Transportation Equipment The automotive industry, which grew substantially after 1949, did not keep pace with the demands of modernization. In the early 1980s, demand was still low. A surge in demand resulted in the production of 400,000 vehicles and the importation of another 300,000 vehicles through early 1985. In the second half of 1985, stringent administrative measures curtailed most imports, and in early 1986 domestic production was reduced to 13 percent of that in early 1985. One cause for this was a large surplus created by high production and importation levels in 1984 and 1985. Although 1986 production levels were considered a short-term slowdown, the targets of the Seventh Five-Year Plan were quite low. China's investment in the railroad industry during the Seventh Five- Year Plan was higher than that for any previous five-year plan, with an 80-percent increase over the Sixth Five-Year Plan (1981-85). The country allocated -Y10 billion to manufacture and purchase locomotives, and the remainder went to repair and rebuild obsolete equipment. During the Seventh Five-Year Plan, the Ministry of Railways set a production goal of 5,000 locomotives, including over 800 electric and over 2,000 diesel locomotives. The ministry also planned to manufacture 110,000 freight and 10,000 passenger cars. Despite these ambitious domestic production targets, China had to rely heavily on imported technology to modernize its railroad rolling stock. From 1961 to 1987, China's maritime fleet grew faster than that of any other country in the world. During that time, the merchant fleet tonnage increased by an average 13.6 percent per year. From 1982 to 1987, Chinese shipyards produced 55 ships, including bulk cargo vessels, freighters, tankers, container ships, partial container ships, and passenger-cargo vessels, with a total deadweight tonnage of more than 700,000 million tons. At the end of 1985, about 17 percent of China's merchant fleet was built domestically. In the late 1950s, China began developing its own aircraft, known as the Yun, or Y series. China built 135 civil aircraft between 1981 and 1985 and was scheduled to build hundreds more during the Seventh Five-Year Plan. Civil aircraft and aircraft engines were produced in large plants located primarily in Shanghai, Xi'an, Harbin, and Shenyang. Medium-sized factories produced the necessary test equipment, components, avionics, and accessories. China hoped for eventual self-reliance in all aircraft production, but it still imported aircraft in 1987. Metallurgical Equipment Much equipment in the metallurgical industry was based on Japanese designs of the 1930s and Soviet designs of the 1950s. Two-thirds of the major equipment at Anshan, one of the largest plants in China was built during the 1930s and 1950s. In general, major metallurgical equipment was more technologically advanced than instruments and control systems. Measuring and monitoring instruments, essential to quality control, were in short supply. Most of the iron- and steel-making equipment in general use was domestically produced. This included blast furnaces based on Chinese improvements to old Soviet designs, ore-beneficiation plants, open-hearth furnaces, electric furnaces, and a wide range of steel-finishing equipment. To achieve a higher technological level, various pieces of equipment were imported because China had not assimilated the technology necessary for domestic production. In most instances the industry imported only the main equipment, neglecting necessary control instruments and auxiliary technologies. Electronics In 1987 China's electronics industry was about ten to fifteen years behind those of the industrialized nations. Key problems were the inability to transfer technology from research to production and continued reliance on hand labor. Also, impatience to reach Western standards sometimes proved counterproductive. For example, instead of buying a complex item such as a microprocessor abroad, China chose to develop its own, at great expense. In 1985 the electronics industry consisted of approximately 2,400 enterprises, 100 research institutions, 4 institutes of higher learning, and 20 secondary vocational schools. The industry employed some 1.4 million people, including 130,000 technical personnel. Besides the approximately 2,000 kinds of electronic components and large-scale integrated circuits produced by the industry, it made 400 varieties of electronic machinery, including electronic computers, television broadcast transmitters and receivers, and radar and communications equipment. In the 1980s China made great strides in the production of consumer electronic products, such as televisions, radios, and tape recorders. Chemicals China's chemical industry evolved from a negligible base in 1949, grew substantially in the 1950s and early 1960s, and received major emphasis in the late 1960s and 1970s. In 1984 chemical products served primarily agriculture and light industry. The three main areas of chemical manufacturing were chemical fertilizers, basic chemicals, and organically synthesized products. Chemical fertilizer was consistently regarded as the key to increased agricultural output. The output of many chemical products rose steadily, sometimes dramatically, from 1978 to 1986. Except for a few items, such as soda ash and synthetic rubber, the great majority of chemical products, including fertilizer, came from small factories. Small-scale plants could be built more quickly and inexpensively than large, modern plants and were designed to use low-quality local resources, such as small deposits of coal or natural gas. They also minimized demands on the overworked transportation system. Larger and more modern fertilizer plants were located in every special municipality, province, and autonomous region. In the early 1970s, China negotiated contracts with foreign firms for construction of thirteen large nitrogenous-fertilizer plants. By 1980 all thirteen plants had been completed, and ten were fully operational. From 1980 to 1984, many inefficient fertilizer plants were shut down, and by 1984 additional plants were being built with the most advanced equipment available. To capitalize on China's rich mineral resources, the new plants were being constructed close to coal, phosphate, and potassium deposits. Compared with advanced countries, China's chemical fertilizers lacked phosphate and potassium and contained too much nitrogen. To boost supplies of phosphate and potassium, China relied heavily on imports during the Sixth Five-Year Plan. Basic chemical production grew rapidly after 1949. In 1985 production of sulfuric acid was approximately 6.7 million tons. Major production centers were in Nanjing and Luda, and large plants were located at many chemical-fertilizer complexes. Soda-ash output in 1985 was 2 million tons; production was concentrated near major sources of salt, such as large coastal cities, Sichuan and Qinghai provinces, and Nei Monggol Autonomous Region. Production of caustic soda was scattered at large facilities in Luda, Tianjin, Shanghai, Taiyuan, Shenyang, and Chongqing. In 1985 output of caustic soda was 2.4 million tons. Nitric acid and hydrochloric acid were produced in the northeast and in Shanghai and Tianjin. The chemical industry's organic-synthesis branch manufactured plastics, synthetic rubber, synthetic fibers, dyes, pharmaceuticals, and paint. Plastics, synthetic rubber, and synthetic fibers such as nylon were particularly important in the modernization drive because they were used to produce such basic consumer goods as footwear and clothing. From 1979 to 1985, plastics production grew from 793,000 tons to 1.2 million tons and chemical fibers from 326,300 tons to 947,800 tons. The major centers for organic synthesis included Shanghai, Jilin, Beijing, Tianjin, Taiyuan, Jinxi, and Guangzhou. The industry received large amounts of foreign machinery in the 1970s. Building Materials Large-scale capital construction dramatically increased the demand for building materials. Like the chemical fertilizer industry, cement production featured simultaneous development of small-scale plants and large, modern facilities. Widespread construction of small-scale cement plants began in 1958. By the mid-1970s, these plants existed in 80 percent of China's counties; in 1984 they accounted for a major share of national cement output. These local plants varied widely in size and technology. In 1983 China produced approximately 108 million tons of cement, second in the world to the Soviet Union. In 1984 production increased 14 percent, to 123 million tons and, except for Xizang (Tibet) and Ningxia-Hui autonomous regions, every province, autonomous region, and special municipality had plants capable of producing 500,000 tons of cement per year. In 1985 cement production increased to almost 146 million tons. China's building-materials industry developed rapidly and reached an output value of -Y28.7 billion in 1984. It manufactured over 500 kinds of products and employed approximately 3.8 million people in 1984. These materials were used in the metallurgical, machinery, electronics, aviation, and national defense industries and in civil engineering projects. The main production centers for building materials were Beijing, Wuhan, and Harbin. By the mid-1980s China was one of the world's primary producers of plate glass, a critical building material. Production in 1985 reached 49.4 million cases, and twenty urban glass factories each produced 500,000 cases annually. Three large glass plants, each having a production capacity of 1.2 million standard cases, were scheduled for completion in 1985 in Luoyang, Qinhuangdao, and Nanning. Paper In the early 1980s, China's serious shortage of productive forest combined with outdated technology to create a shortage of pulp and paper at a time of increasing demand. From 1981 to 1986, the annual growth rate of paper production was 7.3 percent. In 1986, however, only 20 percent of paper pulp was made of wood; the remainder derived from grass fiber. China's more than 1,500 paper mills produced approximately 45.4 million tons and over 500 different kinds of machine-made paper in 1986. Approximately 1 million tons of pulp and paper were imported annually. In 1986 China focused on pollution control, increased product variety, reduced use of fiber and chemical ingredients, and more efficient use of energy as measures to improve production. China also sought foreign assistance to achieve these goals. Textiles China has a long and rich history in production of silk, bast fiber, and cotton textiles. The earliest silk producer, China began exporting to West Asia and Europe around 20 B.C. Ramie, a grass used to produce woven fabrics, fish lines, and fish nets, was first cultivated around 1000 B.C. and is found in the provinces of Hunan, Hubei, Sichuan, Guangdong, and Guizhou and the Guangxi-Zhuang Autonomous Region. Cotton spinning and weaving was the largest domestic industry in the late nineteenth and early twentieth centuries. After a respectable but inconsistent performance from 1949 to 1978, textile production increased significantly with the introduction of the responsibility system (see Glossary) for agriculture in 1979 (see Crops, ch. 6). By 1979 supplies of textiles had improved, the cloth-rationing system (in force since 1949) had ended, and the industry had begun to flourish. From 1979 to 1984, the output value of the textile industry rose approximately 13 percent annually. In 1984 China had about 12,000 enterprises producing cotton and woolen goods, silk, linen, chemical fibers, prints and dyed goods, knitwear, and textile machinery. Textile production was 15.4 percent of the country's total industrial output value in 1984. Textile exports in 1984 (excluding silk goods) totaled US $4.2 billion, up 21.7 percent over 1983, and accounted for 18.7 percent of the nation's total export value. By 1986 textiles had replaced oil as the top foreign-exchange earner. Traditionally, the coastal areas had the most modern textile equipment and facilities. Shanghai and Jiangsu Province were the nerve centers of the industry, accounting for 31.6 percent of the total gross-output value for textiles in 1983. Other major textile areas were Shandong, Liaoning, Hubei, Zhejiang, and Hebei provinces. After 1949 cotton textile production was reorganized and expanded to meet consumer needs. Cotton cultivation increased in the areas around the established spinning centers in the port cities of Shanghai, Qingdao, Tianjin, and Guangzhou. New spinning and weaving facilities opened near the inland cotton-producing regions. In 1983 China produced 4.6 millions tons of cotton, more than double the 1978 total. China still was the world's largest silk producer in 1985, manufacturing approximately 422,000 meters of silk textiles. Shanghai and Jiangsu and Zhejiang provinces were the main silk centers. In 1985 China also produced approximately 125,000 tons of knitting wool, 218 million meters of woolen piece goods, 3.5 million tons of yarn, and 541,000 tons of chemical fibers. Food Processing Food processing made significant advances in China after 1949. The most basic improvement was the nearly universal establishment of mechanized grain-milling facilities in rural production units. The processing of food into finished and packaged products also grew extensively. Although a growing number of food products were packaged for export, China's food processing capacity was relatively low in the mid-1980s. An immense variety of baked goods and candies were produced for local consumption, and most Chinese continued to resist processed food. Rising standards of living, however, increased the demand for processed food because of its nutritional and hygienic advantages. The beverage industry was very large and widespread. All regions had breweries and distilleries producing beer and a variety of domestic and Western alcoholic beverages. China successfully exported several varieties of beer and liquor, and domestic soft-drink production was widespread. Other Consumer Goods In the first thirty years of the People's Republic, many basic consumer goods were scarce because of the emphasis on heavy industry. The 1979 economic reform program resulted, however, in a consumer goods explosion. For example, television production increased from approximately 500,000 sets in 1978 to over 16 million sets by 1985. During the same period, bicycle output increased by a factor of about three and one-half, production of electric fans increased twelvefold, and the output of radios doubled. In the first half of 1985, compared with the same period in 1984, production of television sets, washing machines, electric fans, and refrigerators increased dramatically. Refrigerators, washing machines, and televisions included imported components. In 1985 economic planners decided to limit production of refrigerators because they estimated that supply would outstrip demand by 5.9 million units in 1990. The following year, authorities curbed production of televisions to emphasize quality over quantity. Construction Housing Construction Modern housing has been in chronic shortage in contemporary China. Housing conditions in 1949 were primitive and crowded, and massive population growth since then has placed great strains on the nation's building industry. According to 1985 estimates, 46 million additional units of housing, or about 2.4 billion square meters of floor space, would be needed by the year 2000 to house every urban family. Adequate housing was defined as an average of eight square meters of living space per capita. As of 1985, however, the average per capita urban living space, for example, was only 6.7 square meters. Housing specialists suggested that the housing construction and allocation system be reformed and that the eight-square-meter target be achieved in two stages: six square meters by 1990 and the additional two square meters between 1990 and 2000. To help relieve the situation, urban enterprises were increasing investment in housing for workers. In 1985 housing built by state and collective enterprises in cities and towns totaled 130 million square meters of floor space. In the countryside, housing built by farmers was 700 million square meters. Capital Construction Since the 1950s, the capital construction industry has been plagued by excessive growth and compartmentalization. There were frequent cost overruns and construction delays, and resources were overtaxed. Project directors often failed to predict accurately the need for such elements as transportation, raw materials, and energy. A large number of small factories were built, providing surplus capacity at the national level but with deficient economies of scale at the plant level. Poor cooperation among ministries and provincial-level units resulted in unnecessary duplication. Because each area strove for self-sufficiency in all phases of construction, specialization suffered. Since the early years of the People's Republic, overinvestment in construction has been a persistent problem. Fiscal reforms in 1979 and 1980 exacerbated overinvestment by allowing local governments to keep a much greater percentage of the revenue from enterprises in their respective areas. Local governments could then use the retained earnings to invest in factories in their areas. These investments, falling outside the national economic plan, interfered with the central government's control of capital investment. From 1979 to 1981 the economy underwent a "period of readjustment," during which the investment budget for capital construction was sharply reduced (see Reform of the Economic System, Beginning in 1979, ch. 5). This administrative solution to overinvestment proved ineffective, and later reforms concentrated on economic measures such as tax levies to discourage investment. The issuance of interest-bearing loans instead of grants was also intended to control construction growth. Despite reforms, capital construction continued at a heated pace in 1986. The majority of the new investment was unplanned, coming from loans or enterprises' internal capital. During the Seventh Five-Year Plan, 925 medium- and large-scale projects were scheduled. The government planned to allocate -Y1.3 trillion for fixed assets, an increase of 70 percent over the Sixth Five-Year Plan. Forty percent of the funds were allocated for new projects and the remaining 60 percent for renovation or expansion of existing facilities. Some of the projects involved were power-generating stations, coal mines, railroads, ports, airports, and raw-material production centers.