Article 28 of the Common Program

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In territories controlled by the Nationalist government, Japanese-owned companies dominated China's industrial landscape. By 1942, they accounted for over 40% of industrial horsepower and employed at least 100,000 workers. Following Japan's defeat in 1945, Chiang Kai-shek's government seized over two thousand Japanese-owned industrial and mining establishments, transforming them into state enterprises under the National Resources Commission. Consequently, the Guomindang's defeat left Mao Zedong with a substantial industrial inheritance. This included 90% of China's iron and steel production, all of its non-ferrous metals, two-thirds of its electricity, nearly half of its cement, a third of its coal, and 60% of its textile looms. Despite the often dilapidated condition of these assets, the new regime readily accepted them and implemented a policy of retaining all existing technical and managerial personnel.
In 1949, the newly established government nationalized, for example, the majority of coal mines. Subsequently, the first five-year plan was launched in 1953, prioritizing coal development. Following the outbreak of the Korean War in 1950, national defense industries were elevated to paramount importance. See for coal industry Article 35 Given the priority accorded to heavy industry, all energy sectors, including coal, electricity, and petroleum, were placed under central planning and prioritized for development. Local governments within this centrally planned system had limited autonomy and were primarily responsible for fulfilling the directives outlined in the national plans. The Soviet economic planning model, which heavily influenced China's system, employed a hierarchical structure. State enterprises can be categorized as directly controlled by the central government; Owned by the central government but administered by local governments or other agencies and enterprises controlled by local governments or other agencies. "Local enterprises" were primarily small or medium-sized, often in light industry. Central authorities set production targets and determined operational rules and scope., and the State Planning Commission (SPC) played a crucial role in coordinating economic activity. In the final quarter of each year, the SPC prepared preliminary balances for the following year, encompassing all commodities and capital goods under state control. These goods were categorized as 'under unified distribution' or simply 'under plan'.
The state played a central role in coordinating and regulating all sectors of the economy, envisioned as the "leading force" in the Common Program. This economic organization was transitional, with the ultimate goal of socializing the private sector outlined in the Common Program and the 1954 Constitution. The policy of "socialist transformation" involved: a) Joint State-Private Ownership: Transitioning private enterprises in industry, commerce, handicrafts, and transportation towards joint state-private ownership and operation. b) Producers' Cooperatives: Organizing producers' cooperatives in agriculture and handicrafts. c) Restriction of "Rich Peasants": Restricting and gradually eliminating the influence of "rich peasants."
The enterprise operation can be characterized by Centralized Planning and Independent Accounting System: Enterprises operated with independent accounting, aiming to cover expenses with their own revenues. The state provided both fixed assets (plant, equipment, resources) and partly working capital (raw materials, supplies). Fixed liquid funds were provided to support a single production cycle.
Enterprise plans typically included:
Production Plan: Specified product mix, quality, volume, and output value.
Labor and Wages Plan: Determined workforce size, payroll, and labor productivity targets.
Procurement Plan: Planned material requirements for efficient production.
Cost Plan: Established "planned cost" for each product, aiming to minimize material usage.
Financial Plan: Outlined receipts, disbursements, sales, profits, and working capital needs.
Technology and Organization Plan: Focused on technological improvements, optimizing production processes, and improving efficiency.
Basic Construction Plan: Covered new construction, improvements to existing assets, and rehabilitation of damaged assets.
Following the Communist victory in 1949, heavy industrial firms in the northeast faced significant challenges. The removal of Japanese and Guomindang top management disrupted operations. New leaders, often appointed from outside the industrial sector and other parts of the country, struggled to fill the void. In 1953, a substantial portion of managers and technicians (four-fifths) had "bourgeois" backgrounds, including pre-1949 graduates, returned overseas Chinese students, and former factory owners. This contrasted with the remaining fifth, comprised of veteran Party members, promoted workers, and Communist-appointed factory directors. These individuals were tasked with upholding revolutionary ideals and preventing any regression towards pre-revolutionary practices. Beyond disseminating state propaganda, these appointed officials organized and staffed after-hours training programs in literacy, numeracy, technical skills, and the prevailing political line. However, worker participation in these programs was often inconsistent.
In a centrally planned economy, the traditional mechanisms of market capitalism are replaced by state control.
Competition: Instead of competing for customers, firms receive state-assigned clients. Price battles are eliminated, as prices are fixed by the relevant ministry.
Planning: Market tests for output planning are replaced by state-determined quotas and goals.
Capital: Capital markets and stock trading are non-existent. Capital funds are allocated by the state, and there are no shareholders.
Profits: Profits are not distributed to shareholders. Surpluses are remitted to the state treasury, with a portion potentially retained by the firm.
Failure and Efficiency: Bankruptcy is not a consequence of failure; instead, the state supports continued operations. Managerial power to dismiss underperforming workers is limited due to a commitment to full employment, often leading to overstaffing. Material incentives for improving efficiency and productivity are limited.
Furthermore, political interference in management decision-making by commissars, Party secretaries, or cadres created significant challenges. Navigating these relationships required managers to engage in compromises, deflections, or even confrontations.

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Initially, the CCP expropriated the national and public enterprises of the GMD government under the guise of "liberation" from imperialism, feudalism, and bureaucratic capitalism. This policy of dispossession formed the bedrock of the CCP government and its socialist transformation efforts. The CCP's urban expropriation system was established through the expropriation efforts in Northern China, beginning with Shijiazhuang in Hebei province in 1948. This experience became a model for urban expropriation, although the process was fraught with problems.
The first issue was the lack of coordination in expropriation efforts. After the PLA occupied Shijiazhuang, various procurement troops from neighboring liberated areas dismantled and removed plant facilities and components. Each liberated area had its own policies, often prioritizing their local interests. Before the CCP gained a significant advantage in the civil war, their base was in rural areas, and the cities they occupied were relatively small and often not held for long. Consequently, their city management was short-term, viewing urban expropriation as a means of resource procurement. The CCP struggled to control the scramble for resources in Shijiazhuang due to unclear responsibility for urban expropriation and difficulties in unified protection and distribution of resources.
The second issue was the approach to urban expropriation through class struggle. Before expropriating Shijiazhuang, the CCP had implemented a "bottom-to-top" class struggle strategy in rural areas. In Shijiazhuang, CCP cadres formed Poor's Associations and Labor Unions based on class struggle theory, mobilizing them for expropriation. However, members of these associations often engaged in plundering urban goods and taking the law into their own hands under the pretext of liquidation, leading to widespread panic throughout the city. The CCP implemented a "top-down order system" for expropriation, concentrating authority in the Military Control Commission, which handled military, police, cultural, educational, and financial duties. Expropriation Groups operated under a military control lasting 3-6 months in large cities and 2-3 months in smaller ones. Upon stabilizing order, control shifted to local Party committees and governments.
To ensure unified military control, the CCP mandated reporting for cities over 50,000 people and formed the "Northeast Southward Executive Battalion" for expropriation tasks. The Central Policy Research Office was established in late 1948 to create a unified confiscation policy and conduct research. This approach was deemed effective with the peaceful "liberation" of Beijing in January 1949, aiding the CCP's southward campaign. Control methods varied by city, retaining former employees for management and quickly taking over military, police, and press functions.

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A key feature of the CCP’s approach to eliminating Western presence was its deliberate avoidance of compensation claims under international law. Instead of outright seizing or nationalizing foreign property, the CCP leveraged lawful means to persuade foreigners to abandon their property or transfer it to Chinese entities voluntarily. CCP foreign policy experts, many of whom had studied in the West, understood that such tactics would shield China from international compensation demands. As a result, foreign individuals and businesses faced mounting obstacles that ultimately compelled them to leave. By April 1952, major British firms in China had announced their intention to close down operations, a stark departure from their traditional practice of striving to expand commercial activities in the country. This decision was driven by the ongoing decline in the value of foreign investments in China, attributed to heavy taxation, enforced subscription to government loans, restrictive labor legislation, and pervasive government control. As a result, enterprises became increasingly unprofitable and unattractive. Rentals were frozen, taxation raised, demands for considerable repairs at short notice were made, and massive fines imposed. But, again, no outright confiscation as such or a legal nationalization was carried out. Besides Western companies, there were also Russian businesses. The strategy of the CCP was to buy them out. The Quilin Company, a trading entity boasting numerous department stores and warehouses in the Northeast, occupied prime locations in major northeastern cities, evoking memories of the Russian imperialist era and emerging as one of the largest foreign enterprises in the region. Adding complexity to the matter of CCP control, the Soviet government held partial ownership of the company and deployed cadres to assume management roles. Concurrently, CCP authorities assigned cadres to apprentice with Soviet managers at each Qiulin department store. The formal takeover commenced with the acquisition of relatively small-scale supply bases in remote counties and culminated in 1952 with the complete transfer of ownership from Soviet to Chinese hands. An important player on the industrialization of China is Japan. In 1931, Japan transformed Manchuria into the puppet state of Manchukuo. Leveraging its vast colonial territories, population, and resources in northeast Asia, Manchukuo became a significant industrial project for the Japanese. The empire's influence extended further into North and Central China following the outbreak of the Sino-Japanese War in 1937. Alongside the advancing army, Japanese special agents were dispatched to confiscate Chinese factories and mines. In the northern provinces of Shanxi and Hebei, military agents collaborated with the Xingzhong Company, a Mantetsu operation based in Tianjin, to seize control of local industries and businesses.
In Shanxi, numerous factories, including Baojin and most of Yan Xishan’s,(a warlord) were taken over by the Japanese and restructured into military-managed factories under Japanese authority. Their original Chinese names were replaced with serial numbers, and over 40 factories in Shanxi alone were converted to military management. To oversee these confiscated factories and integrate them into Japan’s expanding wartime economy, two new national policy corporations were established: the North China Development Corporation and the Central China Development Corporation. Modeled after the South Manchuria Railway Company, these corporations were tasked with managing industrial production in occupied China during World War II.

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For instance, in 1949, the New China Economic Construction Company purchased the Baojin Iron Factory, and the Shui Shang Commercial Company. Both factories became publicly owned enterprises and were renamed the New China Scientific Instruments Company. In December 1950, to improve production conditions and expand production capacity, the Beijing Supply Agency decided to merge the two factories, build a new plant, and name the combined entity New China Instrument Machinery Factory. In 1952, to meet the needs of the First Five-Year Plan, the factory was transferred to the Ministry of Heavy Industry and renamed the Beijing Scientific Instruments Factory, officially becoming part of the national enterprise system. In 1954, to better integrate instrument production with educational work, the Ministry of Heavy Industry transferred the factory to the Ministry of Education, renaming it the Beijing Teaching Instruments Factory. On December 22, 1950, the GAC promulgated the Provisional regulations on mining, which specified that the country’s mineral resources were state assets and should be managed by the central government. In April 1950, the Bureau of Petroleum Administration was set up under the Ministry of Fuel Industry. This ministry was in charge of managing and coordinating the production, transportation, and marketing of oil.
Local handicraft industry was also nationalised. For example, in Suzhou the local handicraft industry was nationalised. 313 co-operative workshops were set up for 30,493 craftsmen. At that time, Suzhou had only 1,791 private enterprises which were mostly very small, only 475 had more than 10 employees. These small companies could hardly survive in the changing economy. Most owners chose to sign an agreementto become a joint state-private enterprise. Private owner received a bonus. "Suzhou adopted the same policy as the rest of the country on the latter issue: 1) For the profits generated during 1953-1955, 46.19% of them would be submitted as tax, 17.57% allocated to private owners as bonus, the rest 36.24% to the employees as welfare and accumulation fund; 2) Since 1956, the private owners would receive monthly salary (relatively higher than average workers) as agreed in the negotiated agreements, and 5% fixed dividend every year till 1963 on their investment (in fact, this policy was extended to 1966), no matter how much profit or loss were made in their enterprises". These small companies were restructured through administrative mergers and became 233 larger enterprises.

 23-11-1953 Decision of the GAC on the Implementation of the Planned Purchase and Planned Supply of Grain

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Chapter 4 of Common Program

• Road to Common Program
• Common Program
• Bibliography
• Documents