The First Five-Year Plan, which ran from 1953 to 1957, put an emphasis on rapid industrial development

—partially at the expense of other economic sectors.Agriculture, which accounted for more than four-
fifths of the economically active population, was forced to rely on its own meager capital resources for a
significant portion of its fund requirements while the industrial sector received the majority of the
state's investment.Priority was given to basic chemicals, iron and steel, electric power, coal, heavy
engineering, building materials, andThe goal was to build large, sophisticated, and highly capital-
intensive plants, following Soviet practice.Heavy industry expanded rapidly, and many of the new plants
were constructed with Soviet financial and technical assistance.

The Great Leap Forward policy was announced as the Second Five-Year Plan began in 1958, which was
similar to its predecessor.In agriculture, this meant forming communes, getting rid of private plots, and
increasing output by working together more and harder.In industry the development of enormous
plants was to proceed, however it was to be enhanced by a colossal drive to foster little industry,
utilizing countless little, basic, privately constructed and privately run plants.The result was a dramatic
drop in agricultural production.In the meantime, the indiscriminate drive for backyard production failed
to produce the desired results and produced a large quantity of costly, subpar goods.When Soviet
technicians and aid were taken away, these issues got worse.The nation was facing an unprecedented
economic crisis by the end of 1960.

In response, the authorities changed their policies completely.The production team was given more
freedom, private plots were reinstated, and the size of the communes was reduced.In addition, a large
number of industrial workers were relocated to the countryside, and industrial investment was
temporarily reduced to free up resources for farm production.By 1963, some resources were being
redirected to the capital goods industry, and the agricultural situation immediately improved.

In contrast to the Great Leap, the Great Proletarian Cultural Revolution did not have a clear economic
philosophy when it began in 1966.However, the decade of confusion and conflict that followed had a
significant impact on industrial production and left the Chinese economy with some difficult
legacies.Bonuses were canceled and wages were frozen in the workplace.This action effectively
eliminated incentives to work hard, along with the policies of employing more workers than necessary
to absorb unemployment and never firing employees once hired.In addition, as a result of the
movement, technicians and numerous managers lost their authority and were unable to effectively
contribute to production.In general result kept on developing, yet cash-flow to-yield proportions
declined.In 1977, agriculture produced the same amount per person as it had in 1957.

Provincial monetary change started after Mao Zedong started with significant cost increments for
horticultural items in 1979.By 1981, the focus had shifted to dividing collectively tilled fields into land
where private families were contracted to work.The majority of restrictions on the sale of agricultural
products in free markets were lifted during that time, and the size of private plots, or land actually
owned by individuals, increased.In 1984, the legalization of the concentration of land through the
subleasing of parcels and much longer-term contracts for land (generally 15 years or more) came into
effect.The government announced in 1985 that it would end the planned procurement system in
agriculture that relied on state-allocated production quotas.People encouraged peasants who had
stopped working the land to look for private work in the countryside or in small towns.However, they
were unable to obtain permission to relocate to major cities.
The fundamental goals of urban economic reform were to better integrate China into the global
economy;making businesses accountable for their losses and profits;reducing the state's role in resource
allocation rather than directing it;directing investment away from the metallurgical and machine-
building sectors and toward the light and high-technology sectors while still putting an emphasis on
removing obstacles in the energy, transportation, and communications sectors;establishing a consumer
ethos and material incentives for individual effort to encourage people to work harder;bringing the
pricing structure into balance;and placing people in jobs that require specialized training, skills, or
abilities.At the same time, the state has allowed the private sector to grow and compete with state
businesses in a number of service areas, including increasingly larger-scale construction projects.

In order to provide enterprise managers with greater incentives to boost their businesses' efficiency, a
number of related measures were implemented.By allowing businesses to retain a significant portion of
production increases, the replacement of the profit-remission system with tax and contracting systems
was intended to reward managers.Firms gained managerial authority, and bonuses were reinstated and
allowed to rise to significant levels.Additionally, managers received increased authority to hire, fire, and
promote employees.Businesses were given permission to buy and sell surplus goods on essentially a
free-market basis as a result of reductions in central government planning. As a result, prices were
frequently significantly higher than those for goods produced to meet plan quotas.Additionally, some
resources were redirected into the light industrial sector through the state plan.The state, for instance,
has given need in energy utilization to a few light modern undertakings that produce excellent
merchandise.

The presumption that market forces can more effectively allocate many resources is the basis for the
reduction in the scope of mandatory planning.A rational pricing system that takes into account all
existing technologies and scarcities is required to support this assumption.Price reform, on the other
hand, became a very contentious issue due to the extensive subsidies that were incorporated into the
economic system.Price reform was also held back by the fear of inflation.Nevertheless, a two-tiered
price system designed to wean the economy from administratively fixed prices of an earlier era has been
created by the fact that products produced in excess of the amounts targeted in the plan can be sold, in
most cases, at essentially free-market prices.

The overall emphasis on increasing efficiency also includes efforts to create a more open labor
market.Similarly as with cost change, altering a framework that keeps numerous residents living more
easily and safely than would a financially more normal framework gambles with serious repercussions in
relations with general society.In this highly sensitive area, progress has been sluggish.

In 1978, it was decided to allow direct investment from abroad in a few small "special economic zones"
along the coast.14 coastal cities and three coastal regions were added to these zones later.The foreign
investor received preferential tax treatment and other advantages in each of these locations.In an effort
to attract international capital to support China's development, laws on contracts, patents, and other
issues of concern to foreign businesses were also passed.However, the largely bureaucratic nature of
China's economy has made it difficult for foreign businesses to operate in the country. As a result, China
has gradually had to increase incentives to attract foreign capital.

Since 1978, China's economic strategy and thinking have changed so much that actual practice has
always lagged behind declaratory policy. This is because the changes could have serious repercussions
for important interests.The shifts in economic policy between a focus on market-oriented reforms and a
return to at least some centralized planning during this time are notable.