In the 1960s, about 60% of the Chinese Labor Force were employed in agriculture. The figure remained more or less constant throughout the early phase of industrialization between the 1960s and 1990s, but in view of the rapid population growth this amounted to a rapid growth of the industrial sector in absolute terms, of up to 8% per year during the 1970s. By 1990, the fraction of the labor force employed in agriculture had fallen to about 30%, and by 2000 still further.
Historical precursors of industrialization
In the State of Wu of China, steel was first made, preceding the Europeans by over 1,000 years. The Song dynasty saw intensive industry in steel production, and coal mining. No other premodern state advanced as nearly as starting an industrial revolution than the Southern Song. The want of potential customers for products manufactured by machines instead of artisans was due to the absence of a "middle class" in Song China which was the reason for the failure to industrialize.
Western historians debate whether bloomery-based ironworking ever spread to China from the Middle East. Around 500 BC, however, metalworkers in the southern state of Wu developed an iron smelting technology that would not be practiced in Europe until late medieval times. In Wu, iron smelters achieved a temperature of 1130 °C, hot enough to be considered a blast furnace which could create cast iron. At this temperature, iron combines with 4.3% carbon and melts. As a liquid, iron can be cast into molds, a method far less laborious than individually forging each piece of iron from a bloom.
Cast iron is rather brittle and unsuitable for striking implements. It can, however, be decarburized to steel or wrought iron by heating it in air for several days. In China, these ironworking methods spread northward, and by 300 BC, iron was the material of choice throughout China for most tools and weapons. A mass grave in Hebei province, dated to the early 3rd century BC, contains several soldiers buried with their weapons and other equipment. The artifacts recovered from this grave are variously made of wrought iron, cast iron, malleabilized cast iron, and quench-hardened steel, with only a few, probably ornamental, bronze weapons.
During the Han Dynasty (202 BC–220 AD), the government established ironworking as a state monopoly (yet repealed during the latter half of the dynasty, returned to private entrepreneurship) and built a series of large blast furnaces in Henan province, each capable of producing several tons of iron per day. By this time, Chinese metallurgists had discovered how to puddle molten pig iron, stirring it in the open air until it lost its carbon and became wrought iron. (In Chinese, the process was called chao, literally, stir frying.) By the 1st century BC, Chinese metallurgists had found that wrought iron and cast iron could be melted together to yield an alloy of intermediate carbon content, that is, steel. According to legend, the sword of Liu Bang, the first Han emperor, was made in this fashion. Some texts of the era mention "harmonizing the hard and the soft" in the context of ironworking; the phrase may refer to this process. Also, the ancient city of Wan (Nanyang) from the Han period forward was a major center of the iron and steel industry. Along with their original methods of forging steel, the Chinese had also adopted the production methods of creating Wootz steel, an idea imported from India to China by the 5th century.
The Chinese during the ancient Han Dynasty were also the first to apply hydraulic power (i.e. a waterwheel) in working the inflatable bellows of the blast furnace. This was recorded in the year 31 AD, an innovation of the engineer Du Shi, prefect of Nanyang. Although Du Shi was the first to apply water power to bellows in metallurgy, the first drawn and printed illustration of its operation with water power came in 1313, in the Yuan Dynasty era text called the Nong Shu. In the 11th century, there is evidence of the production of steel in Song China using two techniques: a "berganesque" method that produced inferior, heterogeneous steel and a precursor to the modern Bessemer process that utilized partial decarbonization via repeated forging under a cold blast. By the 11th century, there was also a large amount of deforestation in China due to the iron industry's demands for charcoal. However, by this time the Chinese had figured out how to use bituminous coke to replace the use of charcoal, and with this switch in resources many acres of prime timberland in China were spared. This switch in resources from charcoal to coal was later used in Europe by the 17th century.
The economy of the Song Dynasty was one of the most prosperous and advanced economies in the medieval world. Song Chinese invested their funds in joint stock companies and in multiple sailing vessels at a time when monetary gain was assured from the vigorous overseas trade and indigenous trade along the Grand Canal and Yangzi River. Prominent merchant families and private businesses were allowed to occupy industries that were not already government-operated monopolies. Both private and government-controlled industries met the needs of a growing Chinese population in the Song. Both artisans and merchants formed guilds which the state had to deal with when assessing taxes, requisitioning goods, and setting standard worker's wages and prices on goods.
The iron industry was pursued by both private entrepreneurs who owned their own smelters as well as government-supervised smelting facilities. The Song economy was stable enough to produce over a hundred million kg (over two hundred million lb) of iron product a year. Large scale deforestation in China would have continued if not for the 11th century innovation of the use of coal instead of charcoal in blast furnaces for smelting cast iron. Much of this iron was reserved for military use in crafting weapons and armoring troops, but some was used to fashion the many iron products needed to fill the demands of the growing indigenous market. The iron trade within China was furthered by the building of new canals which aided the flow of iron products from production centers to the large market found in the capital city.
The annual output of minted copper currency in 1085 alone reached roughly six billion coins. The most notable advancement in the Song economy was the establishment of the world's first government issued paper-printed money, known as Jiaozi (see also Huizi). For the printing of paper money alone, the Song court established several government-run factories in the cities of Huizhou, Chengdu, Hangzhou, and Anqi. The size of the workforce employed in paper money factories was large; it was recorded in 1175 that the factory at Hangzhou employed more than a thousand workers a day.
The economic power of Song China heavily influenced foreign economies abroad. The Moroccan geographer al-Idrisi wrote in 1154 of the prowess of Chinese merchant ships in the Indian Ocean and of their annual voyages that brought iron, swords, silk, velvet, porcelain, and various textiles to places such as Aden (Yemen), the Indus River, and the Euphrates in modern-day Iraq. Foreigners, in turn, affected the Chinese economy. For example, many West Asian and Central Asian Muslims went to China to trade, becoming a preeminent force in the import and export industry, while some were even appointed as officers supervising economic affairs. Sea trade with the Southeast Pacific, the Hindu world, the Islamic world, and the East African world brought merchants great fortune and spurred an enormous growth in the shipbuilding industry of Song-era Fujian province. However, there was risk involved in such long overseas ventures. To reduce the risk of losing money on maritime trade missions abroad, the historians Ebrey, Walthall, and Palais write:
[Song era] investors usually divided their investment among many ships, and each ship had many investors behind it. One observer thought eagerness to invest in overseas trade was leading to an outflow of copper cash. He wrote, 'People along the coast are on intimate terms with the merchants who engage in overseas trade, either because they are fellow-countrymen or personal acquaintances...[They give the merchants] money to take with them on their ships for purchase and return conveyance of foreign goods. They invest from ten to a hundred strings of cash, and regularly make profits of several hundred percent'.
Reasons for the delay in industrialization
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Some historians such as David Landes and Max Weber credit the different belief systems in China and Europe with dictating where the revolution occurred. The religion and beliefs of Europe were largely products of Judaeo-Christianity, Socrates, Plato, and Aristotle. Conversely, Chinese society was founded on men like Confucius, Mencius, Han Feizi (Legalism), Lao Tzu (Taoism), and Buddha (Buddhism). The key difference between these belief systems was that those from Europe focused on the individual, while Chinese beliefs centered around relationships between people. The family unit was more important than the individual for the large majority of Chinese history, and this may have played a role in why the Industrial Revolution took much longer to occur in China. There was the additional difference as to whether people looked backwards to a reputedly glorious past for answers to their questions or looked hopefully to the future. However, applications of this view have been dismissed as racist.
The English school
By contrast, there is a historical school which Jack Goldstone has dubbed the "English school" which argues that China was not essentially different from Europe, and that many of the assertions that it was are based on bad historical evidence.
Mark Elvin argues that China was in a high level equilibrium trap in which the non-industrial methods were efficient enough to prevent use of industrial methods with high initial capital. Kenneth Pomeranz, in the Great Divergence, argues that Europe and China were remarkably similar in 1700, and that the crucial differences which created the Industrial Revolution in Europe were sources of coal near manufacturing centers, and raw materials such as food and wood from the New World, which allowed Europe to expand economically in a way that China could not.
Some have compared England directly to China, but the comparison between England and China has been viewed as a faulty one, since China is so much larger than England. A more relevant comparison would be between China's Yangtze Delta region, China's most advanced region, the location of Hangzhou, Nanjing and contemporary Shanghai, and England. This region of China is said to have had similar labor costs to England. According to Andre Gunder Frank, "Particularly significant is the comparison of Asia's 66 percent share of world population, confirmed above all by estimates for 1750, with its 80 percent share of production in the world at the same time. So, two thirds of the world's people in Asia produced four-fifths of total world output, while one-fifth of world population in Europe produced only a part of the remaining one-fifth share of world production, to which Europeans and Americans also contributed." China was one of Asia's most advanced economies at the time and was in the middle of its 18th century boom brought on by a long period of stability under the Qing Dynasty.
Industrialization of the People's Republic of China
Industrialization of China did occur on a significant scale only from the 1950s, in the Maoist Great Leap Forward (simplified Chinese: 大跃进; traditional Chinese: 大躍進; pinyin: Dàyuèjìn). This was the plan used from 1958 to 1961 to transform the People's Republic of China from a primarily agrarian economy by peasant farmers into a modern communist society through the process of agriculturalization and industrialization. Mao Zedong based this program on the Theory of Productive Forces. It ended in catastrophe due to widespread drought towards the end of the period that led to widespread famine.
As political stability was gradually restored following the Cultural Revolution of the late 1960s, a renewed drive for coordinated, balanced development was set in motion under the leadership of Premier Zhou Enlai. To revive efficiency in industry, Communist Party of China committees were returned to positions of leadership over the revolutionary committees, and a campaign was carried out to return skilled and highly educated personnel to the jobs from which they had been displaced during the Cultural Revolution. Universities began to reopen, and foreign contacts were expanded. Once again the economy suffered from imbalances in the capacities of different industrial sectors and an urgent need for increased supplies of modern inputs for agriculture. In response to these problems, there was a significant increase in investment, including the signing of contracts with foreign firms for the construction of major facilities for chemical fertilizer production, steel finishing, and oil extraction and refining. The most notable of these contracts was for thirteen of the world's largest and most modern chemical fertilizer plants. During this period, industrial output grew at an average rate of 8 percent a year.
At the milestone Third Plenum of the National Party Congress's 11th Central Committee which opened on December 22, 1978, the party leaders decided to undertake a program of gradual but fundamental reform of the economic system. They concluded that the Maoist version of the centrally planned economy had failed to produce efficient economic growth and had caused China to fall far behind not only the industrialized nations of the West but also the new industrial powers of Asia: Japan, the Republic of Korea, Singapore, Taiwan, and Hong Kong. In the late 1970s, while Japan and Hong Kong rivaled European countries in modern technology, China's citizens had to make do with barely sufficient food supplies, rationed clothing, inadequate housing, and a service sector that was inadequate and inefficient. All of these shortcomings embarrassed China internationally.
The purpose of the reform program was not to abandon communism but to make it work better by substantially increasing the role of market mechanisms in the system and by reducing—not eliminating—government planning and direct control. The process of reform was incremental. New measures were first introduced experimentally in a few localities and then were popularized and disseminated nationally if they proved successful. By 1987 the program had achieved remarkable results in increasing supplies of food and other consumer goods and had created a new climate of dynamism and opportunity in the economy. At the same time, however, the reforms also had created new problems and tensions, leading to intense questioning and political struggles over the program's future.
The first few years of the reform program were designated the "period of readjustment," during which key imbalances in the economy were to be corrected and a foundation was to be laid for a well-planned modernization drive. The schedule of Hua Guofeng's ten-year plan was discarded, although many of its elements were retained. The major goals of the readjustment process were to expand exports rapidly; overcome key deficiencies in transportation, communications, coal, iron, steel, building materials, and electric power; and redress the imbalance between light and heavy industry by increasing the growth rate of light industry and reducing investment in heavy industry.
In 1984, the fourteen largest coastal cities were designated as economic development zones, including Dalian, Tianjin, Shanghai, and Guangzhou, all of which were major commercial and industrial centers. These zones were to create productive exchanges between foreign firms with advanced technology and major Chinese economic networks.
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