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The Iron Rice Bowl: Chinese Living Standards 1952–1978

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Abstract

We examine the evolution of Chinese living standards, as measured by household consumption, for the first three decades of communist rule. We find only a slow improvement. Certainly, the Chinese were better clothed; more urbanized and had more household goods after 1949. On the other hand, consumption of food and housing stagnated. We find that overall consumption per capita did not surpass the 1930’s until the late 1960’s. We also compare the Chinese record under Mao Zedong to other economies. As it turns out, Chinese living standards improved at a slower rate than elsewhere.

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Figure 1

Sources: The national account estimates are from Hsueh and Li (1999). We describe consumption indices using 1952 and 1979 prices in the data appendix while 1933 consumption is from the source outlined in the notes to Table 1. The shaded area covers the years during Great Leap forward and the Cultural Revolution where data are less reliable.

Figure 2

Sources: the sources and methods are outlined in the data appendix. The shaded area covers the years during Great Leap forward and the Cultural Revolution where data are less reliable.

Figure 3

Sources: We take the 1950–1983 calorie estimates from Piazza (1983). For 1933, we calculate calories by applying the assumptions used by Piazza (1983) to the 1933 food quantities from Liu and Yeh (1965). Total calories are close to Liu and Yeh (1965, page 29). The food index is in 1952 prices is explained in the “Appendix 2: Data – sources and methods”. We get similar results with 1979 prices. The shaded area covers the years from the Great Leap forward to 1970 where data are less reliable.

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Notes

  1. There is controversy about the exact size of the Chinese economy but most observers agree that, if it has not already done so, China will soon pass the US in terms of overall purchasing power parity adjusted GDP, see Feenstra (2012).

  2. Zhu (2012) surveys research on the Chinese economy after 1949. Brandt et al. (2014) provide a longer run perspective. Cheremukhin et al. (2015) is an important theoretical paper on Chinese industrialization.

  3. The Cambridge History of China Volume 14 (Fairbank and MacFarquhar, 1987) and Volume 15 (MacFarquhar and Fairbank, 1991) are the standard accounts of the Chinese economy under Mao Zedong. Bramall (2009) provides a more recent discussion. The rather small body of work on consumption growth for China during planned industrialization contrasts with the immense literature for the Soviet Union.

  4. The index number problem first came to prominence in the literature on the Soviet Union. Bergson (1961) remains the classic account of the debates. Allen (1998, 2003) renews the controversy as he argues that the Soviet Union was one of the more successful developing economies of the twentieth century. Wheatcroft (2009) gives a recent summary.

  5. The index number problem is closely related to “Gerschenkron effect” named after the great economic historian Alexander Gerschenkron. The Gerschenkron effect states that growth rates depend on whether we calculate growth using early or late period prices. Early period prices lead to a higher measured growth rate as compared to late period prices. Gerschenkron (1947) discovered the effect in his study of Soviet growth.

  6. These findings provide some support for the recent account of Dikötter (2013), at least for the 1950’s. As discussed later, Lardy (1982, 1983a, b, 1984) also finds slow consumption growth.

  7. The gains in improved health were substantial. Life expectancy rose from 44 in 1950 to 66 in 1982 and infant mortality fell from 138 to 36, see Wang and Mason (2008). These outcomes were better than for other economies at similar levels of development. They reflect policies to increase vaccination improve water supply and eradicate infectious disease. For example, China eliminated polio by a remarkable campaign from 1965 to 1977 where vaccine was administered to all children through annual mass campaigns in the winter. The improvements in health are all the more remarkable given, as we show in this paper, housing fell and nutrition did not increase until relatively late in the period.

  8. Hsueh and Li (1999) provide the retrospective national accounts. These are published with additional information (in Chinese) as: GDP 1952–1995 (1997). The final series is online at http://www.ier.hit-u.ac.jp/COE/Japanese/online_data/china/china.htm. We use the online Tables throughout.

  9. In current prices, the share of personal consumption fell in half—from 91% of GDP in 1933 to 67% in 1952 and then to 49% in 1978. We take the 1933 share from Liu and Yeh (1965), Table 10 page 68. The shares for other years come from Hsueh and Li (1999).

  10. The pattern is familiar from Soviet industrialization under Stalin. Bergson (1961 page 237) estimates that the share of personal consumption in 1937 prices fell from 80% in 1928 to 46% of GNP in 1950. Temin (1991) finds a similar pattern for Nazi Germany.

  11. To be fair to earlier work, it was completed before the western style national accounts became available for the planned years.

  12. As discussed later, Dikötter (2013) is an important dissenting voice for the 1950’s.

  13. The Maddison and Wu (2008) estimates of GDP for the reform period are, however, controversial, see Holz (2006).

  14. Xu and Ye (2000) outline the close connection between the new UN based estimates and the older approaches while the Eckstein (1980) volume provides the classic discussion of the evolution of national income accounting under central planning. Keidel (2001) provides an early overview of the expenditure accounts that also emphasizes their reliance on earlier approaches from the planned era.

  15. http://www.ier.hit-u.ac.jp/COE/Japanese/online_data/china/chapter5.htm.

  16. Our approach takes into account changes in relative prices across sectors. It ignores, however, relative price changes within sectors. The estimates in Table 2 therefore understate the index number effects.

  17. Setting 1952 = 100, Maddison and Wu (2008) find 1978 GDP per capita at 182 while Wu (2014) puts it at 183. The Perkins and Rawski (2008) results imply a GDP per capita of 190. The national accounts place GDP per capita at 281.

  18. As shown in “Appendix 2: Data – sources and methods”, there is a very close correspondence between the official estimates of GDP and the estimates in 1952 prices before 1970. Indeed, the estimates differ by at most 3%. After 1970, the estimates diverge and by 1978, the measure in 1952 prices exceeds the official estimates by 10%.

  19. Perkins and Rawski (2008) recognize this fact as they derive their estimates by reweighting the national accounts.

  20. As discussed in “Appendix 1: Measuring consumption for a command economy”, the quantity approach to measuring consumption for a planned economy originates in the literature on the Soviet economy. We draw on this literature and in particular on Schroeder and Denton (1982). There appears to be no previous work for China using the quantity approach.

  21. The opening of the archives in the early 1990’s vindicated this position for the Soviet Union, see Gregory and Harrison (2005).

  22. Rawski (2001) describes the Chinese statistical system on the eve of the reforms as follows—“China, a poor nation with limited development of information resources, nonetheless possessed a statistical system that provided its government with a wide array of reasonably accurate quantitative information about economic activity within China’s enormous land mass.” Along similar lines, Riskin (1987b, page 11) suggests that Chinese statistics “have been accurate expressions of what the Chinese government believed to be true.” Riskin also cautions that “the bases and/or definitions of statistics are frequently not made clear; capacity to collect and process accurate information has fluctuated quite sharply, and methods (e.g., sampling methods) are sometimes flawed.”

  23. See Perkins (1966) for an early and influential account that emphasizes the widespread reliance on market mechanisms for this period.

  24. Lardy (1983b) calculates that the food subsidies and other benefits accruing to each state employee amounted to 82% of the average wage. He found that 18% of the population received the subsidies.

  25. Rothbarth (1941) introduced virtual prices. Neary and Roberts (1980) is the classic modern treatment while Collier (2005) provides an application to the Soviet Union.

  26. The International Comparison Project (the ICP) provides breakdowns of consumption on a consistent basis for a large number of economies since 1970. These data are available at http://www.rug.nl/ggdc/productivity/pwt/. For the most part, the expenditure shares for China for 1952 and 1979 are consistent with those of other poor economies.

  27. As discussed in “Appendix 1: Measuring consumption for a command economy”, the most serious technical problem with consumption indices based on quantity data is that they understate quality change. For example, they ignore technology improvements in consumer durables and they ignore quality change due to improved packaging and processing. We do not see this as a problem as there is little evidence to suggest quality upgrades for the items in our consumption index. If anything, changes in quality likely worked in the other direction as the quality of some goods such as food could have fallen, see Bramall (1993) and Dikötter (2016). Certainly, the evidence from the Soviet Union shows quality declines with the move to central planning, see Nutter (1962).

  28. As it turns out, the Gerschenkron effect for Chinese consumption is on a par with those seen for the Soviet Union during the early years of Soviet industrialization. Consider the Soviet results from Bergson (1961) Table 55 page 225. Setting 1928 as 100, consumption increases to 126 by 1937 using 1928 prices. It falls to 91 with 1937 prices. See Allen (1998) for more examples.

  29. The quantity measure is independent of the index of health and education spending from the national accounts from Table 1. In practice, the national account measure and the quantity indices for education and healthcare yield very similar results.

  30. The Fisher Ideal estimates for consumption should not be used for the Great Leap Forward. There are two reasons why the index is not suitable for these years. First, there are the data issues referenced earlier which are particularly acute for the Great Leap Forward. More fundamentally, the consumption index provides a misleading indictor of welfare during the famine given the terrible loss of life caused, in part, by the forced industrialization policies of Mao Zedong.

  31. Working in sub national archives, (Dikötter 2013, Table 2 page 69), he provides comparisons of living standards for Wuhan factories as constructed by the communist authorities. His evidence suggests a decline in living standards for 1957 relative to 1937 for Wuhan. Our results suggest that his findings are generally true for China. On the other hand, we find sustained improvements in living standards after the late 1960’s whereas Dikötter (2016) is pessimistic—perhaps because he concentrates on food and housing where progress was slight.

  32. Smil (1981) presented similar results for calories.

  33. Bramall (1993, page 34) shows that calories for Sichuan were around 2000 in the late 1970’s compared to 2500 in the 1930’s. He also suggests that the quality of the food consumed likely declined.

  34. By now, the horrors of the famine caused in large part by the Great Leap Forward are well known. O’Grada (2009, 2011) surveys the literature on the catastrophe.

  35. The data appendix explores the possibility that the food balance sheets that underlie both our food index and the caloric index from Lardy may understate food consumption for recent decades.

  36. Our choice of consumption for the vertical axis reflects the standard assumption that GDP determines consumption. The slope of the ray from the origin to each data point will measure the income elasticity of consumption.

  37. Allen’s (2003) data shows slower Soviet GDP growth as compared to our estimates. This is because he relies on Maddison (1995) who, for reasons explained in the data appendix, understates Soviet GDP growth from 1928 to 1937.

  38. The choice of 2009 is dictated by data considerations as it is the last year with data for most economies. Rawski (2009) using data on electricity consumption suggests, however, that China may have experienced a recession during this period that does not appear in the national accounts so Chinese growth rates are likely slightly overstated. Our broad conclusions are unchanged if we use an earlier year to calculate growth for China.

  39. Cheek (2010) provides a recent introduction to work on Mao Zedong from scholars inside and outside China. See Bramall (2009) for a largely sympathetic account. For earlier references see Short (2001).

  40. As a referee suggests, we can see the Mao era as an example of the Stalinist model at work where the objective is to maximize investment in heavy industry subject to a consumption constraint. In this interpretation, the stagnation in food and housing before the 1970’s is to be expected. With Deng Xiaoping consumption, and in particular housing and food, enters the objective function directly.

  41. Riskin (1987a), page 237–248 summarizes early work in this area.

  42. The controversial work of Dikötter (2013) provides archival evidence that urban living standards fell between 1952 and 1957. His results relate to Wuhan. The question to be answered in future research is whether the decline is general across all urban areas. Our preliminary results suggest that this is the case.

  43. Along similar lines, China is an immense economy. Aggregate consumption may not tell us much about the behavior of consumption for individual provinces where further work is required.

  44. The Bergson (1961) estimates were the result of a quarter century of effort involving Bergson and a large team of talented economists. This work is characterized by careful and judicious use of Soviet data. Engerman (2009, page 109) describes how Bergson would spend weeks mulling over a single number.

  45. Bergson (1961) measured Soviet GNP for 1928, 1937, 1940, 1944 and 1950 using adjusted factor cost prices. Famously, he found a huge index number problem. Using 1928 prices, Soviet GNP per capita grew at an annual rate of 10% between 1928 and 1937. With 1937 prices, however, GNP per capita grew at just 4%, see Bergson (1961 Table 55 page 225).

  46. The Bergson adjusted factor cost approach had little influence on the literature for the Chinese planned economy where it is rarely referenced.

  47. The first appearance of the CIA quantitative indicator approach that we could find is a classified study for 1956, see CIA (1956). The final CIA methodology appears in Schroeder and Denton (1982). The approach disappears with the demise of the Soviet Union. Usher (1976, 1980) developed a physical quantity based measure of consumption without apparently being aware of the CIA work on the Soviet Union.

  48. Usher (1976) measured consumption for Canada from 1935 to 1974 using the deflation and the quantity approaches. He found that consumption determined using quantity data grew at a slower rate as compared to deflation based measures. He attributed the difference to improvements in quality missed by the quantity approach.

  49. In his words, the case is where “consumers are free to buy goods on the open market,” see Bergson (1961), page 158.

  50. Bergson called his consumption measure the “welfare standard.” Collier (1989, 2005) provides some formal details. As he points out, Bergson’s result is a fundamental contribution to measuring welfare for command economies. As he also notes this strand of Bergson’s work received little attention as compared to his work on adjusted factor cost. We suspect the reason for this neglect is that the primary interest during the cold war was on measuring GDP for defense purposes where adjusted factor costs are more appropriate.

  51. Taylor and Hardee (1986) and Taylor (1987) collect these data from the disparate sources.

  52. The Chinese authorities conducted the household surveys for rural and urban residents from the early 1950’s, with a suspension between the mid-1960’s and the late 1970’s. See Chen (1967) for an early discussion.

  53. Rawski (2010) page 339 concludes that “official measures of rural income derive from small and unrepresentative surveys that oversampled prosperous regions and households.”

  54. Lardy (1984) provides a similar estimate of urban rents at factor cost.

  55. For China, non-material services cover banking and finance, real estate, all business services and education and healthcare. A considerable portion of these services is intermediate production. We assume that the ratio is constant over time.

  56. The index derived from quantitative indicators closely tracks the real index of government spending on healthcare and education constructed by deflation. The deflation index is explained in Table 1 of the text.

  57. We retrieved the latest version of the data from http://rbarro.com/data-sets/.

  58. http://www.ggdc.net/maddison/maddison-project/data.htm.

  59. How accurate are the CIA estimates for Soviet GDP? The consensus in the literature is that the Bergson/CIA estimates are reliable measures of growth, see Maddison (1998) and Harrison (2002). The CIA efforts to compare GDP across economies at a point in time were less successful, see Maddison (1998).

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Acknowledgements

We wish to thank the co-editor of this journal, Josef Brada, and our two referees for their detailed and helpful comments that greatly improved this paper.

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Correspondence to John Devereux.

Appendices

Appendix 1: Measuring consumption for a command economy

This section summarizes research on measuring consumption for a command economy and outlines the implications of this literature for China. The Cold War saw intense competition between Communism and the West. The rivalry led to a large and well financed US program comparing economic performance across market and command systems with particular emphasis on the Soviet Union. In simple terms, it was difficult to compare GDP across planned and market economies because the planned economies relied on the MPS (material product system) methodology that is incompatible with western notions of national income. In addition, prices in planned economies, sometimes called “established prices,” set by planners often bore little relation to economic scarcities.

Working for the Rand Corporation, Abram Bergson, a theorist of some renown, developed the standard methodology to measure GDP for planned economies, see Bergson (1961). Bergson worked within the framework of the UN system of national accounts. The UN approach to measuring GDP/consumption rests on the Laspeyres quantity index. The index, given by Q 0 (q 0, q i, p 0), values GDP/consumption with the prices of the base year, see Eq. (2) where we denote the base year prices and quantities by a 0 superscript.

$$Q^{0} \left( {q^{0} , \, q^{i} , \, p^{0} } \right) = \, \sum p^{0} q^{i} /\sum p^{0} q^{0}$$
(2)

The UN methodology obtains the quantity index by deflation. Equation (3) gives the deflation measure where, taking the example of consumption, E is nominal consumption expenditure and Pi (q i , p i , p 0) is the Paasche deflator for the i’th year denoted by ∑p i q i /∑p 0 q i.

$$Q^{0} \left( {q^{0} , \, q^{i} , \, p^{0} } \right) \, = \, E/P^{i} \left( {q^{i} , \, p^{i} , \, p^{0} } \right)$$
(3)

Bergson, see Bergson (1961), modified the UN deflation approach to fit a planned economy. His key innovation was to deflate nominal expenditures with prices adjusted to reflect factor cost.Footnote 44 Remarkably, his deflation procedure yielded a Laspeyres quantity index, which he called the “efficiency standard” that measured GDP at factor cost comparable to western GDP measures. Bergson’s work led to a large literature that calculated GDP and consumption for planned economies using his adjusted factor cost measures.Footnote 45 To our knowledge, there are no estimates of adjusted factor cost prices for China. Hence, the Bergson deflation approach cannot be applied to China.Footnote 46

As it turns out, the price data required to implement Bergson’s (1961) deflation approach proved difficult to obtain in practice for the Soviet Union despite the large resources devoted to the task by the US government. This led analysts at the CIA to develop an alternative measure of GDP/consumption based on quantitative indicators.Footnote 47 The quantity approach derives from the fact that, as explained in earlier sections of the paper, we can recast the Laspeyres quantity index as a weighted index of physical quantity ratios where the weights are expenditure shares from the base year. This is given as Eq. (1) in the text.

$$Q^{0} \left( {q^{0} , \, q^{i} , \, p^{0} } \right) \, = \, \sum q^{0} q^{i} /q^{0}$$
(4)

As noted in the text, we apply the CIA quantity measure to China. The advantage of the quantity approach is that data on physical quantities are readily available. There is, however, one drawback associated with these consumption indices. Usher (1980) argues on theoretical and empirical grounds that they will understate growth compared to deflation measures of consumption because the former will understate quality improvements.Footnote 48 As discussed in the text, we do not see this as a problem for China where, if anything, quality may have fallen after 1949.

There are, in addition, other advantages to the quantity index worth pointing out. As Kuznets (1966) noted, growth in its early stages is accompanied by urbanization and increased marketization leading to an overstatement of GDP growth. In addition, statistical coverage for poor economies typically increases over time providing an additional upward bias to measured GDP growth. These problems certainly exist for China but they are eased by the quantity approach. First, the quantity measures are not influenced by the classic Kuznets problem of higher urban prices and, second, the coverage of Chinese statistics is likely better than for other economies at similar income levels. Nonetheless, as we note in the data appendix, the marketization problem certainly exists for some items most notably clothing.

Finally, are these consumption indices valid given the prices distortions under planning? As it turns out, they are. Here we rely on a fundamental theoretical result from Bergson (1961). He showed that a Lespayres quantity index constructed with established prices as set by the planners is a theoretically valid index of consumption if the base year has no rationing and if consumers are free to choose quantities. Intuitively, the Lespayres index measures welfare for this case because the base year prices reflect consumer preferences even if the established prices do not reflect resource costs.Footnote 49 Equally remarkable is the fact that the index is a valid welfare measure for years where rationing and other distortions are the norm.Footnote 50 Indeed, Bergson showed that the resulting consumption indices are comparable to consumption measures for market economies.

To apply Bergson’s approach to China requires a base year without rationing. We have shown that 1952 meets these requirements as most markets were open and relatively free. While rationing was in effect for 1979 particularly for urban areas, we have argued that prices were close to consumer valuations. This is certainly the case for rural areas and is likely the case for urban areas.

Appendix 2: Data – sources and methods

We begin by providing details of the consumption index starting with expenditure weights and moving on to quantities. To conclude, we outline the cross-country data on GDP and consumption per capita.

The household consumption index consists of indices for personal consumption and for government provided education and healthcare. We start with the personal consumption index.

The personal consumption index

We break personal consumption into eleven categories, food, beverages, tobacco, clothing, housing, fuel and light, household goods, household services, transportation, communications, recreation and entertainment.

Consumption weights

  1. a.

    1952 weights

The Chinese national accounts do not disaggregate consumption so we cannot obtain weights from this source. Our starting point for 1952 is Liu and Yeh (1965). They measure GDP using output (value added) and expenditure. Their overall GDP is from the value added calculations. For consumption, they estimate spending on food, clothing, fuel and light, and housing. Liu and Yeh describe food and clothing as “hard estimates” because they come from data on production, imports and exports whereas the fuel and light and housing estimates are from household surveys. They obtain the rest of consumption as a residual by subtracting the covered categories of consumption, capital formation and government spending from GDP measured as value added. The residual accounts for 10% of consumption.

We use the Liu and Yeh expenditure weights for the broad categories and we supply weights for the missing items using data on retail sales. The retail sales data appear in China Trade and Price Statistics, 19521983 (1984) and subsequent statistical yearbooks.Footnote 51 The retail sales data for 1952 cover public and private owned sectors. An examination of the data for 1952 suggests that coverage is not complete. To get around this potential problem we use 1957 retail sales data where coverage is likely better. We assume that the 1957 shares also hold for 1952.


Food We accept the Liu and Yeh (1965) estimates for overall food spending from Table 10 page 68. To obtain the item weights, we calculate food shares at producer prices using Liu and Yeh Table 81 page 250 and Table C-1 page 361. We assume that these weights will equal food shares at consumer prices. Expenditure shares for food at producer prices will, however, differ from the food shares at consumer prices depending on the share of food going off farm, the degree of processing and transportation costs. The effects are likely small as in 1952 90% of the population resided in rural areas.


Clothing and household textiles The overall clothing weight is from Liu and Yeh (1965) Table 10 page 68. We obtain sub-weights from retail sales data on cloth, knitted underwear and shoes.


Beverages Consist of tea and liquor. Liu and Yeh (1965) provide tea (page 542) and liquor (page 545) spending at producer prices. To get consumer spending, we apply the Liu and Yeh (1965) average retail margin of 0.47 for 1952 (Table 87 page 259). Liu and Yeh include tea in food consumption. We place tea in beverages.


Tobacco Liu and Yeh (1965) provide output for cigarettes and other tobacco products (page 545) at producer prices. To obtain consumer spending we apply the Liu and Yeh retail margin.


Household goods We calculate share of household goods in consumption as total retail spending on pots and pans, mugs, basins, iron pts, pottery, clocks, watches, batteries, matches, soap, thermos, sewing machines. We assume that 90% of these items are consumption with the exception of batteries where we assume 50%.


Fuel and Light For this item, Liu and Yeh (1965), page 268, assume that per capita real spending for 1952 is the same as 1933. This yields a budget share of 9.4% in current prices. Their fuel and light share is high relative to estimates from the household surveys of the 1950’s. We assume a share of 7.7% using the 1957 consumer survey weighted by urban and rural consumption. (We describe the consumer surveys later.) Our fuel and light estimates cover coal, kerosene and traditional fuels, such as stalks, used in rural areas. We have spending on coal and kerosene from retail sales. In addition, we have total spending on fuel and light. Spending on traditional fuel/light sources is the residual.


Personal Services Liu and Yeh Table 68 page 213. The category covers medical doctors, teachers, lawyers, accountants, domestic servants.


Transportation Liu and Yeh Table H-9 page 515. This covers rail and traditional modes of transportation. Liu and Yeh provide total spending on passenger transportation. This does not correspond to personal consumption as some portion is by enterprises and government agencies. We assume that consumer spending amounts to 80% of the total.


Communications Liu and Yeh (1965) Table H-9 page 515. We assume 80% of spending on communications is for household consumption.


Recreation and entertainment We measure this item by retail spending on books, newspapers and magazines along with spending on paper, pencils and pens. We assume that 70% of spending on pens/paper is personal consumption.

We take the 1952 expenditure data from two sources – Liu and Yeh (1965) and retail sales data. To combine sources, we assume that total household consumption from Liu and Yeh is correct. Given this assumption, there is potentially an adding up problem, as total spending from the combined sources is not necessarily equal to Liu and Yeh. As it turns out, the Liu and Yeh total is slightly below the total spending implied by our estimates. The difference is 1%. The correspondence is reassuring but the small difference is surely by chance. We decrease expenditure on all items by a constant proportion to ensure that consumer personal spending adds up to Liu and Yeh consumption.

  1. b.

    1979 – Consumption Weights

We face greater difficulties with the 1979 weights for China. The national accounts (Table A13) provide total personal consumer spending. Sixty-two percent of spending is in rural areas for 1979. As noted earlier, the national accounts do not disaggregate consumption. We calculate expenditure shares using information from two sources. First, there are the household surveys conducted by the Chinese authorities.Footnote 52 Second, there are retail sales data discussed earlier.

The household surveys provide budget shares for food, clothing, housing and fuel and light. Van Der Gaag (1984), Li et al. (1985) and Wang (1994), among others, standardize weights. Together, these items account for 85% of 1979 consumer expenditure. The household surveys provide some disaggregation for the remaining items of expenditure. Finally, we turn to retail sales data for some of the sub-weights.


Food Assume for the moment, that we have adequate measures of quantities consumed (q). For the index, prices should reflect the marginal valuation of consumers. We adopt the following procedure. First, we took the overall food weight from budget studies. As discussed shortly, there are problems with these studies. Second, to obtain the detailed food weights we use food quantities from Piazza (1983) for 1979. In theory, we would apply a weighted average of urban and rural prices to value consumption where prices reflect consumer valuations. The prices we found closest to this ideal are prices from the retail price index called “mixed average retail prices” taken from Colby et al. (1992) Tables 243, 244 pages 261–263. These prices are “an average of fixed, negotiated and open market prices”. They are given below in yuan per kg:

Rice

Wheat

Other grains

Vegetable oils

Sugar

Fruit

Vegetables

0.30

0.30

0.30

1.69

1.45

0.97

0.11

Pork, Beef

Poultry

Fish

Eggs

Milk

  

1.78

1.18

1.10

1.75

0.59

  

As we might expect, the above prices are below urban prices from Klatt (1983) and others for the period. Fortunately, the food index is not sensitive to the prices chosen and we obtain similar results using urban prices and rural procurement prices taken from Colby et al. (1992).

To calculate the overall food share, we take expenditure shares from the rural and urban household studies and weight them by the share of rural/urban household in overall household consumer spending from the national accounts. Note that the urban weights refer to 1981 as there is no urban survey for 1979.

There are difficulties with the food weights. First, it is not clear whether the household surveys for the late 1970’s and early 1980’s are representative for rural areas. Indeed, it is widely held in the Chinese literature that the household surveys overstate average rural income.Footnote 53 Hence, the expenditure shares derived from the household surveys will differ from the national accounts for items with expenditure elasticity’s significantly different from unity. This, however, may not matter much in practice because the cross sectional data for China for the period suggests Engel elasticities in the 0.8–1.0 range, see Wang (1994).

The second problem is likely more serious as urban (and some rural households) received food rations at very subsidized prices, see Lardy (1983b). Thus, the urban food shares from household surveys will understate food shares at virtual prices. In rural areas, grain was distributed in the form of a short-term loan during the course of the year. At year’s end, some workers received additional grain and/or cash while others were found to be in deficit. The household surveys for rural areas appear to have valued food consumption at procurement prices which were below prices in the rural market for the late 1970’s, see Lardy (1982, 1983b). This will also understate the share of food for rural families in the budget surveys.

Using our prices and quantities yields total food spending of 121.2 yuan. Combining this estimate with personal consumer spending from the national accounts yields a budget share of 0.59. This is almost identical to the expenditure share derived from the expenditure studies. The close correspondence is likely by chance.


Clothing and footwear We use urban and rural shares weighted by overall consumption spending. The sub-weights are from retail spending data.


Fuel and Light We obtain total spending on fuel and light by applying our assumed overall expenditure share to total consumer spending from the national accounts. This expenditure share is a weighted average of urban and rural expenditure shares from the household surveys. We have spending on coal and kerosene from retail spending and we obtain spending on traditional fuel/light sources as the residual after removing coal and kerosene. The residual accounted for 36% of fuel spending for 1979 as compared to 65% in 1952.


Housing We measure spending on housing for rural areas from the household surveys. For urban areas, we measure housing expenditure at factor cost. We take the factor cost estimate from Li et al. (1985), page 125. They calculate spending as rents paid plus depreciation and operating costs etc.Footnote 54 The factor cost measure increases the share of housing in urban spending from 1.5 to 5.8%. The rural share is 6.0 for 1979 from the household survey. We do not know how much of rural expenditure is on housing consumption as we suspect that some portion is for new construction. Fortunately, the World Bank (1985), page 44 Table A.3, provide an independent calculation of rents at factor cost for 1981 using a different methodology. Their estimates imply 1981 budget shares of 6.2 and 5.4 for rents at factor cost in urban and rural areas respectively suggesting that our 1979 weights are not too far off the mark.


Beverages Tea and liquor. We obtain liquor spending from retail sales. The retail sales for tea seem low. To obtain consumer spending, we calculate a per capita consumption of 0.21 kg in 1979 using quantity data outlined later and we take a price of 8 yuan per kg from Klatt’s (1983) price data. The FAO food balance sheets put consumption at 0.19 kg.


Tobacco Retail sales.


Household goods We calculate household spending as total spending on pots and pans, mugs, basins, iron pots, pottery, clocks, watches, batteries, matches, soap, thermos and sewing machines using retail sales. We assume that 90% are for consumption with the exception of batteries where we assume 50%.


Recreation and entertainment We measure this item by retail spending on books, newspapers and magazines along with pencils and pens. We assume that 70% of spending on pens/paper is for personal consumption.

Personal Services, Transportation, Communications We determine budget shares using scattered data from the household surveys. These data are sparse especially for rural households and the estimates are fragile.

Adding 1979 budget shares from all sources, they sum to 1.016. The shares do not add up to unity because the expenditure data come from two sources, household surveys and retail spending. We reduce spending for these items by the same proportion to make the weights add up to unity.

Table 6 gives the 1952 and 1979 weights used to calculate the personal consumption index.

Table 6 Consumption weights

Quantities

Food food quantities are from Piazza (1983). As with any developing economy, Chinese food intake for these years is measured with error. This is especially true for the years after the 1957 where the statistical apparatus ceased to function well. A further problem that arises after the collectivization of agriculture is that some output came from individual plots that may or may not appear in the official statistics, see Mead (2000). It is possible that food is understated for the later years producing a downward bias in the consumption index. On the other hand, there is also evidence that the bias may work in the other direction. Summarizing various studies of rural life during the period, Rawski (2010), page 300 finds that “hunger was central” to the lives of the rural poor after the Great Leap Forward suggesting a worsening relative to the 1950’s whereas our estimates suggest that food consumption increased.

Beverages This covers alcohol and tea. Alcohol consumption is from Taylor (1987). We cross checked the quantity data using retail sales deflated by liquor prices from Colby et al. (1992) Table 234 page 261. There is an almost exact correspondence except for 1962 and 1963 where the deflation estimate exceeds the physical quantity estimate by 33 and 22% respectively. We calculate tea consumption using tea production from Colby et al. (1992), Table 87 page 109 adjusting for exports with Table 252 page 282.

Tobacco Cigarette boxes per capita from Taylor (1987). We cross-checked the cigarette data by deflating consumer expenditure with an index of cigarette prices from Colby et al. (1992) Table 234 page 261. The results are close except for the early 1960’s where the deflation measure shows a higher consumption. The broad trends in consumption revealed by the quantity data are similar to trends in tobacco production from agricultural statistics.

Clothing and household textiles Taylor (1987). We measure the consumption of clothing by cloth consumption (cotton and chemical fiber) in chi (one chi = .33 meters) and pieces of knitted underwear. In the case of cotton and chemical fiber, we adjust for quality differences using the implied prices for cotton and chemical fibers calculated from retail sales and quantity data from Taylor (1987). Total shoe consumption consists of leather, rubber and cloth shoes. Alternatively, by using the price of cotton cloth from Colby et al. (1992) Table 234 page 261 we obtain a quantity measure by deflating retail sales of cotton cloth. The quantity index implied by deflation is almost identical to our quantity measure up to 1972. Thereafter differences appear and by 1979, the quantity index is 20% above the deflation measure.

The quantity data refer to cotton fabrics moving through official channels. It appears to ignore other sources of clothing such as home weaving significant in the early 1950’s. By the end of the decade, the state requisitioned close to 100% of the cotton crop and the traditional activities ceased, see Perkins (1966) or Lardy (1983b). The quantity index for clothing will therefore overstate consumption growth for the 1950’s.


Housing we measure housing in terms of square meters per person. Zhang (2008) provides housing space per person for all urban areas for China as a whole and for Shanghai for selected years from 1949. Taylor and Hardee (1986) Table 74, page 149 provide data for rural areas for selected years from 1957 onwards. Clark (1965) has estimates covering rural areas for the early 1930’s. We interpolate for missing years. The final estimate for housing is a weighted average for China where the weights are urban and rural population shares.


Fuel, light and heat We measured fuel light and heat by coal and kerosene consumption per capita. Coal consumption in Jin is from Taylor (1987). We obtain kerosene consumption by deflating retail expenditure on kerosene by the price index of industrial products in rural areas also taken from Taylor (1987). Finally, we make a rough index of the consumption of traditional fuels (stalks etc.) used in rural areas by assuming that their consumption moves in line with the agricultural production index for crop products from Colby et al. (1992), Table 24 page 40.


Household goods Taylor (1987). The index is composed of enamel mugs, thermos, watches, sewing machines, bowls, soap and matches sold each year.


Personal services There appear to be no good measures of personal services for China during this period. We assume that consumption of household and personal services is proportional to overall employment in non-material services as taken from Wu (2014) Table F-1 page 85.Footnote 55 This implies that there is zero productivity growth in this sector. Maddison and Wu (2008) also use the zero productivity assumption for China. While it has proved controversial, Wu (2014) provides a justification for the pre-reform era.


Transportation We proxy transportation using the volume of passenger traffic as measured by person-km from the 1981 Chinese Statistical Yearbook, page 277. This measure covers rail, road and air travel. We have no data on official/enterprise use of transportation as compared to private consumption and we assume that the ratio is constant over time.


Communication Is an index composed of indices for letters, parcels and long distance phone calls from Comprehensive statistical data and materials on 50 years of New China 19491998 (1998). Our weights are 0.85 for letters, 0.15 for parcels and 0.05 for long distance calls. We have no data on official/enterprise usage as compared to private consumption. We assume that the ratio is constant over time


Recreation and entertainment We use nominal spending on cultural and education articles and books newspapers and magazines from retail sales. To obtain a volume measure, we deflate it by the general retail price index. All data are from Taylor (1987).

Tables 7 8, 9, through 10 provide the quantity data underlying our calculations. Table 11 contains the various estimates of GDP per capita described in the text while Table 12 gives the official consumption index from the national accounts along with the personal consumption indices constructed from quantity data.

Table 7 Food quantities. Kg per capita
Table 8 Beverages, cigarettes and clothing. Per capita
Table 9 Housing, fuel and light and household goods per capita
Table 10 Services and communications. Per capita
Table 11 GDP per capita

Government provided education and healthcare

The personal consumption index does not cover government provided services. After 1949, the authorities increased spending on health and education. This portion of government spending is likely to be a close and perhaps even a perfect substitute for private spending. To obtain a complete measure of household consumption we therefore add the government provided services to household consumption (Table 12).

Table 12 Personal consumption per capita

The national accounts provide government spending on “Science, Education, Culture, Health, Sports and Welfare” in real and nominal terms. It is not clear, however, how this item is deflated. In addition, some of the components of this category are not part of household consumption. Fortunately, the retrospective study “Comprehensive Statistical Data and Materials on 50 Years of New China (1998)” Tables A12 and Table A13 provides spending on education and healthcare. For education, the source provides current and capital spending. It does not provide the breakdown for health spending and we assume that all health spending by government agencies is current spending. In nominal terms, these items amounted to 3.3% of personal consumption from the national accounts in 1952 and 6.6% in 1979. As discussed in the text, we formed a national account index for health and education by deflating total spending by the implicit deflator for the Science, Education, Culture, Health, Sports and Welfare spending. Adding this total to personal consumption, we obtain household consumption implied by the national accounts given in Table 12.

We also construct an index for government provided education and healthcare using quantity data on inputs and output. For healthcare, we used inputs of doctors and hospital beds per ten thousand of population as taken from the 1983 statistical yearbook where we assumed equal weights. For education, our measure is students per capita. We took total numbers of pupils in primary, secondary and higher schools from Comprehensive Statistical Data and Materials on 50 Years of New China (1998) where we gave weights of unity to primary students, 1.5 to secondary students and 2.0 to higher students. To form the overall index for health and education derived from the quantity indicators, we weight the education and health indices by their share in government spending. The results are in Table 13 where we present indices in 1952 and 1979 prices along with the Fisher Ideal index. The index shows a threefold increase in government provided health and education services per capita to 1978.Footnote 56

Table 13 Health and education

We define household consumption as private consumption plus publicly provided education and health. To obtain our overall household consumption index, which adds education and healthcare provided by the government to the earlier index of personal consumption, we use as weights the share of government spending on education and health in total household consumption. The resulting indices in Table 14 show a faster growth in household consumption as compared to personal consumer spending. Using the Fisher Ideal, the expanded consumption index is 4% higher in 1978 as compared to the personal consumption index.

Table 14 Household consumption per capita

There is a potential problem with our measures of healthcare and education. As it turns out, our procedure implicitly assumes that government and private sector spending move closely together. For education, most spending in the 1930’s is by households. After 1949 when government spending increases, we might have expected some reduction in private spending. For the Cultural Revolution, on the other hand, we might expect private spending to take up the slack as public spending fell.

Table 15 Growth in consumption and GDP per capita

Long run data on GDP and consumption per capita

We take GDP and consumption data in Table 15 from Barro and Ursua (2008).Footnote 57 The sample covers Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, Colombia, Denmark, Egypt, Finland, France, Germany, Greece, India, Indonesia, Italy, Japan, Korea, Mexico, Malaysia, Netherlands, New Zealand, Norway, Peru, Philippines, Portugal, S. Africa, Singapore, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Turkey, United Kingdom, Uruguay, United States and Venezuela. We add China and the Soviet Union (Russia after the collapse of the Soviet Union).

For countries with missing values of consumption for certain years (Greece, Indonesia, Philippines, South Africa, Sri Lanka, Uruguay), we set the change in consumption equal to the change in GDP for the missing years.

We add data for China and the Soviet Union to Barro and Ursua (2008). For Chinese consumption, we use the Fisher Ideal index described earlier. We measure Chinese GDP from 1952 to 1978 using the official national accounts. Alternatively, we could use a Fisher ideal index composed of GDP in 1952 and 1979 prices from Table 2 in the text. The results are close. We did not consider the more recent estimates of GDP because they use later period prices and are therefore incompatible with the consumption index.

To obtain the 1928 values for Chinese consumption and GDP per capita, we project the 1933 estimates of consumption and income from Liu and Yeh (1965) backwards using GDP growth rates from Yeh (1979) for the 1930’s. This is a very crude estimate. As it happens, the Maddison project provides GDP estimates for these years similar to ours.Footnote 58 Our broad conclusions would not change if we assumed that the levels of income and consumption were unchanged for 1929 as compared to 1933.

For the Soviet Union, we use Bergson (1961) for 1928–1950 and the CIA estimates from Pizer (1982) thereafter. We measure growth in Soviet GDP and consumption from 1928 to 1937 using a Fisher Ideal index based on 1928 and 1937 prices. The Fisher Ideal index marks a crucial difference with Barro and Ursua (2008) and Maddison (1995, 2007) as they use 1937 prices. By using 1937 prices, they understate Soviet growth relative to the Fisher Ideal. The Fisher Ideal is surely the better option for the Soviet Union.Footnote 59

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Chen, LL., Devereux, J. The Iron Rice Bowl: Chinese Living Standards 1952–1978. Comp Econ Stud 59, 261–310 (2017). https://doi.org/10.1057/s41294-017-0029-1

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