The Cultural Revolution was set in motion by Mao Zedong in 1966 and called to a halt in 1968, but the atmosphere of radical leftism persisted until Mao's death and the fall of the Gang of Four in 1976. During this period, there were several distinct phases of economic policy.

High Tide of the Cultural Revolution, 1966-68

The Cultural Revolution, unlike the Great Leap Forward, was primarily a political upheaval and did not produce major changes in official economic policies or the basic economic model. Nonetheless, its influence was felt throughout urban society, and it profoundly affected the modern sector of the economy. Agricultural production stagnated, but in general the rural areas experienced less turmoil than the cities. Production was reduced in the modern nonagricultural sectors in several ways. The most direct cause of production halts was the political activity of students and workers in the mines and factories. A second cause was the extensive disruption of transportation resulting from the requisitioning of trains and trucks to carry Red Guards around the country. Output at many factories suffered from shortages of raw materials and other supplies. A third disruptive influence was that the direction of factories was placed in the hands of revolutionary committees, consisting of representatives from the party, the workers, and the People's Liberation Army, whose members often had little knowledge of either management or the enterprise they were supposed to run. In addition, virtually all engineers, managers, scientists, technicians, and other professional personnel were "criticized," demoted, "sent down" to the countryside to "participate in labor," or even jailed, all of which resulted in their skills and knowledge being lost to the enterprise. The effect was a 14-percent decline in industrial production in 1967. A degree of order was restored by the army in late 1967 and 1968, and the industrial sector returned to a fairly high rate of growth in 1969.

Other aspects of the Cultural Revolution had more far-reaching effects on the economy. Imports of foreign equipment, required for technological advancement, were curtailed by rampant xenophobia. Probably the most serious and long-lasting effect on the economy was the dire shortage of highly educated personnel caused by the closing of the universities. China's ability to develop new technology and absorb imported technology would be limited for years by the hiatus in higher education.

Resumption of Systematic Growth, 1970-74

As political stability was gradually restored, a renewed drive for coordinated, balanced development was set in motion under the leadership of Premier Zhou Enlai. To revive efficiency in industry, Chinese Communist Party 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.

Agricultural production declined somewhat in 1972 because of poor weather but increased at an average annual rate of 3.8 percent for the period as a whole. The party and state leadership undertook a general reevaluation of development needs, and Zhou Enlai presented the conclusions in a report to the Fourth National People's Congress in January 1975. In it he called for the Four Modernizations. Zhou emphasized the mechanization of agriculture and a comprehensive two-stage program for the modernization of the entire economy by the end of the century.

The Gang of Four, 1974-76

During the early and mid-1970s, the radical group later known as the Gang of Four attempted to dominate the power center through their network of supporters and, most important, through their control of the media. More moderate leaders, however, were developing and promulgating a pragmatic program for rapid modernization of the economy that contradicted the set of policies expressed in the media. Initiatives by Zhou Enlai and Deng Xiaoping were vehemently attacked in the press and in political campaigns as "poisonous weeds." Using official news organs, the Gang of Four advocated the primacy of nonmaterial, political incentives, radical reduction of income differences, elimination of private farm plots, and a shift of the basic accounting unit up to the brigade level in agriculture. They opposed the strengthening of central planning and denounced the use of foreign technology.

In the face of such contradictory policy pronouncements and uncertain political currents, administrators and economic decision makers at all levels were virtually paralyzed. Economic activity slowed, and the incipient modernization program almost ground to a halt. Uncertainty and instability were exacerbated by the death of Zhou Enlai in January 1976 and the subsequent second purge of Deng Xiaoping in April. The effects of the power struggle and policy disputes were compounded by the destruction resulting from the Tangshan earthquake in July 1976. Output for the year in both industry and agriculture showed no growth over 1975. The interlude of uncertainty finally ended when the Gang of Four was arrested in October--one month after Mao's death.

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Source: U.S. Library of Congress