Let me continue on the analysis of the fourth cyclical economic crisis
When China started to bring in foreign machines, equipment and techniques
to readjust the Soviet-style heavy industries
they were at first successful in having a better structure for their industries
The large quantity of textile industrial products, chemical fertilizer products
and petrochemical products had satisfied social needs
Agricultural products had also increased since the early 1970s
achieved in conjunction with the large amount of labor 
that was invested into agricultural infrastructure construction
So, on one side 
it was the modern factor that had impacted agricultural production
On the other side was the traditional factor
using labor to invest
The agriculture yield increases in the 1970s 
were even faster than in the 1960s
There were at least three events contributing to it
First, in the 1950s and 1960s the collective system was set up
They could more easily and cheaply mobilize surplus labor
as a factor to replace the zero capital for investment 
into infrastructure construction in agriculture
That was the first
Second, a large amount of investments from the collectives 
had much improved the agricultural conditions
such as irrigating the arable land
The yield doubled, from less than 20% to nearly 50%
The irrigated land could have over 70% more yield than non-irrigated land
That was another big help to agricultural growth
The third was modern products like chemical fertilizers
Using chemical fertilizers could increase annual yield by 20 to 30%
Therefore in the mid-1970s
grain production had doubled the 1950s and 1960s quantities 
It had enabled the Chinese people
from that time on
to have no worry about hunger
Those projects had played a very important role 
in readjusting China's independent economic structure
This slide shows a French-made electric locomotive
It was from France
And this one was from Germany
It's a specialized new machine
They also had many chemical and textile manufacturing facilities 
The key point is that all these foreign facilities 
had to be paid for by the central budget
That was because in the 1970s 
China was still under a planning system
meaning that all the facilities, machines, techniques 
had to be planned for and paid by the central budget 
rather than by the local one
From that time on
the central budget had to treat all these foreign investments as foreign debts
and the debts meant deficits in the budget
Understand?
Foreign investments had turned into foreign debts
given that they had to be paid back by the central budget
In the central budget account that became deficits
because they could not exactly be paid back immediately
Before they had the manufactured products
they needed to do facilities construction for half a year at least
maybe one year
The return would only come when that was finished 
and they could then produce the products and sell them to society
To have the returns it might be one or two years after starting
Before that, they had to regard the costs as debts
which meant deficits
foreign debts turning into deficits
Starting from 1972
China had absorbed these foreign investments as debts
Then, two years later in 1974
the total budget deficits had increased to 10 billion Chinese yuan
Back then, one American dollar would exchange for 2.57 yuan
Ten billion Chinese yuan was around four billion USD
It meant that 
almost all the USD 4.3 billion project amounts had become budget deficits
That was the cost
When we give this lecture
in the title of the lecture we mentioned ﹐the cost﹑
The cost was indicated by the budget
which was the deficit
They had a very big deficit
At that time it's almost 20% of the total central budget income
The deficit as a proportion of the budget income was 20%
It meant they had to reduce the investments
They had brought in many foreign capital facilities 
but two years later, by the third year
they had no ability to keep investing
to take in more foreign capital and foreign facilities
They had a very difficult year
in 1974 to 1975
That was the time when the fourth cyclical crisis happened
That was the cost
It's very obvious to see that 
from this year 1974 on
the investments had gone down
You can see it here
It shows here that in the 1970s
when foreign capital turned into central budget deficit
the proportion of the central budget had decreased
See here
It had decreased to less than 20%, just 10% or 11 or 12%
The central budget became weaker and weaker
It didn't mean the amount of local budget had increased
 just the proportion
That meant the central government had also lost political power
because it could not give budget subsidies to local areas
So in the mid-1970s
there were political issues happening in China
I don't want to talk too much about them 
because this lecture is only focused on the economic crisis
That was one thing
Another thing that we should know about is here
When for the second time the west had invested in China
in 1974 the central government investments had decreased down to zero
You can see it here, down to zero
And also the budget income was negative, minus
That is what we have talked about
When they started to change the industrial structure
they had to make more investments
Then in the second year
it had gone down and in the third year, no more
It became negative
No investments and no newly added employment 
So from 1974
China re-initiated the deployment of jobless youths to the countryside
Millions of young people from urban centers 
were sent to the countryside
So there were three waves
The first time was here, in 1960
Almost 12 million jobless youths from the urban areas 
were sent to the countryside 
to be absorbed by the people's communes, the collective system
The second time was here, from 1967 to '68
the cultural revolution period
Also because of a cyclical crisis
17 million educated youths
meaning jobless youths
were sent from urban centers to the countryside
My whole family was sent to the countryside at that time
In the last lecture I gave you the story of my family
That was the second time
Here was the third time
Millions, not more than 10 million 
but still millions of young people who had no jobs
were sent to the countryside
So there were altogether three times
This was the third time
And by sending out the jobless youths to the countryside
the industrial capital could have a soft landing in urban areas
with industrial capital mainly located in urban areas
From these three waves
we can summarize that the crisis happened 
because of urban industrial capital while the soft landing happened 
because of the transferring out of the costs
 of the economic crisis to rural areas
And then they could have the soft landing by state capitalism 
We can say that the main system in China 
from 1950s to 1970s was state capitalism
We may call it socialism
because in Marxism state capitalism is one of the basic parts of socialism
dependent on the political regime
If you set up the political superstructure as socialism
you can use state capitalism as an economic infrastructure 
to back up the socialist political superstructure
Therefore if you change the political superstructure to capitalism
then certainly the economic infrastructure of state capitalism 
will have to be changed essentially
So, when we talked about this period
we said
 there were three rounds of transferring  out
 of the costs of state capitalist industrial crisis
 to the countryside
And the people had tolerated it
The whole people had endured that kind of transfer of costs
because they believed they were still under socialism
They still had whole people ownership
Whether there was a loss or a gain
it would belong to the whole people
So before the 1980s
these crises could all have soft landing 
because people still had the belief
That was a very important point
We need to take it into consideration
When we talk about this crisis
we need to know it was because of the over 10 billion yuan deficit
and then the central budget could make no further investments
Therefore there was no new room for adding employment
They then had to send the youths from urban centers to the countryside
and had a soft landing
But one thing is also important
Because the cultural revolution had in fact ended since the 1968 crisis
for this new crisis the urban youths had nothing to remobilize them
They had no passion for revolution
Back in 1968
at that time 
the young people in urban areas had a strong passion to join the revolution
They believed that going to the countryside was a continuation of the revolution
They said that going to the mountains
 and going to the villages would sustain the revolution
They had passion and they were more easily mobilized
But in the 1970s
when Mao and the government mobilized young people to go to the countryside
it became more and more difficult
 A lot of people didn't like to go
There was discontent and social instability
 At that time it was an undercurrent, a potential problem
but in 1976 it would break out when Mao died
when Premier Zhou Enlai and Chairman Mao died one after the other
Therefore in 1976
there was the start of a political movement
I have said I'm not analyzing the political issues
I just talk about it a little to give the reason
From the cyclical economic crisis happening in 1974
and then going into 1975 and 1976
they still kept sending young people 
from the urban areas to the countryside
There was much dissatisfaction going on in urban society
That was one reason
When we talk about this fourth crisis
we need to pay attention to the institutional costs
What was that? 
Even though they still wanted to maintain economic sovereignty
and just partially using the foreign facilities
yet their system was not originally set up for that
On the 1960s
in the last lecture I have very much emphasized 
the nature of the independent industrial system in the 1960s
When they replaced the zero capital 
with concentrated labor to make investments
they had to give the labor class
the working class and the peasant class high level positions
They must join the management
from the 1960s
What was the charter of the Anshan steel plant?
It was that the cadres of the factory, the technicians and workers
these three groups would come together to set up the management group
That was ﹐hold on to the revolution and stimulate production﹑
It was two goals put together
 But with that system
they could not apply it 
to manage the western-capital-invested machinery
Such machinery system would need very technical, very detailed management
Every step, even very detailed steps
had to be written in the manuals
and had to be followed precisely
They didn't have to have any creativity
They should not make proactive moves
They should just follow those books
China had previously set up the kind of system with labor replacing capital
Last time I showed, in the last slide
how to set up a labor-centered system
and I gave the explanation
But now this kind of system 
that was set up could hardly be applied 
to a foreign-capital-invested machinery system
So they had to have a new institutional transition
starting from the mid-1970s 
when they built western-style, westernized factories
There were a lot of stories
When I gave the picture, this slide
I did have a particular point to make
They had these German facilities 
which were standardized to make fixed-length products
 When they had the Chinese workers and technicians to operate these machines
the products came out short, perhaps just 10cm short
They needed 170cm
These products were for cars
to be used in car covers
Just because it was 10cm too short they could not use it
And it very much affected the car production
If they had used the German workers and German technicians
yes they could have products with the right size
With the Chinese workers, no they could not
That was a very interesting story
at the time reported by many correspondents
They said
Ok, you need to change your system 
because your management is too backward
 The management team 
that was formed from the three groups then discussed about it
How can we use this machine?
They studied
and step by step they made the machines to apply to China's situation
but they could not change the foreign machines
Such kind of things had generated for China the institutional transition cost
That was one thing
The second point also concerned geopolitics
Think about China at that time
China had not signed a commitment
but anyway with the negotiations China did have a commitment
to retreat from the world revolution
not to export weapons and so on
It had much impacted their geopolitical influence 
in Southeast Asia and South Asia
and in other areas
So from late 1970s and early 1980s on
China became less influential in the world revolutionary alliance
Originally Mao had set up the three-world structure
That was a revolutionary theory after Marxism and Leninism
Maoism at that time 
Maoism at that time was accepted by 
almost all the world's revolutionary organizations
Inside China it was Mao's thoughts
but out of China it was ﹐Maoism﹑ 
because it was a systematic revolutionary theory 
that not only described the world revolutionary situation of the time
but also the guide and the thoughts that instructed the world revolution
But when China
not really retreated but reduced their influence
the worldwide revolutionary alliance became weaker and weaker
China regained its influence on the world situation by economic power 
but politically there would be no more grand narrative 
from the Chinese side, without Mao
There would be no discourse
meaning they had less ability 
to join the world's discourse competition
That was another issue just like the institutional cost
So in macro terms
if we put China in the world situation and the world structure 
to talk about geopolitical competition and geo-strategies
we would find that during this time
as I had mentioned there was this big triangle 
and they did have some gain from that big triangle readjustment
The benefit they got in China was the readjustment of the industrial structure
with which they had a lot of new products that could satisfy local needs
Domestic demand had increased and the economy grew step by step
It was the first time that China had industrial growth
I have said before that in the 1960s
they had to pay a double cost to maintain the Soviet-style industries
It was because of the tension in relationships around China
There was a very heavy pressure 
so they had paid 
to move the coastal industries into the mountain areas in western China
It was a big cost that they had paid
after which they had a serious economic crisis
Then they had to send the Cultural Revolution participants,the students 
in schools to the countryside
and ended the Cultural Revolution
That is exactly Marxism
Infrastructure crisis would very much impact on political issues
and in the 1970s also
They did have economic returns but they also had a political cost
That is also why 
we need to give more explanations to the social movements
Nowadays there are many third world social movements 
that have no guidance
Maoism, Leninism, Marxism, internationalism
what is the ;Cism? 
What is the new thought system 
that can guide third world social movements forward?
We need to re-clarify
to have self-identification again
to enable people to have the basic ability to do analysis
and then to have new innovative thoughts
It is very important 
I have given the explanation on these two slides
Now let's go to the summary of this lecture
We have several points here
Previously in the 1960s 
China had strongly maintained its sovereignty 
and delinked from the Soviet Union
After that it emphasized self-reliance and hard struggle
 joined the world revolution
and mobilized the lower classes with class struggle
It was not exactly a domestic class struggle 
but rather participation in the world revolution 
to fight imperialism, colonialism and revisionism
Those were the enemies
Almost all the lower classes
the laborers in China
indeed had the passion to join the world revolution
Whatever they were doing
they did it to contribute
It's not for themselves or out of selfishness
So during that time
there were some very famous words from Maoism
fight selfishness, denounce revisionism
 It means that 
if you are trying to satisfy your selfishness 
then you're siding with revisionism
So even if they were involved in an accident
they would just say to each other this phrase
and then depart
They would not need to go to court
Many things in the 1960s had happened 
because the lower classes became part of the ruling class
The working class and the peasant class 
were asked to occupy political superstructure roles
 Factories must not only be managed by managers 
but also by the working class, the lower level workers and technicians
That was the 1960s
They had set up a revolutionary system, a management system,
all because of the revolution
because of mobilization of the lower classes
By means of that
by the people's very strong investment of their labor
to replace the zero capital
China had maintained the independent structure of its industries
whether Soviet-style or Chinese-style
They're taking all the Sovietized heavy industries and military industries
 and re-embedding them in Chinese society
 by mobilizing the whole people into the world revolution
That was the 1960s
a very special period
during which concentrated labor was invested 
to replace the scarce or zero capital
 It was a typical revolutionary country's experience
Then in the late 1960s
threatened by nuclear attack
the China-Soviet Union military conflicts 
could possibly lead to a nuclear attack
 in early 1970s
 China took advantage of the strategic competition 
in which USA had become weak
 and the Soviet Union become strong
 That was the historic opportunity 
that could be used by the Chinese
Then they got the Sino-US rapprochement
It was a historic opportunity for what? 
For bringing in western facilities and techniques in order to reform 
and to readjust the Sovietized heavy industries and military industries
then to transform the industries into a better structure 
that would better satisfy domestic needs and domestic demand
 That was the first time
they had used other countries' facilities
to satisfy their own needs
 That could be smart
 Also, they had a kind of policy 
 not FDI
This policy was quite different from the others
I mean the small tigers or small dragons
The small tigers or small dragons only had rootless investments
They were not long-term developments
Why could China become the second largest GDP country 
or the largest industrial producer? 
 It's because it has maintained its heavy industry and machinery industry
and therefore has a much better structure of the industrial system
not only for overseas but also for infrastructure construction
We are saying that it started in the 1970s
It's because 
they still wanted to maintain their independence, economically and politically
It's quite different with the small tigers and small dragons
Don't forget
when any developing country gets foreign capital or foreign technical support
it will all turn into foreign debts
That is the rule: foreign investments turning into foreign debts
The question is whether you have the ability to pay it back or not
In 1966, Premier Zhou Enlai and Vice Premier Li Xiannian announced 
that in 1966 China had no more foreign debts
They had paid it all back
meaning they had paid off the debts to the Soviet Union
Yet at the beginning of 1970s they had a new debt
which was with the western countries
They only had six years without debts
From 1972 on, for the second time they had foreign debts
Then these debts turned into deficits
Deficit increases meant that
they had no ability to keep adding investments 
to motivate economic growth again
It meant they could not stabilize the economy 
to have long-term growth
The further declines in investments ability also meant 
they had no room to create new jobs
Therefore they had to send young people to the countryside
When Mao was still there, still alive
 the revolutionary thoughts still continued
People still had the passion
 It was a low-cost approach to make use of the transferring to countryside
to give the state capital economic crisis a chance for soft landing
But the 1970s was the last instance of sending unemployed young people 
to the countryside to solve the problem
Finally, we gave the differences 
in the model of the East and Southeast Asian 
four small dragons and four small tigers compared to China's
 I have given my argument
That model may not be applicable to big continental countries
It may be the experience of a small economy 
but it could not be applied to a big continental country
We especially need to understand 
that all these small economies' experience
is of rootless investments or rootless capital
It's easier for the investors 
to take the revenues from such investments 
and also easier to seek that institutional revenue from elsewhere
Therefore the capital moves
and is not stable
So nowadays, these small economies 
Chinese Taiwan, Hong Kong, South Korea or Singapore 
they not criticize other economies 
because their own economic growth 
has mainly come from this rootless capital
But then the rootless capital moved to other places
They should not complain about the others
It was because they do not have their own models
Indeed, they haven't set up an independent economic model for themselves
So that is my argument to finish the lecture
I am saying that 
this rootless capital has later moved into the Chinese coastal regions 
and given them ten years of growth
And ten years later 
they had to bring a large number of migrant workers
 from inland provinces
Sichuan, Guizhou and even Gansu 
because local laborers had increased the price
So they had to use migrant labor
That means migrant laborers from inland provinces were taking the costs
 The coastal provinces, the coastal regions' cadres believed that
 they had a big success
but indeed they were taking big institutional revenue from inland China
and transferring a lot of problems to the hinterland
The inland provinces, especially the rural areas
became poverty areas
It did not mean success
I hope that the audience
when you have seen this kind of comparative experience studies
would form your own views
Thank you
