This chapter explores the magnitude of the development problems faced by the Chinese at mid-century, analyzes the policies adopted, and assesses the record of accomplishment through the first Five-Year Plan (FYP). It also illuminates why the relatively successful strategy of the first FYP was abandoned immediately and replaced by the Great Leap Forward, a program of massive and unprecedented failure. Rapid industrial growth was concentrated regionally and did not lead to sustained growth of national output. The Sino-Japanese War and the civil war exacerbated certain long-term structural problems. The burdensome legacy inherited by the Communist regime was hyperinflation. Early forms of cooperative agriculture, called mutual aid teams, were an extension of traditional forms of peasant cooperation in which labor and the use of draft animals and farm implements were exchanged on a voluntary reciprocal basis. In order to meet targets for the number of Agricultural Producers' Cooperatives formed, local cadres violated the principles of voluntarism and mutual benefit.

The most fundamental issue surrounding the 2nd Five-Year Plan was the prospect for increasing the rate of growth of Chinese agriculture. The Great Leap Forward was predicated on Mao Tse-tung's misunderstanding of the constraints facing Chinese agriculture. In large part the labor mobilization strategy was directed toward water conservancy and irrigation projects that were expected to raise crop yields substantially. The Chinese famine, by comparison, took from three to five times that number of lives and even surpassed the Soviet famine in proportional terms if Western estimates of excess mortality are used in place of the official figures. In higher-stage Agricultural Producers' Cooperatives (APCs), net income was distributed to APCs members according to their labor contributions. The recovery of production and other measures led to the reestablishment of price stability, particularly in rural markets. Industrial recovery was far more rapid than that of agriculture. The recovery of industrial and agricultural output is reflected in China's national income.