After the Chinese Communist Party (CCP) extended its ruling to most parts of China and set up a national government in Beijing in 1949, it encountered a lot of new tasks. The first was to rebuild the economy, which deteriorated sharply during the last years of Nationalist Party (KMT) governing. The strategy that led CCP to state power is termed as "using the rural areas to encircle the cities" (). Thus, one difficulty CCP had in economy was that it had little experience in dealing with the urban part of the economy.Brown, Jeremy. 2010. Dilemmas of victory: the early years of the People's Republic of China. Cambridge Mass: Harvard Univ. Press. Chapter 1 Furthermore, facing the threat of KMT's fighting back, it needed to consolidate its political power. To meet these challenges, a new and coherent wage system in the economic sector was needed. Naturally, this transformation of wage system had both political goals and economic goals. Economically, via setting up a new wage system, CCP wanted to stabilize the economic situation, to ensure normal people's everyday living and also to further develop the economy. Politically, CCP not only wanted to distinguish itself from the old KMT regime by this new wage system, but also to make the wage system suitable for the future socialist economy. After two wage reforms in 1952 and 1956, a new wage system was established, and its influence continued to today.
Background
Old payment system Before CCP came to power, wage systems of the CCP ruled area and of KMT ruled area were totally different. In CCP ruled area, the wage system was organized in form of so-called provisioning system or supply system (), under which workers, soldiers, cadres and other employees were supplied with a certain amount of daily necessities and foods to meet their basic needs. Although there were ranks in the supply system, the inequality was very small compared to other wage systems during that period in China.杨, 奎松. 2007. "从供给制到职务等级工资制." 历史研究 (4):111–37.
On the other hand, in the KMT ruled area, there was no national-wide unified wage system. In the previous government-owned enterprises, public services and some private-owned enterprises, the wage system was based on ranks and levels. In this old wage system, numerous levels existed. While the difference between two levels next to each other might be little, the difference between two ends in it was huge. For example, before 1949, the Shi Jin Shan Steel Factory had more than one hundred wage levels, and the difference between two adjacent levels only equaled 0.5 kilogram millet.Zhuang, Qidong, Lunqu Yuan, and Jianli Li. Xin Zhongguo Gong Zi Shi Gao. Peking: Zhongguo cai zheng jing ji chu ban she, 1986. Page30
After CCP seized the power, the difference between various payment systems did not disappear immediately. Instead, they co-existed for a period. The CCP kept the provisioning system, although some modification like the overall rationing system () was introduced. In the overall rationing system, the goods supplied was converted to cash and paid to the cadre one time per month. Meanwhile, for most former employees in the public services and former state-owned factories, they were kept in their previous posts under the guidance of "the same rank, the same payment" ().Zhonghua Renmin Gongheguo Jing Ji Dang an Zi Liao Xuan Bian, 1949-1952. Beijing: Zhongguo she hui ke xue chu ban she, 1994. Page463 This co-existing of the two systems created administrative difficulties for the new regime. More importantly, the differences between the real incomes in these two systems also generated discontent and other problems within CCP's cadres. Under such conditions, CCP decided to transform the wage system and make it more suitable for future development.
Reforms to a unified wage system In the central level, CCP took a series of reforms in order to gradually build a national-wide unified wage system. Some reforms were implemented locally in early "Liberated Areas"(), such as Northeast China (东北), before nationwide reforms took places. The first of these national reforms took place from 1950 to 1952, in which an intermediate form of wage, wage point, was introduced. In 1956, the wage point and the provisioning system were officially replaced by a money wage hierarchy system based on rank. It happened almost at the same time when the socialist transformation finished, and was also a part of the first 5 Years Plan.
Wage hierarchy system based on rank From 1956 to 1976 (and also later), the Chinese wage system was based on a model called "wage hierarchy system based on rank" (). Although details such as the form of wage and the differences between levels varied through this periods, the main features of this system remained constant.Schran, Peter. 1974. "Institutional Continuity and Motivational Change: the Chinese Industrial Wages System, 1950-1973." Asian Survey 14(11):1014–32. and its influence remain till present.
Influence of the Soviet Union
The establishment of wage hierarchy based on ranks was influenced heavily by the Soviet Union. Beyond the common ideology of PRC and USSR that brought similarities in the wage system,Schran, Peter. 1964. "Unity and Diversity of Russian and Chinese Industrial Wage Policies." The Journal of Asian Studies 23(2):245. there were more direct influences from the Soviet Union on this issue. Such influence even existed in the Yan'an period (footnote), when Stalin did not trust, or at least was unsure of CCP's ability to win the Chinese Civil War. As the outcome of the civil war became clearer, the Soviet Union's direct involvement began to play a more important role.
The Soviet Union's influence on the wage system came in two ways: it first came into China via management on the work floor level in the Northeast, where the Soviet Union occupied after the Japanese surrendered. Due to this, the Northeast was the first place that implemented the wage hierarchy system based on rank and also piecework wage.Zhuang, Qidong, Lunqu Yuan, and Jianli Li. Xin Zhongguo Gong Zi Shi Gao. Peking: Zhongguo cai zheng jing ji chu ban she, 1986. Before the CCP won the deciding Liaoshen Campaign, Soviet Union set up several joint enterprises in Northeast. In these enterprises, wage rank was implemented.徐, 公民. "全国实行八级工资制始末." https://web.archive.org/web/20171208074823/http://www.mohrss.gov.cn/ltxgbj/LTXGBJlaoyousuole/201207/t20120720_84483.html Later, after the emancipation of the whole Northeast for the Nationalist Party in 1948, the reform was carried out under the direction of Soviet's consultants,杨, 奎松. 2007. "从供给制到职务等级工资制." 历史研究 (4):111–37. Page117 and employees' were classified into 9 ranks and 39 levels.Zhuang, Qidong, Lunqu Yuan, and Jianli Li. Xin Zhongguo Gong Zi Shi Gao. Peking: Zhongguo cai zheng jing ji chu ban she, 1986. Page46
After the founding of the PRC, the Soviet Union's influence came through high-level policy design. In the early 1950s, the PRC took the Soviet Union as its model in socialist development. As part of such learning, in 1956 wage reform, it almost copied every element of the Soviet Union's wage system.Zhuang, Qidong, Lunqu Yuan, and Jianli Li. Xin Zhongguo Gong Zi Shi Gao. Peking: Zhongguo cai zheng jing ji chu ban she, 1986. Page72 At least two Soviet experts directly participated in drafting the new wage rank system.Li, Weiyi. Zhongguo Gong Zi Zhi Du. Beijing Shi: Zhongguo lao dong chu ban she, 1991. Page30 After 1956 reform, both countries had a wage hierarchy of 7 or 8 grades. Like other Soviet's models in China, this wage system soon met its practical limits and also political challenges. Just one year later, the CCP began to modify this system in order to meet its own ideological ends and practical conditions.
Principles of the Wage Hierarchy System The Soviet Union's influence was embodied in the general principles of the wage system and its technical details. The wage system in the socialist regime was not only a method of redistribution, but also was designed as an organic part of the state developmental machine. In other words, like any other wage system, it was both political and economical.
Politically, it aimed at creating a more equal society that fits the vision of socialist society. Following Marx's conception of the communist society, CCP held that the optimal principle of distribution is "distribution according to need" (). The need mentioned here was determined by the nature of the society. However, the socialist period is still a transitive period towards the communist society. It is transitive in two senses: in the sense of forces of production and also in the sense of social consciousness. The Marxism's orthodox discussion about productivity and social consciousness is expressed as "the economic base determines the superstructure".Williams, R. 1991. "Base and Superstructure in Marxist Cultural Theory." Rethinking Popular Culture. Due to the low level of economic development in China, there were different kinds of ownership existing during this period, making the market remain a necessary mediation between different parts of the economy. More importantly, according to this thought, the social consciousness is still undeveloped due to the backwards in the economy.Schran, Peter. 1964. "Unity and Diversity of Russian and Chinese Industrial Wage Policies." The Journal of Asian Studies 23(2):245. Page 245 Thus people were supposed to continue being guided by the commodity exchange. During this transitive period, the "distribution according to need" is impossible. Alternatively, the general principle in it was called "distribution according to labor" ().
Economically, the principle of "distribution according to labor" aspired to encourage people to work harder in order to industrialize an undeveloped country. Concerning the economic issue, in this high level of institutional design, the 1956 wage hierarchy system aimed at achieving two seemly contradicting goals: on the one hand, it attempted to save the state's expenditures in paying employees' salaries; on the other hand, it sought to encourage workers to work harder in building the socialism. In order to achieve these goals, it had to expand the gap between grades and levels, distinguish different economic sectors and also use the piecework wage as a material initiative. These measures finally brought it in conflicts with the socialist ideology in general and Mao's conception of socialism in specific.
Thrift and Incentives The wage hierarchy based on rank was designed to save wages and incentivize workers at the same time. For the saving part, it was a part of what the CCP called reasonable low wage system ().周, 恩来. "关于劳动工资和劳动福利政策的意见." https://web.archive.org/web/20171212225030/http://cpc.people.com.cn/GB/64184/64186/66664/4493153.html In discussing the significance and principles of 1956 wage reform, Li Fu Chun, drawing the distinction between consumption fund and accumulation fund, argued that the accumulation fund has the priority in developing the economy. The growth rate of wage, which is main consisting part of the consumption fund, should be smaller than the growth rate of productivities. Only via this mean, the accumulation fund can grow fast and make the economy growth faster.李,富春. "工资改革的意义及改革的原则." https://web.archive.org/web/20171212225248/http://cpc.people.com.cn/GB/64184/64186/66662/4493091.html Zhou En Lai stated that the first goal of this low wage system was to ensure employees' basic needs for living. It must suit the low level of industrial and agricultural development of China at the time.