July 2, 1943

The war of resistance behind enemy lines is an extremely complex and arduous struggle. After six successful years we have laid the foundation for the continued struggle and final victory. For the Eighth Route Army, though poorly equipped and without a single copper or bullet of assistance in four years, to have overcome so many difficulties and to have done battle with such a formidable enemy at close range is nothing short of a miracle. What is the secret behind this miracle? As everybody knows, we have Mao Zedong's principles guiding our strategy and tactics. It is by following these principles that through innumerable battles we have established, defended and consolidated each and every anti-Japanese base area and pinned down half of the Japanese invading troops in China, lightening the burden of frontal military operations in the great rear area. As everyone knows, we have been carrying on serious political, cultural and anti-secret-agent struggles with the enemy, greatly inspiring the enthusiasm of the people in the base areas and enemy-occupied areas for resistance and increasing their sense of national pride and self-confidence. In addition, everyone knows that our struggle on the economic front in the enemy's rear area, under extremely difficult conditions, has been highly successful. It is this successful struggle that has enabled us to persevere in the war of resistance in the enemy's rear area for six years and will enable us to do so in the future.

The struggle on the economic front in the enemy's rear area is by no means less intense than the struggle on the military front. The enemy's economic attack, closely connected to his military, political and secret-agent attacks, is extremely cruel. In the areas under his occupation the enemy has been rapaciously plundering manpower and material resources. The people's financial burden is double or treble their total income. When they run out of grain and money, they have to hand over their furniture to pay for the burden. The plunder of manpower is even more horrifying. A great many able-bodied men have been press-ganged and the amount of corv閑 can hardly be calculated. An enemy commander announced, ``The length of blockade trenches in north China is six times that of the Great Wall, or one-fourth of the circumference of the earth.'' All this has been built up with the blood and sweat of the people in enemy-occupied areas. As a result there have been consecutive crop failures there over the past few years and a serious famine this year. Taking advantage of this famine, the enemy has incited the people to seize grain from the base areas in an attempt to create deep animosity between Chinese in the anti-Japanese base areas and those in areas under his occupation. With regard to the anti-Japanese base areas, the enemy has been pursuing a policy of blockade and plunder, i.e., blocking the supply of the materials we need, taking the materials he needs (like grain), incessantly ``nibbling'' the border areas and flagrantly plundering and trampling on the base areas in each ``mopping-up'' operation -- killing and press-ganging people, burning houses, destroying farm tools, seizing draught animals, burning grain and ruining growing crops. The enemy has perpetuated all kinds of atrocities to ``destroy the life blood of the war of resistance''. The people are deeply distressed by the devastation caused by the enemy. Unless effective measures are taken, it would be inconceivable to persevere in the war behind enemy lines once people's vitality is exhausted and provisions for the soldiers and people cannot be guaranteed. In the Taihang area, we are guarding against such an eventuality and we are paying particular attention to the economic front.

The economic front behind enemy lines consists of two inseparable factors -- the economic struggle with the enemy and economic development in the base areas. Without the former, the latter would be out of the question; without the latter, the former would be even more doubtful. It is with these two factors in mind that we have drawn up all our specific economic policies. During the initial stage of the war of resistance, the Party Central Committee and Comrade Mao Zedong advocated ``self-sufficiency and self-reliance'' as a guide for our economic development, and we have been following this guide in our development work over the past six years. After meeting with countless complications and difficulties, we have found a way that has made it possible for us to meet the needs of the war effort, protect the people's interests, cripple the enemy's plundering scheme and prepare for counter-offensives and postwar reconstruction.

What have we accomplished and what has our experience taught us, then?

First of all, we have come to the conclusion that expanded production provides the foundation for developing our economy and also for breaking the enemy's blockade and building a self-sufficient economy, with agriculture and the handicraft industry as the main production activities. Experience tells us that if you have grain, you have everything. Times of war bring widespread grain shortages. Since we are operating in rural areas, agricultural production is of necessity a major task. The greatest shortage faced by the enemy in the cities is in the supply of grain. With enough grain supplies in our hands, we can feed our soldiers and people. In addition, with grain and other farm by-products, we can carry on the struggle against the enemy and exchange them for everything else we need. At the same time, only agricultural production can provide the handicraft industry with raw materials, laying the foundation for its development. Development of this industry, in turn, can propel agricultural production and allow us to boycott the enemy's dumping of goods, bringing about a self-sufficient economy.

Developing production must not remain just an idea. It requires correct policies and meticulous organization. Our policies concerning the reduction of rent and interest rates and the payment of rent and interest have opened up a broad avenue for the development of production. In areas where rent and interest rates have been reduced, the working people have displayed greater enthusiasm for the war of resistance and for expanding production. In addition to reducing rent and interest rates, the government has made the payment of them mandatory. These policies have served to stabilize the relations among people of all strata and strengthen unity, calling on everyone to give his best in production work, save money and store grain, and advance from mere self-sufficiency to having ample supplies of food and clothing. To this end, the government has promulgated important decrees providing, among other things, ``No taxes shall be levied on grain stores and bank savings,'' ``No taxes shall be levied on one half of a hired labourer's income,'' ``No taxes shall be levied on flocks of sheep,'' and ``Taxes shall be imposed on the basis of the grain yield of an average year since the outbreak of the war of resistance, the surplus amount belonging to the producers.'' Moreover, labour heroes and those who participate in the ``Wu Manyou Campaign'' will be rewarded. These policies are all designed to promote development of the economy while restricting feudal exploitation. This is the path that Dr. Sun Yat-sen pointed out to us. Our policies relating to industry and commerce have greatly facilitated the growth of agriculture and the handicraft industry. The taxes levied by the government on industry being minimal, the handicraft industry, especially the household textile industry, has grown considerably in recent years. The building of bigger industries is practically impossible under conditions of guerrilla warfare.

The anti-Japanese democratic government and mass organizations have done their best to organize and lead production. Our army has also played an active part on this front, rendering much encouragement and assistance to the people. Agricultural production is both year-round and highly seasonal; strictly speaking, there is no slack season. It involves ploughing, selecting seeds, sowing, thinning seedlings, weeding, summer harvesting, autumn harvesting and the timely collecting and applying of manure (preparations for manure to be used the next year begin in June) -- we have done a great deal of work during the spring and autumn ploughing, and the summer and autumn harvests. We arouse the people's enthusiasm for production work, criticize idleness, organize and redistribute the labour force, improve seed strains, supply the necessary draught animals and farm tools, mobilize children to collect manure, call upon women to participate in production work, mediate between landlords and tenants and between employers and employees, mobilize the people to plant trees, build irrigation ditches, dig wells, make waterwheels, and so on. These are all very concrete jobs. In addition, the government has been granting low-interest and interest-free loans every year, ranging from several million to ten million yuan. Everything it advocates and does is for the benefit of the people. Due to our attention to organizing and leading production, many of the people's difficulties have now been overcome. The slogan ``Increase production, improve life and prepare for counter-offensives'' can be heard all over the Taihang Mountains. We have been victorious on the production front year after year. Besides producing what is needed to cover part of the military expenses, during busy farming seasons men in army uniform toil alongside civilians across hill and dale. It is precisely during such seasons that the enemy conducts devastating ``nibbling'' and ``mopping-up'' operations against the base areas. Therefore, the army not only has to help the people with production, but also, with the militia, has to protect the people doing the ploughing and harvesting. This is why our soldiers are at one with the people and why our army is called the people's own army.

The growth of the handicraft industry still has a way to go, but results so far have greatly reduced the inflow of goods from enemy-occupied areas. No kerosene, cigarettes, soap and luxuries are imported here. We make our own cigarettes and other items, and have enough and to spare. For example, we export a part of our products, such as cloth, towels, other cotton textiles and paper. We are short of salt and matches, which are not so difficult to procure, but we are making steel for flint as a substitute for matches.

Last winter and this spring, one-fifth of the land in the Taihang area was afflicted by drought and a large number of victims fled into the area from enemy-occupied areas. This was the hardest time for us within the past few years. We organized a great deal of relief work and a spring ploughing campaign, and now we have, by and large, made it through the difficulties. So long as there is adequate rainfall, the people will soon recover from the effects of these difficulties. Aside from social relief, expanding production is our principal relief measure. The government has granted a large sum in loans to the victims, including loans for textile production. In Wu'an County alone, for example, loans have been used to organize more than 20,000 women in textile production. Their daily income can support one and a half to two persons, which has impressively elevated the social status of women. Loans have also been granted for water conservation projects. This year they amount to between 40,000 and 50,000 yuan. The workers are all drought victims. Every day each worker earns 1.5 kg of millet in wages and he can save some of this for his family. We once obtained grain from grain-producing areas in enemy-occupied areas and sold it to the victims at a low price (equivalent to one half or two-thirds of the market price). The grain was transported entirely by the victims, who could in this way earn some income to support their families. Co-operatives have also sprung up everywhere. In enemy-occupied areas drought victims have been left homeless and a great many have died; in anti-Japanese democratic base areas drought victims have suffered a little, but thanks to the government's planned and organized relief efforts, they maintain full vitality to both fight the enemy and combat nature. Our soldiers and cadres of the government and mass organizations have become the main production force in areas badly stricken by natural disasters. Prefectural commissioners, county magistrates, commanders and political commissars lead the cadres and soldiers in helping the victims with their farm work, giving them tremendous encouragement. Now the work of sowing and thinning out seedlings has ended, and with timely rainfall, there will be no consecutive natural disaster. A great many victims from enemy-occupied areas have received assistance from the government and people in overcoming their difficulties and have obtained, among other things, housing, grain, farm tools and seeds. Lush crops have sprung up on their reclaimed wasteland.

Not everything has turned out satisfactorily in our efforts to organize and guide production. Subjectivism and carelessness have greatly impeded progress. The early days of the war of resistance witnessed excessive assignments of corv閑 duties and wasting of manpower, but these were soon corrected. The government decided that only leading bodies at and above the prefectural commissioner's office or the military sub-region level have the power to assign corv閑 duties. During busy farming seasons, no corv閑 duties were to be assigned, and soldiers had to carry grain and charcoal themselves. This move was a substantial improvement. Later we found some formalistic and bureaucratic ways of doing things, such as too many mass meetings and cadres' meetings and an excess of sentry duties and drills of the people's armed forces, all of which hindered the peasant's farm work. Therefore, specific number and length of time were fixed for meetings and drills, and routine sentry duties were cancelled. Our cadres know too little about production matters and often make decisions according to their wishful thinking. For instance, it wasn't until spring ploughing time that they called upon children to collect manure and paid attention to the selection of seeds and other such work. Isn't that absurd! In another example, their leadership over development of the handicraft industry has remained empty calls in many cases, and they have made no efforts to settle the masses' practical problems. The co-operative movement is not satisfactory either. All these problems have to be solved in the days ahead.

Secondly, I should like to discuss the policy relating to the financial burden. In general, we have been adhering to a principle whereby those who have more money contribute more, and those who have less contribute less. This means to earn enough for expenditure and to keep expenditure within the limits of income, take into account both the people's capability of shouldering the burden and the needs of the war effort. Even more important, the burden shall be shared in such a way as to encourage the development of production. The decree that ``no taxes shall be levied on grain stores and bank savings'' and other decrees mentioned above are all designed to lighten the people's burden. We have consistently encouraged the practice of thrift, combated waste and severely punished embezzlement (the death penalty is inflicted upon anyone who has embezzled 500 yuan or more). In addition, we have conducted two successive campaigns for ``better troops and simpler administration'', with the result that agricultural tax paid in grain in 1943 is 16 to 17 per cent less than in 1942. The mammoth size of village levies has historically been one of the major symptoms of maladministration. We began long ago to make the county the unit for unified collection and spending of funds, and stipulated that the village had no right to impose levies, thus eliminating this symptom. The unified progressive taxation, adopted by the Provisional Assembly of Representatives of the Border Area, will come into force in the Taihang area this year. This truly serves to benefit the interests of the people of all social strata and have more people pay taxes, entirely conforming to the Central Committee's policy of having 80 per cent of the population pay taxes. This taxation system will help improve the financial foundation and will certainly enhance the enthusiasm of the people of the various social strata for developing production.

Thirdly, our policy of taxation and trade is based on the principle of ``external control and internal flexibility''. It is our goal to strike a balance between the flow of goods in and out of our area. In order to facilitate the struggle with the enemy, we have placed the departments of taxation and trade under the unified leadership of the Industrial and Commercial Administration Bureau, protecting the economy of the base areas by means of a strict taxation system. This will make it easier for us to win in the struggle. We have banned all kinds of luxuries and restricted the inflow of nonessentials. At the same time, we have organized the outflow of nonessentials and surplus goods from the base areas, such as medicinal herbs and straw hats, in exchange for goods from the outside. For this purpose we have organized people to participate in anti-contraband activities, offering large rewards to them and severely punishing smugglers. It is most important to involve the tradesmen in the economic struggle against the enemy. Therefore, in managing trade with the enemy-occupied areas, the government did not try to exercise complete control over it. In particular, it gave a free hand to internal trade, instead of monopolizing it. With regard to tradesmen's speculative activities, it made use of publicly run shops and co-operatives to restrain them. These methods have served to considerably increase our capacity to fight the enemy, boost tax revenues, bring about a flourishing market and meet the people's needs. Prices in the Taihang and Taiyue areas have been lower than in other areas for a long time. Grain redistribution and trade in cotton cloth have helped us greatly this year to recover from the famine. Of course, our comrades made some mistakes in this regard. For example, they discontinued trade with other areas for a while, at first they lacked adequate understanding of the role played by tradesmen, and they exercised rigid control over the co-operatives. All this impeded economic development in the base areas. In addition, in trade with other areas, they arranged for an excessive outflow of goods, failing to see the importance of restricting the outflow of goods and materials for the benefit of our struggle against the enemy, so we suffered a lot as a result. The industrial and commercial administration departments were preoccupied with trade speculation, paying little attention to the co-operative undertakings in production and the step-by-step development of materials for sale outside the base areas (for instance, mobilizing the people to collect medicinal herbs, purchasing hog bristles, etc.). We have corrected or are now correcting these glaring shortcomings.

Our monetary policy is also an important weapon in developing production and fighting the enemy. The principle behind our policy is to eradicate the currency issued by the puppet regime and protect the legal currency. The enemy has issued a huge amount of currency and has come into possession of a lot of legal currency in a bid to plunder large quantities of goods and materials from the people. Under such dangerous circumstances, we have issued the Southern Hebei Bank notes as the local currency in our strategic zone. This has crippled the enemy's scheme of making use of the legal currency, restrained the market for the puppet currency, reinforced our position in the economic struggle with the enemy, and has fully guaranteed economic development in the base areas. In order to fortify faith in our own currency, we have restricted its issue and granted big loans to individual people and production undertakings, thus gaining the people's warm support and strengthening the people's faith in the currency. Our incessant political offensives directed against enemy-occupied areas and our timely utilization of goods and materials have severely damaged the puppet currency. However, we cannot underestimate the puppet currency or overestimate its instability, lest we start taking risks and making inappropriate moves.

Lastly, we have adopted the principle of lightening the burden imposed by the enemy on the people and protecting the people's interests as the point of departure for all our policies relating to enemy-occupied areas and guerrilla areas. When the enemy plunders grain, we encourage the people to upset the enemy's plan through an armed struggle and by any other means; when the enemy press-gangs men, we help the men to escape or join in the people's efforts to redisperse the men who have been gathered by the enemy. During the past few years such struggles have never ceased for a single day. Without these intense struggles at close quarters our compatriots in enemy-occupied areas would have been subjected to untold misery.

The above was a brief account of economic development in the Taihang area. What have we learned from this experience? First, everything that goes on in the enemy's rear area is inseparable from the intense struggle against the enemy; all our achievements in economic development have been paid for in blood. Second, without the correct policies, there can be no economic development to speak of; these policies must be shaped in the light of the well-being of the people and the needs of the war of resistance. Third, any attempt at economic development will be fruitless without the voluntary and active participation of the people. Fourth, economic development can be guaranteed only when we assign a large number of capable cadres to the economic front and help them gain experience.

The struggle in the days ahead will be even more ruthless and will still take a fairly long time before it results in our victory in the war. Comrade Mao Zedong has told us that fighting, production and education are the three major responsibilities for us behind enemy lines. We do everything for victory in the war; production directly guarantees victory and education serves both the war and production. Closely combining these three will give us invincible strength. Therefore, we should do everything in our power to strengthen leadership in economic development in the days to come.

(First published in Liberation Daily in Yan'an on July 2, 1943.)

(From Selected Works of Deng Xiaoping, Volume I <1938-1965>)