After its defeat of the Nationalists in 1949, the PRC faced the immediate problem of rebuilding an economy that had been ravaged by civil war and Japanese aggression. The CCP government chose to 'build socialism' in their country, and functioned as the guiding force by formulating central decisions on economic and social policy. Until 1976, three key elements were central to the PRC's economic policy, these were: the collectivisation of land; centralised control over the accumulation and reinvestment of capital, and state ownership of major industries and banks as well as smaller-scale enterprises; and self reliance', entailing strict limitations on foreign capital and external economic factors.
Land reform was the first step in the collectivisation of rural areas. However, the redistribution of land away from the landlords and rich peasants to smaller private holdings was not as successful as the CCP initially hoped. Private farms were not a part of Socialist policy, and new divisions, exploitation and uneven land ownership showed signs of re-emerging.
During the 1950s, therefore, collectives were established that enabled the CCP to control the means of production even further, and were given quotas to supply the state with a portion of their output at pre-determined prices and also acted as pools of labour that could construct irrigation networks, roads and railway tracks. Collectives also enabled the generation of a gross operating surplus that paid for education and health services.
However, the CCP felt that industrialisation was still too slow and in a bid to quicken its pace, collectives were further organised into 'people's communes' under the guise of the 'great leap forward' in 1958. Peasants were directed to build roads, dams and other projects relating to improving China's infrastructure. Millions of 'backyard furnaces' appeared, producing mainly low quality pig iron and steel of little use for anything. Cotton was also planted throughout China - at the expense of staple crops - but had little success because of wide climatic variations. This futility came at the expense of agriculture, and resulted in widespread famines and illness.
As for the industrial sector, large-scale industrial enterprises were allowed to operate independently from the state for a short period of time after liberation. But from the early 1950s on, the nationalisation of industries commenced. The PRC launched its first Five Year Plan in 1953, and placed the industrial sector under direct state control. Profits from industry were diverted to areas deemed as key industries in the economy, such as iron, steel and textiles.
The Cultural Revolution saw rapid industrial growth mainly because unlike the rural sector after the Great Leap Forward, the urban sector still concentrated upon heavy industries. The Cultural Revolution did have an adverse impact on the PRC's foreign trade however, as trade was attacked as humiliating to China and as worshipping things foreign. Throughout the period of the Cultural Revolution, the PRC was in effect cut off from the rest of the world. However, it still conducted trade relations with other countries it did not recognise, but only on a limited scale and with very little growth.
The death of Mao Zedong in 1976 was the harbinger of great changes in China's domestic and foreign policies. After his death, a coup de'tat overthrowing the Gang of Four soon followed and led to the installation of Hua Guofeng as new Chairman of the CCP. For two years after Mao's death, vicious political infighting concerning the direction of China's policies occurred within the CCP. One group supported the continuation of Mao's philosophies while another group - led by Deng Xiaoping - favoured more-liberal economic reforms. This group of pragmatists finally gained the ascendancy at the Third Plenum of the Eleventh Central Committee held in December 1978. It was after this date that Deng Xiaoping launched China on a policy of opening up to the outside world, otherwise known as 'The Open Door Policy'.
Mao's death heralded immense changes in the PRC's economic and social policies. During Mao Zedong's rule, the CCP paid close attention to rural collectivisation, central planning, state control and ownership of industry, and Chinese self-sufficiency. The rise to power of Deng Xiaoping heralded a reversal in the emphasis on previous Marxist policies to policies focusing upon more-rapid economic growth, the role of market forces, foreign trade and investment from the West.