Communist Party leaders meeting in Peking have decided on a major slowdown and shift in China's crucial modernization plans, closing or stopping work on many factories and relocating perhaps millions of workers, according to the Chinese press and sources here.
A source here close to the Peking government said overly ambitious production targets in key areas such as steel would be lowered at a plenary session of China's parliament later this year.
He indicated it was not yet clear if any of the billions of dollars in foreign contracts already negotiated would be canceled, but several reports indicated huge foreign-funded projects such as the $2 billion Baoshan steel plant near Shanghai probably would be delayed further.
Two months ago, China notified Japan it was suspending the steel plant contract and some smaller ones because of financial problems.
A visit to China by U.S. Commerce Secretary Juanita Kreps beginning Saturday may shed more light on the effect the slowdown might have on Sino-American trade. Analysts expect it will take much longer to determine the impact of the sudden retrenchment on relationships among China's top leaders who made the decision at what has been described as an enlarged Politburo session.
Official radio broadcasts and the People's Daily have begun to report dismissals of workers who had left farms to work in some marginal plants and plans to relocate many others in a major shift toward production of oil, coal, export and consumer goods at the expense of heavy industry.
Cheng Ming, a Hong Kong magazine with ties to Peking, said more than 20 million workers would have to be retrained, as happened after the economic disasters of tthe Great Leap Forward in the late 1950s and early 1960s. Sources here close too Peking acknowledged that many factories would have to be closed and workers reassigned, but they thought the Cheng Ming estimates were exagerated.
According to Hong Kong sources, the readjustment of the production targets announced with great fanfare more than a year ago reflects the influence of aged economic expert Chen Yun, the latest addition to the Communist Party's ruling Politburo standing committee. Chen, who helped oversee the readjustment of the early 1960s and then lost influence in the radical politics of the late 1960s, was made China's fifth-ranking leader in December.
A source here familiar with Chen's insistence on careful, well-organized economic economic growth said, "We cannot afford to jump. We must go step by step."
"Investment in some branches of heavy industry, such as the iron and steel industries, must be cut appropriately to guarantee light industry a bigger share," a People's Daily article said.
The newspaper said Chinese industry has been plagued by "an acute shortage of fuel, power and raw materials, . . . which cannot be brought to an end quickly." In this situation, said an official New China News Agency summary of the article, "it is necessary to close down or merge enterprises which are backward technologically or which lose money because of high production costs so that other enterprises, especially key enterprises, can have enough power fuel and raw materials.
A recent broadcast from the Guang-xi region of southern China said 62 construction projects there would be suspended or slowed to allow a shift of resources to more important projects.
Reports on dismissal and relocation of workers have emphasized that all will be kept on salary during the readjustment. Worker salaries, which average about $35 a month, are considered sacrosanct in socialist China. Even during the worst political disruptions of the late 1960s, when factories were closed for months, workers were still paid. The practice severely cuts into the productivity of the Chinese economy during times of readjustment, however.
Foreign analysts here said they had received reports that some workers from farming families who had migrated to factory jobs were being sent back to farm work to cut factory expenses.
"Some factory people were complaining about the layoffs, saying the people from the farms, who are more eager to please than veteran workers with job security, were the best workers they had," one analyst said.
Party Chairman Hua Guofeng (Hua Kuo-feng) announced early last year that China intended to produce 60 million tons of steel, about twice its current annual total, and 400 million tons of grain, a 27 percent increase, by 1985. He called for the completion of 120 major projects, including 10 iron and steel complexed, by that year.
The Cheng Ming article said the steel target would be lowered to between 40 and 50 million tons. Official articles have stopped promising completion of all 120 major projects by 1985. Grain production continues to limp along under water shortages and, in northern China, a severe cold spell.
Cheng Ming said China suffered serious inflation earlier this year, caused by higher prices paid to peasants for food. Some prices increased 20 to 40 percent and left workers in places like Peking with less real wages than they earned in 1965, the magazine said. CAPTION: Picture, President and Mrs. Carter with Prime Minister and Mrs. Ohira during welcoming ceremonies at the White House. By Frank Johnston - The Washington Post