Completion of Socialist Transformation
By the end of 1956, the PRC declared the socialist transformation of agriculture, handicrafts, and capitalist industry complete, eliminating private ownership and placing virtually all economic activity under state or collective control.
Transformation of Agriculture
Following land reform, the Party moved rapidly to collectivise agriculture. Peasants were first organised into mutual-aid teams in the early 1950s, then into lower-level agricultural producers' cooperatives (APCs) in 1953–1955, and finally into higher-level APCs — effectively full collectivisation — by 1956. The pace accelerated sharply in 1955–1956 under Mao's personal pressure: within a single year, China collectivised more peasants than the Soviet Union had over a decade.
Transformation of Industry and Commerce
Private industry and commerce were nationalised through "joint state-private ownership" (公私合营): the state bought out private shareholders with fixed-interest bonds and installed Party cadres as managers. By the end of 1956, over 99% of private industrial firms and 82% of private commercial firms had been converted. Former capitalists received annual interest payments that were later cancelled during the Cultural Revolution.
Significance and Consequences
The declaration of completed socialist transformation in 1956 marked the formal end of China's mixed economy. Mao hailed it as a historic achievement accomplished in record time. However, the rapid collectivisation of agriculture eliminated private incentives and created the administrative apparatus that would later mismanage the Great Leap Forward, setting the stage for the catastrophic famine of 1959–1961.