Rising sectionalism in China?

• Author: Yang, Dali L.
• Position: Contemporary China: The Consequences of Change

It is not unusual for moments of crisis to become opportunities for renewal. China's political crisis of 1989 is an excellent example of such a moment; it exposed the cracks in the political monolith of the Chinese Communist Party while at the same time freeing the imaginative power of many China scholars and popular commentators. Whereas scholars had previously tended to agree that China would manage to muddle through economic reforms with the continued political dominance of the Communist party, in fact in the aftermath of the Tiananmen crisis there suddenly emerged a stream of publications questioning whether China would be able to hold together and offering scenarios about how it might split apart.

Many of these writings pointed out that resources, as well as obligations, were being decentralized from the central to local governments and argued that the increasing level of resources available to local governments was moving China toward what has been termed regionalism. A number of these scholars believe that rising regionalism will lead to the disintegration of the Party-state, as it did in Yugoslavia and the Soviet Union.(1) One Japanese professor even went so far as to suggest that 11 republics-Hong Kong,

Guangdong, Fuj ian, Taiwan, Tibet, East Turkestan, Inner Mongolia, Northeast, Sichuan, North China and South China -- may emerge out of China's breakup to form a loose Federal Republic of China."(2) The chorus of predictions on China's future reached a crescendo in 1993 when two scholars hailing from China itself warned of China's possible disintegration.(3)

While the writings about China's collapse have indeed attracted attention, we believe that proponents of the breakup thesis have not adequately sustained their argument. After all, a country of China's size must accept a certain amount of decentralization in order to take full advantage of local initiatives throughout the country Regional differentiation, however, does not imply dissolution.

In this essay, we deal with three questions that will allow us to assess the strength of the centrifugal forces in China. First, are the local initiatives being encouraged within a stable institutional framework which effetively manages relations between the central and local governments? Second, has the central government adopted adequate measures to address the causes of regional divisions? Third, is the Chinese economy becoming integrated into a national market? If the answer to each of these questions is "yes," then we believe that we can say that these three trends will moderate the centrifugal forces in China. A negative response to any of them, however, will strengthen the breakup thesis. To anticipate our conclusion, we believe that the Chinese central government appears to be making good progress in alleviating the leading causes of political regionalism.

Decentralization, Local Interests and Central Control

Does decentralization necessarily lead to fragmentation? Are the local initiatives encouraged by decentralization being formulated within a stable institutional framework which effectively manages relations between the central and local governments? In order to consider the relationship between decentralization and regionalism, we begin by defining our terms. Following common usage, we use regionalism to refer to the persistence of subnational and transnational differences, identities and commitments.(4) In other words, regionalism is rooted in both objective conditions (such as uneven regional development) and subjective perceptions of these differences.(5) The political effects of regionalism manifest themselves when politicians tap a people's regional consciousness and loyalty in pursuit of political goals. The political consequences can range from efforts to preserve local culture and identities to a quest for greater local autonomy or even political independence.

Since the late 1970s, there has been a significant devolution of economic resources to local governments in China. Under the auspices of the fiscal responsibility system, the central government negotiated revenue contracts with each individual province which specified a fixed amount of revenue that the province would have to submit to the central government.(6) Because of this system, when inflation picked up in the 1980s, central revenue grew more slowly than the economy, and the bulk of the margin

increases in revenue stayed in the provinces.(7) Through the 1980s and early 1990s, central government revenue as a share of GNP and of total government revenue declined significantly, making it more difficult for the center to conduct macroeconomic policy through the use of traditional planning tools, such as the allocation of investment funds.(8)

The devolution of resources and responsibilities to local governments has meant that local interests have taken center stage and, consequently, relations between the central and local governments have come to involve even more more consultation and bargaining.(9) In addition to the decentralization drive, the end of the Maoist era and the gradual return to political modernation have encouraged local officials to ask for more favorable policies in an effort to improve the local economy. Two of the most prominent cases have been the establishment in Guangdong and Fujian of special economic zones with lower tax rates and expanded foreign trading rights. In April 1979, Guangdong party secretary Xi Zhongxun, a national leader in his own right, proposed at a central work conference that Guandong be given more autonomy so that the province could benefit from its advantages, especially its proximity to the Hong Kong market and investment capital.(10) At the time, China was holding talks with Great Britain over the future of Hong Kong, and Deng Xiaoping welcomed Guangdong's request, because giving Guandong a measure of economic freedom enhanced the Chinese government's credibility on its promises for Hong Kong. Accordingly, in mid-1979 the government elaborated special policies for Guangdong (and Fujian, which faces Taiwan), including the establishment of the special economic zones. The amount of revenue Guangdong had to pass to the central treasury was set at a modest 1.2 billion yuan per year (adjusted to 1 billion in 1980). Other localities soon joined the local initiative bandwagon by seeking more favorable treatment for themselves. I I By 1988, most provincial units had adopted the fiscal responsibility system.(12)

Yet all these efforts by local leaders to protect and improve the interests of their constituencies were to be expected, and to some extent, were the intended outcomes of reform. Moreover, the fulfillment of local interests remained within the framework of Communist party rule. It would be a major leap to conclude that the growing local demands for preferential policies at the local level stemming from the increased attention to local interests would lead to the disintegration of China. After all, local governments in many countries, such as the United States, possess far more resources and autonomy than their Chinese counterparts, and yet one hears hardly a murmur about the breakup of these countries.

The sudden focus on local interests, which has appeared during a period of economic system transformation, has had its share of costs. A major casualty has been macroeconomic stability, which has suffered as the provinces have competed with one another in their push for economic growth.(13) Because the evaluation of local cadre performance places a heavy emphasis on economic growth at the local level, it has become more common in recent years for those local governments with enough economic strength to pay mere lip service to the central government's injunctions on macroeconomic stability. During the period from 1988 to 1990, for example, various local governments, especially those in the coastal region, sought to moderate the constraints of a tight credit policy by issuing various financial instruments, such as corporate bonds, and by pressuring local bank branches to issue credit.(14)

Indeed, in their eagerness to promote local development, it has become quite common for local authorities to offer various preferential policies of their own, such as low tax rates and low land prices, in order to attract outside investment, especially from abroad. It is not unusual for local leaders to overstep their authority and disregard existing regulations, even when the central government has issued repeated prohibitions. One survey of 24 provincial units found that in 1987 to 1988, there were 97,000 cases (8.7 percent of the total) in which the local government exceeded its property authority, such as offering land-use rights to investors at below-market prices.(15)

A major reason for the relatively high incidence of noncompliance in the provinces of authoritarian China is rooted in contemporary history. China's reforms emerged out of the dynamic interaction between central and local governments; those areas that launched liberalizing reforms in spite of central prohibitions were often rewarded for their initiatives. Localities have rarely been sanctioned for noncompliance in the economic arena, and when they have, it has generally been episodic. China's priorities have been changed: Since the late 1970s, politics have shifted decisively from the Maoist preoccupation with class structure to a strong emphasis on economic development. While top provincial posts are still filled by the central government, the appointments are subject to a formal vote by local people's congresses, where they are occasionally voted down. Moreover, local people's congresses have gained more authority in enacting legislation and shaping local policies. These gradual political changes have provided strong incentives for local politicians to emphasize local interests, most particularly to ensure local economic growth in order to generate revenue and...