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Provincial Discretion and National Power: Investment Policy in Guangdong and Shanghai, 1978–93*

Published online by Cambridge University Press:  12 February 2009

Linda Chelan Li
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Central-provincial relations are an old issue which have plagued successive Chinese leaderships both before and after 1949. Indeed the spatial dimension, with its ramifications regarding power distribution and the complications around policy formulation and implementation, has been a perennial issue of concern in comparative politics. This old interest has been, in recent years, intensified by incessant central-provincial conflicts since reform, to the extent that the integration of the Chinese state has been called into question.

Type
Research Article
Information
The China Quarterly , Volume 152 , December 1997 , pp. 778 - 804
Copyright
Copyright © The China Quarterly 1997

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Footnotes

*

This article is based on the author's doctoral thesis, Shifting Central-Provincial Relations in China: The Politics of Fixed Asset Investment in Shanghai and Guangdong, 1978–1993,University of London, 1995. Field research on Shanghai and Guangdong was done between sumrner 1993 and summer 1994, when the author stayed principally in Beijing and made trips to Guangzhou and Shanghai. Altogether 43 officials from the central government and the two provincial governments were interviewed. I am grateful for the feedback and advice given by many academics and Chinese ofncials in various stages of the research. David Goodman and Paul Wilding read and gave comments on an earlier draft, for which I am grateful.]

References

1. See for instance Chang, Maria Hsia, “China′s future: regionalism, federation, or disintegration,” Studies in Comparative Communism,Vol. 25, No. 3 (1992), pp. 211–227]CrossRefGoogle Scholar. For a perceptive account of the long history of the discussion about the disintegration of the Chinese state, and the rationale behind such discussion, see Fitzgerald, John, " 'Reports of my death have been greatly exaggerated': the history of the death of China," in Goodman, David S. G. and Segal, Gerald (eds.), China Deconstructs: Politics, Trade and Regionalism(London: Routledge, 1994), pp. 21–58.]Google Scholar

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4. The inertia of decentralized powers and resources is noted in Riskin, Carl, "Neither plan nor market: Mao′s political economy," in Joseph, William A., Wong, Christine P. W. and Zweig, David (eds.), New Perspectives on the Cultural Revolution(Cambridge, MA: Harvard University, The Council on East Asian Studies, 1991), pp. 132–152]Google Scholar. A similar observation is made in the context of the open (door) policy in Howell, Jude, China Opens Its Door: The Politics of Economic Transition(Hemel Hempstead: Harvester Wheatsheaf, 1993), pp. 5–6.]Google Scholar

5. "Excess investment" refers to the amount of investment value completed within a province in a year over and above the ceiling prescribed by the central government.]Google Scholar

6. For a note on the Chinese state as a continental system, stressing the diversities within the territory and the subsequent implication on understanding Chinese politics, see Goodman, David S. G., "Future paths for China: nation-state perspectives on a continental system," paper presented at Conference on "The Contest for 'Asia'," University of Hong Kong, December 1995.]Google Scholar

7. In Goodman, David S. G., Centre and Province in the People′s Republic of China: Sichuan and Guizhou, 1955–1965(Cambridge, MA: Harvard University Press, 1986), it is concluded that both provincial conditions and national policies determined provincial discretion. While this must be true, what the case of Guizhou, an extremely poor province, illuminates is at best indeterminate. The extremely deprived conditions in a province might have deprived the provincial leader′s ability to follow central policies, as Goodman has concluded. Alternatively, however, the difficult provincial conditions might have the effect of increasing "bottom-up" pressure on the provincial leaders to stand up against inappropriate central policies. The "unsatisfactory" performance of the provincial government, from the Centre′s point of view, and which had caused its leader to be sacked, might thus be attributed to entirely different reasons. The implication is that the case of a poor province would not be able to highlight the difficult choices provincial leaders had to make between their agency role for the Centre and the representative role for the province.]Google Scholar

8. A more detailed discussion on this topic and a review of the previous literature on China′s central-provincial relations is found in Li, "Towards a non-zero-sum interactive framework."

9. Major works giving this interpretation to central-provincial relations include]Google ScholarBarnett, A. D., Cadres, Bureaucracy, and Political Power in Communist China(New York: Columbia University Press, 1967)]Google Scholar; Schurmann, F., Ideology and Organization in Communist China,new ed. (Berkeley: University of California, 1968)]Google Scholar; and Teiwes, F., “The purge of provincial leaders, 1957-1958,” The China Quarterly,No. 27 (1966), pp. 14–32.]CrossRefGoogle Scholar

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11. Major works projecting this image of provinces as bargaining partner include: Lampton, D. M., “Chinese politics: the bargaining treadmill,” Issues and Studies,Vol. 23, No. 3 (1987), pp. 11–41, and (ed.), Policy Implementation in Post-Mao China(Berkeley: University of California Press, 1987)]Google Scholar; Lieberthal, K. and Oksenberg, M., Policy Making in China: Leaders, Structures, and Processes(Princeton: Princeton University Press, 1988)]Google Scholar; Suisheng, Zhao, “The feeble political capacity of a strong one-party regime - an institutional approach toward the formulation and implementation of economic policy in post-Mao mainland China,” Issues and Studies,Parts I & II, Vol. 26, Nos. 1–2 (1990), pp. 47–80, 35–74;]Google Scholar Lieberthal, K. and Lampton, D. M. (eds.), Bureaucracy, Politics and Decision-Making in Post-Mao China(Berkeley: University of California Press, 1992);]Google Scholar and Shirk, S., The Political Logic of Economic Reform in China(Berkeley: University of California Press, 1993). The vitality of provincial bargaining has led researchers to talk about the resurgence of "regionalism" and the decline of central state capacity. See, for instance, Goodman and Segal, China Deconstructs;Jia Hao and Lin Zhimin (eds.), Changing Central—Local Relations in China: Reform and State Capacity(Boulder: Westview Press, 1994)]Google Scholar; and Yang, Dali, “Reforms, resources and regional cleavages: the political economy of coast-interior relations in mainland China,” Issues and Studies,Vol. 27, No. 9 (September 1991), pp. 43–69.]Google Scholar

12. Barry Naughton describes the existence of a strong "implementation bias" in favour of the provinces and David Bachman notes the rule of the "iron law of autarky" in tax collection in their contributions to Lampton, Policy Implementation in Post-Mao China.

13. This is the view of, for instance, Barry Naughton in his discussion of the decline of central control over investment. See Barry Naughton, "Decline of central control over investment in post-Mao China," in Lampton, Policy Implementation in Post-Mao China,p. 78.]Google Scholar

14. SeeGoldstein, S. M., “Reforming socialist systems: some lessons of the Chinese experience,” Studies in Comparative Communism,Vol. 21, No. 2 (Summer 1988), p. 231; Lieberthal, "Introduction: the 'fragmented authoritarianism' model," in Lieberthal and Lampton, Bureaucracy, Politics and Decision-Making in Post-Mao China,p. 12.]CrossRefGoogle Scholar

15. Jia Hao and Lin Zhimin, Changing Central-Local Relations in China,p. 10.]Google Scholar

16. The unanswered question is obviously: how is the emergence of these "enlightened" leaders possible? Given the randomness of intelligence distribution over time and space, it is hard to believe that the difficulty posed by institutional contradictions which all previous generations of leaders had failed to break through can be resolved by the emergence of a few "specially enlightened" leaders.

17. As a central control measure the control figure has evolved out of the state investment plan during the 1980s. Before reform the state, and of which the central government, had more or less monopolized investment, meaning that the state investment plan by and large encompassed all investment in the economy. This ended with decentralization during reform and the proliferation of investment agents. The central control figure for annual investment ceiling in a province, which started as merely the sum total of investment specified in the state investment plan for a province, evolved gradually to cover also investment outside the state investment plan, and was increasingly relied upon by the Centre as a control instrument.

18. Apart from central investment, major exclusion categories in the control figures are foreign investment, two groups of pre-specified investment categories excluded as a result of deliberate central policy to encourage investment in these areas. In 1982 and 1985, eleven and five categories of investment were specified as excluded from coverage respectively. They include the repair of existing equipment, building of roads, schools, hospitals, museums, staff hostels, etc. See Dangdai Zhongguo congshu bianji bu (ed.), Dangdai Zhongguo de jingji guanli (The Economic Management of Contemporary China)(Beijing: Zhongguo shehui kexue chubanshe, 1985), p. 237.]Google Scholar

19. Shanghai′s relatively modest excess investment reflected partly a genuinely lower level of investment activity in Shanghai when compared to Guangdong, and partly a higher level of under-reporting and manipulation of investment statistics by Shanghai officials so as to maintain Shanghai′s image of a rule-abiding city. Author′s interviews, January 1994. For more discussion see Li, Linda Chelan, Centre and Provinces: China, 1978–93. Power as Non-zero-sum(Oxford: Oxford University Press, forthcoming), ch. 4.]Google Scholar

20. Figures 2 and 3 are based on impressions gained through field interviews as well as documentary research on the provincial discretion of the two provinces, and are intended to show the general trendand relativities, rather than the precise level or frequency of occurrence of a particular behaviour, which is in any case difficult to quantify in a meaningful manner. The figures have been presented to knowledgeable respondents for cross-checking.

21. A similar observation on the impact of central policies on localities is made in Dorothy Solinger, "Despite decentralization: disadvantages, dependence and ongoing central power in the inland - the case of Wuhan," The China Quarterly,No. 145 (March 1996), pp. 1–34.]Google Scholar

22. Calculated from Shanghai Statistical Bureau (ed.), Xin Shanghai sishi nian (Forty Years of New Shanghai)(Beijing: Zhongguo tongji chubanshe, 1989), p. 78; Shanghai Statistical Yearbook 1993,p. 14; Guangdong Statistical Bureau (ed.), Guangdongsheng guomin jingji he shehui fazhan tongji ziliao, 1949–1988, pingheng tongji bufen (Statistical Information on Guangdong′s Economic and Social Development, 1949–1988. General Statistics)(Guangdong: Neibu. 1989), p. 74; and Statistical Yearbook of China 1993,p. 229.]Google Scholar

23. China began to turn to the outside world and normalize relations with Western countries in 1970, after the border clashes with the Soviets in 1969. Soon the international trade fair in Guangzhou resumed, in which many Hong Kong businesspeople participated. For the close relationship between Guangdong and Hong Kong, see Vogel, Ezra F., One Step Ahead in China: Guangdong under Reform(Cambridge, MA: Harvard University Press, 1989), chs. 2 and 13.]Google Scholar

24. See Kelliher, Daniel, Peasant Power in China(New Haven: Yale University Press, 1992), p. 48, for the new national export strategy.]Google Scholar

25. For a full discussion of the evolving contents of the "Special Policy" of Guangdong, and the process of its development, see Li, Centre and Provinces,ch. 5; and Cheung, Peter T. Y., "Relations between the central government and Guangdong," in Yeung, Y. M. and Chu, David K. Y. (eds.), Guangdong: Survey of a Province Undergoing Rapid Change(Hong Kong: The Chinese University of Hong Kong Press, 1994), pp. 25–37.]Google Scholar

26. See White, Lynn T. III, Shanghai Shanghaied? Uneven Taxes in Reform China(Hong Kong: University of Hong Kong Press, 1989) for a description of Shanghai′s plight. See also Li, Centre and Provinces,chs. 4 and 6.]Google Scholar

27. See Guangdong Statistical Bureau (ed.), Guangdongsheng guomin jingji he shehui fazhan tongji ziliao, 1949–1988, guding zichan touzi bufen (Statistical Information on Guangdong′s Economic and Social Development, 1949–1988. Fixed Asset Investment)(Guangdong: Neibu, 1989), pp. 88–89; Guangdong Statistical Yearbook 1993,p. 237.]Google Scholar

28. Author′s interviews with Guangdong officials, 1993.]Google Scholar

29. See Ruo, Lin, "Looking back and rethink: the track of reform and opening of Guangdong," in Hanqing, Zhang (ed.), Oaige kaifeng zai Guangdong (Reform and Opening in Guangdong)(Guangzhou: Guangdong Higher Education Press, 1992), p. 18. Lin was the Provincial Party Secretary of Guangdong during 1986–1990. Since then he has been the Director of Guangdong′s Provincial People′s Congress Standing Committee.]Google Scholar

30. Average annual growth rates between 1981 and 1992 in Guangdong were: total 31.5%; state 32.0%; non-state 36.2%, of which collective 64.3%, private 22.7%. Equivalent figures in Shanghai were: total 19.6%; state 17.7%; non-state 30.9%, of which collective 32.8%, private 30.0%. Guangdong Statistical Yearbook 1993,p. 236; Shanghai Statistical Yearbook 1993,p. 244.]Google Scholar

31. Non-state sector investment as a proportion of total investment was: national 32.9% (collective 17.3%, private 15.6%); Guangdong 40.8% (collective 22.7%, private 18.1%); Shanghai 22.9% (collective 18.0%, private 4.9%). Statistical Yearbook of China 1993,p. 145; Guangdong Statistical Yearbook 1993,p. 236; Shanghai Statistical Yearbook 1993,p. 244.]Google Scholar

32. Apart from the influence of fiscal environment, the choice of different policies regarding the non-state sector might also be attributed to the fact that the non-state sector historically occupied a more important place in the pre-reform economy of Guangdong than Shanghai, where state-owned enterprises accounted for over 90% of total industrial output as of 1978, against a more modest 68% in Guangdong.

33. According to an article written by officials from Guangdong′s Industry and Commerce Bureau, in Guangdong it was estimated that there were 800,000 to 900,000 private enterprises in 1989. The number in the official register was, however, less than 6,000. The vast majority (99.3%) had been registered as collectives with the tacit connivance of the Guangdong authorities. See "The present status and future development strategies of private enterprises in Guangdong," in Lok Chaopei and Zheng Yanchao (eds.), Guangdong siyingjingji yanjiu (A Study of Guangdong′s Private Sector Economy)(Beijing: Zhongguo jingji chubanshe), pp. 257–58.]Google Scholar

34. The Shanghai government issued a notice in 1985 reiterating the old (pre-reform) rule of a total ban on bank loans to the private sector. In so doing it ignored the changing economic situation since the commencement of economic reform. See Shanghai Government Notice No. 112(1985), 13 December 1985, "Some Regulations of The People′s Bank of China (Shanghai Branch) on the Financing and Capital Brokerage of Enterprises," printed in Shanghai Economic System Reform Leading Group, Shanghaishi jingji tizhi gaige wenjian huibian (A Compendium of Economic System Reform Documents of Shanghai),Part 4 (Shanghai: Qiye guanli xuehui, 1986), pp. 109–113. In addition, the Shanghai government launched a campaign as late as 1989 to stamp out "pseudo collectives," that is, private enterprises disguised and registered as collective enterprises. Many such "collectives" were thus re-registered as private enterprises or "private individuals," and were made to pay higher taxes applicable to these ownership categories. See Shanghai Economy 1990,p. 460.]Google Scholar

35. The major means by which the Guangdong authorities reduced their due revenue collection from the enterprises, thus hiding resources from the Centre and avoiding pressure to increase its fiscal remittances, included adopting a generous tax exemption and reduction "policy," being lax in tax collection, and diverting budgetary revenue to extrabudgetary and other "private" accounts. For details see Li, Centre and Provinces,ch. 5.

36. The provincial government could easily manipulate the level of revenue collected from non-state enterprises by various tax exemption and reduction measures. Another category of enterprises which had similar flexibility from the provincial viewpoint and thus was enthusiastically promoted by the Guangdong government during the 1980s was the so-called "extrabudgetary state enterprises." These were in fact local state enterprises usually established with local resources. Profit and tax revenues from them were often placed outside the state coffers, thus the description of "extrabudgetary" enterprises. Ibid.pp. 262–65.

37. The original high share was probably attributable to the large number of relatively old state enterprises in Shanghai. Technical renovation funds, the major form of investment in these enterprises, were a form of extrabudgetary revenue.

38. The value of extrabudgetary local fiscal revenue in 1993 was estimated to reach 2 billion yuan,which was over 8% of the total fiscal revenue of the year. See "An analysis of the local fiscal revenue and expenditure of Shanghai in 1993 and a forecast of 1994," in Shanghai Institute of Economic Development (ed.), Shanghai jingji fazhan, 1993 (Shanghai Economic Development, 1993)(Shanghai: China Business Weekly Press), p. 75. This article was reportedly written by informed sources in the municipal finance bureau.]Google Scholar

39. Available data shows extrabudgetary revenues grew by 55.9% (nationally), 89.2% (Guangdong) and 23.2% (Shanghai) between 1986 and 1990, whilst the part of extrabudgetary revenue retained by local finance departments grew by 40.3% (nationally), 26.4% (Guangdong) and 34.2% (Shanghai). See Ministry of Finance (ed.), China Finance Statistics, 1950–1991(Beijing: China Science Press, 1992), pp. 189, 199, 204.]Google Scholar

40. For a similar observation on the similarities and differences of different localities in their interaction with central policy in the context of agricultural reform, see Kelliher, Peasant Power in China,p. 69.]Google Scholar

41. This is reflected by the substantial rise of the line (C) in Figure 3 since the early 1990s. One example of "non-traditional" discretion was the development of fiscal credits, which involved the local finance departments acting like de factoinvestment banks. The funds of fiscal credits were originally diverted from the local fiscal budget. This part of fiscal resource was, however, notincluded in the compilation of extrabudgetary finance statistics, thus forming a novel "third finance" of the local finance departments. (The "first finance" was the local budget; the "second finance" was those extrabudgetary resources entered in the extrabudgetary finance statistics.) It was estimated that the value of fiscal credits nationally amounted to 40–50 billion yuanby 1993/94, the amount in Shanghai increasing by at least 1 to 2 billion yuanper annum. Author′s interviews, 1994.]Google Scholar

42. Hao, Wang, "Sanshuo, sanbian" ("Three ′sayings,' three defences"), Zhongguojinbao,13 January 1989, p. 2. Wang was the propaganda chief of the Guangdong Provincial Party Committee.]Google Scholar

43. The Guangdong leadership was able to convince central planning officials inspecting the retrenchment implementation of the province of the need for a larger, not smaller, investment ceiling. One tactic was to boost up foreign investment and increase the linkage between the traditional domestic sector and foreign capital. Another strategy was to bargain at the specifics, emphasizing the desirability of specific investment projects and the opportunity cost of dropping them. Author′s interviews with Guangdong officials, 1993. After returning to Beijing one of those visiting central officials wrote a report highly in Guangdong′s favour, apparently convinced by the persuasion of the Guangdong officials. See Jian, Sun, “Guangdongsheng yasuo touzi guimo jishi" ("A report of Guangdong′s efforts to contain its investment scale"), China Construction and Investment,No. 8 (August 1989), pp. 17–18.]Google Scholar

44. Investment in Guangdong had had a higher growth rate than Shanghai and the national average during the retrenchment period. 1989: Guangdong — 1.8%, Shanghai — 12.4%, national - 8.0%; 1990: Guangdong 7.3%, Shanghai 5.7%, national 7.5%; 1991: Guangdong 28.3%, Shanghai 13.7%, national 23.8%. Guangdong Statistical Yearbook 1992, 1993,respectively p. 145, p. 236; State Statistical Bureau (ed.), Statistics on Investment in Fixed Assets of China (1988–1989), (1990–1991)(Beijing: Zhongguo tongji chubanshe, 1991, 1992), respectively p. 13, p. 16; Shanghai Statistical Yearbook 1990,1991,1992,respectively p. 238, p. 260, p. 280.]Google Scholar

45. See Chaoyong, Li, “The capital problem in the development of externally-oriented economy of the special economic zones,” Theory and Practice of the Special Economic Zone,No. 4 (August 1990), p. 59. Li was an official of the Shenzhen Branch of the Construction Bank of China. Informed sources in Guangdong confirmed that this was not a lone voice and personal opinion of individual officials. Author′s interviews, 1993.]Google Scholar

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47. Ibid.p. 239.

48. Since 1949 a good number of Shanghai leaders have led both provincial and national careers. In the early years, the second and third First Party Secretary of Shanghai after 1949, Chen Yi and Ke Qingshi, were central government figures posted to Shanghai. During the Cultural Revolution, Zhang Chunqiao, Yao Wenyun and Wang Hongwen were promoted to the central leadership. And more recently the current Secretary General of the Party, Jiang Zemin, and two prominent vice-premiers, Zhu Rongji and Wu Bangguo, served in Shanghai immediately before their promotion.

49. In 1985 some Shanghai officials wrote that "to improve fundamentally the local fiscal system, the obvious choice is to have a system whereby the Centre and the local governments obtain their share of revenue according to the types of taxes.... This should be the basic direction of future fiscal system reform." See Riqing, Xu et al.,"Wanshan Shanghaishi difang caizheng de yanjiu" ("A study on how to perfect the local fiscal system in Shanghai"), in Minzhi, Chen (ed.), Shanghai jingji fazhan zhanliie yanjiu (A Study of Shanghai′s Economic Development Strategy)(Shanghai: Shanghai renmin chubanshe, 1985), p. 247.]Google Scholar

50. For an outline of the content of the 1994 fiscal system reform, see State Council Notice No. 85 (1993), 15 December 1993, "State Council′s Decision on Implementing the Tax-Sharing Fiscal Management System," printed in Caizheng,No. 2 (1994), pp. 18–20.]Google Scholar

51. In practice the system implemented in 1994 was a watered-down version and a combination of the principles of uniform tax rates and tax sharing under the new system and the principle of guaranteeing existing local revenues under the dabaogansystem. See Jae Ho Chung, "Beijing confronting the provinces: the 1994 tax-sharing reform and its implications for central-provincial relations in China," China Information,Vol. IX, Nos. 2/3 (Winter 1994/95), pp. 1–23.]Google Scholar

52. See Xinzhong, Song (ed.), Zhongguo caizheng tizhi gaige yanjiu (A Study on the Fiscal System Reform in China)(Beijing: Zhongguo caizheng chubanshe, 1992).]Google Scholar

53. See for instance Tizuo, Ke, “Fenshuizhi de tansuo yu xuanze" ("Probes and choices on the tax-sharing system"), Shanghai caizhui.No. 2 (February 1994), pp. 8–14]Google Scholar; Xingquan, Gu, “Qiantian caishui tizhi gaige" ("A preliminary discussion on the fiscal and tax reforms"), Shanghai caishui,No. 3 (March 1994), pp. 10–11,31]Google Scholar; and Jiangguo, Wu, “Dui shishi caizheng 'zhuanyi zhifuzhi' de xianshi sikao" ("Pragmatic thoughts on implementing the fiscal transfer payment system"), Shanghai caishui,No. 3 (March 1994), pp. 12–14.]Google Scholar

54. See Li, Centre and Provinces,ch. 5, for more details.