Journal of International Affairs

Rising Sectionalism in China

By Dali L. Yang and Houkai Wei ^*

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, Fujian, 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 effectively 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 marginal 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 consultation and bargaining. ⁹ In addition to the decentralization drive, the end of the Maoist era and the gradual return to political moderation 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 Guangdong 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. ¹¹ 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 changing: Since the late 1970s, politics have shifted decisively from the Maoist preoccupation with class struggle 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 employment.

To be sure, the central government can still exert powerful pressure over local officials, as it still has the power to appoint and remove those at the provincial level. However, such action would certainly be a blunt instrument to use for fine-tuning the economy. Thus, while the central leaders have continued to exhort local leaders to think of China as a single chessboard in economic construction (namely, to place the national interest ahead of local concerns), they have been working hard to build new mechanisms to enforce macroeconomic control by reorganizing the tax and fiscal systems and reforming the banking and accounting systems. With the institution of fiscal and tax reforms in 1994, which established separate taxation systems at the central and local levels, the central government's share of total government revenue is expected to rise significantly. Once the central government has more resources, it will be in a better position to implement its policies, enabling it, for example, to alleviate the disparities between the coastal and interior provinces, which have been a major cause of regional rivalries (discussed below).

Another issue related to the ascendency of local interests is the incidence of local protectionism, which attracted much attention in the late 1980s. Local protectionism occurs when local governments, such as those of provinces, prefectures, counties and even townships, place restrictions on or raise obstacles to the flow of raw materials, manufactured goods, capital and labor across administrative boundaries in order to protect local interests. Fundamentally, the rise of local protectionism during the partial introduction of market-based reforms was the instinctive response of governments that had previously known only central planning. Many Chinese commentators, however, used the highly evocative term zhuhou jingji , literally "fiefdom economy," to describe the phenomenon, arguing that the Chinese economy was being fragmented along administrative lines, just as when in ancient China the dukes and princes under the emperor set up their own separate kingdoms. As Jingji Yanjiu  (Economic Research), one of the most frequently cited papers, stated: "China's 30 provinces, autonomous regions and municipalities are large fiefdoms, the more than 300 prefectures and cities are medium fiefdoms, and the 2,000-plus counties [cities] are small dukedoms. Each focuses on its own economy, has its own territory, and makes its own policy."

The notoriety of the term zhuhou jingji  contributed to the erroneous conclusion that decentralization was creating economic fragmentation and regionalism, which in turn could lead to the political dissolution of China. Writing during the worst period of local protectionism, the bottom of the austerity program in 1989 to 1990, Chinese commentators clearly saw the symptoms of a new norm being established. But they issued the wrong prognosis. The intense efforts by local governments to protect the interests of their local economies were as much signs of protectionism as they were indications that market competition was evolving as the new norm. When the prices of raw materials were kept artificially low by the central government, local governments forbid their export and preferred to set up their own processing plants. Beyond establishing their own processing plants, localities sought to preserve their markets for themselves by blocking imports of manufactured goods from other areas. Economic downturns exacerbated this tendency, giving local protectionism a cyclical nature. While price wars and blockades reflected local governments' desire for control, they also embodied the intensity of the market competition for raw materials and product markets. Since prices for most commodities were freed by the government in the 1990s, price wars have practically disappeared. While efforts to exclude non-local products can still be seen, they are no longer as prominent as they once were. Indeed, the Chinese commentators did not recognize that as long as the central government persevered in its commitment to the market economy, the logical outcome of more than 2,000 localities each trying to keep the local market to itself, while seeking to sell to the outside, would be Adam Smith's world of market competition, for the simple reason that no local government has a monopoly on production, and factories in each locality have to face competition from the outside.

To summarize, there has been a significant increase in the number of local initiatives in China thanks to the reform, but we must keep in mind that most such initiatives are nothing more than normal local government behavior and do not represent a loss of central political control. Other symptoms, such as the high incidence of local protectionism, are largely transitional and caused by errors in reform which have since been redressed. Overall, we believe that the recent restructuring of the fiscal and taxation systems is putting the relationship between the central and local governments on a stable institutional footing.

Dealing with Widening Regional Disparities 

As in any large economy, uneven development in different parts of the country is a major issue confronting Chinese policy makers. The issue becomes even more complex when economic disparities become entwined with ethnic differences. Furthermore, the interpretation of any figures regarding regional inequality is very sensitive to the unit of area chosen as the basis for measurement. Whereas regional economic disparities can be measured from many different angles, the most politically significant regional gap, as in many other countries, has been that between the East coast and the interior. Already pronounced at the time of the communist takeover, this gap moderated somewhat during the Maoist era. Under reform, however, the gap has widened, especially in the past few years (see Table 1). Moreover, it is interesting to note that the relative gap between the eastern and central regions has widened more than that between the eastern and western regions.

Table 1 Regional Disparities: Per Capita Gross Domestic Product

	Per Capita GDP (yuan)			Relative Gap (%)
	Coastal Region	Central Region	Western Region	Coastal-Central	Coastal-Western
1978	457.4	310.3	254	32.2	44.5
1980	488.3	336	274.3	31.2	43.8
1986	860.7	579.6	463.2	32.7	46.2
1989	1098.7	696.9	568	36.6	48.3
1991	1192.6	721.6	640.9	39.5	46.3
1992	1398.9	796.3	692	43.1	50.5
1993	1671	887	759.2	46.9	54.6

Note: This table is computed on the basis of comparable prices. Relative gap = (maximum-minimum) / maximum * 100% Sources: Wei Houkai and Liu Kai, "Woquo Diqu Chayi Biandong Qushi Fenxi yu Yuce (The Evolution of Regional Disparities in China: Analysis and Forecast), Zhongguo Gongye Jingji Yanjiu (China Industrial Economics Research), 3 (1994) p. 29; State Statistical Bureau, Statistical Yearbook of China (1994) (Beijing: Zhongguo Tongji Chubanshe, 1994) pp. 35 and 60.

Because much of the state investment in the interior during the Maoist era was made for strategic or military purposes without regard for economic performance considerations, it is to be expected that the coastal region would again do better than the interior once economic criteria became priority under reform. The coastal region not only has superior human resources in the area of business entrepreneurship but also possesses a geographic advantage over the interior in promoting international trade and attracting foreign investment. It is thus no surprise that the non-state sectors have been more vigorous along the coast than in the interior, which has traditionally relied on government investment (see Table 2). According to our calculations, in 1992, approximately 85 to 91 percent of the regional gap in per capita rural gross output value and approximately 43 to 50 percent of the regional gap in per capita rural household net income could be attributed to differences in rural industrial development across regions. Similarly, an overwhelming proportion of foreign investment has flowed into the coastal region. Between 1986 and 1993, the amount of realized foreign investment in the coast was $64.39 billion, or 88.24 percent of the total, compared with $5.5 billion (7.54 percent) and $3.08 billion (4.22 percent) respectively for the central and western regions.

Table 2 Output Value of Non-State-Owned Industry as a Percentage of Gross Value on Industrial Output

	Coastal Region	Central Region	Western Regions	Coastal Newly Industrialized Regions
1981	29.79	22.50	15.09	40.51
1990	52.53	35.23	29.48	62.48
1992	59.64	38.90	33.29	68.36
1993	66.42	45.95	40.21	74.89

Note: The coastal newly industrialized regions are Jiangsu, Zhejiang, Fujian, Shandong and Guangdong provinces. Sources: State Statistical Bureau, Statistical Yearbook of China (1991) pp. 397-98; (1993) pp. 415-16; (1994) pp. 376-77; Quanguo Gesheng Zizhiqu Zhixiashi Lishi Tongji Ziliao Huibian 1949-1989 (A Compilation of Historical Statistical Data of Various Provinces, Autonomous Regions and Municipalities) (Beijing: Zhongguo Tongji Chubanshe, 1990).

Had the regional development policy of the central government been more evenly focused, the regional disparities between the coast and the interior might have been interpreted as politically undesirable but economically unavoidable during the early stages of the market economy. For interior leaders, however, what has been hard to accept is that the central government advocated and practiced a regional policy that emphasized coastal development during the Sixth and Seventh Five-Year Plan periods (1981 to 1990), each time asking the interior to wait and promising that development would come to the interior once the coastal region had become relatively prosperous. Beginning with the establishment of the special economic zones in Guangdong and Fujian in 1979, this practice culminated in the promulgation of the coastal development strategy in 1988 and the recent emphasis on development in Shanghai's Pudong area.

While initially such a biased regional policy could be justified on the grounds that the coastal provinces had been neglected during the Maoist period, as the gap between the coast and the interior became larger and the complaints from the interior became more vociferous, it has become harder and harder for central leaders to justify and maintain preferential policies for the more prosperous coastal region. As Jia Zhijie, then governor of Gansu, one of the poorest provinces in the western region, pointed out, by giving preferential policies to the coastal region, the center was adding flowers to the brocade and making it more difficult for the western region to remain competitive. According to the govenor of Shaanxi, another poor province in the Western region, Bai Qingcai, the interior provinces should be allowed to emulate the successful experiences and policies of the coastal provinces.

Interior provinces have adopted a number of strategies to bring about changes in their favor. As one of the authors of this article has discussed these strategies elsewhere, we shall focus on recent developments in inter-governmental relations here. ¹⁶ Generally speaking, the interior has worked hard to obtain more funds from the central government and secure the extension of preferential policies from the coast to the interior, such as by obtaining authorization to establish special development zones. A great deal of lobbying on the part of interior leaders has occurred both publicly and behind the scenes. At least since the late 1980s, representatives from interior provinces have used each annual session of the National People's Congress (npc) as an important occasion to ask central leaders to speed up the development of the central and western regions in order to alleviate the growing disparities between the coast and the interior or between the East and the West. For example, at the third session of the Eighth npc in March 1995, representatives from the interior emphasized to central leaders, such as Premier Li Peng, the importance of interior development. ¹⁷

Central leaders, anxious about political instability in the aftermath of the 1989 crisis and the Soviet breakup and in anticipation of Deng's passing, have steadily been paying more attention to the increasing disparities between the coastal region and the interior, distancing themselves from former General Secretary Zhao Ziyang's emphasis on coastal development. The industrial policies announced in 1989 were made on the basis of industry rather than locality. The foreign trade reforms introduced in 1991 reduced the privileges enjoyed by the coastal special economic zones. In Premier Li Peng's report on the Ten-Year program and the Eighth Five-Year Plan, he stated that "areas with rich resources should be encouraged to develop processing industries." ¹⁸ This might be read as a post hoc justification of what had actually happened in the interior, but it contrasted sharply with the Sixth Five-Year Plan, which called on the interior regions to develop resources in order to help the coastal region.

Two other measures have been introduced. First is the further extension of various policy privileges previously enjoyed by special economic zones in the coastal region to interior areas in the form of economic and technology development zones and

high-tech industrial development zones; these special zones are authorized to offer lower tax rates and tax exemptions to attract certain kinds of investment. Of particular importance was the opening of border economic cooperation zones (also called border trade zones) beginning in 1992. ¹⁹ Second, there has been a central government initiative to accelerate the development of rural enterprises in the central and western regions. Following the release in February 1993 of a State Council Circular which adressed this issue, tax assistance, special funds and a program for East-West cooperation in rural enterprise development have been put into place and appear to have given an impetus to interior rural enterprise growth. ²⁰

It is not clear to what extent these programs have had an appreciable impact on the alleviation of the increasing disparities between the coast and the interior. Although the relative gap between the coastal and western regions decreased between 1989 and 1991, the regionally oriented policies coincided with a severe economic austerity program that tended to slow down the growth in regional disparities. After 1991, there was a major jump in coast-interior disparities due to the economic boom, and there is thus little doubt that the post-Tiananmen regional policies have not fundamentally altered the pattern of changes in coast-interior disparities. Consequently, interior demands for central government action to address the regional gap have also increased sharply.

While spokesmen for the interior point to economic numbers, their complaints about the growing coast-interior gap are frequently peppered with warnings of an impending socio-political crisis, particularly in the ethnic dimension. ²¹ It is widely believed that increasing economic disparities between these regions and the more prosperous East Coast have contributed to rising ethnic tensions and separatist tendencies. ²² According to a survey of provincial-level nationality affairs officials on the economic gap between ethnic minority areas and the more developed coastal region, an overwhelming majority of the respondents believed that the gap had become excessively large (83.7 percent) and served to undermine social and political stability (84.8 percent). Close to 94.5 percent of the respondents believed that the widening gap had made the mentality of minority nationality cadres unbalanced or extremely unbalanced (meaning they were upset). There was unanimous agreement among the respondents that the growing regional gap required urgent government action. ²³

The central leaders apparently agreed. In the words of Party general secretary Jiang Zemin, "If we allow polarization of minorities and regions, then conflict between central government and provinces could burgeon and cause chaos." ²⁴ We use the word "apparently" here with purpose, because the rebalancing of regional priorities has important political implications. While Jiang's comment has an element of truth to it, it is also plausible that he was using political rhetoric to cultivate the support of interior leaders, while simultaneously enhancing the center's leverage over the increasingly influential coastal interests, especially since Jiang and his colleagues in the central government do not possess the degree of authority Deng Xiaoping does. By arguing that more should be done to narrow the gap between the relatively rich coastal areas and the poorly developed western and central regions, the central government has not only justified one dimension of its existence, but has also put the coastal authorities on the defensive.

Much of the current discussion on the need to reshape China's regional development policies centers on what is to be done during the Ninth Five-Year Plan period (1996 to 2000), and under China's social and economic development program for the period before 2010. ²⁵ There are three distinct elements in this policy shift. First, the fiscal reforms introduced in 1994 and mentioned in section one will, over time, provide the central government with more financial resources for transfer payments to localities. Some of the increased transfer payments will most likely be used to deal with rising regional economic disparities. ²⁶ Policy-oriented banks will gradually increase the amount of preferential loans to the central and western areas for infrastructural improvement. The interior regions will also receive priority in obtaining low-interest loans from the World Bank and the Asian Development Bank. ²⁷ These changes will likely have great significance over the long run, but in the short term only a limited amount of funds will be available, especially in view of the government's substantial debt burden.

Second, the central government has indicated that it will gradually increase the proportion of centrally-controlled state investment in the inland regions, will continue to provide support for underdeveloped areas in terms of taxation and other types of assistance and will encourage the transfer of resource-intensive and labor-intensive industries from the coastal region to the interior. It is unlikely, however, that the government will be able to drastically alter regional patterns of investment. Not only do the authorities directly control only a small proportion of total investment, but, because the coastal region remains the primary source of national economic growth and revenue, the central government can ill afford to alienate it. ²⁸ While the Ninth Five-Year Plan calls on the coastal region to make a great effort in supporting interior development, it reportedly will seek "more investment in the western and central regions without affecting development in the West." ²⁹

Last, but certainly not least, because the allocation of scarce central resources will likely only have a very limited impact on narrowing the coast-interior gap in the short and immediate terms, the most sensible and symbolic action the center can, and plans to, take is to avoid the charge of regional favoritism, though targeted and limited assistance to certain localities on anti-poverty grounds can still be easily justified and will continue to be offered. Many politicians and academics now argue that economic development in China's inland regions has been held back by economic policies skewed in favor of the coastal provinces, Guangdong in particular. ³⁰ Such favor-the-rich policies have been a major cause of interior resentment and are likely to be used as a rallying cry by the underdeveloped areas for political action, leading to the rise of political sectionalism. It is therefore difficult to justify continuing preferential treatment to areas that are already quite prosperous.

Caught in the political cross-fire of regional divisions are the Special Economic Zones (SEZs), such as Shenzhen, which have benefited from preferential treatment over the past 15 years. In many ways, the SEZs have become victims of their own success. In spite of their tax holidays and import privileges, they already face much slower growth prospects owing to high land and labor costs and infrastructural bottlenecks that are driving companies elsewhere. The tight credit policy that has been in place since 1993 has only compounded the adjustment difficulties. In this context, the argument that the SEZs have fulfilled their historical mission and that their privileges should be ended cannot have come at a more difficult time for the SEZs. ³¹ Shenzhen officials have evidently perceived the changing mood and have worked hard to hang onto their existing privileges. Over the past year or so, they have made significant contributions to "help the poor" campaigns, and spent substantial sums of time and money wining and dining central leaders on inspection trips in order to curry favor with Beijing. ³²

Central officials have reiterated their support for the further development of the SEZs. But they point out that sez development must be based on a level playing field rather than a system of preferential treatment. According to Hu Ping, director of the State Council Special Economic Zones Office, the SEZs must acknowledge China's new economic situation. China's aspirations to become a member of the World Trade Organization and follow international practices leave little room for regional preferences within China. On one hand, the SEZs will benefit from China's further opening up, especially in the services sector (such as banking, insurance and free trade zones) and will retain certain privileges. On the other, some existing preferences (such as low tax rates and duty-free import privileges) will be reduced or eliminated. The SEZs must compete with their mainland counterparts and international rivals on a level playing field rather than depend on policy preferences. ³³ The reduction of such preferences for the SEZs and the spread of more liberal policies to the rest of the country will thus serve to encourage investment in interior regions.

In short, while the anticipated policy shifts will not roll back the gap between the coast and the interior, we agree with the mainstream view that these policies will help moderate the pace of the increase in regional disparities. The leadership seems to be taking great care not to promise too much. Vice Premier Li Lanqing, for example, has conceded that even with the policy changes the state will not be able to eliminate coast-interior inequalities for some time to come. ³⁴ Chinese economists project that the gap between the central and western areas and the coastal areas will continue to widen over the next few years, but the rate of the widening will slow down. According to them, the turning point may not come until the next century, when the coastal region's economy will have reached a more mature stage and the interior regions' development picks up rapidly. ³⁵ Nevertheless, by significantly reducing the special privileges enjoyed by the SEZs, the central leaders are winning political points from the rest of the country and are removing a leading cause of regional divisions.

Horizontal Linkages within China  

In light of the attention that has been lavished on local government self-interest under reform, it is no wonder that non-specialists in Chinese affairs have frequently come to the erroneous conclusion that China is being pulled apart by the centrifugal forces of localism and regionalism. In reality, the reform era has also seen the rise of various horizontal linkages within China.

Horizontal economic linkages among local and provincial units are not a new phenomenon in China. ³⁶ The People's Republic of China (PRC) operated with six administrative regions in the early 1950s and reinstated regional bureaus in 1960. While these were formal coordinating and governing mechanisms, horizontal linkages initiated from below have been relatively underdeveloped. From the mid-1960s to the late1970s, they were discouraged both by the official emphasis on economic self-reliance and the political turmoil that made horizontal linkages politically dangerous.

The emphasis on economic development under reform brought about a major shift in the central government's attitude toward horizontal linkages. In mid-1980, the State Council issued a set of interim regulations on promoting such linkages as a strategy for overcoming local and departmental protectionism and reducing duplicative investments. ³⁷ Since then there has been a spate of initiatives aimed at linkages among the provinces. While some of the initiatives, such as an effort to link up more prosperous provinces with underdeveloped ones, were designed from above, most appear to have been started on an ad hoc basis by the parties involved and then evolved into more formal regional cooperative arrangements. In 1981, for example, five provincial units in northern China (Beijing, Hebei, Inner Mongolia, Shanxi and Tianjin) convened an economic and technological cooperation conference. Held annually, this conference was renamed in 1988 the North China Joint Conference of Governors, Mayors and Chairman. ³⁸

By the early 1990s, more than 100 regional economic cooperation organizations had come into being, encompassing all aspects of economic activities. ³⁹ These mechanisms for regional cooperation generally meet annually or biannually, with the chairmanship rotated among the parties. For the major conferences, the State Council is invited to send its representative. Unlike centrally-sponsored regional cooperative organizations, however, the State Council representative usually only acts in an advisory role, although the presence of the representative adds to the legitimacy of these venues for regional cooperation. In terms of their spatial patterns, the existing regional cooperative organizations may be classified into four types:

(1) Inter-provincial economic cooperation organizations, such as the North China Joint Conference of Governors, Mayors and Chairman; the South-Central Region Joint Conference for Economic and Technological Cooperation started in 1984 (Guangdong, Hubei, Hunan, Henan and Guangxi) and the Southwest Economic Coordination Conference founded in 1984. Geographically, these regional conference organizations tend to closely resemble the regional bureaus of the 1950s and 1960s.

(2) Cooperative arrangements by adjacent prefectures and cities on the borders of several provincial units, such as the Nanjing Regional Economic Coordination Meeting in 1986. This group included 18 prefectures and cities spanning Jiangsu, Anhui and Jiangxi provinces.

(3) Intra-provincial organizations for economic cooperation among several localities. The Central Liaoning Economic Cooperation Zone, for example, was organized in 1984 and was made up of the cities of Shenyang, Anshan, Fushun, Benxi, Liaoyang, Tieling, Dandong and Yingkou, as well as a number of large enterprises.

(4) Economic cooperation mechanisms centered around major railway lines, rivers and bay areas. These include the Conference of Mayors and Prefectural Heads along the Longhai-Lanxin Railways, the Conference for Economic Coordination of Major Cities along the Yangtze River and the Conference of Mayors around the Bohai Bay.

Many of the regional cooperation arrangements were initially set up to cope with the bottlenecks in an economy caught between the plan and the market. Indeed, every province and major city in China has had an office for economic and technical cooperation to coordinate material supply and technical assistance across administrative boundaries. As the Chinese economy has become more market-oriented, the various regional conferences have increasingly focused on nurturing regional markets, especially the coordination of industrial development strategy. An example of market formation is the Beijing Economic Cooperation Area (Beijing and various cities in Hebei province), which set up a wholesale market for manufactured goods in Tongxian county and an agricultural produce market in northwestern Beijing. ⁴⁰ The North China Joint Conference provides a good example of industrial development coordination. While Beijing and Tianjin are strong in industrial manufacturing and technologies, Hebei, Shanxi and Inner Mongolia are rich in resources. Under the auspices of the joint conference, Beijing and Tianjin have in recent years set up various bases for raw materials (iron, industrial chemicals and building materials), energy and farm products in Hebei, Shanxi and Inner Mongolia. The production of some products which consume a lot of energy and raw materials has been transferred to the resource-rich areas. ⁴¹

The regional cooperative arrangements have not only allowed participating localities to benefit from their comparative advantage, but have also made it possible for them to win more attention and central resources which might otherwise not have become available had each locality struck out on its own. The most prominent case is that of the Southwest Economic Coordination Region comprising Sichuan, Yunnan, Guizhou, Guangxi, Tibet and the cities of Chengdu and Chongqing (both located in Sichuan). Formed in 1984, the region has some of China's poorest areas as well as about 60 percent of the country's total minority population. ⁴² As of 1995, the region has set up 83 regional trade organizations. Parties to the region have made strenuous efforts to promote a common market by removing local protectionist restrictions and blockades and opening up regionwide markets. The region has also vigorously promoted foreign trade, especially border trade. Most importantly, regional cooperation appears to have sped up investment in infrastructure, with a major improvement in rail transport. ⁴³ The region has also won central funding for an array of state key projects in communications, energy, metallurgy, building materials and the chemical industry. ⁴⁴

Conclusion 

Our answers to all three of the questions we raised at the beginning of this essay are "yes." Following years of decentralizing reforms, the Chinese leadership has adopted fiscal and tax reforms to institutionalize relations between the central and local governments, has proposed policy measures to alleviate regional disparities and grievances, and has encouraged inter-regional cooperation. Thus, on at least three important counts, recent developments point to more integration rather than fragmentation in China.

We conclude, therefore, that work is being done to redress the major factors leading to disintegration, and alarmists suggesting regionalism is on the rise in China would do well not to mistake healthy local interests for political regionalism. Chinese local governments are not isolated actors forever condemned to replay the prisoner's dilemma, but neighbors who can cooperate with one another. To be sure, the political aspirations of the ethnic minorities in Tibet and Xinjiang are well known, but these are exceptions to the rule. Overall, the fulfillment of substantial local interests can coexist with national integrity. The localities of China are like members of a family; they intrigue and squabble, but they appear for now at least to be as inward-oriented as they are outward-oriented, including Guangdong, which now trades more and more with the rest of the country. China will disintegrate only if the central government itself falls apart, but that is a topic for another essay.

Note *: The authors would like to thank the Chinese Fellowships for Scholarly Development Program of the Committee on Scholarly Communication with China for its support. Back.

Note 1: Cheng Chu-yuan, Behind the Tiananmen Massacre: Social, Political, and Economic Ferment in China  (Boulder: Westview, 1990) pp. 196-97; Maria Hsia Chang, "China's Future: Regionalism, Federation, or Disintegration," Studies in Comparative Communism , 30, no. 3 (September 1992) pp. 226-27. Back.

Note 2: Qin Xiangyang and Ni Jianzhong, eds., Nan Bei chun qiu: Zhongguo Huibuhui zouxiang Fenlie  (North versus South: Will China Split Apart? ) (Beijing: Renmin Zhongguo Chubanshe, 1993) pp. 15-16. Back.

Note 3: Wang Shaoguang and Hu Angang, "Strengthening Central Government's Leading Role amid the Shift to a Market Economy," reported by afp, 20 September 1993. Back.

Note 4: Thomas O. Hueglin, "Regionalism in Western Europe," Comparative Politics , 18, no. 4 (July 1986) pp. 439. Webster's Ninth New Collegiate Dictionary  offers the following definition: "a: consciousness of and loyalty to a distinct region with a homogeneous population; b: development of a political or social system based on one or more such areas." Back.

Note 5: Some indicators such as ethnic identity may be both objective and subjective. Back.

Note 6: See especially Susan Shirk, The Political Logic of Economic Reform in China  (Berkeley: University of California Press, 1993) chapter 9. Back.

Note 7: One Chinese source concluded that from 1980 on, 90 percent of the new revenues were captured by local governments. Wei Liqun, ed., Shichang Jingji Zhong de Zzhongyang yu Difang Jingji Guanxi (Central-local Economic Relations in the Market Economy)  (Beijing: Zhongguo Jingji Chubanshe, 1994) p. 47. Back.

Note 8: For an elaboration of this theme, see Dali L. Yang, "Reform and the Restructuring of Central-Local Relations," in China Deconstructs: Politics, Trade and Regionalism , eds. David Goodman and Gerald Segal (London: Routledge, 1994) pp. 62-72. Back.

Note 9: Suisheng Zhao, "Zhonggong Zhongyang yu Difang Guanxi de Yanbian (The Evolution of Central-local Relations in China)," Zhongguo Dalu Yanjiu  (Mainland China Studies ), 35, no. 8 (1992) p. 39. Back.

Note 10: Yan Changjiang, Guangdong de Liebian (The Transformation of Guangdong)  (Guangzhou: Jinan Daxue Chubanshe, 1993) p. 20. Details of Guangdong's and Fujian's requests may be found in Zhonghua Renmin Gongheguo Jingji Gguanli Dashiji (A Chronology of Major Events in Economic Management in the People's Republic of China)  (Beijing: Zhongguo Jingji Chubanshe, 1986) pp. 348-49. Back.

Note 11: For more discussion of this theme, see Dali L. Yang, "Reforms, Resources, and Regional Cleavages: The Political Economy of Coast-Interior Relations in Mainland China," Issues and Studies , 27, no. 9 (September 1991) pp. 43-69. Back.

Note 12: For convenience, the term "province" or "provincial unit" is used in this essay to denote all provincial-level territorial units in China, including provinces, autonomous regions, and the three municipalities of Beijing, Tianjin and Shanghai. Back.

Note 13: For more elaboration of this argument, see Dali L. Yang, "Policy Credibility and Macroeconomic Control in China," paper presented at the American Political Science Association Annual Meeting (Washington, D.C.: September 1993). Back.

Note 14: Qiu Hong-Hui, "Zhonggong 'Zhuhou Jingji' de Xingcheng ji Wenti (The Formation of Chinese Communist 'Fief Economy' and Its Problems)," Zhonggong Yanjiu (Studies on Chinese Communism) , 24, no. 11 (1990) p. 38. Back.

Note 15: State Land Administration, "Guanyu Bufen Difang Zhengfu Yuequan pidi Qingkuang de Baogao (Report on Certain Local Governments Overstepping Their Authority to Approve the Use of Land)," Zhonghua Renmin Gongheguo Guowuyuan Gongbao (Gazette of the State Council of the People's Republic of China) , 5 (1990) p. 137. Back.

Note 16: Dali L. Yang, (1991). Back.

Note 17: Jingji Ribao (Economic Daily) , 8 March 1995, p. 2. Back.

Note 18: Li Peng, "Report on the Outline of the Ten-Year Program and the Eighth Five-Year Plan for National Economic and Social Development," (Beijing Domestic Service in Mandarin) 25 March 1991; FBIS-CHI-91-059, 27 March 1991, p. 18. Back.

Note 19: See Guowuyuan Tequ Bangongshi, Zhongguo Dui Wai Kaifang Diqu Touzi Huanjing he Zhengce (China's Open Areas and Open Policies)  (Kunming: Yunnan Renmin Chubanshe, 1993) p. 184; details on each zone may be found in Wang Sanmin, Xu Fan and Huang Deli, eds., Da Kaifang (The Great Opening Up)  (Dalian: Dongbei Caijing Daxue Chubanshe, 1993). Back.

Note 20: Dali L. Yang and Houkai Wei, forthcoming. Back.

Note 21: One report submitted by the Guizhou Economic Reform Committee to the Central Committee, for example, starts by saying that the size of the minority population in Guizhou is six times that of Tibet and thus deserves far more attention from the center than it has received. Back.

Note 22: Marcus Brauchli, "China's Hinterland Seeks Coast's Progress," Dow Jones News, 3 November 1993. As a strong indication of the central leadership's concern with ethnic stability, the ethnicity variable is a strong predictor of whether a provincial unit receives fiscal subsidies from the central government. See Dali Yang, "Gaige Yilai Zhongguo Shengnei Diqu Chayi de Bianqian (Reform and Intra-provincial Inequality in China)," Zhongguo Gongye Jingji (China Industrial Economy)  (January 1995) p. 66. Back.

Note 23: Hu Angang, "It Has Become an Urgent Matter to Solve the Widening Gap Between Minority Nationality Regions and Coastal Developed Regions," Lien Ho Pao , 7 November 7 1994, p. 7; FBIS-CHI-94-229, 29 November 1994, pp. 59-61. Note, however, that this is not a survey based on a representative sample but a survey of cadres who have a vested interest in nationality affairs and happened to be attending study sessions in Beijing. Back.

Note 24: Jane Macartney, "China Communist Chief Lashes Out at Graft - Again," Reuters, 2 March 1995. Back.

Note 25: Earlier PRC five-year plans called for placing more emphasis on interior development in the 1990s. For text of the Party Central Committee's instructions on the Ninth Five-year Plan, see Guangming Ribao (Illumination Daily) , 5 October 1995, pp. 1-3. Back.

Note 26: For the 1995 budget, central subsidy to local finances is 244.96 billion yuan (43 percent of national revenue). Of the subsidy, 189.4 billion yuan will be tax refunds calculated on the basis of 1993 revenue and 37.9 billion will be pure subsidies. Liu Zhongli, "Guanyu 1994 Nian Guojia Yusuan Zhixing Qingkuang he 1995 Nian Zhongyang ji Difang Yusuan Caoan de Baogao (Report on the Implementation of the 1994 State Budget and the Draft 1995 Central and Local Budgets)," Jingji Ribao (Economic Daily) , 21 March 1995, pp. 3-4. Back.

Note 27: South China Morning Post , 2 September 1995, p. 7. Back.

Note 28: As a strong indication of the coastal region's importance in national politics, all current members of the standing committee of the Politburo are from, and have served in, a coastal province or municipality. Back.

Note 29: Wall Street Journal , 25 September 1995, p. A10. Back.

Note 30: The Economist , 1 July 1995, p. 27. Back.

Note 31: Investor privileges at the SEZs (Shenzhen, Zhuhai, Xiamen, Shantou and Hainan) include the following: 15 percent income tax rate, as opposed to 33 percent for most other areas of China; tax holidays for companies during their first two years of profitability, 50 percent tax exemptions for third and fourth years; tax exemption on reinvested profits; exemptions from import duties on production equipment and materials; and wide-ranging autonomy in setting other economic policies. Craig S. Smith, "Chinese Boomtowns Emit Danger Signals," Dow Jones News , 20 September 1995. Back.

Note 32: Willy Wo-Lap Lam, "Shenzhen Needs to Keep Winning Special Favors," South China Morning Post , 1 July 1995, p. 6. Back.

Note 33: "Hu Ping on Developing Special Economic Zones," Zhongguo Xinwenshe , 11 September 1995;  FBIS-CHI-95-176, 12 September 1995, p. 17; Jane Macartney, "China Offers Enterprises Incentives to Reform," Reuters, 5 October 1995. Back.

Note 34: i>Renmin Ribao (People's Daily , overseas edition), 8 March 1995, p. 1; 9 March 1995, p. 4; "New System Will Share Riches with Poor Areas," China Daily , 11 March 1995, p. 2. Back.

Note 35: "Efforts To Bridge Economic Gap Detailed," Xinhua, 27 August 1995; FBIS-CHI 28 August 1995, pp. 36-37. Back.

Note 36: See G. William Skinner, "Cities and the Hierarchy of Local Systems," ed., William Skinner, The City in Late Imperial China  (Stanford: Stanford University Press, 1977) pp. 275-351. Back.

Note 37: Zhongguo Hengxiang Jingji Nnianjian 1991 (Year of Chinese Horizontal Economy 1991)  (Beijing: Zhongguo Shehui Kexue Chubanshe, 1992) pp. 45-46. Back.

Note 38: ibid ., p. 389. Back.

Note 39: Yang Xueguang, Li Shiwei and Cui Jianxin, "Jinyibu Cujin Woguo Dong Xi bu Diqu Hengxiang Jingji Lianhe de Zhengce yu Cuoshi (Policies and Measures for Further Promoting Horizontal Economic Linkages Between Eastern and Western Regions)," Year of the Chinese Horizontal Economy 1992  (Beijing: Zhongguo Shehui Kexue Chubanshe, 1993) pp. 66-71. Back.

Note 40: Year of Chinese Horizontal Economy 1991 , p. 391. Back.

Note 41: ibid. , p. 389. Back.

Note 42: For a comprehensive discussion of the Southwest in the 1950s, see Dorothy J. Solinger, Regional Government and Political Integration in Southwest China 1949-1954  (Berkeley, CA: University of California Press, 1977). Of China's 30 provincial units, Sichuan ranked 25th (in per capita GDP), Guizhou 30th, Yunnan 26th, Tibet 21st, and Guangxi 27th in 1992. State Statistical Bureau, Statistical Yearbook of China 1994,  p. 37. Back.

Note 43: Renmin Ribao (People's Daily) , 29 July 1992, p. 1; 30 July 1992, p. 1; 17 March 1994, p. 1; China Daily , 11 October 1993, p. 4; 24 December 1993, p. 4; 28 December 1994, p. 5; 5 June 1995, p. 5. Back.

Note 44: Year of Chinese Horizontal Economy 1991 , p. 403. Back.