“Playing to the Provinces:” Deng Xiaoping's political strategy of economic reform

L. SHIRK

SUDAN

“Playing

to the Provinces:

”

Deng Xiaoping’s Political of Economic Reform

The

classical

political

problem

bureaucracy

mass unless

and political

no other

choice.

the main

order

to make past,

vested

such

restructuring

everything

must

competition.

and to prevent

society.“’

Although

Deng

calculation. weight

from

the

to stick China’s

frequent

in bureaucratic with

work

bureaucracy

his political

conferences

bureaucratic

was less strong

strategy

a very

of the game.

system?

minor

to enhance

An important than

counter-

He opted

to

modifications the voice

and his reformist

and less entrenched

of

strategic

political

only

in

people.

of economic

different

rules

designed

In

the

with

did Deng

its wheels

way

democratization

as an effective

polity,

Why

spin

again-of

he made

the old political

policy-making.

the old authoritarian

central

that

to

of what happened

the broad

articulated

bureaucratic

policy

a repetition

use local officials

changing

communist

will only

the control-once

he took

decided arena

but he believed

in it in a thoroughgoing

tasks-through

publicly

actions

that he could

without

traditional

as the more

provinces

never the

He believed

to the center

retain such

Xiaoping

it is clear

under these

gamble,

“Restructuring

irreversible

and that

Gorbachev

up the political

It was a high-risk

in 1987,

an effective

and gover’nment planning

Union,

was to open

included

is only one way to accomplish

central

In the Soviet

people-is

Soviet

Party

in perpetuating

states.

be placed

is how to create

Communist

a counterweight

There

reform,

interest

As he said

actor-the

economy

” the central

in communist

way to create

participation

he had

the

policy-making

the only

a communist

to the “center,

that has a strong

dominates that

in marketizing

counterweight

Strategy

allies

reason

of the decide

was that

that of the Soviet

Union.? The Soviet

Stalinist Union

of its origin: Chinese central

model

40 years

40 years

is a brief

history. control

of a centrally

less than

Moreover, over

economic

planned

economy

ago and was easier stretch

during

of time

the period

life was much

was transferred to uproot

in China

to China than

from the

in the land

from

the perspective

of 2500

years

when

the Soviet-style

system

reigned,

less extensive

and less effective

than

of

in the

1. ?‘he Currml D&t of&utel Press, Vol. XXXIX, No. 8 (1987), p. 8. 2. Deng Xiaoping’s choice was also constrained by his own conservatism and thr conservatism of the other members of his generation of communist party leaders. Deng’s cohort of leaders are first generation founders of the communist revolution in China, whereas Gorbachev belongs to the fourth generation of communist leaders in the Soviet Union Uerry F. Hough, Soviel Leadership in Tmnsition (Washington, D.C.: The Brookings Institution, 1980)]. Lee argues that the political nature of the People’s Republic of China was shaped by the particular nature of this founder generation that remained in power for over 40 years [Hong Yung Lee, From Revolutionary Cadres to Party Technocrats in Socdirt China (Berkeley: University of California Press, forthcoming)]. STUDIES IN COMPARATIVE

0039.3592/90/03/4

COMMUNISM,

VOL. XXIII,

0227-32 $03.00 @ 1990 University

NOS. 314, AUTUMN/WINTER 1990, 227-258

of California

228

STUDIES IN COMPARATIVE COMMUNISM

USSR

itself.

Cultural

Particularly

Revolution

economic

role

than

apparatus

was

also

inclusive of

than

their

over

Soviet

products.’

China

Under

had

unpredictable. public

fired

being

criticized so that

Asian

urban

Europe.

Having

extreme

form,

changing

that followed of central

planning

bureaucracy

national

had central

economy,

plan,

and

less

high degree

controlled

while the Soviets

the

their jobs,

by their

Cultural

and

the

control

a substantial much

Revolution by some

the

of it was

Chinese

leaders

and

to the social alike,

pilloried

campaigns

a genuinely

were

in

disrupted behind

its

effect

on

traumatic trauma

of fascism

in

in such

an

system

more

the and

had to worry

fell increasingly

of the communist

citizens

were

citizens

Political

had

During politicized

and officials

and China

irrationalities

highly

Ordinary

and neighbors.

Cultural

experience.

became

professionals,

co-workers

compared

life

and imprisoned. stagnated

The

Revolution

social

standards

the Chinese, to creating and

Party

and

countryside

for

daunting

believed

active

would

bureaucracy administrative government center.

Communist

As

to economic where

their

reign

China

strategy

ready

to consider

Revolution

weakened

politicians Although Party

could these

organization,

their

become

limited

they

the

were

were

during

or sent

to the

were

Union

less

and other

central

decentralization

bureau-

which

they

domain. illuminates the

reforms,

possibility

that

counterweight

expected

the Cultural

jobs

In fact,

drive

operations

bureaucracies

In China,

the

normal

in the Soviet

Union

the reformist

politicians

state

as fiscal

to market

created

disrupted

and

reform.

obstacle

The

uninterrupted.

such

to the reform

to lower-level

and the Soviet

had

otherwise.

they were

been

of economic

resistance

severely

than

had

was a less formidable decentralization

been

Party

of reforms

and preserve

between

were

their

transferred

a result, reform

proponents

political

have

bodies

of officials

the Cultural

so that

it would

government

rationalize

comparison

Xiaoping’s

than

re-education.

states

were

for reform,

institutions

thousands

opponents

communist

a constituency

government

was less strong with

tive

central

the

central primitive

with a relatively

of the command

of the

experienced

Revolution,

The

periods

since

a stronger

The more

more

played

the system. Party

cracies

was

outside

of intellectuals,

living

Union.

version

(196661976)

from

society,

In addition central

“benefit”

neighbors.

Chinese

on

have

level.

decade

the economy East

went

Thousands

meetings,

about

the

Revolution

Soviet planning

Chinese

and even

in China

even during

China’s

activity

Forward,

than 600 products,

at the provincial

also

Cultural

in the

the

ofless

Leap

governments central

planning:

centralization,

of economic

administered

local

Chinese

central

and allocation

5500

share

the 1957 Great

counterparts

weaker.

administrative

production

since

(1966-1969),

appointed to articulate

the logic central

of Deng

Party-state

and previous provincial to the more agents local

of

waves Party

of and

conservathe

interests.4

central With

3. The Chinese categories were coatxr so the numbers are not strictly comparable. Christine P. W. Wang, “Material Allocation and Decentralization: Impact of the Local Sector on Industrial Reform,” in Elizabeth J. Perry and Christine Wang, eds., The Poli/ical Economy of Reform tn Post-Mao China (Cambridge: Harvard University Press, 1985), pp. 253-278. 4. My view of the Chinese system as a hierarchy contradicts Granick’s that local governments wet-e principals with their own property rights. [David Granick, Chinese State Enlerprises, A Rgzonal Properly Rights Analysis (Chicago: University of Chicago Press, 1990)]. I n my view, central Party officials hold all formal authority and delegate sotoe of it to lower levels of government for three reasons: to improve incentive compatibility: to divest themselves ofsole responsibility; and to win the political support oflower level officials. Granick’s observation that legacies of past investments in enterprises give different levels of government a normative claim to a share of enterprise products and profits is correct and important. However, his evidence for continuity in the relationships of levels of government and enterprises to demonstrate the validity of the

Deng Xiuopiq’s the support of provincial

Political Strategy of Economic Reform

politicians,

229

Deng might be able to push his reform program

through the bureaucratic decision-making the politicat rules of the game.

process and thus avoid the risks of changing

The ramifications of Deng’s crucial strategic decision to process economic reforms through the traditional communist political system were momentous. Two features of communist political institutions (characteristic of the pre-reform USSR as well as of China) were particularly significant for shaping reform policy outcomes. (1) Consensus ~e~is~~n-rnak~n~. Economic policy-making was delegated by tthe Communist Party to the government bureaucracy. Within the bureaucracy, decisions were made by consensus,

not majority

rule. Economic

consensus hierarchy

through bureaucratic bargaining, for resolution, or were indefinitely

provinces

that had strong objections

to be modified.

Consensus

policies

to protect

tended

reform policies either achieved

were referred to higher postponed. Government

levels in the ministries or

to policy proposals could veto them or force them

decision-making the original

militated

positions

against

redistributive

of bureaucratic

interests

policies; and shift

resources only incrementally. (2) Reciprocal accountability within the Communist Party. Communist Party leaders were chosen by an elite “selectorate” composed of the Central Committee, the revolutionary elders, and top military leaders (less than ftve hundred “selectors” in alI). The largest blocs within the selectorate were local (provincial) Party and government officials, central Party and government officials, and the People’s Liberation Army. Officials in these categories were appointed to their posts by the top Party leaders through the Organization Department, but they also had the authority to choose the Party leaders. This pattern of reciprocal accountability between top Party leaders and Party, ment, and military officials was called by Robert Daniels the “circular power. “5 The aspirants to top Party leadership “campaigned” which would enable them to claim credit and win support

governflow of

by promoting policies from members of the

selectorate. In this institutional context, the political consequences of Deng Xiaoping’s strategic choice to “play to the provinces” were mixed. The strategy was very successful at enhancing the political clout of provincial officials and putting it behind the reform drive. A Communist Party Central Committee in which the largest bfoc was local officials strongly committed to dismantling the centralized command economy helped sustain the momentum of reforms. Rut at the same time, local officials who enjoyed the rewards of partial reform became obstacles to carrying reform through to complete marketization. As one Chinese account explained, because the financial system reform devolving funds and responsibilities to localities was one step ahead of other reforms, each new reform initiative threatened the financial interests of localities. 6 Local ofIicials blocked important

property rights hypothesis is not completely persuasive. Moreover, the strongest evidence for hierarchy is one he ignores, namely the power of the central Party authorities to appoint and dismiss regional officials. Bahry’s x-search on the Soviet Union shows that even in the more-highly centralized Soviet system, republican officials W,PW expected to assert local interests and were even promoted for doing so. [Donna Bahry, Or&i& Momm: Power, Politics and Budgetary Policy in the So&-t R+dGcs (New York: Columbia University Press, 1987)j. 5. Robert V. Da&is, “Soviet Politics Since Khrushchev, ” in John W. Strong, ed., The Soviet Union Under Rrezhnev and Kosygin (New York: Van Nostrand-Reinhold, 1971). 6. Tiang Yinong, Xiang Huaicheng, and Zhu Fulin, Lunrhonp-~uocaithe~~tizhlgaigeyu honguan liaokong(On China’s Financial System Reform and Macro Regulatory Control) (Beijing: China Finance and Economics Publishers. 1988).

STUI)IES IN COMPARAIWE

230 measures

like

expanded

the financial

local

the

replacement

governments

to build

over

political

them.

machines

or the enterprises

to central

control

incentives

new incentives

with

climate had

and women.

to foreign

not

bureaucrats, On prices

a group other

hand,

and

lack

of risk,

results,

profitable

and local

The

decision

reform

to protect diluted

crucial

regulation

ofthe

financial

would

have

Fiscal

system

whose

Decentralization

account

called

Experiments method

and most

fiscal with

called

reform

a policy

and

“the

inflation,

system

and

and promote

in the end.

Determined

officials

the

blocked

efficiency

continued

and

to subvert

the reform

it. Yet even when

they were unable

politicians

competition

was the central

the

to impose

of provincial

of succession

or self-

to stimulate

that discredited

the wishes

of Deng

produced

of it to build

shortages,

local

in 1988,

of support

by irrational

officials most

political

elders

flout

rule

communist

market.

improved

a period

even

for

bureaucracy.

Xiaoping’s

in China’s

breakthrough introduced

Political

strategy greater

a vested

kitchens” to build

financial

interest

Strategy

and achieve

market

reform

without

and

Sichuan The

of support

autonomy

drive

was the

A Chinese

economic

central

(#& zao chifan),

in promoting

was the best way to create

the

in 1980.

a coalition

reform

governments.

for the entire

between

in Jiangsu

beginning

economic

to provincial point

contracts

in separate

including

officials package

steps authority

to all provinces

political

package

gave provincial

important

were

“eating

Xiaoping’s

bureaucracy

To

base

revenue-sharing

was extended

A reform

supply

problems

the Party

during

of local

entrepreneurs

Party

investment

among

characterized

backfired

have

local

to the

and bred

of communist

even

interests,”

and other

within

revenue

governments

popularly

would

as the Cornerstone

of financial

provincial

“partial

their

40 years

the national

officials

financial

like born

construction,

created

the responded

conservative.

bureaucratic

local

Communist

primary

by back

Reform

of the earliest

devolution

that

inflation

suicide

touting

still

and

Balkanized

on the provinces.

political

leaders

of Economic

investment

their

dominance

(i.e.,

strengthened

behavior

And local bureaucratic

conservative

been

conservative

environment

that

causing

attained

a new

Such

economy.

and allowed

for

the traditional call

of

authority

off any attempt

industry

over

to be sluggishly

plants,

initiatives

overheating,

officials commerce,

that

Chinese

reform

conservatives

Deng

the

local

aptitude

a bloc of pro-reform

what

economic

processing

to maintain

by creating

provincial

revenue-maximizing

protectionism

have

control

direction

the officials

that

local

fought

that

was to realize

thought

excessive

but wasteful

deficits;

One

e.g.

would

new financial

in either

True,

promoting

in an economic the

mixed.

zeal,

Chinese

generally

the

perverse

drive

the

game

a system

also were

people

of their

politicians

ofthe

which

the financial

freedom).

To observe

business

eradicated

the local

of creating

entrepreneurial

(li gai shui) shrinking

advantage

the rules

to market

officials

taxes while

taken

to change

consequences

of provincial

businessmen

Having

or forward

economic

with

of factories

for themselves,

the center The

of profits

autonomy

COMMUNISM

reform.“7

government in

fiscal

1977,

and and

was the cornerstone for the reform

for provincial

and sustaining

a political

counterweight

changing

the political

the

decentralization, of

drive.

governments

the reform

drive.

to the central system.*

7. Caizheng bu caishui tizhi zhu. Caishui&ge shiman (A Decade of Financial and Tax Reform) (Beijing: China Finance and Economics Publishers, 1989). 8. The strategy of achieving market reform by devolving authority and resources to local officials (and

Deng Xiaoping’s Fiscal

decentralization

reform

in

financial and

China Mao

counterbalance provincial

diffusion

officials and

of funds

support

provinces

gap

making

some

loans

from

Chinese

of officials

diffused

costs.

While

positions

of the

the formula

This

paper

context reform

decade,

politicians.

showing

After

showing

that

centralizing

a brief

the

of funds.

The

more

the

of this fiscal and

fiscal

note on other

political

instincts

logic

reform

reform of fiscal

of fiscal

of Li Peng

and

tilted

spread

rewards

with

and

towards

was to close

the the

the central

the costs,

corporations,

formula

made

sense

of the fiscal

the political

the consequences

drive

of fiscal

namely

extracting

to all provinces. benefits

on the relative as a whole for central

and

financial

is still

being

politicians

and

camp.

the evolution

how it reflects

formulas

governments

political

form

gratitude

the

of concentrated

reform

local

The

responsibilities

formula

of provincial

for the reform by the center

state

the

to the local level.

negotiated

widely

under

made

to win solution

budgetary

winning

created

why

that

preserves

in the reformist

describe

I discuss

short

government

solidly

will

Sharing

undoubtedly

and goes on to describe

localities,

power

central

politicians

province.

of the

the further

clout

provinces.

each

and shifting followed

support

contracts

solutions

decade prevent

the political

the opportunity

fiscal

the net effect

debated,g put local

from

Moreover,

with resources

for the

particularistic

central

all provinces,

terms

would

to

up the power

Revolution

in winning

center

to the provinces

building

that

along

leaders

politicians

innocuous

industries reform

scheme

pre-reform

between

Committee.

1980 demonstrates good

treasury

by politically

fiscal

Central

ofeconomic

The

of playing

the Cultural

fiscal

Party

namely

central

left the central

revenue

after

by negotiating

gave

over

to any

challenge

of resources

bureaucracy,

Party

especially

of central

policies,

province,

strategy

and shift responsibility

and the interests

political

Communist

of fiscal reforms

decentralization

the

231

experience.

on a sharing

of the central

sympathetic

for themselves

each

the

Reform

to the political

post-1949

based

pioneered

weight

of its control

evolution

solution

country’s

had been

had

within

of Finance

deterioration

the

systems

Zedong

leaders

Ministry

of

the political

progressive

The

was an attractive

because

and planning

locality.

Political Strategy of Economic

value

policies

in the

system

of provincial

aimed

The

officials paper

to the provinces

his conservative

Party

allies

historical

the course

at enhancing

decentralization.

giveaways

Chinese

over

of the

to central

the power concludes

overpowered when

they

of by the

came

to

in 1988.

The Chinese

Pre-reform

In 195 1, a mere system essentially

was

Financial

two years

laid persists

down.

after

communist

Although

to the

Relationship

present

Between

takeover,

subsequently day. lo The

the basic

subjected center

Center shape

and Localities of the PRC

to frequent

monopolized

fiscal

tinkering,

formal

it

financial

thereby allowing them to build up local political machines) made the Chinese and Yugoslav reform drives surprisingly similar. Of course, the reform experiences in China and Yugoslavia were different in other respects. For example, in Yugoslavia the national legislature became the main policy-making arena, while in China, policy-making remained within the Party and government bureaucracy. 9. Christine Wong (personal communication) has suggested to me that because the central government shifted many of its spending responsibilities to local governments and collected substantial amounts of funds through state corporations and loans from local governments, the net effect of fiscal decentralization was less favorable to local governments than many Chinese and foreign experts believe. 10. Caizheng bu caishui tizhi gaige zhu, op. cit., note 7; Katherine Huang H&o, The Gooernment Budset and Fz.ml Policy in Mainland Chzna (Taipei: Chung-Hua Institution for Economic Research, 1987); Guojia caizheng gailun bianxie zu. Cuo~ia caizhen~pilun (Introduction to National Finance) (Bei,jing: Finance and Economics Publishers, 1984).

SYUI)IES

232

IN

COMPARATIVE COMMUNISM

authority, and shared resources with lower levels. The form of the system was decentralized revenue-sharing. The system was called “unified leadership, level-bylevel management” ~ton~i ~in~d~# &-n ji guanli). “Unified leadership” meant that the central government determined provincial expenditure budgets and that provincial governments had little freedom to make their own spending decisions.” Because there was no Chinese Internal Revenue Service bureaucracy, local officials collected profits

(IRS), no national revenue collection and taxes as the agents of the central

government. meant that the profits of enterprises run by central “Level-by-level management” ministries went to the central government, and the profits of locally-run enterprises went flows were established by the quasi-ownership to local governments. I2 Revenue relations

[what the Chinese

call “subordination

relations”

(Mu

guanxi)] between

different levels of government bureaucracy and the enterprises. If a locality’s revenues were insufficient to meet its expenditures as set by the center, then the locality was appropriated a share of the industrial-commerci~ tax and other taxes generated by local economic activity that were categorized local enterprises exceeded local expenditure

as “shared” revenues. Or if revenues from needs, then the locality remitted a surplus

to the center. The provinces usually gave the center more than they received from it. Light industry, on which profits are high, was controlled mainly by local authorities, while centrally controlled enterprises were concentrated in less profitable heavy industry. l3 The pre-reform authority (although

fiscal

system

reflected

China’s

tradition

of centralized

formal

with a significant degree of de facto decentralization to the provincial level specific arrangements were not identical to earlier ones). l4 Influenced by this

historical tradition, China’s communist leaders sought to strengthen central authority, but in the end, established an administrati~~e structure that was more decentralized than (called that of the Soviet Union. *j The horizontal authority of local governments “kuai” by the Chinese) was more on a par with the vertical authority of central ministries (called “t&o” by the Chinese) than was the case in the USSR. The bureaucratic rank of provincial governments was equal to the bureaucratic rank of ministries in the People’s

Republic of China, just as it had been in the Kuomintang’s Republican go~,ernment. l6 The power of app ointment was also less highly centralized in China than in the Soviet Union, with the Party center responsible for filling only 13 000 posts on its nomsnkluturu

list,

as compared

with 51 000 in the Soviet Union.”

While the heads

1I. Granick, op. cit., note 4, ar~uusthat local govwnments had greater control over thr mat&al produrts of local factories than over financial profits. 12. When I talk about “local” or “locality”, I mean provinces, autonomous regions, and provincial-Ievel uties. 13. As Donnithornc points out, the Chinese national gcwernmcnt w’as able to draw on the caxablc capacity of light industry only by taxing local governments, which was politically much hardrr than taxing firms. [Audrry 11onnithorne, Cenlm-Prouinczal Econonuc Rrlatzom in China (Canberra: Australian National Uniwrsity, Contemporary China Papers, No. 16, 1981)]. 14 Ch’ien Tuan-shcng, The G’m~cmmmtandP&/k ojChzna (Cambridge: Harvard University Press, 1961); Arthur Waldron, “Warlordism Versus Federalism: The Revival of a Debate,” 7% China @ax&i&, No. 121, March 1990, pp. 1 I& 128; Madeieine Z&n, 7’he ~lagz~trat~‘s Taie. R~ti~n~~~~~n,~ Fiscaf R@m in ~~g~t~~~t/i Cmfury China (Rerkeley: University of California Press, 1984). 15. Rese&h by Rahry, op. cit., note4, shows that in the federal Soviet system, while the republics’ share of the budget increased after Sralin, central control over planning and budgeting remained tight. 16. Ch’icn Tuan-shcng (1961). op cit., note 14. 17. .Jnhn P. Burns, “China’s Nomenklatura System, ” Pwhlems ~fCommunism, Vol. XXXVI (SeptembcrOrtober, 1987), pp. 36-51.

Deng Xiaopins’s of provincial

finance

(the central all lower The

level

financial

industrial

Union.

than

The

greater

stemmed Soviet

of

from differences

Union, highly

less profitable industrial

and thereby

plants

generated

most

one. more

compulsory within Even were

did

governments substantial

of it.lg

compliance

one with

regions,

equalization

economic Allowing

sense

to retain

much

administra-

generated

was nearly Just

much by light

as centralized

because

collection a small

a province

handed

budgetary

oflocally-run

authorities.

share

down

control

targets

over

and spent

of above-budget

factories

and

made

investment;

deal

By

it

for

the

funds

to promote

retained

to claim

by forcing center

caused provincial

a province the terms

authority from

contracts

contracting

whenever

transferring

system

sharing

impossible

changed

central

a good

were earmarked

Revenue

Year-by-year

government

the

also In the

industry

Ministries

in command.

provinces

used

system system.

by the center.

the profits

instructions.

in

a

a larger

provinces

to

by demonstrating through

income

Beijing

redistribution

to and

services.20 the Chinese

There

were

two

on the light

for the center

provinces

its revenue

also enhanced

the center

however,

dependence

and

fulfilled

to obtain

central

of social

time,

decentralization. essential

contracts another

system

complete

for

heavy

on revenues

had

the central

stronger

centralized

made

them.

funds

surplus,

Annual

with

backward

and

was under hand,

spend

it was permitted

to accumulate revenue

compete

Over

center

price

fiscal

it could

by central

between

financial

mean

annually

for

by Stalin.18

the

revenues.

was very

renegotiated

in

were

government-set

from

although

did.

help

and locally-run.

still had to be approved side,

local

Party

were decoupled

the center

on

officials

decimated

which

PRC

to provinces

target,

relied

the entire

Moscow’s

organizations

to depend

small

that

they did in the Communist

officials

on the other

If a province

on the revenue revenues,

not

targets

but its uses

haggling

share

funds

the expenditure

as local

were

scope

a more

had been

the center

reflected

the technical

played

Party

industry,

the pre-reform

Expenditures

than

and Soviet

prices,

of which

expenditures.

revenue,

heavy

Because

Also provincial

provincial

forced

side,

financial

enterprise

made Chinese

On the expenditure as the Soviet

Chinese

they

the

beginning

Party

in the Chinese

the prices profitable.

where

authorities.

to the task of planning

the

Communist

in Beijing

in the hierarchy),

than in the USSR

factors.

had

and administration.

Union

weight

never

Communist

233

authorities

Party

in the PRC

contemporary

from

Provincial-level

in the Soviet

by provincial

was inadequate

authorities

finance,

by the Party

officials

commands

role in the Chinese

of the Soviet China

economic

Reform

one and two steps down

chosen

planners

economic

planning,

prominent

were

but also several

central

Beijing’s central

appointed

role of provincial

tradition,

of Chinese

economy, Chinese

were

all positions

officials

prominent

not only Chinese

tion,

departments

nomenklatura included

more

capacity

Political Strategy of Economic

to retain

fiscal reasons

industrial

to create a larger

system for profits

a system share

evolved

this

trend.

produced

that was more

of revenues,

in the direction First,

given

by local

factories,

“incentive

especially

of greater the

center’s it made

compatible.”

over-target

revenues,

18. Franz Schurmann, “Politics and Economics in Russia and China,” in Donald W. Treadgold, ed., .Sooze~andChineseCommunism(Seattle: UniversityofWashingtonPress, 1967). Chineseprovincialauthoritywas also closely tied to the military especially during the 1970s after the Cultural Revolution. Many provincial CCP secretaries served simultaneously as People’s Liberation Army political commissars. 19. Caizheng bu caishui tizhi gaige zhu, op. cil., note 7. 20. Nicholas R. Lardy, Economzc Growth andDisMution in China (Cambridge: Cambridge University Press, 1979); Michel Oksenberg and James Tong, “The Fiscal Reform in China and its Effects on Interprovincial Variations in Social Services, 1979- 1983” (unpublished paper, 1984).

S.NJIIIFS IN COMP,~RA-~IVE COMMUNKM

234 and

granting

provincial

them

revenues

from

the early

1950s

incentive

to

them.

Deng

Party, officials.

political

strengthen and

serving

principles

provincial

the motivation

conscientiously

as Minister

for the financial

governments

and

ministry

Mao

his policy

officials

to retain

rhetoric

of “playing leadership

and

partial

the 1950s

of central growth

planners

and social

Mao

sped

Forward

his rivals,

to the provinces and

politics

interests

and

provincial obstructed

who supported

to Party

196Os, and

ministry

officials

transformation

surplus

of

collect

of Finance system,

during

stressed

the

revenues

the support

delegating granted

expenditures,

of the

Great

the countryside, greater

a larger

share

authority,

as a

government

he turned ” linked

to provincial the assertion

(f&zo). 2:! In

program

Forward

campaign

economic

revenues,

and “ownership”

and

authority

dramatic

to overcome

narrowlyinstances

the resistance

accelerating

economic

rivals.‘” at meetings

the Great

power

agriculture,

was a package

to the provinces.

discretion

of almost

Leap

in 1955%1957.‘*

to collectivize

modernization

greater

Party

for support. the

and launched

leaders

to central planners

against two

way PRC

by rival

of provincial

for

his Party

The

leaders

as pitted

used this strategy to his

the Communist

counterweight

by the central

and administrative

of their

within

threatened

cooperativization

Leap

planning

a natural

of provincial

and speed-up fiscal

officials

to the provinces.”

dominance

and to defeat

of agricultural

part

officials

ministries

Zedong

the pace

integral

to “play

in command,

of the

Mao

by mobilizing

industrialize

of provincial

leaders

felt his political

initiatives

Mao’s

economic

made Zedong

(kuai) during

influence

sense for Party

were structured Whenever

leaders

were

would

enterprises

who when

the basic

in view of the political

it made

institutions

policies

Xiaoping,

of allowing

them,

profitable

fund.2’

Second,

An

to spend

promote

had laid down

effect

reserve

the discretion

officials

over

all central

tax

of

Provinces rates

and

enterprises.‘”

2 1. Guanpming r&m, August 23, 1982,JE’RS. 81938, Economics 271, October 8, 1981: Michel Oksenberg and James Tong, “The Evolution of Central-Provincial Fiscal Relations in China, 195O- 1983: The Formal System” (unpublished paper. 1987). 22. Jonathan Unger, “The Struggle to Dictate China’s Administration: The Conflict ofBranches vs. Areas vs. Refbrm,” TheAustrakm journal qf Chinese A@rs, No. 18 (July, 1987), pp. 15-45. 23. Even in the Soviet Union, with a more centralized institutional set-up, leaders with ambitious reform agendas have sought to play provincial leaders against the conservative central bureaucracy Khrushchev tried 10 play to the provinces to weaken his rivals and disarm the powerful central ministries. The support of provincial allies in the Central Committee saved Khrushchev when the Presidium (Politburo) tried to get rid ofhim in 1957 [Bahry, op cit., note4, p. 271. Gorbachev also built a coalition ofsupport for reform by building a base among provincial Party officials [Timothy J. Coltan, TheDilemmn ojR&mn in thc&uiet Utkm (New York: Council on Foreign Relations, 19861. 24. Parris Chang, “Research Notes on the Changing Loci of Decision in the CCP,” ?‘he China Quarterly, No. 44(October-December, 1970), pp. 169- 194; RoderickMacFarquhar, 7%eOri~insojtheCufturnlReuoi~tion, Eiiiume I, C~~tradzct~aRs Army the People. 1!?5S-57(N ew York: Columbia University Press, 1974); Kenneth G. Licberthat and Bruce J. Dickson, A Research Guide to Cmiraf Party and C&wrme~~t Meetzq~ in China, 194% IYHY (Armonk: M. E. Sharpe, 1989); David S. G. Goodman, “Provincial Party First Serrrtarirs in National Politics: A Categoric or a Political Group?, ” in David S. G. Goodman, ed., Groups and Poittia m the Peopie’~ Republic o/China (Cardiff: University College CardiffPress, 1984), pp. 68-82. Goodman challenges Chang’s assertion that the provincial leaders promised to support Mao’s policies in exchange for greater provincial autonomy by presenting evidence that the provincial leaders were not in complete agreement: While some of them advocated greater linancial autonomy, others demanded more central aid to provinces for projects like waterconservancy. To argue that provincial officials have political influence in the policy process and that Mao Zedong tried to win their support does not require that they always agree on policy; in fact, given the very different situations faced by their regions, it wouid be surprising if they had unanimrms policy prcfercnccs. Morrovcr, provincial leaders probably find no inconsistency in their calls for greater financial auronomy and more state aid for particular prqjects like water conservancy; they wish to have both. 25. For a detailed description of the Great Leap Forward fiscal system SCL’Okscnberg and Tong (1987), op. cit., note21.

Deng Xiaoping’s Theoretically,

the new sharing

provinces

to make

national When

economic

organs

failure

the

caused

the fiscal

back

into

the hat,

however.

than

they

had been

before

A second

wave

power

the Cultural

portion

of their

but

Mao

system Funds

and

of provincial

subordinates to retain

projects.

projects own

The

fiscal

system

towards

the

threat

of war,

provincial provincial

funds,

economic

more

Zedong

were

creating

national

dispersed

granted

moderates cushion

initiatives.26

of their

authority

of their

by

to set aside

a financial policy

regained a share

in the mid-1960s Party

authorized

10 per cent

provinces

introduced,

level.2” and

to keep

Provincial

after

over

budget

a

to win In 1968,

profits

to use for

construction

surplus

provinces for even

dispersed,

for their

fiscal

history

said,

rational

a large

of the 1949decided

in separate

solution.“33

authority according

the radical in 1976,

financial

of their

Xiaoping

budgetary

Gang

authorities,

proportion

Deng

over

revenues

enterprises

to set

from

took

to to the

their

to contract, returned

authority

more by the

categories

authority

of Four

especially

even

own were

to power and

funds,

the side of the

and resources the

were

industrialized

to the center,

were pressing

decentralization.32

of Fiscal System

Ziyang

“eating

death

provincial

of central

granted

3o After

was

justified

and expenditure

to the center

control

in which

of Mao’s and

that remitted more

Initiation

and Zhao

struggle

31 At the time

highly

revenues. central

transfer

sources were

supporters

self-sufficiency,

a massive

revenue

a lump-sum

to restore

radical

of regional

governments

and use all remaining a political

by Mao’s

involving

transferring

provoking provinces.

in 1970 A program

and a shift of most

he attempted

The

on,

introduced

in 1975,

The

a

to put the cat

remained

by Mao

provinces

for Mao’s

and were

provinces.

was

control

budgets,

still

limit

into

in 1959.

and the central

and Communist

approximately

1965-1966

a certain

later

use.28

tilted

able

27 From

under

year

It was impossible

authority

bureaucrats

as extra-budgetary

were

to enable

turned

Leap.

In 1964,

the support

years

Forward one

to lose prestige

financial

235

for three

Leap

adjusted

was stirred-up

enterprises local

were

Zedong

the Great

Revolution.

allowed

to be fixed

the Great

was recentralized.

from central

revenues

were

when

arrangements

of decentralization

he reclaimed

launching

plans,

disaster,

to resurge,

when

arrangements

long-term

economic

Political Strategy of Economic Reform

The

Reforms

1976 fiscal

system

provides

to lead off the drive kitchens” legacy

was the “result

of the prior

the context

for fiscal system

in which

Deng

reform.

As one economic

of history

there

explains

the political

Xiaoping official

was no other logic

of fiscal

reform. 26. Cyert and March would call extra-budgetary funds a form of “organizational slack.” [Richard M. Cyert and James G. March, A Behavioral 7’heory ofthe Firm (Englewood Cliffs, N.J.: Prentice Hall, 1963)]. 27. Sun Yun, “How to Improve Control of Extra-Budgetary Funds,” Caimaojin~i, No. 7, July 15, 1982. 28. Oksenberg and Tong (1987), op. cil., note 21. 29. Barry Naughton, “The Third Front: Defense Industrialization in the Chinese Interior,” The China Quuar/erly, No. 115 (September, 1988), pp. 351-386. 30. Oksenberg and Tong (1987), op. cit., note21. 31. Unger, op. cit., note 22; James Tong, “Fiscal Reform, Elite Turnover, and Central-Provincial Relations in Post-Mao China,” Australian Journal of Chinese Aff airs, No. 22 (July, 1989), pp. 1-28. 32. Chinese planning was also much more decentralized than Soviet planning. The volume of interprovincial trade in China was depressed because provincial planners sought independent balances. This argument is presented in Thomas P. Lyons, Economic Zn~egration and Planning in Maoist China (New York: Columbia University Press, 1987). 33. Author’s interview.

(a) A tradition of revenues divided accordirg to the quasi-ownership (lishuguanxi) different levels of government, Centrally-run enterprises provided revenues and locally-run ment

assumed

enterprises

provided

revenues

proprietary

financial

rights

(b) A trend of dispersion offinancial Revolution. Provincial governments retained

a substantial

extra-budgetary officials

of central

locally-run

(mostly

government

ran

a large

The

central

was

was in the position

As

of a medieval

had to extract

to the provinces

during

turned

provincial

officials

all the

provincial

Party

Central

Committee,

members were

were

metaphor,

him down.

over provincial them

or former

The

the feudatories

central

governments,

good

against

relations

with

After

Party

incentives

of

leader.

decentralized,

“eating

from

but

the

guaranteeing

big

a given

changed.

40 Whenever

financial

straits,

same There

pot”

Party

exercise

responsibility

original

level

budget

was no institutionalized

not.

Th e center revenues

economic

of Finance

if the central

had

of local

unexpected

funds from the provinces

extend

and

could

authority leaders

led

self-restraint”“-

instead.

(da guo fan).

the Ministry

principle,

reclaim

fiscal

leaders To

had formal

(d) No division of authority and responsibility between central and localgovernments. been

of the

Politburo

the king

of individual

officials-to

almost

Provincial

the Party

and Communist

1958,

half)

to select

by had

members

secretaries.3s

chose

Zedong,

Revolution,

(approximately first

provincial

them

Mao

the Party.

the power

but the political

by

central

to live off his own

full or alternate

that had

government

to not use this authority

and to keep

number provincial

and

generated

Chinese

and Cultural

within either

of the “selectorate”

of

feudatories.37

Forward

were

a significant

members

Donnithorne’s bring

and

the

in elite political competition.

into a key constituency

concurrent

important

from

Leap

secretaries

taxes

king who was not able

funds

the Great

first

it,

amount

by provincial

by the taxes

and

put

enterprises,

viewed

not be supported on profits

Donnithorne

(c) A pattern of “‘playing to the provinces” playing

of govern-

a sizeable

had become

could

dependent

industry.36

and who therefore

levels

of industrial

and controlled

and powers

treasury

and

light)

Different

own enterprises.“4

proportion

revenue,

resources

enterprises

their

resources that had accelerated over the decade of the Cultural

of budgetary

funds. 35 These

as entitlements.

profits

funds

share

for provinces.

over

of enterprises by for the center

The was

even

when

revenue

responsible

landed

situation

of Finance

of annual

sharing

and expenditure,

of for

provinces

out. According

the Ministry

the terms

had

one

the economic

to bail them

was hard-pressed,

by renegotiating

Funds

remained

considered

developments

was expected

link between

system

in to the could

contracts.

between

power

and responsibility. The reform

initiative came

revenue

to expand

both

sharing

from

experiments

developed

coastal

planning,

material

arrangement, 34.

During

enterprises

has

mat

The

36.

Guojia

37.

Donnithorne,

38.

Goodman,

used

the

39

Granick,

40.

Guojia

gailun

up. cit., at.,

op cit., caizheng

same Sovict

funds

caizheng

note

were

bianxie note

note

gailun

with

1976

and

proposed and

The

a package

fiscal

method

1977.

system

(Rahry,

equal

to three

times

zu (1984),

op

CC,

zu (1984),

op. cit.,

the

proposed

was Jiangsu,

Jiangsu’s

revenues

op. cit.,

boldest

kitchens”

provinces

a highly reforms

proposed

in fiscal

(gudirq bili baogan) was a variant

of differentiating

Union.

in separate

Several

of decentralizing

management.

by

thr

subordination

rrlations

note4.) 1965

note 10.

13.

24. 4. hianxie

“eating

the

and the top-down.

rate responsibility”

in the

extra-budgetary

op

that

allocation,

periods

been

autonomy

during

province

the “fixed

35.

fiscal

the bottom-up

note 10.

amount.

[Sun

Yun,

up. ci/

, note271.

of of

Deng Xiaoping’s the “sharing

total

and

Total

in 1976.

(Jiangsu’s

share

four years.

revenue”

Political StrateQ of Economic

arrangement

provincial

The

was to decide

issuing

spending

targets

its own budget.

Jiangsu’s

a success

in

contribute 1977

that were tried

were

The

suggested

move

of Finance financial

and

to meet during

pursued

Finance,

1960s

their

own

had

often

a hard

among

situation, their

its revenue

interests.

time

the fiscal

When

managing

the

without

to divide

to

beginning

in

had become

to the center,

of the

Ministry

of

the Finance

(jiazhang),

enough

of the

so dispersed

to listen

head

money.

The

head mistreated

the family

for

was the inability

children

them.

In that

and put the children

off on

own.44

From

the viewpoint

kitchens

was that

government

system

The

central

Minister

system

central

income

at current

of central

revenues Zhang

People’s

of public

government

true “administration

the advantage

finance finance

by separate

of eating

as well as the resources

of Finance

at the National

current

between

of Finance,

the responsibilities

deterioration

risk with the center. previous

of the Ministry

it clarified

and guaranteed

the progressive

levels.

and force Jingfu

Congress

administration,

be concentrated Another

official

“Financial eating

power

in separate

(guding) its level Finance

scheme

to

advantages scheme

expressed had

kitchens of state

Ministry the

to share

system

revenue. could local

Ministry was

After

get

is still in a state in which the authority

economic

in the direction

on of

the

Finance

activism,

of tightening-up

in the

more

Finance

Revolution, money.“46 officials

but in their (shou),

and duties what should

is not dispersed.4”

the Cultural

way

the Cultural

its hands

Ministry

viewpoint

the only

with the

in terms of the relationship

finance,

during

of

stem

financial

the problems

and what should be dispersed

so dispersed

bureaucracy,

in arousing

as a move

the

become

tier

would

1979:

levels ” is unimplemented,

is not concentrated

in separate

of each

reform

localities

diagnosed

in June

and regional

The

of the various levels with regard to public finance are not clearly defined,

the

and

sharing

of sole responsibility

position

that the family

head

provinces

refused

as family

the family

and complained

for the family

system

describing

revenue

in 1979 by the Ministry

itself

officials

metaphor:

for balancing

Jingfu.42

of the decision

Provincial

used the family

themselves

it’s better

because

1970s.

and

in 16 other

to divest

context

were

of contractual

was proposed

by the desire

for

ministries

and by 1980 was judged

types

Zhang

decentralization

needs

and

basis

to 1970 province

unchanged

(central

production other

of Finance,

43The immediate

the

officials

Ministry argued

fiscal

and

remaining

in 1977,

expand

41 Two

out on an experimental

was motivated

management.

Ministry Q&an)

to

center.

by the Minister

to popularize which

the

1959

center

and was to be responsible

was introduced

province

to

from

between

with the percentages

to the province)

the

revenue

nationally

to be split

on its own expenditures

experiment

motivating

more

schemes

were

was set at 42 per cent), province

to cease

implemented

revenues

237

Reform

pointed

language:

Revolution,

that

the

Ministry

could

fix

this was the only way When stressed

own minds not letting-go

advocating its

the

incentive

they viewed

the

cfang).

41. Oksenberg and Tong (1987), op. cit., note 2 1. 42. Ibtd. 43. Author’s interview. 44. According to interviews, the State Planning Commission proposed decentralizing capital construction at the same time (1979) and for the same reason, i.e. to divest itself of responsibility. 45. Renmin ribao, June 30, 1979, quoted in Akira Fujimoto, “The Reform ofchina’s Financial Administration System,” Japan External Trade Research Organization, China News/etter(March, 1980), pp. 2-9; p. 3. 46. Author’s interview.

238

Srunr~s IN COMPARATIVECOMMUNISM

The Communist Party had instructed the Ministry of Finance to draft the 1979 fiscal reform.+’ According to a Ministry of Finance official, the decision to carry out fiscal decentralization was made by a small group of top Party leaders including Zhao Ziyang who had just come from Sichuan. As the Ministry official put it, “They decided to give power and money to provincial leaders which made them happy and made them support reform. ’ ’ Others also attributed the initiative to Zhao, who, having just come from Sichuan, understood the perspective of provincial officials and convinced Deng Xiaoping to play to it. 48 The reformist leadership of the Party promoted fiscal reform as a way to win the support of the provincial leaders for the reform drive. The pressure from provincial officials for greater fiscal autonomy was palpable to central Party and government officials. Some officials I interviewed said that the provinces left the Ministry

of Finance

little choice but to pursue fiscal decentralization.

As one official said, “They couldn’t not do it at that time; the provinces wouldn’t have agreed.” The provincial leaders “forced a showdown” (tnn pai) with the center and insisted on a fiscal scheme that would be fixed for several years, that allowed them to decide

how to spend

their

revenues,

and that

gave them

a larger

share

of their

revenues.4Y In the context of succession politics-Deng Xiaoping was fighting to get rid of Mao’s chosen successor, Party Chairman Hua Guofeng, and place his reformist lieutenants Zhao Ziyang and Hu Yaobang in power-the provincial leaders could not be denied. The meetings discussing the fiscal system reforms gave provincial leaders ample opportunities to voice their demands. At a Central Work conference in April 1979 fiscal decentralization was discussed and one form of decentralization chosen. A Conference of Provincial Party Secretaries in October, 1979, decided to adopt a different form of decentralization.“(’

The final formula and the timetable

for implementation,

as well as

each province’s sharing contract (including base figure, percentages to be remitted and retained, or amount of subsidy), were determined at a National Planning Conference attended by representatives of provinces and ministries in December, 1979.“’ The

implementation

thousand condition

of the reform was supposed to await the return of several subordination, but this large enterprises5* to direct central government was never met. Both the managers of the enterprises and the provinces

objected.53 Instead at the December, 1979, National Planning Conference, a sense of urgency, particularly on the part of provincial participants, compelled a decision to rush ahead to implementation without recentralizing the enterprises.54 As Naughton 47. Author’s interview. 48. Zhao was not appointed as Premier until 1980, subsequent to the key 1979 meetings deliberating fiscal arrangements, but he may have played a leadership role at the meetings nonetheless. 49. Some provincial advocates pressed for an approach to reform called “local planned economy” that would shift ali economic authority from center to provinces. They held up American federalism as the model “Some Tentative Ideas on Carrying Out the Reform of the Economic to emulate. W&hong Fang, Management Structure,” Renmin ribao, September 21, 1979, p. 3. 50. Tian Yinong, et al., op. cit., note 6; Oksenberg and Tong (1987), op. cit., note 21. 51. “State Council Notice on Carrying Out the Financial Management System of ‘Apportioning Revenues &hd ,+& vxnjian huibian and Expenditures While Contracting Responsibility According to Levels, ” Jir+ (Collections of Documents on the State Economic System Reform) (Beijing: Beijing Finance and Economic Publishers, 1984), p. 841. 52. One interviewee said the number was five hundred. 53. Author’s interview. 54. Tian Yinong, et al., op. cit., note 6, p. 76; Barry Naughton, “The Decline of Central Control over Investment in Post-MaoChina, ” in David M. Lampton, ed., Policy Implemenlalion in Pm-Mao China (Berkeley: University ofCalifornia Press, 1987).

Den8 Xiaoping’s observes,

“Local

sacrifice

At the time voices

were

at policy tion

governments

any of their

Reform

from

conferences

Commission.57

provincial

officials,

The

1980

Fiscal Reforms:

The

fiscal

reforms

provinces.

from

balancing They

could

authority The

Guangdong transfer.

plan

ahead.

by adjusting from

the central flexibly

the fiscal

decentraliza-

of the Economic

political

logic

from

of Finance,

were

authority

of the

new

swept

and

fiscal

were fundamentally Second,

so that

the and

aside.58

expenditures

the center.

different

were

in three

could

their

provinces

spending.

of

profit

responsible

to match

Third,

of local

resources

arrangements

provinces

provinces

for

revenues.

had budgetary

They

ceased

to receive

ministries.60

to the 30 provincial for

fiscal

of the policy

critical

Kitchens”

form

their

some

the Ministry

for five years

and amount

arrangements

and Fujian, were

different

”

to receive years.

The

Almost

all

provinces

revenues

were

revenue

level governments,

regions.

150 million could

of Beijing, were

placed

keep

The

were

per year.

everything

national

the most

to the center yuan

Tianjin,

where

granted

sources

to contribute

as subsidy

metropolises

central

the two provinces

concentrated,

Guangdongcommitted

The

and

was applied

to

reform

establishincluded

five

arrangements.61

investment

(2)

expanded sharing fixed

criticizing

a compelling

in Separate

rely on bail-outs

specific

having

with the method

the precursor

the wisdom

were

problems

leadership,

the new arrangements

from

without

was introduced,

Group,

such

shares

the structure

targets

new system

different

separate (1)

fiscal

about

in 1980

budgets

no longer

to arrange

mandatory ing

own

had

contractual

in revenue

their

reform

56 A paper

Party

“Eating

the

revenue

increases

the policy

any doubts

239

autonomy

the potential

Small

Communist

that of the past, 5g First,

Reform

introduced

Although

resembled respects..

that

kitchens

identified

in 1979-1980.

But

of the reformist

operational

Reform

“55

separate

out of the Economic

perspectives

greater

sources.

A few economists

research

came

got

revenue

the eating

heard.

Political Strategy of Economic

turned

above

and Shanghai

on the most

restrictive

to attract plan,

over

1 billion The

efforts

generous yuan

to

sum

provinces.

were

fixed

for five

amounts.

that provided plan

the

per year and Fujian

amounts

these

foreign

“lump

despite

the lion’s their

share

of

objections.

55. Naughton (1987), ibid. 56. Author’s interviews; Daimo Guo and Zhaoming Yang, “Different Viewpoints in a Discussion on the Reform of the Economic Management Structure,” Renmin ribao, September 21, 1979, p. 3; Fang, op. cit., note 49 57. Author’s interviews. 58. Tian Yinong, etal , [op cit., note 6, p. 751 says that despite the original intention in 1979 to reform other aspects of the economic structure before tackling financial reform, the clamor from all quarters for more financial power was so deafening that financial reform was undertaken first. 59. This summary description draws heavily on Oksenberg and Tong (1987), op. cit., note21. 60. The ministries must have been reluctant to give up their control over local enterprise expenditures. In a 1979 document on fiscal decentralization, the State Council emphasized that while the central ministries would no longer have authority to hand down local expenditure targets, they still were to “guide the direction, approve the work program, carry out supervision and urging, sum up experiences, and help local enterprises in their sector” (State Council Notice on Carrying Out the Financial Management System of ‘Linking Revenues and Expenditures, Sharing Total Revenues, Contracting the Percentages, and Fixed for Three Years’,” (1979), Jiqji tizhigaige wen+m huibian 1977-83 (Collection of Documents on the State Economic System Reform) (Beijing: Finance and Economic Publishers, 1984), pp. 803-804. 61. The system was described in “State Council Notice on Carrying Out the Financial Management System of ‘Apportioning Revenues and Expenditures While Contracting Responsibility According to Levels” (1981) op. cit., note 60.

240

S-IUDIES IN COMPARATIVE Their

plan,

a version

percentage

of total

Because their

the funds

(3)

fixed

.Jiangsu fixed

them

four

for four

enterprises,

the central

treasury,63

the sharing

and

mainly was

from

and profits

center

and province.

in effect

income

mainly

came

during

included

in

commercial

the

fixed

income,

the Cultural of their

income,

fixed

Central

that

that the center

shared income,

income share to local

to reclaim

The was

contract

fixed

devolved

wanted

adjustment” The

shared obtained

Fixed-rate

20 per cent).

by

tax revenue.

resembled

was

Local

had been

to

divided

were divided

fixed-rate

income

enterprises.

the province

shared

income,

fixed

directly

which

sources

enterprises.

enterprises

Revolution

“income

adjustment

local

of centrally

and then

system

Revenue

of locally-run

profits,

tax, the most important

for shared

scheme

the percentages

taxes

together

revenue”

of centrally-run large

and

to be channeled

lumped

195 1 to 1958.

profits

those

category

were

by adjustment.

the

from

got 80 per cent

a

year.“2

government,

the Jiangsu with

profits

continued

specific

from

and taxes

from

mainly

management center

central shared

the profits

derived

with

fixed

each

to the central

revenue”

of the

in all schemes

were put on a “sharing

income

necessary

total

exception

all taxes

arrangement

arrangement,

to the center

in contrast

in “sharing

the

which

up into four categories: income,

were vitally year,

revenue”

to remit

years.

With

between

provinces

total

required

every

its experiment

controlled

Sixteen

“sharing were

revised

years.

by percentage

(4)

were

continued for

they

they generated

percentages

which

of the Jiangsu revenue

COMMUNISM

only the

industrial

fixed the sharing

and the local remittance

(the

revenue rate

to the center

for five years. “sharing

The total

at their

1979,

the

profits

strengthened

(5)

Eight

the local

a period

this form

national

meeting. of

subsidies

“sharing

specific

“sharing

enterprises sense

expansion

over

the Jiangsu

by provincial

“sharing

Party

secretaries

specific

revenue”

arrangement

local

revenues

and

for

of proprietorship

and optimism,

over these

thereby

enterprises.

most local officials

preferred

sharing.

minority

received

was chosen

of provinces

64 The

local

government’s

of economic

of revenue

system

revenue”

for the majority

October,

earmarked During

specific system

revenue”

from

provinces

and

the center

to cover

revenue”

system

increasing

annually

by 10 per cent.

of revenue

collected

above

autonomous

with These

their their

regions chronic

subsidy

provinces

could

which deficits

fixed retain

for

had previously were five

put on the years

the total

and

amount

the budget.

62. In 1980, Shanghai 88.8 per cent, Beijing63.5 per cent, and Tianjin 68.8 per cent. Oksenberg and Tong (1987), op. cit., note ‘21. 63. Liaoningjngi loqji nianjian, 1987 (Beijing: Zhongguo tongji chubanshe, 1987). 64. In July, 1979, the State Council had made a preliminary decision to implement a version of fiscal decentralization called “linking revenues and expenditures, sharing total revenues, contracting for percentages, fixed for three years” (shourhiguagou, chuanefenchen~, bili baogan, sannian bubwz) which was essentially the Jiangsu “sharing total revenues” system; the “apportioning revenues and expenditures while contracting responsibility according to levels” (huafm shouahi, fen+ baogan) or “sharing fixed revenues” system was introduced on an experimental basis only in Sichuan because it was said to require reforms in other aspects of the economy [“State Council Notice on Carrying Out the Financial Management System of ‘Linking Revenues and Expenditures, Sharing Total Revenues, Contracting the Percentages, and Fixed for Three Years’,” (1979), op. cd., note601. After the October meeting of provincial Party secretaries and the December National Planning Conference, the State Council announced a change to the “sharing fixed revenues” system.

Deng Xiaoping’s

Political Strategy of Economic

The Evolution of Fiscal Sharing Systems, 1980-1987:

241

Reform

Bending Toward

the Provinces The

evolution

of fiscal

sharing

schemes

advantageous

terms

from

for the reform

drive

and for their

a strong

to keep

case

responsibilities

and

the center

more the

reveals

because

own political

revenues

reform

the ability

central

careers.

because

they

environment

of provincial

Party

leaders

Provincial were

new

to win

their

officials

taking

created

officials

needed

support

could

on more

make

budgetary

uncertainties

for

their

enterprises. The

terms

provincial

of each

officials

revenue-sharing

and

the

agreement

had to be approved

Council.65

And

sibility

of Finance

for each

sensitive

contract

to political

sharing

contract

was

to claim

credit

When

the

negotiated of the

center.67 central

burden

a political

sharing

bargaining overly

The

between

observed experiment

in 1977;

of Finance by 3 billion

deficit

center officials after

squeezing

local

reform

the original

in their producing

whose fiscal

aspects

localities

members

were

Party.

The

revenue-

in the

State

Council

that

various

to lower reducing

setting

initial with

targets

sharing

rates

insufficient

center

its reform

always policies

it

of fiscal that

were

funds,

was

of the Jiangsu

up from gave

and

as subsidies;

pattern

the center

The

because

yuan

in the case

were

out ahead

expenditure

This

was adjusted

as a rule,

came

revenue

billion

It had occurred share

its

yuan.6s

left the center

that

provinces

the provinces’

several

and percentages. especially

intention

was for fiscal

wanted

system

controlled,

were affected

contract.

contracts

environment

of the economic

revenues

sharing

whose

the provinces

13 billion

the center’s

explained

and political

were still administratively

provinces

it appealed the respon-

57 per cent

in to provinces

felt it had to “take were responsible

for

enterprises.

the economic

of other

and

I interviewed.

numbers

base

agreed yuan,

i.e.

province,

one year,

the localities,

Prices

and

an additional

of almost

and

when

Although

center

the

Conference,

and providing

care of’ ’ (thaogu)

five years,

politicians

between

official

many

the

Planning

to 61 per cent. 6g One negotiating

and

The

and by the State

In effect,

Council

the

Finance.

of its contract,

of the Communist

1979,

to the provinces

by several

by the State

the top levels

between

of

of Finance

Council.6ti

rates

Ministry

a budget

generous

to the State

document,

appropriations

by 10 per cent

to absorb

Ministry

for it.

at the December,

increase had

new

from

in bargaining

the

with the terms

was appropriated

direction

wanted

higher

set

of

of the Minister

was dissatisfied or even

were

department

by the office

if a province

to the Minister

contract

budget

the center

failed

when

pace

with

a product’s

and usually textile

to compensate

fixed

for a period

On the economic

to keep

so whenever

demanded,

For example,

to remain

interfered.

prices

them.

received, were And

fiscal

price

of

side, the reform.

7o

was revised,

an adjustment changed,

whenever

textilethe

sub-

65. “State Council Notice on Carrying Out the Financial Management System of ‘Linking Revenues and Expenditures, Sharing Total Revenues, Contracting the Percentages, and Fixed for Three Years’,” (1979), ofi. cit., note 60. 66. Author’s interviews. 67. In an earlier document the State Council had stressed that in the fiscal contract negotiations, stability of central revenues and national financial balance had to take priority. Ibid. 68. Tian Yinong et al., op. cit., note 6; Oksenberg and Tong (1987), op.cit., note21. 69. Only in part because of a change excluding enterprise depreciation funds from the local revenue base. Oksenberg and Tong (1987), op. cit., note21. 70. “The failure to achieve a complete set of reforms has affected the implementation of fiscal reforms.” Caizheng bu caishui tizhi gaige zhu (1989), op.cit., note 7, p. 232.

ordinate local

relations

the revenue The

to central

coincided

Liaoning

brunt

with the 1981that

received rate,

for maintaining

Finance

praised

fiscal

was

1980-1982

financial

position

compensating central

of ‘eating

from

financial doing”

(baogan,

not doing” The

context. have been from

the

in economic

pounding

for agricultural

to shift

fiscal

the

In

1983

for

in interest

treated to

the

rates,

use,

their

center

the

on the

provinces

and petroleum expected

structural

factors.“7’i

provinces

a of

between

changes

they

became

the economic relationship

to compensate

74 The

deficits.”

the Ministry

of enterprises,

after

loosely

reform.

levels,

and

original

preserve

by

“While

in name The

A Ministry that

was

to feed there

is

and the problem

resolved.“7”

cured.

as “contract”)

translated

the center

implemented

fundamentally system

was introduced,

still expected

this is not really

reform

to the provinces

the reform

concluded,

had not been the

responsibility

After

all. Everyone

assessment

that

reform

solicitousness

Policy-making

toward

provinces’

of Finance

called

was in reality

in the

the provinces

bureaucratic

arena

impossible

to obtain

if provincial

the center.

Keeping

the provinces

political

support

provinces

able

has not been

interview

was an important

Another their

of Finance

continuous

tional

kitchens

central

from

reducing

the

official

“guarantee

for

a “guarantee

for

(bao bu San) system.”

would drive

that

on the center

usually

center’s

treatment

soldiers.

separate

the big pot’

in an

as soybeans

the aim of the 1980

at different

dependence

complained

relations

bore

perturbations.

were not entirely

responsibility

during

and terms

was never

Ministry

of change

which

contracting

article

reform

provinces

to help by raising

of heavy

One

of fiscal

industry

in the distribution changes

items

from

to redraw

hit were

agreed

of fiscal

balance.

from

entitlement

government

As one

separate

an

that had been

the kitchens them.

as

because

of contract

to demobilize

for economic

even though

resulting

of such

expenses

a factory

period hard

heavy

the system

a period

in the subordinate

in the prices

unexpected

from

administrations

readjustment

changes

changes

The

system

a major

the initial

case the center a year

stability

local

shifting

to get the center

Especially

income

it wait

for “in

relative and

management

there

of their

In Liaoning’s

environment,

reform

administration

budget

during

retrenchment.

the center-provincial

maintaining

was a battle

line.7’

but made

economic

method

central

most

by, for example,

there

perilous

1982

policies.

retention

In an uncertain

reforms

sharing

was particularly

of contractionary

its revenue

were altered,

management,

and expenditure

environment

which like

of an enterprise

management

consideration consideration

for reformist was

was a set of particularistic for

individual

who were clearly

Party dissatisfied

officials

succession deals

leaders

reflected required and

were the three

which

by tough

on board

fiscal

the reform

leaders.

politics.

The

for provincial

as well

institu-

consensus,

were alienated

satisfied Party

China’s

as for the metropolises

eating

officials reform

in

separate

designed drive.

whose

The

revenues

to win only were

71. Author’s interviews. 72. The center extended a loan to Liaoning in the meantime. Author’s interviews. 73. Caizheng bu caishui tizhi gaige zhu (Deepen the reform of the Budget Management Sys~ern to Promotr Economic Development),Jin~.~Quanli, No. 10, 1988, pp. 35-37, 39 74. Tian Yinong et al., op. cit., note 6, p. 84 75. Caizheng bu caishui tizhi gaige zhu (1988), op. cd., note 73. 76. The continued existence of the big pot is illustrated by the widespread “chicken game” between local and central governments over grain procurement funds during 1989- 1990. Local governments spent their grain procurement funds for other purposes and then asked the center to bail them out to prevent peasant

Deny Xiaopinc’s too crucial tried

to the center

to appease

Political Strategy of Economic Reform

to allow

officials

from

political

the

considerations

metropolises

243

to dominate.77

by periodically

Zhao

raising

Ziyang

their

revenue

share.78 The

fiscal

support

giveaways

for reform

left the central

treasury

infrastructure innocuous

served

and their

too poor

construction approaches

First,

they

organizing

into

tobacco

products,

during

1982-1983

etc.

to

help

which

unanimously

by the Party

necessity

monopolies

State

leadership.

was little

autonomy

to the sectors

the revenues

the ministries

could

meetings

do. Beginning

to discuss

controlled

generated

of petroleum,

how

coal,

in 1984,

electric

considered

these

a matter

principles.

corporations Economic

chafed

and

and

enterprise

was made.*’

As of

as well as by all enterprises had

become

at

Commission,

Commission

competition

but no progress

power

As

they constrained

the Reform

to restore

corporations,

and

these

of

was supported

reform entities

to the State

by corporations,

by these

were

by

estabLished

creation

Ma Hong,

of market

under

them

industries

were

The

corporations

Enterprises about

politically

for automobiles,

shipping

and as bureaucratic

enterprises. complained

and

by his advisor

in the face

competition,

the SEC

held

flew

but

subsidies,

several

profitable

difIiculties.7g

8o Central

they

price

corporations

metals,

Ziyang

devised

of the most State

budget

on Zhao

though

and often

Council

1985,

even

of subordinate

the restrictions but there

was urged

the

in building

for themselves,

for providing

officials

of several

non-ferrous

leaders

support

needs.

corporations.

solve

they discouraged

the freedom

Beijing revenue

the earnings

petrochemicals,

of Party

in building

its obligations

central

state

interests

interests

Therefore

national

corporations, of fiscal

collective

to meet

to meeting

appropriated

them

the

individual

under

the preserve

of the

center.82 Most

of the industries

dispersed.

To

corporations, taxes

appease Beijing

and profits

to increase central tion,

them

of the enterprises

central

for example, them

by the creation

provinces

offered

revenues

implementation

forced

affected the

of these

many

to do

than

so.

of central

ministries

side-payments

who

corporations lost

were

revenues

widely

to the

including

a 20 per cent

share

they gave up. Corporations

were a more

feasible

seeking

revenue

corporations

localities The

and

refused

automobile

from

was lax.

particular cigarette

also

had

factories less

way

Even

In the case of the tobacco

to give up their corporation

provinces.

new of the so,

corporaand no one

than

a complete

monopoly.83 Second, applied

and another per

cent

provinces

short-falls

“temporary”

universally.

Provincial

four billion

tax

(later

to generate

in 1981;

raised central

to

in central

governments the center

15 per funds

cent)

revenue

loaned wrote on

were

the center off the loans

extra-budgetary

for infrastructure

projects,

met

by ad hoc extractions

eight

billion

in 1982.84 funds

yuan

in 1980

In 1983, was

put

a 10 on

all

and a 10 per cent tax on

77. That is not to say that fiscal reform did not aggravate regional tensions. For one thing, many provinces were jealous of Guangdong’s special financial privileges (author’s interviews). 78. Author’s interviews; Shanghai’s share was increased from 12.1 per cent in 1984 to 24 per cent in 1985. Tianjin’s share was raised from 46 per cent in 1984 to 58 per cent in 1985 [Tong, 00. ctl., note311. 79. Oneofthem, theChinese National Petrochemical Corporation, was granted the bureaucratic status of a ministry; all the others were made subordinate to ministries. 80. Author’s interviews. 81. Author’s interviews. 82. Christine P. W. Wong, “Tax Reform and Central-Local Fiscal Interaction in China” (unpublished paper, 1990). 83. Author’s interviews. 84. Oksenberg and Tong (1987), op. cit., note ‘21; Hsiao, op. ci/., note 10.

Srur~~:s

244 construction 1983.85 were

projects

In 1987, required

treasury

both

was expected Finally,

Of

ways:

subsidies,

housing

budget

pinch

too

items

policy

more

that

end

“eating

of

officials

decade,

local

purchase

from

the

just

big

pot”

as the center

central

responsibilities

virtually

all responsibility

few

education,

to uniform revenues

provinces.

the combination a

budgetary

according

on particular

Everyone

formula-based

preserves,

safer for Party

paid a little.

No one felt the

sharing

contracts

formula

tilted

universally-applied

obligations

winning

for price and many

formulas

uniform

expenditure

a politically

to all the

health,

was politically

of particularistic

sectoral

of revenue-sharing toward did

the

in the needs

to

pay

back

of concentrated

the

benefits

Guangdong

and Fujian

run enterprises

whose

of all enterprises reason

profit

retention

ments

were

for the

by

1983,

were were

suffering.

more

pooled,

change go Under

how

budget

reflected

Council

financial

to

protect

deficits

by changes

central

officials

sometimes control.@

central

in fact,

and and

conservative

shifts

in the situation

justified Party

revenues

preoccupied

But

were introduced, system all

and taxes

had reduced

central

bureaucracies.

was

in revenue-

at the lower

10 of the 16 provinces over

the “sharing

total

three

levels

revenue”

total

metropolises

and

to the center,

wage

of local

system,

of centrallythe profits

dividing

increases,

enterprises,

originally

“sharing

the exception

and province

readjustment, profits

the

8g With

directly

the center

the remitted

to the Jiangsu

except

system.

still went

with that

shifted

provinces

on the Jiangsu

profits

1980

State

treasury

revenues”

and

about

central

after the reforms

specific

system,

worries

were impelled

two years

The

to strengthen

economic

of the central

after

interests.

And

central

arrangements

revenues”

have

construction.

and

“sharing

arrangements

provincial

as measures

capital

In 1982,

The

the

to “voluntarily”

construction,

calculated

had found

leaders

elders

on the

the

costs.

government

sharing

at

and local

to bail out the center

to provinces

for generating

and

modifications

Party

proved

infrastructure

uniform,

deference

keypoint

added

Throughout

pressured

expected

shifted

over

were

hard

leaders

evolution

continued

taxes

that

87 With

and

Party

The

handed

provinces

extractions, and diffuse

was

cut by 10 per cent,

center.86 were

extractions

government

approach

severely.

the

center,

to the

were

funds

were

individuals

these

and urban

than leaning

toward

than

course

center

universal

leaders

extra-budgetary

amount and

the provinces

central

The

The

by

COMMUNISM

to bail out the provinces. the

provinces. other

COMPARATIVE

expenditures

this

enterprises,

bonds.

worked

financed

all budgetary to lend

governments,

IN

and

enterprise

and local local

and

the total. govern-

governments

85. Oksenberg and Tong (1987), op. cif., note 21. of the State Budget for 1986 and on the Draft State 86. Wang Bingqian, “Report on the Implementation Budget for 1987,” Xinhua, April 13, 1987, IBIS, April 15, 1987, pp. Kll-21. 87. In one exception to the universal application of these extractions, the center hit up Guangdong and Fujian for loans in 1981 (1.6 billion yuan from Guangdong, 154 million yuan from Fujian) and again in 1982 (the loans were written off in 1983 and nwer repaid) [Tong, op. cif., note 311. Officials in Guangdong and Fujian probably calculated that it was worth their while to pay off the center to keep their special privileges (which included capital construction and foreign investment approval authority, planning authority, a separate labor market, and foreign exchange retention as well as fiscal autonomy). From their point of view, the loans were protection money to the organization boss to preserve their profitable franchise. 88. “State Council Notice on Improving the Financial Management System of ‘Apportioning Revenues and Expenditures While Contracting Responsibility According to Levels’,” (1982), Jingji lizhi pi@ wenjian huibim 1977-83 (Collection of Documents on the State Economic System Reform) (Beijing: Beijing Finance and Economics Publishers, 1984), p. 841. 89. Ibid.; Caizheng bu caishui tizhi gaige zhu (1989), op. czl., note 7; Oksenberg and Tong (1987), op cit., note21; Wang (1990), op. ci!., note 82. 90. Tian Yinong et al., op. cit., note 6, p. 83.

Denx Xiaoping ‘s Political Strategy of Economic Reform got a larger giving

share

of more

up a share

governments

preferred

profits

growing

were

specific But

in a time

when

local

factories,

they

method

base.

seems

increases income

from

In other their

a beneficial The

words,

primacy

formation

financial

Instead

of the objectives

of the LGS

to weaken

the

subordinate

relations,

would

officials

resisted

Provincial system

wasted

time and energy

above were

of financial

bargaining

over

competed

most important local enterprises rents

Provincial taxes because

fiscal

and

and build

they wanted

once

not only

rates

again

proposed

when

with

in

1982 (ligai

of taxes.

the negotiability

were

trans-

taxes”

pay a variety

them

that

a radical

of profits

would

total

scheme

obtained

to the center.“’

Two

of enterprise

in the form of taxes;

“ownership”

local

and

and

budgetary

regardless

toward

to maintain

fiscal

relations

of the

oftheir

provinces

contracts gave

both

rarely

to bargain

profit

local officials

True,

they

with the center in the short

it the

so that

for the reasons

It offered

and politically

tax system.

with

center

Yet the center them

the power

valuable.

manipulable

legalized

of the financial

with

the center.

upper

provincial

in

officials

used its leverage discussed

above.

retention

contacts

opportunities

term

hand

over And, with

to collect

machines.g5

also opposed government

their

authority

leaders,

the easily

a uniform,

contracts

from

was politically

national

since

to bend

to provincial

officials

sharing

that all enterprises,

to replace with

formal

sharing

preferring

taxes

sharply

of sharing

had provided

enterprise

over the terms

below the

to win good terms

the provinces,

political

the effort

haggling

And

relatively

sharing

advisors

income

pay.q3

contracting

and the enterprises zero-sum.g4

and national

revenue”

the supplementary

the method

by formalizing

between

specific

of

finances

the local specific while

demonstrated

direct.

the profits

put their

the provinces

(1) to reduce

obligations linkage

by creating local taxes

revenues

useful

financial

that

tax increases

enterprises

were

threatening

when

the “replacement

profits,

proposal

financial

they

more

but also new

Ziyang’s

system,

“sharing

factories

will opt for whatever

method, was

enterprise

The

reasons,

In 1982-1983,

Zhao

of remitting

and local government (2)

and

local

the “sharing

to accept

officials

interests

officials

of China’s

shui, or LGS).

of various

for the loans

of provincial

of Finance

while of fact,

for local

because

a system

and commercial

sharing

them

risk with

will be willing

return.

in the fiscal

to compensate

Ministry

because

provincial

short-term

change

computed

their

were

in exchange

of expansion,

complete.

of local

reform

explained,

of industrial

was

proprietorship

“as a matter

the localities

a period

system

profits

structural

to spread

or even decreases

these

their

to localities,

During

revenue”

on

As one 1982 account

the revenue

will maximize

specific

and

tax revenues

enterprises.

claim

also made

preferred

or does not decrease, revenues.“g’

their

contraction

attractive

slowly

industrial-commercial

of local

the “sharing and

system

revenue”

on a broader

stable

of the profits

245

a tax from

their

system

national proprietary

to fund taxes,

local to be

financial

governments paid

rights

from

local

by all enterprises,

over local enterprises.

91. Guangming nboo, August 23, 1982, JPRS81938, Econ 271, October 8, 1982. 92. “State Council Notice on Improving the Financial Management System of ‘Apportioning Revenues and Expenditures While Contracting Responsibility According to Levels’,” (1982), u,& cit., note 88; Oksenberg and Tong (1987), op. cit., note 21. 93. Wong (1990), op. cit., note 82. 94. Guojia caizheng gailun bianxie zu (1984), op. cif., note 40; Caizheng bu caishui tizhi gaige zhu (1989), op. cit., note 7. 95. The theory of political rent-seeking, i.e., politicians who intervene in markets to generate political IXSO~KXS for themselves, has bee” most elegantly developed by Robert H. Bates in Essays on the PoliticalEconomy ofRural A&a (Berkeley: University ofcalifornia Press, 1983) and Markets andStatex in TropicalAfrica (Berkeley: University of California Press, 1981).

246

STUDIES

IN

COMPARATIVE

COMMUNISM

The shift to the “sharing total revenue” Jiangsu system from the “sharing revenues” system in 198‘2-1983 had diffused but not broken the financial

specific linkage

between provincial governments and provincial enterprises. Provincial officials enjoyed the political and economic benefits of their role as corporate heads of the local economy and were loathe to give them up. 96 One Ministry of Finance official said, “An objective of the li%fugai shui reform was to break the administrative

relationship

of enterprises

with

localities, but it was not possible to do it. Some people’s thought on this issue had not changed yet, and it was also a question of power. “g7 In a series of meetings to discuss reptacing profits with taxes, provincial officials expressed their doubts and succeeded in modifying or delaying elements of the plan that shui reform was introduced in two stages. The first, begun in they opposed. ‘a The ligui 1983, required enterprises to pay only an income tax, and allowed them to continue to retain and remit to local governments after-tax profits at the same level as 1982. The second

stage,

begun

in 1984,

converted

all profits

to taxes,

but did not eliminate

negotiability or financial linkages based on the subordination relations of enterprises, although that had been theoriginal intention. An adjustment tax was bargained out with individual enterprises in seven year contracts granting one rate on current profit levels and another lower rate for incremental profits. yg Most important of all, due to the objections of provincial governments, the set of local taxes was never implemented and the revenue base of center and provinces was never put on a firm legal footing. Instead the State Council declared in 1985, that “temporarily” all provinces were to follow the system of “revenue sharing on the basis of dividing up tax revenues” which essentially replicated Thanks

the Jiangsu “sharing total revenues” system.‘“” to effective defense by provincial officials, provincial

financial interests were

left intact. Although all revenues from enterprises were called taxes instead of profits, little else had changed. As one official said, “It is the same regardless of whether we call it profits or tax; it’s all revenue anyway.“‘*’ Not surprisingly, Communist Party leaders did not intervene

in the bureaucratic

policy-making process to impose a thorough-going fiscal reform over the objections of provincial officials. The provincial officials were too important a bloc within the Party to push around. Moreover,

from the standpoint

of individual leaders at the top levels of

the Party, li g& &ui would have impeded their career-buiIding strategies. Party politicians took advantage of the particularism of liscal contracting to win political support for themselves and therefore were not enthusiastic about abandoning it. Even the Ministry of Finance, which was undoubtedly the agency most strongly committed to ligczishu, was basically satisfied with the current fiscal contracting system. 96. One groupofChinese reform economists argued that the cmrrqncc ofproblems like local ~~j~ninistr~itier inrwfcrence and market blockades could not br blarncd cntircly on the dccentralizrd fiscal system They WCK the result of introducing fiscal decentralization into a system characterized by “unifizd local Party and gwrmmrnt Icadership and the role played by local Party and government authorities in functioning as thr acting ~wnrrs of enterprise assets under the system of public ownership” [Hua Sheng, Zhang Xuejun, Luo Xiaoping, “Ten Years of Chinese Reform: Review, Reflection, and Prospects,” ,/q+ .ynnjzu, No. 9, September 20, 1988, pp. 13- 37. 97. Author’s interview. 98. See Susan L. Shirk, 7%ePofiticalFnilure~~f~onomacR~~form in Chino, Chapter Seven for a detailed analysis of the fifoi shuz case (forthcoming). 99. Wang (1990), op. cit., note 82. 100. Ibid.; Although formally all provinces were on a system of “sharing specific revenues,” “because conditions were not ripe” the “sharing total revenues” system was “temporarily implemented” [Caizheng bu caishui tizhi gaige zhu (1989), op. cit., note 71. 101. Author’s inter\,iew.

Denf Xiaoping’s Ministry

of Finance

eating

in separate

central

budget

pre-1980 third

They financial

the central

in 1979,

1988.1°4

The

officials,

was that

arousing

of their

“it

authorship

reform-minded Finance

of the

1980

fiscal

Ministry Some

center,

but

has to think

people

about

so.”

we do not

everyone

the interests

who are not familiar

it is not

What

than

with

Another

official

approve

of is using

and 35.3

income

officials that

of had

One

of the localities think

“The

Ministry to buy

at the same

they

official

proud

were

more

said,

“The

as well as about care

of Finance reform

in

of Finance

generally

we only

per

per cent

while

were

it proved

thought.

money

while

governments

to Ministry

our work

said,

of national

the combination

in 1985,

financial

claiming

the

per cent in 1972 and 14.3

Ministry

reform,

hand,

according

the center’s

over

was only one-

ran deficits

from local

13.8

contracting,

guarantee

always

of

was the

improvement

was two-thirds

30 per cent

of the localities.“105

and less conservative

center. reform.

could

the activism

fiscal

from

over

of which

authorities

the center

and loans

income

in 1982,

about

an

“I3 But on the other

of budgetary

thing

it as

consequences

serious

of central

that

247

unintended

expenditure

them

state corporations

20 per cent

good

defended

central

sat on surpluses. share

to over

while

Reform

of view the most

that the income

it galled

with national

the negative

point

always

income

lo2 And

governments

increased

time

they

complained

expenditures.

fiscal contracting cent

their

deficit-but

of national

provincial

acknowledged

kitchens-from

system.

financial

officials

Political Strategy of Economic

the

about

the

supports

from

the

lower

levels.“tofi Officials

at

eventually down

the

principle

in China

the

responsibility

“system

to either

revenues”

center

of central

another. stick

lo7 Yet

with

Other

because

individual system,

Administrative

eating

in separate of local

promulgated

of local

approving

capital

material

supply,

Central

Committee

local

localism,

kitchens

governments. of

governments construction retention declared

over

with

taxes

They

could

officials

of “sharing

wrangling

from having

the

different

the system

the constant

and localities

between

to bail out one

had a political

incentive

to

Policies was not the only policy

the course

different

measures

and shift more projects

of foreign

from

to

of setting

was done to change it.

fiscal reform Over

in accordance

administrations.”

taxes”

and local

commitment

the basis

the income

eliminating

central

public “on

and

power, or local

the center

nothing

whereby

authorities,

of divided

Decentralization

a number

incentives

down

in their

taxes”

administration

and preventing

the current

the power

and

of the “system

in breaking

unanimous

and financial

the central

and localities,

were

of divided

responsibility

on the advantages

total

The

levels

of unifying

is allocated agree

all

introduce

and

exchange

its intention

of the decade, intended

to

responsibility foreign

improve

to them

joint

earnings,

to eventually

designed

the central

ventures,

and many

send down

to enhance government

the

economic

in such matters planning others.

The

as and

CCP

(_Gafans) all industrial

102. Caizheng bu caishui tizhi gaige zhu (1988), op.ctl., note73. 103. During the period from 1979 to 1987, the center accumulated deficits totaling more than 64 blllion yuan, while local governments ran surpluses totaling more than 7 billion yuan [Caizheng bu caishui tizhi gaige zhu (1989), op. cil., note 7, p. 2321. 104. TianYinongelol., op. cit., note 6; “Minister of‘Finance Addresses Financial Meeting,” Xinhua, July 24, 1988. 105. Author’s interview. 106. Author’s interview. 107. Caizheng bu caishui tizhi gaige zhu (1988), op.cd., note 73

SIVIXES

248 enterprises

under

government had

ministry

never

capital assumed build

or material

Yet,

because

day-to-day

up local

One

control

industry

of the most

and

significant

ministries

in

Communist

1984.

The

personnel,

was cut back

to include

levels

The

down.

Central and

Committee

ministry reduce

the total

tunities

of local

Party

“central

power

proposed and

more

Their

who interfered enterprises

Ziyang

People’s military

Naturally cities

idea.

knew

city.

what

he was

Zhao’s

initiative

108. 109. 110. 3, 1983,

argue And

instead

of two

by the CCP

in turn

to province

decentralized

committees.‘08

The

reform

the patronage

was

1982.

first

oppor-

to put

regions

with

cities

doing The

making

publicly Zhao

hand, when

their

Ziyang

he made

were

recently

Chongqing

the vanguard patron. have

Burns, op. cit., note 17. Author’s interview. “China’s Current Economic Xue Muqiao, I;BIS, June 13, 1983, pp. K34-41.

by

Other lost

Chongqing,

Situation,

Session

of the Fifth coordination

except

those

National of the

important

to

lt” at restrictions

to give moved

up control

from

a major Sichuan,

point

for the

tremendously

of comprehensive had

the central

over

to Beijing

popularity

and extrac-

about

the demonstration

Analysis

a regional

government.“”

effective

enthusiastic

provinces some

and

in law (JO/IO)‘”

like a good way to free

who had benefited model

central powerful

of ministry

provincial

chafed

wildly

hated

authorities,

may

center.

had for years

had only

Sichuan

1979

Sichuan

as their

rule

more

mothers

seemed

originally

between

and provinces.

to restore

the provinces

who

dual

all enterprises

governments,

them

with

which

in

(itself

conflict

many

to cities

it at the Fifth

was

themselves,

the

ministries

measure economic

the coordination

had become

“too

by the

to Zhao,

to improve

decentralization

under

power

way

decentralizing provincial-level

had provoked

proposed

best

cities

fiscal

having

between

The

was another

labored

felt exploited

Ziyang,

reform.

while

all

authority

of the posts

expanded

the provinces

about

Shifting

strife

long

the other Zhao

cities

hardly

enterprises

by provincial

central

suit.

in under

On

Party

but

the and

appoint

managed

two-thirds

as a method

kitchens

complained

had

the cities

imposed

industrial

leaders

coordination)

operations.

according

tions

to

appointment

directly

idea of giving

took up the idea and promoted

security

to

was

in provinces

authority

committees

county

(kuai) because

notion

that

Congress

economy,

Party

the constant cities

city

its

of posts

reform

The

in separate

Many

in their

central

chen$zi)

to improve

managers

from

economic Zhao

eating

assertive.

province.

The

by reformist

and provinces

(ho)

decade

officials

committee’s

Party

city-, and

(thongxin

as a method

ministries

of

officials

of this control

of the reform

retained

and transfer

Provincial

consequences.

The

contraction

provincial

advantage

Party

Party

size of the nomenkluturu,

cities”

was favored

over

officials.

that had far-reaching of the economy.

still

control

at the same level and one level down

to prefectural,

did not The

Party

13 000 to 5000

committees.

nomenklaturu control

measures

was to cut the number

from

Party

reclaim

the economic

and took

central

machines.

of each

only positions

The

local budgets

policies,

to Communist

but the scope

effect

economy

decentralizing

authority

always

as it did during

political

of nomenkluturu

could

decentralization

of the local

and local

governments.

over the provinces;

the center

various

devolution government

authority

supply

of

COMMUNISM

to be run by local

its ultimate

by the center,

construction

198991990.

management

abrogated

to be approved

IN COMPARATIVE

no choice with

and Prospects,”

from

reform, but the

could

to follow

officials

in

Renmm Ribau, June

Denx Xiaoping’s provinces

forced

the cities

to give up power

From

1983

to

Dalian,

1987,

Guangzhou,

discussing

units pressure

central

and

provincial

powers

granted

credit.

resulted

budget.

officials

in fierce

originally

had been

of localism

ten more

cities

to cities

cities of local

sympathetic among

cities,

The

Reform

Bureau

of the State

disputes

that arose

and

Ministry

the

officials.

cities

forced

as extensive

as the

and more

enabling

who engaged

so-called

politicians

to

measure,

one another

and officials

and the

in Beijing

who

to view it as simply

a new

For example,

factory that

Bureau. that

had

by unified

raw

were

special The

Wuhan

fought coal

down

materials

which

and

wanted

administered the

State

to keep profitable

Economic

city,

to city jurisdiction because the to

their

Commission

over

the its

it lacked

ministry

take

directly

because

Material

a central

Pharmaceutical

in character

negotiations

mines.“”

became

to send

Wuhan

been

Province

like

the

between

as treaty

the city refused

dispute,

management.

management.

the

previously

Hubei

medicines

offered equipment;

with

cities

with

from provinces

and responsibilities

ones

than

multiplied

was swamped

acrimonious

when

reform

and powers

of revenues and central

bureaucratic

cities

Commission enterprises

of unprofitable

telephone

was more

the central

and

Provinces

jurisdictional

plants

arguing

be maintained

in war.

also relevant.

another

Pharmaceutical

Economic of shifting

and Telecommunications

provide

‘17 In

of ministry-level

and financial

basis,

and ministries

as protracted

themselves

producing

pharmaceutical objected,

were

proliferation

as a rationalizing

idea came

conflicts,

over the division were

engaged

were

factory

city

divest

of Post to

in the process

Negotiations central

countries issues

The

of central not

economists cities

provinces,

many

enterprises

the national

(kuai-kuaz].115

them.

between

were

documents

to more

sold

entities

to the central

jurisdictional

cities.

planning

cities

still managed

under

29.‘13

treatment,

originally

reformist

of ending

and

entities

nonetheless,

government Many

Instead

province

these

financial

on a particularistic

reform,

economic.

to central

While

of the privileges

special

extended Shenyang,

the provinces

the original

of national

jealous

Council Wuhan,

national

than

but valuable

competition.

competition

provide.

in

l4

in a proliferation

ability

with the officials

State

full-fledged

1988,

to extend

cities

central

ministries

were

the work

other

one thing,

11* By

units,

were granted

The

the

and Ningbo.“’

from

cities.’

powers

and

Qngdao,

of provinces-for

level

to central

“experimental”

Committee

Harbin,

complicated

Meanwhile,

Wuhan

249

points

cities-Chongqing,

the

39 provincial

Special

Central

in the cities-they

and

danlie)

of subordinate

supply

he gained

to nine

Xian,

appointments

(jihua

The

cities,

authority

the full authority

personnel

form

the

economic

not granted

claim

to central

Reform

themselves.

provincial-level

plan

Political Strategy of Economic

the

could several

by the national Bureau quality ruled

both had to in favor

1l8

111. Tian Jia, Zhu Limin and Cao Siyun, “ Further Perfect Reform of Separately Listing Cities in the State Plan,” shtjiejinpi; daobao, October 26, 1987, p. 10. I 12. For an argument on behalf of giving full provincial-level legal status to central cities see Tian Jia et al., Ibid. 113. “State Council Decision to Improve the Method of Local Financial Contracts,” C&hens, No. 10, 1988, p. 1. 114: By 1984, one account listed 52 experimental cities in China [Renmin ribao, October 20, 19841 115. Author’s interview. 116. Author’s interview. 117. Author’s interview. 118. Author’s interview.

SIWI~S

250 The Effects

of Fiscal Decentralization

The

in

eating

measures

gave

separate

kitchens

provincial

level

and the wherewithal constituted

of extra-budgetary

funds

new

industries,

and

by local

initiatives,

Yet

in the context

maximize

One

the reforms cannot

had

reformist are good

Local

Because

heads

new

built

invested

diverted

prqjects This

local

subordination

of local the

generated policies

by the the rapid

Ministry

expense

system

officials

liked central

in the environment

risk,

local

of existing

government plants.

central

They

construction.

the national capital

plan.

It The

construction

tributed

three-quarters

of provincial

over the decade

of reform.

up with

their

the

everyone

of provincial

was

policies,

shortages

collectively, officials

provincial

expenditures. and

there

by

a call

for

however,

and

inflation

under

current

the

as enriching revenues

Industrial efficiency

local

industrial

them-

under

revenues

growth.‘24

the con-

of factories

the only way for local authorities

was to accelerate

and

needs

officials.

provincial in fact

Beijing

deficits,

society’s

I** National

although

revenues,

Therefore,

from

interest.

but

shortages,

not to ignore

while

to portray essential

declined

and caused

harmed

state,

covered

obligations

signals

infrastructure from

officials

lz3 Thus,

was in the interest

barely

budget

local

to the national economy

of the

is not right”.‘“’

to enforce

away

overheating

products,i21

message.

overheated

of Finance

at the

post-1980

interests

growth

and funds

exhorted

profitable

opposite

Commission

we

context

efficiency

neglecting

“Often

are problems

activities. created

media

highly

actually

sent

drive

national

while

Planning

local

construction only

plants

to

over-

by saying,

If there

and lack of real financial the

efforts

economic

decentralization

the historical

of improving

manpower,

profitable

just

investors.

local

notably,

good.

founded

skyrocketed. economy,

most

leaders

They

to foreign

rates

but the economic

prices

processing

materials,

The

producing

instead

fiscal

Party

energy.

command

results,

are not necessarily

rationally,

for the State

to more

inflation.

selves

acted

budgets amounts

province

growth

economies

had significant

and Communist

of their

marketized

Maybe

of irrational

plants

impossible

merits

decentralizing local

government

of entrepreneurial

defended

is no good.

other their

local

governments

government

perverse

economist

in high-profit

became locals

numerous

decision-makers

were wrong.

under

and national

but the results

say the reform

the resources

a burst

the

local

with

to develop

llg Local with

pitched

combined

the incentive and local

of an only partially

revenues

heating.

1986,

besides.

to the new incentives

local

reform

state budget,

responded Stimulated

fiscal officials

to do it. By

half of the total

CO,MMUNISM

IN COMPARATIVE

had

to keep As one

119. Xinhua, June 2, 1987, FBZS, J une 5, 1987, p. K13; Most extra-budgetary funds wcrtl in the hands of rnterprisc managers, but a sizable share was controlled by local government officials. 120. Author’s interview. 121, “State Council National Forum on Industry and Communications Closed Scptcmber lst,” .Yznhua. September 3, 1981, FBZS, September 8, 1981, pp. 12- 13. Must Support Key Construction, ” Hongqi, No. 8, April 16, 1983, pp. 16- 18. 1’22. Jing Ping, “Evrryone “If we properly curtail the construction of ordinary processing industry 123 As one article acknowledged, projects in OUTlocality or department and concentrate OUTfinancial and material resources on supporting the state in the construction of key projects and the developmtmt of energy sources and transport in OUTcountry, we eventually will benefit, although OUTimmediate earnings will be smaller” [Hua Xing, “The Components Will Be Stimulated When the Whole is Handled Well,” Xinhua, April 17, 1983, FBZS, April 21, 1983, pp. KlO-111. to the System of ‘Apportioning 124. Wong (1990), op. cit., note 82; Han Gouchun, “A Brief Introduction Revenues and Expenses between the Central and Local Authorities, While Holding the Latter Responsible for thrir own Profit and Loss in Financial Management’,” Cazzhmg, No. 7, July 5, 1982,JPRS, No. 82018, October 19, 1982, pp. 16-19.

Deng Xiaoping’s economist

explained,

rate

Had

some

localities

impossible 1985

could

to pay workers

provinces

decentralization

means

officials To make

of their

usual

market, Local

to national investors as well

competition.

investor, from

1980

with

rate,

even

find it

would

high

growth

growth

growth

had entered

by 1987,

officials

two-thirds

interests. by offering

hard-currency In their

infant local

rates,

by

the ranks

of

of all counties

or promises however,

the competition

consumer

of access

their

Mao

local

goods

Economic

were

in

like Fiscal

for their less

own

developed

by excluding

Balkanization

policies

of regional

factories

more

to restrict

129 The

high-

manufacturing

the brandname focused

Commission)

Zedong’s

it up.

markets

traditional

robbed

energies

economy

dividing

industries

other

industries

Local

were

Especially

and

marketplace.

on fighting competition

of the Chinese self-reliance,

was

reforms. by new and

revenue

trade

Provinces export

and

which

to the domestic

governments

of the joint

cities

could

tripped

often

venture.)

give

local

by luring market.

to compete

authorities over

Foreign

in which

a deal,

interest

schemes

central

terms.

earnings,

to make

sharing

in ways

concessionary

the national

local

to protect

infant

the national

of profit

Shanghai

inputs.

technologies eagerness

coordinating

blockades.‘*’

from

under fiscal

spurred

as new

about

in pursuit

at the State

investment

not to undercut

tax rates

their

worse,

(often

were

mental

for their

local

had begun

officials

talking

of material

by the

foreign

center

“tz5 Even

and

industrial

localities

and Shaanxi)

subsidies,

in the national

in foreign

share,

by the economic

30 per cent

and many

Jiangxi,

administrative

matters

battles

which

another

wages.

merchandise

on competing

exacerbated

their

Jilin,

authorities

nurtured

sources

bureaucratic

after

of

brandname

centers.

than

staff

kept

127 local

encouraged

by

provinces,

meet,

on central

authorities

one big chessboard,

quality

ends

and

up simply

or even

251

in the red.lz6

central

factories

were propped

made

(Gansu,

relying

operating

While

finances

for a 20 per cent

not have

four new provinces

deficit were

“Local

it not been

Political Strategy of Economic Reform

one

joint local

officials joint

the

ignored

ventures

130 (Once

imposed

restrictions

Central

trade

to entice

were

governments edge

sought-

could

the urgings

they locked-in to protect were

now

in domestic

with excessively

authorities

one

as detri-

another

ventures

localities

with

viewed

of the low

a foreign local

firms

also

upset

12.5. Rui Jun, “Economists on How to Deal with Inflation in China,” Liammy Overseas Ed&n, October 24, 1988, FBIS, Octobrr 31, 1988, pp. 44-45. 126. Wong (1990), op. cit., note 82. 127. Liu Lixin and Tian Chunsheng, “Conscientiously Control the Scale of Investments in Fixed Assets,” Kenmzn r&o, February 21, 1983, FBI& February 24, 1983, pp. K15-18. 128. In April 1982, the State Council issued a regulation prohibiting regional blockades in purchasing and marketing industrial products [Xinhua, April 20, 1982, FBZS, April 21, 1982, pp. KlO- 11; also Qi Xiangwu and Hou Yunchun, “Why is it Necssary to Oppose Regional Economic Blockades?,” Hongqi, No. 9, May 1, 19821. Continuing press complaints about protectionist practices indicate that the problem persisted after 1982 [Ying Guang, “On the Socialist Unified Market,” Renmin r&m, February 28, 1983; “Do Not Put Up New Blockades in the Cause of Reform,” Xznhua, July 18, 1984, FBI& July 23, 1984, pp. Kg-101. 129. The pervasiveness oflocal protectionism is indicated by the fact that when Beijing Mayor Chen Xitong declared that Beijing would stop practicing local protectionism, it was front page news. According to the press report, local governments’ strategies for protecting local products included stipulation that a portion of the earnings derived from the price disparity of colored televisions purchased from outside be turned over to local coffers; orders to commercial enterprises specifying the amount of local products that must be sold each month; rarmarking loans for the purchase of local goods; and lists of products forbidden to be “imported” from other regions. [Chen Yun and Zhang Guimin, “Minister Calls for an End to Local Protectionism,” Xinhua, April 10, 1990, FBZS, April 20, 1990, p. 431. 130. Susan L. Shirk, “The Acquisition of Foreign Technology in China: The Bargaining Game,” (Presented to the 17th Pacific Trade and Development Conference, Bali, Indonesia, July 1988).

252 about

Srunr~s IN CUMPARATIVE COMMUNISM price gouging

in Chinese

exports

as local firms,

engaged in cut-throat international competition. Another negative effect of fiscal decentralization

hungry

for hard-currency,

was administrative

interference

in

enterprise management. The eating in separate kitchens’ financial system intensified local officials’ sense of proprietorship over local enterprises, creating what the Chinese call “the local ownership system” (d$ng soy~zhi).‘~~ (The imperatives of building bureaucratic consensus forced authorities at all levels to promise special revenuesharing arrangements to various departments as well, encouraging the “departmental ownership system” (Ruben ~o~~~~~~.)The trend of strengthening the financial stake of bureaucratic entities in their subordinate enterprises, while motivating oflicials to support their enterprises, also encouraged them to inferfere in enterprise operations. When a firm’s bureaucratic masters were off in Beijing, the manager could easily ignore them; when they were close-by, the manager was forced to listen to them. One reformist economist complained, “The central leaders, especially Zhao Ziyang, took too strong a line on fiscal decentralization and fundamentally confused the difference between economic and administrative reform. There is a contradiction between the two. Provincial officials meddle in local enterprises and stifle their economic autonomy.““’ Local officials’ interference in enterprise management might have played a positive role if the officials had promoted efficiency. But when local government officials stepped into factory decision-making it was rarely to enhance pro~tability by cutting costs or improving quality. Revenue-maximization was not the sole objective of local officials. If revenue-maximization

had been the only or even the dominant

interest

of local

officials, then the officials would have been more diligent at reducing losses in local firms during periods of economic contraction. As it was, local officials tolerated the inefficiency and losses of local plants because they needed the materials these plants produced and the employment opportunities they provided (as well as the politicallyuseful gratitude of their managers). The managers of strong, profitable local firms frequently complained that local officials subverted them by appropriating their earnings to redistribute to weaker firms. As Christine Wong points out, the local government had become both a player and the referee in local economic competition. r3s Administrative interventions in economic activity by and large were not conducive to enterprise autonomy or efficiency.lX4 Local administrative interventions were designed to generate political resources for local officials instead. After all, provincial officials had political interests at stake. Decentralizing reforms had granted them the authority to regulate access to the market and to redistribute fiscal benefits

and burdens,

investment

funds, access to foreign investment

and trade,

etc.

These economic powers created new opportunities for local officials to collect rents from bureaucratic subordinates and enterprise managers. Naturally, like their counterparts

13I, The financial link between local governments and their subordinate enterprises was more direct under the “sharing specific revenues” version of the reform than it was under “sharing total revenues.” But cvcn under the latter scheme local revenues were tied to thr performance of local enterprises. 132. Author’s interview. 133. Wong (1990), op. cit., note 82. 134. An rxception was Jiangsu Province. According to their reputation, Jiangsu officials traditionally respected experts and left them alone to make economic decisions. And because its local market was so small, Jiangsu officials encouraged enterprises to go out and compete on the national market instead ofprotectingthe local market [Author’s interviewl.

Dcng Xiaoping’s in Beijing, imposing

Political Strategy of Economic Reform

local officials built up political capital by allocating

253

benefits

selectively

and

costs uniformly.135

Provincial Party and government authorities chose to collect rents in different forms and put them to different uses. One strategy was to build up an industrial empire by reinvesting funds into industrial expansion. A more populist strategy involved using the funds they collected to make dramatic improvements in roads, housing, and other public works projects. I36 The corruption strategy was to slip funds into their own pockets

and those of their relatives

and friends.

Province

and city heads also were

expected to return a share of the rents in the form of political loyalty to the central Party politicians who had been their benefactors in expanding their autonomy. And local Party secretaries

took at least some of the rents in the form of political loyalty from their

own bureaucratic subordinates. They established local political machines by exchanging economic favors for political loyalty. 137These machines, linking Party leaders with government bureaucrats, bankers, and managers, then became the engine of local economic development. Decentralizing reforms changed past, the focus of their ambitions

the career incentives of provincial had been the central Party-state

officials. In the bureaucracy in

Beijing. But after 1980, so much of the economic action occurred at the provincial level and provincial leaders exercised such national political infldence that some politicians from the most dynamic regions chose to remain in the provinces instead of climbing the ladder

to Beijing.

Guangdong

One

province,

well-known who turned

example

was Ye

Yuanping,

the Governor

down an offer to be a vice-premier

of

of the State

Council and decided to stay in Guangdong. (To the degree that the allure of national position faded, the center lost some leverage over the behavior of provincial officials.) Under the post-1980 incentive structure, the political ambitions of individual iocal officials became closely identified with the economic accomplishments of their domains. As one press commentary noted, “Leaders one-sidedly consider and stress the partial interests of their departments, localities, and units in total disregard of overall interests. To show off their personal achievements in their official careers, they do not hesitate to infringe upon the fundamental interests of the state and the people.“138 Whether leading

an official aimed to climb the ladder of success to Beijing or to become a his or her reputation was enhanced by industrial

figure on the local scene,

135. For example, the press criticized local officials for giving or reducing taxes for par(icular enterprises on the one hand, and for imposing extra taxes (such as the so-called local energy and transportation construction tax) on all enterprises on the other hand [“Immediately Stop Additional Levies of Local Energy and Transportation Constructional Funds,” Renmin ribao, November 24, 19841. 136. The best example of this kind of local populism was the record of Li Ruihuan as Party Secretary of Tianjin. Because the Chinese system lacks elections we would predict that more officials would use rents for industrial empire building, which translates into bureaucratic power and prestige, than for popular public works, which translates into votes. The fact that a few officials like Li Ruihuan have experimented with the populist strategy suggests that they are gambling on a change in the political system occurring in the future. 137. On local political machines in other communist countries see Jerry F. Hough, [The Soviet Prefects (Cambridge: Harvard University Press, 1969)] and Jean Woodal [TheSncialirf Corporation and Technocratic Power: The P&h United Workers’ Party, lndusfriat Or;panization and Workforce Control, 1958 -80 (Cambridge: Cambridge University Press, 1982)]. W e as yet have little empirical information about how these local industry-based political machines work in China. For example, is the Party secretary the power broker in Chinese provinces and cities as he is in the Soviet Union or is the broker role played by government leaders instead? Did the shift in power over expenditures from ministries to localities create new conflicts of interest on the local level? 138. “Reducing the Scale of Capital Construction is an Important Supporting Measure for Reform,” Rewxin tibao, September 2, 1988, FEXS, September 9, 1988, pp. 64-65.

254

STUDIES

growth

and

local

building

drive

to the Chinese

build

several

appear

more

might officials than The

in sleepy

cumulative

effect

inflation,

meddling.

These

Communist

Party

central over

financial the

The

the reform

drive

its economic reformers

Deng

of

effects

Communist secretaries Committee

of provincial

sustaining

economic

Government

officials

policy

While really system

and

officials

not

the current

maintain

their rents

seats

Central

bodies and local

slogans financial

themselves

market with

of

arrangements

quasi-ownership

for themselves

and

to more rights

to playing

per

over only

The

Politburo

the

Zhao

and

Thirteenth

for

the

First Party

43 per cent of the full

cent

of the

12th

would

had intended

as

for it to.

to approve

As one Beijing such

The

support

be reluctant

authority.

Central

(1987).‘*O

high-level

Ziyang

reform

involved arenas

Provincial

Committee

official

‘enlivening

the

recentralization.“‘*’

in the mantle

economy.

taxes

arena.

provided

Committee

was in fact the perpetuation

profits

for yet

over

provinces local

Committee,

13th

Xiaoping

against

out

in their

and Tianjin.

34

Party

the

elites

support

Committee;

to win

to the

in the

(1977),

retracting

used

draped

a genuine

replacing

and

Party

power.

of action

Shanghai,

the Central

to fight

by reform

preferred collect

officials

(&zohuojin~‘i) local

that

restore

worsened

political

in the Central

role in the national

of the

as Deng

and

conservative

of playing

to reserve

in these

reforms

“Local

meant

reforms

knew

rolling-back

complained, economy’

advocates

of

by

conservative

in particular,

of reform

freedom

Beijing,

cent

distorted

to the Provinces”

Committee

per

reform,

up

by post-1980

for

generated

of Party

bloc in the Central

Central 38

reform

strategy

decided

inflation

opponents

leadership

the largest and

local

to move

of marketization

who serve

greater

metropolises,

11th

(1982),

presence

officials

Ziyang’s

Congress

constituted of the

center

and administrative

ammunition

strength

fiscal

at the top reaches

to play a greater

Party

likely

growth

protectionism

the tide

political

of “Playing

Zhao

and

in reality

structured

economic

problems,

conservative

politics

of the three

members

the

and city officials

them

to stem

kitchens

the provincial

and

incentives

provided

wanted

decade,

Ramifications

encouraging Secretaries

maladies

who

enabled

provincial

The

but

will

career,

positions.“‘“’ were more

was dynamic

as well as by local

in separate

among

and hotels

official

and construction,

and political

As the economic

the

eating

Xiaoping

granting

any

and deficits,

in succession

The Political

economic

economic

course

increased.

in their

and vie for leadership

decentralization

control.

investment

areas.

ofthe

leaders

auditoriums,

with a lot of construction

backwater

and administrative

buildings,

rates

the local

those who dare not boldly

achievements

in growth

areas

linked

historically,

office

average

as officials

growing

shortages,

only

self-restraint

in rapidly

those

fiscal

to serve

local

commentator

“Judging

enterprises,

will make

no capital

preach

A press

structure:

factories,

to be ‘right,’

will have

projects.

political

COMMUNISM

IN COMPARATIVE

The

objections

dividing

taxes

thorough local

of market

of the hybrid,

factories

the role of referee

reform. and

what

they

partially-reformed

of local

by levels

market

reform,

officials

showed They

exploit

in market

to the

that

they

preferred

these

rights

to to

competition.

139. “What is Unnecessary Should be Given Up So That What is Necessary Can be Achieved,” Renmin nbao, December 4, 1988, FBIS, December 15, 1988, pp. 34-37. 140. James C. F. Wang, Conkmporary Chinese Politzcs, An Inhxfuctzon (Englewood Cliffs, New Jersey: Prentice Hall, 1989). 141. Author’s interview.

Deng Xiaoping’s Political Strateo of Economic Reform The evolution

255

of fiscal system reforms after 1987, when the conservatives

staged a

comeback in elite politics, 142 demonstrated the influence of provincial officials within the Party. Even during a period of conservative resurgence at the top, fiscal policies were constrained by provincial preferences and the political incentives of succession contenders to play to the provinces. The conservative leaders who came to power in 1987 (most notably Premier Li Peng and SPC head and Politburo Standing Committee member Yao Y&n, both of whom were proteges of the eminent Party elder Chen Yun) wanted to change the fiscal ruies to weaken the incentives for local construction and put more funds in the central coffers. As Yao Yilin expressed

this view,

economy is now excessively decentralized and proper centralization is called for The central finance suffers huge deficits every year; efforts must be exerted to cut deficits back each year until they are basically effaced. Under such circumstances, localities should contribute more to the central coffers in addition to the central finance’s practice of economy.“” Our

Yet Li and Yao were unable to carry out fiscal recentralization. Instead, in 1988, they renegotiated individual sharing deals with the provinces that left the central government with even less revenue than before! What the conservative leadership came up with was a package of particularistic giveaways that enabled them to claim credit with provincial officials. First, they began to emphasize the contractual form of revenue-sharing (baogan) had acquired great reformist cachet arrangements. The term “contracting” since the introduction of the enterprise contract system in 1987. 144Then they asserted that according to these contracts, provinces would be fully responsible for their expenditures (except in the case of natural disasters).‘45 Then they diversified the revenue-sharing

system into at least six different arrangements,

of “progressive contracting” (dizeng baogan) that gave incentives to “have greater initiative to invigorate their economies. ” 146

two ofwhich were forms for local governments

Li and Yao made a point of sympathizing with the economically strongest regions who contributed a large share of their revenues to the center.147 They identified 13 “high revenue areas which have to deliver a larger percentage of revenues to the state [and] have little enthusiasm for increasing revenues,” a set of powerful provinces including Jiangsu,

Liaoning,

Beijing,

and Chongqing.

i4’ The leaders granted

these provinces

142. Hu Yaobang was purged, Zhao Ziyang replaced him as CCP secretary, and Li Peng became premier. 143. Chao Hao-sheng, “Yao Yilin on the Economic Situation in China,” Ta Kung Pm (Hong Kong), December 23. 1989, FBZS, December 26, 1989, pp. 24 -26. 144. The original financial agreements between center and provinces introduced in 1980 had been described as contracts sharing responsibility as well as ~=sources, but in 1988, the contract notion was reiterated. 145. The original 1980 system had intended to eliminate the “eating from the big pot” phenomenon, but in fact, center and provinces continued to eat off one another’s plates. 146. Li PensChairs State Council Executive Meeting,” Xinhua,July 12, 1988, FBZS, July 13, 1988, p. 19; The contracting methods were specified as revenue progressive increase contract (shouru dizeng baogan), dividing total revenues (z~ngefencheq), dividing the total plus dividing the increase (zo~~efencheny+z zengzhang fencheng), remittanceprogressive increase contract (&qj& e d&q baa ran). fixed amount remittance (diqe ~han_+e), and fixed amount subsidy (&age btiziru) [“State Council Decision to Improve the Method of Local Financial Contracts,” op. cit., note 1131. 147. Appealing to powerful political actors who felt they had been put at a competitive disadvantage by Zhao Ziyang’s version of economic reform was a consistent theme in Li Peng’s succession strategy. He took up the cause of large state factories as well as high-revenue provinces [see Susan L. Shirk (forthcoming), Chapter 8, op. cit., note 981. 148. “Li Peng Chairs State Council Executive Meeting,” op. cit., note 146.

STUDIES IN COMPARATIVE

256 three

year

their

enthusiasm

revenue

progressive

above

the base

level.14”

State

Council

responded

provinces years, year

by changing

Guangdong instead

Central central

What positions central Party

stressing

elders,

When

1989,

and

and

Party

contracting

Session would

within

between

contract

would

system

per

reduce In

as the best

is more

readily

feasible.

we would

expect

conservative

provinces.

Conservative

congenial Yilin

to provinces. had

levels

politically

by Yao

of winning

the Party

to members

and supported

Perhaps

grown

to

without

of

by the

the influence

the

point

the support

that

of no

of at least

rejected

kitchens The

and governors it. 153 The

was defeated Minister

of the Seventh continue,

with

argued

National

a few local

the work

vehemently

1989, conference

against

Li Peng’s to abandon

supporters

but to announce

Congress, experiments

that

Li

revenue

in November,

conservatives

provincial

had no choice People’s

in June provincial

Committee

of the

by the reform’s

of Finance only

During

Central

attempt

to the conservative

Ziyang

eliminating

authority.

Thirteenth

even more

of Zhao

to propose

financial

of the CCP

secretaries

elite shifted

and the purge enough

central

Plenum

in the end

Committee.

the Third

contracting

naturally

Party

a chance

for three

low base.150

of to the

are

giveaways

crackdown

strengthening

in separate

Central

taxes

is that

assisted

Communist

did feel confident

the Fifth

provincial

proposal eating

balance

and his allies

proceeding

of fiscal

more

instead

of planning

stood

a very

put it, “the

outcome

in 1988,

at a rate of 9 per cent

on the part of the provinces.‘51

words,

center

financial

the

the Tiananmen

contracts

policy

to the

and the

officials.

the political

side after Peng

more

within

above

dividing

as one article

primacy

to top leadership

provincial

a system

Li Peng

high-contribution

Beginning

to the center

version

Yet here was Li Peng,

promoting

easy deal.

rouse

they generated

time,

high-revenue,

profit-seeking

“15* in other this

to play the

officials

contender

hand,

about

Peng

bureaucracies.

provincial some

Li

that the 1988

of the revenues

at the same

the

of revenues

short-term

circles,

is surprising like

of

its remittance

to advocate

to different

taken

ofGuangdong’s

admitted

On the other

acceptable

decision

100 per cent

continue

(shouru dizeng baogan) that would

a big chunk

jealousy

increase

and cause

contracts

to retain

the

the terms

authorities

alternative.

leaders

to

of keeping

they

them

In another

would

revenues

theory,

increase

by allowing

COMMUNISM

the system

in divided

in the

in 1990

at

of fiscal

taxation.‘54

149. The State Council meeting announcing the contracts for these thirteen high-revenue areas also announced that from then on the terms of all provincial contracts would be made public [“State Council Decision to Improve the Method of Local Financial Contracts, ” op cil., note 1131. This measure probably was designed to satisfy the high-revenue provinces that still turned over to the center a high proportion of their revenues. These provinces wanted everyone to recognize their own contributions to the public good and wanted to show up the free ride of other provinces. 150. Lin Ruo, “A Successful Attempt to Reform the Financial System,” Renmtn ribao, March 21, 1988, FBIS, April 6, 1988, pp. 55-57. 15 1. “StateCouncil Decision to Improve the Method of Local Financial Contracts,” op. cil., note113.One financial specialist predicted optimistically that “if we fixed an appropriate base figure for the contracted budget and a contracted growth rate, at least the financial revenues on the part of the central financial authorities would not decrease, according to normal predictions. Even if the increase in the local financial revenues is higher than the increase in the financial revenues of the central financial authorities, there will not be a serious imbalance between the revenue and expenditure of the central authorities since both the revenue and expenditure budgets are contracted.” [Zhang Zhenbin, “My Opinion on Several Questions Regarding Financial Reform,” Renmin ribao, March 18, 1988, FBIS, April 5, 1988, pp. 25-26; p. 25.1 152. Ibid. 153. Willy Wo-lap Lam, “Further on CCP Central Work Conference,” South China Morning Post (Hong Kong), November 3, 1989, FBIS, November 3, 1989, p. 13; David L. Shambaugh, “The Fourth and Fifth Plenary Sessions of the 13th CCP Central Committee, ” The China Quuar@y, No. 120, December 1989, pp. 852-862. 154. Wang Bingqian, “Report on the Implementation ofthe State Budget for 1989 and on the Draft Budget

Deng Xiaoping’s The

head

of the State

intended revenues.

to provinces,

The

drive.

allowing

the

on a Central move

context,

the center

had to deliver

and reduce

in order

it is difficult

conservative

to increase

central

to imagine

that this threat

fiscal

administrative

neither

opponents

whose

within

forward

after

were

unable

provincial

dedicated

in the

reform

even

they

the Chinese

drive

of

and

Committee

reform

However,

Committee

with

Central

the

won at the top,

deadlock

provinces

a CCP

it subverted

leadership.

to have

was a political could

257

in this policy

the contracts

to the

in creating

But

for Party

appeared

reform

Reform

governments

politics,

of playing

succeeded

reform

contenders

local

breaking

of succession

strategy

decentralization politics,

said that

of revenues

in effect

of Economic

out.

political

ing the

Strateu

Commission

the quotas

155 In the context

will be carried

Peng

Planning

to increase

its subsidies

Pditical

context

to eliminate

the

the conservative to impose

members

Party,

reformist

elders

and

a rollback

had benefited

Communist

to sustainof succession Li

of fiscal

from

it. There

and economic

reforms

nor backward.

Conclusion The

moral

limit

the possibilities

of the story

bureaucracy

opened

“Playing

government

tive

decentralization

and

stimulated

sharing

funds

political

rents

efficiency.

economic between for

Given

politicians economic

giveaways

imposing and deficits Did

were

caused

provinces? reform,

I contend

Standing

within that

the reforms

conservatives

make

reform

were

prevailed nature

while

leadership

Party

a risky

Congress,

file Party

members

mistake

At the end

after

expansion when

given

the Tiananmen

within power,

dominated

within

points

particu-

supporters

the inflation, provided

blocked

or forward

from

provincial

he gambled

of the first

of Party

control

political their

economic

officials

by

shortages,

a climate

for the

politics.

by the stalemate

to constitute

won

for

generated

improve

to central

of the old political

the reformists

proposition

elite

to

level

bargains

enterprise

provincial

Meanwhile,

economic

a serious

of accountability

was for the Party

aiso

and

nothing

up or alienate

on them.

in the top reaches

Committee,

the reciprocal

who

in Party

he did.

did

back

the confines

halted

province

but

Administra-

to the enterprise

of parricularistic

by moving

of the game

a comeback

and

counter-

decentralization

of plan and market.

reform,

leaders

one and where

as a pro-reform

and administrative

in partial

to give them

the Soviet

systems

Party-state

did not succeed.

patchwork

levels,

by the locally-driven

to make

market

Party rules

13)eng Xiaoping

achieve

all

interests

political

the central

decentralization

province

outcomes

loathe

universalistic

conservatives

at

vested

The

and

than

mixture

economic

overheating.

full marketization.

laristic

financial

where

officials

drive

a hybrid

with

center

their

to improve

toward

by stressing

interfered

provincial

the reform

level created

is that communist

in China,

of reform

of using

center,

to the provinces”

to the local

reforms Even

opponent

the possibility

to the conservative

efforts

economic

innovation.

was a less formidable

past history weight

of Chinese

for policy

the Party,

a new Central the uncertainty

that

system

decade

China

by playing

of China’s

economic

the Communist in the Politburo

the Central

could to the

Party.

The

and Politburo

Committee.

Given

the only way out of the impasse Committee about

by calling the views

a national

of rank-and-

crackdown.

fbr 1990,”

Xinhua, April 7, 1990, FLUS, April 12, 1990, pp. 16-24. 155. Zou Jiahua, “Report on the Implementation of the 1989 Plan for National Economic and Development, and the Draft 1990 Plan,” Xinhua, April 7. 1990, FBIS, April 10, 1990, pp. 13-21.

Social

What

would

Gorbachev

have

reform?

Countries

political

institutions

reforms.

Once

competition constraints

power

one reduces of geographic

move

beyond

their

reforms

reform, reform

command

The

network

of voters.

approval

bankruptcy a sure

under

that

formula

to

for tough

populist

institutions

measures

an

the

arena

of politicians

and direct

under

and the

and enlarges

machines

moving

their

to market

bargaining

motivate appeals

does success

communist economic

to the

instead, not

like tax reform,

to the economic than

follow

electorate,

electoral

of democratic

for

mass

agencies

incentives

clients

rules

challenges

a bureaucratic

and build

to

time as economic

to the legislature

government

are crucial

democratic

political

the Party

new electoral

creation

instead

of democratizing

political

selectorate

shift from

of bureaucratic The

from elite

machines

Gaining

difficult

of central

15s The

entities.

may be even harder discovered

change.

decided

or at the same

are in the process

shifts

Party

the influence

any easier.

and enterprise

yet

equally

bureaucratic

a narrow

constituency

market

that

but

from

had

before

Union arena

shifts

Xiaoping

restructuring

different

on policy-making

to neglect

has

face

the policy-making

them broad

if Deng

political

like the Soviet

for

a legislative influence

happened

in undertaking

to to a

make price

of market

ones. system

No one from

to market.

156. The relative influence of regions depends on the formula of representation. Even with some gerrymandering, the shift from the bureaucratic arena to the legislative one in China would be likely to strengthen the clout of the most populous coastal provinces that have the most to gain from economic reform.