The political economy of intra-provincial disparities in post-reform China: a case study of Jiangsu province

Geoforum 32 (2001) 215±234

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The political economy of intra-provincial disparities in post-reform China: a case study of Jiangsu province Guoying Long, Mee Kam Ng The Centre of Urban Planning & Environmental Management, The University of Hong Kong, Pokfulam Road, Hong Kong Special Administrative Region, People's Republic of China Received 5 July 1999; in revised form 1 July 2000

Abstract Since 1978, China has introduced economic reforms and open policies for some people and places to get rich ®rst, in the hope of redistributing wealth eventually. In reality, disparities between and within regions, urban and rural areas, and di€erent social strata have increased. This paper attempts to explore the underlying factors of intra-provincial disparities through a case study of Jiangsu Province. Socio-economic and cultural data have shown that Jiangsu Province can roughly be divided into three parts: the developed southern Jiangsu, moderately developed mid-Jiangsu, and poor northern Jiangsu. Historically, southern Jiangsu is the more developed part of the Province. This intra-provincial disparity has enlarged during the post-reform era. The preferential policies for the coastal regions and non-state owned economic sectors have led to the emergence of pluralistic ownership patterns and a faster pace of development in localities along the coast, close to big cities, or having a long history of township-and-village-enterprise (TVE) development. A case in point is southern Jiangsu. Moreover, the transition from a centrally planned economy to a socialist market economy necessitated decentralisation of administrative and economic power. As the decentralisation of power is not fully guaranteed or stipulated by law, local protectionism emerges. Through relations (guan xi), investors are able to manipulate preferential policies to carry out large-scale rent-seeking activities. The ®scal capacity of the central and provincial governments, however, is weakened, diminishing its ability to redistribute resources for a more even regional development. Ó 2001 Published by Elsevier Science Ltd. Keywords: Political economy; Intra-provincial disparities; Post-reform China; Jiangsu province; Socialist market economy; Preferential policy

1. Introduction Research work on regional disparities in China came much later than Western countries (see Lardy, 1980; Paine, 1981; Roll and Yeh, 1975). The studies then were focused on issues of regional development and disparities under MaoÕs balanced regional development policies. Most of the studies conclude that at the expense of eciency and national economic growth (Falkenheim, 1985; Yang, 1990), regional disparities had slightly declined (Pannell, 1988; Yang, 1990) or had not changed substantially (Cole, 1987; Luk, 1985; Roll and Yeh, 1975; Tsui, 1991), and in some periods uneven regional development had even increased (e.g. Wei and Ma, 1996). Therefore, regional development policies in the Maoist era were widely

E-mail addresses: [email protected] (G. Long), meekng @hkucc.hku.hk (M.K. Ng). 0016-7185/01/$ - see front matter Ó 2001 Published by Elsevier Science Ltd. PII: S 0 0 1 6 - 7 1 8 5 ( 0 0 ) 0 0 0 3 0 - 0

criticised as inecient, impeding national economic development (Falkenheim, 1985; Zhang, 1989, 1990), and were regarded as a failure (Yang, 1990; Fan, 1995a). Since 1978, the philosophy of ChinaÕs regional development has experienced a signi®cant change, moving away from socialist idealistic egalitarianism to pragmatist uneven regional development which emphasises on eciency and output. Uneven regional development is regarded as an inevitable stage in the development process, and it is an objective rule, not a problem (Liu, 1993; Wei, 1994; Tu, 1995). Hence, limited resources should ®rst be concentrated in some areas with favourable conditions, such as the coastal regions, expediting their development. Then, these regions will spur development of the lagging regions through a ``spread e€ect''. With the implementation of these policies, the central government believes that some people and regions can get rich ®rst and then the whole country will get rich eventually.

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However, while this strategy gets rid of ``common poverty'', ``common wealth'' is still an unrealised blueprint after nearly two decades of economic reforms and openness. Disparities between urban and rural areas, di€erent regions, and various social strata are worsening (Hu et al., 1995; Selden, 1993; Tang, 1991; The World Bank, 1997). In recent years, there have been an upsurge of researches on ChinaÕs regional development and disparities (e.g. Denny, 1991; Deininger and Lyn, 1996; Hussain et al., 1994; Lin, 1998; Tsui, 1996 in English and Liu, 1993; Tu, 1995; Yang, 1992 in Chinese). These studies have the following characteristics. First, these researches either focus on the provincial level (Lyons, 1991; Tang, 1991; Tsui, 1996; Wei and Ma, 1996), or broad regions such as eastern, central and western regions (Wu, 1987), or the coastal regions and the interior (Chai, 1996; Yang, 1990), or the north (centrally planned economy) and south (market economy) (Lin, 1998). However, Fan (1995a) argues that ``the decline in inter-provincial inequality masked sharp differences in the growth patterns of individual provinces [within the eastern, central and western regions of China]'' (p. 429). The decline in inter-provincial disparities is not the result of spread e€ects. Rather, the post-reform regional development policies have led to retarded development in old industrial bases and municipalities, the most developed areas prior to the reform period such as Liaoning, Shanghai, Beijing and Tianjin. On the other hand, high-speed economic development is made possible in certain relatively less developed provinces in the Maoist era such as Fujian and Guangdong Provinces. Hence, inter-provincial disparities are averaged out (Fan, 1995a, 1997; Wei and Ma, 1996). Furthermore, there is the problem of compatibility (Wei and Ma, 1996). For example, it is dicult to compare primarily urban municipalities with largely rural provinces or autonomous regions. Some recent studies indicate that disparities do not only exist among provinces and autonomous regions but also within a province (Fan, 1995b; Hu et al., 1995; The World Bank, 1997; Wei and Fan, 2000; Yang, 1997). Secondly, most studies focus on regional economic inequality (Denny, 1991; Lyons, 1991; Hussain et al., 1994; Deininger and Lyn, 1996), employing data such as gross national product (GNP) per capita or national income (NI) per capita (Tang, 1991), or output per capita (Fan, 1995a). There are only a few studies using simultaneously social, economic and political indicators (Luk, 1988; Selden, 1993). Finally, few studies investigate the interplay of di€erent factors in the evolution of regional disparities. Some suggest that geographical di€erentials are the major factors (Pannell and Ma, 1983; Lu, 1990). In recent years, more and more researchers argue that the state-initiated lopsided policies and reforms such as the sectoral economic development

policy (Tsui, 1996), regional development policy (Wei and Ma, 1996), and ®scal reform (Wei, 1996) have led to widening regional disparities. However, these researches have not explained why and how the policies act on regional disparities (e.g. Wei and Ma, 1996). Few of them has discussed the changing role and inter-relationships of the traditional social actors, such as central and local government ocials and those within the state-owned enterprises (SOEs), and the emergence of new actors in the post-reform era such as township and village entrepreneurs in township-and-village-enterprises (TVEs), individual and foreign investors. What are the mechanisms leading to regional disparities in post-reform China? Is it the introduction of market mechanisms, the stateÕs uneven development policies, or any other factors? This paper attempts to answer these questions through a case study of the Jiangsu Province. A political economy approach is adopted in this paper which focuses on the interrelationships between social, economic and political interests, actors and issues (Wright, 1990). The next section discusses the characteristics of ChinaÕs political economy before and after 1978. Some propositions on the underlying factors leading to regional disparities in post-reform China are then put forward. These propositions are further examined through a detailed case study of the Jiangsu Province, followed by a conclusion.

2. The changing political economy in post-reform China 2.1. Main features of the Chinese political economy before 1978 Leninist principles such as ``democratic centralism'' were used in China when the PeopleÕs Republic was founded in 1949. The Chinese political economy then was a planned economy, tightly controlled by the central government under the leadership of the Chinese Communist Party. It had three marked features. First, it was a planned economy. Plans controlled every aspect of the countryÕs social and economic needs. Resource allocation, input and output of enterprisesÕ production, the prices of all commodities and capital goods, and even peopleÕs daily necessities, such as grain, cloth, meat, etc. were decided by the state. The second was public ownership. While Mao Zedong recognised other modes of economic ownership, ChinaÕs property structure was premised on a publicly and collectively owned economy, especially after the collectivisation process and the impact of extremely ``left'' ideas during the Great Cultural Revolution. The ®nal feature was the central governmentÕs control. To facilitate the central governmentÕs control over

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large and complex a€airs, a network of hierarchically organised institutions was established. In this network, central plans and policies were carried out by local governments through a ``vertical system'' (chuizhi xitong). However, the centre had virtually unchallenged power over di€erent localities and unlimited control over all socio-economic activities. The local governments were only the centreÕs adjuncts. The central-local relationship was, using KornaiÕs metaphor (1980), like the relationship between father and sons in a traditional family. The centre acted as a patriarch, who controlled all the familyÕs resources and was responsible for the livelihood of the whole family. Local governments were like sons in the family, who were expected to implement all the familyÕs rules and regulations and to work hard for the property of the family. They would then be looked after by their ``father'', the central government, the only ®nal interest entity. 2.2. Issues of regional disparities in China before 1978 Though Marxist±Leninist socialism as an ideology commits to the elimination of socio-economic disparities (Koropeckyj, 1972), regional disparities were not improved in the ®rst three decades of socialist construction in China. Limited investment was so thinly spread that the creation of a new regional pattern was dicult (Cannon, 1990). For example, the 156 projects in the ®rst ®ve-year plan spread over 10 provinces. While even regional development was one of the development objectives, others such as eciency, and national economic growth were usually more important in real life situations. For instance, investment in the ®rst ®ve-year plan was focused on heavy industries such as steel and energy which were considered as the key to national economic growth (Wu, 1987). Also, investment ``was concentrated into relatively few (but large) centres (known as the ÔKey Point CitiesÕ)'' (Cannon, 1990, p. 35). In other words, national investment was transferred to the coastal old industrial cores during 1956±1957 (Roll and Yeh, 1975), manifesting the nationÕs contradictory development aims. Furthermore, characteristics of traditional socialism including price distortion (Tang, 1991) and the socialist redistributive system (Szelenyi, 1989) are also major factors leading to regional disparities. 2.3. Characteristics of China's post-reform political economy Under the traditional socialist system, China had failed to eliminate the ``three large di€erentials'' and to achieve equalised regional development. There were also issues of low eciency and economic stagnation because the centrally planned economy suppressed enthusiasms of localities, enterprises and individuals. In the mean-

217

time, the ``soft budget constraint''1 (Kornai, 1980) gave rise to excessive demands on both consumptive and capital goods. In order to change this situation, Chinese central leaders initiated a series of economic reforms and open policies, which have reshaped ChinaÕs political economy. Market mechanisms were introduced into the traditionally planned economy. Markets for general consumptive products, raw materials, agricultural products, labour, and even housing and land have been established. In order to enliven the market and micro-economic entities, and to stimulate the initiatives of individuals, the state admits that socialism is not synonymous with public ownership. It can also comprise of other modes of ownership by co-operatives, individuals and foreign investors. Not only are these interests recognised in ChinaÕs economic development, preferential policies were introduced to enhance growth of these non-state-owned entities. Another aspect is the devolution of power to the local governments. The central government reduced the scope and ratio of instructive production and circulation plans. The administrative power of local governments and enterprises is boosted. Many centrally commanded enterprises were put under local control. In terms of investments, the power to examine and approve investment is decentralised. The central control on loans is also relaxed. Some key and coastal open cities and enterprise agglomerations are listed separately (jihua danlie) in the national planning system, and enjoy the same economic power as provincial governments. Economic collaboration between enterprises in di€erent localities is supported and encouraged. Various forms of responsibility system (``eating in separate kitchens'' (fenzao chifan)) were introduced in the ®scal system. Hence, the political economy of China has undergone major transformation. Before 1978, the central government was the ®nal authority; after 1978, pluralistic entities emerged consisting of the central government, local governments at di€erent levels, state-owned economic units, collective and co-operative economies, individual and foreign investors. However, post-reform China has yet to develop an enforced legal framework to regulate behaviours of all the actors in the socialist market economy and to guide the administrative reform at local levels. As a result, the performance of di€erent places, to a certain extent, hinges on the quality of local human resources. Usually more developed regions tend to attract higher calibre people, making the place more

1

A ®rm with soft budget constraint means that its survival and growth depend ultimately on decisions made by the state; not through price adjustment. Soft budget constraint is unable to act as an e€ective behavioural constraint and exists only as an accounting relationship (Kornai, 1986, p. 45).

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competitive and vibrant. On the other hand, the lack of rule of law may breed corruption and local protectionism. The behaviour of these actors is one of the underlying factors leading to regional disparities in postreform China.

3. Intra-provincial disparities in post-reform China ± some propositions Fig. 1 proposes some key mechanisms leading to intra-provincial disparities in post-reform China when market elements were introduced into the once centrally planned economy. 3.1. Regional preferential policies Since 1978, Chinese decision-makers have designed and instituted an uneven regional development policy. The theoretical bases are Western classical economics, such as RicardoÕs theory of ``comparative advantage'' and neo-classical economic regional development theories, for example, WilliamsonÕs (1965) inverted-U theory, MyrdalÕs (1957) and HirschmanÕs (1958) concepts of ``backwash (or polarisation)'' and ``spread (or trickling down)'' e€ects, and young FriedmannÕs (1966) core-periphery theory (cited in Fan, 1995a, 1997). In the meantime, in¯uenced by the trend of ``economic globalisation'' on one hand, and the experiences of newly industrialising economies (NIEs) on the other, the export base theory is another important theoretical base of ChinaÕs uneven regional policy. In analysing the comparative advantages of di€erent regions (Beijing Review, 1986a,b), the ``coastal development'' strategy was adopted. This consequently created various ``coastal open regions'', including the ®ve special economic zones of Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan province, 14 coastal open cities, seven free-trade zones in coastal cities, three open economic zones of the Pearl

River, Yangtze River and Minnan Delta, and other open cities and counties. 3.1.1. Regional concentration of resources In order to attract foreign investment and to make these coastal open regions economic ``growth points'' in eastern China and eventually the whole nation, the state instituted a series of lopsided policy in these special coastal zones (Fan, 1995a,b, 1997). These regions have received more investments and projects from the state and have more authority to approve the investment proposal. They also enjoy greater ®nancial autonomy such as obtaining credits and loans, etc. (Naughton, 1987; Ferdinand, 1989). The foreign trade policy also gives actors in these regions more freedom in making decision and be allowed to have a higher rate of foreignexchange retention (Zhang, 1989). In China, ``policy is wealth'' (Jacobs and Hong, 1994, p. 234). The above favourable policies help attract quali®ed personnel, technology and physical capital especially foreign investment to these regions (Yang, 1990), leading to more development opportunities and higher returns (Xu, 1995). 3.1.2. Pluralistic ownership patterns The preferential policies have also led to a pluralistic property structure. For instance, the non-state-owned enterprise can enjoy lower taxation rate or tax holiday for a period of, say, two or three years after the establishment of business, or all the time before the business gains pro®t. These enterprises may o€er much higher salary than state-owned ones and hence can attract many highly educated and skilful workers. Moreover, the non-state-owned enterprises can have more ¯exible production, raw material supply, marketing, ®nance and accounting arrangements. All these policies help boost the non-state economic sectors and a pluralistic ownership pattern. Hence, these policies have led to resources concentration and faster pace of development in certain local-

Fig. 1. Mechanisms of regional disparities in post-reform China: some propositions.

G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

ities, especially those along the coast, near big cities, or having a long history of TVE development or overseas connections. 3.2. ``Fangquan rangli'' (decentralising power and sharing pro®t) Fangquan rangli refers ®rst to the division of administrative authorities and interests between the central and provincial governments, or some large-scale SOEs. Then, provincial governments follow suit and devolve authorities and interests to lower levels. Coupled with the implementation of the ``®nancial responsibility system'' (FRS), local governments begin to develop their own economic interests. As local governments have become independent economic entities (Huang, 1996), the relationship between di€erent regions changed (Huang and Yang, 1986). The need to control investment, planning, credit and foreign exchange has stimulated the local governmentsÕ enthusiasm and initiatives in economic expansion. 3.2.1. Local protectionism Local governmentÕs involvement in economic expansion has led to serious in¯ation (Huang, 1996), duplicated construction work, resource wars, surplus of industrial capacity and regional protectionism (Cannon, 1990; Chai, 1996; Fan, 1995a, 1997). Most investments have concentrated on processing industry with high tax rate and pro®ts (Huang and Yang, 1986). As the central government evaluates the performance of local government according to local output level (Yang, 1990; Zhu, 1992), fangquan rangli (decentralising power and sharing pro®t) activates local micro economic entities. Local governments possess administration and economic management authorities over enterprises in the absence of appropriate checks and balances mechanisms. They can interfere with enterprises through administrative means and instant orders by government ocials. The local governments control resources allocation and personnel promotion of the enterprises. As a result, the enterprises are forced to keep ``one eye looking at the market, and the other at the mayor''. The latter, in fact, is more important because the enterprises then can have a ``guarantor'' (kaoshan) to secure resources and to market the produce. The leaders of the enterprises can easily switch positions (yidi zuoguan) should their enterprises failed, as long as they keep a good relationship with high-ranking government ocials. Consequently, some enterprises are forced to be under the protection of the government departments. This has hindered the marketisation process and contributed to various ``commodity or raw material war'' (Cannon, 1990; Fan, 1997) and the cycle

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of high in¯ation rate and investment scarcity (Huang, 1996). 3.2.2. Rent seeking activities and weak enforcement of law The devolution of authority between governments at di€erent levels has no uni®ed standard. For example, ``the base amount as well as any percentages above the base amount paid to the centre depend upon historical background, the negotiation skills of the provincial representatives and guanxi (Ôparticularistic tiesÕ)'' (Jacobs and Hong, 1994, p. 227). Local governments can also ®ght for projects, investment, and even policies as long as they have a good relation with central government or departments, and the deputies of the local government are skilful in negotiation. Therefore, some people emphasise ``the particularistic ties (guanxi) which local leaders have with the centre'' (Jacobs and Hong, 1994, p. 238) and argue that one of the reasons for Shandong receiving considerable investment from the centre and Shanghai enjoying preferential policies is their intimate relationship with the central government (Jacobs and Hong, 1994). Hence are the sayings, ``go to ministries often [to establish relationship] and money comes in then'' (pao bu qian jin), ``emotional investment'' (ganqing touzi), and ``hooking projects'' (diaoyu xiangmu)2. In the meantime, in order to retain more investment and to remit less revenue to the centre, local governments usually ``cooperate'' with the enterprises and store wealth in the latter (Hu et al., 1995; Wang, 1997), which local governments can take away at any time. Since the devolution of power has no statutory guarantee, there have been several cycles of decentralisation and recentralisation of administrative power. As a result, local governments are very shortsighted in managing centrally delegated large or medium scale SOEs. They would rarely concern with assets accumulation of these enterprises. Instead, they would gather revenue from these enterprises to establish new projects, or local collectives, or TVEs. The fangquan rangli reforms help to concentrate more and more resources on certain localities where nonstate-owned economic enterprises can ¯ourish. The system o€ers little help to lagging regions. Furthermore, the ®nancial capacity of the centre worsened (Hu et al., 1995; Wang, 1997) and the central government has to ``ÔborrowÕ funds from provinces to cover its de®cits''(Jacobs and Hong, 1994, p. 232). As a result, the central government loses its capacity to redistribute resources for a more even regional development. 2 Localities usually propose projects, which appear both desirable and inexpensive, inducing the central government to invest. Costs then escalate and the centre is forced to put in more funds lest the earlier investment is wasted. Central investment, then, Ôgets hooked inÕ.

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4. Intra-provincial disparities in post-reform Jiangsu 4.1. Jiangsu province: an introduction Jiangsu Province lies in the centre of ChinaÕs eastern coast, at the Yangtze River delta. On its eastern side is Huanhai, and its southern, northern and western sides are Zhejiang, Shangdong and Anhui Provinces, respectively. Shanghai, the largest city in China, lies on its southeastern corner. There are 13 cities at the prefecture level and 64 counties or cities at the county level (Fig. 2). Jiangsu is also one of the most developed provinces in China. It has a total area of 102,600 km2 , 1.5% or so of the whole nation. As of 1997, its population is about 71.5 million, nearly 5.8% of the whole nation, and its GDP was almost 670 billion yuan, over 8.9% of the countryÕs total in 1997 (JPSB, 1998). However, regional

disparities within the province are great. In 1997, GDP per capita in the richest city at the county level ± Zhangjiagang reached 26,994 yuan (RMB) (JPSB, 1998), higher than ShanghaiÕs 23,062 yuan (SSB, 1998). However, the GDP per capita for the poorest county ± Lianshui was only 2224 yuan (JPSB, 1998), almost the same as GuizhouÕs 2199 yuan, the lowest at the provincial level. Therefore, the ratio of maximum and minimum GDP per capita at the county level within Jiangsu Province is 12.1 times, compared to 10.5 for the whole nation at the provincial level. Historically, Jiangsu Province was divided into south and north with the Yangtze River as a natural boundary and also according to economic di€erences. Recently, a three-fold division was ocially adopted (JPSB, 1994, 1995, 1996, 1997, 1998). The developed southern Jiangsu includes the three cities of Suzhou, Wuxi and Changzhou. Moderately developed mid-Jiangsu comprises the ®ve

Fig. 2. The location and divisions of Jiangsu province. (Note: (1) Nanjing city, (2) Liyang, (3) Jintan.)

Table 1 Social and economic indicators for the three regions in Jiangsu province (1978±1996)a Total

Mid-Jiangsu

Sub-total

Provincial average ˆ 100

Sub-total

Provincial average ˆ 100

Northern Jiangsu

Coecient of variation

Sub-total

N ˆ 13

Nˆ3

Provincial average ˆ 100

GNP per capita

1978 1984 1991 1996

425.0 854.1 2190.6 8509.1

640.4 1355.0 3978.3 17157.1

150.7 158.6 181.6 201.6

464.6 882.2 2299.0 8683.4

109.3 103.3 105.0 102.0

287.6 594.0 1303.8 4557.5

67.7 69.5 59.5 53.6

0.433532 0.413473 0.523788 0.630833

0.350895 0.381964 0.526718 0.645240

Ratio of primary industry in GNP

1978

34.8

22.0

63.3

32.0

91.9

52.3

150.6

0.483531

0.363663

1984 1991 1996

33.6 23.4 16.4

22.2 13.1 7.7

66.0 55.8 47.2

30.0 20.0 14.9

89.3 85.5 90.6

50.5 42.4 33.2

150.5 181.4 202.2

0.484101 0.630670 0.893414

0.356973 0.541293 0.666433

Total output value per capita

1978

1297.0

2260.4

174.3

1365.6

105.3

778.0

60.0

0.458676

0.488105

1984 1991 1996

2562.9 7033.0 19854.0

5162.0 17172.3 43373.4

201.4 244.2 218.5

2457.6 6523.0 18611.7

95.9 92.7 93.7

1437.4 2947.2 10523.7

56.1 41.9 53.0

0.573279 0.792561 0.695898

0.638486 0.898358 0.736676

TVE output value per capita

1978

129.5

270.2

208.6

145.1

112.0

48.7

37.6

0.747429

0.726776

1984 1991 1996

461.0 2348.6 10403.3

1283.9 7481.6 39721.0

278.5 318.5 285.7

412.5 1688.6 7231.5

89.5 71.9 69.5

118.2 617.2 4,515.5

25.6 26.3 43.4

1.031999 1.178344 1.060466

1.118039 1.341543 1.134502

Hospital beds per 10,000 persons

1978

19.2

25.2

130.9

21.0

109.0

14.8

77.2

0.297334

0.227807

1984 1991 1996

20.9 22.8 22.8

25.7 29.9 31.5

123.1 130.9 138.1

22.8 26.3 26.7

109.5 115.5 117.2

16.8 16.7 15.7

80.7 73.3 69.0

0.247401 0.318099 0.354461

0.182270 0.252285 0.300341

Natural growth rate of population

1978

9.5

8.4

88.4

8.6

90.5

10.9

114.7

0.187771

0.119473

1984 1991 1996

4.5 8.8 3.9

1.3 5.7 2.5

28.9 64.8 64.1

2.8 5.8 2.6

62.2 65.9 66.7

7.6 12.7 5.6

168.9 144.3 143.6

0.598915 0.461886 0.551815

0.604087 0.383510 0.379976

Urbanization level

1978 1984 1991 1996

12.5 18.9 21.2 26.0

17.2 22.1 28.4 36.1

137.8 117.2 134.0 138.8

14.5 24.7 24.8 30.9

116.1 130.6 116.9 119.1

8.4 12.2 15.0 17.4

67.5 64.6 70.7 67.1

0.663349 0.509329 0.471588 0.434495

0.302660 0.287793 0.277048 0.313697

G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

a

Southern Jiangsu

Source: JPSB (1993b, 1994, 1995, 1996, 1997). 221

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cities of Nanjing, Zhenjiang, Yangzhou, Nantong and the newly designated Taizhou. The poorest northern Jiangsu which includes the ®ve cities of Xuzhou, Huaiyin, Yancheng, Liangyungang and the newly designated Suqian (Fig. 2). Table 1 summarises the disparities in various indicators for the three regions. Fig. 3 shows the evolution of the spatial patterns of some indicators at the county level in 1997. The pat-

terns in general con®rm the broadbrush three-fold division of Jiangsu. 4.2. The trends of regional disparities Socio-economic indicators are used in this research to illustrate regional disparities and uneven development within Jiangsu Province. These indicators include GNP

Fig. 3. Spatial patterns of some indicators in 1997 (data source: JPSB, 1998).

G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

Fig. 4. Coecient variation of economic indicators by county (data source: JPSB, 1993b, 1994, 1995, 1996, 1997, 1998).

or gross domestic production (GDP)3, total output value (TOV) of agriculture and industry, output value of TVE, the ratio of primary sector in GNP (RPI), and socio-cultural data including the number of hospital beds (NHB), natural population growth (PNG), urbanisation level (UL) and savings deposit of urban and rural residents (savings). A set of time-series data from 1978 to 1997 is used for documenting temporal changes of inequalities. In order to be compatible, all data are standardised by population except RPI, NPG and UL. GNP and GDP are in current prices and all the other economic data are adjusted in constant price of 1990. The CV and the spatial patterns of the indicators are employed to evaluate the disparities. The administrative divisions in Jiangsu Province have changed since 1996. The number of cities at the prefecture level has increased from 11 to 13. The two new cities are Taizhou and Suqian, originally part of Yangzhou and Huaiyin, respectively. Data in and after 1996 are adjusted to accord with the former administrative divisions for consistency when calculating the CVs. The CVs are also calculated at two levels: the county level (64), which mainly comprises the rural areas; and the administrative units (75) which include the 64 counties and the urban core of the 11 prefecture-level cities (see Fig. 2). 4.2.1. Economic disparities Fig. 4 shows the CVs of economic disparities in Jiangsu Province during the period of 1978±1997. Though ¯uctuating, the CVs of all indicators at the county level (64) are on an increasing trend. This is consistent with RozelleÕs argument that rural industrialisation increases regional disparities among rural areas RozelleÕs (1994). 3

Prior to 1992, ®gures on GNP are used instead of GDP. GDP is GNP excluding revenue from abroad. Generally speaking, the more outward the regional economy, the larger the di€erence between GDP and GNP. In Jiangsu province, the economy of southern Jiangsu is the most outward, and northern Jiangsu the least. Thus, for regional inequality in Jiangsu , using the coecient of variation of GDP should be smaller than that of GNP.

223

The trends, however, are di€erent when the urban core areas are included. GNP and total output per capita experienced negative change. The dominance of SOEs in the urban core areas of the 11 prefecture-level cities may help account for their slower growth (Wei and Fan, 2000). CVs in output value of TVEs per capita had increased in two periods: 1978±1985 and 1990±1993. During the ®rst period, TVEs grew rapidly in southern Jiangsu but not in mid-Jiangsu and northern Jiangsu. The second period coincided with a dicult macro economic environment. TVEs in southern Jiangsu were able to collaborate with foreign investors and hence outperformed the rest of the Province, leading to increasing disparities. This was further boosted after DengÕs southern tour in early 1992 as he opined that being one of the most developed provinces in China, Jiangsu should grow faster than the national average. The CVs in the ratio of the primary sector to GDP in both diagrams have increased throughout 1978±1997. This is because rapid rural industrialisation in southern Jiangsu had led to a sharp decline of the agricultural sector (Fig. 5). The ratio in all the counties (cities at the county level) in southern Jiangsu except Liyang and Jintan is less than 12%. 4.2.2. Socio-cultural disparities Economic factors and socio-cultural ones interact with one another in the process of social development. Fig. 6 shows the CVs of social indicators within the Jiangsu Province. Social disparities between the 75 administrative units are greater than those between the 64 counties (cities at the county level) because social services are better in urban cores. Only urban residents can enjoy most of the public welfare services such as public health care facilities. Throughout the study period, savings per capita and hospital beds per 10,000 persons show slight changes.4 The CVs of natural population growth rates change dramatically, requiring explanations from a cultural perspective. Many families in northern Jiangsu still aspire to bear more children even though the state is exercising a tough birth control policy. The opposite is true in south Jiangsu. Natural growth rate in Suzhou is close to zero. For instance, Taicang, one of the county level cities of Suzhou, had recently experienced negative natural population growth. This cultural di€erence can be attributed to the fact that southern Jiangsu is becoming an industrial society. The successful TVEs have generated enough resources for villages to improve their social security system including pension 4

Due to an absence of data, the calculation of the coecients of variation in savings per capita did not include 1978±1982 and 1990± 1991 ®gures for the Zhenjiang municipality.

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G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

Fig. 5. Ratio of primary industry to GNP by 75 administrative units, 1978, 1985, 1990, 1997 (data source: JPSB, 1993b, 1998).

funds, community trust, education and medical funds, elderly homes, etc. (Gu and Wang, 1996, p. 59; Zhou, 1994, p. 135). Hence, peopleÕs thought and concepts on children are di€erent from their counterparts in northern Jiangsu who rely on ``raising children to guard against old age'' (yang er fang lao). People in northern Jiangsu is, therefore, trapped into a vicious cycle of ``poor people giving to more births, and more births more poverty'' (yue qiong yue sheng, yue sheng yue qiong).

Fig. 6 also shows that the di€erence in the CV of the urbanisation level was the highest in 1978 because population distribution then was controlled strictly through the household registration and a quota system (Selden, 1993). In 1978, the urbanisation levels in almost all counties were about or lower than 10%. The lowest was 2%. However, since the adoption of reforms and open door policies, growth of small towns has been encouraged. The growth of TVEs enhances urbanisation at the county level. The southern Jiangsu landscape is

G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

225

Fig. 6. Coecient variation of socio-cultural indicators (data source: JPSB, 1984, 1985, 1986, 1988, 1990, 1993a,b, 1994, 1995, 1996, 1997, 1998; ECJEY, 1987, 1988, 1989).

marked by ``®re lighted in every town and township, and smoke emitted everywhere'' (xiang xiang dian huo, chu chu mao yan) and by ``¯owers booming everywhere'' (bian di kai hua) (Zhu and Sun, 1994). Rural industrialisation does not only waste land and natural resources, it also averages out the urbanisation rate in southern Jiangsu. The broader declining trend of the level of urbanisation is due to the population control policy, the changing criteria for city and town designation, and the de®nition of urban population. However, a note of caution is needed at this point. While socio-economic growth has been impressive in southern Jiangsu, there seems to be ``growth without development''. While income and other social facilities are improving, peopleÕs health has declined and the living environment deteriorated. Similar to Shanghai, southern Jiangsu is an area with high incidence of cancer. Just several years ago, tap water was still suitable for drinking. Today, its taste is terrible. Most people there have to consume distilled water. 4.3. Factors leading to increasing intra-provincial disparities 4.3.1. Historical factors Regional disparities within Jiangsu Province existed before the establishment of the PeopleÕs Republic of China in 1949. There are many historical and geographical factors accounting for such disparities. First, ¯ooding of Huanghe has damaged the waterway system in its lower reach, giving rise to frequent ¯ooding and

draught, and hence economic loss in northern Jiangsu and part of mid-Jiangsu (Shan et al., 1986; Zhang, 1993). Second, successive battles prior to the Ming Dynasty caused great damage to the economy of the north part of the Yangtze River and Huaihe, especially Xuzhou and the ``two Huai'' areas (Shan et al., 1986; Wu, 1993; Zhang, 1993; Ma, 1994). Hence, many people migrated to south of Yangtze River, carrying with them cultivation techniques (Shan et al., 1986; Du, 1987; Zhang, 1993). Third, in southern Jiangsu, a high man/ land ratio had pushed many residents out of farming into handicrafts, commerce, and trade. There were towns specialising in trading such as the silk trade centre at Shengze town in the city of Suzhou (Zhang, 1993). Fourth, Western invasion and development of treaty ports in the mid-nineteenth century gave rise to the development of modern industries in Wuxi, Suzhou, Nantong and Changzhou successively (Shan et al., 1986; Zhang, 1993). As a result of its history, people in southern Jiangsu have tended to be more open minded (Hu et al., 1996). The favourable transportation system, proximity to Shanghai and high density of cities also bene®ted southern Jiangsu, especially in areas along the Hu-Ning railway (Fei, 1995). This historical pattern of regional disparities was reinforced under the changing political economy in post-reform China. 4.3.2. The impacts of regional preferential policies In 1984, Nantong and Lianyungang cities in mid- and northern Jiangsu, respectively were designated as coastal

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G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

open port cities by the State Council. In 1985, a part of the Yangtze River Delta, comprising the cities of Suzhou, Wuxi and Changzhou and the 12 counties (or cities) under their jurisdiction was designated as a coastal economic open zone. The inland river port city of Zhangjiagang, one of the county-level cities in the Suzhou municipality, was ®rst designated as an open port in 1983. In 1986, it was renamed and promoted as the city of Zhangjiagang. In 1993, it became a free trade zone together with Shanghai, Tianjin, Qingdao, Shenzhen, Ningbo and Guangzhou (Beijing Review, 1993). It is the only inland-river port city at the county level with such a designation. Therefore, the whole of southern Jiangsu, Nantong and Lianyungang in mid- and northern Jiangsu, respectively are enjoying special regional policies (Fig. 7). The regional distribution of ®xed assets and foreign investments is the best re¯ection of the impact of the regionally lopsided policies. Figs. 8±10(a) and (b) show

the relationship between regions enjoying preferential policies, and the regional distribution of ®xed assets and foreign investments. Nanjing, the provincial capital, and two cities at the prefecture level, Wuxi and Suzhou, had received more foreign investment from 1978 to 1991 (Fig. 10(a)). However, after Zhangjiagang city was designated as a free trade zone in 1993, it had the largest amount of foreign capital actually used. Kunshan city, a city at the county level within a state-level high-tech development zone and next to Shanghai, came second during the period 1992±1997 (Fig. 10(b)). The importance of foreign investment goes beyond capital inputs, as it also brings in soft and hard technologies in managing a market economy. The changes of GNP (GDP) per capita at the level of the administrative units broadly re¯ect the impacts of the regional development policies (Fig. 11). As of 1978, disparity of GNP per capita was not serious in Jiangsu

Fig. 7. The areas in Jiangsu province enjoying special regional policies.

G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

227

Fig. 8. Total value of ®xed assets investment ful®lled from 1978 to 1997 by 75 administrative units (data source: JPSB, 1993b, 1994, 1995, 1996, 1997, 1998).

Province. By 1985, the year the coastal economic open zone was designated, spatial disparity could clearly be identi®ed. 4.3.3. The rapid growth of non-state economic sector As mentioned earlier, rural industries had been well developed as a response to the high population to land ratio in the history of southern Jiangsu. However, they were suppressed under the centrally planned economy before 1978. Economic reforms and openness have led to the revival of TVEs (Zhu and Sun, 1994). The average annual growth rate of TVEs has been over 30% since 1978. Except in 1995, the ratio of TVE output as compared to total agricultural and industrial output has increased since 1978. The peak was at 1994, with the ratio exceeded 70%. The development of TVEs has provided a lot of employment opportunities for the local

agricultural surplus labour, and helped improve the living standards of peasants, and enhance local revenues. This type of rural urbanisation (Zheng et al., 1998) has alleviated the pressure of urban expansion. However, southern Jiangsu has also paid a high price in terms of environmental pollution, the wasting and diminishing arable land and natural resources. 4.3.4. Reforms related to fangquan rangli Jiangsu Province, as one of the main sources of central revenue, has been tightly controlled by the central government (Jacobs and Hong, 1994). However, reforms related to fangquan rangli have increased local control over the economy. Fixed asset investments in the Jiangsu Province, just like the rest of the country, have increased quickly since the introduction of economic reform and open policies. During the period 1991±1996, the total

228

G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

Fig. 9. Total amount of foreign capital actually used from 1978±1997 by 75 administrative units (data source: JPSB, 1993b, 1994, 1995, 1996, 1997, 1998).

amount of ®xed asset investments increased 3.4 times, an average of a growth rate of 22.8% yr 1 . Fig. 8 shows that increased investments have mainly concentrated in southern Jiangsu. Table 2 shows that these investments mainly came from funds raised at the local level and domestic loans. The non-state economic sector contributed to over 60% of these ®xed asset investments (Table 2). However, ®scal and enterprise reforms related to fangquan rangli, not only weaken the centreÕs ®nancial capacity (Hu et al., 1995), but also that of the provincial government. Consequently, it is dicult for the central or provincial governments to support the development of lagging areas through redistribution. As shown in Table 2, only 0.17% of the provincial budgetary expense was used to support the poor areas. The ratio between budgetary revenue and GDP in the Jiangsu Province was lower than that of the nation as a whole (Table 2). This is also related to the fact that non-state economic

entities and coastal open zones have enjoyed relatively lower taxation rate. While the governmentÕs budgetary revenue has declined, the extra-budgetary revenue5 has increased. It is now almost the same if not higher than the budgetary revenue (Table 2). Should the extra-budgetary revenues be mainly controlled by the governments, some would probably be reinvested or used to support the

5

Extra-budgetary fund is fund obtained by the governments or its authorised units outside the government budget. Extra-budgetary revenue includes revenue from various extra-charges, special undertakings, special purpose funds in institutional and administrative units; net income from pro®t±making services; administrative charges and business charges; special funds; income from the part-work and partstudy program in secondary and primary schools, and income from deducting a certain percentage of the tax revenue, etc. (SSB, 1997, p. 262).

G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

229

Fig. 10. Total amount of foreign capital actually used (data source: JPSB, 1993b, 1994, 1995, 1996, 1997, 1998).

lagging areas. However, the provincial governments have not increased their extra-budgetary revenue as can be seen from Table 2. Most of the extra-budgetary revenue comes from state-owned enterprises and administrative units. However, the extra-budgetary revenue from SOEs is seldom used for productive activities. Most of the revenue is channeled for pro®t sharing and fringe bene®t provision as allowed in the enterprise reforms. As can be seen from the composition of expenditures (Table 2), administrative expenses were substantial both in budgetary and extrabudgetary expenditures.

Similarly, the reforming of state-owned enterprises into a ``share holding system'' (gufen zhi) is originally decided to enliven enterprises through the reorganisation of assets and to raise capital for growth and ``pro®t''. This reform has led to a war over the quota of stock issues. From the ®rst stock named Yancheng Yueda issued in 1988 until the end of June 1998, 45 stocks in 40 companies had been issued in Jiangsu Province and up to 20.655 billion RMB were raised. The distribution of these companies is very uneven. There are 15 companies in southern Jiangsu and only four in northern Jiangsu. In mid-Jiangsu, there are 21. Yet, the

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G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

Fig. 11. GNP per captia by 75 administrative units, 1978, 1985, 1990, 1997 (data source: JPSB, 1993b, 1998).

Nanjing municipality in mid-Jiangsu alone has 15 (out of 21) companies with 16 stocks raising over 9 billion RMB.6 If Nanjing were excluded, the share of mid-Jiangsu would decrease considerably. In any case, al6

As the provincial capital, Nanjing is on a separate list of centre cities in the national planning system and hence there is no other city in Jiangsu to share this quota.

though the performance of enterprises is an important assessment criterion to set the quota, the deciding factor is the ``relation'' between the enterprises and provincial government or ministries.7 7

The argument is based on the ®rst authorÕs interview with ocials of the Planning Commission, Jiangsu Province on 23 July, 1998 in Nanjing.

G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

231

Table 2 Fixed assets investment and Fiscal State of Jiangsu Province (1991±1996)a;b 1991

1992

1993

1994

1995

1996

1610.40 440.00 3.70 19.30 4.60 65.90 6.50 60.90 39.10

2136.00 711.70 3.40 27.90 5.60 53.10 11.00 59.50 40.50

2998.20 1144.20 1.60 22.20 7.80 56.80 11.60 64.70 35.30

4057.40 1331.10 1.30 18.30 11.40 55.90 13.10 64.10 35.90

5155.20 1680.20 1.50 16.10 13.60 52.40 16.40 64.10 35.90

6004.20 1949.50 1.20 14.50 17.20 51.40 15.70 63.40 36.30

Budgetary revenue of the province (10 million yuan) Ratio of revenue in GDP Jiangsu province National

127.30 7.90 15.60

147.60 6.90 14.30

221.80 7.40 14.00

128.60 3.20 9.10

164.20 3.20 NA

201.20 3.40 NA

Extra-budgetary revenue (10 million yuan) In which: Provincial government extrabudgetary funds (%) Administrative units extrabudgetary funds (%) State-owned enterprises (%) Funds raised by TVEs (%) Social security funds (%)

132.70 2.40

160.50 2.60

86.10 5.80

127.60 4.80

164.40 7.10

333.00 5.60

31.90

32.00

94.20

95.20

92.90

61.10

65.60 0 0

65.40 0 0

0 0 0

0 0 0

0 0 0

0 8.30 25.10

Budgetary expense (10 million yuan) In which: Administration fees (%) Fees supporting lagging areas (%)

128.18 7.33 0.07

125.86 9.51 0.12

163.87 9.86 0.14

200.17 11.71 0.13

253.49 10.60 0.16

310.94 11.00 0.17

Extra-budgetary expense (10 million yuan) In which: Administration fees (%)

130.43 13.50

159.17 14.22

81.32 38.63

118.46 38.53

148.44 40.34

302.82 33.59

GDP of the province (10 million yuan) Fixed assets investment (10 million yuan) Origins of investment: Budgetary investment (%) Internal loans (%) Foreign investment (%) Locally raised funds (%) Others (%) Owner-ship Non-state owned (%) State-owned (%)

a

Note: The provincial budgetary revenues of 1994±1996 exclude the part of central revenues collected by the province. Sources: EditorialÕs Commission of Jiangsu Financial Yearbook (1997); the ratio of national budgetary revenue in GDP comes from Hu et al. (1995). b

5. Summary and conclusion Before 1978, the regional development philosophy in the PeopleÕs Republic of China was to wipe out regional disparities through an even distribution of productive activities. However, since the adoption of various economic reforms and open policies in the late 1970s, China has acknowledged uneven regional development as an inevitable stage of development. Some regions are allowed to have preferential policies to nurture di€erent modes of ownership to speed up economic growth. It is hoped that these bene®ts could easily be trickled down to the lagging regions. To encourage such development, administrative and economic power is decentralised (fangquan rangli). In studying the case of the Jiangsu Province, it is discovered that the trends of regional disparities have been worsened in the post-reform era. Traditionally, Jiangsu can be divided into the richest southern Jiangsu, the moderately developed mid-Jiangsu and poor northern Jiangsu. The preferential, decentralisation and pro®t sharing policies have reinforced this historical pattern of development. Preferential policies for foreign investment

and non-state-owned enterprises in southern Jiangsu account for rapid industrialisation in the rural counties. The existence of foreign investments and inputs has diversi®ed the ownership patterns, boosting further the attraction of southern Jiangsu for talented and adventurous minds. The rapid rise of TVEs in rural counties and stagnant development of SOEs in the city core have contributed to more ``even'' development within southern Jiangsu. However, disparities between southern Jiangsu and the rest of the Province have increased as southern Jiangsu enjoyed better investment environment, more capital and better human resources. For instance, rural industrialisation in southern Jiangsu is so successful that local authorities can act as ``welfare states''. This has led to a decline in the natural population growth rate because people realise that they do not need to rely on their children when they become old and frail. However, in face of environmental degradation, people in southern Jiangsu have also started to experience ``growth without development''. The case study further illustrates why ``trickling down'' e€ects have not taken place with Jiangsu Province. As the introduction of market mechanisms and

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G. Long, M.K. Ng / Geoforum 32 (2001) 215±234

power decentralisation is not implemented within a properly enforced legal framework, rent-seeking and self-bene®ting activities, rather than productive business, are found in the course of implementing various enterprise and ®scal reforms by di€erent stakeholders. In the absence of legal guarantee, local authorities have tried to maximise the bene®ts that they can get from the policies, rather than engaging in long-term visionary cooperation with other local governments. As a result, areas try to protect their own interests. Protectionism is probably stronger in advantaged areas such as southern Jiangsu, thus aggravating intra-provincial disparities. Moreover, the fangguan rangli reforms weaken the ®nancial capacity of the provincial government and hence its ability to redistribute growth or redress intra-provincial disparities. Perhaps the Chinese Central Government should rethink its policy-led regional development strategy. The question is how radical the top-down fangguan rangli reforms can go, and how enthusiastic regional and local authorities are in pursuing not just short-term economic interests but also a longterm vision of producing collectively life-nourishing regions for this and future generations.

Acknowledgements We would like to thank the very detailed, insightful and thorough comments of the two anonymous reviewers and Andrew Leyshon. All the faults, of course, remain our own responsibility.

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