Regional Inequality and Financial Decentralization in Mainland China

Issues and Studies

Volumn 32, Issue 5, 1996, Pages 40-65

  Tsai, Diana Hwei An ^a  

^a NATIONAL SUN YAT SEN UNIVERSITY   (Taiwan)

Author keywords

Central local relations; Decentralization; Inequality; Policy constraints; Regionalization

Indexed keywords

EID: 0040849653     PISSN: 10132511     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (26)

1. See Audrey Gladys Donnithorne, "China's Cellular Economy: Some Economic Trends since the Cultural Revolution," China Quarterly, no. 52 (December 1972): 618-19; "Centralization and Decentralization in China's Fiscal Management," ibid., no 66 (June 1976): 328-54; and Central-Provincial Economic Relations in China, Contemporary China Papers, no. 16 (Canberra: Contemporary China Center, Australian National University, 1981).
2. See Audrey Gladys Donnithorne, "China's Cellular Economy: Some Economic Trends since the Cultural Revolution," China Quarterly, no. 52 (December 1972): 618-19; "Centralization and Decentralization in China's Fiscal Management," ibid., no 66 (June 1976): 328-54; and Central-Provincial Economic Relations in China, Contemporary China Papers, no. 16 (Canberra: Contemporary China Center, Australian National University, 1981).
3. See Audrey Gladys Donnithorne, "China's Cellular Economy: Some Economic Trends since the Cultural Revolution," China Quarterly, no. 52 (December 1972): 618-19; "Centralization and Decentralization in China's Fiscal Management," ibid., no 66 (June 1976): 328-54; and Central-Provincial Economic Relations in China, Contemporary China Papers, no. 16 (Canberra: Contemporary China Center, Australian National University, 1981).
4. Kai-Yuen Tsui, "Decomposition of China's Regional Inequalities," Journal of Comparative Economics 17 (1993): 600-627.
5. Thomas P. Lyons, "Interprovincial Disparities in China: Output and Consumption, 1952-1987," Economic Development and Cultural Change 39 (1991): 471-506.
6. Christine P. W. Wong, "Central-Local Relations in an Era of Fiscal Decline: The Paradox of Fiscal Decentralization in Post-Mao China," China Quarterly, no. 128 (December 1991): 691-715.
7. Peter Pauly, "Regional Divergence in Chinese Economic Development" (Mimeo, University of Toronto, 1995).
8. Nevertheless, the process of decentralizing decisionmaking has not been smooth and continuous. Periods of recentralization in the macroeconomic management system have also occurred, the most serious one taking place in September 1988 as a response to the recurrent economic problems of over-investment and inflation.
9. The budgetary relations described here refer to the state budget that consolidates the financial operations of the central and local governments. Local governments are all those below the national level; thus, the budgets of provinces, municipalities, counties, and townships are included.
10. This measure is of crucial importance because the demand for many services provided by local governments is driven by economic growth.
11. The headings of the breakdowns between central and local expenditures are according to the 1990 draft budget.
12. See articles in Caizheng (Finance) and elsewhere in the Chinese press.
13. Thomas P. Lyons, "Explaining Economic Fragmentation in China: A Systems Approach," Journal of Comparative Economies 10 (1986): 231.
14. Peter Ferdinand, "The Economic and Financial Dimension," in China's Regional Development, ed. David S. G. Goodman (London: Royal institute of International Affairs, 1989), 41-43.
15. One, for example, is centered on Shanghai and links fifteen cities in the central-south region.
16. For example, local officials can use unofficial methods to protect local industries and even prevent the closure of unprofitable enterprises, provided they have been "cooperative." Thus, local Party officials have the incentive to obstruct both simplifying economic management and relying on market forces, for thoroughgoing reform would weaken their power and patronage. In addition, pressures at the local level have constrained interregional transfers of funds between branches of individual specialized banks and impeded the development of money markets on a national scale. Though a sizable interbank market has emerged, most transactions remain between banks or branches within the same provinces.
17. For example, specialized banks were obliged to provide policy-based loans that were not based on commercial criteria. Because of the banking system's decentralized structure, banks were also susceptible to local political pressure to provide loans for investment projects and give credits to unprofitable enterprises to keep them afloat.
18. See Yingyi Qian, "A Theory of Shortage in Socialist Economies Based on the 'Soft Budget Constraint'," American Economic Review 84, no. 1 (1994): 145-56.
19. The main components of the reforms include; (1) separating commercial from policy-based lending; (2) separating quasi-fiscal from commercial operations so that all loans will be provided at market interest rates, with any interest subsidies provided through the budget; (3) funding long-term loans for investment projects from long-term funds; and (4) encouraging banks to improve their loan assessment and portfolio management.
20. United Press International, January 20, 1994.
21. Zhongguo tongji nianjian 1992 (Statistical yearbook of China 1992) (Beijing: 1992), 624.
22. Wlodzimierz Brus and Kazimierz Laski, From Marx to Market: Socialism in Search of an Economic System (New York: Oxford University Press, 1989), 135.
23. The preferential policies that have been offered to foreign-funded enterprises operating in open economic zones (OEZs) since the early 1980s include partial exemptions and holidays from corporate income tax; duty-free imports of goods to be used as inputs for export production; full retention of foreign exchange earned through exports; free access to foreign exchange earned through exports; and free access to foreign exchange adjustment centers.
24. Agence France Presse, January 24, 1994.
25. The Wall Street Journal, January 17, 1994.
26. "Actual Foreign Capital Utilization by Region," in Zhongguo tongji nianjian, various issues.