How regionalism is holding back
China By Wu Zhong, China Editor
HONG KONG - China's latest macroeconomic
statistics are evidence that Beijing's
two-year-old belt-tightening policy has failed to
achieve its goal of cooling down the overheated
economy. The failure must be largely blamed on
regional protectionism increasingly running wild
across the country.
For sure, regional
protectionism or regionalism is by no means a new
thing under the current Chinese leadership. On the contrary,
it has
existed throughout Chinese history. Hence the old
Chinese saying, "Mountains are high and the
emperor far away."
Even under the rule of
a most powerful "emperor" like the late chairman
Mao Zedong, China could never get rid of
regionalism. Mao, in his early-1972 meeting with
visiting US president Richard Nixon in his study
in Beijing's Zhongnanhai, humorously said, "My
influence is confined within just a few dozen
kilometers of Beijing."
But under the
"strongman" rule as in the ages of Mao or Deng
Xiaoping, local officials would at best only dare
to use "passive resistance" tactics to get around
Beijing's dictates. They would have never dared to
challenge openly the authority of the power
center.
Nowadays, however, as a
market-oriented economy has taken root in China,
"strongman" politics are gone, which invites
political decentralization. The very nature of a
market economy is decentralization, in sharp
contrast to the socialist command economy. This
provides a hotbed for regional protectionism to
grow ever stronger.
Early last week, the
National Bureau of Statistics (NBS) reported that
China's gross domestic product (GDP) grew 10.9% in
the first half of this year from a year ago. This
beat all forecasts (the highest of which put it at
10.2%). Premier Wen Jiabao, in his Government Work
Report to the National People's Congress (NPC) in
March, set this year's GDP growth target at about
8%. If Wen's goal were to be met, China would have
to slow down its growth to 5% in the second half
of this year, which would mean a hard crash. Now
it is generally expected that GDP growth for the
whole of this year will be well above 10%.
Now even some central government officials
have begun to join economists in publicly blaming
local governments' defiance of Beijing's
macroeconomic control policy.
Take the
iron and steel industry, for example. When Beijing
first launched its macroeconomic control policy in
early 2004, such industries as steel, aluminum and
cement were the major targets as the central
government feared that excessive investment in
these sectors could result in overproduction. The
National Development and Reform Commission (NDRC),
China's top planning body, has since repeatedly
ordered small steel plants to be closed down.
However, last week, the NDRC's industrial
department admitted in a circular that the order
has been largely ignored by local government. The
circular said small iron and steel plants with
backward technology mainly concentrate in the
northern provinces of Hebei and Shanxi. "To close
down furnaces smaller than 300 cubic meters is a
heavy task for the local governments ... So the
order could hardly be carried out," it admitted.
As a result, the NDRC has had to extend
the deadline for the closure of small plants from
2007 to 2010. The major reason for local
governments to defy Beijing's order is their
economic interests. Demand for steel products in
the China market is strong, with the price
constantly rising. Under such circumstances, even
backward plants can make handsome profits.
For the same reason, Beijing's repeated
orders to close down small coal mines, after a
spate of deadly accidents in recent years, have
obviously been largely defied at the localities.
These are by no means isolated cases. As a
matter of fact, local officials' actions in
challenging Beijing's authority are not limited to
economic affairs. In other social sectors,
Beijing's instructions are also often overtly
disobeyed.
During the March NPC annual
session, Wen publicly identified soaring expenses
in housing, education and medical care as major
sources of public discontent, vowing to tackle the
problems. Afterward, Beijing imposed a spate of
measures to crack down on housing-price hikes. But
housing prices in many major cities such as
Shenzhen, Guangzhou and even Beijing have been
steadily growing ever since.
To ease
parents' growing financial burden for their
children's education (and their growing anger as
well), Beijing has banned schools from arbitrarily
increasing tuition and other fees. But the ban
apparently has been largely defied in a number of
regions. So "to teach the monkeys by killing a
chicken", the NDRC, which also acts as China's top
prices watchdog, not long ago publicized a list of
schools that had defied Beijing's ban, in the hope
of bringing the situation under control.
Guess what happened? At least three
schools, with the support of their local
governments, made public protests. "Nonsense!" was
the comment on the NDRC list by Jiang Yuquan,
director of the Students Affairs of Nanjing
Auditing College, which was named. And now
"nonsense" becomes a popular quotation among local
officials when they do not like any instruction
from the power center.
Jiang dared to
strike back against the NDRC's criticism because
he felt his school was wronged as all of its fee
increases had been officially approved by relevant
authorities of the Jiangsu provincial government.
So from the viewpoint of Nanjing Auditing College,
the fee hikes were perfectly legal.
Medical-care costs have soared sky-high
compared with the average income of wage earners.
As a result, many wage earners don't dare to go to
the hospital when they are sick. In fear that
growing public discontent over the issue could
turn into social unrest, the Ministry of Health
has decided to open some low-charge hospitals in
cities to serve low-income patients. But regional
governments remain lukewarm toward this policy.
The vice governor of economically booming
Guangdong province, Lei Yulan, publicly said
Guangdong would not set up low-charge hospitals
because the province has already spent a huge sum
on operating public hospitals.
The
Ministry of Education has been a target of public
criticism for its inability to stop schools from
raising their charges on students. But outspoken
former minister of education Zhang Baoqing, before
his retirement from the post late last year,
slammed regional protectionism for jeopardizing
any good policy from Beijing. An angry Zhang told
a press conference the problem in China now was
that the central government's policy often cannot
go beyond the red walls of Zhongnanhai.
Mao somewhat modestly said his influence
was within Beijing. And now Zhang has said the
power center's policy was confined within
Zhongnanhai government compound. This vividly
describes how rampant regionalism is in China
today.
Why so? It is largely because the
economic structure has been fundamentally changed.
With the system of command economy dismantled, the
power center has also given up its direct control
of economic affairs. On the other hand, since
economic activities take place at localities, they
are directly linked to local interests. Local
officials are eager to boost the local economy to
show their performance in hope for promotion. They
do not need and do not want to view things from
the point of view of national interests. Thus it
is natural that they would try to defend local
interests when such interests are in conflict with
national ones.
During the command-economy
era, the power center had virtually all resources
of the nation at its disposal. But now it has to
rely for its revenue on taxation and the profits
of the 400-plus state-owned enterprises directly
under its control. As such, many public expenses
have to come from local governments which gives
them a bigger say. For instance, schools and
hospitals must be financially subsidized if they
are to cut their charges on students or patients.
If the local governments are not willing or cannot
afford to provide such subsidies, none of
Beijing's policies can succeed, no matter how well
intentioned.
While regionalism has its
historical roots, the fact that it is running so
wild today is not really normal. To a great
extent, this reflects a conflict between the
current economic and political structures. While
China's economy has been rapidly turned into a
market-oriented one, restructuring of its
political system has yet to catch up with the fast
changes.
In this sense, China needs to
restructure its current political system to
clarify and redefine the role, power, obligation
and responsibility of the central government and
those of local governments at various levels, as
well as their relations, in accordance with the
new economic structure, so that conflicts of
interest between them can be reduced, if not
eliminated. And in this way, regional
protectionism would lose its steam.
How to
tackle the problem poses a serious challenge to
the political wisdom of the current communist
leadership headed by President Hu Jintao.
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