Introduction
Devolution has become a global trend over the past decades especially since the end of the World War II. Many countries are implementing decentralization as well as devolution in order to drive economic growth. Devolution is where the central government constitutionally grants powers to governments at sub-national levels.
The levels include local, regional as well as state level. Devolution may be financial only or it may even include powers to make legislations for governing the area. In devolution, the state remains unitary with powers of the sub-national authorities residing in the central government. On the other hand, decentralization involves the transfer of power from the central government to an administrative division. In this case, the local officials are appointed.
Daniel and Hongbin attribute the outstanding economic performance and the market reforms that China has had over the last decades to the country’s devolution and fiscal decentralization (Daniel & Hongbin 505). Political decentralization has stimulated local policy implementations and has also controlled predatory central interventions. On the other hand, fiscal decentralization has encouraged local leaders to promote development.
Politicians as well as devolutionists believe that devolution could encourage economic development and also create political proximity between the citizens and the government thereby increasing transparency and accountability of political and administrative processes.
Devolution and decentralization of political power in China began as a result of the need for economic reforms that could drive the economic growth in the country. This paper discusses the history and neo-liberalism of fiscal decentralization, the geographical administration of the regional units, the policies and practices that have led to increase in economic growth, the introduction of capitalist reforms as well as the political and social reconfigurations that were made during the devolution process.
Thesis Statement
There is a positive correlation between fiscal decentralization and regional as well as national economic growth in China. The main achievement in the devolution of economic power to sub-national governments in China since 1980s to mid 2000s has been economic growth.
Decentralization and Devolution in China
Geographical regions
There is an elaborate system of straight down control that evolved during the reform era to assess as well as to monitor the sub-national governments. According to Yeah (4) the sub-national governments were a total of 50 units which include 31 provinces of which 4 were direct-ruled municipalities; 206 municipalities and cities; 127 prefectures; 2148 counties; 31600 townships as well as 16400 towns.
These sub-national governments were structured in hierarchical order. Considering the many number of sub-national governments, China could not be able to deliver an effective universal policy aimed at meeting the local needs as well as the needs of the local people.
History of decentralization and devolution and neo-liberalization
Economic reforms in China began in 1978, two years after the death of the former president, Mao (Xianghui 1). In Mao’s regime, the government had adopted an extremely centralized fiscal structure which was seen by most politicians and the general public as the cause of the political as well as social problems.
Mao’s successor, Deng Xiaoping introduced a new fiscal decentralization structure through a fiscal contracting system (Xianghui 2). Beginning early 1980s, China shifted the central government’s role of tax collection to the sub-national governments.
This resulted into some sub-national governments being granted the authority to manage their own finances and to operate their own budgets in 1985 (Yeah 7). In 1988, the central government cancelled the richer local as well as regional governments’ authority to collect taxes as a result of the changes in the system. In the early periods of the fiscal decentralization, the central government had devolved more responsibilities and fewer resources.
The fiscal contracts that were introduced between consecutive levels of governments stipulated the formulae for sharing the locally generated revenues and subsidies from one level to the next. Of all the taxes that were collected by the sub-national governments, 80% went to the central government. It was the central government that allocated the money (Xianghui 3).
China made fiscal reforms in 1994 to correct the problems that had been realized in the initial stages of the fiscal decentralization (Xianghui 3). The regions were given the fiscal autonomy and the fiscal transfers from the central government to the provinces were abolished.
This gave regions the mandate to collect their own taxes and also manage their own expenditures (Xianghui 3). Political control remained centralized even after the economic reforms; however, the government had acknowledged that some regions would develop faster than others. The sub-national governments were encouraged to raise funds through various channels to fulfill their budgetary shortfalls. This set off a sudden increase in off-budget resources (Tsui & Wang 73-74).
Personally, I believe that this opened the door for ambitious political leaders and administrators of provinces as well as cities to adopt creative strategies for mobilizing resources meant for promoting local growth. Often, the sub-national administrators adopted narrow economic goals which had little external effects.
This is a major reason for the non-uniform growth across the provinces in China. The fiscal decentralization reforms helped increase economic growth. For example, during the period of 1982-1995, the extra-budgetary funds reached 27% per year (Tsui & Wang 74). Many charges were levied by both the institutional and administrative units.
Opening of new markets
Beginning 1990 onwards, under the regime of president DengXiaoping new policies and changes aimed at expanding the markets were implemented ((Tsui & Wang 76). China adopted uneven developmental model as well as well as opening up policy which helped attract foreign direct investment abundantly.
It devolved its preferential fiscal policies to the provinces especially in the rich coastal regions so as to attract foreign direct investment. This resulted into the coastal provinces achieving more autonomy and becoming more affluent as compared to the inland regions in China. There was low industrial concentration as well as diversified economies which made the market systems become more competitive and also resilient. The market had fewer risky local experiments as well as alternative suppliers.
Introduction of capitalism in China
Achievement of economic efficiency through the sub-national governments as well as the favorable trade policies aimed at attracting foreign direct investment and improving China’s market base in the international market resulted into the development of capitalist relations between the country and other capitalist states.
The introduction of capitalism occurred in China in 1990s stimulated by the need for democratic reforms aimed at maintaining economic, political as well as social stability (Tsui & Wang 79). The central government instituted capitalist economic reforms influenced by the systems in the US and the need to increase trade relations.
Capitalist economic reforms influenced China’s admission into the World Trade Organizations. China adopted trade liberalization as well as deregulation policies which it devolved to the provincial governments.
Capitalist nations and capitalist-friendly nations such as the US, Japan, the UK, Germany and France among many others capitalist countries have developed trade partnerships with China. The US and Japan are the leading in terms of foreign direct investments in China. Currently, most products that China exports abroad are produced by foreign firms.
Social and Political reconfigurations
China maintained its 1958 Birth Registration System which restricted its citizens from moving from their birth places to other areas without official approval (Poncet 17). Moving to another region meant that you lose the state-provided social benefits. The government also demolished some areas where the migrant workers were living to take control of the government lands.
This was meant to achieve urban spatial planning as the migrants were creating unplanned shanties. The migrants were later incorporated by other sub-national governments of towns and cities. Between 1992 and 1993, the central government allowed the provincial governments to open up their own zones for development even without seeking authorization from the State Council.
The aim was to achieve economic growth and a planned state. On the political front, the Chinese Communist Party which is the ruling party developed a vertical administrative structure for monitoring the sub-national governments. Besides, the central government appoints political leaders who govern the regions and motivated to perform through promotions.
The role of the Central Government
The 1994 fiscal reforms led to the reduction of the central government control. The central government now had control over investment, management of parastatals, banking as well as land usage. For example, the power to manage trade as well foreign direct investment activities was transferred to the sub-national governments from the state planning committee (Xianghui 3).
The relationship between the central and the local government
According to Xianghui (4) over the last 25 years, the central government’s expenditure to the sub-national governments’ expenditure has been in the ratio of 3:7. Yeah (8) argues that the decentralization reforms which have been ongoing since 1978 have financially weakened the central government.
Besides, it has widened the scope of regional inequities particularly between the rich coastal regions and the struggling inland regions. On the other hand, Zhang (54) argues that the fiscal relationships between the central government and the sub-national governments through transfer payments have strengthened the central government’s controlling capability over the sub-national governments.
Improvement in economic efficiency
Devolution has enhanced economic efficiency in China as the government gives the sub-national government officials the opportunity as well as space to perform. Besides, the central government applies incentives to motivate the local leaders.
The incentives are in form of appraisals to ensure that the local leaders pursue even greater economic developments. Political leaders would not want to gamble with their political life and therefore they would always pursue practices that bring success particularly in terms of economic developments.
Lack of transparency in the regional governments
Devolution and decentralization has also come with their disadvantages in China. Devolution is largely expected to increase political transparency through encouraging public participation as opposed to the bureaucratic centralized system. However, this rarely happens in China.
Most decisions that affect the public are done by a few higher-ranking public officials. The views and opinions of the large citizen majority are not consulted or integrated in decision-making. In most cases, project spending is only meant to fulfill the wishes of a few politicians’ needs which are normally to get promotions.
Territorial competition that has been witnessed among Chinese provinces are most likely the personal ambitions of some local leaders who are trying to achieve the growth goals that have been set by the central government with an aim of getting promotions. Xianghui (10) argues that this could have negative consequences on other areas.
Regional inequalities
Granting of fiscal autonomy to the provincial governments gave them more authority over decision controls such that they often ignored the significance of promoting the domestic market as well as inter-provincial co-operation in trade (Poncet 6). Locally produced goods hardly crossed to other provinces.
Most of the goods were exported overseas. Inter-provincial trade almost came to an end. Much focus was on attracting foreign direct investment as the only solution for advancing economic growth. This has been the cause of regional disparities which increased gradually in the period of 1978-2004 (Xianghui 5).
According to Xianghui (5) Guangdong, Fujan, Zhejiang and Jiangsu have enjoyed well over 12% increase in fiscal expansion while provinces like Heilongjiang, Qinghai and Xinjiang have only managed half the increase in economic growth as their counterparts.
This has been the result of non-uniform trade among the provinces as well as the central government’s winner picking policy where it provides more financial support to the richer provinces. According to Xianghui (5) studies have shown that the central government’s budgetary allocation to the five richest provinces is twice more than that allocated to the five poorest provinces.
Conclusion
Decentralization economic reforms that have occurred since 1980s have greatly helped increased the economic status of China. During this period especially after the 1994 fiscal decentralization reforms, revenue collections increased both at the provincial and national level.
The economic reforms improved trade between the country and the international community. There has been a remarkable increase in foreign direct investment and China’s market base has greatly expanded. Therefore despite the few demerits that are associated with the decentralization as well as devolution in China, it has been very useful in stimulating economic growth.
Works Cited
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