Regionalism

Abstract

The rise of regionalism is a major consequence of market-oriented reforms. With economic and fiscal decentralization, interests too become localized. As expanded financial autonomy has been part of China’s growth-oriented soft reforms, local governments and enterprises have acquired strong incentives to promote their interests. Making fiscal decentralization an early step was a signal of Beijing’s intentional withdrawal from many areas which it had controlled rigidly, in the hope of mobilizing local initiatives and creating an efficient economy. The policy was to devolve decision-making and financial power to lower levels of government and enterprises (fangquan rangli). As discussed earlier, fiscal decentralization was based on negotiated contracts between the parties concerned. Beijing thus had increasing difficulty in ensuring a growing source of revenue. For instance, revising revenue-sharing ratios and quotas became an arduous task for the central government. Beijing’s revenue as a share of GDP was steadily declining and reached crisis proportion by the early 1990s.³¹¹