ments were unable to coordinate material supplies since a large part of the system was administered through direct vertical lines from Peking. III. THE CHARACTER OF THE CHINESE REFORMS Unlike economic reform discussions in the Soviet Union, Eastern Europe and Yugoslavia, in China there was no serious public consideration of decentralization through the market. There was no school of economists which advocated that efficiency of economic planning and management could be improved through a reform of the price system and greater reliance on the use of markets as a means of allocating resources among alternative uses. Instead the Chinese discussion focused almost exclusively on the appropriate degree of administrative decentralization or what Professor Wiles refers to as "decentralized command." ." 13 That is, the central issue of this discussion was to determine which planning and administrative functions should be retained by the center and which should be devolved to lower levels of government administration. This focus on decentralized command was also evident in the decentralization directives themselves. While decentralization through the market inevitably involves the transfer of resource allocation and other decisionmaking powers to productive units, that is, enterprises themselves, the decentralization directives announced in late 1957 and in 1958 were concerned almost exclusively with the transfer of administrative authority to the provincial governments. These subnational governments received enhanced powers in the areas of industrial, commercial, and financial management, taxation, price control, grain management, materials distribution management, and in economic planning." The specific provisions of these reforms are well known. In industry and commerce, most enterprises which had previously been managed by central government ministries from Peking were transferred to joint administration by the center and the locality. Provincial governments were also given increased authority over enterprises that remained under exclusive central government control. Most importantly, the decentralization gave provinces the power to formulate regional economic plans which incorporated all enterprises within the province. Furthermore the number of commodities subject to unified distribution by the centrally administered supply system was reduced, partly by transferring the allocational responsibility for some commodities to provincial governments. Provincial planners were now responsible for allocating raw materials to the remaining central government enterprises. Provincial governments also were given expanded financial powers. Most importantly, after the decentralization 20 percent of the profits of enterprises transferred to joint central-local rule were to be retained by local governments for financing local expenditures. Furthermore, provincial governments were to receive increased authority in arranging their own expenditures. The decentralization also expanded 13 P.J.D. Wiles, The Political Economy of Communism, (Cambridge: Harvard University Press, 1964), pp. 140-146. 14 These decentralization measures were published in the official compendium of laws, Chung-hua jen-min_kung-ho-kuo fa-kuei hui-pien, vols. 6-8. The following two paragraphs are based on these decrees. provincial administrative powers in tax management and price control. It is this seemingly broad transfer of economic power to provincial governments that has given rise to the regionalist interpretation of Chinese economic planning. IV. IMPLICATIONS OF THE REGIONALIST VIEW The fundamental implication of the regionalist view of economic planning is increasing provincial inequality. As will be documented below, during the First Five-Year Plan period, the central government through the centralized economic planning and budgetary process consistently transferred income and wealth from the well developed provinces to backward areas. This powerful pattern of central government redistribution is evident in both the structure of centralprovincial revenue sharing rates and in the regional distribution of expenditures. A significant alteration of this pattern of redistribution would have important implications for the pattern of Chinese social and industrial development. A diminution of the power of the center to extract proportionately more resources from more developed areas and transfer them to less developed regions would result in a decline in the level of services provided in the latter areas and a tendency for industrial growth to become more concentrated in areas of greatest existing industrial capacity. Proponents of the regionalist view of Chinese economic planning explicitly state or implicitly assume that selfsufficiency will inevitably lead to increasing inequalities between different regions. "Reliance on local resources, whether material or managerial, for investment to expand output is inevitably a system of 'to him that hath, shall be given"." 15 V. THE EMPIRICAL EVIDENCE A. The First Five-Year Plan Period As mentioned above, the highly centralized system of economic management adopted during the First Five-Year Plan period was used to carry out a substantial redistribution of resources, for both investment and current noninvestment expenditures, to meet the government's distributional and equity goals. The broad outlines of this resource redistribution were disclosed in the national First Five-Year Plan. Somewhat more detailed information was contained in the annual national and provincial economic plans.1 These plans, which were drawn up primarily in physical terms, specified not only the distribution of investment resources among different sectors of the economy, but also the geographic location of many major projects in industry, transportation, trade, public utilities, et cetera. În addition they also specified targets for increases in school enrollments and the development of cultural and other social programs. From these physical plans it is, of course, not possible to measure the degree of 15 Audrey Donnithorne. "China's Cellular Economy: Some Trends since the Cultural Revolution," The China Quarterly, No. 52 (October/December 1972), p. 613. This view is also supported by Francois Durand, Le Financement du Budget en Chine Populaire (Paris: Editions Sirey. 1965), p. 223. 16 A comprehensive listing of provincial economic plans and a wealth of other sources of provincial economic data is contained in John Philip Emerson, The Provinces of the People's Republic of China: An Economic and Political Bibliography, (forthcoming). resource distribution. There is an insurmountable problem of aggregation because major projects are typically specified by their level of planned output rather than their expected cost. Furthermore, the geographic sources of the physical inputs necessary for their construction are not specified. However, material transfers inherent in these plans are all accompanied by monetary payments. The central and provincial budgets provide the funds to finance the industrial development projects included in the central and provincial government plans respectively. In addition the central government budget includes defense expenditures and outlays for the central government administrative apparatus and a limited number of social, health, and educational programs administered directly from Peking. Provincial budgets finance expenditures for local government administration and most social programs in addition to the provincial economic development program. Because the national budget is a unified budget that includes the revenues and expenditures of the central government as well as the provinces, it alone can not be used to measure resource flows between different regions of the country. When the national budget is used in conjunction with provincial budgets, however, one can begin to measure the redistribution of real resources which is inherent in the physical planning process. The central characteristic of the planning and budgetary process at the provincial level is the absence of a functional link between the size of each province's revenues and its expenditures. The first step in this process is the center's determination of the maximum level of expenditures permitted in each province. This determination is based on the outlays required to finance the centrally approved provincial economic development plan and to finance the approved levels of spending for local government administration and for social services. Central fiscal control of the latter categories of programs was particularly important since they were less amenable to direct physical management. After estimating the total revenues available to each province, the center calculates a revenue remission rate for every province. These are set so that each province will be left with just enough revenue to finance the initially determined level of expenditure. Because of the center's commitment to reducing the degree of interprovincial inequality, backward provinces typically have low remission rates or may even retain all of their revenues and receive additional subsidies, while more developed provinces are allowed to spend only a relatively small portion of their revenues, the rest being remitted to the central government. This pattern of highly differentiated revenue sharing rates is shown in table 2 which gives the rates for provinces listed by level of industrial development. More developed provinces such as Szechuan, Kiangsu, Chekiang, Shantung, and Kwangtung are required to remit a very high proportion of the revenues they collect. In 1956, for example, these five provinces each remitted about 60 percent of their revenues. Less developed provinces such as Tsinghai, Tibet, Kansu, Sinkiang, and Inner Mongolia usually retain all of their revenues and receive additional subsidies from the central government to finance their own expenditures. Through this redistributive mechanism the central government is able to assure that the level of local social services and the magnitude of investment in local industry and agriculture is not dependent on the volume of resources available within each province. TABLE 2.-CENTRAL-PROVINCIAL REVENUE SHARING RATES, 1956 AND 1957 1 Hopeh (excluding Tientsin). Chekiang 10 Shansi 11 Hunan 12 Honan 13 Anhui 14 Shensi 15 Yunnan 17 Kwangsi 18 Inner Mongolia 19. Kweichow 20 Kansu 31 Sinkiang 23 Tibet 25 1 Provinces are listed in descending order of gross value of 1957 industrial output (including handicrafts). Negative numbers show provincial net remittances to the central government as a percent of total revenues collected by the Province. Positive numbers show net subsidies from the center as a percent of total provincial expenditure. All percentages are calculated on the basis of final accounts except as noted. Financial reports are also available for Liaoning, Kirin, Peking, Tientsin, and Shanghai for this period. However since these areas shared in fewer revenue sources with the central government, their remission rates are not comparable with those given above. 2d-Ssu-ch'uan jih-pao, Aug. 24, 1957. * 1957 final accounts are not available for these Provinces. Number show is calculated on the basis of 1957 budgetary figures. Hsin hua jih-pao, May 17, 1957, Oct. 16, 1958. Ta-chung jih-pao, Aug. 17, 1975, Nov. 3, 1958. ? Nan-fang jih-pao, July 27, 1957. Ch'ang-chiang jih-pao, Aug. 27, 1957. Ho-pei jih-pao, Aug. 24, 1957, Apr. 27, 1958. 19 Che-chiang jih-pao, Jan. 25, 1958, Nov. 9, 1958. 11 Shan-hsi jih-pao, Aug. 27, 1957, Dec. 8, 1958. 12 Hsin Hu-nan pao, Dec. 22, 1957, July 4, 1958. 13 Ho-nan jih-pao, Aug. 25, 1957, Jan. 1, 1959. 14 An-hui jih-pao, Sept. 24, 1957, Nov. 10, 1958. 15 Shan-hsi jih-pao, Aug. 30, 1957. 18 Chiang-hsi jih-pao, Apr. 1, 1957, July 5, 1958. 17 Yün-nan jih-pao, Aug. 17, 1957. 1 Kuang-hsi jih-pao, Aug. 25, 1957, Mar. 15, 1958. 19 Nei-meng-ku jih-pao, Apr. 27, 1957, June 28, 1958. 20 Kuei-chou jih-pao Aug. 15, 1957, Sept. 25, 1958. 21 Kanus Provincial Finance Department, "Ten Great Years of Finance in Kansu, in Chung-hua jen-min kung-ho kuo shih-nien ts'ai-cheng ti wei-ta ch'eng-chiu, Peking, 1959, p.199. Value for Kansu is for the period 1953-57. Annual breakdown not available. Hsin-chiang jih-pao, Apr. 18, 1957, Feb. 1, 1959. 24 Ch,ing-hai jih-pao, Aug. 14, 1957, July 6, 1958. 25 Ko Chih-ta, "The Nature of the State Budget in Our Country and Its Function in the Transition Peroid," Ching-chi yen-chiu, No. 3, 1956, pp. 76-77. Value for Tibet is for the period 1952-55. Annual breakdown and values for 1956 and 1957 are not available. The redistributive powers of the central government are not fully reflected by the data in table 2. In addition to the redistribution carried out through local plans and budgets, the central government implements a far-reaching redistributive program through investment projects undertaken directly by its industrial ministries. These projects are managed directly from Peking and are not reflected in provincial plans or in provincial expenditures. They are financed by a com 17 bination of remittances from more developed provinces and the revenues collected directly by the central government. Toward the end of the First Five-Year Plan period about 60 percent of total government revenues were collected through provincial budgets. The remaining 40 percent was collected directly by the central government, primarily from the profits of enterprises under direct central management. Most of these directly collected revenues in fact came from the more developed areas where central government enterprises are concentrated. Since these revenues are not reflected in central-provincial revenue sharing rates, table 2 actually understates the degree to which Peking was able to redistribute resources from rich to poor provinces. This is brought out most clearly by examining the budgetary role of Shanghai, the most-developed provincial level administrative unit. During the First Five-Year Plan period, the sum of revenues collected directly by the central government in Shanghai and those transferred to Peking by municipal remissions, financed almost one-fifth of central government expenditures. As shown in table 3, a very small proportion of these revenues, about 6 percent, was returned to Shanghai in the form of direct central government investment. By and large, the municipality's revenues were used by Peking to finance central government investment programs in other areas of the country rather than being reinvested in Shanghai to stimulate local economic growth. TABLE 3.-Shanghai's budgetary role during the first 5-year plan period [Absolute numbers in billions of yuan] 1. Revenues from Shanghai to the central government1. 2. Total central government expenditures__ 3. 1/2 (percent). 4. Direct central government investment in Shanghai 5. 4/1 (percent) -- 17.79 101. 13 17.6 1.0 5.6 1 Includes revenues collected directly by the central government and remissions through the municipal budget. 2 Excludes municipal investment financed through revenues retained by the municipality. SOURCES Line 1-P'an Hsueh-min. "The Development of Industry in Shanghai," Ti-li chih-shih, No. 7, 1959, p. 304. Chich-fang jih-pao, Nov. 7. 1958. Line 2-1953-55: Ko Chih-ta, China's Budget during the Transition Period, Peking. Finance Publishing House, 1957, p. 37. 1956: Li Hsien-nien, "Report on the state's 1956 final accounts and the 1957 draft state budget," Hsin-hua pan-yüeh k'an, No. 14, 1957, p. 23. 1957: Li Hsien-nien. "Report on conditions of implementation of the 1957 state budget and the 1958 draft state budget," Hsin-hua pan-yüch k'an, No. 5. 1958. p. 9. Line 4-Chieh fang-jih-pao Aug. 11, 1956, Aug. 28, 1957, Nov. 7, 1958, June 7, 1959. B. 1958-60 As suggested in section IV, the essential argument of the regionalist view of Chinese economic planning is that the far-reaching central government control over the resource allocation process reflected in tables 2 and 3 was fundamentally altered by the decentralization in 17 In 1955 and 1956 provincial governments collected 54 and 60 percent, respectively, of total national budgetary revenues. Li Hsilen-nien. "Report on the State's 1954 Final Accounts and the State's 1955 Budget," Hsin-hua yüeh pao, 1955, No. 8, p. 28; Li Hsien-nien, "Report on the State's 1955 Final Account and the State's 1956 Budget," Hsin-hua panyüeh k'an, 1956, No. 14, p. 8. |