Since the late nineteenth century, there has been a new element in China's central-local relations. Pushed to on the verge of disintegration by the imperialist forces, central-local relations then became important not only in terms of maintaining peace and order within the empire, but also in terms of strengthening national integration and state capacity.
When Chinese merchants started to lose the upper hand in the ‘war of commerce’ with Western merchants, offices were established in central and local governments for the designing and implementing of industrial policy. This signalled China's transformation into a developmental state, and at the same time brought in a new source of central-local conflict, that is the conflict over who would administer and control industry. It also strengthened traditional conflicts over fiscal and personnel matters. The centre designed and proposed ‘separate tax systems’ which suited fiscal centralisation, while the localities did the same with a view to strengthening fiscal decentralisation. The basic pattern of central-local conflicts has remained more or less the same since then.
After the establishment of the People's Republic of China in 1949, the tug-of-war between the centre and the localities was fought under new conditions. They included the penetration of the Communist Party's system into the localities and society, the paramount authority of Mao Zedong, and the introduction of the socialist planning system. Forces that promoted centralisaiton centred on those institutions which may be called ‘the centre of the centre’, such as the Party Centre, the State Council, and the State Planning Commission. In the bureaucratic conflict between vertical departmental systems (
tiaotiao) and horizontal local bodies (
kuaikuai), ‘the centre of the centre’ tended to side with the former which had their ‘headquarters’, that is the ministries, on ‘the periphery of the centre’ and were easier to control than the localities.
Decentralisation was strongly promoted by a charismatic leader, Mao Zedong, with a unique developmental strategy. Since Mao did not always enjoy dictatorial power, at times he needed to aggregate local interests in his attempts to take the initiative in policy making. From the viewpoint of the localities, they used Mao's authority and power in the tug-of-war with the centre. Thus, in Mao's days, swings in policy between centralisation and decentralisation coincided with the swings in politics between ‘right’ and ‘left’.
Since the late 1970s when reform and opening-up policies were introduced, the new elements in the game have been marketisation and decentralisation of economic power to the enterprises. Overall, localities have succeeded in enhancing their power in this period. First, the reformers at the centre needed the localities' support in winning the power struggle and policy debate with the planners. Second, localities responded and adapted themselves swiftly to marketisation. Based on the reality that many enterprises lacked the capacity to compete in a market, the local authorities actively took part in economic activities in a way that can be called entrepreneurial localism.
The new motor for centralisation existed in the attempt to strengthen macroeconomic control over a marketised economy through fiscal and monetary policies. In 1993, the financialists at ‘the centre of the centre’, who clustered around institutions such as the Ministry of Finance and the People's Bank, succeeded in persuading the localities to bring in the ‘separate tax system’ from 1994. The tug-of-war with the localities over the implementation and amendment of this system should continue. However, its introduction signalled the advent of a new era in central-local relations, in which financialistic centralism and entrepreneurial
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