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Part Three
Bureaucratic Clusters


Structure and Process in the Chinese Military System

Jonathan D. Pollack

Among the major institutions buttressing the power of the Chinese state, the People's Liberation Army remains one of the least well understood. Despite its vast size, its proprietary claim on resources, and its pivotal role in the political history of the People's Republic, the army remains to most professional observers unknown and inaccessible. The armed forces retain a subordinate status in relation to the Chinese Communist Party and still serve as the Party's ultimate instrument of coercive control. At the same time, however, the army assumes a distinctive, autonomous organizational identity, and in numerous respects constitutes a virtual state within a state, exercising pervasive if minimally observable influence over the lives of millions of Chinese citizens.

The army is also in the throes of major change. Having long functioned on the basis of inherited prerogatives and procedures, the PLA in the 1980s found itself challenged from above, below, and within. The challenge from above came from Deng Xiaoping, whose assumption of the chairmanship of the CCP Central Military Commission in 1981 reflected the singular importance of this leadership post and also Deng's convictions about the failings of the military establishment. The challenge from below concerned the diminished stature of the military profession in an era of economic reform, with the army no longer serving as a promising channel for upward mobility. The challenge from within came from a far more capable and increasingly restive segment of the officer corps, which had grown dissatisfied with the highly circumscribed opportunities for professional advancement. By mid-decade the fitful


movement away from the inherited military arrangements of the Cultural Revolution era started to jell, with an embryonic modern military system beginning to take shape.

This transformed military system entailed the formulation of rules and regulations for long-term institutional development and the professionalization of the officer corps. At the same time, the armed forces began to interact more fully with other Chinese institutions than at any point in the last thirty years, even as the PLA's relationship with the Party remained distinct and unique. Although the PLA was still accountable to the CCP, it also stood apart from it, given the army's specialized, quasi-separatist character. The military leadership identified two tasks for the longer term: first, to enhance the stature of a modernized, professional military system within China, and second, to balance the military's need for autonomous professional development against the continuing imperative of accountability and subordination to Party rule.

The concepts underlying the emergent military system, however, remain transitional and incomplete. Current norms and arrangements still reflect three singular formative influences: the pervasive role of Mao and his closest military colleagues in shaping the PLA's thinking, policies, and procedures; the lasting technological and bureaucratic imprint of Soviet tutelage in the 1950s; and the absence of regular mechanisms for leadership turnover. In addition, given the army's crucial role in maintaining social and political order during the 1960s and 1970s, there was a predominantly inertial character to institutional development, with few efforts to alter existing personnel arrangements, especially those deeply embedded in the day-to-day workings of the system. Numerous recent changes have concerned the reconfiguration of the old system, not a comprehensive introduction of new structures and processes. These hybrid arrangements often remain derivative of interpersonal relations, rather than professional norms, and leave unresolved the mechanisms and forms of bargaining and resource allocation within the military and across bureaucratic channels. But the pervasive grip of tradition has begun to loosen, and the outlines of a more modern, regularized military establishment are discernible for the first time.

The upheavals of the spring of 1989, however, again thrust the leadership of the armed forces into a pivotal position in Chinese political life. This has presented the PLA with a newfound opportunity to advance its corporate interests (e.g., through increased budgets and an enhanced social-control function), and it could well afford the army a decisive role in the post-Deng succession process. But it is a very mixed blessing. By becoming deeply embroiled in interpersonal rivalries atop the system, the actions of the military leadership intruded upon the professionalizing mission that many in the officer corps deem the army's paramount


objective. Thus, the PLA in the early 1990s is not a cohesive, unified institution.

This chapter addresses the distribution of power within the Chinese armed forces. Specifically, where does power reside within the military system? What are the principal resources available to the military leadership (e.g., personnel assignment, budget resources, foreign technology, etc.), and who controls them? Are the criteria for determining the distribution of such resources predominantly personal or institutional? Three major issues are assessed:

1. What are the predominant characteristics of the inherited military system?

2. What are the principal changes that Deng and his allies have tried to introduce in the military system, and what have been the results?

3. What are the defining traits of the PLA's present leadership arrangements and institutional procedures?

The Inherited Military System

The Chinese armed forces represent a virtual way of life for large numbers of Chinese. Although there have been periodic efforts to curb the size of the military establishment, these attempts have focused on the PLA as a fighting force, rather than as a full service institution. The army's allocative and distributive reach within Chinese society and the economy is unusually broad. It employs, feeds, and houses millions of people. Its claim on the national budget, while much diminished at present, was virtually unlimited in previous decades, and its proprietary access to resources remains very great.

The principal anomaly in the power of the military is its understated leadership role. Except in the early 1950s and between the mid to late 1960s and the early 1970s, the PLA has not assumed power in an overt political sense. The army frequently achieved disproportionate representation in national and provincial-level leadership bodies, but rarely chose to exercise this power fully. The Party and the army achieved a compact or at least a tacit understanding: in exchange for its obeisance to CCP rule, the PLA remained emperor of a vast realm of its own. Except for post—Korean War cutbacks and the retrenchment following the "high tide" of military influence under Lin Biao, the Party leadership very rarely intruded upon the societal, organizational, and economic domains controlled by the armed forces.

By dint of these understandings, the power and prerogatives of the PLA became embedded deeply in Chinese administrative and economic life. The military's entitlements ranged very widely, including control of


airfields, ports, air space, communications networks, and industrial facilities, as well as access to goods and services from abroad. These inherited assets and jurisdictional claims, being reserved for the near exclusive use of the armed forces, inhibited infrastructural and societal development as a whole.

Some of the most telling consequences were found in the Chinese defense industrial system. Created and designed under Soviet guidance in the 1950s, but subsequently cloned at Mao's behest in interior provinces during the 1960s, the defense economy kept millions employed.[1] Except for high-priority national defense projects, there were neither incentives nor opportunities for meaningful reform. The creation of "third line" defense industries frequently replicated the inefficiencies of existing plants and facilities, with these units granted proprietary claim on budgetary, technical, and manpower resources, as well as preferential access to industrial materials and energy supplies.[2] Gross inefficiency and the absence of effective innovation went hand in hand, with Chinese factories producing endless amounts of antiquated equipment at heavily subsidized state prices. A vast, highly duplicative defense industrial system produced on demand for a military hierarchy that sought only to keep all key organizational constituencies "well fed."

Few within the leadership ever challenged the army's entitlements. As a consequence, the army grew by accretion and inertia, bloated by a personnel logjam, especially at the upper reaches of the system. The army was rewarded for its loyalty and service to the state in successive national crises, garnering progressively larger forces and budgetary resources. But size did not beget organizational efficiency; military preparedness was deemed important only for elite national defense units.

Different levels of the military system, however, performed invaluable services for state and society. The PLA built bridges and railways, furnished personnel and facilities for internal security, maintained order at times of upheaval, contributed labor and materials to major national projects, and safeguarded national security. By its reach throughout the provinces and by the strategic positioning of key military units, it also served as the ultimate guarantor of political and social control. But these arrangements gradually transformed the military system into a person-


nel, administrative, and economic network of staggering and unmanageable proportions.

Thus, to conceptualize the PLA as a military establishment and guardian of national security is somewhat misleading; to many, it was a way of life, insulated from society as a whole and highly privileged and protected. At the same time, soldiers and civilians employed by the army generally enjoyed living standards superior to other institutions. Few incentives existed to alter this general pattern, and the Party leadership (mindful of its dependence upon the armed forces) granted the PLA effective control of its own realm. Deng Xiaoping sought to remake the Chinese defense establishment in the context of these practices and circumstances.

Revamping The Personnel System

When Deng (as PLA chief of staff) first assumed responsibility for military affairs in the mid-1970s, he quickly concluded that the PLA was a deeply troubled institution. In his infamous characterization to a meeting of the Military Commission in mid-1975, Deng asserted that the PLA suffered from "bloating, laxity, conceit, extravagance, and inertia."[3] Deng's reform efforts of this period were aborted by his ouster from power in 1976. By dint of its pivotal role in displacing the "Gang of Four," the PLA completed its recovery from the trauma of the Lin Biao affair, with the leadership settling into a Brezhnevite "stability of cadres" orientation. Except for those directly implicated in the factional politics of the Lin Biao era or for those who were hopelessly decrepit, most disgraced military leaders were returned to comparable or higher positions than those from which they had been ousted. The predominant character of military policy-making was inertial and self-satisfied, and an uncertain, untested Hua Guofeng was only too willing to comply.[4]

The consequences of this complacency, however, were driven home by China's inept military performance in the "pedagogic war" against Vietnam. As Jiefangjun Bao observed much later: "War is the mirror of training. The war of self-defensive counterattack against Vietnam in 1979—this small mirror—reflected the state of PLA's training at that time. ... A generation of military men ... had been wallowing [in] the PLA's glorious history: We are backward, our weapons and equipment are


backward, and ... even more frightening ... our military thinking and training ideas are backward!"[5]

Although there was no single explanation of these circumstances, the sorry state of the officer corps was a principal contributing factor. China's ratio of officers to enlisted men was (and is) the highest of any major army in the world. Many of these revolutionary veterans were simply not competent to lead a modern military force. Once Deng assumed chairmanship of the Military Commission in 1981, a major overhaul of the leadership and personnel system was one of his highest priorities. His goal was to induce accountability, responsiveness, and increased efficiency within a vast bureaucratic system that placed little value on any of these goals. As reforms slowly began to take root, new generations of young, technically competent personnel were recruited and educated, but they awaited job assignments appropriate to their background and training. Thus, senior officials needed to yield their posts, but without excessive disruption or alienation.

Deng's efforts took a long time to bear fruit. In July 1988 Jiefangjun Bao observed that "as early as 1980, Chairman Deng Xiaoping proposed that the system of military ranks should be implemented."[6] Beginning with the replacement of a number of regional military commanders, and proceeding to ever more ambitious attempts to overhaul the procedures governing the military system as a whole, a modern, regularized institutional framework slowly developed. It took nearly a decade for these policies to emerge with any clarity, suggesting the deeply entrenched character of the inherited system. Deng sought to replace hundreds of thousands of superannuated officers, but he proceeded in measured fashion, seeking to restructure the military without humiliating those losing status and power.

According to subsequent accounts, Deng's efforts "to build a powerful, modern, and regular revolutionary army" began in earnest in September 1981, three months after his election as chairman of the Military Commission.[7] But the record of events in the early 1980s is spotty.[8] Although there were limited cutbacks in manpower, reductions in the defense budget, and some transfers of military enterprises to the civilian sector, these steps did not yield major results. Deng is alleged to have


urged "radical measures" during a 1981 speech, but these efforts bore little fruit. Deng remained preoccupied in a more immediate sense with economic and political matters and chose to limit his direct involvement in military affairs. At Deng's behest, Yang Shangkun in 1983 was given overall responsibility to develop policy options for military reorganization; Yang is alleged to have overseen all subsequent reorganization and manpower-reduction measures.[9]

The principal obstacle to institutional reform was the sheer size of the PLA. For all practical purposes, there were no retirement procedures for senior personnel. In a speech to an enlarged meeting of the Military Commission on November 1, 1984, Deng commented on the immensity of the PLA, concluding that such a "swollen" military organization was too cumbersome to conduct actual military operations, let alone organize an orderly retreat. To underscore his unhappiness, Deng observed that the principal shortcoming of the triumphal military parade of October 1 marking the PRC's thirty-fifth anniversary was that "the man who reviewed the troops is an old man of eighty years."

In his November 1 address to the Military Commission, Deng announced the decision to reduce the PLA's manpower by one million men. Reflecting the sensitivity of these measures, Deng observed: "Let me assume responsibility for offending some people on this matter. I don't want to oblige the new chairman of the Military Commission."[10] The issues were subsequently deliberated at an enlarged meeting of the Central Military Commission in May–June 1985, which declared a "strategic shift" in the army's orientation geared toward "structural reform, reduction in strength, and reorganization [as] the central projects for the armed forces during the next two years."[11] Hu Yaobang asserted that the policy changes followed "two years of repeated deliberation and a cool and objective analysis of the international situation and China's own defense capabilities."[12] Although the manpower reductions had a strategic rationale—that China did not anticipate large-scale war for the remainder of this century—this characterization served principally to justify cutbacks and leadership turnover, rather than to explain them.

The principal effects of the 1984–85 decisions were to initiate a reduction in the officer corps ultimately totaling nearly 600,000 men, to pare China's military regions from eleven to seven, and to revamp a hopelessly inefficient system for allocating men, equipment, and materiel. At


the same time, other military units were abolished, deactivated, or transferred to the civilian apparatus, with different military headquarters in Beijing absorbing more modest cuts in personnel. The consequences of these decisions for the combat strength of China's armed forces proved minimal; the moves were intended principally to accelerate the retirement of senior officers, who had been generally exempted from the far more modest cutbacks of the early 1980s. The 1985 measures reached deeply into the leadership ranks of the Kunming, Wuhan, Fuzhou, and Urumqi military regions, each of which was absorbed into neighboring regions. All four military regions had in the past been judged vital to Chinese security planning, and the commanders of these forces evidently believed that they would be exempted from major cuts.

Little is known about the criteria employed by the Military Commission in dismantling "the four big temples." Although Deng and Yang appealed to the leadership of the affected units to keep the "overall situation" in mind and to accept the decisions of the Center, the transition was not smooth. Units purportedly sought to circumvent or subvert the commission's decisions by the squandering of funds, the theft of equipment and resources, and questionable job reassignments.[13] Although it is impossible to gauge the extent of these activities, such behavior reflected the threat to the prerogatives of a comfortably ensconced military elite. As a retired PLA officer observed during an interview, "The most difficult questions in China are those of personnel affairs."

Both publicly and privately, Chinese military officers treat the decisions of the late spring of 1985 as crucial to all subsequent steps toward institutional reform. Having achieved (or perhaps imposed) a consensus within the senior military ranks for a major organizational restructuring, Deng and Yang Shangkun launched a corollary series of steps. Two processes had to occur in tandem: the provision of psychic and financial compensation for those compelled to step down, and the specification of professional criteria for those moving into vacated positions, including the procedures and standards for future promotions.[14]

Different but simultaneous criteria were therefore devised for the two separate populations. For those stepping down from military service, the size of their pensions and their attributed status (in the forms of different categories of medals) derived principally from longevity—that is, the


date of entry into the army and their rank as of 1965.[15] One interviewee (a recent retiree) described some of the steps in the process. The officer acknowledged that retirement was compulsory, not voluntary. Retirement is resisted because of the decline in status and the lack of protection against inflation. The pension arrangements entail a combination of criteria: cadre rank (there are twenty-one grades in the military), retirement bonuses, and a variety of miscellaneous allowances all form part of the package. In the estimation of this retiree, the burgeoning costs associated with the retirement system have yet to yield any of the presumed financial dividends of a smaller military establishment, since the preponderance of the budget is devoted to salaries and pensions, not weapons.

For those moving up, the passage of military-service legislation in July 1988 and the reestablishment of military ranks on October 1, 1988, marked major milestones. For the first time in nearly a quarter of a century, explicit procedures governing appointment, promotion, compensation, job tenure, and retirement were in place.[16] Irrespective of the age and technical competence of particular serving officers, all military careers had suffered from a two-decade-long interruption of standard procedures for professional mobility. When ranks were eliminated in 1965, the prospects for advancement for all officers were frozen. Unlike those in the Party and state bureaucracies, career officers had no independent validation of their position and status. This problem assumed even greater poignancy when (as was noted earlier) officers discredited during the Lin Biao era were reappointed at the same rank or higher, blocking upward mobility for younger officers. The problems in the PLA were compounded by a lower mandatory age for retirement. Thus, a division commander must retire at fifty-five (although this can be extended to sixty if the officer has earned an advanced degree), whereas civilians may work for another five to ten years. Even with these new procedures, the system remains extremely top-heavy and overstaffed, especially at the rank of colonel and senior colonel.

There is also a subtle but significant differentiation between the PLA's military and technical cadres. Military personnel serving in various technical capacities have a rank system nearly equivalent to that of line officers, but their rank designations are slightly lower than those of other active duty personnel. Although some technical officers still wear uniforms, they wear different insignia from the line officers, thereby differ-


entiating the two groups. Thus, there is a pecking order between soldiers and scientists. This mechanism is also an artful means of keeping the total number of line officers at lower levels.

The reintroduction of ranks represented a significant turning point in Chinese military development. Positions in the PLA hierarchy would no longer derive principally from date of entry into the Red Army; rank and promotion would purportedly be linked with professional competence, merit, and technical expertise. The promulgation of these policies constituted a crucial transition in establishing explicit, institutionalized personnel arrangements for the military system as a whole, in the hope that the armed forces would again represent a highly desirable career option. Over time, therefore, the senior leadership hopes to recruit capable, well-educated officers who will view a military career with motivation, purpose, and long-term commitment. Should they fail to establish and institutionalize appropriate, predictable criteria for professional development, the prospects for creating a modern military establishment remain dim.

Military Command And Control

Increased interactions between Chinese military officers and foreign scholars have begun to yield a more differentiated picture of the structure of military decision making.[17] In addition, Chinese military researchers are openly discussing the continued viability of long-standing arrangements for military command. Rapid changes in information and communications technology are transforming the conduct of military operations and the administration of large, complex military systems on a worldwide basis, and Chinese specialists have studied these developments in earnest. At the same time, however, changes dictated by technological and organizational imperatives continue to clash with personalism and tradition deeply embedded in the military system.

The extant military system remains premised on centralized command and control, with supreme decision-making authority vested in the Military Commission of the CCP Central Committee. Appointments to the Military Commission are based on two principal criteria: status as a "military elder," or designated responsibility for one of four major spheres of organizational activity. Membership until late 1987 consisted of four elders (Deng Xiaoping as chairman, Yang Shangkun as perma-


nent vice-chairman and secretary-general, and Marshals Xu Xiangqian and Nie Rongzhen as vice-chairmen) and four senior military leaders with designated bureaucratic responsibilities (Yang Dezhi as director of the General Staff Department, Yu Qiuli as director of the General Political Department, Hong Xuezhi as director of the General Logistics Department, and Defense Minister Zhang Aiping as overseer for military research and development).[18]

Following the Thirteenth Party Congress, major changes in the top military leadership led to a reshuffling in the Party Military Commission. Although Deng remained chairman, Zhao Ziyang was appointed first vice-chairman, with Yang Shangkun continuing to serve concurrently as permanent vice-chairman and secretary-general. Under Peng Dehuai and Lin Biao, the minister of defense had served concurrently as first vice-chairman of the commission, with very significant power vested in this position. Xu Xiangqian and Nie Rongzhen—the only surviving marshals of the Chinese army—initially retained their titles as commission vice-chairmen. Although their positions appeared increasingly honorific, they maintained substantial personal influence through offspring serving in military capacities. For example, Nie's son-in-law, Ding Henggao, is the chairman of the Commission on Science, Technology, and Industry for National Defense, or COSTIND, better known as the guofang kegong wei . Ding's wife, Nie Li, is also a senior official within COSTIND; in addition, she assumes a coordinating role across a number of institutions concerned with high technology.

In early June 1988, Deng, in an audience with the visiting Polish premier, elaborated on the implications of these changes:

You may have already noticed that there are two Vice Chairmen in the Central Military Commission, one is our Party General Secretary Zhao Ziyang, and the other is State President Yang Shangkun. ... Why have both the Party General Secretary and State President become Vice Chairmen? Probably this is a Chinese-style arrangement (laughs heartily). Nevertheless, this arrangement has practical significance because it actually means that I have handed over my duties and the Central Military Commission is now under the leadership of Comrade Zhao Ziyang.[19]

Zhao's growing involvement in and responsibility for military affairs during 1988 underscored this seeming changeover in leadership. In his capacity as first vice-chairman of the Military Commission, Zhao undertook an unpublicized visit to the Sino-Vietnamese border during the


Lunar New Year (accompanied by Yang Shangkun and Wang Zhen), delivered a major address in March on the impending tasks in military reform to a high-level military conference, and discussed China's transition to a "partial war" strategy and the parallel upgrading of the functions and responsibilities of the Ministry of National Defense.[20] Zhao's involvement with military planning appeared to indicate the PLA's acceptance of Zhao's role in the defense sector and contrasted markedly with Deng's inability to secure such acceptance for Hu Yaobang, who never received a formal leadership designation in the Military Commission. Zhao based his role on a "modernist" concept of the PLA—that is, that the armed forces would develop autonomous concepts and norms that did not depend exclusively on an organic bond with the Party.

An equally significant set of changes occurred in personnel assignments in the top military command posts following the Party Congress, and with it a reshuffling of the membership of the Military Commission. These changes testified to the extraordinary authority that Deng had delegated to Yang Shangkun. In November 1987 the heads of all three General Departments of the PLA stepped down, as did Defense Minister Zhang Aiping. Of these four senior generals, three (Yang Dezhi, Yu Qiuli, and Zhang Aiping) yielded their seats on the Military Commission, with Hong Xuezhi remaining as a deputy to Secretary-General Yang Shangkun. Liu Huaqing, previously commander of the Chinese navy, also assumed a post as deputy to the secretary-general; several interviewees confirmed that he had inherited Zhang Aiping's portfolio for military research and development. But the new General Department heads (Chi Haotian, Yang Baibing, and Zhao Nanqi) were not immediately confirmed in their predecessors' positions on the Party Military Commission, nor was the new minister of national defense, Qin Jiwei, voted comparable status.

The case of Qin Jiwei is the most revealing. Although a member of the Politburo, a commander with impeccable Second Field Army credentials, a Korean War hero, and a supposed favorite of Deng's, a ministerial appointment in the State Council is of decidely lesser import within the military system's job order rank. The minister of national defense commands no troops; indeed, for purposes of resource allocation within the State Council, he shares essentially coequal status with heads of the industrial ministries. To rectify this gap between the status of the defense minister and that of the General Department directors, the ministry was supposedly to be strengthened in its functions, personnel, and status. The upgrading of the general office (bangong ting ) within the Military


Commission, headed by Lt. Gen. Liu Kai, was viewed by some as the precursor of an effort to establish an autonomous capacity for defense planning, allegedly to be vested in a more powerful defense ministry.

But substantial ambiguity persisted for some time over the precise membership of the Party Military Commission.[21] Chinese sources remain silent on the differences between Party and state military commissions, referring in somewhat generic fashion to the "Central Military Commission" (zhongyang junshi weiyuanhui, or jun-wei ). The absence of a standarized membership list for the commission suggested the potency of the Party connection to the military leadership; the senior leaders were not prepared to ratify an autonomous role for the armed forces apart from the long-standing mechanisms of political control. In addition, the commission created a military legislation bureau (junshi fazhi ju ) intended to formulate explicit rules and regulations for upper-level personnel policy where none existed before.

The selection of new leaders for the general departments and the promotions of Liu Huaqing and Qin Jiwei also attested to the persistence of personalistic criteria in senior personnel assignments. The appointments of Liu Huaqing and Zhao Nanqi appeared attributable to their predecessors (both had worked closely with them in these designated areas of responsibility over long periods of time, with Zhao serving as Hong Xuezhi's aide-de-camp during the Korean War). Qin Jiwei's long-standing links to Deng appear to explain his designation. Yang Shangkun assumed a familial prerogative in the designation of his younger brother as head of the General Political Department. Chi, having leapfrogged over a number of far more senior officers, including Qin Jiwei, owed his appointment to Yang, though the precise nature of this relationship remains unknown. The persistence of these personalistic criteria suggests that the very top leadership remains unwilling to relinquish its most important prerogatives in personnel assignment and may be equally reluctant to forego the PLA's special relationship with the CCP.

Thus, it remains extremely uncertain whether the State Military Commission will assume an identity distinct from its Party counterpart, especially in the aftermath of the political crisis of 1989. The creation of the State Commission in 1982 was intended to encourage a separation of functions between Party and government, but it has thus far totally failed to achieve its stated goal. During the late 1980s (i.e., during the "high tide" of the professionalizing ethic in the armed forces), there was an effort to create a separate set of responsibilities for the second body. One line of speculation suggested that slots on the State Commission would be reserved for service chiefs and others charged with responsibility for


the transition to a more modern defense force—in other words, formalizing the separation between command and administration.[22] By implication, membership would also be extended to those within the military scientific and industrial apparatus, whose status in the hierarchy was not deemed equivalent to that of the general departments.

Designation on the CCP Military Commission remains the job that counts. Confirmation of promotion to this body for the defense minister and the new general department heads long remained obscure, testifying to the awkward relationship between older military generations and the younger generations promoted into senior command slots.[23] Of the three new general department heads, two (Chi and Zhao) were in their mid to late fifties. Their appointments signified the bypassing of military leaders in their sixties and early seventies, who "rightfully" expected to succeed to top posts. Deng, mindful of the need to invigorate the military establishment at all levels, had insisted that the top command slots be filled by much younger men, thereby explaining why Qin Jiwei did not receive his logical promotion—that is, chief of the general staff. Yang Baibing, who is in his late sixties, represents an exception to this trend, with his appointment made solely on personalistic grounds.

Promotion to membership on the Party Military Commission required a rank congruent with such status. According to the available information, commission members must hold a rank no lower than major general (shao jiang ).[24] The only confirmed promotion to the commission during 1987 was that of Liu Huaqing, who had achieved the rank of major general prior to the abolition of ranks in 1965. At best, Chi, Yang, and Zhao held this rank, or (more likely for Chi and Zhao) that of senior colonel (da xiao ). However, Qin Jiwei already held the higher rank of lieutenant general (zhong jiang ). To achieve congruence in status, all were among the seventeen senior officers receiving promotion to the rank of general (shang jiang ) when ranks were formally reintroduced in September 1988.

The designation of seventeen full generals in September 1988 provided the best indicator of the allocation of status and power within the high command.[25] Deng, Zhao Ziyang, and Yang Shangkun were not


designated with any military rank. Below them, appointments reflected a mix of bureaucratic responsibility, party links, seniority, and personal relations: two deputy secretary-generals of the Military Commission; the defense minister; the three General Department heads; the deputy chief of staff responsible for foreign affairs and intelligence; the secretary and second secretary of the Discipline Inspection Commission of the CMC; the political commissar of the Academy of Military Science (but not the president); the president and the political commissar of the National Defense University; the political commissars of the Beijing and Chengdu Military Regions (but not the commanders); the commander of the Nanjing Military Region (but not the political commissar), the political commissar of the navy (but not the commander), and the commander of the air force (but not the political commissar).

Despite these personnel shifts, a CMC executive committee or leading group continued to maintain overall responsibility for military affairs. This group consisted of those identified as vice-chairmen or members of the Secretariat, plus the senior serving military officer.[26] When circumstances warranted, this group forwarded its recommendations to Deng Xiaoping, who remained the supreme arbiter on military matters. In a speech in late May 1989 following the imposition of martial law, Yang Shangkun came close to confirming such an arrangement, even if it discredited Deng's remark of June 1988 asserting that he had already bequeathed leadership of the commission to Zhao Ziyang:

Now some people ask: As there are three chairmen [sic ] in the Central Military Commission, how could Deng Xiaoping alone order the movement of the troops responsible for enforcing martial law? These people do not understand the military service in our country at all. ... In our army, we pursue a commander responsibility system. Such people as I only play a counseling role in assisting the chairman. When he made the decision, he had not only talked with me, but had also talked with Xuezhi, Huaqing, and Minister Qin as well. Why could he not issue the order?[27]

The heads of the general departments represent a second tier of the military leadership. During the crisis of 1989 this group may not have participated in all critical decisions, although some were undoubtedly responsible for policy execution. But their capacity to wield power continued to derive principally from personal relationships, not institutional positions. A third concentric circle—those probably included in enlarged


meetings of the Military Commission—encompasses those miilitary chiefs above the army level. These would include service heads, commandants of the Academy of Military Service and the National Defense University, the seven military region commanders, and the political commissars from the above organizations.

The larger organizational constituencies represented on the Military Commission shed additional light on the allocation of power within the PLA. Each of the PLA's three general departments oversees a set of subsidiary institutions responsible for the full spectrum of activities incorporated within the military system. The reach of the General Staff Department is the largest, since this department is responsible for the separate force commands (air force, navy, strategic rocket forces, artillery, and armored forces), and it presides over other important organizational functions, including procurement, operational planning, and intelligence.[28] The General Political Department, although historically responsible for the system of political control and direction of the military propaganda apparatus, has played a lead role in redrafting the PLA's rules, regulations, and responsibilities. The Political Department has the largest voice in the reassignment of military personnel, including the designation of military ranks and the establishment of the retirement system. Thus, it subsumes most of the functions conducted within the CCP by the Organization Department. The General Logistics Department oversees the financial, supply, transportation, and maintenance network entailed in sustaining the operation of PLA units. This responsibility extends to the allocation of funds for equipment purchases and to the provision and maintenance of all nonlethal military equipment and ammunition stocks.

A lesser-known but increasingly important suborgan is the Discipline Inspection Commission (jilu jiancha weiyuanhui, or jiwei ) of the CMC. First identified in Chinese sources in 1984, the Discipline Inspection Commission has been assigned many of the political control functions previously associated with the General Political Department, although its responsibilities also very likely extend to broader personnel matters. General Guo Linxiang, a Long March veteran, serves concurrently as secretary of this group and deputy director of the General Political Department, although recent reports suggest his retirement from his post. The Discipline Inspection Commission was also unusually visible in the period immediately


following the imposition of martial law in May 1989, confirming its Party watchdog or oversight function within the armed forces. Although the secretary's position remains procedural rather than policy-oriented, he reports directly to the CMC secretary-general, thereby potentially vesting critical powers in the post.

The Commission on National Defense Science, Technology, and Industry (which until late 1987 reported to Zhang Aiping) is charged with overseeing, evaluating, coordinating, and approving plans for military research and development. It has also served as the principal point of contact for countries and firms engaged in negotiations with the Chinese government over transfer of military technology. In theory, the commission's responsibilities extend across all State Council ministeries involved in military production, as well as into the various service commands. The commission sees itself integrally involved in all long-range planning for high technology, with a mandate cutting across civilian as well as military jurisdictions. For reasons to be discussed further, its bark appears more imposing than its bite. But its influence remains substantial, both as a consequence of the prestige and position associated with its high-level patrons (Nie Rongzhen and Zhang Aiping) and by virtue of interpersonal connections that extend into various high-technology sectors.

The Military Commission sits atop this interlocking network of bureaucratic fiefdoms, and, at least nominally, it seeks to adjudicate (if not eliminate) the competition for manpower, budgetary, and technical resources within the system. As one interviewee indicated, however, the commission has a very small, dedicated staff and does not oversee a formally constituted system for defense planning; its power resides in the authority and prestige of individual leaders, rather than in the institution per se, and in its ability to tap expertise within an extensive research-and-planning apparatus.[29] Deng, in the early 1980s, delegated day-to-day responsibility for military affairs to Yang Shangkun, providing Yang with a decisive role in discharging the commission's responsibilities. The frequency and regularity of commission meetings remain unknown. In some instances, the commission has served as a "court of last resort" for disputes that cannot be resolved at lower levels, including major decisions on weapons acquisition. In addition, the commission retains the power of appointment to and dismissal from senior military posts, with the decision subject only to pro forma ratification by the Central Committee.

Differences between wartime and peacetime planning entail additional complexities. In conjuction with the service commands who serve


as "staff officers" under the General Staff Department, the Military Commission serves as the supreme deliberative body over the use of force. However, forces from the different services that are deployed "in theater" during peacetime report to the regional military commanders, who are responsible for coordinating and integrating all military assets available to them.[30] Interviewees explicitly described this arrangement in terms of the tiao-tiao kuai-kuai dynamic. The chief of staff in Beijing has authority over all operational forces in wartime, but in peacetime he delegates substantial responsibility to the regional commanders. Thus, the regional commander does not have the power to make decisions to initiate the use of force, since this responsibility attaches exclusively to higher-level authorities in Beijing. The role of the regional military commander therefore becomes especially sensitive. On the one hand, he cannot make the decision to go to war; on the other hand, he needs to make "on the spot" decisions based upon his own understanding of central directives. Thus, his responsibilities extend to crucial decisions at both the tactical and the operational level.

It is useful in this context to compare Chinese operational procedures with those followed in defense planning in the United States. In U.S. practice, the president and the secretary of defense (assisted by the joint chiefs in a staff role) deal directly with the unified regional commands. The service chiefs are therefore able to perform their principal responsibility—the management of day-to-day policy in their separate bureaucratic systems. Recent reforms, however, have shifted more power to the joint chiefs, with the chairman assuming an authoritative "centralizing" function, including powers that span the jurisdictional domains of the services and compel more "jointness" among the services.

Prior to the crisis of 1989, the PLA appeared to be headed in multiple directions. Chinese military researchers were increasingly questioning the relevance of a unitary system that combined command and administration, and they appeared to be searching for institutional mechanisms to divide these responsibilities.[31] Under these arrangements, military command and military management would be separated, creating a dual system that differentiated operational control of military forces from responsibility for manpower and materiel allocation, training, procure-


ment, and defense construction. But a differentiation between command and administration, although beneficial for the rationalization of functions within the armed forces, may also contribute to unwarranted complexity in bureaucratic channels, given the potential bifurcation of defense policy-making.

The prospects for military reform have been rendered much less certain in the aftermath of the 1989 crisis. Innumerable policy statements have reemphasized the singular importance again attached to political control, with an unmistakable effort to curtail efforts to encourage autonomous professional development. As was noted in an important Jiefangjun Bao editorial, "Over a certain period the leading advocates of bourgeois liberalization deliberately called for 'separating the Army from the Party' and 'preventing the Army from interfering in politics' in an attempt to shake off the Party's leadership over the army."[32] Pending a more conclusive determination of the CCP's future political directions, the development of autonomous institutional norms within the armed forces is likely to be-far more curtailed, with renewed importance to personal relations atop the system.

Deng's resignation from the chairmanship of the CCP Military Commission in November 1989 and his replacement by the Party secretary-general, Jiang Zemin, further underscore these conclusions. Coincident with Jiang's appointment, Yang Shangkun was elevated to Zhao Ziyang's previous position of first vice-chairman, Liu Huaqing was promoted to vice-chairman, and Yang Baibing succeeded his brother as secretary-general, with Qin Jiwei (reflecting his political difficulties following his alleged support for Zhao in the spring crisis) now serving as a member of the commission without executive responsibilities.[33] But Jiang's powers appear more fictive than real: he lacks the stature and personal authority that has been associated historically with the chairman's position. As with Hua Guofeng in the late 1970s, no one seriously believes that Jiang wields supreme power in the armed forces: such capacities remain invested in Deng Xiaoping and his designated first vice-chairman, Yang Shangkun. Taken as a whole, China's military command arrangements still seem an uneasy mix of personalistic and professional considerations. The closer to the acme of the system, the less command derives from specified rules and norms, a judgment amply driven home by the events of the spring of 1989. The persistence of traditional norms amidst a serious, sustained effort to professionalize the Chinese military establishment seems likely to remain a continuing source of long-term conflict within the policy-making process.


The Budgetary And Resource Allocation Process

The political and economic changes of the past decade have sharply altered the role and scope of military involvement in the Chinese system, with the armed forces no longer enjoying pride of place in centrally allocated budgetary, technical, and manpower resources. The PLA's diminished stature is reflected in its reduced leadership role: only two military leaders (Yang Shangkun and Qin Jiwei) serve on the Politburo elected at the CCP's Thirteenth National Congress, and military membership in the Central Committee has continued its slippage, evident since the Ninth Party Congress.[34]

There have also been sharp reductions in the defense budget. In the immediate aftermath of the Sino-Vietnamese War of early 1979, defense expenditure increased by 5.5 billion yuan, much of it replacement costs for the heavy losses of equipment and weaponry sustained during the war. This action proved the last major "out of cycle" surge in the military budget. The predominant thrust has been to reduce military manpower and defer major procurement decisions, in the hope of decreasing the military's operating budget in both absolute and relative terms. The announced increases of 15 percent in the 1990 military budget (much of it supposedly allocated for equipment purchases related to internal security needs) therefore represents a marked departure from this trend.[35]

As was noted earlier, however, the introduction of a retirement system has sharply increased near-term personnel and pension costs, effectively denying the PLA the surplus funds it hoped to generate by reducing the size of the armed forces. Moreover, a 1988 Central Intelligence Agency study estimated that total PLA manpower at the time of Deng's return to top military leadership may have been nearly double the prevailing estimates. Although much of this surplus manpower may not have been uniformed personnel, these individuals remained on the army payroll. According to this estimate, China "has reduced its armed forces by about 3 million men since 1977 ... [and] China's military operating budget ... has declined by about one-fifth over the last eight years." As the Chinese budget as a whole has grown, defense expenditures have shrunk from approximately one-third of total state expenditure in 1978 to about one-


fifth in 1987. The share of gross national income in the same period declined from 12 percent to 5 percent.[36]

These trends have convinced numerous observers that the military has lost much of its previous "clout," generally embodied in the view that national defense is "the last of the four modernizations." This judgment is more assertion than fact. Of the other "three modernizations," two (industry and science-and-technology) are linked integrally to the enhancement of military power, with the PLA still able to exert substantial influence in both domains. In addition, Chinese strategies unequivocally view the modernization of military power as essential for China's credibility as a world power in the next century. In his address commemorating the sixtieth anniversary of the founding of the PLA, Yang Shangkun drew attention to the need to guarantee China's "status as a world power" (shijie jiangguo diwei ) by the middle of the twenty-first century.[37] Huan Xiang, the late international-affairs strategist, insisted that China could not rest content with the position of "being a second-rate power or merely a regional power," arguing that the nation must aspire to a status (if not a strength) equivalent to that of the United States and the Soviet Union.[38] Thus, the curtailing of the acquisition of major weapons systems is intended to shift attention toward enhanced technological and industrial capabilities as a whole rather than weaponry per se, with the armed forces very well endowed in scientific and industrial resources, especially in high-technology areas.

The movement away from a central allocative system has also opened a wide array of commercial opportunities for portions of the military system, with some parts of the military doing very well in recent years. In particular, the automony permitted to various military organizations to buy and sell goods and services has transformed the PLA's position and role. Although it is no longer business as usual for the armed forces, it is very much a time of business, with more entrepreneurial segments of the military establishment testing the marketplace for financial gain, thereby recouping many of the losses sustained in central budgetary allocations. The generation of such export earnings (Chinese weapons sales abroad


for 1988 were estimated at $3.1 billion in a U.S. congressional study) constitutes a new and potent source of power within the PLA.[39]

Although many levels of the military system initially appeared sluggish or resistant in responding to these new "rules of the game," the armed forces ultimately proved more adaptive. The defense establishment has been disabused of its somewhat complacent attitude toward its status and power relative to other functional sectors, and it is far more intent on developing strategies for enhancing institutional interests. But these commercial opportunities have disproportionately benefited those within the defense sector with the requisite connections to effect these transactions. It remains to be seen whether and when the military as an institution (as distinct from powerful individuals within the defense establishment) will realize gains appropriate to the scale of these activities.

The PLA remains an extremely powerful bureaucratic actor, a power reinforced by its coercive functions, by its responsibility for defense of the realm, and by its still potent access to technology and resources. But the military's capacity to retain or augment its financial and manpower assets was greatly challenged by various reform measures undertaken in the mid and late 1980s. At a time of budgetary stringency, the PLA confronted a growing gap between China's military-technological capabilities and those of its external rivals and potential adversaries. As Yang Shangkun observed at a Military Commission meeting in late 1986, "The principal contradiction in our army building is the contradiction between the objective requirements of modern warfare and the low level of modernization of our army."[40]

Paradoxes and contradictions nevertheless persist in the defense research-and-development sector. The Commission on Science, Technology, and Industry for National Defense nominally presides over a vast, interlocking network of institutions devoted to the specification, appraisal, and application of advanced technologies for national defense. These functions comprise the four major tasks of research, development, testing, and evaluation. In theory, COSTIND oversees this sprawling, unwieldy apparatus, coordinating requests from the services for particular technologies, evaluating budgetary requirements of project proposals, and forwarding recommendations to the Military Commission for approval. COSTIND also oversees China's missile launch sites and satellite tracking facilities, thereby providing it control over important resources for which it has no bureaucratic competitor.


Considered as a whole, China's defense technology apparatus combines the logic of centralization and coordination with the reality of fragmentation, duplication, intrabureaucratic competition, and the frequent absence of effective oversight.[41] Thus COSTIND lacks the manpower resources required to undertake a more comprehensive bureaucratic role; its immediate professional staff numbers only seven hundred. But its small size is symptomatic of two larger problems: the absence of a viable concept of defense-resource management through which the commission can direct the R & D process, and the diffusion of effective control over budgetary and technical resources within the defense industrial system.

In a certain sense, COSTIND is a victim of the success of the Chinese nuclear weapons program. This program stands as vivid testimony to the capabilities of Chinese scientists and engineers, and the Chinese are legitimately proud of its accomplishments.[42] But the history of this program has also had an inhibiting effect, since the circumstances that contributed to its success cannot be replicated in the defense-modernization process as a whole. The principal ingredients included a virtually unlimited budget, consistent support from the highest levels of the political system, a relatively large pool of scientists and engineers trained abroad in the requisite areas, substantial infrastructural and technological assistance from abroad in initiating the program, a limited number of required end products, and urgent, compelling pressure to produce rapid results.

In 1982 COSTIND was formed by merging its predecessor (the Commission on Science and Technology for National Defense) with the National Defense Industries Office, which oversaw defense industrial production within the numbered machine building industries.[43] By combining the research and production functions in one organization, a single body was expected to wield power that a more limited organization could not. COSTIND's mandate and authority were provided through its principal sponsors in the military leadership, Marshal Nie Rongzhen and Senior General Zhang Aiping, both of whom had been intimately involved in the nuclear weapons program. The power of the nuclear weapons and space bureaucracy was entrenched within the commission, but it was subsequently extended through senior person-


nel appointments to the reconstituted industrial ministries that at least nominally "own" the plants that produce China's weapons.

These arrangements have guaranteed a pivotal role for COSTIND in the planning process and reflect a continuing effort (first put forward by Zhang Aiping in 1983) to maintain oversight and direction of major R & D decisions. Recalling the nuclear program, Zhang argued:

In 1956 the CPC Central Committee decided that developing guided missiles and atomic energy were the two key projects in our national defense modernization. ... Facts have proved that this was a completely correct decision. ... Our work in developing guided missiles and atomic bombs started relatively late but the speed of development was relatively quick. One important reason for this is that we centralized our organization, vigorously carried out coordination and cooperation, gave priority to key tasks, and concentrated our resources of labor, materials, and funds.[44]

The difficulty in applying this concept more widely in defense R & D reflects the highly disparate technological and engineering demands imposed by the full array of military needs (especially products or components that require serial production), the absence of a guaranteed internal customer for the items produced, and the lack of requisite experience in incorporating more advanced technologies within an outmoded defense industrial structure. As a result, the Chinese still produce military equipment that improves only marginally on Soviet designs provided to China three decades ago. Although there are prototypes and limited production runs of some systems that incorporate more advanced technologies, China's indigenous capability for R & D innovation and diffusion remains quite limited.

Under the "old" R & D system, where the industrial ministries were virtually guaranteed an annual allocation of materials and funds and where few if any pressures existed for technological innovation, the inertial tendencies were substantial. Factories steadily produced large quantities of military equipment (there are over five thousand aircraft in the air force inventory alone), but with very little attention given to its relevance to potential combat needs. Under the "new" R & D system, the customers (i.e., the services) either no longer want the product or cannot always guarantee the funds needed for manufacture and procurement.

Thus, those officers responsible for miltary procurement (housed principally in the Armaments Department of the General Staff) believe that their power and status within the system have been greatly undermined, and they are actively seeking to reassert their power and prerogatives. Their efforts are aided by the existence of an informal "middle-age


boy" network, many with familial or personal ties to senior Chinese leaders, who are able to secure large quantities of surplus weaponry lying unused in army warehouses. These arrangements tend to cut across institutional lines of authority, suggesting that informal, personal relationships remain the glue to numerous commercial transactions within the military system. By marketing this equipment (some of it upgraded with Western Technology) at bargain rates, Chinese suppliers earn substantial foreign exchange. Thus, financial power has passed to those who control the disbursement of surplus equipment and weaponry and show an aptitude for marketing these items.

The proliferation of trading companies that market Chinese military items attest to these changing conditions, with some companies also serving as purchasing agents for foreign military components or systems desired by end users.[45] There appear to be three principal types of actors: (1) companies associated with central R & D planners (i.e., COSTIND); (2) those linked to the industrial ministries (most prominently, North China Industries, or NORINCO); and (3) those associated with either the General Staff Department or the General Logistics Department (most prominently, Polytechnologies, which serves as the marketing arm of the General Staff's Armaments Department). COSTIND appeared to take the lead in negotiations at a government-to-government level (for example, the now-aborted Sino-American avionics agreement for the J-8 II aircraft); the ministries deal principally with collaborative arrangements with foreign firms, especially related to coproduction or technology transfer; and the services (as represented by the general departments) deal predominantly in Chinese sales to foreign governments and firms.

Of the three actors, the General Staff Armaments Department has garnered the largest amounts of hard-currency earnings. Partly because of its success but probably more because of the particular leaders involved in these transactions, it appears to have the most latitude in conducting such exchanges. The observable patterns, however, do not follow predictable institutional lines, but instead derive from the close family connections of these military entrepreneurs. The most frequently cited cases concern He Ping, a lead official in Polytechnologies and the son-in-law of Deng Xiaoping, and He Pengfei, director of the General Staff's Armaments Department and the son of He Long. Both organizations work under a cloak of secrecy, frequently working through umbrella import-export organizations such as the China International Trade and Investment Corporation (CITIC). The success of these officials demonstrates the capacity of different parts of the bureaucracy to "end run" the indus-


trial ministries by defense marketing activities, enabling the services to retain export earnings that would otherwise be unavailable to them. The precise portion of earnings retained by the services or the General Staff, and the uses to which these earnings are put, are subject to widely divergent estimates. But a profit-oriented military establishment reflects the sharply altered rules of the game. An entrepreneurial system does not necessarily produce a more technologically innovative defense force, but it does underscore the shifting locus of power within the armed forces.

A clear task for future research is to attempt to examine the effects of the weapons-sale process on the military system as a whole. The key questions include these: Where does financial control reside within the military system? Who allocates which resources, and are the purposes and consequences predominantly personal or institutional? Are these shifts in military behavior likely to manifest themselves over time in the form of increased demands for more sophisticated weapons systems being produced in Chinese factories? How has the incentive structure changed for both consumer and producer, and are there means by which profit motivations and military needs can be reconciled?

Another illustrative case concerns the canceled J-8 II avionics transaction with the United States. The total package, undertaken through the Foreign Military Sales (FMS) program, was to have totaled $550 million. One close observer of this process likened the scale of the project to the B-1 program in the United States. Although this probably overstated the costs for China, it was a major undertaking and by far the largest collaborative agreement with the United States in the defense sector. Yet the agreement was not well received by all portions of the military R & D apparatus, especially within the aviation industry, since the project did not entail the transfer of production know-how for the complex electronics packages that represented the heart of the transaction. From a service perspective, however, the prospect of the acquisition of more advanced avionics—even for a limited number of a prototype aircraft—was judged worth the risks and uncertainties. The project's cancellation in May 1990 reflected the escalating costs that the Chinese deemed unacceptable; some in China also appeared to believe that the United States was simply unprepared to implement the full scope of the agreement.[46]

Despite the cancellation of the project, this effort at foreign collaboration reflects the diminished power of China's indigenous military industrial system. Confronted by specific commercial and technological opportunities, the top levels of decision making slighted the interests of the ministries. As a result, numerous enterprises that previously concentrated


on defense production now devote principal attention to civilian manufacture. Many defense enterprises, however, remain uncomfortable with the civilian market and have sought ways to sustain their military production capabilities. In one of his major commentaries on national defense modernization while overseer of the R & D process, Zhang Aiping spoke of the need to establish "a state mobilization working system for wartime." Zhang concluded:

While carrying out national economic construction, we should consider the way to make peacetime construction conform with the material needs during future warfare. Peacetime construction ... should make necessary preparations for meeting the demands of war. Otherwise, once war breaks out, there will not be enough time to build factories and institutes for manufacturing various kinds of weapons and facilities or to build roads and bridges. ... We should do our best to integrate peacetime and wartime demand.[47]

Such comments leave unsettled the readiness of all portions of the military system to shift conclusively away from its long-standing practices and habits.

Despite these uncertainties, those responsible for long-term planning viewed the more constrained budgetary and investment climate as an opportunity rather than a problem. In an environment much less supportive of open-ended, frequently duplicative military allocations, the separate components of the military R & D process acquired incentives to collaborate rather than compete. This is the logic of more centrally coordinated and administered planning arrangements. In the deliberations over the Seventh Five-Year Plan, defense procurement fared very poorly. Since that time, senior defense planners have sought to introduce for the first time mechanisms geared toward long-range military planning. This effort is in contrast to the annual and five-year planning cycles and explicitly seeks to coordinate research and development activities to the year 2000 and beyond.

According to interviews with those involved in this process, the PLA is endeavoring for the first time to create a mechanism across all relevant bureaucracies to guide defense-technology planning from concept to final implementation. This effort entails a coordinated effort in all areas of potential military need (both technology related and service oriented), with subsequent reports purportedly serving as guidance for decision making and resource allocation. This effort is coordinated by COSTIND, with extensive participation by all relevant military bureaucracies. Even conceding the incentives for constituent organizations to inflate their importance


portance and needs, the very fact of such an exercise may prove more important than its actual results.

To the extent that this planning effort clarifies choices among alternatives and erodes a tradition of separatism widespread within the military, it seems likely to prove a valuable exercise. Regardless of any specific policy outcomes, it will help prepare the defense R & D system much more fully and effectively for the next five-year plan. Indeed, some military spokesmen openly hint at expectations of receiving an increased "return" on the deferral of major procurement decisions during the 1980s and see the next decade as a more promising period. The PLA's vital support for Deng and his political allies in the crisis of 1989 assumes obvious importance in this regard, with the announced defense budget increases for 1990 representing a "down payment" for services rendered by the military.

Some Preliminary Conclusions

The Chinese armed forces are in the midst of major challenge. Spurred by Deng Xiaoping's belief that the PLA had lost much of its credibility as an institution and was degrading China's claim to great-power status, the army (at Deng's behest) began to explore different directions. Part of these changes were a consequence of the gradual passing of a legendary generation of revolutionary-era generals, but Deng's determination was the principal spur to change. To achieve his goals, Deng required a senior military leadership accountable to him, a long-term plan to achieve necessary institutional reforms (especially in the personnel system), and the creation of pockets of innovation on which these changes could build.

Deng's accomplishments in these areas proved measurable, especially during the mid and late 1980s. But these new directions bred different problems and pressures. Elements of more traditional patterns of power and authority continued to abound, even as younger generations of officers were restive and increasingly resentful of arrangements and understandings at the top. The military became more professionalized and regularized, but there was still no escape from personalism, especially at the apex of the system. The familial ties within the military system suggest that advancement in the army may remain a matter more of inheritance than of competence.

At the same time, major uncertainties persist about the PLA's longer-term relationship with the Party. Even as the military leadership sought to impart a new organizational ethos, political control remained paramount, inhibiting truly autonomous institutional development. As the events of May and June 1989 amply demonstrated, organization charts


and formal lines of authority proved very imperfect indicators of the structure of power in China. The declaration of martial law and the subsequent resort to force derived from ad hoc arrangements rather than any regular decision-making procedures. Military command and control under crisis circumstances served as a telling reminder that China remains devoid of institutionalized mechanisms to constrain the exercise of power.

Five dimensions of PLA behavior during the crisis of May and June 1989 illustrate the absence of such mechanisms: (1) the nonutilization of available procedures (for example, the convening of a regular rather than an "enlarged" Military Commission meeting) that could be expected to govern military behavior under extreme circumstances; (2) the intrusion of leaders without formal military responsibility (in particular, Premier Li Peng and the leadership of the Beijing Municipal People's Government) into armed forces channels, especially through the Martial Law Command organized by Chi Haotian; (3) Deng Xiaoping's absence from direct participation in numerous key military decisions, although nearly all actions appeared to have his concurrence, with Yang Shangkun serving as the transmission belt and executive agent; (4) Deng's extraordinary action of redeploying troop units from other military regions (especially Shenyang and Jinan) to Beijing and its environs, thereby assuring compliance with directives issued in the name of the CMC; and (5) the predominant reliance of the martial law authorities on main-force units and strategic reserves, effectively bypassing Beijing-based units, whose political loyalties and willingness to comply with leadership directives were judged more questionable. By resorting to these extralegal arrangements justified through quasi-statutory procedures and regulations, the proponents of martial law totally outmaneuvered those Party and army leaders who voiced reservations about the possible use of force.

The critical issues of the crisis pertained, however, not to legality or procedure, but to a preemptive bid for power by forces opposed to Zhao Ziyang's ultimate assumption of supreme decision-making authority. It seems entirely possible that a majority of the then extant executive committee of the Military Commission (Zhao Ziyang, Yang Shangkun, Hong Xuezhi, Liu Huaqing, and Qin Jiwei) would have opposed or seriously questioned the decision to impose martial law. Deng and Yang very likely knew they were outvoted, which compelled them to resort to "out of channel" arrangements that preempted the opposition.

At the same time, the use of force (drawing heavily but not exclusively from units of the Twenty-seventh Army that were totally unprepared for crowd control) underscored the unstinting loyalty of mobilized PLA units to Deng and Yang's orders, no matter how abhorrent the circum-


stances. Despite persistent reports of impending civil war between rival forces, very few units balked at implementing the orders of the martial law commanders. Even under extreme duress and confusion, the system held, and no collapse in state power took place. It remains to be seen whether comparable loyalty could be guaranteed in another leadership crisis. The near-total turnover of regional commanders in the spring of 1990 (with most new commanders brought into their assignments from other military regions) suggests a greatly heightened effort to assure loyalty and responsiveness to orders from the top, and to avoid manifestations of localism.[48]

In the aftermath of the Tiananmen crisis, the basis of the authority in the Chinese armed forces needs to be carefully reassessed. Personal loyalties and relationships proved decisive in the 1989 upheavals, with recent efforts to introduce regular channels and procedures for decision making shelved. Although it is too early to judge the longer-term consequences for the attempted institutionalization of military policy, the system in crisis reverted to a preexisting form, calling into question the true extent of organizational change. Even as the age of the regional and district commanders continues to decline and their professional skills continue to improve, political loyalty to the Center remains the paramount criterion for career advancement.

With the inevitable passing of Deng, Yang, and other senior leaders, however, the pressures for change will increase, especially from younger officers with a large stake in the future development of the armed forces. The capacity of the supreme military leadership to effect this transition without engendering a major crisis will remain crucial to the future of the Chinese political system.


The Educational Policy Process: A Case Study of Bureaucratic Action in China

Lynn Paine

Some bureaucracies are strong; others are weak. Education is a weak bureaucratic actor. Why is this so? How does the education sector cope in an environment dominated by more powerful organizations competing for scarce resources? These are the questions of concern in this chapter.

What makes the education bureaucracy weak? There are many factors, including the devastating legacy of the Cultural Revolution (which disproportionately affected education); the history of debates over education's very functions, which therefore remain unclear; the continued absence of a powerful champion for education; and the power of noneducators—especially the Party—to set the education agenda and determine boundaries for action.

Political explanations aside, important economic factors also contribute to education's relative weakness. Education is often considered a nonproductive sector. Schooling in China was long perceived as consumption (Yuan 1988, 26). Despite current exhortations to recognize education as valuable investment, it is at best an investment that only pays off in the future, after a generation of students graduates from an improved system. Yet the resources necessary to upgrade education significantly need to be provided now and on an enormous scale. In making


a case for this position, education bureaucrats suffer from an inability to guarantee their "product," since education's technology is unclear (that is, it is not clear how to "produce" the ideal student, if there were even agreement about what that student would be like).

These ambiguities and uncertainties help keep education spending low and fuel the continued debates about funding for education. While that funding in recent years has increased, education expenses in the 1980s have stayed well below 4 percent of GNP, a low figure internationally. What for China represents a high-water mark in educational spending—32.1 billion yuan budgeted in 1988—amounts to only about 32 yuan per person (ZGJYB , 4 April 1989, 1). Annual expenditures per pupil are very limited: 128.5 yuan for general secondary school students and only 47.3 yuan for elementary students in 1985 (Zhongguo shehui tongji ziliao 1987, 172). And these very "limited outlays and educational construction actually decrease" in value in the current period of inflation. Economically, the education bureaucracy is constrained (Yuan 1988; ZGJYB , 18 August 1988, 4).

Finally, organizational fragmentation further weakens education in the political struggle. Who is the education bureaucracy? Officially, education is represented by the State Education Commission (SEdC), yet SEdC-administered schools represent only a part of the nation's education activity, since other ministries fund and to a large degree control their own educational institutions. (In fact, their funds in 1987 represented 13.73 percent of government allocations to education.)[1] Further, the majority of precollegiate education is funded and directly administered by provincial or local (municipal, county, or township) educational authorities.[2] As a result, the formal-education bureaucracy of the SEdC must share authority horizontally and vertically.

These constraints burden the contemporary education bureaucracy. Yet today and in the future, education must play a central role if China's modernization is to progress. Today, approximately one-fifth of China's population is in school (ZGJYB , 18 August 1988, 4), and whether in strengthening science and technology, in raising worker productivity, or in training management, education is important.

Against this backdrop of weakness confronting enormous tasks, how


does education cope? How does it try to improve its situation? I argue that China's institutional environment requires much strategic action, consensus building, and, where possible, persuasion.

The policy process in education involves much interaction and negotiation up and down the hierarchical system and many alliances across sectors. Bureaucratic action proceeds through a groping process reminiscent of Cohen, March, and Olsen's garbage can model (1972). Within that process, participants at all levels have some power, yet each is constrained. The patterns of interaction of these participants reveal that the education bureaucrat relies on multiple coping strategies.

Hence, to talk about Chinese educational policy we must look both horizontally across ministries and vertically from central organs to provinces, municipalities, districts, and even the basic bureaucratic unit of individual colleges and schools. While education's resource dependence reduces the possibility of bargaining among equals, there are ways in which the education bureaucracy exerts pressure internally and on other sectors. Taking advantage of what Gustafson (1981, 51) calls the open window, the education bureaucracy has achieved some policy victories through forged alliances and the pressure of symbolic action. The limits of the education bureaucracy's authority and its coping responses are the topics of this chapter.

The Issue: Policy Related To Teachers

Since the 1978 Third Plenum of the Eleventh Central Committee, education has been at the center of debates about China's development strategies. The "strategic focal role" of education has been stressed with increasing energy in central-level plans, and teachers have been a frequent topic of public debate and policy reform. Perhaps the most significant example of this is the placement of teachers on the list of targets of the landmark 1985 Education Reform Decision (the jiaoyu tizhi gaige jueding , hereafter called the Education Decision). In the wake of that Decision and the 1986 Compulsory Education Law, central leaders, education bureaucrats, and education researchers argued that teachers—better qualified, in larger numbers, and more highly rewarded—are an essential part of these reforms. Changes in the condition and ranks of teachers are viewed as a precondition for national education reform and, thus, for broader economic and social reform.[3]

Yet even in this purportedly supportive climate for education, one


finds evidence of education's limits. The education system's bureaucratic weakness, its interdependence with other sectors, as well as its multiple coping strategies, can all be illustrated through examination of policies related to teachers. This issue area provides a window on broader aspects of bureaucratic behavior and educational policy formation.

Below I outline the structural constraints on the education bureaucracy as preparation for discussion of four interrelated features that described dominant patterns of bureaucratic behavior in China's educational system. These features, described through analysis of two case studies of teacher policy, include (1) the groping process of policy activity; (2) the power of subordinates to shape policy; (3) the multiple coping strategies sought by participants in the educational policy process; and (4) the necessity of cross-sectoral work to support sectoral interests.

Formal And Informal Structures In Teacher Policy

The formal bureaucratic home of educational policy, the State Education Commission, is itself an acknowledgment of the weakness of the education bureaucracy. Initially, the Ministry of Education (MOE) headed up the education sector. The MOE was functionally on a par with other ministries in competition to obtain scarce financial resources and official attention. But, as the then head of the SEdC, Li Peng, explained, this arrangement made it "very difficult for the Ministry of Education to map out an overall plan for education as a whole" (FBIS , 14 June 1985, K7).

The weakness of the MOE's position often undermined efforts regarding teachers. One MOE official I interviewed in 1983, for example, described how the MOE by itself could not solve the problems of the teaching profession. Instead, the ministry had to rely on the State Council, but had to compete with advocates of other sectors for State Council support, attention, and action. While he believed that central leaders like the then premier, Zhao Ziyang, understood the problem, the official said it would take much persuasion before teachers' situations could be improved. "Those of us doing education push education. ... But other ministries have their problems as well."

The creation of the SEdC in 1985 was intended to address directly this problem of cross-ministry competition for money and attention. The goal was to improve the education system's persuasive position. Appointing members to sit concurrently on the SEdC and other ministries or commissions was to facilitate coordination across ministries and simplify structural arrangements. In addition, naming someone with the stature of Li Peng as head was to lend credibility (and symbolic clout) to the claims about the importance of education.

Yet although these structural changes, designed to reduce fragmenta-


tion, have occurred, interviews with officials in 1986 and 1987 suggest that education bureaucrats still must work regularly with other ministries, at times competing with them for attention and support. The presence of the concurrent members on the SEdC leadership group may have facilitated cross-ministry and cross-commission communication, yet it has not obviated the need to persuade policymakers outside the SEdC to cast their lot with education (as the second case study illustrates). Senior SEdC officials say that they still have to call on superiors to intervene in cross-sector bargaining. Though the SEdC may have more clout through its organizational structure than its predecessors, it must nevertheless negotiate with other bureaucracies.

Though the SEdC's role overlaps with other ministries, commissions, and the State Council, I focus chiefly on the SEdC organization and its role. It is the SEdC that bears the responsibility for studying and articulating major educational concerns, preparing guidelines for schools, overseeing the administration of much of higher education and—at a distance—the direction of precollegiate schooling, and the organizing of educational reform.[4]

The Formal Organization: A Horizontal View

The education sector, as formally represented in the central government by the SEdC, is connected to its organizational environment. That is, it is organized to include representation from other ministries and commissions whose work affects the education system. In 1987 the SEdC was headed by a leadership group consisting of its head (then Li Peng, and since 1988 Li Tieying), eight vice-ministers, a former vice-minister of education, and vice-ministers from the State Planning Commission (SPC), the State Economic Commission (SEC), the Ministry of Finance, the Ministry of Labor and Personnel, and the State Science and Technology Commission.

The SEdC is composed of some thirty-five departments and bureaus (si and ju ), with various offices (chu, shi ), and, below them, sections (ke ). Policy issues often cut across several departments or bureaus in the SEdC. An issue area is typically the responsibility of a vice-minister; in the case of teachers, Liu Bin was responsible in 1988. (He also was responsible for precollegiate education and minority education.) He oversaw the extensive cross-department work that is required for teacher-related policies. The majority of teacher-related work comes


under the authority of the Teacher Education Department (shifansi ), which is responsible for tertiary-level teacher-education institutions (that is, normal colleges and universities), their secondary equivalents (teacher-training schools), in-service training of teachers, and teaching materials. Teachers' work conditions are the concern of the Precollegiate Education Department. While these two departments shoulder the chief responsibility for teachers, some aspects of teacher-related policy come under the purview of other SEdC departments: the Political and Ideological Education Department, for example, and the bureaus of Capital Construction and of Planning and Financial Affairs.

At the same time, the policy process in education is not restricted to the SEdC. Teacher-related policies require contact and cooperation with other ministries. One SEdC official in 1987 explained that the SEdC necessarily has "closer relations" with the Ministry of Finance (for funding issues), the Ministry of Labor (for policy on personnel and salaries), and the SPC, the SEC, and the State Science and Technology Commission (SSTC). The presence on the SEdC of vice-ministers from these sectors is an acknowledgment of the interdependence among tasks.

The Vertical View

The formal description of the education system's bureaucratic actors portrays the focus of policy activity as being at the SEdC, albeit with active collaboration with or coordination of other ministries and commissions. But the educational policy process also involves much vertical movement. The State Council needs to approve major policy and, at times, mediate disagreements between participants. Provinces, counties, municipalities, and individual schools also are centrally involved. And there is substantial autonomy at the lower levels.

What is the relative power of these different levels within the educational system? Most generally, the central-government level (SEdC) is seen as having the greatest power, though provincial and local levels also have responsibilities that give them power over schools. It is the SEdC that determines broad policies, provides the outline for curriculum in precollegiate education, determines texts, and, to a large extent, runs higher education (through its control of the university entrance-examination system and the determination of academic majors). Provincial education authorities run the secondary education system (through their control of the secondary school entrance exams), provide some financing of precollegiate education, and control some aspects of the nonkey sector of higher education (its financing, student recruitment, and, in part, job assignments). Local governments provide the majority of funds for local elementary and secondary schools.


It should be noted also that the power of different levels of the education bureaucracy is complex because of overlap in the function of central, provincial, and local levels; regional variation; range in types of policy and kinds of resources that connote power; and the distinction between state-run and community-run (minban ) schools. Power over funding, for example, depends on the level and type of school (e.g., key or nonkey). Power over the curriculum is also somewhat influenced by more than one level and varies by place: though in the 1980s the SEdC controlled a nationally unified curriculum, provinces and localities had the authority to supplement that curriculum (and varied greatly in the degree to which they did so). In the late 1980s Shanghai used its own experimental curriculum in place of the national curriculum. Finally, depending on the type of education policy (e.g., curriculum, funding, administrative structure), even individual schools can exert a kind of veto power in their ability to obstruct, delay, or reinterpret policy.

In short, the pattern of power within the education system is complex. The pattern has also changed. Over the 1980s there occurred nationally an increase in the relative strength, autonomy, and influence of the local bureaucratic level and individual school units as greater responsibility for finance devolved to local levels and schools were encouraged to rely on entrepreneurial solutions to many operational problems. At the same time, in policies regarding the admissions systems, bureaucratic structures, rules, and standards of evaluation, educational reforms have tied schools more closely to unified plans or central authority. The result of this two-sided change is the increased autonomy of lower levels of the educational system within a more circumscribed boundary of action.

With respect to teacher policy, the patterns of fragmented power parallel those described above for education generally. Formally, the departments responsible for teachers at the central level (in the SEdC) have provincial counterparts in the Bureau of Education (BOE).[5] These provincial offices have power over teacher policy through provincial administration of teacher education,[6] through direct administration of provincially run secondary schools, and indirectly through the oversight of county and district education offices, where the bulk of elementary and secondary schooling is administered. Provinces, like the counties and


districts below them, play a noticeable role in interpreting and in effect shaping educational policy.

In this structure there is much delegation of discretionary authority. The Center decides that teacher competence must be assured, but municipalities choose the subjects in which to test their elementary teachers (ZGJYB , 10 November 1987, 1). The central government announces a 10 percent wage increase for teachers, but provinces and localities are authorized to find the money and make decisions about the actual allocations (ZGJYB , 3 December 1987, 1). And the former Ministry of Education announced that teacher education would be upgraded, but local institutions had to decide what that meant in curricular terms (Paine 1986).

Nonetheless, stopping with the observation that there is delegation of discretionary authority assigns too much rationality, foresight, and decisive clarity to the central education bureaucracy. Instead, closer examination of the process of educational policy formation suggests less rationality, more interaction, and iteration. Horizontal and vertical interactions produce a process and a set of policies that are at one time more responsive, vaguer, more heterogeneous, and slower than the delegation or discretion model suggests.

Two cases of policy formation—one regarding a regulatory issue, the other distributive in character, are analyzed below. While each illustrates the profoundly interactive nature of the process, the two differ in the locus of and approaches to authority and influence. The first concerns regulations for teacher competence. Through this case we see the grouping process, the powerful role of subordinates, and the variety of coping strategies invoked. The second case concerns efforts to improve the social, economic, and political situation of teachers. Here we observe the limits of the education sector and the subsequent need for cross-sector alliances and cooperation.

Case Study I: Standards For Teachers

The Problem of Standards and Quality

Central to the discussions of teacher policies and educational reforms is the issue of standards for teachers. By the time of the 1978 Third Plenum a teacher shortage greater than that experienced before the Cultural Revolution existed quantitatively and in terms of credentials and competence. As figure 7.1 suggests, the rapid expansion of precollegiate education since the 1950s had not seen a commensurate growth in teacher education or trained teachers. The national shortage in 1977 was estimated at 3.45 million elementary and secondary school teachers (Cui 1979, 31). According to leaders, quality was a bigger problem than quan-


Fig. 7.1.
Elementary and Secondary Expansion, 1951–78


tity. The Chinese indicate that quality—as measured in terms of qualifications (teachers' academic credentials)—fell over the years, as is seen in table 7.1.[7]

If China was to reach its broader educational goals, there had to be a strengthening of standards. Yet given the vigor of the attacks on teacher education and professionalism during the years of the Cultural Revolution, the urgent need to coordinate and regulate the establishment of professional standards for teaching posed a major policy challenge. The study of bureaucratic behavior and the use of authority that were called


TABLE 7.1. National Percentage of Academically Qualified Teachers



Junior High

Senior High













SOURCES : Cui 1979, 32; Department of Planning 1984, 222; Wu 1983, 82; ZGJYB , 31 December 1988, 1; Zhongguo shehui tongji ziliao 1987 1987, 161.

a Based on a survey of 2,601,400 teachers in 1963 (Department of Planning 1984, 222).

b Based on a survey of 5,216,600 teachers in 1978 (Department of Planning 1984, 222).

c This figure represents the percentage of qualified senior high (gao zhong ) teachers nationally in 1985, but does not include teachers in specialized secondary schools (zhongzhuan ).

on to meet this policy challenge illustrates three aspects of the process of educational policy formation within the vertical educational policy system: its slow, reactive, and groping character; the power of subordinates; and the limited authority available to education bureaucrats and the resulting strategies they adopt.

The Groping Pace of Bureaucratic Action

Bureaucratic wrestling with the issue of teacher policy has occurred outside any routine temporal cycle. In the case of teacher standards, superiors have placed no deadline. (Contrast this with what an SEdC official described as the one-year deadline the Central Committee gave the SEdC for formulating the draft of the "Education Decision.") Instead, the regulation of teacher standards appears to be a case of an issue looking for a policy, what Cohen, March, and Olsen might describe as "issues and feelings looking for decision situations" (1972, 2). What we see is a practice of management through groping (Paine 1986; Behn 1988).

The policy process in this case involved the simultaneous occurrence of goal setting, discussion, and implementation.[8] Goal setting began in


1978 with "problem recognition" (Kingdon 1984, 19): the shortage of qualified teachers was identified as a policy problem at the 1978 National Education Work Conference, the 1980 National Teacher Education Work conference, and in numerous articles published during this time. National leaders and high education officials gradually formulated a set of goals and principles for the reform of standards for professional preparation and practice,[9] yet these statements have been distinguished by their vagueness and breadth. The most frequently cited statement of goals, for example, simply claims that teachers (1) "must study hard and become more erudite; (2) they must seriously study and grasp the science of education and understand educational laws; (3) they must have a noble moral character and a lofty spiritual realm and must be worthy of the title teacher" (FBIS , 30 June 1980, L1).

While national political and education leaders gradually announced policy goals, discussion of teacher standards and teacher education reforms grew. Since 1978 the topic got increasing scholarly and popular attention. Over one hundred articles were published on teacher education between 1978 and 1982 (Tan, 1983), and at least six new teacher-education journals were started between 1982 and 1984. Nonetheless, the discussion did not become markedly more specific. Instead, the discussion was mired in epistemological and fundamental questions, with the most discussion of teachers' professional standards (accounting for 46 percent of the literature) concerning the need for increased attention to be given teacher education and its "special characteristics" (Tan 1983).[10]

Despite the absence of clearly defined goals, individual institutions, sometimes acting independently and sometimes acting in concert with the MOE or other schools, carried out numerous changes in all major areas of professional teacher preparation. Repeatedly in my interviews with school administrators, faculty, and education officials, respondents referred to this as a process of "groping" (mosuo ), conveying a sense of exploration, trying to find something out, trying to accomplish something. In the Western literature we might prefer the phrase "muddling through" (Lindblom 1959).[11]


The practice of management-by-groping results in an unevenness of policy activity. For example, during the 1980s bureaucratic and structural changes internal to the system of teacher education and its institutions occurred in a rather swift and uniform way; throughout the country, educators were promoted as leaders in teacher-education institutions, new institutions were established, and the system became more coordinated.[12] Yet other responses to policy discussion—especially regarding curriculum, admissions, and job allocation—were more idiosyncratic, uneven, and even problematic. Curricular change is a particularly illustrative example of three key features of management-by-groping: local interpretation, mutual adaptation, and policy fluidity.

As early as 1978, schools turned to their curricula to experiment practically with how quality could be assured. Formally, the changes appeared to be carefully controlled by the ministry, with the announcement of precise policy formulations about professional preparation in 1978 and 1980 (through MOE-published jiaoxue jihua , or teaching plans for eleven departments in teacher-training colleges, and jiaoxue dagang , or teaching outlines for 140 courses offered at normal colleges.)[13] Yet both the plans and the outlines are "reference" (cankaoxing ) documents, which act as guidelines rather than as regulations. Without enforcing power, the guidelines allow for some measure of autonomy for individual institutions of teacher education.

Schools experimented with curriculum reform, and the plans of most schools deviated in some way from the MOE guidelines. Local experimentation varied, but beginning in 1978 it generally tended first toward expansion of and specialization within the academic curriculum and the reduction of course work in politics and education and time spent in student teaching.

Alteration of the central policy subsequently occurred, demonstrating


the interactive quality and mutual adaptation that are at the core of the groping policy process. In the keynote address to the 1980 National Teacher Education Conference, Gao Yi, as a central-level representative, warned against an overly academic curriculum. This served as a response to the experimentation of local units and represented pressure from the Center (Gao 1980). Reorientation of teacher-education programs followed. According to department chairs interviewed, some departments reduced their elective offerings, and others shifted the course content away from theoretically advanced work to "fundamentals." The political-theory core sequence was strengthened, and a new required course in moral education and an extra year of physical education were added. And the MOE, in refusing the request by some normal colleges to expand to a five-year, academically more extensive B.A. program, like those that Beijing Normal University and East China Normal had established, asserted the limits of acceptable reform.

In sum, then, under the guidelines of these vague policy discussions, this reform policy has had fluidity that allowed it to change over time. Typical of the groping process, the current standards represent an evolutionary compromise between the broad objectives of the central bureaucracy (that is, upgrading teacher standards) and specific experiments of local experience. Policy is recast by those carrying it out, somewhat akin to Manion's "policy remakes" (see chapter 8 in this volume), yet different in that here those involved are relatively weak actors with limited power to revise policy. Groping is characterized by responsiveness, as implementation proceeds alongside the process of continual formulation. This policy process is iterative. Thus, the broad goals and principles for strengthening professional standards have not changed, but the boundaries of acceptability shifted after a certain amount of local experience was collected. Reformulation continues.

Actors in the Process: The Power of Subordinates

At the Center the SEdC has moved to regulate and strengthen standards for teachers by improving teacher education—through the promulgation and revision of curricular guidelines and the establishment of an elaborate network of in-service and preservice teacher-education programs—and by introducing a system of professional examinations and certificates.[14] Yet, we need to be wary of attributing too much leadership to the


MOE and the SEdC. A review of participants highlights the limits of the Center and the resultant power of subordinates within the education bureaucracy.

The MOE and the SEdC are constrained horizontally in ways that weaken their efforts: the upgrading of teacher education depends first on attracting students of higher quality, something the MOE could not do on its own. Vertically constrained as well, the Center is limited in the extent to which it can direct and supervise activity. In the early 1980s, for example, the MOE's Teacher Education Bureau had a staff of only six. Shorthanded, it was only able to convene meetings with representatives from normal colleges to "exchange experience" and hold up for emulation the exemplary activities of individual programs. Its staff made occasional school inspections, but regular systematic review of all programs was impossible.[15]

The result is a kind of autonomy that is rationalized as education intelligence: responding to local needs, encouraging grass-roots initiatives, and so on. While the references in the Education Decision to reforms in higher education grant official legitimacy to this, my 1982–84 interviews at eighteen higher-education institutions indicate that this constrained autonomy predated the Decision.

The autonomy outlined above lends strength to the influence and power of lower-level units. Subordinates have participated in the policy process in four main ways: experimenting, interpreting, and undermining policy, as well as reshaping policy conceptualization.


Local and provincial education authorities exert their power to shape policy by initiating experiments that later are disseminated provincially and nationally. In 1984, for example, a provincial official told me about one province's reforms in job assignment, which included movement toward more contractual arrangements in hiring recent graduates in teacher education. Because the reform was described as an "experiment," it did not require MOE approval.

This situation—played out in provincial, municipal, and institutional practices—illustrates the significance of local experimentation. Many times local and provincial officials and school administrators talked


about reforms they had initiated "as experiments"—in admissions to teacher education, curriculum, and professional standards. A commonly told story line runs like this: Some change in practice occurs that will serve the interests of local institutions, enterprises, or the local community's educational needs. An agreement is worked out, later noticed and encouraged by provincial or central officials, and finally widely implemented as a new development of the policy.

The process of experimentation, when it is successful, becomes one form of policy formation. The central bureaucracy, in fact, is organized to support that sort of persuasion-through-successful-experience. The teacher education and the teachers' conferences convened by the SEdC serve this function, as do the regularly featured stories of "successful" experiments of schools and local education authorities described by the education press, particularly Renmin Jiaoyu and Zhongguo Jiaoyubao . The value given to experimentation strengthens the negotiating position of local-level units. The recent distribution of rewards for reforms further encourages this.[16] Speaking of the power of grass-roots experimentation, one provincial official explained in 1984, "In recent years the big reforms in teacher-training colleges have come mainly from the teacher-training college itself."


The influence of local institutions is also made possible in part by weak connections within the educational bureaucracy. Loose coupling between the Center and local areas has its parallel within individual institutions and schools. A de facto delegation of authority has important consequences for the power of lower-level actors to interpret and redefine policy.

The Dean of Studies office (jiaowuchu ), the unit responsible for overseeing academic work within the normal college, like the SEdC, conducts only limited regular close inspection of its charges. The jiaowuchu typically has only a few staff members in each of four or five sections. Given personnel shortages and weak or nonexistent hardware for management in most of these schools, these offices, like the SEdC, are kept busy simply reviewing department schedules and plans and doing occasional in-depth sampling. Even during the 1980s reforms they could not afford to do regular lengthy studies of program quality, the impact of standards, or the fate of curriculum programs in use. There is no regular feedback mechanism. As a result, the jiaowuchu must delegate much


supervisory authority to leaders of each academic department. What occurs is the regular delegation of responsibility to lower levels—whether from ministry and provincial bureau to the grass-roots institution or from the institution to its academic departments.

Given this delegated authority, departmental-level interpretation of central-level policy is significant. Personalized decision making enters in. Within institutions there were unclear goals, little sense of how they were to be achieved and of who should make decisions. As a result, who participated in the decision in each department was significant, as the arrival of a "problem" allowed participants to match the problem to their pet solutions. The decisions, therefore, varied from unit to unit.

One example of this personalism and the range in policy interpretation comes from the Center's effort to provide more qualified teachers to rural and remote areas. The dingxiang (fixed destination) program of admissions and job assignment was introduced nationally in 1983 as a means of filling rural teaching positions with rural graduates and thereby avoiding urban students' resistance to rural teaching assignments. Although the program officially commenced in 1983, interviews in 1983–84 with eleven department chairs at one teacher-training college revealed a range of interpretation of the policy and consequently of its implementation. Some department chairs described plans to implement the policy, others assured me that they were not planning to do so, and one leader said that he did not know what the policy was.

Undermining Policy

A third pattern of participation is to undermine or contradict policy. A variant perhaps of Manion's concept of "policy remakes" (see chapter 8 in this volume), this autonomy allows grassroots actors to willfully recast policy according to their interests. This policy process can produce reforms that are inconsistent and at times conflicting.[17]

Reforming professional standards offers a good case of contradictory action. At one institution, one part of the curriculum was undermined by another, as each department interpreted "higher quality teacher educa-


tion" as meaning expanding its own course hours and offerings. In effect, departmental plans that simultaneously called for strengthened preparation in education and more advanced work in the students' major fields produced an increase in specialization at the expense of professional training in education. In the school's 1980 course plan, for example, education courses for all departments constituted only 2.7–5.8 percent of student course hours, in contrast to an earlier 10–20 percent. Struggles within colleges demonstrate ways in which lower-level units deflect decisions in ways they find congenial.

Shaping Conceptualization of Policy

In addition to provincial and university or school actors in the teacher policy process, researchers and consultants play an increasingly important role. Halpern (see chapter 5 in this volume) describes the growing role of research centers and experts as one of "competitive persuasion." In education the influence of researchers and consultants is evident in their ability to shape the conceptualization of policy.

The SEdC conducts its own research within each of the various bureaus and departments and assigns responsibility for policy research to its Office of policy Study and its Educational Development and Research Policy Center. The Policy Center researchers, as described by one educator, write for "leaders" in ways contrasted with the "more open" ability to "expose problems," which the many recently established research centers possess.

The contribution coming from these research institutes and consultants outside the SEdC grew in the late 1980s. The SEdC frequently called on researchers based at university research institutes to serve as consultants on teacher policy. At one university, for example, the SEdC asked one research group to prepare a paper on the academic specializations appropriate to teacher education, another to investigate the qualifications of all teacher educators involved in teacher-training institutes, and a third to analyze teacher standards in other countries. While noting that it is still "authority-driven policy," not "research-based policy," that is developed, researchers claim that the role of research in the policy process has increased since 1978. They find themselves called on more often for a wider range of tasks.

There seemed to be a common formal interpretation of the policy process: the administrative and political center raises an issue, the SEdC responds, and researchers get consulted. Still, this passive or reactive version of the consultant's role does not entirely coincide with the evidence of frequent and informal interaction between key researchers and SEdC officials. In 1987 several different researchers mentioned being


consulted by phone by newly appointed SEdC vice-ministers,[18] called by an SEdC official to spend a morning talking about teacher education and this researcher's own research, and appointed on short notice to a small SEdC task force to evaluate the success of the reform efforts.

These phone calls, conversations, and last-minute committee assignments all suggest a rather close, informal, and personal network of scholars and officials, one that has grown stronger and perhaps tighter in recent years. Implicit in these anecdotes is the sense that the knowledge of and familiarity with academics is not insignificant in SEdC work. The expansion of the consulting role appears closely related to status—institutional status, personal connections, and status accrued from time overseas. (In teacher policy, researchers from Beijing Normal University and East China Normal appear to be most frequently consulted by SEdC officials.) As these ties grow, researchers also stand to influence policy—particularly the conceptualization of policy issues. As Kingdon found for the United States, these consultants are more likely to affect "alternatives" than national agendas (1984, 58).

Multiple Coping Strategies

The groping process of teacher policy described above rests on the interaction of several levels of actors. Each influences policy, although each is also constrained in its ability to form and carry out policies regarding standards for teachers. Acting with few material resources and both organizational and political constraints, education bureaucrats have pressed for their interests by relying on a range of coping strategies.

Many of the constraints on the education bureaucracy can be explained in organizational terms. In the absence of sufficient personnel and regular feedback mechanisms, weak articulation of central and local levels within the education system reduced the Center's ability to inspect performance at the grass roots. But local-level actors were also constrained, given their reliance on approval by the Center, which sets boundaries for acceptable action. All levels within the system are further constrained because the resources available to education are limited, with a budget representing 11.17 percent of government outlays (Yuan 1988, 24).

External factors also impose significant constraints on bureaucratic options within the educational system. The political, social, and economic climate for schools discourages talented people from entering and staying in teaching, and this situation profoundly limits the ability of the


SEdC to make standards for teachers (Paine 1986). A popular phrase sums up the problems about teachers: "You can't get them, can't use them, and can't keep them" (jinbulai, yongbushang, liubuzhu ) (Gu 1983a). Teacher-training colleges, despite reforms, are unable to recruit top students.[19] Assuring that well-qualified graduates of teacher-preparation programs end up teaching in elementary and secondary schools has likewise proven a formidable task. Despite heightened attention to the issue, there remain many ways in which universities and their students can conspire to escape high school assignments, especially as nonteaching units hire normal-college graduates. The central education bureaucracy's inability to determine and enforce hiring policies (that is, which units employ graduates of teacher-education programs) and the reward structure for teachers simply compounds the difficulties.[20]

Limited as they may be in resources and by the context in which they work, education bureaucrats use a range of strategies to achieve their policy aims. Three of the most common are linking to other agendas, piggybacking other education reforms, and spreading success stories.

Linking To Other Agendas

Kingdon (1984) argues that changes in the "political stream" and, more important, agendas are significant. Changes in China's national agenda gave force to the reforming of teacher standards. Education actors were keen to link their interests with those of national reform. It is noteworthy, for example, that in an authoritative book on major policy documents of the educational reforms, the 1984 Economic Reform Decision and the 1985 Science and Technology System Reform were included (Jiaoyu gaige 1986). The reform of education is regularly and symbolically connected to other broader changes. Teacher-education respondents frequently related the bureaucratic reforms within their system to changes in economic enterprises or the agricultural responsibility system. For administrators at the grass-roots level there was a keen awareness that the bureaucratic changes associated with reforming teacher standards were part of a


larger national agenda. For them, this connection gave persuasive power.

Thus, many of the changes at the local educational institution intended to raise the quality of teachers corresponded with the restructuring of political economic patterns nationally. As part of the process of policy change in teacher standards, for example, autonomy in some areas of educational work increased: using the rhetoric of decentralization, some provinces were able to vary from the national plan to institute early-admissions policies in teacher education that were to increase their chances of attracting strong candidates into teaching. This phenomenon of increased autonomy was justified by the renewed emphasis on expertise and decentralization elsewhere in the system.

Using Momentum of Other Educational Reforms

If grand national changes in the political economy's landscape justify changes in education policy, even more forceful pressure for reform in teacher standards came from other educational reforms. Advocates for higher standards for teachers were able to use the 1985 Education Conference and subsequent Education Decision to increase the pace and specificity of their reforms far beyond what had occurred during the broad discussions in 1978–85. In December 1985 attention focused on teacher examinations, preservice and in-service teacher education, and restrictions on teacher mobility ("Yao zhuajin" 1986, 2–3). Soon after, in March 1986, the SEdC made specific recommendations regarding curriculum, admissions, and job assignments—areas that had previously experienced experimentation but no clear SEdC mandate.[21] Similarly, policy for teacher standards gained momentum with the April 1986 Compulsory Education Law's discussion of teacher testing and certification; this has encouraged a subsequent increase in both the level of attention and the degree of specificity of policy regarding teacher standards, with the SEdC and provinces moving ahead in developing and administering tests of teacher knowledge.[22]

Closet Reforms and the Spreading of Success Stories

The groping and incremental quality to the policy change and the constraints felt by individuals at all levels encouraged official conservatism and unofficial experimentation. In the early unfocused stages of reform, the tendency to interpret policy literally and the vulnerability of educational institutions


generally encouraged a wait-and-see attitude. Many university officials whom I interviewed expressed this by saying that local reforms depend on reforms elsewhere; they did not feel that their school could go alone in its reform. (It is also clear, however, that higher-status organizations and individuals acted more boldly in interpreting reforms on their own.)

Despite this general conservatism, however, I observed a striking creativity among subordinates as departments or faculty conducted what I call "closet reforms." These reforms often represented significant changes from previous practices, yet their creators seemed to avoid publicizing them until informal support was gathered horizontally (at other institutions) or vertically (in the MOE, the SEdC, or the provincial BOE). An example would be one normal college's early revision of admissions practices before the dingxiang policy was created. The university, faced with graduates unwilling to teach at the secondary level, began to take proportionally more students from the countryside because they had, in the words of one administrator, fewer "conditions" and were more compliant. Within the space of one year the rural share of the entering class jumped from 40 percent to 60 percent. Soon after, the dingxiang program was introduced nationally. The experimentation observed at the local level was generalized as a popular coping strategy for the education sector as a whole.

In sum, the case study of teacher-standards policy represents many common qualities of the educational policy process. This groping process was shown to be interactive and slow and to involve many levels of the educational system. The SEdC, the BOE, institutions, and researchers all have some influence, but each is limited and is therefore forced to rely on multiple strategies for achieving their policy goals. The strategies vary with the unit's location in the structure of the education system's hierarchy, yet generally three kinds of strategies stand out: linking to changes in the political stream, riding the coattails of other educational reforms, or disseminating successful experiments.

Case Study II: Improving The Lot Of Teachers

Teacher-standards policy illustrates many important aspects of the education bureaucracy's behavior and authority structure. A second case involves policy related to improving the living and work conditions of teachers. It offers us a second vantage point on educational policy by illustrating horizontal connections, rather than vertical links. This case represents a distributive decision, as opposed to the regulatory quality of teacher standards.

Despite these differences, these two cases share many qualities. Each has evolved slowly, outside recurrent rhythms of yearly work confer-


ences or the patterns of annual budgets. They involve the Center and localities groping for and experimenting with solutions to complex and pressing problems. Each demonstrates the surprising power of lower-level actors, as well as the need to try multiple avenues toward the SEdC's goals. Finally, each reveals the severe constraints under which education policy is made. Below I quickly outline the policy problem in the second case and specify the process of response. This chronology reveals an ever-widening circle of involvement and the need for cross-sectoral cooperation, in this case culminating in a 1987 agreement that was intended to produce a 10 percent wage hike for teachers. Nonetheless, the weakness of the education sector is very apparent in this story.

The Problem

Economically, teachers ranked among the lowest-paid professionals in the country during the post-Mao years (Zhishifenzi Wenti Wenxian Xuanbian 1983, 136; ZGJYB, 6 September 1988, 1). Politically and socially, their position—never high—was very low. Professionally, they represented poorly trained and demoralized individuals. The resultant problem of recruitment, noted above, coupled with school expansion, has produced shortages, especially in rural areas, particular subject areas, and vocational and technical education, clearly an impediment to national efforts to transform the once virtually uniform academic secondary school system into a highly differentiated, multitrack system in which a majority of students receive vocational or technical training.[23]

Compounding the problem is teacher attrition. Particularly since 1978, discouraged teachers have left teaching in large numbers. Of special concern is the fact that departing teachers tend to be strong, experienced, middle-aged faculty, known as "backbone teachers" (gugan jiaoshi ). Though aggregate national figures are not available, frequent reports from individual provinces, counties, and districts suggest that the scale of the problem is large.[24] Between 1985 and 1988, 100,000


secondary school teachers a year (or approximately 3–4 percent of that group) have left their jobs (Xiang 1989). Of the remaining teachers, it is estimated that only 37.5 percent are qualified ("Zhongxue xiaozhang" 1988, 17).

The SEdC described this situation as a major obstacle to education reform and diagnoses the problem as having social, political, and economic roots (ZGJYB, 23 August 1988). The prescription has been a series of policy moves aimed at reversing the devaluing of teachers. But, as the narrative below suggests, horizontal or cross-sectoral action has been essential. Only when the SEdC could move the issue onto the agenda of other ministries and the State Council has any substantive progress been made.

Strategies for Improving the Teacher's Lot

Social Work

The common explanations for teachers' problems are social—lack of prestige and respect, as well as repeated instances of violence against teachers.[25] These incidents have received increasing publicity; consequently, one of the SEdC's first targets for change has been the social position of teachers.

Several specific efforts have been made by the central education bureaucracy to change social attitudes toward teachers. The most visible of these has been the institution of a national holiday to honor teachers. Inaugurated on September 9, 1985, with much publicity and elaborate public ceremonies, Teachers' Day honors the teaching profession and individual teachers. The message in the stories, reports, poems, and photographs of the day is clear: teachers play a valued role in society; they are supported by the country's top leaders; and they are appreciated by ordinary people.[26]

Similar themes appear in other socially oriented reforms as well. These range from the "respect teachers, love students" campaign (zunshi aisheng ), to the 1986 Compulsory Education Law's stipulation to prosecute assaults on teachers, to the establishment of a system of honors for exemplary teachers (mofan jiaoshi and teji jiaoshi ) (Cai 1985, 8; Zhongguo jiaoyu nianjian 1949–1981 1984, 200).


Each of these efforts, initiated by the SEdC, has been largely symbolic and used few material resources (although, in the case of teacher awards, the actual recipients do get material benefits). Yet there has clearly been the hope that these symbolic gestures would both placate teachers and remind the general public of the importance of teachers' work. My interviews with teachers suggest, however, that while these symbolic gestures have been somehow comforting to "backbone teachers," they have provided little solace to young teachers and little attraction to people considering teaching (Paine 1987). Teachers interviewed noted both cryptically and cynically that these social reforms were "not hard to carry out."

Political Efforts

A second area of relatively early attention, often discussed in connection with social efforts, centered around political gestures. These have required the cooperation of a wider range of units and individuals, have ultimately required going beyond symbolic action, and have proven more difficult.

The goal has been to confer political legitimacy on teachers. The two major efforts involve (1) the lending of credibility to the teaching profession and its work by state and Party and (2) the acceptance of teachers into the Party. Within the activities of the state bureaucracy there is evidence of success. Teachers interviewed often cited Teachers' Day, the 1985 National Meeting on the Work of Elementary and Secondary School Teachers, and the transformation of the Ministry of Education into the State Education Commission as important state activity.

A more direct yet less successful attempt to improve the political status of teaching is seen in the efforts to recruit teachers to the Chinese Communist Party. This has occurred as part of the Party's active recruitment of intellectuals (Jiaoyu gaige 1986; Zheng Lizhou 1986). Moreover, teachers have been the specific object of recruitment efforts: Party leaders have been urged to go to schools to encourage strong candidates to apply for Party membership. Despite official policy, however, reports indicate that local areas sometimes continue to experience resistance to the political legitimation of teachers. A 1984 study found that 15.7 percent of teachers complained of being denied Party membership after many years of testing, and some schools had stopped recruiting new Party members (He 1985). More recently, inadequate support from the Party was listed as a key concern for 62.5 percent of rural teachers surveyed in Ningxia and Inner Mongolia.[27] The experience of political efforts demonstrates again the SEdC's use of symbolic policy, but the difficulties encountered in implementing nonsymbolic aspects of the policy (such as Party recruitment) illustrate the limits of the SEdC in overseeing compliance.


Economic and Material Reforms

Reforms in this area can be grouped into four major categories: housing, health, family economic security, and income. One notes certain patterns across these: the difficulty the SEdC has had in procuring resources; its tendency therefore to delegate responsibility for these changes to lower levels of authority; and its work to persuade other sectors to take part in these efforts.

Housing shortages in urban China are notorious. Teachers (particularly at the primary and secondary levels) are more vulnerable to this problem than almost any other urban workers, since schools—unlike factories, enterprises, and government offices—typically have not been able to provide dormitory housing for their employees. Researchers in 1985 estimated that nationally 32.3 percent of urban elementary and secondary teachers lacked housing (Li 1985), and in Beijing the principal of a prestigious high school reported that 80 percent of his faculty had housing difficulties ("Zhongxue xiaozhang" 1988). Acute housing problems count as an important reason for the current instability of the teaching force.

Therefore, the central government has encouraged provincial and municipal initiatives to solve the problem. The SEdC has primarily played a facilitating role, with an SEdC vice-minister in 1986 explaining that teachers "need to rely chiefly on local areas" for help (Jiaoyu Tongxun 1986, 16). The SEdC organized national meetings to coordinate discussion of teachers' housing problems and publicize local successes (Zhang Hongju 1985, 5–6). There has followed increased provincial and local activity. In one province, an education official interviewed in 1986 illustrated the changes: during a two-year period (1984–86) there was a fourfold increase in funds set aside for housing, with 24 million yuan allocated in 1986. Jinzhou's range of strategies, held up nationally as exemplary, typified many local solutions. These included directing 2 percent of the annual city and town housing investment to construction of housing for elementary and secondary teachers, returning to the provincial BOE (rather than other departments) the housing of teachers who leave, using income from school factories to buy housing, and, in cases of couples where one person is a teacher and the other not, relying on housing allocated to the nonteaching spouse. Nationally, housing problems had been resolved for some 90,000 families of teachers by 1986, but, according to SEdC vice-minister Peng Peiyuan, this was "still very far from what we need" (Jiaoyu Tongxun June 1986, 7).

Solutions to the housing problems, like those in Jinzhou, have tended to come from local initiatives and cooperation with noneducation sectors. Bargaining by school leaders with other units has been one important means by which housing (and other problems) of teachers has been addressed. In one instance, for example, high school leaders I inter-


viewed explained that they negotiated with a nearby factory to admit a set number of its workers' children in exchange for construction and money. In another case secondary school administrators agreed to exceed their student enrollment quota to admit, for a fee, local students with lower entrance exam scores. Each "high-priced student" brought 2,000 yuan to the school. In both cases a portion of these earnings was allocated to teachers' housing.

These contractual agreements and informal bargains have been applauded by superiors as examples of how the grass roots can cope with scarcity. They represent some increase in decentralized authority and highlight the value of personalized ties, as well as the tendency for bureaucrats to negotiate in ways that support the needs of their institution. The increase in entrepreneurial solutions to educational problems illustrates the need for negotiation with organizations outside of education and the importance of Party policy in legitimating bureaucratic action. Certainly the heavy engagement of school principals in "creating income" as a solution to teachers' problems is only possible through its congruence with the Party's agenda for national reform.

The issue of health insurance and health care for teachers, in contrast to housing, is more a rural teacher problem, but it has been addressed in much the same way. Teachers hired by the state as public teachers (gongban jiaoshi ) have the same benefits as employees in Party organs and cadres in enterprises. But minban teachers, who are hired by rural communities to work in community-run schools, do not automatically have comparable benefits. For these 3.6 million teachers, the situation is bleakest. Moreover, recent increases in the costs of health care are worrisome for the minban teachers, given their lack of guaranteed insurance. The patterns of bureaucratic action are familiar: reforms have been encouraged by the central government, but resources and action are expected to come from local areas.[28]

A third problem for teachers involves family economic security. Teachers, unlike their colleagues in factories and enterprises, have few ways to assure their children of a secure and desirable job. Though the problem is of concern to the SEdC, the commission serves chiefly as an information clearinghouse, spreading "success stories" to help local areas learn how other areas have addressed the problem. An SEdC report claimed that cooperation with the Ministry of Labor and Personnel was needed for more direct action (Jiaoyu Tongxun, 10 June 1986).

Finally, and most significant for this discussion, are reforms in wages and bonuses. This issue has been at the heart of discussion concerning


the treatment of teachers. Unlike many other areas, this issue could not be handled with symbolic gestures, the delegation of authority, or the spread of success stories. SEdC efforts alone were insufficient. For wages and bonuses, cooperation with other sectors has been essential.

There has been clear state action in recent years. For most elementary and secondary school teachers, there have been three wage increases in the ten years between 1977 and 1987: in 1977, in 1978, in 1980 or 1981.[29] The 1985 wage-system reform also resulted in higher wages. That reform replaced the previous system, based solely on rank, with a wage structure reflecting the sum of a basic wage, a wage for the years of employment, and a "teacher's years of service" wage, or jiaoling, which is money included only in salaries of teachers, computed on the basis of years of service in education.[30] This reform favors job stability for teachers and, in the formal wage structure, rewards teachers over and above other urban or industrial workers. Finally, as in the industrial sector, there has been room for bonuses within schools. While the presence, size, and allocation methods vary greatly by school, my interviews suggest that, in all cases, bonuses are a smaller percentage of the total income for teachers than for industrial workers.

These wage increases, the restructuring, and bonuses represent attempts by the central government to prompt provincial and local governments and schools to improve pay. Nonetheless, the ability of the central education bureaucracy to effect economic improvement for teachers has been very limited, being constrained by the entire national economy. Wage changes for teachers have not kept pace with improvements experienced by workers and, especially in the late 1980s, with inflation. My interviews reveal that teachers were frustrated as their recent wage increases, although ostensibly aimed at redressing inequities, were followed almost immediately by comparable and even greater increases in the wages for workers and others. The official teachers' union journal took a critical stance in assessing the problem: "Generally speaking, the economic and social situation of teachers has continued to rise. ... But it is still not enough. ... In recent years when teachers had their salaries


raised a level, soon after other fields would also raise theirs a level, and the disparity in incomes which had just been reduced was once again created" (Zhu 1985, 20).

In addition, as a Ministry of Education official explained in 1984, "with expanded enterprise autonomy and workers in enterprises having increased bonuses ... secondary and elementary teachers' salaries have dropped in comparison" (Zhang Wensong 1985, 3). Bonuses in 1986, for example, accounted for 13.4 percent of the total wages of staff and workers in state-owned units, but a 1988 study shows that bonuses contributed only 3.4 percent and 3.2 percent to the average secondary and elementary teacher's income (State Statistical Bureau 1987, 101; Wang 1988). Opportunities for augmenting wages with outside income, one feature of the 1980s reforms, have been quite limited for teachers, with Beijing teachers ranking lowest of twelve occupational groups for outside income generated (Xiang 1989, 15). Workers' income is thus often three times that of teachers (Wei 1985).

The wage changes have also failed to keep pace with inflation. Inflation in the mid and late 1980s cut sharply into increases in allocations to education. One Beijing principal, for example, showed that the 7.3 percent increase in budget allocations to Beijing education and the 7.8 percent increase to Beijing's Xicheng district fell below the official Beijing inflation rate of 8.7 percent, a rate he and others saw as an underestimate ("Zhongxue xiaozhang" 1988, 14). In 1987 the nation's teachers received only a 5.8 percent increase in wages, whereas the industrial workers received 10.8 percent. Teaching's position relative to other occupations remains weak, and inflation contributes to the increasing disparity (ZGJYB, 6 September 1985). "With price increases in recent years the real standard of living of teachers has not only not risen but actually declined" (Yuan 1988, 25). Thus, whatever headway had been made in teachers' living conditions tended to evaporate with the combined impact of inflation and the relative increases in the actual income (wages, bonuses, and outside earnings) of workers in other sectors. A 1987 report found the average income of teachers ranking eleventh out of twelve occupations (Yuan 1988, 25).

It was not until late in 1987 that the SEdC was able to work out an agreement with other ministries that would allow a teacher-specific wage hike, this time for 10 percent across the board for teachers. The story of that wage hike, the most significant act in the ten-year history of the government's efforts to improve teachers' lives, indicates the high level of dependence of the SEdC on the cooperation of other sectors. Through long years of persuasion, the SEdC was able to achieve its objective, which, ironically, was announced in the name of another ministry (the Ministry of Labor). As one SEdC official explained, it was the


SEdC that called for the wage hike, but it did not have the power to do this on its own. Rather, they had to approach the Ministries of Finance and Labor, who agreed. Together they wrote the proposal for submission to the State Council. This project took about half a year's work, "since people agreed" on it.[31] The problem was not agreement about need, but resources—could the Finance Ministry get the money?

Several conditions appear to have contributed to the SEdC's apparent speed in bringing about the agreement on 10 percent wage increase. Together they created a "policy window" of opportunity that allowed the SEdC to get agreement on the salary raise (Kingdon 1984). First, as an SEdC official I interviewed implied, the Finance Ministry had to be convinced that there were sufficient resources. Second, social campaigns and partially successful political reforms had done little to solve the problem of teachers' conditions. The inadequacy of these symbolic actions made clearer teachers' demands. Further, it is likely that the persistence of frustration among teachers about wages, the increasing sense of relative deprivation, and the subsequent attrition problem all contributed to the sense that this raise was necessary. The passing of the "Education Decision" and the Compulsory Education Law (with its scheduled deadlines) added legitimacy, specificity, and pressure to the need to raise teachers' salaries. Finally, that the education reforms (and, indirectly, much of the modernization drive) hinge on getting and keeping good teachers at their jobs gave urgency to the policy. There was a policy fit with the national mood and agenda.

The change in wage-increase policy is significant for what it tells us of the SEdC's need to seek alliances and to persuade other ministries, particularly those with resources. Like the teacher-standards issue, policy regarding teachers' conditions shows the value of piggybacking on other important reforms and being perceived as pivotal to their success. But the policy change is also important for what it may suggest about the ability of constituents to plead their case or apply pressure from the grass roots—even if through negative action.


Finally, the story of the teachers' wage increase may tell us more of the education bureaucracy's failures and limitations than it does of its success—the wage increase may simply be one more symbolic gesture. Announced in 1987, the distribution of the increase by late 1988 was still being hammered out in provincial and county-level debates (ZGJYB , 6 September 1988). Moreover, basing the increase on a percentage of an already low wage is little solace too late for most teachers. Given inflation rates of that year (the year of China's steepest price increases since 1949, with food costs in large cities rising 20–30 percent) the 1987 raise represents an actual decline in standard of living (He 1987). And with provincial-level delays in the increase being distributed to teachers, the actual value of the increase has declined further.

Summary And New Directions For Education Policy

The process of educational policy moves in a constrained, iterative fashion. It is an interactive process vertically and one that requires intersectoral cooperation. For the education bureaucracy, symbolic action is clearly the easiest to provide. For many other issues, a piecemeal incrementalist approach that delegates much responsibility to local levels must do. The management of teachers' housing problems and the establishment of teacher-preparation curricula are examples of this. In the most important cases, however, these strategies have proven insufficient. To raise teachers' salaries, as we saw, the SEdC had to wait for the right moment in terms of fiscal resources and national agendas. At that point, with an open policy window, the symbolism, public concern, and submerged professional protests worked together to thrust forward the issue of teachers' wages. Even with this, only partial success was possible.

Consensus building, negotiation, and persuasion are central features of much of the education policy process, yet they take different forms, depending on whether bureaucratic interaction occurs within the education system or across sectors. The vertical connections within the system are such that teacher policy is negotiated and defined through a process of local-Center interaction and mutual adaptation. Connections to national agendas or other education reforms speed the process of policy implementation locally. At the same time, local experimentation, interpretation, and contradictions eventually shape the SEdC's view of appropriate practice.

If the loose coupling within the education bureaucracy gives a distinctive cast and pace to educational change, cross-sector negotiation represents horizontal connections and characterizes the formation of major education policies. Because it is not a productive, income-generating ministry, the SEdC has to turn elsewhere for resources. In general, the


education bureaucracy has little to bring to the negotiating table. It must forge alliances with more powerful actors. The case of teacher salaries suggests that there are some forms of persuasion available to education, though they are slow to be expressed. While the education bureaucracy had little clout with which to influence other ministries, unorganized but persistent signs of a grass-roots boycott (through teacher attrition and the withholding of their labor) may have lent persuasive pressure to the discussion of teachers' wages.

The teacher policy case suggests several ways that the education bureaucracy copes. In the past, this bureaucracy has relied heavily on symbolic action. This is dangerous, inasmuch as people will only accept symbols for a finite period. One new strategy, however, focuses on education itself as a valuable commodity. In today's negotiations the resource that education can call on is the service it provides. In the late 1980s the Party's emphasis on scientific and technological development added to education's prestige, and changes in the bureaucracy and society began to create a credential market with tighter links between education and the labor market. As a result, at the level of the individual consumer (the student or parent), education has come to be seen as a form of investment in human capital. For the present, education, though still a weak bureaucratic actor, is enjoying a favorable moment.

An important consequence of education's new exchange value is the recent trend of the educational bureaucracy and its institutions to highlight and rely on economic activity. It is likely that current patterns we observe today will continue in ways that strengthen ties between educational institutions and enterprises.[32] With little inherent financial clout or productive capacity, the education bureaucracy can now gain some internal leverage through lucrative arrangements with factories and enterprises. For educational institutions this has become a significant way to augment state support and offers one avenue for local solutions to policy problems (like teachers' welfare). Education institutions such as schools or local (or provincial) education authorities can bargain with other (noneducation) units for exchanges that benefit their own constituencies and organizational interests; training can be offered in exchange for fees, goods, or services. Within the education system the resources that these cross-sector negotiations make possible alter the landscape in varied ways and reshape the traditional divisions of power. Already it is clear that some local units benefit from these bargaining possibilities more than others (since they are able to strike bargains their counterparts cannot), and some local units therefore now can be less reliant on or more persuasive with superordi-


nate bureaucratic organizations than they had been previously. The basic entrepreneurial principles underlying these new strategies in cross-sector work have been endorsed by the SEdC (ZGJYB , 4 August 1987, 1). At the same time, education institutions have been warned against becoming an "economic center" (jingji zhongxin ) by chasing after funds.[33]

It is this tension between looking for sources of power and staying within acceptable boundaries that characterizes much of the education bureaucracy's behavior. Anthony Downs talks about the crucial influence of the "power setting" (1967, 44). The case of education reveals the powerful role of the Party in delineating the boundaries of the acceptable. Education's relative position is greatly influenced by the Party agenda. The SEdC does not have autonomy in setting the direction of education policy but reflects instead broad goals outlined by the Party. In the late 1980s the education sector had greater autonomy, allowed for wider experimentation, relied more on expertise, and encouraged greater fiscal independence than previously. Yet these developments were only made possible by Party-approved policies. While the case studies demonstrate an interactive process of policy change, the education bureaucracy remains a vulnerable actor in a complex political landscape. Given the power of the framework surrounding the policy process, education therefore remains weak in ways that force it, both horizontally and vertically, to be responsive, flexible, and active in forging compromises.


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Zhongguo shehui tongji ziliao 1987. 1987. Edited by the State Statistical Bureau Social Statistics Section. Beijing: Zhongguo tongji chubanshe.

"Zhonghua renmin gongheguo yiwu jiaoyufa" (The compulsory education law of the People's Republic of China). 1986. Renmin Jiaoyu 5:2–3.

"Zhongxue xiaozhang zuotanhui" (Secondary school headmasters' panel discussion). 1988. Keji Daobao 5:22–24. In Fuyin Baokan Ziliao G3, 11:13–18.

Zhou Ning. 1985. "Jiejue shizi wenti de jianyi" (Suggestions on solving the teacher problem). Zhiye Jiaoyu Yanjiu 6:27–28.

Zhu Yuanxing. 1985. "Yao tigao jiaoshi jingji daiyu he shehui diwei" (Teachers' economic and social position needs improvement). Jiaogong Yuekan 2:20–23.

Zu Shanji. 1985. "'Zuo' de pianjian neng kefu jiaoshi rudang jiu bu nan" (If the "leftist" influence can be overcome, it will be easy for teachers to join the Party). Jiaogong Yuekan 2:8–9.


The Behavior of Middlemen in the Cadre Retirement Policy Process

Melanie Manion

In the decade since 1978 top leaders in Beijing have introduced policies that seem to mandate important changes in virtually every issue area. Policy outcomes vary widely. Many policies have failed to produce the prescribed levels of change, and some have failed even to produce change in the prescribed directions. What accounts for such differences in the transformation of policies into actions? Taking their cues from work on implementation in developed and other developing countries, studies of post-Mao reform have described the twists and turns of policy that occur after its formulation and have suggested a number of explanations.[1] This chapter builds on those case studies that investigate the behaviors of different individuals and organizations and extrapolate to the Chinese policy process generally and, often less explicitly, to relations of authority in the Chinese bureaucracy.

One line of argument focuses on behaviors of the policy-making elite. Rosen's study of the policy to restore key secondary schools after 1976 points to a leadership divided on basic developmental strategies as the


main explanation for how the policy was implemented. The original policy had built-in contradictions, reflecting conflict between the goals of popularization and the raising of standards in education. Policy implementation was similarly conflictual, until the political conflict at the top was resolved in favor of the reformers.[2] Solinger's work on the attempt to use price controls in 1980–81 also emphasizes elite divisions. Policymakers disagreed about the extent of inflation and about how to deal with it. Even after the decision was reached to enforce a price freeze, leadership differences persisted. These differences were reflected in policy directives and accompanying documents. Lower levels reacted differently to the signs of elite discord, and the result was great variation in local implementation.[3] Lampton also finds disagreement at the top in his study of long-range water policies. He focuses less on the conflicts than on the process for resolving them—consensus building. Lampton documents the extensive consultation and negotiation that policymakers promoted and tolerated in a quest for consensus. This consensus orientation and the large number of players that were involved in the wrangling over solutions ultimately resulted in ineffective implementation.[4]

Another set of explanations focuses on behaviors of the ultimate targets of policy. Naughton examines the post-1978 effort to reduce the share of decentralized investment and finds that the localities thwarted this effort by consistently deflecting central-government decisions toward their own interests. They implemented policies selectively, taking an active stance only toward policies that gave them a greater degree of control over resources. The result of this pragmatic approach to policy implementation was persistent overfulfillment of the decentralized investment plan.[5] Walder describes successful efforts by workers to resist wage and incentive policies in state enterprises in 1978–82. Workers withdrew efficiency in the face of attempts to increase productivity through higher work norms and performance-based bonuses and wage raises. Managers responded to the efforts by workers to defend their interests. For example, they distributed as bonuses the maximum amount permitted by policy and relaxed the link between performance


and reward. This diverted policy from its original goals and affected the outcome of the industrial reform program.[6]

The analysis presented in this chapter investigates variation across time in the transformation of one policy into actions and finds evidence of the influences reviewed above: underlying leadership conflict, unwillingness or inability to impose solutions on subordinates, a selective approach to policies, and pressure at the grass roots. Analytically, it links up explanations that give priority to policymakers at the top and those that pay more attention to policy targets at the bottom. I situate the analytical perspective between top and bottom in the policy process by asking about the behavior of middlemen—the individuals and organizations charged with implementing policy. Investigating the policy process from this perspective proves useful, not only because middlemen are major players in the process but also because it requires an explicit consideration of the relative effects on policy outcomes of those at the top and bottom.

My specific empirical focus is implementation of cadre retirement policy—the policy to institute regular retirement of political and administrative functionaries, professionals, and specially skilled personnel.[7] The time period is 1978, when the policy was introduced, through 1986, a period in which policy outcomes varied significantly and intelligibly. Briefly, in 1978–81 cadre retirement was a policy that did not yield results, essentially because it was not implemented; beginning in 1982, cadre retirement policy began actually to be implemented, but not without serious deviations. I organize my analysis around three simple questions about middlemen in the cadre retirement policy process. Why did they effectively ignore policy for more than three years? What caused them ultimately to begin to implement policy? And what explains their choice to deviate from official policy in the course of implementing it?

I find that three factors help explain why cadre retirement was a policy without action implications in 1978–81. First, middlemen confronted conflicting signals from policymakers, reflecting a lack of consensus at the top. Second, middlemen were charged with executing a policy of cadre restoration that in practice contradicted retirement policy and gave them a legitimate alternative to retiring cadres. And third, retire-


ment policy did not contain objective decision criteria such as mandated retirement ages to constrain middlemen to take action. A formal revision of policy in 1982 changed this situation. As a result, middlemen began then to implement policy. Policymakers revised cadre retirement policy in ways that both encouraged and constrained middlemen to implement it and made it easier to implement. The Party organization joined the government in support of the policy, sending a single clear signal to middlemen in place of previous conflicting signals. The policy of restoring veteran cadres to power was dropped and was replaced with campaigns to streamline bureaucracies and rejuvenate leading groups. Both campaigns had objectives that were consistent with those of cadre retirement policy. Policymakers constrained middlemen to implement policy by making age the basic criterion for retirement decisions and by specifying ages of retirement for all cadres. And policymakers changed the incentive structure, to make retirement more attractive to cadres. This made retirement policy easier to implement.

Middlemen implemented policy, but not without serious deviations. The nature of those deviations provides insight into their underlying cause: deviations consisted of increasing incentives for cadres to retire. Middlemen thus proved to be unwilling or unable to implement policy successfully without providing a retirement deal better than that stipulated in official policy. In implementing policy, they proved keenly responsive to policy targets at the grass roots, as well as to policymakers at the top.

These answers suggest some tentative conclusions about the actual consequences of the formal structure of bureaucratic authority and about the constraints and incentives not represented in that organizational design. I discuss those conclusions and consider their generalizability in the final section of the chapter.


The information in this chapter derives mainly from the following sources: collections of official documents, a self-administered questionnaire distributed to retired cadres, interviews with retired cadres, interviews with younger cadres, and interviews with government leaders.[8]

Of official documents consulted, the most useful were those reproduced in two collections of Party and government documents on veteran cadre work, published by the Central Organization Department and the


Ministry of Labor and Personnel in 1983 and 1986.[9] These constitute my main source of information about formal policy. I also obtained some such information in interviews with government officials in charge of cadre retirement policy in 1986 and 1988.

Interviews with retired cadres and younger cadres supplied useful information on how retirement policy was implemented at the workplace. I conducted thirty-six loosely structured interviews with retired cadres in Beijing in 1986–87. I also conducted structured interviews with a class of seventy-one younger cadres at Beijing University in 1988. They had been sent by their workplaces, representing nearly every province in the country, to obtain college equivalence in a special two-year course of cadre training.

In addition, I arranged for the distribution in 1987 of questionnaires containing closed-category items only, to a larger sample, consisting of all retired cadres in a small city in the northeast. A total of 250 questionnaires were completed and returned, an acceptable response rate of 38 percent. These questionnaires were an additional source of information on how policy was implemented.

Players And Organizational Context

Cadre retirement policy aimed to retire nearly 2.5 million surviving veteran cadres, revolutionaries who had joined the Communists during the wars of 1924–49.[10] It also aimed to replace an existing de facto lifelong tenure system for cadres with a regular retirement system. Consequently, veteran cadres were the immediate but not the only targets of retirement policy. Postrevolutionaries, those who had become cadres after the Communist victory in 1949, were also affected. Among them were 2,353,000 cadres who had been recruited in 1950–52,[11] many of whom were in their fifties when cadre retirement policy was introduced. These two groups, veteran revolutionaries and cadre recruits of the early 1950s, constituted the most important targets of cadre retirement policy.


Middlemen in the cadre retirement policy process are defined here as people and organizations charged with executing the policy formulated at the top. These range from local governments that promulgated local regulations on cadre retirement to functionaries at the lowest level of the workplace who were charged with processing retirements. Their actions make more sense in the context of two features of the formal structure of authority: the differences between territorially based organizations and functional departments, and the exceptional Party domination of the issue area in which cadre retirement falls.

In the case studied here, as in many other issue areas, authority is formally structured in two separate hierarchies of territorially based organizations and two functional hierarchies. Both kinds of hierarchies have organizations at the top in Beijing and down to the county level. There are two of each kind of hierarchy because at each level are parallel Party and government organizations.

The key differences between the territorially based organizations and the functional departments are the span of authority and the nature of authority relations. The authority of territorially based organizations, the Party committees and governments at the various levels, extends to more than simply the cadre issue in territory at and below their respective levels.[12] This span of authority over many issues is reflected in the relation between a territorially based organization and the functional department responsible for cadres, in the Party or government hierarchy at any given level: the functional department is subordinate to the territorially based organization in a "relation of leadership" (lingdao guanxi ), the most authoritative type of linkage between Chinese organizations. The relation between territorially based organizations at different levels of the hierarchy is also one of leadership. By contrast, the authority of functional departments spans separate, broadly defined issue areas which in principle do not overlap. The relation between superior and subordinate organizations in the functional hierarchy dealing with cadres is one of "professional guidance" (yewu zhidao ), a relation more circumscribed than that of leadership.

Cadre retirement is one issue within the area defined as part of the organization-personnel "system" (xitong ). This system is virtually solely responsible for all cadre work—which includes recruitment, staffing, training and education, various forms of assessment, and maintenance


of personnel dossiers.[13] The main Party organizations in the system are the organization departments at the various levels; their government counterparts are the personnel departments.[14]

Barnett in 1967 identified the system as the most important of the key "watchdog" mechanisms for ensuring Party leadership.[15] More recent studies concur with this view. The post-Mao trend in many issue areas has been toward a retreat of Party organizations from routine work, along with a decentralization of authority and the granting of more autonomy to government organizations in the conduct of administrative work. In the organization-personnel system, authority has been substantially decentralized. However, Party organizations continue to dominate even the day-to-day work.[16]

Within the organization-personnel system, the issue of cadre retirement is particularly important and, perhaps as a consequence, particularly dominated by the Party. This is revealed most clearly in the elaboration of structures to manage cadre retirement.[17] These are indicated in figure 8.1.


The importance of cadre retirement is evident in the status of veteran cadre departments at the provincial, prefectural, and county levels: the departments are not subordinate to the organization departments at the respective levels, but rather are equal to them in bureaucratic status. The organization departments relate to parallel veteran cadre departments by giving professional guidance. The Party committees exercise direct leadership over veteran cadre departments. Only at the top level is the Veteran Cadre Bureau a subordinate department of the Central Organization Department.

Party dominance is indicated by the virtual absence, until about ten years after the first regulation on cadre retirement was issued, of specialized structures for cadre retirement in the government hierarchy, except at the top level. As late as 1986, government organizations usually attended to cadre retirement work by assigning responsibility to one leading cadre in each of the personnel departments at the provincial, prefectural, and county levels. These cadres worked in coordination with the Party veteran cadre departments parallel to their personnel departments.[18]

Institutional arrangements for cadre retirement at the workplace have tended to depend on workplace size and the number of retired cadres. National and provincial departments have either bureau-level veteran cadre departments or division-level departments under the organizations (usually the organization department) responsible for cadre work. Smaller and lower-level workplaces do not usually have specialized structures for cadre retirement. Rather, this work is carried out by the Party and government cadres or organizations responsible for cadre work.[19]

What did this context mean for middlemen in the cadre retirement policy process? Those at the workplace were responsible for implementing a large number of policies in the organization-personnel system, and cadre retirement represented only one task among many. Those tasks were not always mutually complementary; in cases of policy conflict, middlemen had to choose which policies to implement and which to ignore effectively. Many factors determined how middlemen responded to this choice. Party domination of cadre management dictated greater


Fig. 8.1.
Formal Structure of Authority in Veteran Cadre Work

attention to signals from Party organizations than to those from their government counterparts. The interests of policy targets also came into play. In making choices about transforming policies into actions, it made sense for middlemen to consider the relative difficulty of their tasks. Obviously, policies that challenged vested interests would not meet with ready compliance. Thus middlemen could be expected to prefer to implement more-appealing policies over less-appealing ones. Cadre retirement disturbed what was seen as the norm in bureaucratic careers, and it deprived cadres of positions and income. For these reasons and others,


many cadres were inclined to resist retirement. Further, immediate policy targets were generally those with the most seniority at the workplace. Virtually by definition they included those with the most clout, whether that was reflected in official position or not. These interests of policy targets made cadre retirement policy difficult to implement easily. Resistance of policy targets made it an unappealing policy for middlemen too.

Policy Without Action Implications

From June 1978 through 1981, top Party and government organizations issued more than twenty documents regulating various aspects of cadre retirement. These organizations include the Central Committee and the State Council, as well as the Central Organization Department and the Ministry of Labor and Personnel. However, middlemen took little action to retire cadres in this period. Indeed, in the view of those for whom the policy can be expected to be most salient, those charged with executing policy and the cadres who were the policy's immediate targets, the post-Mao cadre retirement policy dates from 1982, not 1978. Why did what seems, from the flow of official documents, to be a policy not have action implications?

Before exploring this question, it is important to establish that the documents do, in fact, seem to articulate a policy to retire cadres. Taken as a whole, they combined proclamations of general principles with concrete measures that elaborated a comprehensive cadre retirement system.[20]

The documents established eligibility standards and pensions for three retirement statuses: regular retirement (tuixiu ), "special" retirement (lizhi xiuyang , usually abbreviated to lixiu ), and semiretirement to advisory (guwen ) and honorary (rongyu ) positions. Rank and revolutionary seniority determined eligibility for the different statuses and pension levels. Revolutionary seniority was measured as participation in the Communist revolution before four strategic turning points in the military struggle for power: 7 July 1937, the end of 1942, 3 September 1945, and 1 October 1949. Higher status and bigger pensions were allotted to higher-ranking cadres and those who had joined the Communists earlier rather than later. Eligibility standards and pension levels for special and regular retirement statuses are summarized in table 8.1. The vast majority of veteran cadres surviving in 1978–81 had joined after the defeat of the Japanese in 1945. These veterans of the civil war between the Com-


TABLE 8.1. Retirement Standards, Statuses, and Pensions, 1978–81


Period of Recruitment


Retirement Status

Pension (%)


low, middle, high




middle, high












low, middlea








low, middle




Years of Service


Retirement Status














NOTE: Rank standards are categorized as high for a rank at or above prefectural level, middle for a rank at or above county level but below prefectural level, and low for a rank below county level.

a In 1980 a middle-ranking cadre who joined the revolution before 1945 became eligible for special retirement status and the full pension.

munists and the Guomindang numbered 2,190,000 in 1980.[21] Most were eligible only for regular retirement status.

Veteran cadres in positions of leadership at and above the county level whose health prevented them from performing normal duties of office but who were still able to do some work could semiretire to advisory or honorary positions.[22] This was termed retirement to the "second line" (di er xian ).[23] Evidently, the second line was introduced to permit cadres to transfer leadership duties gradually and continue to play a role while


taking into account their age and health. But of all aspects of the cadre retirement system elaborated in 1978–81, this status was least explicitly articulated. For years after their introduction in 1978, the actual role of cadres on the second line remained unclear, even to those who had designed the system.[24] Documents never defined the role of cadres in honorary positions. They defined the role of advisers, but in very general terms. Advisers were to engage in investigation and study, maintain familiarity with the overall situation, help leaders originate and develop ideas, provide counsel, and transmit to younger generations the Party's traditions and style of work as well as their personal experience and knowledge.

Documents established special retirement status for some veteran cadres in poor health and unable to continue work. Before 1978 the term lizhi xiuyang , literally "leave of absence for convalescence," had referred to a practice of permitting veteran cadres to retire from office temporarily, on full salary, to convalesce. The practice dated from 1958.[25] When the term lixiu was revived two decades later as a special form of permanent retirement, it retained its earlier connotation of privileged status and its provision of full salary.[26]

Cadres who did not meet the standards for special retirement could retire with regular retirement status, on less than full salary. Special retirement and regular retirement became retirement to the "third line" (di san xian ). Standards for regular retirement included age guidelines, generally fifty-five for women and sixty for men, but no rank guidelines. Standards and pensions for cadre regular retirement were the same as those established for worker retirement. Only age guidelines differed, and those only for women.[27] Pensions for regularly retired cadres ranged from 60 to 90 percent of salary, depending on period of recruitment to service. Veteran cadres were eligible for 80 or 90 percent of salary, while postrevolutionaries were eligible for 60 to 75 percent.

The documents issued in 1978–81 not only detailed arrangements for pensions but also outlined provisions on health care, housing and relocation subsidies, participation in political study, access to informa-


tion, and leisure activities. They discussed broader issues as well, such as how to promote respect and concern for retired cadres in society at large.

The articulation in official documents of a policy to retire cadres was buttressed by a thoroughgoing critique of the cadre lifelong tenure system, conducted in a wide range of periodicals, mostly in 1980. Critics associated lifelong tenure in the span of world history with economic backwardness and political autocracy, claimed no support for lifelong tenure in the Marxist classics, and found lifelong tenure directly or indirectly responsible for a number of serious defects in the exercise of power in communist systems generally and the Chinese system in particular.[28]

Why did what seems to be a policy to retire cadres not have action implications for middlemen? First, policymakers at the top had not reached a consensus on cadre retirement policy, and they communicated their ambivalence to middlemen in a number of ways. Party documents and government documents differed in nuance: the Party organization did not express unambiguous support for a policy to retire cadres in 1978–81. And because cadre management is a particularly Party-dominated issue area, it is not surprising that the lack of clear Party support for retirement blunted any action implications of government documents. Second, policymakers gave middlemen another policy to execute, one that conflicted with cadre retirement. Middlemen had a legitimate alternative to retiring cadres. And finally, cadre retirement policy contained no stipulations such as mandated retirement ages that could serve as objective measures of success or as constraints on middlemen to execute policy.

According to Chen Yeping, writing in 1983 as the prospective Central Organization Department head, there was consensus among top leaders on the principle of a cadre retirement system. However, leaders dis-


agreed on the urgency of replacing old cadres with younger ones. In a series of speeches beginning in 1979, Deng Xiaoping argued that generational succession was a very urgent matter and that younger cadres should be apprenticed while taking on main responsibility, with older veterans providing guidance as required. Deng's opponents on the issue contended that generational succession could be taken more slowly and that veteran cadres could exercise primary responsibility for a number of years.[29]

This ambivalence among policymakers probably accounts for the difference in priorities reflected in Party and government documents and the failure of the Central Committee and the Central Organization Department to demonstrate clear support for a policy to retire cadres. Not until February 1982 did the Central Committee issue a partner document to the many State Council initiatives on cadre retirement.[30] The strongest Central Committee show of support for cadre retirement in 1978–81 was a general resolution, passed in February 1980, to abolish the de facto lifelong tenure system for cadres.[31]

Party documents on cadre retirement contained a message that effectively replaced the policy to retire cadres with a policy to restore to power veteran cadres who had been purged or demoted during the Cultural Revolution. Probably the first document on veteran cadre work issued by a Party organization in 1978–81 was a February 1978 Central Organization Department statement of views on veteran cadre work.[32] Its main content was the importance of restoring veteran cadres to power. It stated that those able to work were to be assigned suitable work as soon as possible. Those with long experience in positions of leadership were to be assigned main positions of leadership. Indeed, the document instructed subordinate organization departments to promote the core role of veteran cadres in modernization. As an example of the scope and nature of restoration, the party journal Hongqi publicized the work of the organization department of Hunan province. In Hunan, of the surviving cadres managed by the provincial Party committee before the Cultural Revolution, 98 percent were assigned positions ranked equivalent to or higher than their former positions. The rule adopted was this: so long as


they are able to work, they are assigned work; those unable to work are permitted to retire upon request.[33]

In principle, restoration of veteran cadres as a strategic short-term policy was not inconsistent with retirement. The younger generations of cadres the regime sought overall to promote included most who had been recruited and had risen under the influence of radical leftist standards thoroughly discredited by the end of 1978. Policymakers sought the cooperation of veterans in selecting and training suitable successors. This was not simply a task of recruiting qualified managers of modernization, but one of weeding out those whose politics were suspect in the changed political climate.[34] In practice, however, veterans restored to power did not actively create the conditions for their own retirement by preparing successors.[35]

Finally, even the government documents that established a cadre retirement system did not clearly impel middlemen to execute policy. The main reason is their failure to set objective criteria for decisions on retirement. In turn, there were no such criteria to evaluate the performance of middlemen or to constrain them to retire cadres.

If retirement is defined as an explicit direct relationship between old age and employment, then government documents introduced neither the principle nor the practice of cadre retirement in 1978–81. Retirement-age guidelines were set for regular retirement status, but these determined eligibility for benefits and in no sense mandated retirement at specified ages. More to the point, old age was not intrinsically a reason to retire cadres. Retirement was for those whose state of health precluded performing normal work. Documents acknowledged that old age generally brought with it some decline that could affect the ability to work, but the rationale for cadre retirement was two vague intervening variables: state of health and the ability to work normally. Old age per se was not linked to retirement until 1982.

It is instructive here to compare the language in the first and most comprehensive post-Mao government document on cadre retirement


with a document on worker retirement issued at the same time.[36] The State Council Temporary Measures on Arrangements for Aged, Weak, Ill, and Disabled Cadres applied to cadres whose "age and state of health preclude continuing normal work." The document on worker retirement applied to "old workers and workers who have lost the ability to work because of illness or disability." Cadres meeting standards specified "could retire." Workers meeting standards specified "should retire." Even the title of the document on workers, the State Council Temporary Measures on Worker Retirement, suggests the contrast. In 1980 the State Council did issue a document stating that cadres who were unable to work "should retire."[37] Yet that document applied to cadres for whom no retirement-age guidelines had been set. And even with the stronger language, inability to work normally rather than old age per se was given as the reason for retirement.

Yet another contrast is provided in a government document protesting the pro forma nature of some worker retirements, with formally retired workers remaining employed at their posts.[38] No comparable protest was contained in documents on cadre retirement in 1978–81. Also, workers who did not retire according to regulations were to have their salaries stopped.[39] No comparable arrangement existed for cadres.

One retired cadre summed up the situation in 1978–81 in the following way: "It was very difficult to distinguish who should retire from who should not retire. If it is too flexible, it is the same as not having it at all." Without age guidelines as the basic decision rule for retirement, decisions could be made only through case-by-case deliberation on the applicability of vague subjective standards to particular cadres. These standards were open to interpretation and did not constrain middlemen to retire cadres.

Execution Of Policy

The formal revision of policy in 1982 transformed a policy without action implications into a policy that middlemen executed by retiring cadres. Four features characterize this change. First, policymakers gave middle-


men clear and coherent signals of their commitment to cadre retirement. In particular, middlemen in the Party-dominated organization-personnel system no longer faced the ambivalent situation of government initiatives and Party disinclination on cadre retirement. Second, middlemen no longer had conflicting policy goals that gave them a legitimate alternative to executing policy. Rather, policymakers established a number of objectives that were mutually reinforcing: retiring cadres helped middlemen achieve success in the campaigns to streamline bureaucracies and rejuvenate leading groups. Third, retirement policy was revised to constrain middlemen to execute it. Policymakers set the objective criterion of age as the basis for specific decisions to retire cadres. Decisions not to retire cadres who had reached the relevant ages became exceptions to the general rule, requiring justification. Finally, policymakers made compliance with retirement policy more attractive to a large proportion of potential retirees. Consequently, middlemen faced less resistance from the ultimate targets of the policy.

It is plausible that policymakers reached agreement to revise cadre retirement policy only by changing the incentive structure for themselves and other leaders: some key revisions applied to leaders at the top and were probably the result of a negotiated settlement. Thus a changed incentive structure may have been not only a feature but also an explanation of the radical shift in policy in 1982.

The revised policy exempted from retirement leaders at the very summit of power. The elimination of these leaders as targets of cadre retirement policy was announced in a Central Committee document in February 1982 and aired in Hongqi in March 1982:

Our party is a big party, our country is a big country. We need a few dozen veteran comrades with international prestige, who are capable of careful and long-term planning, who maintain a comprehensive view of the situation, and who are still in good health. [We need them to remain] in positions at the core of leadership in the party and government, to help stay the course. Other veteran cadres must gloriously retire from service at the ages specified, in keeping with regulations.[40]

A second indication of a compromise was the creation of a new institution for retired top leaders: advisory commissions at the national and provincial levels.[41] The commissions were given an estimated life span of ten to fifteen years, enough time to ease into retirement a generation of


senior veteran cadres.[42] These changes in the retirement-incentive structure at the very top seem to have been the key to reaching agreement on the revised policy that emerged in Party and government documents beginning in 1982.

In February 1982 the Central Committee issued a Decision to Establish a Veteran Cadre Retirement System, indicating its support of earlier government initiatives and sending a clear signal to middlemen to begin to execute policy. The signal was not only symbolic. The document explicitly assigned tasks to the Central Organization Department. Nearly twenty more documents were issued by Party and government organizations in 1982 alone, treating various aspects of cadre retirement: establishing accurately revolutionary seniority, determining changes in retirement status, detailing formal procedures for retiring cadres, introducing honorary certificates of retirement, discussing the role of retired cadres, and instructing veteran cadre departments in their responsibilities. For the first time, Party and government documents were speaking the same language on cadre retirement.

Policymakers linked retirement to campaigns to streamline bureaucracies and rejuvenate leading groups, begun at the national level in 1982 and carried out at the provincial and lower levels in 1983–84.[43] Streamlining bureaucracies involved a reduction in personnel and departments in the Party and the government, with the objective of improving policy coordination. The rejuvenation of leading groups aimed to improve the quality of leadership by promoting more highly educated, professionally competent, and younger cadres. Quotas were set for both campaigns. Unlike the policy of restoring cadres to power, which had conflicted with retirement goals, these two campaigns complemented the policy to retire cadres. Middlemen no longer had a legitimate alternative to retiring cadres. Indeed, retirement was virtually a prerequisite for success in the campaigns.

Policymakers also constrained middlemen to execute policy, by replac-


ing the vague and subjective standards of good health and the ability to work normally with age as the criterion for decisions on retirement. Flexibility was built into the policy in two ways. A supplementary rule stated that those whose health prevented them from working normally could retire early, and those who were needed at work and whose health was good could postpone retirement, with the approval of the relevant Party committee. Also, retirement age guidelines differed by rank and sex: in general, higher-ranking cadres retired later than lower-ranking cadres, and men retired later than women.[44]

Even with the opportunity to exercise discretion introduced in the supplementary rule, the 1982 revised policy constrained middlemen to retire cadres. The policy introduced a direct link between age and retirement, making age per se a reason to retire cadres. And it reversed the relative importance of the objective standard, age, and subjective standards. Health and ability to work normally were no longer an integral part of all decisions on retirement. With retirement at fixed ages as the general rule, decisions to retire cadres were essentially standardized. Whereas in 1978–81 middlemen had had to interpret and apply ambiguous guidelines in order to retire cadres, beginning in 1982 a decision not to retire cadres was the one demanding an interpretation and explanation.

Policymakers also changed the incentive structure to make retirement more attractive to cadres and, presumably, easier for middlemen to execute successfully. Beginning in April 1982 all veteran cadres became eligible for special retirement status and its full pension.[45] For the 2,190,000 veterans of the 1945–49 civil war, pensions increased from 80 to 100 percent of salary. For all veteran cadres, then, retirement no longer brought about a loss in salary. And for those who had joined the Communists before 1945, policymakers provided a retirement bonus,


equivalent to one to two months' salary, conferred annually after retirement. Amount of bonus depended on period of recruitment to service. These changes are summarized in table 8.2. Policymakers did not change the retirement incentive structure for postrevolutionaries. And by extending special retirement status to all veteran cadres and providing bonuses to some, they exacerbated the gap between veteran cadres and postrevolutionaries. Whereas in 1978 the smallest difference in pensions for the two groups had been 5 percent of salary, in 1982 it became 25 percent. The biggest difference became 57 percent.

While the four features discussed above made cadre retirement a policy with action implications, middlemen proved unwilling or unable to execute it with its formally established incentive structure. They subtly changed the policy in the course of executing it, by increasing incentives to retire. This was a deviation from official policy.

Deviation From Policy

In salary terms the 1982 revised incentive structure eliminated the material disincentive to retire for veteran cadres and provided a small incentive for some. Postrevolutionaries still lost 25 to 40 percent of salary after retirement. However, middlemen provided incentives to retire, above those stipulated in official policy, to veteran cadres and postrevolutionaries. At the workplace, middlemen engaged in bargaining with potential retirees seeking a better retirement deal. At the provincial level, governments issued temporary regulations increasing stipends to postrevolutionaries. In both instances, middlemen responded to pressure and passive resistance from older cadres, the targets of the policy, even when doing so deviated from policy. In short, better incentives seemed to be necessary to get cadres to retire. Middlemen proved themselves unwilling or unable to execute policy successfully, given the official incentive structure. They did not enforce compliance so much as induce cadres to comply.

In an economy where goods and opportunities are scarce and the market mechanism inoperative in distributing them, as is true of the People's Republic of China, the power to obtain things is not always strongly linked to cash income. It is linked also to rank and, more generally, to being a member of a workplace.[46] For these reasons, even a full pension was unlikely to compensate cadres adequately for postretire-


TABLE 8.2. Retirement Standards, Statuses, Pensions, and Bonuses for Veteran Cadres, 1982

Period of Recruitment


Pension (%)

Bonus (%)

















NOTE : Pensions are expressed as a percentage of preretirement salary. Bonuses are expressed as percentages of annual preretirement salary and are conferred annually after retirement.

ment losses. Thus the types of benefits potential retirees sought were often different in nature from those the official policy offered.

Although the age criterion provided an objective means of singling out cadres for retirement, middlemen at the workplace did not usually instruct cadres to retire. They engaged in discussions with potential retirees, in the course of which cadres voiced requests to improve their situation in some way. Cadres generally referred to this process as one of "bargaining" (shangliang ). In the description of one retired cadre:

Retirement decisions come from the organization department at the workplace. It has records of how old cadres are who should retire. To get people to retire, the organization department cadres come to talk to you. Cadres bargain with them. They may say: "First you resolve my housing problem or my son's employment problem, and then I will retire." Before the Cultural Revolution, people did whatever the organization told them to do. They went wherever the organization decided they should go. Now, people are not so obedient. The organization has to bargain with them.

Some of the things often bargained for were better housing, a preretirement salary raise, and employment for a son or a daughter. Table 8.3 shows preretirement requests that questionnaire respondents made to middlemen at the workplace. Nearly 85 percent of respondents made such requests. Among them, employment for a son or a daughter was the most common: including those who made more than one request, more than half of all respondents made this request. Providing employment for a son or a daughter was not strictly permissible, but younger cadres interviewed indicated that it was widely practiced. For ordinary cadres especially, with fewer perquisites of position than high-ranking cadres, providing such an incentive could induce early retirement. In Guizhou province, for example, eight thousand cadres had retired early


TABLE 8.3. Preretirement Requests to Middlemen (Questionnaire Respondents)


No. of Responses








Employment for son or daughter






No request



&!; 1 request






NOTE : Of those with &!; 1 request, there were 15 requests about salary, 21 requests about housing, 20 requests about employment for a son or daughter, and 3 other requests.

by the end of 1983. Of these early retirements, more than half involved providing employment for a son or a daughter.[47]

Yet another incentive middlemen provided to potential retirees was pro forma retirement, which some cadres referred to as "retirement without leaving the workpost" (lixiu bu li zhi ). Essentially this meant that cadres worked regular hours, at the workplace, attending to the same kind of work as before their retirement. It seems not to have been as common as another postretirement practice: reducing work hours and time spent at the workplace and attending to special projects unconnected with regular work. For example, among questionnaire respondents, 21 percent indicated they spent most of their time after retirement doing work for the former workplace and returned to the workplace at least several times every couple of weeks.[48]

That these efforts served the interests of potential retirees is obvious. However, middlemen also had an interest in providing incentives. Middlemen had an interest in retiring cadres to fulfill campaign quotas to cut staff and promote younger cadres. Even pro forma retirement eliminated cadres from the authorized personnel complement (bianzhi ) and gave workplaces time to find and train replacements. Providing incentives for early retirement was also in the interest of middlemen. Because the practice of lifelong tenure had prevented regular personnel renewal, those directly in line for promotion at middle levels were themselves not young. Part of the campaign to promote younger cadres involved short-


cutting the regular career ladder and skipping over cadres in their fifties. This created a morale problem among these cadres, whose careers were frozen.[49] Early retirement with a better retirement deal was one way to handle this problem. A postretirement work relation with the workplace was another.

By the end of 1985 more than half of all surviving veteran cadres had retired.[50] However, more than two million cadres had been recruited in 1950–52. In September 1984 Jiao Shanmin, a deputy head of the Ministry of Labor and Personnel, noted that hundreds and thousands of postrevolutionaries had reached the ages of retirement but were not retiring.[51] He cited the discrepancy in pensions between veteran cadres and postrevolutionaries as the main problem, stating that pensions for postrevolutionaries were too low and that retirement seriously affected their standard of living. He concluded that the problem was a serious obstacle to rejuvenating the cadre ranks.

Policymakers had fixed pensions for postrevolutionaries at 60 to 75 percent of salary in 1978, and these had not been changed in 1982. The 1982 increase in pensions for veteran cadres had exacerbated the difference between veteran cadres and postrevolutionaries. In addition, beginning in 1982 there was considerable propaganda on veteran cadre retirement, which very likely increased awareness of that difference. Not surprisingly, there was resentment among postrevolutionaries. As one postrevolutionary explained: "We are all working together—then this distinction. Of course, to distinguish between special retirement and regular retirement is not unreasonable. These veteran revolutionaries deserve some special treatment. But why must it be so much? People are upset not with the distinction itself, but with the size of the gap." Postrevolutionary questionnaire respondents too revealed their dissatisfaction with the difference. As is indicated in table 8.4, 71 percent of postrevolutionaries (18 percent of veteran cadres) considered it unreasonable (bu heli ).

Workplaces in the public sector considered here do not themselves finance the retirement of their cadres. Middlemen at the workplace could not take the initiative to actually increase cadre pensions. Most of the


TABLE 8.4. Evaluation of Equity of Pension and Benefits Differences for Revolutionaries and Postrevolutionaries, by Recruitment Category (Row Percentages) (Questionnaire Respondents)




Recruitment Category
























NOTE: Percentages may not add up because of rounding.

Pearson chi-square value: 59.049

Probability: .000

financial burden for retirement is borne by local governments. Throughout 1986 twenty-five provincial governments adopted measures to increase pensions for postrevolutionaries.[52] The measures adopted, often called temporary regulations, technically did not revise central regulations on retirement. Rather, they provided subsidies or additional maintenance stipends (shenghuo butie ) from provincial budgets for regularly retired cadres.

It is interesting to consider the case of Beijing, a provincial-level municipality and an anomaly in the local revision of cadre retirement policy. The municipal government of Beijing did not issue regulations to increase pensions for regularly retired cadres. Some interview subjects offered as an explanation the view that proximity to the national government meant that Beijing was more likely to act according to official policy. However, middlemen at workplaces in Beijing had their own way of dealing with this issue: they postponed the processing of the retirement of postrevolutionaries, in the expectation that policymakers at the top would soon ratify the informal changes in policy made by virtually all provincial governments. As with other informal deviations, postponement constituted a way of "taking into consideration" (zhaogu ) the interests of targets of the policy. One retired cadre described the situation at the end of 1986 as follows:

[Retirement] has been postponed ... because of the dissatisfaction among cadres about differences in material benefits between special retirement


and regular retirement. Cadres who do not meet the standards for special retirement are dissatisfied about accepting a smaller pension than cadres who do meet these standards. Thee is no question or complaint about veteran cadres deserving the title of veteran revolutionaries and some honorary status, but there is grumbling about their extra material benefits. So the workplace is putting off processing cadre retirement, because there is a sense that the policy will probably change soon, and the workplace wants to show consideration for the cadres who do not meet special retirement standards but are at the age of retirement. New regulations may come out soon. People are waiting.

Policymakers may have unwittingly sanctioned the deviations by middlemen at the workplace and by the provinces. For example, middlemen could view the concern about low pensions for postrevolutionaries that Jiao Shanmin voiced in 1984 as granting legitimacy to the provincial subsidies. Providing a better retirement deal was consistent with a policy guideline to take into account the special needs of veteran cadres, especially in matters of general well-being.[53] And policy guidelines on the role of veteran cadres in training successors and those on promoting an active postretirement role for veteran cadres seemed to support a continued relation with the workplace after retirement.[54] The blanket exclusion from promotion of all cadres in their fifties was officially criticized, but guidelines suggested that even those in good health should step down if younger, better-qualified candidates for office were available.[55] Even providing employment for a son or a daughter was not entirely without a basis in official policy. It was a corruption of the principle of employment substitution (dingti ), which, under certain circumstances, allowed the workplace to hire one son or daughter of a retiring worker. Employment substitution was not applicable to cadres, however.[56]

Nonetheless, these were, in fact, deviations—not simply permissible interpretations and adaptations of official policy. In September 1983 the Central Committee sharply criticized the extension of employment substi-


tution to cadres and placed stringent restrictions on its application, even among workers.[57] The stipend increases for postrevolutionaries were treated somewhat differently. They were clearly viewed as a violation and an irregularity, but in the end policymakers took the local government measures as a signal to review the policy. The State Council issued a report in early 1987, pointing out that the subsidies had created a heavy financial burden on the state and that departments were studying the matter to recommend policy revisions. It asked the localities to take into account the financial burden and the adverse effect of the increases on building a cadre retirement system. However, policymakers did not explicitly demand a repeal of the increases.[58]


For a number of reasons, cadre retirement policy was a policy without action implications in 1978–81. Policymakers gave middlemen conflicting signals, reflecting a lack of consensus at the top. Party and government organizations issued documents with different nuances, and the lack of clear Party support for a policy in a Party-dominated issue area was especially important. Also, middlemen were given another policy to execute, the goals of which conflicted with cadre retirement policy. And policymakers did not constrain middlemen to retire cadres with an objective criterion, such as mandatory retirement at specified ages.

In 1982 middlemen took action to retire cadres. A number of factors explain this. Policymakers signaled agreement at the top and, in particular, Party support of retirement. They eliminated conflicting policy demands on middlemen and introduced mutually reinforcing demands by starting up two campaigns, in which cadre retirement was virtually a prerequisite for success. And they constrained middlemen to retire cadres by making retirement at specified ages the general rule. Policymakers also made the policy easier to execute, by increasing incentives for a large proportion of older cadres to retire.

However, in executing policy middlemen took the interests of potential retirees into consideration. They increased incentives to retire—even when doing so deviated from policy. Thus middlemen proved unwilling or unable to enforce policy. Instead, they induced compliance by making retirement more attractive.


The evidence presented points toward a number of conclusions about the choices middlemen make after policymakers formulate policy. These can be simply summarized as choices about taking risks, justifying actions, and using resources. When there is a lack of consensus among policymakers, what middlemen do or do not do is a choice that reflects a stand—and potential political risk. Further, middlemen are in positions of responsibility toward policymakers and of authority over ultimate targets of a policy. This means they must justify their actions to both, with reference to policy. Finally, middlemen have a number of tasks in their issue area at any given time. Anything they do consumes limited resources (such as personnel), and when they face contradictory demands they must choose to use resources on one task or another. Because of these choices they make, middlemen are more likely to execute policy or execute it successfully to the degree that policymakers reduce their risks, constrain their actions, and coordinate demands on them.

However, this does not appear to be enough to ensure successful execution of policy. Middlemen need an attractive policy to execute. Ultimate targets of the policy seem to be, not passive policy takers, but discriminating consumers. Middlemen will find ways to make an unattractive policy attractive, even if this means deviating from official policy. The nature of their deviations is inhibited and shaped by both policy content and the formal structure of authority. The degree of latitude for interpretation in policy and the kinds of actions that appear to be sanctioned by policy affect how middlemen make policy more attractive. And middlemen are limited by their formal authority: thus middlemen in one issue area cannot take authoritative actions that span different areas, but local governments can take such actions.

What does this imply about the actual consequences of the formal structure of bureaucratic authority in the policy process? To begin with, the formal structure is meaningful in a couple of ways. First, the distinction between Party and government organizations has action implications in the policy process. When conflicting signals are issued by policy-makers at the top, middlemen weigh those signals differently. In the extraordinarily Party-dominated issue area of cadre management, Party signals were taken as the meaningful guidelines for action. Second, the officially defined span of authority over issue areas channels how policy is implemented. The ways middlemen deviated from formulated policy were constrained by whether their formal authority was limited to one issue area or extended to many.

In short, formal authority relations matter. But much of the behavior of middlemen cannot be explained with reference to those relations. In particular, the nature of deviations in the course of policy implementation reveals an informal structure of constraints and incentives at the


grass roots. Middlemen proved clearly unwilling or unable to implement what was considered by older cadres to be an unattractive policy. Thus middlemen are keenly responsive to interests of policy targets who have little or no place on charts delineating official authority relations in the policy process. That responsiveness, not represented in the formal organizational design, has a real impact on how policies are transformed into actions.

The actual scope of these generalizations is essentially an empirical matter. However, there are a few features of this case that may restrict its generalizability to other policies. In particular, the tendency of middlemen to provide additional incentives to potential retirees may be quite atypical. Cadre retirement is an unusual policy because of the lack of legitimate precedent for it, the relative absence of risk for targets of the policy in resisting it, and the special resources possessed by these potential retirees.

First, cadre retirement lacked a supportive legacy on which to build. Indeed, Chinese Communist experience attached stigma to exit from office: movement in and out of official position has typically been the result of natural death, political error, or consolidation of personal power from the top. Cadre retirement policy was a new attempt to change a de facto lifelong tenure system that had been in place since the 1950s. This system not only had the legitimacy of habit, but also had been explicitly legitimated as an entitlement of revolutionaries for their role in the Communist rise to power. The notion of cadre, then, was not one of bureaucratic career, but rather one of revolutionary calling. Retirement represented a reinterpretation of what it meant to be a cadre.

In these circumstances, the interests of potential retirees, especially veteran cadres, could not easily be dismissed as illegitimate. Both the magnitude of the change involved and the policy's lack of legitimate precedent were probably influences on the policy process, making it more likely that middlemen would take the interests of potential retirees into consideration. An example of a comparable kind of policy in the same issue area is the elimination of job security for workers and cadres.

Second, and somewhat paradoxically, older cadres could resist retirement and press for an increase in pensions and benefits without major risk. The organization-personnel system is important precisely because it is the system through which the Party controls life chances. Cadre retirement is an atypical problem in this issue area because, to a considerable degree, retirement involves an exit from this system of control. Potential retirees had less to lose in resisting retirement policy, because the outcome was a career end point in any case.

Finally and relatedly, older cadres could draw on resources that targets of other policies might not be expected to possess. This was espe-


cially true of veteran cadres. Most potential retirees were not leaders and, therefore, did not have a lot of power in the usual sense. However, they had years of Party membership, tenure in office, work experience, and networks of contacts. Veteran cadres restored to office also had prestige, because they were associated with the Party's greatest achievement to date—gaining power. As well, they were often victims of the Cultural Revolution and untainted by the policies of that repudiated period. They were symbols of the Party's better face, at a time when the Party was facing a crisis of faith. Given this situation, middlemen could ill afford to provoke the resistance of potential retirees. They could be expected to adopt a less authoritarian and more concessionary style of executing policy.


Hierarchy and the Bargaining Economy: Government and Enterprise in the Reform Process

Barry Naughton

Before economic reform China ran a command economy, and economic decisions were made and evaluated within a hierarchical bureaucracy. Because decision-makers were not directly subject to competitive pressures or external review, decisions generally emerged from a process of negotiation and bargaining within the bureaucracy. Bargaining in the upper reaches of the bureaucracy determined the choice of investment projects, and bargaining between enterprises and their superiors over planned targets determined current production levels. This system permitted inefficient decisions to be made repeatedly because the costs of wrong choices were not borne by any single individual or work unit, but were instead diffused through the economy as a whole. From the beginning, one of the hopes of reform was that it would reduce the scope for decision making by bargaining, substituting instead an objective "discipline of the market."

In fact, economic reforms have transformed the nature of bargaining relations in China's industrial economy, changing the bargaining positions of superiors and subordinates, transferring control over large blocks of resources, and introducing elements of market competition into the decision-making process. But the hope that reform would somehow diminish the overall importance of bargaining within the bureaucracy has been sorely disappointed. Instead, reforms have caused bargaining relations to become more complex and even more pervasive. Within the state sector the maintenance of the administrative hierarchy has preserved the basic precondition for the bargaining relationship, while the increasingly complex and diversified economic environment has enriched the content of the bargains that can be struck. In this new bargaining environment the roles of the central government and state


enterprises have been recast, without, however, solving the question of what those roles should be.

The new bargaining relations are the result of changes in the forces that shape the bargaining environment. Changes in two areas are particularly striking. First, the relative strength of different parties in the hierarchical bargaining process—determined primarily by their control over resources and information—has shifted. The central government has been weakened by a decline in the volume of resources under its direct control, but strengthened by an increase in information and skills and by a broader range of instruments at its disposal. In certain respects this combination has led to an unexpected increase in the strength of the central government. Second, the coexistence of plan and market sectors has led to bargains with increasingly complex and diverse contents. There are simply more economic variables to be bargained over than there were in the past. From the enterprise standpoint, this aspect of change has been crucial. While enterprises have more resources at their disposal, they also face a vastly more complex bargaining environment, and bargaining has shifted from predominantly plan bargaining to a complicated mixture of plan, exchange, and redistributive bargaining. The combination of ambiguous shifts in power relations and increasing complexity in the economic system has resulted in an increased prominence for bargaining overall in economic decision making. This is ironic, for we might have supposed that it would be precisely in the economic realm that market relations would replace the give-and-take of bureaucratic politics at an early stage of the reform process.

In the first section of this chapter I introduce the conceptual framework by describing a pure "command-bureaucratic" economy. Stress is laid on the closed, monopolistic nature of the system and on the degraded character of information flows within the bureaucracy. The prereform Chinese economic system is described with reference to these characteristics. The second section begins the discussion of the contemporary Chinese environment by examining the role of the central government in Beijing in the investment process, stressing changes in bargaining strength. The third section examines the changing bargaining environment at the enterprise level. This necessarily involves a discussion of the "two-track" strategy for economic reform and of the nature of enterprise response to the new risks and opportunities facing them. In the fourth section, I examine the basic structural conditions that serve to maintain and reproduce the bargaining relationship at the enterprise level: I stress the continuing bilateral monopoly that prevails between enterprises and their superiors. Some of the implications of this way of looking at the Chinese reform process are presented in a brief concluding section.


The Command-Bureaucratic Economy

The economic system China operated before reform is often called a "command economy," and this term accurately captures the nature of most economic decision making in such a system. Information is collected from production and consumption units; the information flows upward through bureaucratic channels; decisions are made on the basis of this information; and commands are issued down through the same bureaucratic channels to determine production decisions. Vertical flows of information and command are thus the basis of the system. The label "command economy" applies to the economic system as a whole because the "commands" issued by superiors are the central features that organize the system. Just as the flow of energy through an organism or a machine determines the physical form of that system, so the flow of commands through the bureaucracy determines the characteristic forms of the command economy. Individual incomes are determined by the extent to which commands are carried out (degree of plan fulfillment); input purchases and output sales are planned to enable production commands to be fulfilled; and financial flows are set to accommodate those planned tasks. Moreover, various planning exercises are expected to mesh into a single integrated plan that expresses the will of those who command. Thus, the command economy is "monomorphic," or uniform: all economic decision making is organized in such a way that it replicates and is subordinate to the basic "command" relationship. Similarly, economic organizations generally have the same internal structure regardless of their rank in the hierarchy, because all organizations serve the same functions of relaying commands and information. This monomorphism characterizes the command economy regardless of whether it is highly centralized or relatively decentralized.

The command economy is also monolithic. That is, there are no significant organizations outside the planned economy that compete with units inside. Because of the lack of competition and markets, prices do not carry much information useful in economic decision making. Instead, important information flows mainly through a few narrow channels connecting lower and higher levels. The importance and scarcity of official information channels means that they become the focus of interest of many different individuals. Those at lower levels, for example, have an interest in retaining information so that they can use this scarce resource to advance their own careers. The same superior-subordinate relations are used to structure information gathering and to issue commands, so the incentives to manipulate and distort those relations are very great. Bargaining within the bureaucracy is


concentrated on the level of commands coming down the bureaucratic chain and the type of information going up: it is predominantly "plan bargaining."

In ordinary times this bargaining takes the form of "hiding reserves." Lower-level units wish to conceal capacity from their superiors in order to obtain plans that are easy to fulfill. In that way, they can be assured of a quiet life and an adequate income. Thus, the economic system as a whole tends to sink into a low-level equilibrium of low productivity and low effort. The situation is neatly captured by an epigram from Eastern Europe: "They pretend to pay us, and we pretend to work." In this respect, the command economy resembles any bureaucratic system, which may fall into this low-level trap when morale is low, tasks routinized, and external checks weak. The basic problem is that the narrow channels connecting subordinates to superiors become clogged with pseudoinformation, which is often intentionally distorted. While the system continues to report thousands of "bits" of data, the actual information content is quite limited. Production data are abundant, but these reflect merely an institutional consensus about appropriate levels of effort, rather than actual information about attainable levels of output. Uniformly organized production units all report more or less adequate performances, and it becomes impossible to know, for instance, the potential savings in energy usage that could be achieved by a drastically reshaped enterprise. Because of this impoverished information flow, it becomes difficult for leaders to get the kind of response from the "command economy" that they desire. The "command economy"—a model of subordination to the leader's will— becomes instead the "bureaucratic economy"—a model of unresponsiveness. It would be best to characterize these systems as "command-bureaucratic economies" to capture both the authoritarian flavor and the sense of unresponsiveness which the word bureaucratic has come to carry in daily language.[1]

One of the curiosities of the command economy is the tendency of the system to generate an opposite, superresponsive kind of behavior during certain exceptional periods. During exceptional "forward leaps" a different response emerges, which we can call Stakhanovite after the Soviet coal miner who hewed 104 tons of coal—fourteen times his output quota—on one particularly good day in 1935. During these periods the incentive structure is altered to reward exceptional achievements, and production workers and units begin vying to overfulfill their plans by ever more astonishing margins. Suddenly, all the desire to conceal reserves is abandoned: in the context of a revivalist spirit, the worker-hero


shatters the stagnation of the bureaucratic system. Certainly the most spectacular example of this behavior shift was the Great Leap Forward in China, when it seemed for a period that all the laws of nature had been repealed. In 1958 cadres eager for recognition reported spectacular grain harvests, leading the central leadership to believe that China's total harvest had increased by a miraculous amount. The commands that followed included instructions to reduce the acreage sown to grain and increase deliveries of grain to the state, thus leading directly to disastrous famine.[2] While Stakhanovite leaps forward seem to be the opposite of the bureaucratic economy, they are really just the flip side of the same phenomenon. In both cases, the tangling of the incentive system and information flows creates a distorted and degraded flow of information; the indeterminacy of the whole system, because of the absence of external checks, permits the most outrageous outcomes to appear acceptable for a period. The extremes of stagnation and Stakhanovite leaps forward are both more likely when central planners have a weak and uncertain grasp over concrete decision making in the economy.[3]

What determines the level of effective control over the economy exerted by central planners? The size and complexity of the economy play a major role, and Chinese planners would face a formidable control problem under any conceivable system. More specifically, however, effective control basically depends on two factors. The first is the direct control over resources—particularly investment resources—exercised by planners, and the second is the quality of the information available to planners. In both these respects, Chinese planners were exceptionally weak before reforms. Even before reforms, financial control over one-third of investment had been decentralized, and only two-thirds of investment was disbursed directly through the government budget. Slightly less than half of state investment went for projects that were included in the central-government investment plan. Moreover, central-government resources were tied up in the misguided "Third Front" development strategy, leaving central planners with little freedom to shift resources in


response to changing priorities.[4] Even more striking was the decline in the quality of the information available to planners. During the Cultural Revolution the State Statistical Bureau was reduced sharply in size, and most of its functions were incorporated into the planning commissions at all levels. This meant that the government sacrificed a semiautonomous source of information and became completely dependent on information channeled directly through the industrial hierarchy. Moreover, the whole scope of statistics gathering changed. Previously, the Statistical Bureau had been charged with gathering data about the entire economy, but as control over significant blocks of resources was decentralized, the data-collection network shrank to cover only those areas directly under central control. Thus, when control over "technical transformation" investment was decentralized, the government ceased to collect information about this important component of investment. The government literally did not know how much total investment was taking place.[5] Similarly, materials that were under local control and "balanced" by local authorities were not incorporated into the central-government balancing process at all. Of course, the government continued to collect output figures, but it made no effort to coordinate sources and uses of this important portion of total output. Finally, the decimation of the technically skilled economic bureaucracy meant that only relatively crude direction of resource flows could take place. Only a few hundred commodities were centrally planned, whereas in the Soviet Union several thousand such commodities are planned. With limited skills and limited information, the central government was unable to exercise detailed control over even those portions of the economy where it nominally possessed absolute authority.

China's economic system before reform was unquestionably a "command economy," but it is of only limited value to describe it as a centrally planned economy. While the Center had enormous formal authority, and while the ultimate centralization of the Communist Party and other aspects of the political system cannot be neglected, the Center was extraordinarily weak compared with other planned economies. As a result, the industrial economy was unresponsive to attempts to regulate daily decision making but was at the same time vulnerable to recurrent periods of


leaping forward. One case that occurred on the eve of economic reform is symptomatic of the weakness of central control. In November 1977 the State Council approved a proposal to build at Baoshan in the Shanghai suburbs an advanced iron mill, to be imported from Japan and capable of supplying 5 million metric tons (MMT) of iron annually. Within six months of approval, the cost of the projected plant had approximately quadrupled, as it was expanded to a comprehensive steel mill producing 6 MMT of iron and 6 MMT of steel, plus continuous hot and cold steel rolling mills. Yet at this time no blueprints or construction plans had ever been submitted to the central Planning Commission. In July 1978 the Planning Commission finally obtained and approved blueprints, but the discovery that the designs submitted incorporated a further expansion of the project and still more cost increases led to escalating doubts. Subsequent rethinking led to the recognition that the project was deeply flawed, but by that time contracts had been signed with Japanese suppliers that basically locked the government into the proposal. Ultimately, the government proceeded with a project with a total cost of over 20 billion yuan (over $4 billion at today's exchange rates), in spite of the fact that planners had not possessed any detailed information about the project until it was already under way.[6] Surely few decisions of this magnitude have ever been made on such a flimsy information base. We can speculate that cases like this, occurring after the door had been decisively closed on the Cultural Revolution era, forced China's leaders to recognize the weakness of their bureaucratic decision-making process and made them more receptive to the possibility of economic reform.

The Central Government And The Control Of Investment

The early stages of economic reform in China were dominated by a process of decentralization. But while decentralization was taking place, a countervailing movement that improved the skills, information, and control available to the central government can also be discerned. This accumulation of skills was not in any sense contrary to the ideals of reform; indeed, increased sophistication of central officials was a key objective of reform in China, as in other socialist countries. Improved government skills would be necessary to guide the economy through the complexities of an increasingly marketized economy open to the outside world. However, in the face of constant change and recurrent crises,


central leaders have understandably used their newly available skills and information, and this has involved the central government in new activities despite the general decentralization process. Moreover, the two-track or "piecemeal" reform process in China has left a wide range of activities potentially open to central-government involvement. As a result, while the volume of resources directly under the control of the central government has declined, the Center's bargaining position has in other respects been enhanced by its greater access to information and the wider range of tools at its disposal. These contrasting trends can be seen most clearly through an investigation of the crucial focus of government activity in a command economy, the investment process.

By acceding to a dramatic reduction in its direct control over investment resources, the central government created the economic space that allowed reform to proceed in the late 1970s. Enterprises were given direct control over a substantial portion of profits and depreciation allowances that had previously been drawn into the state budget, and the government budget shrank as a proportion of the economy. The clearest indicator of direct government control over investment resources is the amount of investment that is funded directly through the government budget (shown in figure 9.1 as a proportion of national income [net material product].) Between 1978 and 1981 budgetary investment fell by half, from almost 15 percent of national income to slightly over 7 percent; moreover, the decline was persistent, with budgetary investment declining each successive year. This is an extremely unusual phenomenon, virtually unprecedented in the experience of centrally planned economies.[7] Between 1981 and 1984 budgetary investment stabilized. While it rose slightly as a proportion of national income to above 8 percent, it continued to decline as a proportion of total investment, which was increasing rapidly. After 1984 budgetary investment again entered a declining phase and fell below 6 percent of national income in 1987.

In the early reform years the central leadership acceded to this diminution in its direct control and began rebuilding the institutions that would improve the quality and volume of its information about the economy. At this point central planners had little choice, since they quite literally had no central plan: the existing planning procedures, as of the late 1970s, had produced only the grandiose Ten-Year Plan, which was widely recognized as unrealistic and had been discarded. The rebuilding of information networks began with the rehabilitation and strengthening


Fig. 9.1.
Fixed Investment: Budgetary and Central Government

of the State Statistical Bureau. The Statistical Bureau then gradually expanded the coverage of its data-collection network, improving the reliability and meaningfulness of data. In the sphere of investment the Statistical Bureau gradually progressed from collecting information only about capital construction within the state economy to collecting information about all kinds of fixed investment economy-wide, including that carried out by individual households. Computerized information centers under the State Council now regularly collect data from all large industrial enterprises. Several new research institutes labor with increasing sophistication to interpret and analyze the available information.[8] As the available information base improved planners began to engage in a series of long-range projections of the future of the economy, projections


that became gradually more meaningful and specific.[9] Even as direct central control over investable resources declined, a gradually more sophisticated process of economic strategizing led to increased demands that investment accord with central-government priorities.

As central planners gradually developed a coherent vision of future economic development, they began to engage in a continuous tug-of-war with local interests. Generally speaking, central planners tried to increase the flow of investment to key bottleneck sectors, particularly energy and transport. Local governments and enterprises, by contrast, tried to develop industries with high profit rates and prospects for rapid growth. Because China's distorted price system keeps the profitability of energy low, and projects in this sector require large-scale investments often beyond local capabilities, the energy sector was rarely targeted by localities. They gambled instead that bottlenecks in transportation and energy would ultimately be taken care of by the central government, and that localities with the most promising early development of profitable industries would be able to hold on to those assets.

From the beginning of the reform process, the central government repeatedly stressed the need to develop energy production, but energy investment nevertheless stagnated between 1978 and 1982. This stagnation came about in part because central planners simply did not have workable plans for energy development. They had not carried out the detailed work of selecting sites and projects, drawing up blueprints, and working out supply arrangements. For a period they hoped the foreign multinationals would solve some of the problems by developing offshore oil fields, but this hope was disappointed. Priority to energy and transportation remained a long-range goal rather than a concrete task for operational plans. In addition, planners felt they could temporarily survive by allowing the industrial structure to shift toward a lighter, less energy-intensive pattern. The new decentralized funding mechanisms that were devised were used predominantly for light-industry investment. For example, when new programs of bank lending for fixed investment were initiated, 13 billion yuan worth of fixed investment were funded by bank loans, and of this, 68 percent went for light industry (mid-1979 through mid-1982).[10] During this period even central-government projects were frequently in light and consumption-goods industries. Ultimately, however, the growing economy would need more investment in energy and transport.


During the early 1980s the central government gradually created a menu of projects in the energy and transport sectors that it wished to carry out. The result was a steady revival in the importance of the central investment plan. Statistics are shown in figure 9.1 on investment spending on all projects included in the central-government investment plan. (For a description of the data, see the appendix to this chapter.) Between 1978 and 1981 spending on central-government projects declined substantially but not as much as budgetary investment. Spending on central projects declined from slightly over 10 percent of national income to just below 8 percent, a reduction of 2.5 percent of national income—a very substantial change, but quite a bit less than the decline in budgetary investment. In 1978 spending on central projects was significantly less than budgetary investment. If we think of the central government as simultaneously establishing an investment-funding mechanism and a program of investment projects, these two activities in conjunction yielded a substantial surplus in 1978, equal to slightly over 4 percent of national income. Thus, after spending on central projects was complete, budgetary funds were still available to fund projects planned by local governments.

From 1981 through 1984 budgetary investment and spending on central-government projects were roughly equal. This does not mean that all budgetary investment went directly to central-government projects: some central projects were funded in whole or in part through bank loans, and some through extrabudgetary retained funds; conversely, some budgetary investment went to local-level projects. Netting out these flows, central-government projects and budgetary investment were roughly in balance, with a slight deficit amounting to about 1 percent of national income. In order to fund central-government projects the central government would have to draw in extrabudgetary funds or bank loans equal to about 1 percent of national income, even if no budgetary funds went to local-level projects.[11] During this period, household and enterprise saving was rising rapidly, so drawing on surplus funds was not difficult, and no serious economic problems arose.[12] After 1984 the spending trend for central-government projects diverged from that of budgetary investment.


While budgetary investment dropped further, spending on central-government projects climbed steadily; by 1987 it had surpassed 10 percent of NMP (net material product), regaining the 1978 level. In order to fund this substantial investment program, the central government, by 1987, had to borrow funds equal to 4 percent of national income. Thus, while the central government surrendered direct control over economic resources, it did not reduce its aspirations in a corresponding fashion. By the second half of the 1980s a significant disparity had developed between what the central government wished to accomplish and the resources at its disposal. The central plan had been reborn, but whereas before reform the central government had directly disposed of the resources to carry out this plan, it now had to devise additional mechanisms to draw resources into planned projects.

Central-government planners evolved three complementary strategies to attain their investment objectives: they concentrated their own resources on priority sectors; they harnessed the financial resources of the banking system to those priorities; and they drew on local financial resources through a version of "matching funds." While the first of these strategies was merely a rationalized version of the old planned system, the other two involved the central government in bargaining exercises with local officials and enterprises. Each of these strategies will be examined in detail.

The most important single component of the central government's concentration of its own resources has been the creation of a special program of priority projects. A gradually increasing number of projects had been planned with "rational time-tables and guaranteed supply of materials." These projects have first claim on materials still under state control. This is a kind of plan within the plan, and its significance can be seen from the figures in table 9.1. The priority-investment program has grown steadily, both in absolute terms and as a proportion of national income. Moreover, all these projects have access to in-plan materials provided at subsidized prices, so that real resources are concentrated on the priority program to an even greater extent than the financial data indicate. In essence, the central government is subordinating the surviving elements of the material-allocation system to its development strategy. Before reforms the material-allocation system was charged with the nearly impossible task of delivering resources to all state-run factories for all production needs. But as reform has deepened and the economy has diversified, the allocation system, now much smaller relative to the economy as a whole, has increasingly been targeted to this investment program. The central government no longer has nominal control over all the materials in the economy; but the remaining control over materials is now used almost exclusively to carry out central-government priorities.


TABLE 9.1. Central Government Priority Investment


No. of Projects

Investment (B. Yuan)

% of Total Capital Construction

% of NMP































SOURCES : 1986 Jingji Nianjian , V-12; Zhongguo Jiben Jianshe , 1986, no. 5:25; 1987, no. 7:9–10; 1988, no. 2:8.

The priority-investment program also differs from the old central plan in the quality of the design and planning activity. Unlike the Baoshan steel mill, symbolic of the low quality of planning prior to reform, today's priority projects are carried out with reasonable preparatory work, feasibility studies, and complete sets of design documents. Indeed, a number of the projects utilize international funds, such as those from the Japanese Development Bank and the World Bank, and thus have to comply with international standards for project appraisal and implementation, including competitive bidding for some parts of the work. The central plan has thus been strengthened in a technocratic sense; with a better understanding of the economy as a whole and better utilization of trained manpower, the economic returns of these projects will generally be higher than those of projects during the 1970s before reform. This is true both because individual projects are better designed and because the program as a whole is targeted more effectively on bottleneck sectors. At the same time, priority status and access to materials serves to ensure the completion of the projects. In 1987 the capital-construction expenditure plan for these projects was 109 percent fulfilled, while the remainder of the plan was only 90.5 percent completed.[13] Although this is an improved version of the central plan, relative to what China had before, it still suffers from the inherent liabilities of central planning, as was discussed in the preceding section.

In order to carry out the broader central-government plan (including the priority plan as one component), the government still needs access to additional financial resources. As central plans grew, bank lending was harnessed to the needs of this plan. By 1985, at the latest, this had worked a fundamental change in the composition of both central-government investment and the use of bank loans. Figures are presented in table 9.2 on the proportion of different types of capital-construction investment going to three bottleneck sectors—energy, transport, and heavy raw-materials


TABLE 9.2. Percentage of Capital Construction Going to Energy, Materials, and Transport

By administrative level






By primary funding source




Bank loans


Retained (extrabudgetary)


SOURCE : Song Guangrong, "An Analysis of Investment in Bottleneck Sectors," Zhongguo Jiben Jianshe , 1988, no. 8:27. Transport includes telecommunications.

industries—in 1985. Table 9.2 shows the striking difference between the composition of central and local-level investment and confirms the reluctance of local governments and enterprises to invest their own money in bottleneck sectors. According to the same source, 80 percent of electricity investment in the past few years has been on central-government projects. Even more striking is the extent to which bank lending conforms to central-government priorities. Originally introduced to permit flexible, decentralized financing of consumer goods industries, bank lending for fixed investment has increasingly been reshaped to serve central-government investment projects. While 68 percent of fixed-investment lending went to light industry in 1979–82, 62 percent went for a subcategory of heavy industry and transportation in 1985.[14] Given the division of responsibility over different sectors, this means that the central government effectively preempts most fixed-investment lending, and local governments and enterprises have correspondingly fewer financial resources. The banking system is unable to serve as an independent, decentralized funding source, for it is squeezed between the demands of the central government and local officials. Banks are obligated first to fund central-government projects; subsequently, they are placed under enormous political pressure to put remaining resources in the service of projects favored by local governments.

The second source of additional financing is the retained funds of


localities and enterprises. Increasingly, the central government requires localities to contribute "matching funds" in order to see critical infrastructure projects in their regions. For example, while the projects in electricity generation are overwhelmingly central, the money for them comes to a significant degree from the localities. Through the end of 1984, twenty-six large-scale electricity-generation projects had been carried out in the central plan, but using the joint resources of central and local authorities; the localities had provided 3.5 billion yuan, or 51 percent of the total cost.[15] Thus, the central government resolves the disparity between its limited financial resources and its responsibility for crucial sectors of the economy by negotiating for additional resources project by project. In this negotiation the central government is quite powerful: it possesses the design resources and seed money needed for large-scale energy development, and it possesses enormous leverage over the economic system as a whole, including the material-allocation and banking systems. Yet it also requires the cooperation and financial resources of local governments and enterprises. Thus, the Center and local governments are now involved in a classic bargaining situation: each has something the other needs. It is in the interests of both parties to get together, and it is in the interests of each to shape the resulting bargain to their own advantage.

One example of this bargaining process is presented by the province of Shandong.[16] Shandong is a large, slightly above-average coastal province, which has grown rapidly in recent years and has also experienced significant energy shortages. It is estimated that energy supply is 20 percent below demand. Shandong is the site of 11 of the 190 central-government priority projects, and it accounted for 8.5 percent of 1986 national priority-investment expenditure. Shandong thus receives substantial central-government support, and central projects include two large power plants, a very large ethylene plant, and two ports. Shandong's development strategy is therefore inextricably bound up with its relations with the central government.

To obtain central-government investment projects, Shandong makes—and publicizes—major contributions to those projects. Shandong provides a significant portion of the money for these projects, and must also organize land requisition and purchase; supply of water, electricity, and transport; supply of local building materials (cement, bricks, stone, and sand); and design and construction services. Thus, a substantial part of


Shandong's investment policy consists of coordination and support for central-government investments. An important reason for this support is to demonstrate to the central government that the locality is making a contribution, thus ensuring a future flow of central resources to Shandong. A significant public relations effort goes on to reassure the central government that its money is well spent. Yet these contributions are also a substantial burden to Shandong. The central-government financial contribution to a project covers only a portion of total cost and is generally fixed at the beginning of the plan year, leaving the locality to deal with the frequent cost overruns, while quantitative controls on investment strictly limit the province's total investment. Moreover, the province has to pay taxes on its investment spending—even when that spending goes to central-government projects—whereas the central government itself is exempt from construction taxes.

The province's strategy is to publicize all contributions to central-government projects while seeking ways to minimize the actual burden of those projects. Shandong authorities argue for tax exemptions and additional investment authority in order to carry the burden of central-government projects; at the same time, their own projects have been further "decentralized," placed under the nominal control of rural collectives so that they disappear from the provincial investment quotas. Every investment decision is thus shaped by the desire to draw in the largest possible amount of central resources (including centrally approved bank loans) while simultaneously protecting local resources as much as possible. Compared with the prereform system, Shandong is much less a passive agent of central-government plans; yet its more active role is shaped by obligations as much as opportunities and is still dominated by the need to draw resources from the central government. Shandong follows a particular strategy of high-visibility support for the central government, which is consistent with its generous endowment of central projects. Other localities follow a low-profile strategy of quietly draining resources from central projects, hoping that, ultimately, the Center's commitment to those projects will insure their completion. In this way, local projects that have little protection in case of policy changes can be completed as quickly as possible.[17] The bargaining relation between Center and locality is here in full flower.

Local governments find themselves squeezed between the Center and their enterprises. On the one hand, they must bargain with the Center to maximize central-government investments in their territory; on the other hand, they seek to retain as much as possible in the way of re-


sources and finances. They must promulgate their own development strategies, but they typically find themselves highly constrained by lack of expertise and experience. The obvious source of additional resources is the locality's own enterprises, which it can tap for a range of voluntary and involuntary contributions. But localities must strike a balance between drawing the resources they need from enterprises and allowing them sufficient resources for growth. This generally ends with local governments assuming a paternalistic, somewhat benevolent attitude toward all their enterprises, protecting them from the vicissitudes of the marketplace and encouraging their development, without regard for any particular development strategy. The relation between enterprises and their superiors will be discussed further below (see also chapter 11 in this volume), but it should be apparent that the difficult position in which localities find themselves will be reflected in their relations with their subordinate enterprises.

By following the three strategies described, the central government has managed to engineer a rebound in energy and transportation investment. Such investment was at a peak in 1978 before the initiation of reform. Energy investment as a proportion of total state fixed investment reached a low point in 1982 and since then has climbed to approximately the 1978 proportion (22–23 percent of investment); transportation investment has displayed a similar pattern, declining until 1981 and recovering since to 13–14 percent of investment. Measured both by the proportion of national income going to central-government projects and by the proportion of total investment going to central-priority sectors, central direction of investment appears as strong now as it was in 1978 before reforms began.

From the aggregate numbers, it would appear that the central government has simply been scrambling to get back to where it was in 1978. In fact, its economic role has been strengthened by access to three types of superior information. The Center's coordination of technical information has improved, so that individual projects are better. Much of the energy investment in 1978 was actually wasted; this is particularly clear in petroleum and is evident in other central-priority sectors as well, such as steel. Second, the central government has utilized better information about the economy as a whole, including long-range forecasting, to concentrate on areas where the case for central coordination is stronger. Generally leaving smaller-scale, consumer-oriented production to the localities and enterprises, the Center has focused on large-scale infrastructure projects, which often span provincial boundaries. These two factors together have caused a gradual improvement in the provision of energy and transport services; while these sectors have remained bottlenecks, industrial growth has nevertheless accelerated, and the shortages persist relative to a much


larger volume of output. Finally, the Center's increased information about local-government activities permits it to engage in specific bargains with localities about individual projects. It is this last type of information that ultimately has allowed the Center to subordinate the banking and material-allocation systems to its objectives, using the resources in those systems as bargaining chips to shape local behavior.

Nevertheless, these factors must always be seen in the context of the decline in direct central control over resources. Central planners are arguably stronger, and certainly more capable, than before reform, but they must deal with a vastly more complex economic environment in which many different agents have control over resources. This environment constantly threatens to overwhelm central-government actions. Although central actions have increased the investment share of priority sectors, the results still fall quite a bit short of central-government objectives. The Sixth Five-Year Plan, covering 1981–85 but drawn up only in 1982, called for the completion of 400 large and medium-sized investment projects, but in fact only 235 (59 percent) were completed by the end of 1985. In 1987, 63 out of 74 planned large projects (85 percent) were completed on schedule.[18] The sustained central-government focus on energy and transportation has just barely offset the bias toward light-industry investment created by decentralization of resources.

Examination of the investment process thus shows a complex set of changes. Although the central government's direct control over investment resources has been unambiguously reduced, it has been able to use its authority over the economic system as a whole, in combination with substantially enhanced information about the economy, to increase its indirect control over investment. But the nature of the central government's "indirect control" instruments is still highly imperfect: rather than manipulating objective economic levers to control the market environment and thus shape lower-level decisions, central planners instead achieve indirect control by engaging with lower levels in a case-by-case bargaining process. In an immediate sense, this works: it has increased the flow of investment resources into bottleneck sectors. Yet this strategy is clearly a second-best alternative to more fundamental reforms, including increases in the relative price of energy and transport. The central government's expedient policies draw local governments into further complex bargaining relations with the central government, rather than confronting them with more rational costs and opportunities for their own investments. A modest recentralization of finances, bringing financial capabilities in line with central-government ambitions, combined


with price rationalization and greater autonomy for those controlling decentralized finances, would be preferable. In this way, energy shortages could be addressed without enmeshing all parties in an overly complex bargaining relationship.

More generally, the strategy that has been followed does not seem capable of resolving the fundamental problems of the command-bureaucratic economy. While the Center has better information about local activities and can bargain with localities about a relatively small number of large-scale projects, it still lacks detailed knowledge and control of the bulk of economic decisions. In a sense, the central government can achieve certain objectives precisely because those objectives are circumscribed in scope, while the economy as a whole is just as resistant to specific manipulation by administrative means as it always has been. The new bargaining relations can only compensate for some of the deterioration in authority relations. Moreover, as the central government must cover a deficit in its investment program equal to 4 percent of national income, it competes for savings and pressures the banking system to create credit at an excessive rate. The central government is powerful but needy, and this tends to destabilize the system.

Enterprises And The Two-Track System

At the opposite end of the hierarchy from the central government, enterprises are the building blocks of the industrial economy. A few basic principles have guided enterprise reforms from the beginning. Reformers held that enterprises should cease to be administrative subdivisions of the government bureaucracy and should instead become economic entities making independent decisions based on price and profitability. Enterprises would become "relatively autonomous commodity producers," responsible for their own profits and losses, and economic—rather than administrative—means would be used to accomplish economic objectives. Most reformers envisage a continuing activist role for government, but that role is carried out through the manipulation of "economic levers," such as interest rates and prices.[19] Evidently, such principles require a reduction in direct government interference with enterprise decision making and imply a limited and indirect role for government that requires substantial sophistication.

These principles are too broad to serve as a specific blueprint for the reform process. The concrete strategy that has dominated the Chinese reform process has been that of allowing a gradual expansion of markets


outside the confines of the planned economy. The planned economy survives, but its size has been held roughly constant, while the regular growth of the economy has steadily swelled the proportion of economic activity carried on outside the plan through the market or marketlike exchanges. The leadership hoped that this evolutionary process would result in the gradual marketization of the economy, while the maintenance of a planned sector would anchor the system during the period when leaders were learning to use "economic levers" and indirect market regulation. This reform strategy has often been referred to as a "two-track" system combining both traditional planning and market operations. One of the essential features of this strategy—and one that gives the Chinese system its great novelty—has been that the two-track system is applied not only to the economy as a whole but also to each individual enterprise. Thus, nearly every state-owned factory operates with a portion of its output planned by government and a portion produced according to market demand.

At its best, the two-track-system strategy of reform held the promise of introducing market forces into the state-run industrial system at a rapid pace. Rather than waiting years for a comprehensive rationalization of prices and taxes, enterprises would be confronted with the opportunity of operating in the marketplace immediately. The command economy would persist, but its scope would be strictly limited. As a result, the monomorphism that made all decision making subject to the command relationship would be broken, since enterprise decisions about the growing portion of the economy would be made on the basis of profitability considerations determined by market prices. At the same time, the growth of a market sector would shatter the monolithic state economy; state-run enterprises operating out-of-plan would compete with collective and private enterprises, and markets would provide information and competitive pressures that could be used to reshape the state economy. Alternately stated, if plan targets were frozen, enterprises would face market prices on the margin, and the enterprise's plan would serve as a lump-sum tax, having no effect on current operations. The administrative economy would thus be gradually dissolved by market forces, and the bargaining economy progressively replaced by the objective rule of the market.

In this framework it is essential that the planned "track" be frozen. If the size of the planned economy is not fixed, then enterprise decision making cannot be fully freed to depend on the market. If the enterprise expects that its market-oriented behavior will have repercussions on the level of planned targets or inputs, it will inevitably take those repercussions into account in its decision making. As a result, advocates of the two-track system have tended to oppose using the old command-


economy structure to solve problems, even to the extent of opposing price reforms within the administrative economy. This position has been bolstered by a perception of the bureaucratic economy as a clumsy and unresponsive system, evident in a recent article by advocates of the two-track system:

The debate over whether it is better to adjust planned prices or to simply decontrol stems from different assessments of the ability of the government. Those who advocate price adjustment believe strongly in the ability of the government to control the price reform process ... [while we believe that] there is a serious contradiction between highly centralized price adjustment and the decentralized structure of interest groups. The central government will never be able to calculate the impact of each individual price change as accurately as the localities and ... enterprises, and the ultimate burden of price adjustment will inevitably be shifted onto the state treasury.[20]

In other words, advocates of the two-track system felt that the flows of information in the command economy were too crude and distorted to be useful in a rationalization of economic relations. A bureaucracy with weak information-gathering capabilities and correspondingly limited management abilities had no choice but to rely on the expansion of markets outside the system to realize its ideals of reformed enterprise behavior. The strategy of freezing a clumsy bureaucracy—rather than trying to rationalize it—implied that the financial and authority relations linking enterprises to their superiors would persist, though, one would hope, in fossilized form.

Unfortunately, this strategy has not yet been adequate to make the enterprise-reform principles into reality. It has been impossible, first of all, to freeze the planned "track" of the economy. The overall size of the command economy (the scale of central-government production and allocation plans) has indeed stayed relatively constant, declining steadily as a proportion of total economic activity as the economy grows. Yet from the perspective of an individual enterprise, plans are anything but stable. Some enterprises experience shrinking plans and are uncertain about the speed of shrinking. Other enterprises discover that their plan is increasing, and they may welcome this when it promises access to cheap inputs. For example, when the foreign joint-venture automobile companies, such as Beijing Jeep and Guangzhou Peugeot, ran into problems with raw-material supplies, the government provided them a special benefit: incorporation into the plan. The overall constancy of the plan thus conceals considerable variation in plan targets at the enterprise level.


Moreover, in the traditional command economy, input supplies are subordinate to the production plan, so that only the level of the production plan itself is important. However, in China, as bureaucratic capabilities declined during the Cultural Revolution, and as the system became less regularized during the reform process, there began to be substantial discrepancies between production plans and the allocation of inputs. Enterprises today cannot necessarily get the full quota of inputs required to fulfill their compulsory plan. Thus, even for a given production plan, enterprises face differential supplies of low-price inputs, and ultimately supply depends upon the nature of enterprise relations with their superiors. Here, paradoxically, the deterioration of bureaucratic capabilities makes it harder to freeze the bureaucratic portion of the economy, because the bureaucratic system is incapable of generating a single parameter to represent the level at which the plan should be fixed. Only enterprises that have obtained administrative recognition of their priority status can hope to receive a full complement of subsidized inputs.[21] The individual enterprise cannot regard the plan as being fixed in any meaningful sense. A persuasive case to a superior might always make a difference; "plan bargaining" persists in the two-track system.

Outside the plan, the environment in which enterprises operate is still not a pure market environment. Indeed, in general, enterprises do not sell their outside-plan output at market-clearing prices. In most cases, outside-plan output is sold at a higher price than planned output, but the price is kept low enough that shortages continue to arise and the enterprise must decide to whom to deliver its products.[22] This is a very curious phenomenon that requires explanation: Why do enterprises not exploit their apparent ability to charge higher prices? There seem to be three mutually reinforcing causes of this type of enterprise behavior. First is the government effort to restrain price increases in the inflationary environment that has prevailed since 1984. The old bureaucratic networks persist and are used to pressure enterprises to refrain from raising prices; in this sense, the failure to charge market-clearing prices is simply a result of the failure to free the enterprise from the old authority relations. Such pressures vary greatly from region to region and from sector to sector, depending upon the bureaucracy and type of good involved—producers of certain consumer goods are subject to more


pressure, as are factories in "conservative" provinces with active price-control efforts.

The second factor is that enterprises find it in their own interest not to charge high, market-clearing prices for their output. When enterprises sell their output at the highest possible price, they receive all the benefit from the sale in overt, monetary form: high profits. Profits are highly visible, and they are highly taxed. As a result, although the enterprise may reap greater paper profits from such a sale, it may find itself with little real benefit after delivering taxes and other revenues to its superiors. When the enterprise chooses to sell its output at a lower price, it forgoes some money income but receives something else in return. Most commonly, it receives access to other goods at a concessionary price. If these are consumption goods, the enterprise benefits directly: the goods can be sold to the enterprise's workers without any overt subsidization and without restrictions. It appears to be a pure market transaction and is thus subject to no taxes and no quantitative limits. (If the enterprise had taken the income in money form and then distributed it to its workers, that distribution would have been subject to limitations on bonuses.) Furthermore, the enterprise creates a hedge against future supply and price uncertainties by creating a long-term cooperative relationship with another enterprise. Current income forgone is "saved" by accumulating capital in the form of guanxi (connections). By building up guanxi the enterprise obtains greater flexibility and security: guanxi can be used to shift income from one period to another, or to guarantee supplies of materials when the need is critical. For the enterprise to forgo guanxi for some short-run financial advantage would be shortsighted indeed.

Finally, the benefits received by forgoing enterprise profits can accrue to individuals, particularly managerial and sales personnel. This can take the form of a slightly lavish dinner and a carton of cigarettes, or it can involve major bribery. The danger of corruption is, of course, endemic to a two-track system, because of the existence of more than one price for any given commodity. Overt bribery and illicit sale of in-plan goods, however, can be extremely dangerous and seem to be relatively infrequent. A far more common pattern is the creation of long chains of buyers and sellers, each of whom raises the price of a good by, say, 10 percent, just enough to cover "handling charges." The individual privileged enough to be one of the links in this chain earns a moderate cash reward and acquires the gratitude of the individual who is the next link. No unambiguously illegal activity has taken place, and everyone involved has profited, except the original enterprise. Only at the end of this long chain does the good sell for something like a true market price.

For these three reasons, enterprises and their superiors collaborate in


complex exchanges at other than market prices. On occasion, an enterprise may dispose of goods at market prices when it has no "connection" with the purchaser, and logically even the longest chain of buyers and sellers has a final link, so market prices exist. But it is extremely difficult to determine what those prices are, and difficult to object when transactions take place at other prices. Thus, there is a kind of "exchange bargaining" that goes on between enterprises and also affects enterprise relations with their superiors. Enterprise managers try to maximize a complex mixture of sales revenues and outside-sales benefits, and this leads them into elaborate bargaining arrangements.

When all the enterprise's supplies have been purchased, and all the output has been sold at various prices, the enterprise's ultimate profit is still far from determined. The final bargain that must be struck is that which determines the financial relations that link enterprises to their superiors. These have remained unregularized and subject to a bewildering array of inconsistent provisions. In part, this is due to the failure to successfully implement new fiscal systems, such as the "tax for profit" system and the consequent prevalence of the "contracting" (chengbao ) system. Under the contracting system, enterprise financial obligations to superiors are determined as part of a multiyear contract negotiated between the two sides. Such a system is designed to provide high-powered incentives to enterprises by allowing them to retain a high percentage of their incremental revenues. At the same time, the contracting system indicates the inherent difficulty of the two-track system: the multiyear contract is an attempt to "freeze" the financial tribute the enterprise pays annually to its superiors. The fact that such a freeze has to be specified in a negotiated contract between the enterprise and its superior simply demonstrates that the planned track of the economy was not frozen to begin with. Quite the contrary, the financial relations between enterprises and superiors have been subject to constant, virtually annual, changes between 1978 and 1988. Unavoidably, each time financial provisions are altered, every aspect of the enterprise's economic health, behavior, and relations with its superiors enters into the process of adjustment. The striking of a deal dividing up enterprise revenues, which Kornai has described in Hungary and labeled "redistributional bargaining,"[23] is prevalent in China as well.

Redistributional bargaining in China is peculiarly unconstrained because of the absence of clear fiscal and financial regulations. Almost any parameter can be altered through negotiation between superiors and subordinates. For example, there is uncertainty as to whether bank loans


should be repaid before or after taxes, so the authority to repay before taxes thus becomes a benefit that superiors grant enterprises. Actually, the discretion available to superiors is virtually unbounded; at one plant visited in 1988 the superiors had decided that the enterprise was having legitimate difficulties in fulfilling its profit-remittance contract because it had such a large volume of loans to repay. The superiors simply allowed the enterprise to count 50 percent of the loans it repaid as remitted profits for the purpose of calculating the revenue split, so that the enterprise succeeded in fulfilling its contract. In this case, the contract fulfillment was entirely imaginary. Taxes are slightly more difficult to alter, since the central government has repeatedly insisted that taxes, particularly those on cigarettes and liquor, should not be forgiven. Nevertheless, tax forgiveness is very significant. In Jiangsu in 1986 local authorities forgave taxes equal to a remarkable 12 percent of total budgetary revenue.[24] Every financial parameter is subject to negotiation and thus subject to constant change.

An additional aspect of redistributional bargaining links it to my earlier discussion of the central government and its investment plan. I noted above that, before reform, enterprises retained some funds for investment purposes, but that the central government collected no data on this investment and had no way of controlling it. Local governments and enterprises, in collaboration, were thus completely autonomous users of these funds. In the current period, enterprises control substantially more funds, but the central government no longer closes its eyes to their use. Instead, the government by the mid-1980s had promulgated a plan for enterprise-level investment in technical transformation. This plan, which includes projects for about half of all large enterprises, classifies enterprises and projects according to level of priority and establishes technologies and processes that are to be introduced.[25] This is not a detailed central investment plan, like the priority capital-construction program described above. However, it is the basis for central-government involvement in redistributional bargaining. Enterprises with authorized and high-priority investments are supposed to retain more profit and have easier access to bank loans than other enterprises. Thus, the central government uses this planning exercise to reach down the administrative hierarchy and shape the bargain between the enterprise and its direct superior in ways that reflect central-government priorities. Clearly, enterprises can benefit by appealing to patrons at the central level.


The enterprise is thus enmeshed in a complex bargaining relationship with its superiors. Plan bargaining, exchange bargaining, and redistributional bargaining are all taking place simultaneously; in fact, along with the face-to-face personal relationships involved, they are woven into a single inextricable chain of bargains—repeatedly struck and constantly reopened—between enterprises and their superiors. No wonder, since both enterprises and superiors face a vast realm of indeterminacy, in which everything—price, plan, supply, tax, credit—is subject to change and negotiation. All these parameters can be altered by the enterprise's superior, and only an extraordinarily bold, or extraordinarily foolish, enterprise manager would choose to operate "on the market" as if the wishes of his superior did not matter. Conversely, only an exceptionally obtuse manager would ignore the opportunity to improve his lot and protect himself against adverse outcomes that is possible by the appeal to his superiors. The astute enterprise manager will always keep open the channels to his superiors that permit him to reopen the bargaining relation at any time.

What is true at the enterprise level is also true one step higher in the bureaucratic hierarchy. Local government officials must always be aware of the possibilities involved in currying favor with their superiors. Indeed, since there is no final blueprint for reforms, localities must be given the freedom to experiment and must be supported in this experimentation process. Localities learn very quickly that it is in their interest to have some kind of reform pilot project.[26] Localities receive special benefits to operate pilot projects, and if one is deemed successful, local officials will undoubtedly receive a career boost. As a result, reform "experiments" proliferate; at the end of 1986 there were seventy-two cities that were "comprehensive-reform pilot cities," sixteen "medium-size city administrative-reform pilots," twenty-seven banking-reform pilots, thirteen producers-goods-marketing pilots, fourteen housing-reform pilots, plus labor-reform pilots, coastal development zones, and so forth.[27] In each of these "experimental cities" local authorities could hope to obtain benefits and preferential treatment from the central government by extending benefits and preferential treatment to their subordinate enterprises. Thus, just as local governments were squeezed by the central government in the investment-allocation process, so do they squeeze themselves into the system-reform process. The reform process, and the real distribution of benefits within the state sector, evolve from this constant contention and interplay of interests.


Bilateral Monopoly

By itself, the indeterminacy of so many economic parameters cannot explain the persistence of bargaining relations at the enterprise level. Indeed, given the rise of marketlike institutions in China during the past ten years, the question is why market forces do not in the long run eliminate the indeterminacy. Ultimately, the crucial factor is that state enterprises are in a relationship of bilateral monopoly with their superiors. The two-track reform strategy implies the retention of the administrative hierarchy, and because of the retention of the administrative hierarchy, enterprises cannot escape the influence of their superiors, while superiors cannot escape their ultimate reliance on the productive capacity of their enterprises. The importance of the retention of the hierarchy is thus not primarily that the enterprise remains subject to arbitrary commands from its superior (though this is sometimes a factor). Rather, the importance lies in the fact that the enterprise and its superior are forced to make a deal with each other. This is a special case of the general problem of small numbers exchange: one buyer confronts one seller and there are no competitive forces to drive the two into competitive equilibrium. The transaction takes place, given there are gains to be realized, but the benefits are divided between the two parties according to their relative bargaining power.

Within the state sector relations between the enterprise and its superior body are always situations of bilateral monopoly. Within any given urban area there is always a sector-specific bureaucracy that has responsibility for a certain type of production. For example, production of machine tools in Taiyuan will be subject to the Taiyuan machinery bureau, or to a similar provincial or national body. That bureau has the authority to permit or prevent production of machine tools by anybody in the city of Taiyuan, and this type of authority is universal and entirely formalized. It is impossible that "nobody" could be in charge of a certain kind of production in a certain locality; every locality and every type of production is automatically established as a monopoly.

Two particular aspects of the Chinese economic system affect the way these local-sectoral monopolies are managed, but they do not change the basic monopoly condition. First, it is a curiosity of the relatively decentralized Chinese system that industrial production in rural areas is controlled, not by sectoral bureaucracies of broad geographic scope, but by local bureaucracies with authority over a broad range of industrial sectors. Since there are so many local bureaucracies (more than 2,000 county-level governments), urban producers cannot be completely protected from competition arising in a nearby rural area. Indeed, markets


in which rural producers play a role are the most competitive markets that exist in China. In most cases, though, rural industries have limited technological capabilities and produce goods of poor quality. Although this is gradually changing, competition from rural factories does not yet significantly change the market position of most modern urban factories, particularly in an economic environment characterized by excess demand and inflationary pressures.[28] Urban producers of a given product would be far more threatened by the threat that another urban factory would cross sectoral boundaries and produce a competing product, and it is precisely this danger from which they are protected by the monopoly power their superiors exercise over their own product lines.

Second, the enterprise may be subject to a number of different supervisory bodies that make its task more difficult. For instance, the municipal labor bureaus, tax offices, and banks may intrude from time to time on enterprise decision making. Even worse, during certain periods the enterprise may be subject to "dual leadership" in which authority is shared by local and national authorities. These peculiarities make the job of running a factory much more difficult, but they do not fundamentally alter the enterprise's position. Except for brief periods following on administrative reorganization, an enterprise always has an immediate superior (zhuguan bumen ), which is clearly identified. The fact that individual decisions must be made taking into consideration the opinions of various "related administrative agencies" (youguan bumen ) makes the deal-making process more complex and onerous. However, this does not change the basic situation, which is that the enterprise must procure the assent of its superior organ to every significant decision, while additional approvals may still be required for some of these decisions. Quite frequently the enterprise's superior organ negotiates with the related administrative agencies in place of the enterprise. In all cases the one permanent and inescapable relationship every enterprise has is the one with its superior organ.

Conversely, the enterprise possesses significant task-specific capital, which cannot be easily exploited by other parties. The superiors cannot simply dispense with the existing enterprise and its workers and hire somebody else to produce machine tools. Because of China's decentralized management system, most enterprises are subordinate to authorities in the city in which they are located; this means that superior authorities have under their control only a handful of enterprises, or


even a single enterprise, capable of producing a given product. Because their span of control is narrow, it is difficult for the superior to monitor enterprise performance by comparing it with other enterprises, and difficult to apply severe sanctions to the enterprise because there are few alternate sources of supply. Ultimately, bureaucratic superiors must deal with the existing enterprises, which are their only viable sources of money and output. Bureaucratic superiors in China worry constantly about the possibility that subordinates will restrict output, substituting perfunctory performance (or nonperformance) for hard work and frustrating the objectives of superiors by slowdown and egregiously sloppy work. The relationship between superiors and enterprises is thus the same as that between management and workers within the Chinese enterprise, and for the same reason: top and bottom are locked into a relationship that neither can escape. The ultimate bargaining power of those at the bottom derives from the fact that they can frustrate the deal-making process so that both sides lose. Because those at the top are aware of this power, they strive to keep those on the bottom mollified and part of the bargaining process. This one-on-one bargaining process is thus the inevitable outcome of a basic condition of bilateral monopoly, in which neither side can do without the other.

This state of affairs is perpetuated by the financial and pricing policies that the central government carries out. By maintaining low prices on energy and basic foods; by subsidizing capital (interest rates) and social security and health benefits; and by protecting factories from import competition, the government ensures that the great majority of state factories turn a paper profit regardless of their economic efficiency. The large stream of accounting profits generated in industry—industry accounts for over 80 percent of budgetary revenues—ensures that there will always be a deal to be struck over enterprise revenues. Both superiors and subordinates have a major incentive to stay in the bargaining process so that they can reap a share of these accounting profits. The bilateral monopoly persists because neither party would be likely to gain by breaking up the relationship, even if that were possible. We might say that the monopoly power exists, not to keep the two sides in the bargaining relation, but rather to keep other parties out. Having between them the disposition of the surplus generated in industry, the two sides then bargain over the precise distribution of benefits.

Market forces cannot yet dissolve this monopoly relationship, because there is always some combination of concessions and benefits the superiors can grant that will enable the enterprises to survive even the fiercest competition. State enterprises have large buildings and extensive arrays of equipment for which they pay little; and they have access to substantial financial resources at very low cost. It is not difficult for even a very


inefficient enterprise to "out-compete" his potential rivals from rural industry. No superior will acquiesce in the collapse of a sector under his control, because that will shut him out of the stream of benefits generated by that sector. Thus, both parties remain locked into the hierarchical structure and the bilateral monopoly bargain that goes with it. One consequence is the maintenance of the monomorphic organizational form from the command economy. The internal organization of the enterprise is standardized to match that of its superior organs: functional departments within the enterprise report to—and bargain with—parallel departments in their superior organs, as well as management in their own enterprise. According to a survey of 170 managers of large factories in Liaoning province, the two greatest sources of discontent were the lack of control managers had over personnel decisions, and their inability to alter the organizational structure of their enterprises.[29] Given this state of affairs, Chinese industry is unable to reap the efficiency gains that come from idiosyncratically specialized organizational forms, or those that come from diversified multiproduct corporations with significant economies of scale.

Finally, the maintenance of the administrative hierarchy and the underdevelopment of outside-of-plan markets has meant that the monolithic character of the state economy has not been fundamentally changed. In the discussion of the central-government role in investment, it was argued that the information available to central planners had been greatly increased. Planners had better technical information for project design and long-range projections, and more timely and complete information about the behavior of the economy as a whole. These generally can be understood as improvements and rationalizations of the information-gathering facilities that normally characterize command-bureaucratic systems. That is, even for a command-bureaucratic system, China had an exceptionally weak information-coordinating capability before reforms, and this weakness has been partially rectified. However, if market-oriented reforms are to work, whole new channels for the circulation of information must be created. These channels operate through the market mechanism itself to provide information to decentralized agents (not just to central planners) about economic opportunities. In this respect, the Chinese reform has not


really transformed the state-owned sector. Indeed, the two-track system has in some respects impeded the circulation of information in the economic system. Since enterprises do not regularly sell above-plan output at market prices, it is difficult to tell what market prices are. This—combined with rapidly changing market prices in an inflationary environment—has meant that market prices cannot really serve as readily available "shadow prices" that could be used to assess state enterprise performance. At the same time, each enterprise's capital stock and inputs are purchased at widely varying prices. As a result, an enterprise that purchased its fixed capital at low state-set prices will show a much higher profit rate than one that purchased machinery outside the plan; enterprises dependent on high-priced inputs may show losses while less well run factories in the same sector generate profits because of access to subsidized inputs. These factors are too complex to allow systematic calculations at the higher level to correct for them. For instance, who can say whether textile production is more efficiently carried out in small-scale rural factories or in state urban factories? Certainly the central government has no information at its disposal that would permit a ready answer to such a question.

Because of the weakness of markets, both central planners and local agents continue to base much of their decision making on pseudoinformation. Nominally profitable enterprises are propped up or expanded, without accurate information about the actual comparative productivity of those enterprises. Local monopolies are perpetuated because it is impossible for governments or enterprises to devise alternative strategies based on mutually beneficial specialization and trade. While technical information available to the Center has been enhanced, local information on economic choices has not been qualitatively improved. The two-track system has thus not been able to change the fundamentally hierarchical nature of the system, and this has perpetuated the basic bargaining relations of that system.


The reform strategy of a two-track system has opened up the monolithic command economy somewhat by allowing private and collective enterprises to play an increasingly important role. However, it has not altered the fundamental authority relationship that ties enterprises to their superiors and perpetuates the bilateral monopoly between them. As a result, the monolithic and monomorphic nature of the state-run economy has been preserved to an important extent. Enterprises and their superiors continue to be entangled in complex bargaining relationships. One of the most obvious and immediate consequences is that enterprises can never be


held fully accountable for their operations. Every aspect of enterprise performance is related in some way to the bargains the enterprise has struck; an enterprise therefore always has someone in the administrative hierarchy to share the blame for unfavorable outcomes. Conversely, any unfavorable outcome has a possible remedy somewhere in the bargaining process; some negotiated package of concessions and benefits is always potentially available. The lack of accountability naturally reproduces the "soft budget constraint" characteristic of bureaucratic economies. Pressures to raise efficiency are correspondingly reduced, and destabilizing types of behavior are encouraged.

At the same time, the central government has returned to the investment arena with a renewed program for development of priority areas, but without direct control over the resources needed to implement that program. As a result, the national government increasingly competes with enterprises and local governments for available investment resources. The central-government investment deficit combines with the "investment hunger" created by soft budget constraints at the enterprise level to generate significant macroeconomic pressures. In order to accommodate the demands of central and local governments and enterprises, the banking system is continuously prodded to provide more loans to finance investment. The result is a continuing expansion of total demand in the economy and—since the expansion in demand outpaces the expansion in supply—a serious inflation problem. By the middle of 1988 the economic system and reform strategy were in the midst of a major crisis brought about by steadily accelerating inflation.

In a general sense, this crisis can be attributed to the continuation of the bargaining economy. The central government uses the bureaucratic apparatus to reach for more than it could accomplish with its own resources. The enterprises rely on the bureaucratic apparatus to shield them from losses and to avoid stark pressures to economize. These two forces collide in an escalation of demands that the economy cannot accommodate. The continuation of the bureaucratic economy means that the cost of wrong decisions can still be shifted onto society as a whole, rather than being borne by individual decision-makers. The difference today is that such costs are increasingly visible. During the period of the command economy, the monolithic economic structure was able to hide the effects of poor economic choices; there were few markets to register disequilibria, and poor choices became manifest only very gradually with a recognition that real growth and improvement in living standards were occurring much more slowly than seemed warranted. Today, the disproportion between total demand and total supply shows up quickly with the emergence and acceleration of inflation. This could be an advantage if central planners were able to respond quickly to signs of imbalance. In


any case, though, a successful reform process demands a high degree of responsiveness in each individual market, as the system really starts to reward more efficient producers and cut down the flow of resources to the less efficient. The polymorphous bargaining relations that characterize China's industrial hierarchy today tend to deflect the impact of any positive or negative shocks, thus diffusing the pressure for better performance that those shocks would otherwise create. They also serve to disperse costs so that they are borne by the economy as a whole and show up as inflation. Although the system has been partially opened up, the prevalence of complex bargaining relations within the state-run industrial hierarchy is a symptom of the system's inability thus far to establish new principles of operation and decision making on which to base future development.


The basic data sources are Zhongguo Guding Zichan Touzi Tongji Ziliao 1950–1985 (China Fixed Investment Statistical Materials), 59, 64, 218–19; 1988 Tongji Nianjian (Statistical Yearbook), 564, 566, 605; 1988 Tongji Zhaiyao (Statistical Abstract), 67. In the table below, technical transformation includes "other" investment. Column (5) is the sum of columns (1) and (2), divided by net material product , and column (6) is the sum of (3) and (4), again divided by NMP.

Data on budgetary and extrabudgetary investment . The capital-construction figures are consistent and readily available. However, I wish to include foreign borrowing disbursed through the central budget in budgetary investment. This is available through 1985 in the first source cited, and 1985–86 figures are available in


Investment Composition (Units: Billion Yuan, Percent)


(1) Budget Capital Const.

(2) Budget Technical Trans.

(3) Central Capital Const.

(4) Central Technical Trans.

(5) Total Central % NMP

(6) Total Budget % NMP








































































1987 Tongji Nianjian , 467n. The 1985 figure thus given is 4.103 billion, and the 1986 figure is 3.003. The latter figure can be confirmed with reference to 1988 Tongji Nianjian , 564. However, the 1987 figure is not available. Since total state investment funded by foreign capital increased 31.2 percent during 1987, and budgetary foreign borrowing of all kinds increased 36 percent, while foreign direct investment increased 33 percent in renminbi terms (1988 Tongji Nianjian , pp. 565, 732–33, 762), I have assumed that foreign-funded investment channeled through the budget increased by one-third to 4.0 billion.

Figures for technical renovation are more complicated because data on "other" investment are sometimes included and sometimes separated, but separate data are never presented with the breakdown we require. Data are good for technical transformation, not including "other," for 1981–85 in the first source cited. However, the 1980 data are incomplete and seem unreliable. Figures for 1978–84 on financing for the category of technical transformation-including-"other" are available in the earlier Statistical Yearbooks, e.g., 1983, English, 360, and 1985, 452. These are used for those years. These show that budgetary finance of "other" investment was very small but not zero. The composition of "other" investment financing 1985–87 thus is the only remaining financing problem. Overall, the composition of "other" investment changes considerably through 1983, but is quite stable in the 1984–87 period. In 1984 it can be calculated that 1.25 billion, or about 10 percent, of "other" investment was funded from the budget. This proportion has been applied for the years 1985–87. In the calculation of budgetary and nonbudgetary shares of investment some approximation is required, but the possible margin of error is very small.

Data on Investment Included in Central and Local Plans . Data for capital construction are clearly presented in the first source cited. It is less clear what proportion of technical transformation and other investment should be counted as central government. The figures from 1981 through 1987 for technical transformation-excluding-"other" are good, but there are no figures at all for "other." Unfortunately, there is no alternate source where the proportion of technical transformation-plus-"other" that is included in the central plan is given. I have therefore assumed that no "other" investment is central. An alternate assumption would be that petroleum-depletion allowances, which account for a little over 50 percent of "other" in 1984–87, are also "central." This alternate assumption would raise the proportion of total investment included in the central plan in every year, but would have virtually no impact on the trends that are the subject of the analysis.

The other problem is determining the proportions of technical transformation that are incorporated in the central-government plan during 1978–80 (there was no "other" investment during those years: thus, this is implicitly technical transformation-plus-"other"). I simply assumed central projects were equal to 27 percent of technical transformation in those years, as they were in 1981. This is plausible because the proportion of capital construction accounted for by central projects is quite stable during the 1978–80 period, and we know that technical transformation investment at this time was predominantly under local control. The maximum error involved in this procedure would be if we undercounted central-government technical transformation projects by 2–3 bil-


lion in 1978 through 1980, which would amount to at most 1 percent of NMP in 1978, or 1/2 percent of NMP in 1980 (a more likely error, since bank lending for technical transformation starts to become important at that time, and that might fund central-government projects). Thus, there is a margin for error in the 1978–80 figures larger than that involved in the calculation of budgetary shares. Nevertheless, the margin is not sufficient to materially alter the qualitative conclusions presented here.


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