Structural Reform And The Central-Cities Policy

In China's unitary system, tiao-tiao lines of authority tie each unit vertically to superior organs of power at the Center, whereas kuai-kuai lines of authority tie them horizontally to local organs of power. In the Chinese scheme of things, both tiao-tiao and kuai-kuai authorities are to share power cooperatively according to a system of dual rule, or shuangchong lingdao . Problems that arise in this dual-rule scheme are supposed to be ironed out by the unifying authority of the Communist Party, dang tongyi lingdao , a hierarchical organization that theoretically has only a single leading organ at the Center.

This system, instituted after much debate in the decentralization drive of 1957, does not work as leaders at the time stated it would. There is no dual rule; instead, there is rule by either tiao-tiao or kuai-kuai authorities, depending on the issue at hand and the relative power of each. The relative power of tiao-kuai authorities changes with time and with differ-

ent functional systems.^[10] In the decentralization that followed 1978, provincial governments have gained considerable decision-making authority, thereby enhancing the relative power of these kuai-kuai leaders. These locally based authorities have shown themselves (as have tiao-tiao authorities at the Center ) to be quite resilient despite efforts designed to curtail their authority (such as periodic recentralization of foreign trade), in large measure because the Center is relying on these same kuai-kuai (and tiao-tiao ) authorities to implement the reform policies that would replace administrative authorities with economic networks.

The basic goal of China's urban economic reforms is to break the administrative lines of authority that bind China's economy and to replace them with market-logical ties that instill competition, make use of comparative advantages, allow for informational (market and otherwise) efficiency, and spur economic growth.^[11] These governmental, bureaucratic lines of authority, the tiao-tiao lingdao guanxi and kuai-kuai lingdao guanxi already mentioned, tie each unit to multiple other units in fishnet fashion.^[12] This makes it difficult for any single unit, or danwei , in any functional setting to act quickly enough to take advantage of opportunities as they arise—in short, to act economically. The entrepreneurship so essential to any economic-development plan is hampered by these artificial lines of authority.

For example, initial reforms designed to curtail governmental interference in economic activity and to spur horizontal economic ties across territorial boundaries resulted in the establishment of many new industrial corporations and research institutes. The Wuhan Hydraulic Cylinder Plant is one of twelve such factories that constitute the Wuhan Hydraulic and Pneumatic Industry Corporation. The plant had been the former Machinery Research Institute of the Wuhan Machinery Bureau. The name changed, but the personnel and facilities remained the same.

The new corporation is owned by the Wuhan Municipal Government and answers to the Wuhan Economic Commission.^[13]

The aim here was to put the administrative bureaus onto a business footing, letting them make money, and, at the same time, to cut government spending by putting them on a profit-loss basis. Theoretically, this step was to cut tiao-kuai lines of authority and permit the growth of horizontal economic ties. Actually, the tiao-kuai lines of authority were increased rather than reduced. The twelve hydraulic factories under the Wuhan Machinery Bureau continue to answer to their original tiao-kuai authorities, but now they must also answer to the Hydraulic and Pneumatic Industry Corporation, which has what is termed yewu guanxi , or business authority, over them.

Many Chinese, however, see yewu lines of authority in terms of tiao-tiao and kuai-kuai authority. A Chinese economist explained yewu guanxi in theoretical terms as tiao-tiao "all the way to the Center. A pure administrative relationship is kuai-kuai up to the Center."^[14] This theoretical approach, obviously, can lead to confusion because the line between administration and business is blurred in a Communist system. Business managers who deal not in theory but in the real world of determining to whom they answer tend to ignore the distinction.

In an interview, the manager of a rubber factory in Bengbu city, Anhui province, said his plant was attached to the Bengbu City Chemical Industry Corporation through yewu guanxi . "In some ways this is tiao-tiao because it connects us to similar corporations in Beijing. But this corporation is owned by Bengbu city's Economic Commission, which is our kuai-kuai authority. Actually, they both [the corporation and the Economic Commission] are kuai-kuai authorities. Nothing has been eliminated."^[15]

Whether China's system is decentralized, then, depends on where one is within that system. Post-1978 China is certainly decentralized from the point of view of provincial governments, but to the manager of the Bengbu factory, and to Wuhan's Zheng Yunfei, it remains centralized, albeit at levels lower than Beijing.

In an atmosphere of continuing administrative interference, then, where economic management reform is not fully implemented, the Center, under Zhao Ziyang, listened closely to any proposal aimed at reducing the tiao-kuai network and instilling some economic logic into China's development strategy.

Such was the case in 1979 and 1980 as the era of economic reform got under way. The hierarchical nature of urban economies was dictated by

the Stalinist command-economy model chosen by China's Communist leadership in the 1950s. All trade within and between cities was monopolized by government agencies. The results of this—a collection of urban economies that were closed to each other, related only by administrative bureaus at the top of the governmental hierarchy—was seen as hampering China's development.

In 1980 economist Xue Muqiao promoted the idea of Chinese cities rebuilding the interurban economic networks that existed before the 1950s. The focus on cities as economic centers was given political life in 1982 by the then premier, Zhao Ziyang, at the Fifth Session of the Fifth National People's Congress, where it became one of his ten principles for economic development.

Then, in October 1984, at its Third Plenum, the Twelfth Communist Party Central Committee formally adopted the central-cities policy as part of its urban economic reform program. Large central cities would be given the necessary authority to break tiao-kuai control and act, as Solinger states, "as the nuclei of several large economic regional networks and markets across the nation."^[16] Wuhan's participation in the central-cities strategy was first espoused in 1983 by Dr. Li Chonghuai, professor of economic management at Wuhan University.^[17] In brief, this was an effort to tap the economic potential of larger cities in China's interior, which are not part of the coastal-cities program nor of the provincial-level cities of Beijing, Shanghai, and Tianjin. The stated goal, as in the creation of industrial corporations, was to cut tiao-kuai lines of authority and allow larger cities to act as economic magnets, building regional economies that would tap their respective comparative advantages, foster foreign trade, and thereby help build the national economy.

In 1983 Li put forward an overall central-cities strategy for Wuhan's economic development.^[18] Among the twelve measures was an effort to "establish a rational economic network while implementing economic management reform." In discussing this step, Li went directly to the

heart of China's problem: "In China's current economic management system, the major abuse is too many centralized authorities, the failure to break tiao-kuai [lines of authority] and to separate government and enterprises so that we still cannot handle affairs according to economic laws. This is done not only in business but in all aspects of industry, planning, and finance."^[19] Li pointed out that most enterprises in Wuhan were "under the direction" of the Center and the province. City-run firms were very few. The value of fixed assets for enterprises under city management was less than one-third of the total value of fixed assets for all enterprises within the city limits.^[20] Using Wuhan's machinery industry as an example, Li said the 1,141 factories (in 1983) were "interlocked vertically and horizontally and subordinated to more than forty xitongs (functional systems) and departments at the five administrative levels of Center, province, city, district, and neighborhood. Vertically and horizontally they have no mutual relationship." The result was operation at only 30 percent of what local economists considered potential industrial capacity.^[21]

Li's remedy was the central-cities policy. These cities, not their provincial authorities, should manage all economic activity within their borders. A city should be given "enough authority in economics, enabling it to be engaged in essential construction and technology and equipment renovation and transformation, to break tiao-tiao kuai-kuai fetters, and, according to economic needs, carry out cooperative ventures across regions, departments, and trade and organize regions in rational economic networks."^[22] This was to be done through separate listing in the state plan, jihua danlie . Briefly, a city's annual plan would be given its own listing in the national plan separate from the provincial plan. Municipal officials would deal directly with central planners regarding the contents of the city plan. Without jihua danlie , a city's annual plan would be subsumed in the provincial plan. The city would deal directly with provincial planners in this case. With separate listing, municipal construction projects and products would be able to "enter the national plan" directly. Provincial leaders initially welcomed the idea but soon came to see it as a direct assault on their planning prerogatives, especially when Li coupled jihua danlie with greater autonomy and authority in finance and foreign and domestic commerce, giving central cities "ample economic strength to bring into play the effects of an economic center."^[23]

Li's formula, as I said at the outset, sought only further decentralization, this time from provinces to central cities, mirroring earlier efforts by provinces to decentralize from the Center. His strategy offered no new political, constitutional, or legal formula by which the new territorial competitors for power might more easily reach accommodation. Li pinned hopes for his strategy on successful implementation of the management system reform and decentralization to the enterprises, what one Wuhan economist called a long-term prospect, given the intransigence of both local and provincial authorities about giving up power.^[24] But, as Zheng Yunfei wrote, this policy was blocked by a lack of political structural reform and clear definitions of the functions of Party, government, and enterprises.^[25]

By simply decentralizing authority lower to the central cities without any fundamental change in tiao-kuai relationships, the bargaining inherent in the Chinese system was increasingly to be found in the localities as well as Beijing.