Beijing vs. the Provinces: A Rethink

Party cadres at a meeting 1983 开会

Image by kattebelletje via Flickr

Pacific Century Plaza, Beijing
Sucking Coffee Grounds
1145 hrs.

For a long time I have been trying to find a good way to frame the evolving relationship between China’s central government and the provinces in a way non-Chinese could start to understand. China is not a confederation like a “unified” Europe, nor a nation with a clear and constitutional division of powers between state and national governments like that of the U.S. Nor is it, fortunately, a coalition of regional warlords with a single leader as ostensible primus inter pares like the Republic under the Kuomintang.

But a passage from Chapter 6 of Richard McGregor’s book The Party helped the penny fall into place.

“Every jurisdiction is a company, and every company a jurisdiction – all of them with powerful incentives to compete against each other.”

China functions, essentially, in a manner I would call “corporate federalism.” Each province and locality operates as an economic entity, and the political relationships among them and between the localities and the center are driven by the economic (i.e. commercial) interests.

As McGregor points out, the central government’s challenge is that the more it asserts its power over provincial affairs (including its tax collections), the more it serves to slow the economic engines in the provinces. The looser it holds the reins, though, the greater the opportunity for the negative effects of rapid development to run rampant, and the less responsive the provinces are to centrally-driven policy and regulation.

The ongoing process of maintaining a dynamic balance between the center and the regions in China is different than the classic issue of centralization vs. decentralization. While China’s local party organs and governments are structured to look like the central party and government in miniature, appearances do not reflect reality.

In truth, the system more closely parallels the way industry regulators in the west manage their corporate charges, with the focus being allowing the commercial entities the widest possible range of freedom as long as the economic benefits of their activity do not over-exceed the social and political costs thus incurred.

As such, the central government does not concern itself with a sharing of powers. Instead, it retains full power but informally grants the localities considerable license in return for playing their role in ensuring growth, and thus supporting the legitimacy of the party and the system. Only when local leaders publicly fail in this effort do central authorities step in.

Whether his is a “good” thing or a “bad” thing is subject to debate. What is laudable about framing centers of power in an economic context is that a) it keeps those centers focused on commerce, not on playing power politics (a fatal malady in a naturally centrifugal country like China), and b) it provides a framework for incorporating non-governmental economic actors, like major SOEs, in national decision making.

Traditional political power-sharing systems, like confederations or federal states, ignore non-governmental actors or pointedly exclude them from the process as non-relevant, forcing them to play sub-rosa roles in a polity or form alternative power basis. A corporate federalism, on the other hand, is in a position to integrate non-governmental actors into the system, something that, while inappropriate for parliamentary or republican democracies, may actually be a wise approach for developing states.

What I expect is that corporate federalism will be a transitory arrangement for China as it evolves. In the meantime, this gives us a framework to begin to understand the varying roles local, provincial, and national governments play in our businesses.


About David Wolf

An adviser to corporations and organizations on strategy, communications, and public affairs, David Wolf has been working and living in Beijing since 1995, and now divides his time between China and California. He also serves as a policy and industry analyst focused on innovative and creative industries, a futurist, and an amateur historian.
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2 Responses to Beijing vs. the Provinces: A Rethink

  1. nicolasz says:

    interesting analysis – and though I bow to your knowledge of the Chinese governmental system – could you take the corporatist metaphor and argue rather than them being competing companies they are more like separate divisions within a massive holding company. Each competing against the other yet each leading member of each division knowing they could be moved to another division at any moment.

    This way the central government is not a regulator but the board of directors or senior management of the holding company – similar to some of the massive holding companies from the 70’s who were in every business.

    An ex girlfriend perceptively pointed out to me that the way the Chinese chose their senior leaders was very similar to a major corporation. each step you have to prove yourself, do your politicing and shore up support in order to make it to the next level.

    • David Wolf says:

      Bow to anything of mine at your own risk. But seriously, to your point:

      You could argue that they’re separate divisions of a massive holding company, but I think it would overstate a bit the effect that the senior executive rotation has on local officials. You simply cannot stir the pot enough – i.e., move enough of the decision makers around – to divorce them from playing favorites with the home team.

      If you need any evidence, you can look to some of the beggar-thy-neighbor behavior and local favoritism that occurs in each province. Just one very clear example: does the Beijing PSB take bids from manufacturers when it buys fleets of police cars? Hell no – it buys Hyundai Sonatas becuase the Hyundai plant is in Beijing. Same with Shanghai and Volkswagen.

      I think that many in the Party would love for China to have a more “divisional” approach than a “competitor” one, and I’d argue it would be better for China. I do not think we are there yet, and it may be years before we are.

      Thanks for this.

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