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Centralization and Decentralization in China's Fiscal Management

Published online by Cambridge University Press:  17 February 2009

Audrey Donnithorne
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Dr Lardy (in The China Quarterly, No. 61, March 1975) denies that the economic decentralization of the late 1950s impaired the ability of the central government to control allocation of economic resources. If such impairment had occurred, he argues, “ More developed provinces with high remission rates in the period before decentralization would have vastly greater resources at their disposal which they could use to maintain or increase the level of health, education and welfare (HEW) services they provided to their populations. Because provincial remittances would be reduced the central government could no longer subsidize areas previously dependent on net central government subsidies. Thus I hypothesize that the level of HEW expenditures in these areas would decline after decentralization as compared with the previously less dependent provinces. Similarly I hypothesize that the share of total national investment in provinces with proportionately greater fiscal resources would have increased sharply while the investment shares of the less developed provinces would have declined” (pp. 33 and 36). Dr Lardy's calculations indicate that “the dependency variable is significant but its effect is exactly the opposite of that predicted by the ‘decentralization hypothesis.’ That is, provinces that were more dependent on the central government prior to 1958 experienced larger increases, on the average, than did the less dependent provinces” (p. 38). “These tests,” he continues, “do not support the view that the decentralization measures transferred resource allocation power to provincial governments ”(pp. 38–39). Dr Lardy draws the conclusion that “ The central government's continued control of the fiscal system assured that the level of social services provided in the less developed provinces did not decline compared to more developed regions.”

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Comment
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The China Quarterly , Volume 66 , June 1976 , pp. 328 - 340
Copyright
Copyright © The China Quarterly 1976

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References

1. Chung–hua jen–min kung–ho–kuo fa–kuei hui–pien (Collected Laws and Regulations of the Chinese People's Republic) (Peking), Vol. 7, p. 127.Google Scholar

2. Wu, Yuan—li and Sheeks, R. B., The Organization and Support of Scientific Research and Development in Mainland China (New York: Praeger, 1970), pp. 194 and 196.Google Scholar

3. Ibid.p. 190.

4. Ten Great Years(Peking: Foreign Languages Press, 1960), p. 11.

5. See Donnithorne, , The Budget and the Plan in China: Central–Local Economic Relations(Canberra: Australian National University Press, 1972), pp. 7 and 13.Google Scholar

6. Shanghai City Service, 22 July 1970, in BBC, Summary of World Broadcasts, Part III: The Far East (FE)/3445 (1 August 1970), p. BII/30.

7. New China News Agency (NCNA), 30 September 1972, in FE/Weekly Economic Report (W) 695 (18 October 1972), p. A/2.

8. Kuang–ming jih–pao (Kuangming Daily),26 January 1966, p. 1.

9. NCNA, 30 September 1972, in FE/W 695, p. A/2.

10. NCNA (Shanghai), in English, 19 and 28 November 1965.

11. Peking Review, No. 32 (9 August 1974), p. 23.

12. For a fuller discussion of retained profits, see Donnithorne, , China's Economic System(London: Allen & Unwin, 1967), pp. 165–68. Whether or not the details laid down in the 1957 decree are still observed (or ever have been), evidence suggests that enterprises continue to dispose of considerable funds.Google Scholar

13. “Report on the final accounts for the Shanghai budget of 1958,” Wen–hui poo (Wen–hui Daily,) 14 June 1959.

14. E.g. the 1959 figures for Shansi: Shansi jih–pao (Shansi Daily,)24 May 1960, gives the figures for investment completed in the province in 1959 as 1,342 million yüanof which 595 million yüanconsisted of investment completed by central enterprises and 747 million yüanof investment completed by local enterprises. New construction and work in progress in 1959 totalled 3,686 projects of which 221 were central and 3,465, local.

15. Collected Laws and Regulations, Vol. 7, p. 118, and Vol. 11, pp. 35 and 37.Google Scholar

16. Hua Chi–chao, “Some of the points we learn in comprehensive fiscal planning work,” Planning and Statistics, No. 2 (23 January 1959), in Extracts from China Mainland Magazines, No. 176.

17. Yang Shao–ch'iao, “Financial work must serve the Party's general line,“ Ts'ai–cheng (Finance,) No. 10 (October 1958), p. 2.

18. Nan Ping and So Chen, “Some problems in the pricing of producer goods,”Ching–chi yen–chiu (.Economic Research,) No. 2 (April 1957), pp. 22–23.

19. Lynn T. White, III, Leadership in Shanghai 1954–1969 (mimeographed paper for the Banff Conference on Political Elites in Communist China, August 1970), pp. 15–16. Quoted with kind permission of the author.

20. Ibid. p. 37.

21. Ibid. pp. 37–38.

22. Ibid. p. 36 and n. 123.