decentralisation, globalisation and china's partial re … · 2006. 9. 27. · new political...
TRANSCRIPT
New Political Economy Vol 5 No 2 2000
Decentralisation Globalisation andChinarsquos Partial Re-engagement withthe Global Economy
SHAUN BRESLIN
There is a tendency for research on processes of regional economic integrationto be built on national-based paradigms and levels of analysis Even thoseapproaches that move away from intergovernmental processes of state-ledregionalism and instead emphasise non-state directed regionalisation are oftenconcerned with integration between two or more national economies But inmany cases real integration is taking place below the national scale This isre ected in the growing number of formal agreements between subnationalpolitical administrations and also by the uneven geographic spread of inter-national economic relations in many states
This notion of partial or microregional1 economic integration is particularlyimportant in understanding the processes and implications of Chinarsquos re-engage-ment with the global economy Indeed national-based perspectives of regionalintegration are all but inapplicable in the Chinese context This article assessestwo case studies of microregional integration involving subnational territories ofthe Peoplersquos Republic of China (PRC)mdashgrowing economic integration across theborder between Guangdong Province and Hong Kong in the south and thedevelopment of the North East Asian microregion (NEA) in the Chinesenortheast
Using wider theoretical concepts and approaches not only facilitates ourunderstanding of the political economy of speci c case studies but also allowsus to test the validity of those concepts and approaches themselves Thus thisarticle has two main aims On a domestic level it aims to assess both theimportance and implications of microregional integration for economic gover-nance within China The dual processes of decentralisation and globalisation arerecon guring loci of decision making and authority and in combination aresimultaneously strengthening and weakening the relevance of political adminis-tratively de ned territories for economic activity This apparently contradictorystatement is explained by distinguishing between local and national politicaladministrative boundaries On the one hand decentralisation has consolidatedthe importance of provincial2 boundaries as determinants of economic activityOn the other hand Chinarsquos transition from relative isolationism has increased the
Shaun Breslin Centre for the Study of Globalisation and Regionalisation University of WarwickCoventry CV4 7AL UK
1356-3467 print 1469-9923 online 00020205-22 Oacute 2000 Taylor amp Francis Ltd 205
Shaun Breslin
importance of external economic relations for parts of China and reduced theimportance of national boundaries for economic activity The consolidation ofprovincialism suggests the importance of subnational regions while the import-ance of international linkages suggests the declining relevance of nationalpolitical boundaries for economic exchange
On a wider level the article explores four key issues of interest to students ofregionalism in general First the comparison between the two microregionalprocesses draws attention to the ef cacy of state-led and non-state directedprocesses in engendering regional integration Second and very much related tothis it also highlights the importance of assessing the relationship between stateand non-state directed regionalism rather than positing the two as mutuallyexclusive processes Third the case study of southern China highlights therelationship between regionalisation and globalisation suggesting that the formeris in many ways contingent on the latter Finally the microregional approachdraws attention to the uneven impact of globalisation and regionalisation onnation-states The understanding that only some parts of states are involved inthese regional processes also has important implications for national govern-ments There is a considerable literature on government responses to decliningeconomic sovereignty Microregional approaches suggest that an equally press-ing concern for governments is dealing with the fragmentation of nationaleconomic space and the political and economic consequences of partial engage-ment with the international economy
Microregional approaches
Microregionalism is not a new phenomenon There is a case for example forunderstanding the creation of some modern European states as the politicalspillover from multiple and connected processes of microregional integration3 Inthe more recent era the creation of subnational and cross-national growthtriangles within the Association of Southeast Asian Nations (ASEAN) havegiven a renewed impetus to the study of microregionalism4 So too hasmicroregional integration across national borders in Europe5 across the USndashMexican border6 and between parts of the Caribbean and parts of the UnitedStates7
For Kenichi Ohmae microregional integration in what he termed the lsquoregionstatesrsquo of East Asia is the manifestation of the demise of state borders and stateactors as determinants of economic activity
What de nes [region states] is not the location of their politicalborders but the fact that they are the right size and scale to be thetrue natural business units in todayrsquos global economy8
In a similar (though less extreme) vein Scalapino has referred to cross-nationalregions as lsquonatural economic territoriesrsquo (NETs)9 suggesting that economicactivity would naturally develop its own (economic) space if (political) bordersdid not exist Ohmaersquos perspective is at one end of a spectrum of understandingsof not only microregional integration but regional processes in general As thestudy of microregionalism is essentially part of the wider study of regionalism
206
Decentralisation Globalisation and China
it is appropriate to locate discussions of microregionalism within this broaderframework Thus this article uses the distinction between lsquotop-downrsquo andlsquobottom-uprsquo regional processes made by Hurrell10 and Gamble amp Payne11
lsquoRegionalismrsquo then is used here to refer to top-down processesmdashthe con-scious and deliberate attempts by national states to create formal mechanisms fordealing with common transnational issues Such regionalism may well be aresponse to economic factors and may even have been promoted by non-stateactors but is de ned as a political and intergovernmental project Converselylsquoregionalisationrsquo refers to bottom-up processes where lsquothe most importantdriving forces for economic regionalization come from markets from privatetrade and investment ows and from the policies and decisions of companiesrsquo12
rather than resulting from predetermined plans of national or local govern-ments13
Microregionalism
These regions come about primarily as the result of actions by state elites andproceed through intergovernmental dialogue and agreement Proponents ofintergovernmentalism in explaining regional integration tend to emphasise therole of national state actors However in the case of microregionalism we needto distinguish between different types and levels of state actors In some casesthe key state actors are indeed national state leaders In others it is local stateleaders that take the initiative and indeed a key dynamic in microregionalintegration is the relationship between different levels of state actors (as well asbetween state and non-state actors)
At the risk of oversimpli cation three main reasons can be offered for theestablishment of these regions14 The rst is the desire to exploit economiccomplementarity and transnational comparative advantage The second is tofacilitate joint development of natural resources infrastructure and industries incases where the resources are located on or around international borders In suchcases the initiatives stem from sharing capital investment and potentially alsofrom resolving territorial disputes (particularly in the case of offshore resources)The third is where neighbouring local authorities deem that local collectiveaction is the most ef cient mechanism for dealing with local transboundaryissues Moratarsquos analysis of the North-West Mediterranean Euroregion is apro-pos here15 Morata argues that what we term microregionalism was driven by thedevelopment of wider European integration In essence the authority andef cacy of national governments in dealing with transboundary issues has beenundermined fundamentally by dual movement lsquoupwardsrsquo and lsquodownwardsrsquo thetransfer of some elds of national sovereignty to the European Union (EU) andthe concomitant dismantling of national borders as barriers to inter-Europeantrade Indeed institutional changes at the EU level as well as new communi-cation technologies and the development of transportation have encouraged theformation of regional networks based on common interests in economic develop-ment
207
Shaun Breslin
Microregionalisation
In analyses of microregionalisation the emphasis switches from the creation offormal regional structures and the actions of state actors to informal or softregional integration and the actions and decisions of non-state actors The mainimpulse for microregionalisation is asymmetrical levels of development betweendifferent subnational spaces Drawing largely from the examples of USndashMexicoand European sub-regionalisation these processes are typically characterised asthe consequences of lsquogrowth spilloverrsquo Non-state actors in the more developedregion faced with rising land and labour costs will seek to exploit the relativelylow production costs in contiguous cross-border space In the USndashMexico casethe economic core in San Diego has essentially extended its economic in uenceover the bordermdashhence the process is often referred to as lsquometropolitanspilloverrsquo or the creation of an lsquoextended metropolisrsquo16 a concept that isparticularly pertinent in assessing microregional integration between Hong Kongand southern China
Chinese case studies of microregional integration
This distinction between microregionalism and microregional integration pro-vides the framework for the discussion of the two examples of microregionalintegration in this articlemdashsouthern ChinandashHong Kong as a case study ofmicroregionalisation and the NEA project as a case study of microregionalismThis typology is in many ways over-stark As Gamble and Payne note evenwhere non-state actors are the prime movers processes of regionalisation arelsquoseldom unaffected by state policiesrsquo17 It is important then to recognise that itis somewhat arti cial to distinguish between regional processes that result fromthe actions of either state or non-state actors (and actions) Rather whilstacknowledging that one group or the other might provide the main dynamic weneed to focus on the relationship between the two different types of actors andthe two different processes
While this holds true in all cases it is particularly pertinent in the Chinesecase This is not to suggest that China is lsquouniquersquomdashfar from it But it isimportant in applying theory to case studies to recognise speci c circumstancesand factors In particular we need to acknowledge that while China may nolonger have a state-planned economy this does not mean that the only alterna-tive is a market economy In particular the separation of state and non-state inindustry is still in the process of evolving18 While we have witnessed theemergence of new entrepreneurial classes even theoretically private enterprisesoften have a hand-in-glove relationship with the local government19 As Walderputs it businesses in China cannot be considered to be independent economicentities but should instead be more accurately described as lsquoquasi-autonomousdivisions within a corporate structurersquo20 As such distinctions between state andbusiness actors in the Chinese case are not always as clear cut as might appearat rst sight
Distinctions between the role of state and non-state actors in microregionalprocesses in China are worth making But perhaps a more worthwhile distinction
208
Decentralisation Globalisation and China
is between national state and local state actors21 Decentralisation of power in thepost-Mao era has been a key determinant of Chinarsquos re-engagement with theglobal economy and provides a starting point for considering not only microre-gional integration but also the implications of transnational economic relationsfor domestic economic governance and domestic economic (re)integration
Decentralisation and recon guring economic space
Before the onset of fundamental economic reform in 1978 debates overdecentralisation in China were primarily dominated by an attempt to redistributepower within the partyndashstate hierarchy22 As such economic decentralisationentailed devolving power to different levels within the politically de ned andcreated bureaucratic structure Furthermore the state-planned system meant thatpoliticalndashadministrative boundaries also largely represented parameters of econ-omic activity particularly at times when power was decentralised to provincialadministrations23
Despite further decentralisation of power to provincial authorities in thepost-Mao era de ning the best spatial distribution of power was complicated bythe relationship between two different (sometimes contradictory) types of decen-tralisation administrative decentralisation and market decentralisation24 Admin-istrative decentralisation the dominant form of decentralisation in the pre-reformera refers to the transfer of power previously held by the central partyndashstateadministration to lower level tiers of organisation (primarily provincial levelbureaucracies) In theory at least this process should be a zero-sum gamemdashwhat the central authorities lose another level of administration should gainlsquoMarket decentralisationrsquo refers to the way in which incrementally dismantlingthe state planning and allocation system resulted in partyndashstate elites at all levelslosing some ability to control economic activity It might seem slightly odd totalk about liberalisation and market reforms as lsquodecentralisationrsquo but in thecontext of a state-planned economy the loss of central control over the economydoes represent a form of decentralisation The processes involved here on thedomestic scale have much in common with Susan Strangersquos notions of thedistribution of power on the global levelmdashwhat one state actor lost was notnecessarily at the gain of another state actor25 Instead power owed outside thepreviously (relatively) autonomous partyndashstate bureaucracy into the hands ofnon-state actorsmdashmanagers producers consumers and increasingly also toexternal economic actors
Initially at least the transfer of power from the state-plan to the market waspartial Whilst the planning structure lost control over signi cant elements of thedemand side (with signi cant consequences in terms of in ation and shortages)the supply side of the equation was much less clear cut In the rural sectorfarmers did increase their autonomy to produce what they wanted and todistribute their produce on the free market but only after they had met theircommitments to grain production where pricing and allocation remained primar-ily under state control In the industrial sector state control over (primarily) rawmaterial heavy and machine-building industries gave the central state signi cantin uence over the rest of the economy On another level many of the reforms
209
Shaun Breslin
originally aimed at increasing enterprise management and autonomy failed toreach their intended destination Instead considerable devolved power becamelodged in the hands of local level partyndashstate organisations newly strengthenedby administrative decentralisation
Political space and economic space
Provincial authorities had gained considerable power and autonomy even beforethe death of Mao The policy of encouraging local self-suf ciency during theCultural Revolution provided a degree of provincial autonomy that the adminis-trative and market decentralisation reforms of the post-Mao era merely strength-ened26
In many ways the extension of decentralised control during the reform periodwas bene cial for China in that it allowed for exibility and local initiative inde ning new economic strategies But the strength of provincial authorities wasalso considered to be an impediment to the development of a more market-ori-ented economy A key issue here remains the con ict between politicallyorganised areas (primarily provinces) and functioning economic areas Forexample inter-provincial trade remains remarkably low as a result of provincialauthorities acting to protect their own local producers As such the existence ofpolitical boundaries (or what Shen Liren and Tai Yuanchen called lsquodukedomeconomiesrsquo27) was depicted as obstructing the exploitation of comparativeadvantage and the creation of a truly national market economy28 Economiccores were also separated from their lsquonaturalrsquo economic hinterland by provincialboundaries that acted as a brake on economic interaction For example Shang-hai which has the administrative status of a province was administrativelyseparated from its economic hinterlands in neighbouring Jiangsu and Zhejiangprovinces
In short reform of the economic structure created tensions between under-standings of lsquonaturalrsquo economic space and existing political space For somemore liberal Chinese academics (indeed too liberal for the Chinese authoritiesrsquoliking) the solution was to implement a fundamental reorganisation of Chinarsquosterritorial administration to allow market forces to ourish Such a root andbranch reform of territorial organisation was never seriously considered and thegovernment instead tinkered with the introduction of new territorial organisa-tions ranging from vast multi-provincial macro-regions rst proposed in 198429
to small development and technology zones within cities and towns in the 1990sExperiments with new regional forms have been designed both to overcome
existing barriers to inter-provincial economic activity and to shape new loci ofeconomic activity An example of the former was the establishment of a numberof special economic regions aimed at facilitating economic activity that cutacross provincial administrative boundaries For example the Shanghai Econ-omic Region was established to overcome the political barriers to economicrelations between Shanghai and the neighbouring provinces of Jiangsu andZhejiang outlined above30 Crucially these were always overlaid on top of theexisting structure and if anything merely served to complicate bureaucraticresponsibilities rather than facilitate the creation of natural economic regions
210
Decentralisation Globalisation and China
Perhaps the best example of regional initiativesmdashand the most pertinent forthis studymdashdesigned to shape economic activity was the creation of the SpecialEconomic Zones (SEZs) Xiamen in Fujian Province and Zhuhai Shantou andShenzhen in Guangdong Province were in conception designed to facilitateinteraction with the international economy31mdashbut to ensure that this interactionwas strictly geographically limited However the success of the original SEZsin generating growth by attracting foreign investment led to the extension of theconcept to other parts of the country as local authorities (particularly but notonly in coastal areas) established their own investment or Special EconomicTechnological Development zones32
Decentralisation and globalisation
The development of the SEZs brings us to the importance of Chinarsquos gradualprocess of re-engagement with the global economy Initially the main import-ance of this process for understanding the relationship between political andeconomic space in China was in the way that external sources of investment(primarily in the four SEZs) helped33 local authorities (particularly Fujian andGuangdong) to establish signi cant nancial autonomy from the central author-ities However the importance of Chinarsquos global re-engagement took on a newimportance in the 1990s While foreign direct investment (FDI) had beenimportant in some areas in the 1980s the scale of foreign involvement in theChinese economy grew enormously after 1992
The initiative and actions of local governments in forging internationaleconomic relations has been a major determinant of Chinarsquos process of re-en-gagement with the global economy This is partly a result of changes in theChinese political economy and partly a consequence of the changing structure ofthe East Asian regional economy China entered the regional economy at a timewhen the volume of FDI within East Asia was increasing rapidly Throughoutthe 1980s land and labour shortages resulted in steady increases in rents andwages throughout East Asia In addition the appreciation of the major EastAsian currencies against the US dollar after the Plaza Accord of 1985 reducedthe competitiveness of Asian exports to the lucrative North American markets34
Along with other regional states like Thailand Malaysia and Indonesia Chinawas an attractive option for those searching for new low-cost production sitesLand was cheap and often subsidised as China tried to attract new jobs andtechnology there was an abundant cheap and well disciplined labour force andthe low value of the Chinese renminbi against the US dollar (particularly afterthe 1994 devaluation35) stood in contrast to currency appreciation elsewhere
Crucially Chinarsquos international economic relations have not been spreadevenly across the entire country Table 1 shows the extent to which nineprovinces dominated Chinarsquos international economic relations in 1998 Theseprovinces more or less cover the eastern coastal seaboard of China fromMacao in the south to the Bohai rim in the north36 The gures presentedin this table need some annotation First we need to disaggregate theprovincial gures themselves In the case of Liaoning for exampleprovincial investment and trade is concentrated in one city Dalian The
211
Shaun Breslin
212
TA
BL
E1
Par
tial
enga
gem
ent
wit
hth
egl
obal
econ
omy
Per
cent
age
ofP
erca
pita
GD
PP
erce
ntag
eP
erce
ntag
eof
Per
cent
age
ofP
erce
ntag
eof
util
ised
Per
capi
taas
of
nati
onal
ofna
tion
alex
port
sim
port
sco
ntra
cted
FD
IF
DI
GD
P( R
MB
)av
erag
epo
pula
tion
Gua
ngdo
ng41
640
815
259
1042
817
15
57
Sha
ngha
i8
19
310
49
325
750
423
61
2Ji
angs
u7
97
818
1293
4415
37
58
Sha
ndon
g6
46
10
65
575
9012
49
71
Fuj
ian
60
59
89
93
9258
152
32
7Z
heji
ang
59
50
24
33
1051
517
33
5L
iaon
ing
44
45
86
49
8525
140
23
4B
eiji
ng3
24
83
33
516
735
275
31
0T
ianj
in2
83
37
55
513
796
226
90
8
Coa
stal
Pro
vinc
es86
387
574
779
212
438
204
631
2
Sour
ce
Zho
nggu
oT
ongj
iN
ianj
ian
1999
( Chi
naSt
atis
tica
lY
earb
ook
1999
)
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
importance of external economic relations for parts of China and reduced theimportance of national boundaries for economic activity The consolidation ofprovincialism suggests the importance of subnational regions while the import-ance of international linkages suggests the declining relevance of nationalpolitical boundaries for economic exchange
On a wider level the article explores four key issues of interest to students ofregionalism in general First the comparison between the two microregionalprocesses draws attention to the ef cacy of state-led and non-state directedprocesses in engendering regional integration Second and very much related tothis it also highlights the importance of assessing the relationship between stateand non-state directed regionalism rather than positing the two as mutuallyexclusive processes Third the case study of southern China highlights therelationship between regionalisation and globalisation suggesting that the formeris in many ways contingent on the latter Finally the microregional approachdraws attention to the uneven impact of globalisation and regionalisation onnation-states The understanding that only some parts of states are involved inthese regional processes also has important implications for national govern-ments There is a considerable literature on government responses to decliningeconomic sovereignty Microregional approaches suggest that an equally press-ing concern for governments is dealing with the fragmentation of nationaleconomic space and the political and economic consequences of partial engage-ment with the international economy
Microregional approaches
Microregionalism is not a new phenomenon There is a case for example forunderstanding the creation of some modern European states as the politicalspillover from multiple and connected processes of microregional integration3 Inthe more recent era the creation of subnational and cross-national growthtriangles within the Association of Southeast Asian Nations (ASEAN) havegiven a renewed impetus to the study of microregionalism4 So too hasmicroregional integration across national borders in Europe5 across the USndashMexican border6 and between parts of the Caribbean and parts of the UnitedStates7
For Kenichi Ohmae microregional integration in what he termed the lsquoregionstatesrsquo of East Asia is the manifestation of the demise of state borders and stateactors as determinants of economic activity
What de nes [region states] is not the location of their politicalborders but the fact that they are the right size and scale to be thetrue natural business units in todayrsquos global economy8
In a similar (though less extreme) vein Scalapino has referred to cross-nationalregions as lsquonatural economic territoriesrsquo (NETs)9 suggesting that economicactivity would naturally develop its own (economic) space if (political) bordersdid not exist Ohmaersquos perspective is at one end of a spectrum of understandingsof not only microregional integration but regional processes in general As thestudy of microregionalism is essentially part of the wider study of regionalism
206
Decentralisation Globalisation and China
it is appropriate to locate discussions of microregionalism within this broaderframework Thus this article uses the distinction between lsquotop-downrsquo andlsquobottom-uprsquo regional processes made by Hurrell10 and Gamble amp Payne11
lsquoRegionalismrsquo then is used here to refer to top-down processesmdashthe con-scious and deliberate attempts by national states to create formal mechanisms fordealing with common transnational issues Such regionalism may well be aresponse to economic factors and may even have been promoted by non-stateactors but is de ned as a political and intergovernmental project Converselylsquoregionalisationrsquo refers to bottom-up processes where lsquothe most importantdriving forces for economic regionalization come from markets from privatetrade and investment ows and from the policies and decisions of companiesrsquo12
rather than resulting from predetermined plans of national or local govern-ments13
Microregionalism
These regions come about primarily as the result of actions by state elites andproceed through intergovernmental dialogue and agreement Proponents ofintergovernmentalism in explaining regional integration tend to emphasise therole of national state actors However in the case of microregionalism we needto distinguish between different types and levels of state actors In some casesthe key state actors are indeed national state leaders In others it is local stateleaders that take the initiative and indeed a key dynamic in microregionalintegration is the relationship between different levels of state actors (as well asbetween state and non-state actors)
At the risk of oversimpli cation three main reasons can be offered for theestablishment of these regions14 The rst is the desire to exploit economiccomplementarity and transnational comparative advantage The second is tofacilitate joint development of natural resources infrastructure and industries incases where the resources are located on or around international borders In suchcases the initiatives stem from sharing capital investment and potentially alsofrom resolving territorial disputes (particularly in the case of offshore resources)The third is where neighbouring local authorities deem that local collectiveaction is the most ef cient mechanism for dealing with local transboundaryissues Moratarsquos analysis of the North-West Mediterranean Euroregion is apro-pos here15 Morata argues that what we term microregionalism was driven by thedevelopment of wider European integration In essence the authority andef cacy of national governments in dealing with transboundary issues has beenundermined fundamentally by dual movement lsquoupwardsrsquo and lsquodownwardsrsquo thetransfer of some elds of national sovereignty to the European Union (EU) andthe concomitant dismantling of national borders as barriers to inter-Europeantrade Indeed institutional changes at the EU level as well as new communi-cation technologies and the development of transportation have encouraged theformation of regional networks based on common interests in economic develop-ment
207
Shaun Breslin
Microregionalisation
In analyses of microregionalisation the emphasis switches from the creation offormal regional structures and the actions of state actors to informal or softregional integration and the actions and decisions of non-state actors The mainimpulse for microregionalisation is asymmetrical levels of development betweendifferent subnational spaces Drawing largely from the examples of USndashMexicoand European sub-regionalisation these processes are typically characterised asthe consequences of lsquogrowth spilloverrsquo Non-state actors in the more developedregion faced with rising land and labour costs will seek to exploit the relativelylow production costs in contiguous cross-border space In the USndashMexico casethe economic core in San Diego has essentially extended its economic in uenceover the bordermdashhence the process is often referred to as lsquometropolitanspilloverrsquo or the creation of an lsquoextended metropolisrsquo16 a concept that isparticularly pertinent in assessing microregional integration between Hong Kongand southern China
Chinese case studies of microregional integration
This distinction between microregionalism and microregional integration pro-vides the framework for the discussion of the two examples of microregionalintegration in this articlemdashsouthern ChinandashHong Kong as a case study ofmicroregionalisation and the NEA project as a case study of microregionalismThis typology is in many ways over-stark As Gamble and Payne note evenwhere non-state actors are the prime movers processes of regionalisation arelsquoseldom unaffected by state policiesrsquo17 It is important then to recognise that itis somewhat arti cial to distinguish between regional processes that result fromthe actions of either state or non-state actors (and actions) Rather whilstacknowledging that one group or the other might provide the main dynamic weneed to focus on the relationship between the two different types of actors andthe two different processes
While this holds true in all cases it is particularly pertinent in the Chinesecase This is not to suggest that China is lsquouniquersquomdashfar from it But it isimportant in applying theory to case studies to recognise speci c circumstancesand factors In particular we need to acknowledge that while China may nolonger have a state-planned economy this does not mean that the only alterna-tive is a market economy In particular the separation of state and non-state inindustry is still in the process of evolving18 While we have witnessed theemergence of new entrepreneurial classes even theoretically private enterprisesoften have a hand-in-glove relationship with the local government19 As Walderputs it businesses in China cannot be considered to be independent economicentities but should instead be more accurately described as lsquoquasi-autonomousdivisions within a corporate structurersquo20 As such distinctions between state andbusiness actors in the Chinese case are not always as clear cut as might appearat rst sight
Distinctions between the role of state and non-state actors in microregionalprocesses in China are worth making But perhaps a more worthwhile distinction
208
Decentralisation Globalisation and China
is between national state and local state actors21 Decentralisation of power in thepost-Mao era has been a key determinant of Chinarsquos re-engagement with theglobal economy and provides a starting point for considering not only microre-gional integration but also the implications of transnational economic relationsfor domestic economic governance and domestic economic (re)integration
Decentralisation and recon guring economic space
Before the onset of fundamental economic reform in 1978 debates overdecentralisation in China were primarily dominated by an attempt to redistributepower within the partyndashstate hierarchy22 As such economic decentralisationentailed devolving power to different levels within the politically de ned andcreated bureaucratic structure Furthermore the state-planned system meant thatpoliticalndashadministrative boundaries also largely represented parameters of econ-omic activity particularly at times when power was decentralised to provincialadministrations23
Despite further decentralisation of power to provincial authorities in thepost-Mao era de ning the best spatial distribution of power was complicated bythe relationship between two different (sometimes contradictory) types of decen-tralisation administrative decentralisation and market decentralisation24 Admin-istrative decentralisation the dominant form of decentralisation in the pre-reformera refers to the transfer of power previously held by the central partyndashstateadministration to lower level tiers of organisation (primarily provincial levelbureaucracies) In theory at least this process should be a zero-sum gamemdashwhat the central authorities lose another level of administration should gainlsquoMarket decentralisationrsquo refers to the way in which incrementally dismantlingthe state planning and allocation system resulted in partyndashstate elites at all levelslosing some ability to control economic activity It might seem slightly odd totalk about liberalisation and market reforms as lsquodecentralisationrsquo but in thecontext of a state-planned economy the loss of central control over the economydoes represent a form of decentralisation The processes involved here on thedomestic scale have much in common with Susan Strangersquos notions of thedistribution of power on the global levelmdashwhat one state actor lost was notnecessarily at the gain of another state actor25 Instead power owed outside thepreviously (relatively) autonomous partyndashstate bureaucracy into the hands ofnon-state actorsmdashmanagers producers consumers and increasingly also toexternal economic actors
Initially at least the transfer of power from the state-plan to the market waspartial Whilst the planning structure lost control over signi cant elements of thedemand side (with signi cant consequences in terms of in ation and shortages)the supply side of the equation was much less clear cut In the rural sectorfarmers did increase their autonomy to produce what they wanted and todistribute their produce on the free market but only after they had met theircommitments to grain production where pricing and allocation remained primar-ily under state control In the industrial sector state control over (primarily) rawmaterial heavy and machine-building industries gave the central state signi cantin uence over the rest of the economy On another level many of the reforms
209
Shaun Breslin
originally aimed at increasing enterprise management and autonomy failed toreach their intended destination Instead considerable devolved power becamelodged in the hands of local level partyndashstate organisations newly strengthenedby administrative decentralisation
Political space and economic space
Provincial authorities had gained considerable power and autonomy even beforethe death of Mao The policy of encouraging local self-suf ciency during theCultural Revolution provided a degree of provincial autonomy that the adminis-trative and market decentralisation reforms of the post-Mao era merely strength-ened26
In many ways the extension of decentralised control during the reform periodwas bene cial for China in that it allowed for exibility and local initiative inde ning new economic strategies But the strength of provincial authorities wasalso considered to be an impediment to the development of a more market-ori-ented economy A key issue here remains the con ict between politicallyorganised areas (primarily provinces) and functioning economic areas Forexample inter-provincial trade remains remarkably low as a result of provincialauthorities acting to protect their own local producers As such the existence ofpolitical boundaries (or what Shen Liren and Tai Yuanchen called lsquodukedomeconomiesrsquo27) was depicted as obstructing the exploitation of comparativeadvantage and the creation of a truly national market economy28 Economiccores were also separated from their lsquonaturalrsquo economic hinterland by provincialboundaries that acted as a brake on economic interaction For example Shang-hai which has the administrative status of a province was administrativelyseparated from its economic hinterlands in neighbouring Jiangsu and Zhejiangprovinces
In short reform of the economic structure created tensions between under-standings of lsquonaturalrsquo economic space and existing political space For somemore liberal Chinese academics (indeed too liberal for the Chinese authoritiesrsquoliking) the solution was to implement a fundamental reorganisation of Chinarsquosterritorial administration to allow market forces to ourish Such a root andbranch reform of territorial organisation was never seriously considered and thegovernment instead tinkered with the introduction of new territorial organisa-tions ranging from vast multi-provincial macro-regions rst proposed in 198429
to small development and technology zones within cities and towns in the 1990sExperiments with new regional forms have been designed both to overcome
existing barriers to inter-provincial economic activity and to shape new loci ofeconomic activity An example of the former was the establishment of a numberof special economic regions aimed at facilitating economic activity that cutacross provincial administrative boundaries For example the Shanghai Econ-omic Region was established to overcome the political barriers to economicrelations between Shanghai and the neighbouring provinces of Jiangsu andZhejiang outlined above30 Crucially these were always overlaid on top of theexisting structure and if anything merely served to complicate bureaucraticresponsibilities rather than facilitate the creation of natural economic regions
210
Decentralisation Globalisation and China
Perhaps the best example of regional initiativesmdashand the most pertinent forthis studymdashdesigned to shape economic activity was the creation of the SpecialEconomic Zones (SEZs) Xiamen in Fujian Province and Zhuhai Shantou andShenzhen in Guangdong Province were in conception designed to facilitateinteraction with the international economy31mdashbut to ensure that this interactionwas strictly geographically limited However the success of the original SEZsin generating growth by attracting foreign investment led to the extension of theconcept to other parts of the country as local authorities (particularly but notonly in coastal areas) established their own investment or Special EconomicTechnological Development zones32
Decentralisation and globalisation
The development of the SEZs brings us to the importance of Chinarsquos gradualprocess of re-engagement with the global economy Initially the main import-ance of this process for understanding the relationship between political andeconomic space in China was in the way that external sources of investment(primarily in the four SEZs) helped33 local authorities (particularly Fujian andGuangdong) to establish signi cant nancial autonomy from the central author-ities However the importance of Chinarsquos global re-engagement took on a newimportance in the 1990s While foreign direct investment (FDI) had beenimportant in some areas in the 1980s the scale of foreign involvement in theChinese economy grew enormously after 1992
The initiative and actions of local governments in forging internationaleconomic relations has been a major determinant of Chinarsquos process of re-en-gagement with the global economy This is partly a result of changes in theChinese political economy and partly a consequence of the changing structure ofthe East Asian regional economy China entered the regional economy at a timewhen the volume of FDI within East Asia was increasing rapidly Throughoutthe 1980s land and labour shortages resulted in steady increases in rents andwages throughout East Asia In addition the appreciation of the major EastAsian currencies against the US dollar after the Plaza Accord of 1985 reducedthe competitiveness of Asian exports to the lucrative North American markets34
Along with other regional states like Thailand Malaysia and Indonesia Chinawas an attractive option for those searching for new low-cost production sitesLand was cheap and often subsidised as China tried to attract new jobs andtechnology there was an abundant cheap and well disciplined labour force andthe low value of the Chinese renminbi against the US dollar (particularly afterthe 1994 devaluation35) stood in contrast to currency appreciation elsewhere
Crucially Chinarsquos international economic relations have not been spreadevenly across the entire country Table 1 shows the extent to which nineprovinces dominated Chinarsquos international economic relations in 1998 Theseprovinces more or less cover the eastern coastal seaboard of China fromMacao in the south to the Bohai rim in the north36 The gures presentedin this table need some annotation First we need to disaggregate theprovincial gures themselves In the case of Liaoning for exampleprovincial investment and trade is concentrated in one city Dalian The
211
Shaun Breslin
212
TA
BL
E1
Par
tial
enga
gem
ent
wit
hth
egl
obal
econ
omy
Per
cent
age
ofP
erca
pita
GD
PP
erce
ntag
eP
erce
ntag
eof
Per
cent
age
ofP
erce
ntag
eof
util
ised
Per
capi
taas
of
nati
onal
ofna
tion
alex
port
sim
port
sco
ntra
cted
FD
IF
DI
GD
P( R
MB
)av
erag
epo
pula
tion
Gua
ngdo
ng41
640
815
259
1042
817
15
57
Sha
ngha
i8
19
310
49
325
750
423
61
2Ji
angs
u7
97
818
1293
4415
37
58
Sha
ndon
g6
46
10
65
575
9012
49
71
Fuj
ian
60
59
89
93
9258
152
32
7Z
heji
ang
59
50
24
33
1051
517
33
5L
iaon
ing
44
45
86
49
8525
140
23
4B
eiji
ng3
24
83
33
516
735
275
31
0T
ianj
in2
83
37
55
513
796
226
90
8
Coa
stal
Pro
vinc
es86
387
574
779
212
438
204
631
2
Sour
ce
Zho
nggu
oT
ongj
iN
ianj
ian
1999
( Chi
naSt
atis
tica
lY
earb
ook
1999
)
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
it is appropriate to locate discussions of microregionalism within this broaderframework Thus this article uses the distinction between lsquotop-downrsquo andlsquobottom-uprsquo regional processes made by Hurrell10 and Gamble amp Payne11
lsquoRegionalismrsquo then is used here to refer to top-down processesmdashthe con-scious and deliberate attempts by national states to create formal mechanisms fordealing with common transnational issues Such regionalism may well be aresponse to economic factors and may even have been promoted by non-stateactors but is de ned as a political and intergovernmental project Converselylsquoregionalisationrsquo refers to bottom-up processes where lsquothe most importantdriving forces for economic regionalization come from markets from privatetrade and investment ows and from the policies and decisions of companiesrsquo12
rather than resulting from predetermined plans of national or local govern-ments13
Microregionalism
These regions come about primarily as the result of actions by state elites andproceed through intergovernmental dialogue and agreement Proponents ofintergovernmentalism in explaining regional integration tend to emphasise therole of national state actors However in the case of microregionalism we needto distinguish between different types and levels of state actors In some casesthe key state actors are indeed national state leaders In others it is local stateleaders that take the initiative and indeed a key dynamic in microregionalintegration is the relationship between different levels of state actors (as well asbetween state and non-state actors)
At the risk of oversimpli cation three main reasons can be offered for theestablishment of these regions14 The rst is the desire to exploit economiccomplementarity and transnational comparative advantage The second is tofacilitate joint development of natural resources infrastructure and industries incases where the resources are located on or around international borders In suchcases the initiatives stem from sharing capital investment and potentially alsofrom resolving territorial disputes (particularly in the case of offshore resources)The third is where neighbouring local authorities deem that local collectiveaction is the most ef cient mechanism for dealing with local transboundaryissues Moratarsquos analysis of the North-West Mediterranean Euroregion is apro-pos here15 Morata argues that what we term microregionalism was driven by thedevelopment of wider European integration In essence the authority andef cacy of national governments in dealing with transboundary issues has beenundermined fundamentally by dual movement lsquoupwardsrsquo and lsquodownwardsrsquo thetransfer of some elds of national sovereignty to the European Union (EU) andthe concomitant dismantling of national borders as barriers to inter-Europeantrade Indeed institutional changes at the EU level as well as new communi-cation technologies and the development of transportation have encouraged theformation of regional networks based on common interests in economic develop-ment
207
Shaun Breslin
Microregionalisation
In analyses of microregionalisation the emphasis switches from the creation offormal regional structures and the actions of state actors to informal or softregional integration and the actions and decisions of non-state actors The mainimpulse for microregionalisation is asymmetrical levels of development betweendifferent subnational spaces Drawing largely from the examples of USndashMexicoand European sub-regionalisation these processes are typically characterised asthe consequences of lsquogrowth spilloverrsquo Non-state actors in the more developedregion faced with rising land and labour costs will seek to exploit the relativelylow production costs in contiguous cross-border space In the USndashMexico casethe economic core in San Diego has essentially extended its economic in uenceover the bordermdashhence the process is often referred to as lsquometropolitanspilloverrsquo or the creation of an lsquoextended metropolisrsquo16 a concept that isparticularly pertinent in assessing microregional integration between Hong Kongand southern China
Chinese case studies of microregional integration
This distinction between microregionalism and microregional integration pro-vides the framework for the discussion of the two examples of microregionalintegration in this articlemdashsouthern ChinandashHong Kong as a case study ofmicroregionalisation and the NEA project as a case study of microregionalismThis typology is in many ways over-stark As Gamble and Payne note evenwhere non-state actors are the prime movers processes of regionalisation arelsquoseldom unaffected by state policiesrsquo17 It is important then to recognise that itis somewhat arti cial to distinguish between regional processes that result fromthe actions of either state or non-state actors (and actions) Rather whilstacknowledging that one group or the other might provide the main dynamic weneed to focus on the relationship between the two different types of actors andthe two different processes
While this holds true in all cases it is particularly pertinent in the Chinesecase This is not to suggest that China is lsquouniquersquomdashfar from it But it isimportant in applying theory to case studies to recognise speci c circumstancesand factors In particular we need to acknowledge that while China may nolonger have a state-planned economy this does not mean that the only alterna-tive is a market economy In particular the separation of state and non-state inindustry is still in the process of evolving18 While we have witnessed theemergence of new entrepreneurial classes even theoretically private enterprisesoften have a hand-in-glove relationship with the local government19 As Walderputs it businesses in China cannot be considered to be independent economicentities but should instead be more accurately described as lsquoquasi-autonomousdivisions within a corporate structurersquo20 As such distinctions between state andbusiness actors in the Chinese case are not always as clear cut as might appearat rst sight
Distinctions between the role of state and non-state actors in microregionalprocesses in China are worth making But perhaps a more worthwhile distinction
208
Decentralisation Globalisation and China
is between national state and local state actors21 Decentralisation of power in thepost-Mao era has been a key determinant of Chinarsquos re-engagement with theglobal economy and provides a starting point for considering not only microre-gional integration but also the implications of transnational economic relationsfor domestic economic governance and domestic economic (re)integration
Decentralisation and recon guring economic space
Before the onset of fundamental economic reform in 1978 debates overdecentralisation in China were primarily dominated by an attempt to redistributepower within the partyndashstate hierarchy22 As such economic decentralisationentailed devolving power to different levels within the politically de ned andcreated bureaucratic structure Furthermore the state-planned system meant thatpoliticalndashadministrative boundaries also largely represented parameters of econ-omic activity particularly at times when power was decentralised to provincialadministrations23
Despite further decentralisation of power to provincial authorities in thepost-Mao era de ning the best spatial distribution of power was complicated bythe relationship between two different (sometimes contradictory) types of decen-tralisation administrative decentralisation and market decentralisation24 Admin-istrative decentralisation the dominant form of decentralisation in the pre-reformera refers to the transfer of power previously held by the central partyndashstateadministration to lower level tiers of organisation (primarily provincial levelbureaucracies) In theory at least this process should be a zero-sum gamemdashwhat the central authorities lose another level of administration should gainlsquoMarket decentralisationrsquo refers to the way in which incrementally dismantlingthe state planning and allocation system resulted in partyndashstate elites at all levelslosing some ability to control economic activity It might seem slightly odd totalk about liberalisation and market reforms as lsquodecentralisationrsquo but in thecontext of a state-planned economy the loss of central control over the economydoes represent a form of decentralisation The processes involved here on thedomestic scale have much in common with Susan Strangersquos notions of thedistribution of power on the global levelmdashwhat one state actor lost was notnecessarily at the gain of another state actor25 Instead power owed outside thepreviously (relatively) autonomous partyndashstate bureaucracy into the hands ofnon-state actorsmdashmanagers producers consumers and increasingly also toexternal economic actors
Initially at least the transfer of power from the state-plan to the market waspartial Whilst the planning structure lost control over signi cant elements of thedemand side (with signi cant consequences in terms of in ation and shortages)the supply side of the equation was much less clear cut In the rural sectorfarmers did increase their autonomy to produce what they wanted and todistribute their produce on the free market but only after they had met theircommitments to grain production where pricing and allocation remained primar-ily under state control In the industrial sector state control over (primarily) rawmaterial heavy and machine-building industries gave the central state signi cantin uence over the rest of the economy On another level many of the reforms
209
Shaun Breslin
originally aimed at increasing enterprise management and autonomy failed toreach their intended destination Instead considerable devolved power becamelodged in the hands of local level partyndashstate organisations newly strengthenedby administrative decentralisation
Political space and economic space
Provincial authorities had gained considerable power and autonomy even beforethe death of Mao The policy of encouraging local self-suf ciency during theCultural Revolution provided a degree of provincial autonomy that the adminis-trative and market decentralisation reforms of the post-Mao era merely strength-ened26
In many ways the extension of decentralised control during the reform periodwas bene cial for China in that it allowed for exibility and local initiative inde ning new economic strategies But the strength of provincial authorities wasalso considered to be an impediment to the development of a more market-ori-ented economy A key issue here remains the con ict between politicallyorganised areas (primarily provinces) and functioning economic areas Forexample inter-provincial trade remains remarkably low as a result of provincialauthorities acting to protect their own local producers As such the existence ofpolitical boundaries (or what Shen Liren and Tai Yuanchen called lsquodukedomeconomiesrsquo27) was depicted as obstructing the exploitation of comparativeadvantage and the creation of a truly national market economy28 Economiccores were also separated from their lsquonaturalrsquo economic hinterland by provincialboundaries that acted as a brake on economic interaction For example Shang-hai which has the administrative status of a province was administrativelyseparated from its economic hinterlands in neighbouring Jiangsu and Zhejiangprovinces
In short reform of the economic structure created tensions between under-standings of lsquonaturalrsquo economic space and existing political space For somemore liberal Chinese academics (indeed too liberal for the Chinese authoritiesrsquoliking) the solution was to implement a fundamental reorganisation of Chinarsquosterritorial administration to allow market forces to ourish Such a root andbranch reform of territorial organisation was never seriously considered and thegovernment instead tinkered with the introduction of new territorial organisa-tions ranging from vast multi-provincial macro-regions rst proposed in 198429
to small development and technology zones within cities and towns in the 1990sExperiments with new regional forms have been designed both to overcome
existing barriers to inter-provincial economic activity and to shape new loci ofeconomic activity An example of the former was the establishment of a numberof special economic regions aimed at facilitating economic activity that cutacross provincial administrative boundaries For example the Shanghai Econ-omic Region was established to overcome the political barriers to economicrelations between Shanghai and the neighbouring provinces of Jiangsu andZhejiang outlined above30 Crucially these were always overlaid on top of theexisting structure and if anything merely served to complicate bureaucraticresponsibilities rather than facilitate the creation of natural economic regions
210
Decentralisation Globalisation and China
Perhaps the best example of regional initiativesmdashand the most pertinent forthis studymdashdesigned to shape economic activity was the creation of the SpecialEconomic Zones (SEZs) Xiamen in Fujian Province and Zhuhai Shantou andShenzhen in Guangdong Province were in conception designed to facilitateinteraction with the international economy31mdashbut to ensure that this interactionwas strictly geographically limited However the success of the original SEZsin generating growth by attracting foreign investment led to the extension of theconcept to other parts of the country as local authorities (particularly but notonly in coastal areas) established their own investment or Special EconomicTechnological Development zones32
Decentralisation and globalisation
The development of the SEZs brings us to the importance of Chinarsquos gradualprocess of re-engagement with the global economy Initially the main import-ance of this process for understanding the relationship between political andeconomic space in China was in the way that external sources of investment(primarily in the four SEZs) helped33 local authorities (particularly Fujian andGuangdong) to establish signi cant nancial autonomy from the central author-ities However the importance of Chinarsquos global re-engagement took on a newimportance in the 1990s While foreign direct investment (FDI) had beenimportant in some areas in the 1980s the scale of foreign involvement in theChinese economy grew enormously after 1992
The initiative and actions of local governments in forging internationaleconomic relations has been a major determinant of Chinarsquos process of re-en-gagement with the global economy This is partly a result of changes in theChinese political economy and partly a consequence of the changing structure ofthe East Asian regional economy China entered the regional economy at a timewhen the volume of FDI within East Asia was increasing rapidly Throughoutthe 1980s land and labour shortages resulted in steady increases in rents andwages throughout East Asia In addition the appreciation of the major EastAsian currencies against the US dollar after the Plaza Accord of 1985 reducedthe competitiveness of Asian exports to the lucrative North American markets34
Along with other regional states like Thailand Malaysia and Indonesia Chinawas an attractive option for those searching for new low-cost production sitesLand was cheap and often subsidised as China tried to attract new jobs andtechnology there was an abundant cheap and well disciplined labour force andthe low value of the Chinese renminbi against the US dollar (particularly afterthe 1994 devaluation35) stood in contrast to currency appreciation elsewhere
Crucially Chinarsquos international economic relations have not been spreadevenly across the entire country Table 1 shows the extent to which nineprovinces dominated Chinarsquos international economic relations in 1998 Theseprovinces more or less cover the eastern coastal seaboard of China fromMacao in the south to the Bohai rim in the north36 The gures presentedin this table need some annotation First we need to disaggregate theprovincial gures themselves In the case of Liaoning for exampleprovincial investment and trade is concentrated in one city Dalian The
211
Shaun Breslin
212
TA
BL
E1
Par
tial
enga
gem
ent
wit
hth
egl
obal
econ
omy
Per
cent
age
ofP
erca
pita
GD
PP
erce
ntag
eP
erce
ntag
eof
Per
cent
age
ofP
erce
ntag
eof
util
ised
Per
capi
taas
of
nati
onal
ofna
tion
alex
port
sim
port
sco
ntra
cted
FD
IF
DI
GD
P( R
MB
)av
erag
epo
pula
tion
Gua
ngdo
ng41
640
815
259
1042
817
15
57
Sha
ngha
i8
19
310
49
325
750
423
61
2Ji
angs
u7
97
818
1293
4415
37
58
Sha
ndon
g6
46
10
65
575
9012
49
71
Fuj
ian
60
59
89
93
9258
152
32
7Z
heji
ang
59
50
24
33
1051
517
33
5L
iaon
ing
44
45
86
49
8525
140
23
4B
eiji
ng3
24
83
33
516
735
275
31
0T
ianj
in2
83
37
55
513
796
226
90
8
Coa
stal
Pro
vinc
es86
387
574
779
212
438
204
631
2
Sour
ce
Zho
nggu
oT
ongj
iN
ianj
ian
1999
( Chi
naSt
atis
tica
lY
earb
ook
1999
)
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
Microregionalisation
In analyses of microregionalisation the emphasis switches from the creation offormal regional structures and the actions of state actors to informal or softregional integration and the actions and decisions of non-state actors The mainimpulse for microregionalisation is asymmetrical levels of development betweendifferent subnational spaces Drawing largely from the examples of USndashMexicoand European sub-regionalisation these processes are typically characterised asthe consequences of lsquogrowth spilloverrsquo Non-state actors in the more developedregion faced with rising land and labour costs will seek to exploit the relativelylow production costs in contiguous cross-border space In the USndashMexico casethe economic core in San Diego has essentially extended its economic in uenceover the bordermdashhence the process is often referred to as lsquometropolitanspilloverrsquo or the creation of an lsquoextended metropolisrsquo16 a concept that isparticularly pertinent in assessing microregional integration between Hong Kongand southern China
Chinese case studies of microregional integration
This distinction between microregionalism and microregional integration pro-vides the framework for the discussion of the two examples of microregionalintegration in this articlemdashsouthern ChinandashHong Kong as a case study ofmicroregionalisation and the NEA project as a case study of microregionalismThis typology is in many ways over-stark As Gamble and Payne note evenwhere non-state actors are the prime movers processes of regionalisation arelsquoseldom unaffected by state policiesrsquo17 It is important then to recognise that itis somewhat arti cial to distinguish between regional processes that result fromthe actions of either state or non-state actors (and actions) Rather whilstacknowledging that one group or the other might provide the main dynamic weneed to focus on the relationship between the two different types of actors andthe two different processes
While this holds true in all cases it is particularly pertinent in the Chinesecase This is not to suggest that China is lsquouniquersquomdashfar from it But it isimportant in applying theory to case studies to recognise speci c circumstancesand factors In particular we need to acknowledge that while China may nolonger have a state-planned economy this does not mean that the only alterna-tive is a market economy In particular the separation of state and non-state inindustry is still in the process of evolving18 While we have witnessed theemergence of new entrepreneurial classes even theoretically private enterprisesoften have a hand-in-glove relationship with the local government19 As Walderputs it businesses in China cannot be considered to be independent economicentities but should instead be more accurately described as lsquoquasi-autonomousdivisions within a corporate structurersquo20 As such distinctions between state andbusiness actors in the Chinese case are not always as clear cut as might appearat rst sight
Distinctions between the role of state and non-state actors in microregionalprocesses in China are worth making But perhaps a more worthwhile distinction
208
Decentralisation Globalisation and China
is between national state and local state actors21 Decentralisation of power in thepost-Mao era has been a key determinant of Chinarsquos re-engagement with theglobal economy and provides a starting point for considering not only microre-gional integration but also the implications of transnational economic relationsfor domestic economic governance and domestic economic (re)integration
Decentralisation and recon guring economic space
Before the onset of fundamental economic reform in 1978 debates overdecentralisation in China were primarily dominated by an attempt to redistributepower within the partyndashstate hierarchy22 As such economic decentralisationentailed devolving power to different levels within the politically de ned andcreated bureaucratic structure Furthermore the state-planned system meant thatpoliticalndashadministrative boundaries also largely represented parameters of econ-omic activity particularly at times when power was decentralised to provincialadministrations23
Despite further decentralisation of power to provincial authorities in thepost-Mao era de ning the best spatial distribution of power was complicated bythe relationship between two different (sometimes contradictory) types of decen-tralisation administrative decentralisation and market decentralisation24 Admin-istrative decentralisation the dominant form of decentralisation in the pre-reformera refers to the transfer of power previously held by the central partyndashstateadministration to lower level tiers of organisation (primarily provincial levelbureaucracies) In theory at least this process should be a zero-sum gamemdashwhat the central authorities lose another level of administration should gainlsquoMarket decentralisationrsquo refers to the way in which incrementally dismantlingthe state planning and allocation system resulted in partyndashstate elites at all levelslosing some ability to control economic activity It might seem slightly odd totalk about liberalisation and market reforms as lsquodecentralisationrsquo but in thecontext of a state-planned economy the loss of central control over the economydoes represent a form of decentralisation The processes involved here on thedomestic scale have much in common with Susan Strangersquos notions of thedistribution of power on the global levelmdashwhat one state actor lost was notnecessarily at the gain of another state actor25 Instead power owed outside thepreviously (relatively) autonomous partyndashstate bureaucracy into the hands ofnon-state actorsmdashmanagers producers consumers and increasingly also toexternal economic actors
Initially at least the transfer of power from the state-plan to the market waspartial Whilst the planning structure lost control over signi cant elements of thedemand side (with signi cant consequences in terms of in ation and shortages)the supply side of the equation was much less clear cut In the rural sectorfarmers did increase their autonomy to produce what they wanted and todistribute their produce on the free market but only after they had met theircommitments to grain production where pricing and allocation remained primar-ily under state control In the industrial sector state control over (primarily) rawmaterial heavy and machine-building industries gave the central state signi cantin uence over the rest of the economy On another level many of the reforms
209
Shaun Breslin
originally aimed at increasing enterprise management and autonomy failed toreach their intended destination Instead considerable devolved power becamelodged in the hands of local level partyndashstate organisations newly strengthenedby administrative decentralisation
Political space and economic space
Provincial authorities had gained considerable power and autonomy even beforethe death of Mao The policy of encouraging local self-suf ciency during theCultural Revolution provided a degree of provincial autonomy that the adminis-trative and market decentralisation reforms of the post-Mao era merely strength-ened26
In many ways the extension of decentralised control during the reform periodwas bene cial for China in that it allowed for exibility and local initiative inde ning new economic strategies But the strength of provincial authorities wasalso considered to be an impediment to the development of a more market-ori-ented economy A key issue here remains the con ict between politicallyorganised areas (primarily provinces) and functioning economic areas Forexample inter-provincial trade remains remarkably low as a result of provincialauthorities acting to protect their own local producers As such the existence ofpolitical boundaries (or what Shen Liren and Tai Yuanchen called lsquodukedomeconomiesrsquo27) was depicted as obstructing the exploitation of comparativeadvantage and the creation of a truly national market economy28 Economiccores were also separated from their lsquonaturalrsquo economic hinterland by provincialboundaries that acted as a brake on economic interaction For example Shang-hai which has the administrative status of a province was administrativelyseparated from its economic hinterlands in neighbouring Jiangsu and Zhejiangprovinces
In short reform of the economic structure created tensions between under-standings of lsquonaturalrsquo economic space and existing political space For somemore liberal Chinese academics (indeed too liberal for the Chinese authoritiesrsquoliking) the solution was to implement a fundamental reorganisation of Chinarsquosterritorial administration to allow market forces to ourish Such a root andbranch reform of territorial organisation was never seriously considered and thegovernment instead tinkered with the introduction of new territorial organisa-tions ranging from vast multi-provincial macro-regions rst proposed in 198429
to small development and technology zones within cities and towns in the 1990sExperiments with new regional forms have been designed both to overcome
existing barriers to inter-provincial economic activity and to shape new loci ofeconomic activity An example of the former was the establishment of a numberof special economic regions aimed at facilitating economic activity that cutacross provincial administrative boundaries For example the Shanghai Econ-omic Region was established to overcome the political barriers to economicrelations between Shanghai and the neighbouring provinces of Jiangsu andZhejiang outlined above30 Crucially these were always overlaid on top of theexisting structure and if anything merely served to complicate bureaucraticresponsibilities rather than facilitate the creation of natural economic regions
210
Decentralisation Globalisation and China
Perhaps the best example of regional initiativesmdashand the most pertinent forthis studymdashdesigned to shape economic activity was the creation of the SpecialEconomic Zones (SEZs) Xiamen in Fujian Province and Zhuhai Shantou andShenzhen in Guangdong Province were in conception designed to facilitateinteraction with the international economy31mdashbut to ensure that this interactionwas strictly geographically limited However the success of the original SEZsin generating growth by attracting foreign investment led to the extension of theconcept to other parts of the country as local authorities (particularly but notonly in coastal areas) established their own investment or Special EconomicTechnological Development zones32
Decentralisation and globalisation
The development of the SEZs brings us to the importance of Chinarsquos gradualprocess of re-engagement with the global economy Initially the main import-ance of this process for understanding the relationship between political andeconomic space in China was in the way that external sources of investment(primarily in the four SEZs) helped33 local authorities (particularly Fujian andGuangdong) to establish signi cant nancial autonomy from the central author-ities However the importance of Chinarsquos global re-engagement took on a newimportance in the 1990s While foreign direct investment (FDI) had beenimportant in some areas in the 1980s the scale of foreign involvement in theChinese economy grew enormously after 1992
The initiative and actions of local governments in forging internationaleconomic relations has been a major determinant of Chinarsquos process of re-en-gagement with the global economy This is partly a result of changes in theChinese political economy and partly a consequence of the changing structure ofthe East Asian regional economy China entered the regional economy at a timewhen the volume of FDI within East Asia was increasing rapidly Throughoutthe 1980s land and labour shortages resulted in steady increases in rents andwages throughout East Asia In addition the appreciation of the major EastAsian currencies against the US dollar after the Plaza Accord of 1985 reducedthe competitiveness of Asian exports to the lucrative North American markets34
Along with other regional states like Thailand Malaysia and Indonesia Chinawas an attractive option for those searching for new low-cost production sitesLand was cheap and often subsidised as China tried to attract new jobs andtechnology there was an abundant cheap and well disciplined labour force andthe low value of the Chinese renminbi against the US dollar (particularly afterthe 1994 devaluation35) stood in contrast to currency appreciation elsewhere
Crucially Chinarsquos international economic relations have not been spreadevenly across the entire country Table 1 shows the extent to which nineprovinces dominated Chinarsquos international economic relations in 1998 Theseprovinces more or less cover the eastern coastal seaboard of China fromMacao in the south to the Bohai rim in the north36 The gures presentedin this table need some annotation First we need to disaggregate theprovincial gures themselves In the case of Liaoning for exampleprovincial investment and trade is concentrated in one city Dalian The
211
Shaun Breslin
212
TA
BL
E1
Par
tial
enga
gem
ent
wit
hth
egl
obal
econ
omy
Per
cent
age
ofP
erca
pita
GD
PP
erce
ntag
eP
erce
ntag
eof
Per
cent
age
ofP
erce
ntag
eof
util
ised
Per
capi
taas
of
nati
onal
ofna
tion
alex
port
sim
port
sco
ntra
cted
FD
IF
DI
GD
P( R
MB
)av
erag
epo
pula
tion
Gua
ngdo
ng41
640
815
259
1042
817
15
57
Sha
ngha
i8
19
310
49
325
750
423
61
2Ji
angs
u7
97
818
1293
4415
37
58
Sha
ndon
g6
46
10
65
575
9012
49
71
Fuj
ian
60
59
89
93
9258
152
32
7Z
heji
ang
59
50
24
33
1051
517
33
5L
iaon
ing
44
45
86
49
8525
140
23
4B
eiji
ng3
24
83
33
516
735
275
31
0T
ianj
in2
83
37
55
513
796
226
90
8
Coa
stal
Pro
vinc
es86
387
574
779
212
438
204
631
2
Sour
ce
Zho
nggu
oT
ongj
iN
ianj
ian
1999
( Chi
naSt
atis
tica
lY
earb
ook
1999
)
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
is between national state and local state actors21 Decentralisation of power in thepost-Mao era has been a key determinant of Chinarsquos re-engagement with theglobal economy and provides a starting point for considering not only microre-gional integration but also the implications of transnational economic relationsfor domestic economic governance and domestic economic (re)integration
Decentralisation and recon guring economic space
Before the onset of fundamental economic reform in 1978 debates overdecentralisation in China were primarily dominated by an attempt to redistributepower within the partyndashstate hierarchy22 As such economic decentralisationentailed devolving power to different levels within the politically de ned andcreated bureaucratic structure Furthermore the state-planned system meant thatpoliticalndashadministrative boundaries also largely represented parameters of econ-omic activity particularly at times when power was decentralised to provincialadministrations23
Despite further decentralisation of power to provincial authorities in thepost-Mao era de ning the best spatial distribution of power was complicated bythe relationship between two different (sometimes contradictory) types of decen-tralisation administrative decentralisation and market decentralisation24 Admin-istrative decentralisation the dominant form of decentralisation in the pre-reformera refers to the transfer of power previously held by the central partyndashstateadministration to lower level tiers of organisation (primarily provincial levelbureaucracies) In theory at least this process should be a zero-sum gamemdashwhat the central authorities lose another level of administration should gainlsquoMarket decentralisationrsquo refers to the way in which incrementally dismantlingthe state planning and allocation system resulted in partyndashstate elites at all levelslosing some ability to control economic activity It might seem slightly odd totalk about liberalisation and market reforms as lsquodecentralisationrsquo but in thecontext of a state-planned economy the loss of central control over the economydoes represent a form of decentralisation The processes involved here on thedomestic scale have much in common with Susan Strangersquos notions of thedistribution of power on the global levelmdashwhat one state actor lost was notnecessarily at the gain of another state actor25 Instead power owed outside thepreviously (relatively) autonomous partyndashstate bureaucracy into the hands ofnon-state actorsmdashmanagers producers consumers and increasingly also toexternal economic actors
Initially at least the transfer of power from the state-plan to the market waspartial Whilst the planning structure lost control over signi cant elements of thedemand side (with signi cant consequences in terms of in ation and shortages)the supply side of the equation was much less clear cut In the rural sectorfarmers did increase their autonomy to produce what they wanted and todistribute their produce on the free market but only after they had met theircommitments to grain production where pricing and allocation remained primar-ily under state control In the industrial sector state control over (primarily) rawmaterial heavy and machine-building industries gave the central state signi cantin uence over the rest of the economy On another level many of the reforms
209
Shaun Breslin
originally aimed at increasing enterprise management and autonomy failed toreach their intended destination Instead considerable devolved power becamelodged in the hands of local level partyndashstate organisations newly strengthenedby administrative decentralisation
Political space and economic space
Provincial authorities had gained considerable power and autonomy even beforethe death of Mao The policy of encouraging local self-suf ciency during theCultural Revolution provided a degree of provincial autonomy that the adminis-trative and market decentralisation reforms of the post-Mao era merely strength-ened26
In many ways the extension of decentralised control during the reform periodwas bene cial for China in that it allowed for exibility and local initiative inde ning new economic strategies But the strength of provincial authorities wasalso considered to be an impediment to the development of a more market-ori-ented economy A key issue here remains the con ict between politicallyorganised areas (primarily provinces) and functioning economic areas Forexample inter-provincial trade remains remarkably low as a result of provincialauthorities acting to protect their own local producers As such the existence ofpolitical boundaries (or what Shen Liren and Tai Yuanchen called lsquodukedomeconomiesrsquo27) was depicted as obstructing the exploitation of comparativeadvantage and the creation of a truly national market economy28 Economiccores were also separated from their lsquonaturalrsquo economic hinterland by provincialboundaries that acted as a brake on economic interaction For example Shang-hai which has the administrative status of a province was administrativelyseparated from its economic hinterlands in neighbouring Jiangsu and Zhejiangprovinces
In short reform of the economic structure created tensions between under-standings of lsquonaturalrsquo economic space and existing political space For somemore liberal Chinese academics (indeed too liberal for the Chinese authoritiesrsquoliking) the solution was to implement a fundamental reorganisation of Chinarsquosterritorial administration to allow market forces to ourish Such a root andbranch reform of territorial organisation was never seriously considered and thegovernment instead tinkered with the introduction of new territorial organisa-tions ranging from vast multi-provincial macro-regions rst proposed in 198429
to small development and technology zones within cities and towns in the 1990sExperiments with new regional forms have been designed both to overcome
existing barriers to inter-provincial economic activity and to shape new loci ofeconomic activity An example of the former was the establishment of a numberof special economic regions aimed at facilitating economic activity that cutacross provincial administrative boundaries For example the Shanghai Econ-omic Region was established to overcome the political barriers to economicrelations between Shanghai and the neighbouring provinces of Jiangsu andZhejiang outlined above30 Crucially these were always overlaid on top of theexisting structure and if anything merely served to complicate bureaucraticresponsibilities rather than facilitate the creation of natural economic regions
210
Decentralisation Globalisation and China
Perhaps the best example of regional initiativesmdashand the most pertinent forthis studymdashdesigned to shape economic activity was the creation of the SpecialEconomic Zones (SEZs) Xiamen in Fujian Province and Zhuhai Shantou andShenzhen in Guangdong Province were in conception designed to facilitateinteraction with the international economy31mdashbut to ensure that this interactionwas strictly geographically limited However the success of the original SEZsin generating growth by attracting foreign investment led to the extension of theconcept to other parts of the country as local authorities (particularly but notonly in coastal areas) established their own investment or Special EconomicTechnological Development zones32
Decentralisation and globalisation
The development of the SEZs brings us to the importance of Chinarsquos gradualprocess of re-engagement with the global economy Initially the main import-ance of this process for understanding the relationship between political andeconomic space in China was in the way that external sources of investment(primarily in the four SEZs) helped33 local authorities (particularly Fujian andGuangdong) to establish signi cant nancial autonomy from the central author-ities However the importance of Chinarsquos global re-engagement took on a newimportance in the 1990s While foreign direct investment (FDI) had beenimportant in some areas in the 1980s the scale of foreign involvement in theChinese economy grew enormously after 1992
The initiative and actions of local governments in forging internationaleconomic relations has been a major determinant of Chinarsquos process of re-en-gagement with the global economy This is partly a result of changes in theChinese political economy and partly a consequence of the changing structure ofthe East Asian regional economy China entered the regional economy at a timewhen the volume of FDI within East Asia was increasing rapidly Throughoutthe 1980s land and labour shortages resulted in steady increases in rents andwages throughout East Asia In addition the appreciation of the major EastAsian currencies against the US dollar after the Plaza Accord of 1985 reducedthe competitiveness of Asian exports to the lucrative North American markets34
Along with other regional states like Thailand Malaysia and Indonesia Chinawas an attractive option for those searching for new low-cost production sitesLand was cheap and often subsidised as China tried to attract new jobs andtechnology there was an abundant cheap and well disciplined labour force andthe low value of the Chinese renminbi against the US dollar (particularly afterthe 1994 devaluation35) stood in contrast to currency appreciation elsewhere
Crucially Chinarsquos international economic relations have not been spreadevenly across the entire country Table 1 shows the extent to which nineprovinces dominated Chinarsquos international economic relations in 1998 Theseprovinces more or less cover the eastern coastal seaboard of China fromMacao in the south to the Bohai rim in the north36 The gures presentedin this table need some annotation First we need to disaggregate theprovincial gures themselves In the case of Liaoning for exampleprovincial investment and trade is concentrated in one city Dalian The
211
Shaun Breslin
212
TA
BL
E1
Par
tial
enga
gem
ent
wit
hth
egl
obal
econ
omy
Per
cent
age
ofP
erca
pita
GD
PP
erce
ntag
eP
erce
ntag
eof
Per
cent
age
ofP
erce
ntag
eof
util
ised
Per
capi
taas
of
nati
onal
ofna
tion
alex
port
sim
port
sco
ntra
cted
FD
IF
DI
GD
P( R
MB
)av
erag
epo
pula
tion
Gua
ngdo
ng41
640
815
259
1042
817
15
57
Sha
ngha
i8
19
310
49
325
750
423
61
2Ji
angs
u7
97
818
1293
4415
37
58
Sha
ndon
g6
46
10
65
575
9012
49
71
Fuj
ian
60
59
89
93
9258
152
32
7Z
heji
ang
59
50
24
33
1051
517
33
5L
iaon
ing
44
45
86
49
8525
140
23
4B
eiji
ng3
24
83
33
516
735
275
31
0T
ianj
in2
83
37
55
513
796
226
90
8
Coa
stal
Pro
vinc
es86
387
574
779
212
438
204
631
2
Sour
ce
Zho
nggu
oT
ongj
iN
ianj
ian
1999
( Chi
naSt
atis
tica
lY
earb
ook
1999
)
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
originally aimed at increasing enterprise management and autonomy failed toreach their intended destination Instead considerable devolved power becamelodged in the hands of local level partyndashstate organisations newly strengthenedby administrative decentralisation
Political space and economic space
Provincial authorities had gained considerable power and autonomy even beforethe death of Mao The policy of encouraging local self-suf ciency during theCultural Revolution provided a degree of provincial autonomy that the adminis-trative and market decentralisation reforms of the post-Mao era merely strength-ened26
In many ways the extension of decentralised control during the reform periodwas bene cial for China in that it allowed for exibility and local initiative inde ning new economic strategies But the strength of provincial authorities wasalso considered to be an impediment to the development of a more market-ori-ented economy A key issue here remains the con ict between politicallyorganised areas (primarily provinces) and functioning economic areas Forexample inter-provincial trade remains remarkably low as a result of provincialauthorities acting to protect their own local producers As such the existence ofpolitical boundaries (or what Shen Liren and Tai Yuanchen called lsquodukedomeconomiesrsquo27) was depicted as obstructing the exploitation of comparativeadvantage and the creation of a truly national market economy28 Economiccores were also separated from their lsquonaturalrsquo economic hinterland by provincialboundaries that acted as a brake on economic interaction For example Shang-hai which has the administrative status of a province was administrativelyseparated from its economic hinterlands in neighbouring Jiangsu and Zhejiangprovinces
In short reform of the economic structure created tensions between under-standings of lsquonaturalrsquo economic space and existing political space For somemore liberal Chinese academics (indeed too liberal for the Chinese authoritiesrsquoliking) the solution was to implement a fundamental reorganisation of Chinarsquosterritorial administration to allow market forces to ourish Such a root andbranch reform of territorial organisation was never seriously considered and thegovernment instead tinkered with the introduction of new territorial organisa-tions ranging from vast multi-provincial macro-regions rst proposed in 198429
to small development and technology zones within cities and towns in the 1990sExperiments with new regional forms have been designed both to overcome
existing barriers to inter-provincial economic activity and to shape new loci ofeconomic activity An example of the former was the establishment of a numberof special economic regions aimed at facilitating economic activity that cutacross provincial administrative boundaries For example the Shanghai Econ-omic Region was established to overcome the political barriers to economicrelations between Shanghai and the neighbouring provinces of Jiangsu andZhejiang outlined above30 Crucially these were always overlaid on top of theexisting structure and if anything merely served to complicate bureaucraticresponsibilities rather than facilitate the creation of natural economic regions
210
Decentralisation Globalisation and China
Perhaps the best example of regional initiativesmdashand the most pertinent forthis studymdashdesigned to shape economic activity was the creation of the SpecialEconomic Zones (SEZs) Xiamen in Fujian Province and Zhuhai Shantou andShenzhen in Guangdong Province were in conception designed to facilitateinteraction with the international economy31mdashbut to ensure that this interactionwas strictly geographically limited However the success of the original SEZsin generating growth by attracting foreign investment led to the extension of theconcept to other parts of the country as local authorities (particularly but notonly in coastal areas) established their own investment or Special EconomicTechnological Development zones32
Decentralisation and globalisation
The development of the SEZs brings us to the importance of Chinarsquos gradualprocess of re-engagement with the global economy Initially the main import-ance of this process for understanding the relationship between political andeconomic space in China was in the way that external sources of investment(primarily in the four SEZs) helped33 local authorities (particularly Fujian andGuangdong) to establish signi cant nancial autonomy from the central author-ities However the importance of Chinarsquos global re-engagement took on a newimportance in the 1990s While foreign direct investment (FDI) had beenimportant in some areas in the 1980s the scale of foreign involvement in theChinese economy grew enormously after 1992
The initiative and actions of local governments in forging internationaleconomic relations has been a major determinant of Chinarsquos process of re-en-gagement with the global economy This is partly a result of changes in theChinese political economy and partly a consequence of the changing structure ofthe East Asian regional economy China entered the regional economy at a timewhen the volume of FDI within East Asia was increasing rapidly Throughoutthe 1980s land and labour shortages resulted in steady increases in rents andwages throughout East Asia In addition the appreciation of the major EastAsian currencies against the US dollar after the Plaza Accord of 1985 reducedthe competitiveness of Asian exports to the lucrative North American markets34
Along with other regional states like Thailand Malaysia and Indonesia Chinawas an attractive option for those searching for new low-cost production sitesLand was cheap and often subsidised as China tried to attract new jobs andtechnology there was an abundant cheap and well disciplined labour force andthe low value of the Chinese renminbi against the US dollar (particularly afterthe 1994 devaluation35) stood in contrast to currency appreciation elsewhere
Crucially Chinarsquos international economic relations have not been spreadevenly across the entire country Table 1 shows the extent to which nineprovinces dominated Chinarsquos international economic relations in 1998 Theseprovinces more or less cover the eastern coastal seaboard of China fromMacao in the south to the Bohai rim in the north36 The gures presentedin this table need some annotation First we need to disaggregate theprovincial gures themselves In the case of Liaoning for exampleprovincial investment and trade is concentrated in one city Dalian The
211
Shaun Breslin
212
TA
BL
E1
Par
tial
enga
gem
ent
wit
hth
egl
obal
econ
omy
Per
cent
age
ofP
erca
pita
GD
PP
erce
ntag
eP
erce
ntag
eof
Per
cent
age
ofP
erce
ntag
eof
util
ised
Per
capi
taas
of
nati
onal
ofna
tion
alex
port
sim
port
sco
ntra
cted
FD
IF
DI
GD
P( R
MB
)av
erag
epo
pula
tion
Gua
ngdo
ng41
640
815
259
1042
817
15
57
Sha
ngha
i8
19
310
49
325
750
423
61
2Ji
angs
u7
97
818
1293
4415
37
58
Sha
ndon
g6
46
10
65
575
9012
49
71
Fuj
ian
60
59
89
93
9258
152
32
7Z
heji
ang
59
50
24
33
1051
517
33
5L
iaon
ing
44
45
86
49
8525
140
23
4B
eiji
ng3
24
83
33
516
735
275
31
0T
ianj
in2
83
37
55
513
796
226
90
8
Coa
stal
Pro
vinc
es86
387
574
779
212
438
204
631
2
Sour
ce
Zho
nggu
oT
ongj
iN
ianj
ian
1999
( Chi
naSt
atis
tica
lY
earb
ook
1999
)
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
Perhaps the best example of regional initiativesmdashand the most pertinent forthis studymdashdesigned to shape economic activity was the creation of the SpecialEconomic Zones (SEZs) Xiamen in Fujian Province and Zhuhai Shantou andShenzhen in Guangdong Province were in conception designed to facilitateinteraction with the international economy31mdashbut to ensure that this interactionwas strictly geographically limited However the success of the original SEZsin generating growth by attracting foreign investment led to the extension of theconcept to other parts of the country as local authorities (particularly but notonly in coastal areas) established their own investment or Special EconomicTechnological Development zones32
Decentralisation and globalisation
The development of the SEZs brings us to the importance of Chinarsquos gradualprocess of re-engagement with the global economy Initially the main import-ance of this process for understanding the relationship between political andeconomic space in China was in the way that external sources of investment(primarily in the four SEZs) helped33 local authorities (particularly Fujian andGuangdong) to establish signi cant nancial autonomy from the central author-ities However the importance of Chinarsquos global re-engagement took on a newimportance in the 1990s While foreign direct investment (FDI) had beenimportant in some areas in the 1980s the scale of foreign involvement in theChinese economy grew enormously after 1992
The initiative and actions of local governments in forging internationaleconomic relations has been a major determinant of Chinarsquos process of re-en-gagement with the global economy This is partly a result of changes in theChinese political economy and partly a consequence of the changing structure ofthe East Asian regional economy China entered the regional economy at a timewhen the volume of FDI within East Asia was increasing rapidly Throughoutthe 1980s land and labour shortages resulted in steady increases in rents andwages throughout East Asia In addition the appreciation of the major EastAsian currencies against the US dollar after the Plaza Accord of 1985 reducedthe competitiveness of Asian exports to the lucrative North American markets34
Along with other regional states like Thailand Malaysia and Indonesia Chinawas an attractive option for those searching for new low-cost production sitesLand was cheap and often subsidised as China tried to attract new jobs andtechnology there was an abundant cheap and well disciplined labour force andthe low value of the Chinese renminbi against the US dollar (particularly afterthe 1994 devaluation35) stood in contrast to currency appreciation elsewhere
Crucially Chinarsquos international economic relations have not been spreadevenly across the entire country Table 1 shows the extent to which nineprovinces dominated Chinarsquos international economic relations in 1998 Theseprovinces more or less cover the eastern coastal seaboard of China fromMacao in the south to the Bohai rim in the north36 The gures presentedin this table need some annotation First we need to disaggregate theprovincial gures themselves In the case of Liaoning for exampleprovincial investment and trade is concentrated in one city Dalian The
211
Shaun Breslin
212
TA
BL
E1
Par
tial
enga
gem
ent
wit
hth
egl
obal
econ
omy
Per
cent
age
ofP
erca
pita
GD
PP
erce
ntag
eP
erce
ntag
eof
Per
cent
age
ofP
erce
ntag
eof
util
ised
Per
capi
taas
of
nati
onal
ofna
tion
alex
port
sim
port
sco
ntra
cted
FD
IF
DI
GD
P( R
MB
)av
erag
epo
pula
tion
Gua
ngdo
ng41
640
815
259
1042
817
15
57
Sha
ngha
i8
19
310
49
325
750
423
61
2Ji
angs
u7
97
818
1293
4415
37
58
Sha
ndon
g6
46
10
65
575
9012
49
71
Fuj
ian
60
59
89
93
9258
152
32
7Z
heji
ang
59
50
24
33
1051
517
33
5L
iaon
ing
44
45
86
49
8525
140
23
4B
eiji
ng3
24
83
33
516
735
275
31
0T
ianj
in2
83
37
55
513
796
226
90
8
Coa
stal
Pro
vinc
es86
387
574
779
212
438
204
631
2
Sour
ce
Zho
nggu
oT
ongj
iN
ianj
ian
1999
( Chi
naSt
atis
tica
lY
earb
ook
1999
)
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
212
TA
BL
E1
Par
tial
enga
gem
ent
wit
hth
egl
obal
econ
omy
Per
cent
age
ofP
erca
pita
GD
PP
erce
ntag
eP
erce
ntag
eof
Per
cent
age
ofP
erce
ntag
eof
util
ised
Per
capi
taas
of
nati
onal
ofna
tion
alex
port
sim
port
sco
ntra
cted
FD
IF
DI
GD
P( R
MB
)av
erag
epo
pula
tion
Gua
ngdo
ng41
640
815
259
1042
817
15
57
Sha
ngha
i8
19
310
49
325
750
423
61
2Ji
angs
u7
97
818
1293
4415
37
58
Sha
ndon
g6
46
10
65
575
9012
49
71
Fuj
ian
60
59
89
93
9258
152
32
7Z
heji
ang
59
50
24
33
1051
517
33
5L
iaon
ing
44
45
86
49
8525
140
23
4B
eiji
ng3
24
83
33
516
735
275
31
0T
ianj
in2
83
37
55
513
796
226
90
8
Coa
stal
Pro
vinc
es86
387
574
779
212
438
204
631
2
Sour
ce
Zho
nggu
oT
ongj
iN
ianj
ian
1999
( Chi
naSt
atis
tica
lY
earb
ook
1999
)
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
TABLE 2 Foreign direct investment in China by source country or region 1979ndash97 (amountcontracted in US$ million)
CountryRegion 1979ndash89 1990 1991 1992 1993 1994 1995 1996 1997
Hong Kong 20 879 3 833 7 215 40 044 73 939 46 971 40 996 28 002 18 220Japan 2 855 457 812 2 173 2 960 4 440 7 592 5 131 3 400USA 4 057 358 548 3 121 6 813 6 010 7 471 6 916 4 940Taiwan 1 100 1 000 3 430 5 543 9 965 5 395 5 849 5 141 2 810Others 4 569 1 948 3 405 7 241 17 759 19 864 29 374 28 086 22 410
Hong Kong and 679 636 889 784 753 633 513 452 406Taiwanese FDIas of total
Source Zhongguo Tongji Nianjian (China Statistical Yearbook) various years
Dalian authorities have taken a very proactive role in attracting foreign invest-ment including establishing special development zones for investment fromTaiwan Singapore and Japan Indeed Dalian received 65 per cent of all FDIinto China in 1996 which included two-thirds of all South Korean FDI and 155per cent of all Japanese FDI (which was down from an all-time high of 39 percent of all Japanese investment in 1995)37 Even in Guangdong the mostlsquointegratedrsquo of all Chinese provinces there is no even spread across the entireprovince For example according to the mayor of Shenzhen exports fromShenzhen SEZ accounted for 14 per cent (by value) of all national exports in199738
Second the 1998 gure for FDI into Guangdong is low by historicalcomparison with the province alone receiving around 40 per cent of all foreigninvestment since 1978 While there has been a distribution in the provincialshares of trade and investment over time this distribution has occurred withinthe (broadly de ned) coastal area rather than from coast to interior That thereis a very close relationship to the location of FDI and regional disparities in tradeshould not be unexpected The FDIndashtrade linkage has been a driver of lsquoeconomicglobalisationrsquo in many parts of the world and the fact that FDI location is amotor of trade growth in China only conforms with general patterns elsewhereNevertheless the importance of the FDIndashtrade linkage in the process of Chinarsquosglobal re-engagement is particularly striking and warrants particular attentionhere In essence imports and exports of foreign-funded companies account forroughly half of provincial trade in the nine lsquocoastalrsquo provinces39 As Table 2shows investment from Hong Kong and Taiwan accounts for nearly two-thirdsof all FDI into China since 1978 (although that proportion is declining) Tradewith Hong Kong also accounts for around 15ndash20 per cent of all Chinese tradeand trade between China and Hong Kong is now the worldrsquos third biggestbilateral trade relationship40
213
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
Microregionalisation lsquoGreater Chinarsquo as economic space
The above gures point to both the uneven spatial impact of Chinarsquos inter-national economic relations and also the importance of Hong Kong (and to alesser extent Taiwan) as a trade partner and source of investment In combi-nation this brings us back to the ef cacy of microregional approaches forunderstanding Chinarsquos re-engagement with the global economy
It is clear that the political border between Hong Kong and the PRC hasbecome an extraordinarily porous one For example the Hong Kong dollar is inwide use in Southern China and anybody who has crossed the bridge at Luohubetween Shenzhen and Hong Kong will also attest to the massive reciprocal owof people between the two areas on a daily basis FDI is the main source ofinvestment in Guangdong and around 80 per cent of this FDI comes from HongKong Furthermore production for export is by far the major source of growthin Guangdong with around 80 per cent of all provincial foreign trade conductedwith Hong Kong and around 68 per cent of Guangdongrsquos trade being there-exports of goods assembled using imported componentsmdashthe vast majority ofthem imported from Hong Kong Indeed some would argue that the resumptionof Chinese sovereignty over Hong Kong disguises the real expansion of HongKongrsquos economic in uence over neighbouring territoriesmdashit is not so much thecreation of a lsquoGreater Chinarsquo as of a lsquoGreater Hong Kongrsquo41 On the face of itthe GuangdongndashHong Kong microregion is a classic (almost de ning) exampleof metropolitan spillover This understanding does not imply convergenceInvestment into China has been predicated on cheap labour and land in the PRCand the divergent levels and dominant types of economic activity within theregion
The state as facilitator
While the actions of external non-state actors have clearly played a signi cantrole in microregional integration we should be careful not to relegate the stateto a passive or even irrelevant role The decision to re-engage the southern partof China within the regional economy was a conscious and deliberate strategyof Chinarsquos state elites The establishment of the SEZs as a mechanism ofenhancing while controlling Chinarsquos external economic relations is an excellentcase in point here It was no mere coincidence that three of the original foureconomic zones42 were located in Guangdong (nor that the fourth zone Xiamenis located across the strait from Taiwan) The creation of the Special EconomicZones and the preferential treatment afforded to them were explicitly designedto facilitate interaction with non-state economic actors in Hong Kong Macaoand Taiwan The subsequent extension of some privileges to other coastal citieswas also a deliberate and conscious state policy not to mention the result ofintense political bargaining between national state elites and representatives oflocal interests43
Furthermore the decentralisation of power that characterised the Chinesereform process in the 1980s was a crucial component in facilitating internationaleconomic relations Crucially central state elites deliberately treated provinces
214
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
unequally during the process of decentralisation In addition to the locationdecisions undertaken during the creation of the SEZs coastal provinces wereextended rights to seek foreign partners much earlier than their counterparts inthe interior Even when these rights had more or less been extended to the wholecountry by the end of the 1980s coastal provinces were given autonomy toapprove projects up to the value of US$30 million without referral to the centralauthorities while interior provinces faced a ceiling of only US$10 million
This greater autonomy over international economic relations was supported bythe increased nancial autonomy granted to the southern provinces of Guang-dong and Fujian The logistics of the reform of revenue-sharing arrangementsbetween centre and province are quite complex44 but at the risk of oversimplifying the issue we can identify three points which characterised thedeliberately uneven impact of the revenue-sharing reforms First there werevariations in the target amount of income that different provinces had to remitto the central authorities Second there were variations in how often thesetargets were reviewed Those areas subject to annual reviews (Tianjin Beijingand Shanghai) found their targets increased if they were doing well whilst thoseon non-index-linked ve-year cycles (including Guangdong and Fujian) not onlyfound it increasingly easy to meet initial targets but were also able to plan aheadwith more certainty of nancial obligations Finally provincial authorities weregiven varying degrees of autonomy to retain any excess income once the targetfor remittances to the centre had been met Some provinces notably thelsquomunicipal provincesrsquo of Beijing Shanghai and Tianjin were expected to turnlarge proportions of any locally collected revenue to the central authoritiesFujian and Guangdong however were given a at rate over a ve-year periodand allowed to retain any income over and above that target for local use45
It is true that the local governments used their new-found autonomy todevelop economic strategies that frequently were at odds with central policy andobjectives Chinarsquos developmental trajectory has in many ways been dysfunc-tional in that the type of development that has been attained has not always beenwhat the central government intended Indeed at times it appears that develop-mental processes have occurred as a result of local initiatives that weredeveloped in direct contravention to central government strategies But thatshould not blind us to the role of central state elites in deliberately andconsciously locating China in the regional economy and in providing themechanisms and incentives to facilitate contact with external non-state economicactors
Microregional integration and globalisation
In assessing microregional integration we need to take care not to concentratesimply on relations within the microregion Rather we need to assess the crucialissues of the role of external actors within the region and the position of theregion within wider regional and global economic contexts Indeed in the caseof southern ChinandashHong Kong microregional integration is contingent on widerprocesses of globalisation and the microregionrsquos relations with extra-regionalareas
215
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
Hong Kongrsquos role as the major source of FDI into and trade with China isbuilt on Hong Kongrsquos own position within the wider international economyDuring its relatively isolated years China remained somewhat dependent onHong Kong as an outlet of its exportsmdashboth as a market for Chinese exports andas a means of re-exporting to other markets Interestingly the importance ofre-exports from Hong Kong has increased massively in the reform era Thepercentage of Hong Kongrsquos imports from China that are subsequently re-ex-ported to other states increased from 30 per cent in 1979 to over 85 per centtoday Furthermore 841 per cent of Chinese imports from Hong Kong arere-exports from other states46 Hong Kong thus acts as a conduit through whichextra-regional actors can engage with the Chinese economy and in particularaccess the cheap labour and land available in southern China Essentiallytherefore Hong Kong today is still performing the same role that facilitated itsvery emergence as a major economic centre in the rst place
Chinarsquos trade relationship with the United States is particularly importanthere The proportion of Chinese exports to Hong Kong that are re-exported tothe USA increased from 486 per cent in 1979 to 416 per cent by 199447 Inaddition just over half of all Hong Kong exports to China in 1994 were goodsof US origin48 What appears at rst sight as a clear example of regionaleconomic integration in reality owes much to globalisation and extra-regionaleconomic interests Furthermore just as inter-regional trade is largely shaped byand contingent upon extra-regional trade so bilateral investment gures do nottell the whole story Hong Kong has long served as a management and nancialcentre for East Asia Through buying shares on the Hong Kong stock exchangethrough the establishment of subsidiaries and through using major investmentmanagers like Inchcape Jardine Matheson and Swires foreign capital hasalways been an important component of the Hong Kong economy
The importance of Hong Kong brings our attention to the importance andnotion of lsquoglobal citiesrsquo as facilitators (or perhaps even agents) of globalisationIn many ways Hong Kong acts as a world economic city in that it provides amediating level of economic governance between the PRC and the globaleconomy This is not to suggest that regional integration is not occurring butthat regional processes are a result of globalised production
Commodity-driven production networks
This understanding of the importance of extra-regional areas for regionalintegration is further enhanced by an analysis of the nationally fragmented natureof production in East Asia (and elsewhere) Here we have to consider the extentto which Taiwanese and Hong Kong investment and trade represents thepenultimate link in a chain or network that goes beyond the con nes of narrowde nitions of lsquoGreater Chinesersquo regionalisation
As Bernard and Ravenhill49 Hollerman50 Crone51 and perhaps most force-fully Hatch and Yamamura52 have argued many Taiwanese and other EastAsian producers are tied into a position of lsquotechnological dependencersquo on JapanThey are either dependent on key technology components in production or tradeusing Japanese brand names or both Bernard and Ravenhill use two examples
216
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
that are particularly pertinent here The rst is the case of Tatung computerscreens They carry a Taiwanese brand name but the key technological compo-nentmdashthe cathode ray tubemdashis imported from Japan and accounts for 40 percent of the value of the screens Note that Tatung is now assembling some of itsscreens in the PRC for onward sale to the USA and Europe as well as back toJapan The second example is the case of Sharp pocket calculators produced inMalaysia The calculators are produced in a Taiwanese funded factory inMalaysia under Taiwanese management They utilise Japanese components andare sold exclusively in the North American market FDI gures show aTaiwanese investment in Malaysia trade gures show a Malaysian export toNorth America and the goods carry a lsquoMade in Malaysiarsquo stamp yet the brandname and the majority of the value added are Japanese
The suggestion then is that even those investments into the PRC by non-PRCChinese actors may have more to do with Japanrsquos lsquonetwork powerrsquo53 thanappears at rst sight When we add this to direct SinondashJapanese trade and directJapanese FDI into China then the case for a Greater-China economic spacerather than a wider Japan-centred regionalisation process appears to diminish inforce At the very least Greater Chinese regional integration should be viewedin the light of wider regional processes
We should also focus more directly on the role of the USA Here I take anexample used by the Chinese authorities themselves in the White Paper lsquoOnSinondashUS Trade Balancersquo in 199754 and originally raised in a Los Angeles Timesreport in 199655 Barbie dolls on sale in the USA at around US$10 each carriedthe lsquoMade in Chinarsquo stamp The unit import cost of each doll was US$2 whichthe Chinese authorities argued was an unfair representation of the real value ofthese exports to China The raw materials for the plastics were imported intoTaiwan from the Middle East and the hair similarly exported to Taiwan fromJapan The goods were semi- nished in Taiwan and only then exported to Chinafor the nal stages of production They were then exported from China to HongKong and then onwards to the USA The real value to the Chinese economy wasa mere 35 cents with the remainder of the US$2 either already accounted for inraw materials and assembly before the doll reached China (65 cents) or in thecost of transportation at various stages of the production process (US$1)
The example was used by the Chinese authorities as an example of how theUSA lsquounfairlyrsquo calculates trade with China and the way in which World TradeOrganisation (WTO) country of origin rules discriminated against countries likeChina There are indeed interesting implications from this and other cases forassessments of the Chinese economy Lardy has calculated that the value ofimported components typically account for 90 per cent of the value of exportsfrom foreign enterprises operating in China56 As the processing trade nowaccounts for around half of all Chinese trade the implication is that around halfof the value of Chinese exports is in fact the value of goods imported from otherstates However the main relevance of this for us here is in going beyond thebilateral and moving towards a more complex understanding of the internationaldivision of production Table 3 represents an attempt to factor re-exports throughHong Kong into the destination of exports from China While the gures are not
217
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
TABLE 3 Readjusted Chinese direction of trade statistics(percentage of total trade)
Exports to Imports from Total() () ()
USA 226 129 172Japan 261 234 241EU states 167 159 159
Source IMF Direction of Trade Statistics (variousyears) andKui-yin Cheung lsquoHong Kongrsquos outward processing invest-ment in China implications for Hong Kong economyrsquo in JChai YY Kueh amp Clive Tisdell (Eds) China and the AsiaPaci c Economy (Nova Science 1997)
exact they give a fairly accurate indication of the importance of markets in thedeveloped world for Chinese exports
Microregional integration and national economic integration
What we appear to have here then is an economic space that spans the residualpolitical border between Hong Kong and the PRC It is also an economic spacethat is acting as a mechanism through which southern China is becomingintegrated into wider East Asian regional and global commodity-driven pro-duction networks Moreover those parts of China that are most integrated withthe global economy have low levels of economic linkages with other parts ofChina Guangdong for example engages in far more international trade thandomestic trade with other Chinese provinces As such the internal parameters ofthe microregion are relatively easy to identify and largely correlate withprovincial administrative boundaries The retention and indeed strengthening ofinternal political barriers to economic activity has facilitated the decline insigni cance of international political barriers to economic activity within themicroregion
The major dynamic of microregional integration has been the growth of exportprocessing industries in Guangdong With the majority of the components usedin factories imported rather than provided by industries in China these areas arein many ways more rmly locked into the international economy than they arepart of the domestic Chinese economy As Lardy notes
Rapid export growth from foreign invested rms a large share ofwhich is export processing has limited backward linkages and thedomestic content of exports is very low To some extent exportindustries appear to be enclaves57
This observation echoes Bernard and Ravenhillrsquos argument that lsquoforeign sub-sidiaries in Malaysiarsquos EPZs were more integrated with Singaporersquos free-tradeindustrial sector than with the ldquolocalrdquo industryrsquo58 These lsquoenclave economiesrsquo donot form part of what Jin Bei calls the lsquonational economyrsquo as they
218
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
do not primarily involve the actualisation of Chinarsquos productiveforces but the actualisation of foreign productive forces in Chinaor the economic actualisation achieved by turning Chinese re-sources into productive forces subject to the control of foreigncapital owners59
Thus microregional integration appears to act less as a mechanism of integratingthe Chinese national economy with the regional and global economy than as amechanism of further national economic fragmentation The challenge fornational elites in China is reintegrating the national economymdasha challenge thathas been in no small part generated by calls from local leaders in less developedprovinces to redress the uneven balance of development It is this attemptconsciously to alter the national wave of economic development that in partinspired Chinarsquos national state leaders to participate in the NEA microregionalproject
Microregionalism China and the North East Asian microregion
In the Chinese case the clearest example of state-directed microregionalism isfound in the initiatives to establish a new form of regional collaboration linkingthe Chinese north-east with neighbouring territories The NEA project hasentailed considerable dialogue between high level representatives from nationalelites in a number of regional states However in contrast to the example of thesouthern China microregion plans to establish a lsquoNorth East Asianrsquo region andthe lsquoTumen River Deltarsquo project have to date generated little in terms of realregional integration and collaboration Indeed real regional integration haslargely failed to emerge because of high level involvement by regional states
At rst sight the NEA region60 had much to commend it Abundant rawmaterial from the Russian Far East would combine with the ample and cheaplabour in the heavily industrialised north-east of China and bene t from theadvanced technology and investment capital of South Korea and Japan Further-more cross-border trade between Russiarsquos eastern regions and (in particular)China has increased as political relations between the two powers have latelywarmed61 But one of the rst and major problems encountered in building thisNorth East Asian state-led regional project was de ning the parameters of theregion In addition to the inherent problem of deciding which states shouldparticipate in the construction of any new regional organisation the situation wascomplicated by then deciding which parts of participating states fell within theregional boundaries Part of the problem here was and is the lack of any rmand shared awareness of the regionrsquos lsquohistoricity and spatialityrsquo62 The suggestionhere is that there is no historical or cultural basis for de ning the region as adiscrete entity or that there is any historical or cultural rationale for excludingother areas from membership In Adlerrsquos terms the North East Asian region isnot an lsquoimagined communityrsquo or a lsquocognitive regionrsquo63
Furthermore notwithstanding the desire to build a multinational regionsigni cant tensions remain in bilateral relations amongst regional states Forexample the inclusion of North Korea in the project makes geographic sense and
219
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
was also seen as a means of dealing with poverty and encouraging reform inNorth Korea But its inclusion has not only increased the number of state actorsbut introduced a state actor that is largely hostile to the dominant economicparadigms underpinning the project It is also a state actor that has extensivebilateral disputes with Japan64 and is still technically at war with another of thestate actors South Korea Even where participation in the project has led towarmer bilateral relations this has not always reduced tension in the region asa whole Indeed Park argues that agreements between Russia and North Koreaover border and maritime disputes in some ways increase Japanese and SouthKorean concerns over territorial claims in the region65
Even without the Korean complication there was still the question of whetherSiberia was involvedmdashor which bit of Siberia What of Mongolia And does theproject include all of Japan or simply the lsquoback-sidersquo of Japan The mainproblem here is that the regional parameters were politically constructed basedon perceptions and hopes of future economic interaction rather than on existinglevels of economic interaction It was an attempt to shape a new economic spacein a politically constructed microregion where no existing patterns of economicinteraction existed It was also a project that was not supported by the investmentdecisions of regional non-state actors Indeed it is notable that as Rozmanargues lsquothe Tumen River delta plan for building a multi-national city remi-niscent of Hong Kong has been emasculated into an agreement on transit tradethrough existing portsrsquo66 In short where some concrete progress has been madeit has been because economic contacts and interaction already existed andmechanisms of interaction were already in place
The project also suffered from the con icting priorities of the interestedpartiesmdashboth con icting national state objectives and con icts between nationaland local interests within individual states To quote Rozman again lsquounaware ofhow much their plans clashed with each other and how realities in othercountries de ed their own logic these territories hellip actually left plans for NEAregionalism in tatters by 1994rsquo67 On a very basic level each state developedplans that were designed to protect its own perceived state interests Forexample Russian fears that Japan would exert too strong an in uence in theRussian Far East resulted in a sceptical attitude to full liberalisation and full andreciprocal market access for each party China too was wary of developing aproject that gave Japan too much power and attempted to reduce Japanrsquosin uence wherever possible In combination the Russian and Chinese fear ofJapanese domination all but created a BeijingndashMoscow axis designed to reduceJapanese in uence in the regionmdasha process that not surprisingly cooled Japanrsquosenthusiasm for the project However even this shared SinondashRussian approach toregion-building could not prevent bilateral tensions over different paces ofreform and mutual distrust of each otherrsquos motives In short con dence andmutual trust were not exactly the foundations on which the NEA project wasbuilt
In the Chinese case the interests of the national state also con icted with theinterests of local state actors While the provincial governments in the north eastpushed the project as a high priority means of generating regional develop-ment68 the national governmentrsquos priorities began to move elsewhere In an
220
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
attempt to offset internal pressures resulting from lop-sided growth the nationalgovernment moved its attention to Shanghai the Bohai Rim around Dalian andthe three gorges project on the Yangtze as its major regional initiativesRelegated to the national governmentrsquos fourth strategic objective government nances incentives and preferential treatment aimed at developing the north-eastrapidly dried up after 199269
Indeed while the Tumen River Delta project remains alive formally at leastthe main focus of Japanese and South Korean interest in north-east China hasmoved to Dalian and the Liaodong Peninsular The Dalian authorities inparticular have taken a very proactive attitude to the attraction of foreigninvestment including establishing special development zones for investmentfrom Taiwan Singapore and Japan Dalian received 65 per cent of all FDI intoChina in 1996 and over two-thirds of all South Korean FDI into China Thecomparable gure for Japanese investment in Dalian was 155 per cent of all FDIto China down from a high of 39 per cent in 199570 The growth of Dalian asa key centre for Japanese and other East Asian investment has occurred with theblessing of the national government but has largely proceeded through the localgovernment facilitating inward investment by external non-state actors As withthe southern China microregion the local government in Dalian has located thelocal economy as a low-cost production site for regional investors seeking toproduce for export As with the southern China microregion Dalian appearsmore integrated in many ways with other regional states than it is even with itsown province Liaoning Rather than microregional integration in north-eastChina occurring through intergovernmental dialogue in the NEA project it isinstead occurring through microregionalisation processes where the key dynamicis the relationship between the local state and external non-state actors linked toa global chain of production
Conclusion
An assessment of two case studies from one country will clearly generate morecase-speci c conclusions than universally applicable truths In this respect thisarticle probably says more about processes of regional integration in China thanit does about regional processes in general Nevertheless the Chinese casestudies do generate conclusions that have applicability to other cases
Above all they suggest that attempts to foster regional integration have beenmost successful when governments facilitate rather than control High levelintergovernmental dialogue in the NEA area has had little impact on subnationaland cross-national regional integration due to the con icting interests of theactorsmdashboth con icts between national actors and between national and locallevel actors within individual states While the NEA project was designed tocreate new patterns of economic activity through interstate dialogue the south-ern China case represents an attempt to locate a subnational area within anexisting regional pattern of production The national government facilitated butlocal governments and the structure of the East Asian regional economy haveprovided the dynamic for microregional integration lsquoSuccessfulrsquo (in its ownterms at least) microregional integration in southern China has been built on
221
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
asymmetric levels of development In essence southern China is deliberatelylocated as a low cost offshore production site for those investors seeking toproduce in China for re-export Microregional integration thus displays elementsof what Grugel and Hout have termed lsquoregionalism across the NorthndashSouthdividersquo71 Rather than trying to prevent dependence on the global economy theregional initiatives of many developing states are now built on a desire to ensureparticipation in itmdashin effect to tie their economies to markets and investors inmore developed lsquocorersquo states72
This brings us to two nal points First it is mistaken to see either differentlevels of regional integrationmdashor indeed regional and global processesmdashascontending dynamics Rather the analysis of microregionalisation in southernChina suggests a symbiotic relationship On one level microregional integrationis predicated on wider East Asian regionalisation and indeed is a mechanismthrough which wider regional economic integration takes place On anotherlevel East Asian regionalisation is itself predicated on wider commodity-drivenproduction networks linking the region to investors and consumers in the EUand most importantly North America
Second the Chinese cases highlight the uneven nature of engagement with theregional (and global) economy Indeed one of the major advantages of microre-gional approaches to studying regional integration is the focus on subnationalrather than national levels of analysis In assessing how new economic spacesare being created across national borders we should not neglect the relationshipbetween emerging transnational economic space and lsquonationalrsquo political andeconomic space Cerny argues that
The more that the scale of goods and assets produced exchangedandor used in a particular economic sector or activity divergesfrom the structural scale of the national statemdashboth from above(the global scale) and from below (the local scale) hellip then themore the authority legitimacy policymaking capacity and policyimplementing effectiveness of states will be challenged from bothwithout and within73
When the local and global come together as is the case in microregions thenthe challenge for national governments is to build new frameworks for gover-nancemdashframeworks that either provide mechanisms for reintegrating the na-tional economy or for dealing with the political demands that arise from theemergence of dualistic economies
Notes
The author acknowledges the support of the UK Economic and Social Research Council which funds theCentre for the Study of Globalisation and Regionalisation at the University of Warwick1 Much of the literature in this eld uses the term lsquosubregionalismrsquo However this article uses the term
microregionalism to avoid the problems that emerge from the contested use of the notion of sub-region-alism It can refer to regionalism in non-core areas of the global economy to regional organisations likeASEAN that are considered to be below the macro-regional level to regional processes that occur withinexisting regional organisations such as the EU and even to regional processes within individual states
222
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
2 I use the term lsquoprovincesrsquo to refer to all those levels of administration that have provincial level statusThis includes the provincial level municipalities of Beijing Tianjin Shanghai and now also Chongqingas well as the supposedly lsquoautonomousrsquo regions such as Xinjiang Ningxia and so on
3 See for example Fritz Rorig The Mediaeval State (Batesford 1967)4 For example P Thambipillai lsquoThe ASEAN Growth Areas Sustaining the Dynamismrsquo Paci c Review
Vol 11 No 2 (1998) pp 249ndash665 A good example is Francesc Morata lsquoThe Euro-region and the C-6 network the new politics of
sub-national cooperation in the west-Mediterranean arearsquo in Michael Keating amp John Loughlin (Eds) ThePolitical Economy of Regionalism (Frank Cass 1997) pp 292ndash305
6 See Abraham Lowenthal amp Katrina Burgess The CaliforniandashMexico Connection (Stanford UniversityPress 1993)
7 See Mark Rosenberg amp Jonathan Hiskey lsquoChanging Trading Patterns of the Caribbean Basinrsquo Annals ofthe American Academy of Political and Social Science Vol 533 (1994) pp 100ndash11
8 Kenichi Ohmae The End of the Nation State (Harper Collins 1995) p 69 R Scalapino lsquoThe United States and Asia Future Prospectsrsquo Foreign Affairs Vol 72 No 6 (1991ndash2)
pp 19ndash4010 Andrew Hurrell lsquoExplaining the Resurgence of Regionalism in World Politicsrsquo Review of International
Studies Vol 21 No 4 (1995) pp 334ndash511 Andrew Gamble amp Anthony Payne (Eds) Regionalism and World Order (Macmillan 1996)12 Ibid p 33413 Different terms are used by different authors to make the same distinction Earlier writing on regional
integration tended to use the terms lsquoinformal integrationrsquo or lsquosoft regionalismrsquo Higgott prefers the termsde jure and de facto regionalism to describe the two different processes in East Asia See Richard HiggottlsquoDe Facto and De Jure Regionalism The Double Discourse of Regionalism in the Asia Paci crsquo GlobalSociety Vol 2 No 2 (1997) pp 165ndash83
14 These distinctions are taken from Chia Siow Yue amp Lee Tsao Yuan lsquoSubregional economic zones a newmotive force in AsiandashPaci c developmentrsquo in Fred Bergsten amp Marcus Noland (Eds) Paci c Dynamismand the International Economic System (Institute for International Economics 1993) pp 225ndash69
15 Morata lsquoThe Euro-region and the C-6 networkrsquo pp 292ndash316 Chia amp Lee lsquoSubregional economic zonesrsquo17 Gamble amp Payne Regionalism and World Order18 Perhaps more so than in the countryside where reform began earlier and the transfer of autonomy to
producers is further developed (though not complete)19 See David Goodman lsquoNew economic elitesrsquo in R Benewick amp P Wingrove (Eds) China in the 1990s
(Macmillan 1995 pp 132ndash44) Barbara Krug Privatisation in China Something to Learn From ErasmusUniversity Management Report No 2 13 1997 and John Wong amp Mu Yang lsquoThe making of the TVEmiraclemdashan overview of case studiesrsquo in John Wong Ma Rong amp Mu Yang (Eds) Chinarsquos RuralEntrepreneurs Ten Case Studies (Times Academic Press 1995) pp 16ndash51
20 Andrew Walder lsquoLocal bargaining relationships and urban industrial nancersquo in K Lieberthal amp DLampton (Eds) Bureaucracy Politics and Decision Making in Post-Mao China (University of CaliforniaPress 1992) pp 331ndash2
21 This division is a dif cult one to make To start with the linkages between the two remain structurallyintact Provincial and other local level leaders remain part of the central elites themselves throughmembership of the Chinese Communist Party (CCP) central committee and the National PeoplersquosCongress Many central leaders also cut their teeth in provincial politicsmdashnote that the current Chineseparty leader and President Jiang Zemin and the current Premier Zhu Rongji were both elevated tonational leadership after serving as local leaders in Shanghai Finally the central party leadership retainsthe ability to remove and appoint local leaders Nevertheless the divergence between national economicgoals and priorities and those followed in some provinces is large enough to make the distinction a validone
22 Leaders such as Chen Yun did advocate a limited distribution of economic decision making to producersin the countryside However in general state-ownership and state-planning meant that power residedwithin Chinarsquos bureaucratic structures
23 Power was decentralised to provincial authorities from 1956ndash7 to 1961 and again during the CulturalRevolution
223
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
24 Schurmann distinguishes between these two forms of decentralisation by calling them decentralisation Iand decentralisation II whereas Eckstein prefers the terms market decentralisation and bureaucraticdecentralisation See Franz Schurmann Ideology and Organization in Communist China (University ofCalifornia Press 1968) p 196 and Alexander Eckstein Chinarsquos Economic Revolution (CambridgeUniversity Press 1977) p 171 For earlier debates over forms of decentralisation in communist states seeP Wiles The Political Economy of Communism (Harvard University Press 1964) and Oscar Lange lsquoOnthe economic theory of socialismrsquo in B Lippincott (Ed) On the Economic Theory of Socialism(University of Minnesota Press 1938) pp 55ndash143
25 Susan Strange States and Markets (Pinter 1994)26 Audrey Donnithorne lsquoChinarsquos Cellular Economy Some Economic Trends Since the Cultural Revolutionrsquo
The China Quarterly No 52 (1972) pp 605ndash1927 Shen Liren amp Tai Yuanchen lsquoWoguo ldquoZhuhou Jingjirdquo De Xingcheng Ji Chi Biduan He Genyuanrsquo (lsquoThe
Creation Origins and Failings of ldquoDukedom Economiesrdquo in Chinarsquo) Jingii Yanjiu (Economic Research)No 3 (1990) pp 1ndash8
28 This was a particularly common and strong line of argument in China in the second half of the 1980s Forexamples of Chinese writing on this theme see Chen Dongsheng amp Wei Houkai lsquoSome Observations onInterregional Trade Frictionrsquo Gaige (Reform) No 2 (1989) pp 79ndash83 (translated and reprinted in JPRS24 April 1989) Fei Xiaotong lsquoFazhan Shangpin Jingji Gaohao Dongxi Lianhersquo (lsquoDeveloping CommodityEconomy and Coordinating EastndashWest Relationsrsquo) Gaige (Reform) No 1 (1989) pp 5ndash8 Guan EguolsquoYunyong Caizheng Jizhi Dali Tuiji Hengxiang Jingji Lianhersquo (lsquoWield the Fiscal Mechanism to PromoteHorizontal Integrationrsquo) Caimao Jingji (Finance and Trade Economics) No 7 (1986) pp 10ndash13 JiChongwei amp Lu Linshu lsquoJiaqiang Yanhai Yu Neidi Jingji Xiezuo De Gouxiangrsquo (lsquoOn StrengtheningEconomic Cooperation Between the Coast and the Interiorrsquo) Qiushi (Seeking Truth) No 2 (1988) pp16ndash21 Li Xianguo lsquoQuyu Fazhan Zhanlue De Neiyong Ji Zhiding Fangfarsquo (lsquoThe Contents andFormulation Methods for a Regional Development Strategyrsquo) Keyan Guanli (Science Research Manage-ment) No 2 (April 1988) pp 14ndash19 and Shen Liren lsquoHengxiang Jingji LianhemdashGaige De Xin Silu HeXin Shengzhang Dianrsquo (lsquoHorizontal IntegrationmdashA New Idea and the Starting Point of StructuralReformrsquo) Caimao Jingji (Finance and Trade Economics) No 8 (1986) pp 24ndash9
29 These macro-regions formed the basis of the regional development strategy of the seventh Five Year PlanFor details see Terry Cannon lsquoRegions spatial inequality and regional policyrsquo in Terry Cannon amp AlanJenkins (Eds) The Geography of Contemporary China The Impact of Deng Xiaopingrsquos Decade(Routledge 1990) pp 28ndash60
30 Chen Xiyuan lsquoDui Zhonggong Fazhan ldquoShanghai Jingji Qurdquo Zhi Tantaorsquo (lsquoA Discussion on theDevelopment of the ldquoShanghai Economic Districtrdquo rsquo) Zhonggong Yanjiu (Research on Chinese Commu-nism) Vol 18 No 8 (1984) pp 17ndash25
31 Hainan Island formally part of Guangdong Province was later added as the fth SEZ32 Indeed some cities like Dalian have created special areas for relations with Taiwan Japan and so on
within these zonesmdashzones within zones33 The major source of provincial nancial autonomy in the 1980s came from domestic structural changesmdash
particularly in the centrendashprovince revenue sharing arrangements34 Bernard and Ravenhill calculate that the Japanese Yen appreciated by roughly 40 per cent from 1985 to
1987 the New Taiwanese Dollar by about 28 per cent from 1985 to 1987 and the Korean Won byapproximately 17 per cent from 1986 to 1988 See Mitchell Bernard amp John Ravenhill lsquoBeyond ProductCycles and Flying Geese Regionalization Hierarchy and the Industrialization of East Asiarsquo WorldPolitics No 47 (1995) p 180
35 From RMB 57 to the dollar to RMB 87 to the dollar36 I have been slightly geographically creative in referring to Beijing as a coastal province37 S Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo unpublished paper presented at
the Quartrieme Seminaire International de Recherche EurondashAsie IAE Poitiers France 6 November 1997Cited with authorrsquos permission
38 Speech at conference on ChinandashEU Relations in the Global Political Economy EUndashChina HigherEducation Cooperation ProgrammeShenzhen City Government Shenzhen China July 1998
39 At the risk of making a slight departure from the theme of this section it is notable that foreign-fundedenterprises also make signi cant contributions to provincial trade in the interior On much lower volumesof trade than in the coast foreign-funded enterprises account for over 12 per cent of all exports in twoof Chinarsquos poorest provinces Anhui and Gansu Perhaps more signi cant is the percentage of foreignfunded imports in total provincial imports 40 per cent in Anhui 425 per cent in Hebei 33 per cent in
224
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Decentralisation Globalisation and China
Heilongjiang and so on As foreign-funded enterprises in these provinces primarily produce in China tosell in China (as opposed to the export-based FDI on the coast) we are led to question the extent to whichthese enterprises are using Chinese components and materials in their Chinese operations
40 Harvey Dale lsquoThe economic integration of greater South China the case of Hong KongndashGuangdongprovince tradersquo in J Chai YY Kueh amp Clive Tisdell (Eds) China and the Asia Paci c Economy (NovaScience 1997) p 76
41 W Taubmann lsquoGreater China oder Greater Hong Kongrsquo Geographische Rundschau Vol 48 No 12(1996) pp 688ndash95
42 Hainan was later added as the fth43 Carol Hamrin China and the Challenge of the Future Changing Political Patterns (Westview 1990) p
8344 For good in-depth analyses of the revenue sharing reforms see Audrey Donnithorne CentrendashProvincial
Economic Relations in China Contemporary China Centre Working Paper No 16 Australian NationalUniversity Canberra 1981 James Tong lsquoFiscal Reform Elite Turnover and CentralndashProvincial Relationsin Post Mao Chinarsquo The Australian Journal of Chinese Affairs No 22 (1989) pp 1ndash28 and PeterFerdinand CentrendashProvince Relations in the PRC since the Death of Mao Financial DimensionsUniversity of Warwick Working Paper No 47 1987
45 Local nancial autonomy was also increased by the 1984 decision to transfer investment spending fromcentral government grants to bank loans As local banks were often under close de facto control or at leastin uence by local governments they were pressured to extend loans to support local projects During1984ndash85 investment in state-planned projects recorded a mere 16 per cent increase whereas investmentin unplanned projects increased by 87 per cent The majority of the increase came from an expansion inlocal spending On average there had been an 868 per cent increase in local spending with investmentspending in eight coastal provinces more than doubling See Huang Da lsquoGuanyu Kongzhi HuobiGongjiliang Wenti De Tantaorsquo (lsquoProbe into the Problem on Money Issue Controlrsquo) Caimao Jingji(Finance and Trade Economics) No 7 (1995) pp 1ndash8
46 Kui-yin Cheung lsquoHong Kongrsquos outward processing investment in China implications for Hong Kongeconomyrsquo in Chai et al China and the Asia Pacic Economy p 105
47 Disputes over how to calculate these transshipments through Hong Kong have in part resulted in the vastdiscrepancies between Chinese and US calculations of bilateral trade and the size of the PRC trade surplus
48 YY Kueh lsquoChina and the prospects for economic integration within APECrsquo in Chai et al China andthe Asia Pacic Economy p 40
49 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo pp 171ndash20950 Leon Hollerman Japanrsquos Economic Strategy in Brazil (Lexington 1998)51 Ronald Crone lsquoDoes Hegemony Matter The Reorganization of the Paci c Political Economyrsquo World
Politics No 45 (1993) pp 501ndash2552 Walter Hatch amp Kozo Yamamura Asia in Japanrsquos Embrace Building a Regional Production Alliance
(Cambridge University Press 1996)53 Peter Katzenstein lsquoIntroduction Asian regionalism in comparative perspectiversquo in Peter Katzenstein
amp Takashi Shiaishi (Eds) Network Power Japan and Asia (Cornell University Press 1997) pp1ndash46
54 State Council On SinondashUS Trade Balance (Beijing Information Of ce of the State Council of thePeoplersquos Republic of China 1997) The example was also repeated on Chinese television on a number ofoccasions during Zhu Rongjirsquos visit to the USA in March 1999
55 lsquoBarbie and the World Economyrsquo Los Angeles Times 22 September 199656 Nicholas Lardy China and the World Economy (Institute for International Economics 1994) This may
partly be explained by transfer pricing Despite considerable liberalisation in China many foreigncompanies still face problems in repatriating pro ts due to incomplete currency convertibility and theimposition of myriad ad hoc charges on the pro ts of foreign-funded enterprises Furthermore thoseforeign interests operating joint ventures with Chinese companies or local authorities have to share aproportion of any pro ts with their Chinese partners As such it would be rational for foreign companiesoperating in China to locate as much of their pro ts as possible in operations outside China byovercharging factories in China for imported components supplied by factories in other countries
57 Nicholas Lardy lsquoThe Role of Foreign Trade and Investment in Chinarsquos Economic Transformationrsquo ChinaQuarterly December (1995) p 1080
58 Bernard amp Ravenhill lsquoBeyond Product Cyclesrsquo p 197
225
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226
Shaun Breslin
59 Jin Bei lsquoThe International Competition Facing Domestically Produced Goods and the Nationrsquos IndustryrsquoSocial Sciences in China Vol 18 No 1 (1997) p 65
60 Or as Christoffersen calls it lsquothe Greater Vladivostok Projectrsquo reminding us that national interests verymuch shape perceptions of the core area in cross-national regions See Gaye Christoffersen lsquoThe GreaterVladivostok Project Transnational Linkages In Regional Economic Planningrsquo Paci c Affairs Vol 67 No4 (1994ndash5) pp 513ndash32
61 David Kerr lsquoOpening and Closing the SinondashRussian Border Trade Regional Development and PoliticalInterest in North-east Asiarsquo Europe-Asia Studies Vol 48 No 6 (1996) pp 931ndash57
62 Mitchell Bernard lsquoStates Social Forces and Regions in Historical Time Toward a Critical PoliticalEconomyrsquo Third World Quarterly Vol 17 No 4 (1996) p 655
63 Emmanuel Adler lsquoImagined (security) communitiesrsquo paper presented at the American Political ScienceAssociation Conference New York 1ndash4 September 1994
64 For more details see Christopher W Hughes Japanrsquos Economic Power and Security Japan and NorthKorea (Routledge 1999)
65 CH Park lsquoRiver and Maritime Boundary-problems between North-Korea and Russia in the Tumen Riverand the Sea of Japanrsquo Korean Journal of Defense Analysis Vol 5 No 2 (1993) pp 65ndash98 See also DDzurek lsquoDeciphering the North KoreanndashSoviet (Russian) Maritime Boundary Agreementsrsquo OceanDevelopment and International Law Vol 23 No 1 (1992) pp 31ndash54
66 Gilbert Rozman lsquoFlawed Regionalism Reconceptualizing Northeast Asia in the 1990srsquo The PacicReview Vol 11 No 1 (1998) p 7
67 Ibid p 268 See James Cotton lsquoChina and Tumen River CooperationmdashJilinrsquos Coastal Development Strategyrsquo Asian
Survey Vol 36 No 11 (1996) pp 1086ndash10169 Rozman lsquoFlawed Regionalismrsquo70 Cassidy lsquoThe recent pattern of Japanese direct investment in Dalianrsquo71 Jean Grugel amp Wil Hout (Eds) Regionalism Across the NorthndashSouth Divide (Routledge 1998)72 Ibid See also Paul Bowles lsquoASEAN AFTA and the ldquoNew Regionalismrdquo rsquo Paci c Affairs Vol 70 No
2 (1997) pp 219ndash3373 Phil Cerny lsquoGlobalization and the Changing Logic of Collective Actionrsquo International Organization Vol
49 No 4 (1995) p 597
226