Domestic-International Linkages on China’s Periphery: The Foreign Economic Liberalization of China’s Border Regions (2000-2015)

by See-Won Byun

B.A. in Economics, May 2002, Brown University M.A. in International Studies, February 2006, Yonsei University M.A. in International Affairs, May 2008, The George Washington University

A Dissertation submitted to

The Faculty of The Columbian College of Arts and Sciences of The George Washington University in partial fulfillment of the requirements for the degree of Doctor of Philosophy

May 21, 2017

Dissertation directed by

David Shambaugh Professor of Political Science and International Affairs

The Columbian College of Arts and Sciences of The George Washington University certifies that See-Won Byun has passed the Final Examination for the degree of Doctor of

Philosophy as of December 12, 2016. This is the final and approved form of the dissertation.

Domestic-International Linkages on China’s Periphery: The Foreign Economic Liberalization of China’s Border Regions (2000-2015)

See-Won Byun

Dissertation Research Committee:

David Shambaugh, Professor of Political Science and International Affairs, Dissertation Director

Susan Sell, Professor of Political Science and International Affairs, Committee Member

Mike Mochizuki, Associate Professor of Political Science and International Affairs, Committee Member

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Dissertation Abstract

Domestic-International Linkages on China’s Periphery: The Foreign Economic Liberalization of China’s Border Regions (2000-2015)

Why and how have China’s late-developing border regions responded differently to the shared challenges of economic globalization? Theories of political economy and accounts of China’s integration into the world economy remain divided on the relative significance of internal and external forces of change. I argue that China’s foreign economic liberalization is best understood at the subnational level, where the interaction of central, local, and international actors produces distinct provincial trajectories of reform. While central state preferences dictate policy choice under authoritarian leadership, they can change through local feedback effects and domestic institutional innovations brought on by external agents. My case studies of Jilin (Northeast Asia),

Yunnan (Southeast Asia), and Xinjiang (Central Asia) since China’s turn to inland development in 2000 trace “top-down, bottom-up” and “inside-out, outside-in” dynamics of change, presenting the other side of what have primarily been coastal accounts of

China’s global economic integration.

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Table of Contents

Dissertation Abstract……………………………………………………………………...iii

List of Figures……………………………………………………………………………..v

List of Tables……………………………………………………………………………...vi

List of Abbreviations……………………………………………………………………..vii

Chapter 1: Subnational Economies in a World of Interdependence: The Case of China…...1

Chapter 2: Domestic-International Linkages on China’s Periphery……………………...42

Chapter 3: The Foreign Economic Liberalization of China’s Border Regions since 2000………………………………………………………………………………………82

Chapter 4: Linking Northeast China and Northeast Asia: Jilin’s Enduring Quest for Economic Regionalism…………………………………………………………………124

Chapter 5: Linking Southwest China and Southeast Asia: Yunnan’s Rise as a Regional Bridgehead….………………………………………………………………...154

Chapter 6: Linking Northwest China and Central Asia: Go West Goes East in Xinjiang…………………………………………………………………………………184

Chapter 7: Asian Integration and the Liberalization of China’s Regional Economies…..208

Bibliography……………………………………………………………………………234

Appendix………………………………………………………………………………..298

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List of Figures

Figure 1.1: China’s Provinces and Regions by National Development Program…………13 Figure 2.1: Key Actors in China’s Foreign Economic Liberalization…..………………...67 Figure 2.2: Domestic-International Dynamics of Provincial Economic Liberalization…..67 Figure 3.1: Foreign Trade as a Share of Provincial GDP (2000-2013)……………………92 Figure 3.2: Provincial Share of China’s Foreign Trade (2000-2013)……………………..92 Figure 4.1: Trade Openness and Export Dependence, Jilin (1978-2013)………………..131 Figure 4.2: Share of Northeast Asia Trade in Total Foreign Trade, Jilin (2005-2013)...... 132 Figure 4.3: Jilin’s Share of China-Northeast Asia Trade (2005-2013)…………………..132 Figure 5.1: Foreign Trade Openness, Yunnan (1981-2013)…………………………….159 Figure 5.2: Share of Southeast Asia Trade in Total Foreign Trade, Yunnan (2000- 2013)……………………………………………………………………………………160 Figure 5.3: Yunnan’s Share of China-Southeast Asia Trade (2000-2013)………………161 Figure 6.1: Foreign Trade Openness, Xinjiang (1985-2013)…………………………....188 Figure 6.2: Share of Central Asia Trade in Total Foreign Trade, Xinjiang (2000- 2013)……………………………………………………………………………………189 Figure 6.3: Xinjiang’s Share of China-Central Asia Trade (2000-2013)………………..190 Figure 7.1: Trade Dependence on Asian Neighbors…………………………………….211

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List of Tables

Table 1.1: Regional Economic Initiatives (1991-2015)……………………….………….14 Table 1.2: Economic Indicators of China’s Regions (2013)………………….…………..17 Table 1.3: Foreign Trade of China’s Regions (2005 and 2013)……………..……………17 Table 3.1: Economic Indicators of China’s Provinces (2013)………………..…………...85 Table 3.2: Regional Shares of China’s Trade with Top Partners (2013)……..…………...86 Table 3.3: Economic Openness of China’s Regions (2013)…………………..…………..88 Table 3.4: Economic Indicators of Jilin, Yunnan, and Xinjiang (2013)……..……………89 Table 3.5: Economic Openness of Jilin, Yunnan, and Xinjiang (2013)……..……………90 Table 3.6: Top Trade Partners of Jilin, Yunnan, and Xinjiang (2013)………...…………..94 Table 3.7: Asian Regional Trade (2005 and 2013)………………………….……………95 Table 3.8: Multilateral Economic Initiatives on China’s Border…………….………….101 Table 4.1: The Changjitu Zone, Yanbian Korean Autonomous Prefecture…..………….138 Table 4.2: Major Foreign Economic Initiatives in Jilin (2000-2015)………..…………..142 Table 5.1: China-Southeast Asia Economic Mechanisms………………….…………...165 Table 5.2: Yunnan-Southeast Asia Economic Mechanisms……………….……………168 Table 5.3: Major Foreign Economic Initiatives in Yunnan (2000-2015)…..……………174 Table 7.1: Forces of Liberalization: Jilin, Yunnan, and Xinjiang………..……………...212 Table A.1: Sources: Chinese Economic Data…………………………….……………..298

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List of Abbreviations

Asian Development Bank (ADB) Asian Infrastructure Investment Bank (AIIB) Association of Southeast Asian Nations (ASEAN) Bangladesh-China-India-Myanmar (BCIM) Border Economic Cooperation Zone (BECZ) Brazil, Russia, India, China, South Africa (BRICS) Central Asia Regional Economic Cooperation (CAREC) China-ASEAN Free Trade Agreement (CAFTA) China National Petroleum Corporation (CNPC) Chinese Academy of Social Sciences (CASS) Chinese People’s Political Consultative Conference (CPPCC) Commonwealth of Independent States (CIS) Communist Party of China (CPC) Democratic People’s Republic of Korea (DPRK) Development and Reform Commission (DRC) Eurasian Economic Union (EEU) European Union (EU) Foreign Direct Investment (FDI) Free Trade Agreement (FTA) General Agreement on Tariffs and Trade (GATT) Greater Mekong Subregion (GMS) Greater Tumen Initiative (GTI) Gross Domestic Product (GDP) International Monetary Fund (IMF) International Political Economy (IPE) International Relations (IR)

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Mekong River Commission (MRC) Ministry of Commerce (MOFCOM) Ministry of Finance (MOF) Ministry of Foreign Affairs (MOFA) Multinational Corporation (MNC) Myanmar Oil and Gas Enterprise (MOGE) National Bureau of Statistics (NBS) National Development and Reform Commission (NDRC) National People’s Congress (NPC) Natural Economic Territories (NETs) One Belt, One Road (OBOR) Open Economy Politics (OEP) Organisation for Economic Co-operation and Development (OECD) Outward Direct Investment (ODI) People’s Republic of China (PRC) Renminbi (RMB) Republic of Korea (ROK) Russian Far East (RFE) Shanghai Cooperation Organization (SCO) Small and Medium-Sized Enterprise (SME) Special Economic Zone (SEZ) State-Owned Enterprise (SOE) Tumen River Area Development Programme (TRADP) United Nations Development Programme (UNDP) World Trade Organization (WTO)

Workers’ Party of Korea (WPK)

Xinjiang Production and Construction Corps (XPCC)

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Chapter 1

Subnational Economies in a World of Interdependence: The Case of China

While theories of political economy claim that economic globalization drives domestic demands for liberal economic reform, 1 the impact in authoritarian political systems remains in question. In the case of contemporary China since its market transition in 1978, whether external forces of economic liberalization constrain, or are constrained by, domestic interests and institutions is a central issue of debate.2 This debate is amplified at the subnational level of analysis, where the interaction of domestic and international factors brings to question their joint effects on the trajectory of reform.3

China’s integration into the liberal economic order since 1978 is primarily a success story of coastal provinces.4 After thirty years of opening, China replaced the European

Union (EU) as the world’s biggest exporter in 2009, surpassed Japan as the world’s second biggest economy in 2010, and in 2012 replaced the United States as the global leader in goods trade.5 But underlying this success are wide provincial disparities that emerged as a

1 Jeffry Frieden and Ronald Rogowski, “The Impact of the International Economy on National Policies: An Analytical Overview,” in Internationalization and Domestic Politics, ed. Robert Keohane and Helen Milner (New York: Cambridge University Press, 1996), 25-47. 2 David Zweig and Chen Zhimin, “International Political Economy and Explanations of China’s Globalization,” in China’s Reforms and International Political Economy, ed. Zweig and Chen (New York: Routledge, 2007), 1-18. 3 Robert Ash, “China’s Regional Economies and the Asian Region: Building Interdependent Linkages,” in Power Shift: China and Asia’s New Dynamics, ed. David Shambaugh (Berkeley: University of California Press, 2005), 96-131; David Zweig, Internationalizing China: Domestic Interests and Global Linkages (Ithaca: Cornell University Press, 2002); Shaun Breslin, China and the Global Political Economy (New York: Palgrave Macmillan, 2007); Su Changhe, “国内-国际相互转型的政治经济学：兼论中国国内变迁与国 际体系的关系 (1978-2007) (The Political Economy of the Mutual Transformation of the Domestic and International Systems: Implications for China and the International System),” 世界经济与政治 (World Economics and Politics) 11 (2007): 6-13. 4 Shaun Breslin, “Decentralization, Globalization and China’s Partial Re-Engagement with the Global Economy,” New Political Economy 5-2 (2000): 205-225. 5 Tomoko Hosaka, “China Surpasses Japan as World’s No. 2 Economy,” The Washington Post, August 16, 2010; Andrew Monahan, “China Overtakes Japan as World’s No. 2 Economy,” The Wall Street Journal, 1 political concern by the 1990s and prompted a turn to inland development from the 2000s.6

While World Trade Organization (WTO) entry in 2001 signified China’s further integration into the global economy, balanced regional growth at home became a national priority with the initiation of western, northeastern, and central development plans in 2000-

2004 under the Jiang Zemin (1993-2003) and Hu Jintao (2003-2013) administrations.7 In

2013, President Xi Jinping identified the inland border regions as key players in both his economic diplomacy and market reform agenda over the next ten years.8 This reorientation in national development strategy forces attention on China’s border provinces that appear largely marginalized after three decades of coastal-led opening.

Asian Economic Integration and the Liberalization of China’s Border Regions (2000- 2015): Research Question and Arguments

This study examines the foreign economic liberalization of China’s border regions since

2000 in the context of economic integration in Asia. My research question is two-fold: (1)

Why and (2) How have China’s inland border regions responded differently to the shared challenges and opportunities of economic globalization? I provide a fuller understanding

February 14, 2011; Mure Dickie, “China Economy Overtakes Japan,” Financial Times, February 14, 2011; “China, Second in Line,” The Economist, August 16, 2010; Jamil Anderlini and Lucy Hornby, “China Overtakes US as World’s Largest Goods Trader,” Financial Times, January 10, 2014; Michael Forsythe, “China Eclipses U.S. as Biggest Trading Nation,” Bloomberg, February 10, 2013. 6 Yang Dali, “Economic Transformation and Its Political Discontents in China: Authoritarianism, Unequal Growth, and the Dilemmas of Political Development,” Annual Review of Political Science 9 (2006): 143- 164, and Beyond Beijing: Liberalization and the Regions in China (New York: Routledge, 1997). 7 “Decisions of the CPC Central Committee on Building Socialism and Harmonious Society and Other Important Issues,” 6th Plenum of the 16th CPC Central Committee, October 2006. 8 “Important Speech of Xi Jinping at Peripheral Diplomacy Work Conference,” Central People’s Government of the PRC, October 25, 2013; “Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening Reform,” 3rd Plenary Session of the 18th CPC Central Committee, November 12, 2013. 2 of the subnational variation in China’s economic openness by focusing on change within the late developing, inland periphery.

I argue that the interaction of central, local, and international actors produces distinct provincial trajectories of foreign economic reform. The more aligned these interests in favor of market-oriented reform, the greater the likelihood of liberalization and higher the level of provincial economic openness. While central state interests dictate policy choice under authoritarian rule, they can change through two mechanisms. First, local reform strategies can have positive feedback effects on central preferences through formal lobbying or indirect policy adjustments.9 Second, the inflow of external interests and ideas can transform domestic authority structures by driving institutional innovations to manage transnational exchange.10 Taken together, these processes reflect the dynamic interaction of “top-down, bottom-up” and “inside-out, outside-in” forces of change.11

The cases of Jilin (Northeast China-Northeast Asia), Yunnan (Southwest China-

Southeast Asia), and Xinjiang (Northwest China-Central Asia) after China’s turn to inland development from 2000 demonstrate these dynamics. My case studies complement quantitative comparisons of provincial trade openness with assessments of qualitative

9 Oona Hathaway, “Positive Feedback: The Impact of Trade Liberalization on Industry Demands for Protection,” International Organization 52-3 (1998): 575-612; Helen Milner, Resisting Protectionism: Global Industries and the Politics of International Trade (Princeton: Princeton University Press, 1988); Thomas Moore and Dixia Yang, “Empowered and Restrained: Chinese Foreign Policy in the Age of Economic Interdependence,” in The Making of Chinese Foreign and Security Policy in the Era of Reform, 1978-2000, ed. David Lampton (Stanford: Stanford University Press, 2001), 191-229. 10 Stephen Krasner, “Changing State Structures: Outside In,” Proceedings of the National Academy of Sciences of the United States of America 108-4 (2011): 21302-21307; Daniel Drezner, ed., Locating the Proper Authorities: The Interaction of Domestic and International Institutions (Ann Arbor: The University of Michigan Press, 2003); Su Changhe, “国内-国际相互转型 (The Political Economy of the Mutual Transformation).” 11 Zweig and Chen, “International Political Economy.” 3 changes in liberalization strategies over time. I compile my data from Chinese official and scholarly sources and field interviews conducted in China in 2015.

The patterns of foreign economic liberalization in China’s inland border regions underscore two enduring features of the Chinese economy since 1978: (1) the supremacy of the central party-state’s vital security priorities both inside and outside China’s borders, and (2) the dominance of coastal provinces as the primary beneficiaries and drivers of

China’s global economic integration. However, while the opening of China’s regional economies has depended on central policy choice, the Chinese state can be increasingly constrained by the forces of its own making.12 China’s opening to the world economy is directed not only by forces from the top down and inside out, but also by responses from the bottom up and outside. The quest for modernization within the boundaries of central political imperatives exacerbates the very domestic pressures of economic globalization that China’s leadership seeks to mitigate.

Linking Asia and China’s Regions

As President Jiang Zemin indicated in 2001, one of the most distinct aspects of China’s external environment is that it borders “the largest number of neighbors in the world”13 –

20, including 14 land neighbors (North Korea, Russia, Mongolia, Kazakhstan, Kyrgyzstan,

Tajikistan, Afghanistan, Pakistan, India, Nepal, Bhutan, Myanmar, Laos, and Vietnam) and

6 maritime neighbors (South Korea, Japan, Philippines, Indonesia, Brunei, and Malaysia)

12 Susan Strange, The Retreat of the State: The Diffusion of Power in the World Economy (Cambridge: Cambridge University Press, 1996). 13 Jiang Zemin, “Develop Good-Neighborly Relations with Surrounding Countries,” August 2001, in Selected Works of Jiang Zemin, Vol. 3 (Beijing: People’s Publishing House, 2006), 313. 4 along its 30,000 kilometer periphery. 14 This complex geopolitical setting presents significant development challenges as well as opportunities. 15 Commercial linkages between China and its neighbors date to the dynastic period,16 in the form of ancient land and maritime Silk Road routes that are now being revived as part of Xi Jinping’s grand strategy of national development.17 At the same time, China’s regional relations from the

People’s Republic of China (PRC)’s founding in 1949 is characterized by political disputes with almost all bordering states, most notably Korea, India, the Soviet Union, and

Vietnam.18 It was only since the late 1980s that China began to seek the normalization of regional ties in the effort to create a stable external environment for its development.19

14 Bruce Elleman, Stephen Kotkin, and Clive Schofield, ed., Beijing’s Power and China’s Borders: Twenty Neighbors in Asia (Armonk: M.E. Sharpe, 2013); Zhang Yunling and Zhou Fangyin, “中国与邻国的关系 (China’s Relations with Neighboring Countries),” in 中国对外关系转型 30 年 (1978-2008) (Transformation of Foreign Affairs and International Relations in China), ed. Wang Yizhou (Beijing: Social Sciences Academic Press, 2008), 37-72. The classification of China’s land and maritime neighbors varies by definition of territorial border. 15 Andrew Nathan and Robert Ross, The Great Wall and the Empty Fortress: China’s Search for Security (New York: W.W. Norton, 1997); Andrew Nathan and Andrew Scobell, China’s Search for Security (New York: Columbia University Press, 2014). 16 Li Aiguo, China and the Global Economy since 1840 (New York: Palgrave, 2000). 17 National Development and Reform Commission Academic Committee, “一带一路”：构建全方位开放 新 格 局 (“One Belt One Road”: Constructing A New Pattern of Comprehensive Opening) (Beijing: Zhongguo jihua chubanshe, 2015); China Institutes of Contemporary International Relations, “一带一路” 读本 (“One Belt One Road” Reader) (Beijing: Shishi chubanshe, 2015); Jin Liqun and Lin Yifu, “一带一路” 引领中国：国家顶层战略设计与行动布局 (“One Belt One Road” Leads China: National High-Level Strategic Plans and Actions) (Beijing: Zhongguo wenshi chubanshe, 2015); Xin Yuyan and Li Ke, 崛起大 战略：“一带一路”战略全剖析 (Rising Grand Strategy: Analysis of the “One Belt One Road” Strategy) (Beijing: Taihai chubanshe, 2016). 18 Tang Xizhong, Liu Shaohua, and Chen Benhong, ed., 中国与周边国家关系 (1949-2002) (China’s Relations with Surrounding Countries) (Beijing: Chinese Academy of Social Sciences, 2003); M. Taylor Fravel, Strong Borders, Secure Nation: Cooperation and Conflict in China’s Territorial Disputes (Princeton: Princeton University Press, 2008). 19 Tang Jiaxuan, “中国跨世纪外交的光辉历程 (The Glorious Achievements of China’s Diplomacy in 1989- 2002),” Speech at a conference convened by the CPC Propaganda Department, Ministry of Foreign Affairs, and other central agencies, October 17, 2002; Zhang and Zhou, “中国与邻国 (China’s Relations);” Qi Huaigao, “冷战后中国周边安全环境的变化与中国周边外交政策的演进 (Changes in China’s Peripheral Security Environment and Evolution of China’s Neighboring Diplomatic Policy in the Post-Cold War Period),” in 中国崛起背景下的周边安全与周边外交 (China’s Peripheral Security and Its Neighboring Diplomacy against the Backdrop of Its Rising), ed. Qi Huaigao and Shi Yuanhua (Beijing: Zhonghua shuju, 2014), 27-51. 5

But an assessment of China’s external orientation must also take into account the

34 provinces and regions constituting China itself that have emerged as active players in

China’s foreign economic relations.20 The balance between central political control and local economic autonomy is a fundamental governance issue facing contemporary China that has possessed its leaders since dynastic rulers of the Middle Kingdom.21 As Chinese scholars point out, “China is a country of provinces, and governing China is essentially governing China’s provinces.”22 A complete understanding of China’s external behavior in a world of economic interdependence must begin with the provinces, the biggest subnational units coordinating policy implementation with the center, lower administrative counterparts, and increasingly, external actors.23

Regional variation in development strategy by the 1990s implied different foreign policy preferences within a “tripartite China”: a rapidly growing coastal region linked to overseas Chinese investors; a north and northeast “communist core” favoring ties with

20 Brantly Womack and Guangzhi Zhao, “The Many World of China’s Provinces: Foreign Trade and Diversification,” in China Deconstructs: Politics, Trade and Regionalism, ed. David Goodman and Gerald Segal (New York: Routledge, 1994), 131-176; Zheng Yongnian, “Perforated Sovereignty: Provincial Dynamism and China’s Foreign Trade,” The Pacific Review 7-3 (1994): 309-331; Ash, “China’s Regional Economies;” Sheng Yumin, Economic Openness and Territorial Politics in China (New York: Cambridge University Press, 2010); Jiuli Huang, “Foreign Trade, Interregional Trade, and Regional Specialization,” in China’s Regional Development: Review and Prospect, ed. Ming Lu, Zhao Chen, Xiwei Zhu, and Xianxiang Xu (Abingdon: Routledge, 2013), 169-212. 21 Jae Ho Chung, Centrifugal Empire: Central-Local Relations in China (New York: Columbia University Press, 2016); Bo Zhiyue, “Governing China in the Early 21st Century: Provincial Perspective,” Journal of Chinese Political Science 7-1 (2002): 125-170; John Fitzgerald, “The Province in History,” in Rethinking China’s Provinces, ed. John Fitzgerald (New York: Routledge, 2002), 11-40. 22 Bo Zhiyue, “Governing China,” 165. 23 Jae Ho Chung, “The Evolving Hierarchy of China’s Local Administration: Tradition and Change,” in China’s Local Administration: Traditions and Changes in the Sub-National Hierarchy (Abingdon: Routledge, 2010), 1-13; Peter Cheung and James Tang, “The External Relations of China’s Provinces,” in The Making of Chinese Foreign and Security Policy, 91-122; Moore and Yang, “Empowered and Restrained;” Lai Hongyi, Reform and the Non-State Economy in China: The Political Economy of Liberalization Strategies (New York: Palgrave Macmillan, 2006). 6

Korea, Japan, and Russia; and a marginalized deep interior.24 At the end of the 2000s, the foreign economic performance of China’s provinces pointed in different directions: provincial exports in 2009 ranged from Rwandan levels in Qinghai to South Korean levels in Guangdong.25 China’s global emergence over the past decade reinforces particular attention on the challenges of opening up economically disadvantaged but strategically important frontier regions to external market forces.26 This study assesses the subnational dimensions of China’s foreign economic orientation by linking the dynamics of Asian economic integration and the liberalization of China’s inland border regions since 2000.

The International Context

The foreign economic liberalization of China’s border regions can first be placed in the context of China’s relations with Asian neighbors since Deng Xiaoping’s “open door” (开

放) policy from 1978. Commercial interests largely drove China’s pursuit of diplomatic normalization with neighbors from the 1980s and expansion of various “partnership” (伙

伴) relations from the 1990s.27 While the Taiwan Strait confrontation of 1995-1996 raised

24 Barry Naughton, “The Foreign Policy Implications of China’s Economic Development Strategy,” in Chinese Foreign Policy: Theory and Practice, ed. Thomas Robinson and David Shambaugh (Oxford: Oxford University Press, 1996), 47-69. 25 “Comparing Chinese Provinces with Countries: All the Parities in China,” The Economist, http://www.economist.com/content/chinese_equivalents. 26 Chen Jiaqin, “论中国沿边地区对外开放战略的几个问题 (Problems Concerning the Opening Up Strategy in Chinas Frontier Regions),” 国际经贸探素 (International Economics and Trade Research) 1 (1996); Cheng Yunchuan and Chen Lijun, “中国沿边开放的态势与前景 (Status and Prospects of Opening Up China’s Borders),” 云南社会科学 (Social Sciences in Yunnan) 6 (2009); Huang Zhiyong and Yang Peng, “中国跨境（边境）经济合作面临问题及对刺建议 (Issues and Countermeasures of China’s Cross-Border Economic Cooperation),” 东南亚纵横 (Around Southeast Asia) 9 (2013); Gilbert Rozman, “Northeast China: Waiting for Regionalism,” Problems of Post-Communism 45-4 (1998): 3-13; Morris Rossabi, ed., Governing China’s Multiethnic Frontiers (Seattle: University of Washington Press, 2004). 27 China restored or established diplomatic relations with the Soviet Union (1989); Mongolia (1989); Indonesia and Singapore (1990), Vietnam and Brunei (1991); South Korea, Kazakhstan, Kyrgyzstan, and Tajikistan (1992); and Afghanistan (2000). It initiated “partnership” relations with Russia (1994); India, 7 regional geopolitical tensions and consolidated the United States’ security ties with Asian allies, the 1989 Tiananmen Square protests marked China’s path to liberal economic reform under authoritarian political leadership.28 The 1997 Asian financial crisis was a major external trigger for China’s prioritization of stable relations with surrounding neighbors amid growing economic interdependence. 29 Jiang Zemin introduced China’s “good- neighbor” (睦邻) policy at the 15th National Congress of the Communist Party of China

(CPC) in 1997, and at the 16th CPC National Congress in 2002 identified the immediate

“periphery” (周边) as the “first priority” (首要) in China’s foreign relations.30 The CPC leadership’s incorporation of multilateralism into China’s external strategy from 1997 further laid the foundation for China-centered economic multilateralism in Asia.31

China’s regional policy of creating a “good, secure, and wealthy neighborhood”

(睦邻安邻富邻) under Hu Jintao underscored the link between cross-border stability and

Pakistan, and Nepal (1996); ASEAN (1997); Japan and South Korea (1998); Mongolia (2003); and Indonesia, the Philippines, and Kazakhstan (2005). PRC Foreign Ministry, www.fmprc.gov.cn. 28 For assessments of the economic and foreign policy implications of Tiananmen, see Harry Harding, “The Impact of Tiananmen on China’s Foreign Policy,” in China’s Foreign Relations after Tiananmen: Challenges for the U.S., ed. Harry Harding, Allen Whiting, and Robert Ross, NBR Analysis 1-3 (1990): 5-17; Barry Naughton, “The Impact of the Tiananmen Crisis on China’s Economic Transition,” Jean-Pierre Cabestan, “How China Managed to De-isolate Itself on the International Stage and Re-engage the World after Tiananmen,” Wu Guoguang, “A Shadow over Western Democracies: China’s Political Use of Economic Power,” in The Impact of China’s 1989 Tiananmen Massacre, ed. Jean-Philippe Beja (New York: Routledge, 2011), 154-178, 194-205, and 221-236; Wang Zheng, “Tiananmen as the Turning Point: China’s Impossible Balancing Act,” Time, April 29, 2014. For a discussion of the impacts of the Tiananmen and Taiwan crises on U.S.-China relations, see Robert Sutter, Foreign Relations of the PRC: The Legacies and Constraints of China’s International Politics since 1949 (Lanham: Rowman and Littlefield, 2013), 192-193. 29 Zhang Yunling and Tang Shiping, “China’s Regional Strategy,” in Power Shift, 48-69; David Shambaugh, “China Engages Asia: Reshaping the Regional Order,” International Security 9-3 (2004/2005): 64-99. 30 Jiang Zemin, “Develop Good-Neighborly Relations with Surrounding Countries,” August 2001, Report at the 15th CPC National Congress, September 12, 1997, and Report at the 16th CPC National Congress, November 17, 2002. The CPC leadership established an official foreign policy doctrine of “big powers are the key, neighbors are the first priority, developing countries are the foundation, and multilateralism is an important stage.” 31 Qi Huaigao and Shi Yuanhua, 中国崛起 (China’s Peripheral Security), 3-23; Wang Mingjin, “中国对多 边外交的认识及参与 (China’s Awareness and Participation in Multilateral Diplomacy),” 教学与研究 (Teaching and Research) 5 (2004). 8 national development.32 At the 2003 Association of Southeast Asian Nations (ASEAN)

Business and Investment Summit, Premier Wen Jiabao presented this vision for Asian economic integration as an integral part of China’s development strategy.33 As a new WTO member, China adopted an active regional free trade agreement (FTA) strategy, signing the China-ASEAN framework agreement in 2002 and initiating feasibility studies or formal talks with India (2003), South Korea (2004, unofficial), Pakistan (2005), and Singapore

(2006).34 Beijing’s shift from primarily “welcoming in” (引进来) foreign investment to a

“going out” ( 走出去) strategy of outward investment from 2000 directed Chinese investment to less developing neighbors in particular. The 1990s marked the best period of the PRC’s regional relations according to Chinese assessments,35 and by 2006, Japan,

South Korea, ASEAN, Russia, and India emerged among China’s top ten trading partners.36

The 2008 global financial crisis solidified Chinese claims of a new phase in China’s postwar international environment signifying the end of the U.S.-led liberal economic order.37 While Premier Wen Jiabao called 2009 “the most difficult year for our country’s

32 Wang Guanghou, “从“睦邻”到“睦邻，安邻，富邻”- 试析中国周边外交政策的转变 (From Good Neighborhood to Good, Secure and Wealthy Neighborhood: Analysis of the Changes in China’s Peripheral Policy),” 外交评论 (Foreign Affairs Review) 3 (2007): 41-42; Zhang Yunlin, ed., 中国与周边国家：构建 新型伙伴关系 (China and Its Neighbors: Making New Partnership) (Beijing: Social Sciences Academic Press, 2008). 33 Wen Jiabao, “中国的发展和亚洲的振兴 (China’s Development and Asia’s Revival),” Speech at the ASEAN Business and Investment Summit, Bali, October 7, 2003. 34 PRC Ministry of Commerce, www.mofcom.gov.cn. 35 Zhang and Zhou, “中国与邻国 (China’s Relations),” 48; Zhao Gancheng, “(Features and Changes of Geopolitical Situation in China’s Periphery),” Foreign Affairs Journal 91 (2009). Also see Shambaugh, “China Engages Asia;” and Sutter, Foreign Relations of the PRC, 91-118 and 215-266. 36 National Bureau of Statistics, China Statistical Yearbook (Beijing: China Statistics Press). 37 Qi Huaigao, “中国周边安全的新挑战与周边外交的新战略(New Challenges in China’s Peripheral Security and New Strategies of Peripheral Diplomacy),” in 中国崛起 (China’s Peripheral Security), 52-87; Huang Haizhou and Zhou Chengjun, “The Strategy of China’s Opening-Up under New Circumstances,” in The World in 2020 According to China: Chinese Foreign Policy Elites Discuss Emerging Trends in International Politics, ed. Shao Binhong (Leiden: Social Sciences Academic Press and Koninklijke Brill NV, 9 economic development since the beginning of the new century,” 38 China’s emergence as the world’s second biggest economy in 2010 drew particular concern over the prospect of a great-power conflict with the United States. This prospect was most evident in China’s confrontations with neighbors in the Asia Pacific in 2009-2011, where China’s diplomacy of the previous two decades had proven so successful. At the annual session of the National

People’s Congress (NPC) in March 2012, Premier Wen ranked “peripheral diplomacy” (周

边外交) above “major-power diplomacy” (大国外交) among China’s foreign policy priorities, signaling a renewed push for engaging neighbors that has continued under the

Xi leadership, with a heavy emphasis on economic engagement.39

The Domestic Context

Regional development patterns within China since 1978 provide the domestic context of the opening of inland border provinces, from Deng Xiaoping’s coastal orientation to Hu

Jintao’s regional redistribution in the 2000s. Deng’s “outward-oriented coastal development strategy” (沿海地区外向型发展战略) complemented China’s political outreach to Asian neighbors in the 1980s, reversing the Maoist emphasis on self-reliance

2014), 195-230; Wu Xinbo, “Agenda for A New Great-Power Relationship,” The Washington Quarterly (2014): 65-78. 38 Wen Jiabao, “Report on the Work of the Government.” 3rd Session of the 11th National People’s Congress, March 15, 2010. 39 Wen Jiabao, “Report on the Work of the Government,” 5th Session of the 11th National People’s Congress, March 5, 2012; Yan Xuetong, “命运共同体:中国与周边国家应守望相助 (Community of Destiny: China and Neighboring Countries Should Help Each Other),” 世界知识 (World Affairs) 24 (2013): 14-27; Yan Xuetong, “中国外交全面改革的开始 (The Start of Comprehensive Reform of China’s Diplomacy),” 世界 知识 (World Affairs) 24 (2013); Fu Mengzhi, “中国周边战略问题思考点滴 (Thoughts on China’s Peripheral Strategy),” 现代国际关系 (Contemporary International Relations) 10 (2013). 10 and interior regions.40 Formally launched in 1988, this strategy consolidated a series of coastal initiatives including coastal Special Economic Zones (SEZs) established from 1979, port cities designated in 1984, and subregional zones created in 1986, namely the

Guangdong-centered Pearl River Delta facing Hong Kong, Southern Fujian Delta facing

Taiwan, and Shanghai-centered Yangtze River Delta in the East.

A more “unofficial” regionalism also began to emerge in inland border regions like the northeast after Beijing’s decision in 1988 to delegate the monitoring of border trade to provinces.41 China’s foreign direct investment (FDI) liberalization after Deng’s “Southern tour” (南巡) in 1992 expanded the regional and sectoral scope of reform and granted approval authority to local governments, generating the dynamic growth associated with

China’s global economic integration in the 1990s.42 But the 1990s also marked a peak in

China’s coastal-inland inequalities, attributed to both natural comparative advantages and government policy favoring coastal China.43

A defining feature of China’s incremental reform approach since 1978, however, is its intended progression from coastal to inland regions.44 Alongside Zhao Ziyang, Deng

Xiaoping advanced his coastal strategy in 1988 as the first stage of liberalization, and

40 Yang Dali, “China Adjusts to the World Economy: The Political Economy of China’s Coastal Development Strategy,” Pacific Affairs 64-1 (1991): 42-64, “Patterns of China’s Regional Development Strategy,” China Quarterly 122 (1990), and Beyond Beijing. 41 Nimmi Kurian, “Fungible Borders and Informal Regionalism: Rethinking China’s International Relations,” Working Paper (New Delhi: Center for Policy Research, November 2006). 42 Tian Xiaowen, “Deng Xiaoping’s Nanxun: Impact on China’s Regional Development,” in The Nanxun Legacy and China’s Development in the Post-Deng Era, ed. John Wong and Zheng Yongnian (Singapore: Singapore University Press: 2001), 75-94. 43 China’s previous two peak periods of regional inequality include the Great Famine of the late 1950s and Cultural Revolution of the late 1960s and 1970s. Ravi Kanbur and Xiaobo Zhang, “Fifty Years of Regional Inequality in China: A Journey Through Central Planning, Reform, and Openness,” Review of Development Economics 9-1 (2005): 87-106. 44 Wu Jinglian, 当代中国经济改革 (Economic Reform in Contemporary China) (Shanghai: Shanghai yuandong chubanshe, 2003), 54-69; Wang Shaoguang and Hu Angang, The Political Economy of Uneven Development: The Case of China (New York: M.E. Sharpe, 1999), 197; Zhang Yaohui, Regional Economic Development Theory and Regional Economic Development (Beijing: China Planning Press, 1999), 86. 11 during his 1992 southern tour proposed to move the focus of reform inland by the end of the 1990s. 45 Both domestic and international attention centered on China’s uneven development stemming from discriminative reform policy, the biggest concern of the

General Agreement on Tariffs and Trade (GATT) China Working Group in 1987-1989 regarding the Chinese foreign trade system.46 Within China, inland leaders sought to limit the scope of coastal preferential policies as early as the Conference of First Provincial Party

Secretaries in 1981, where they backed central economic planner Chen Yun, then a critic of radical liberalization.47

While inland lobbying for preferential treatment intensified by the 1990s, the 1997

Asian financial crisis raised broader concerns over the domestic social and political risks of “economic globalization.”48 Jiang Zemin emphasized inland development at the 14th

CPC National Congress in 1992, and proposed redistributive measures in China’s 9th Five

Year Plan (1996-2000). The State Council’s approval of 15 border cities as Border

Economic Cooperation Zones (BECZs) (边境经济合作区) from 1992 paralleled the

45 As Deng stated in 1988, “The coastal areas, which comprise a vast region with a population of 200 million, should accelerate their opening to the outside world, and we should help them develop rapidly first; afterwards they can promote the development of the interior.” From “The Central Leadership Must Have Authority,” People’s Daily, September 12, 1988. Zhao Ziyang as CPC General Secretary also emphasized that China’s coastal strategy would help promote inland development. See Zhao Ziyang, “Advance Along the Road of Socialism with Chinese Characteristics,” Report to the 13th National Congress of the CPC, October 25, 1987, and “Zhao Discusses Reform Program,” Document No. 13, 2nd Plenum of the 13th CPC Central Committee, March 28, 1988. 46 Wang Yi, Century Negotiation: In the Days of GATT/WTO Accession Negotiation (Beijing: Party School Press, 2007), 40. Cited in Su Changhe, “Internationalization and Glocal Linkage: A Study of China’s Glocalization (1978-2008),” in Transformation of Foreign Affairs, 340. 47 Yang Dali, Beyond Beijing, 47-48. 48 Wang Yizhou, “Political Stability and International Relations in the Process of Economic Globalization: Another Perspective on Asia’s Financial Crisis,” Chinese Academy of Social Sciences Institute of World Economic and Politics Working Paper (2000); He Qinglian, 现代化的危险：当代中国的经济社会问题 (The Dangers of Modernization: Contemporary China’s Economic and Social Problems) (Beijing: Jinri zhongguo chubanshe, 1998). 12 designation of 14 open coastal port cities in 1984, extending preferential policies in such areas as land rights, property ownership, finance and taxation, exports, and investment.49

Figure 1.1: China’s Provinces and Regions by National Development Program

Source: PRC State Council, www.gov.cn.

China’s inland orientation formally began with Jiang Zemin’s western “grand development”

(西部大开发) plan in 2000 and continued with Hu Jintao’s northeast “revitalization” (振

兴东北老工业基地) and “rise of central China” (中部崛起计划) plans in 2003 and 2004

(Figure 1.1). While WTO entry furthered the global competitiveness of coastal provinces,

China’s regional redistribution at home supported Hu Jintao’s goal of creating a

“harmonious society” (和谐社会) that was incorporated into China’s 11th Five-Year Plan

49 Ministry of Commerce, “Opinions on Standardizing and Promoting the Development of Border Economic Cooperation Zones,” December 5, 2012. The 15 state-level BECZs include: Heihe and Suifenhe (Heilongjiang-Russia); Hunchun (Jilin-DPRK-Russia); Dandong (Liaoning-DPRK); Manzhouli and Erenhot (Inner Mongolia-Russia/Mongolia); Yining, Tacheng, Bole, and Jeminay (Xinjiang-Kazakhstan); Pingxiang and Dongxing (Guangxi-Vietnam); and Ruili, Wanding, and Hekou (Yunnan-Myanmar/Vietnam). 13

(2006-2010).50 Between 2001 and 2005, the marketization rate was already higher in inland China than coastal China, led by the northeast, where the gross domestic product

(GDP) growth rate surpassed that of the coastal east in 2008.51

Asian Economic Integration on China’s Inland Border

Table 1.1: Regional Economic Initiatives (1991-2015)

14th CPC 15th CPC 16th CPC 17th CPC 18th CPC 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015 Asian Tumen River Central Asia China-ASEAN Six Party Asian Regional Area Regional FTA Talks Infrastructure Initiatives Development Economic framework Working Investment Program Cooperation agreement Group on Bank (2015) (1991) (1996) (2002) Economic and Energy China-ROK Greater Bangladesh- SCO economic Cooperation FTA (2015) Mekong China-India- framework (2007) Subregion Myanmar agreement (1992) Forum (1999) (2003) China- Pakistan FTA (2007) Chinese Border “Coordinated” Northeast Inland border One Belt, One Inland Economic regional development development Road (2013) Regional Cooperation development (2003) plan (2010- Initiatives Zones (1992) (1996) 2020) Central Western development development (2004) (2000) “Harmonious” “Reviving the development Border” (2005) (2000)

50 “Decisions of the CPC Central Committee on Building Socialism and Harmonious Society and Other Important Issues,” 6th Plenum of the 16th CPC Central Committee, October 2006; Hu Jintao, “Build Towards A Harmonious World of Lasting Peace and Common Prosperity,” Summit for the 60th Anniversary of the founding of the United Nations, New York, September 15, 2005. 51 Fan Gang, Wang Xiaolu, and Zhu Hengpeng, 中国市场化指数：各地区市场化相对进程 2006 年报告 (NERI Index of Marketization of China’s Provinces 2006 Report) (Beijing: Jingji kexue chubanshe, 2007), 79. The authors measure the level of marketization in terms of: (1) state-market relationship, (2) development of non-state sector, (3) growth of production and factor market, (4) fostering of market intermediaries, (5) establishment of legal institutions. 14

China’s economic engagement with Asian neighbors and provincial development strategies since the 1990s suggest growing linkages between domestic and international forces of inland liberalization (Table 1.1).

Most significantly for the external economic interests of border provinces, improving diplomatic relations and Beijing’s opening of BECZs created localized trade and investment opportunities with bordering neighbors from the 1990s.52 In China’s northeast, the Tumen River Area Development Programme (TRADP) of the United

Nations Development Programme (UNDP) from 1991 was the earliest multilateral mechanism for Northeast Asian economic integration engaging Jilin province with Russia,

North and South Korea, and Mongolia.53 Linking Hunchun BECZ to North Korea and the

Russian Far East, the TRADP was a driving force of Jilin’s opening from the 1980s based on expectations that the northeast would be next in line to follow the coastal growth model. 54 The “competitive liberalization” 55 of provinces extended to inland regions seeking to develop the transnational linkages characterizing Asia’s emerging growth centers around China’s coast.56 On China’s southwest border, the Asian Development

Bank (ADB)’s Greater Mekong Subregion (GMS) in 1992 laid the institutional framework for Yunnan’s integration with mainland Southeast Asian neighbors Myanmar, Laos,

52 Jing Xueqing, “中国沿边地区开发的宏观前景分析 (Macro Analysis of the Opening and Developing of China’s Border Regions),” 地理学报 (Acta Geographica Sinica) 5 (1998); Kenichi Ohmae, The End of the Nation State: The Rise of Regional Economies (New York: The Free Press, 1995), 79-100. 53 North Korea is no longer a member. 54 James Cotton, “China and Tumen River Cooperation: Jilin’s Coastal Development Strategy,” Asian Survey 36-11 (1996): 1086-1101; Chen Xiangming, As Borders Bend: Transnational Spaces on the Pacific Rim (Lanham: Rowman and Littlefield, 2005), 142-184. 55 Yang Dali, Beyond Beijing, 43-61; 117-130. 56 Chen Xiangming, As Borders Bend; David Zweig, “‘Developmental Communities’ on China’s Coast: The Impact of Trade and Transnational Alliances,” Comparative Politics 27-3 (1995): 253-274; Zhou Gang, Ma Jun, and Wang Zhigang, “China’s Coastal Development Strategy and Pacific Rim Economic Integration,” Global Economic Review 19-2 (1990):1-61. 15

Vietnam, Thailand, and Cambodia. The ADB’s Central Asia Regional Economic

Cooperation (CAREC) similarly facilitated direct trade and economic initiatives between

Xinjiang, Kazakhstan, Kyrgyzstan, and Uzbekistan from 1996. China’s western development plan in 2000 affirmed the reorientation of national development policy inland and accompanied Beijing’s prioritization of engaging surrounding neighbors in the post-

Asian financial crisis period.57 It was also supported by a national campaign of “Reviving the Border, Enriching Its People” (振兴边境、富裕边民, or 兴边富民), led by the State

Ethnic Affairs Commission from 1998 and officially launched in 2000.

China’s Subnational Economic Profile: The Significance of Inland Border Regions

This study examines the variation in economic openness emerging within inland China by tracing the interaction of central, local, and international actors since China’s inland reorientation from 2000. Cross-border economic initiatives in China’s surrounding regions from the 1990s frame the initial external context of provincial liberalization. While

China’s northeast was the most open throughout the 1980s and 1990s, followed by the southwest and northwest, 58 my case studies of Jilin, Yunnan, and Xinjiang suggest a reversal in this pattern over the past decade.

57 Chen Zhilong, “The Significance of West China Development to Asian Economic Integration,” in China’s West Region Development: Domestic Strategies and Global Implications, ed. Ding Lu and William Neilson (Singapore: World Scientific, 2004), 439-464; Barry Naughton, “The Western Development Program,” in Holding China Together: Diversity and National Integration in the Post-Deng Era, ed. Barry Naughton and Yang Dali (Cambridge: Cambridge University Press, 2004), 253-296. 58 For a comparative study of the economic opening of China’s border provinces to neighboring countries in the 1980s and 1990s, see Jing Xueqing, “中国沿边地区对外开放格局分析与调整 (Analysis of the Patterns of Opening of China’s Border Regions),” 云南地理环境研究 (Yunnan Geography and Environment Studies) 1 (1998). Openness to Russia, North Korea, Kazakhstan, Vietnam, and Myanmar was relatively high during this period. 16

Table 1.2: Economic Indicators of China’s Regions (2013)

Per Total Foreign Region Area Population Capita FDI ODI GDP Trade (No. of GDP* provinces) 10,000 Million Bill. RMB RMB Billion USD Sq. km East (10) 91.6 518.18 32225.89 57722 3482.69 143.50 26.40 Northeast (3) 78.8 109.76 5444.20 46014 179.19 35.47 2.82 Central (6) 102.8 360.85 12730.56 32427 219.57 50.10 3.54 West (12) 686.7 366.37 12600.28 31357 277.55 28.66 4.39

*2012 figures Source: China Statistical Yearbook 2014; China Commerce Yearbook 2014; China Statistical Yearbook for Regional Economy 2013.

China’s current regional economic profile points to not just a narrowing gap in openness between coastal and inland regions, but also differences in the strength and direction of openness within inland China. In 2013 China’s ten eastern/coastal provinces represented

10 percent of China’s land area and 38 percent of its population, but 84 percent of China’s foreign trade and over half of its GDP (Table 1.2). Coastal China also received 56 percent of China’s FDI and was the source of 71 percent of provincial overseas direct investment

(ODI).59

Table 1.3: Foreign Trade of China’s Regions (2005 and 2013)

Regional Foreign Regional Foreign Regional GDP / Trade / National Trade / Regional National GDP (%) Foreign Trade (%) GDP (%) 2005 2013 2005 2013 2005 2013 East 55.60 51.15 89.90 83.74 95.24 66.93 Northeast 8.70 8.64 4.00 4.31 27.29 20.38 Central 18.80 20.21 2.90 5.28 9.13 10.68 West 16.90 20.00 3.20 6.67 11.03 13.64

59 In the case of ODI, central government investment amounted to $56.32 billion in 2013, and provincial investment $37.15 billion, 60% and 40% of the national total respectively. The corresponding shares of national (central plus provincial) ODI for eastern, northeast, central, and western China are 28.47%, 3.04%, 3.81%, and 4.73%. 17

Source: China Statistical Yearbook 2014; China Yearbook for Regional Economy. But while foreign trade accounted for 95 percent of coastal GDP at the onset of China’s inland development initiatives in 2005, it declined to 67 percent by 2013 (Table 1.3).

China’s northeast remains the most open among inland regions in terms of foreign trade-

GDP ratio (20 percent), followed by western (14 percent) and central (11 percent) China.60

In 2005, however, the northeast was three times more open (27 percent) than central China

(9 percent), which lagged closely behind the west (11 percent).61 Northeast China has declined in openness since the 1990s,62 while western China has opened up at a faster rate than central China. Between 2005 and 2013, the northeast’s share of China’s foreign trade remained virtually the same, while those of western and central China more or less doubled.

Jilin, Yunnan, and Xinjiang

Jilin, Yunnan, and Xinjiang have diverged in levels of economic openness since their engagement in cross-border integration initiatives in Northeast, Southeast, and Central

Asia from the 1990s. While Jilin was by far the most open among the three cases in the

1990s, it declined in openness during the 2000s, to be surpassed by Xinjiang in foreign trade openness from 2002 and by Yunnan in foreign investment and trade openness from

2009 and 2012 respectively.

Provincial trade dependence on bordering neighbors has also followed divergent paths. Jilin’s trade with Northeast Asian partners dropped drastically from almost a fifth of its total foreign trade in 2005 to just 5 percent in 2013, and its share of China-Northeast

60 National Bureau of Statistics, China Statistical Yearbook (Beijing: China Statistics Press, 2014). 61 National Bureau of Statistics, China Statistical Yearbook for Regional Economy (Beijing: China Statistics Press, 2006). 62 Jing Xueqing, “中国沿边地区 (Macro Analysis).” 18

Asia trade remains largely unchanged. Compared to Jilin, Yunnan and especially Xinjiang have grown far more dependent on their Southeast Asian and Central Asian neighbors, which represented a quarter and 65 percent of provincial foreign trade by 2013. However,

Yunnan and Xinjiang’s shares of China-Southeast Asia and China-Central Asia trade notably declined during the same period, suggesting that other Chinese provinces have assumed a greater role in China’s trade with those neighbors.

The Post-Crisis Period: A Turn in China’s Economic Trajectory?

China’s economic orientation since the 2008 global financial crisis suggests greater central prioritization of not just engagement with Asian neighbors but also the further liberalization of bordering Chinese provinces.63 In 2010, the National Development and

Reform Commission (NDRC), Ministry of Commerce (MOFCOM), and other agencies produced a ten-year plan for the development and opening of inland border regions (沿边

地区开发开放计划) (2010-2020) aimed to expand preferential policies, develop pilot economic zones, and strengthen national and international policy coordination. 64 The

Heilongjiang and Guangxi Academies of Social Sciences convened the first high-level forum on China’s inland border development in June 2012, bringing together local leaders

63 Li Jingyu and Wu Chao, “后金融危机时代中国沿边区域开发开发的战略升级 (Upgrading China’s Border Region Development and Opening Strategy in the Post-Financial Crisis Era),” 云南师范大学学报 (Journal of Yunnan Normal University) 2 (2011); Huang Yaodong, “把中国沿边地区开放开发推上新阶 段 (Promoting the Opening and Development of China’s Border Regions to a New Stage),” 东南亚论横 (Around Southeast Asia) 9 (2013). 64 “多部门正在编制沿边地区开发开放规划 (Multisectoral Plan to Develop and Open China’s Border Regions),” 中国证券报 (China Securities Journal) (July 2013); “我国沿边地区开发开放规划正在编制 (Plans for the Development and Opening of China’s Border Regions Being Drawn Up),” 商业研 究 (Commercial Research) 3 (2013); “多部门正在编制沿边地区开发开放规划 (Many Departments Are Preparing for the Border Development and Opening Plan)” 现代焊接 (Modern Welding Technology) 4 (2013). 19 from Heilongjiang, Jilin, Liaoning, Inner Mongolia, Xinjiang, Tibet, Yunnan, and

Guangxi.65

Foreign policy goals under the Xi Jinping leadership since 2013 also favor the further economic integration of border provinces into surrounding regions.66 Economic diplomacy is a core component of Xi’s regional strategy of engagement centered on immediate neighbors.67 The CPC’s meeting on “peripheral diplomacy” in October 2013, its first such meeting since the PRC’s founding, was an early indication of Xi’s regional engagement after a period of tensions from 2009.68 In line with this strategy, Xi presented a market reform agenda at the CPC’s 3rd Plenum in November 2013 emphasizing the further opening of China’s border regions.69

The link between Asian and Chinese regional development is clearly embodied in

Beijing’s “One Belt, One Road” (OBOR) (一带一路) initiative for Asian economic

65 “首届“中国沿边地区发展高层论坛”在哈尔滨举行 (The First “High-Level Forum on the Development of China’s Border Regions” Held in Harbin),” 黑龙江社会科学 (Heilongjiang Social Sciences) 3 (2012). 66 Yuan Ye and Wang Guanghou, “中国周边外交战略刍议 (China’s Regional Diplomatic Strategy),” 哈尔 滨师范大学社会科学学报 (Journal of Social Science of Harbin Normal University) (2013); Hu Zhanlue, “发展沿边经济特区恰逢其时 (Perfect Timing for the Development of Border Economic Zone),” 中国投 资 (China Investment) 6 (2015). For assessments of China’s regional strategy under Xi, see China Institutes of Contemporary International Relations conference papers on “Current Situation in China’s Surrounding Areas and Its Periphery Strategy” in Contemporary International Relations 23-6 (2013) and Li Ning, “(A Review on the Symposium of “China’s Periphery Diplomacy in the Xi Jinping Era: New Concepts, New Strategies, New Measures),” Journal of China’s Neighboring Diplomacy 1 (2015): 259-268. 67 Song Guoyu, “中国周边经济外交：机制协调与策略选择 (China’s Peripheral Economic Diplomacy: Mechanism Coordination and Strategy Choice),” 国际问题研究 (China International Studies) 2 (2014): 41- 52, and “Building Friends Nearby: China’s Economic Relations with Neighboring Countries,” China International Studies 42 (2013): 152-166; Ye Hao, “Some Thoughts on Deepening Economic Diplomacy,” China International Studies 43 (2013): 114-125; Zhou Yongsheng, “中国周边态势与经济外交反思 (Reflections on China’s Peripheral Situation and Economic Diplomacy),” 国 际 问 题 研 究 (China International Studies) 2 (2012): 44-52; Zhang Jie and Zhong Feiteng, “中国周边经济外交 (China’s Peripheral Economic Diplomacy),” 时事报告 (Current Affairs) 1 (2012). 68 Wang Yi, NPC press conference, March 8, 2015; “Important Speech of Xi Jinping.” 69 “Decision of the Central Committee.” 20 integration,70 what central leaders identify as their biggest foreign policy priority since it was proposed during Xi’s visits to Central and Southeast Asia in 2013. Premier Li Keqiang at the March 2015 NPC pledged to “make China’s interior and border areas more open to the outside world” and “upgrade both border and cross-border economic cooperation areas,” with a continued leading role for coastal regions.71 Li explicitly tied together China’s plans for Asian economic integration and its own regional development, stating that “we will integrate the development of the Silk Road Economic Belt and 21st Century Maritime Silk

Road with the development and opening up of related regions.” 72 Aimed to build

“economic connectivity,” the land-based Belt signified China’s shift from coastal to comprehensive opening and from a primarily FDI-oriented strategy to one led by both outward and inward investment.73

As Foreign Minister Wang Yi indicated in 2015, OBOR reflects the increasingly global orientation of China’s foreign policy, supported by an expanded network of partnerships with more than 70 countries and regional organizations by 2014. 74 But supporting this strategy are also central pledges to decentralize more economic decision- making authority inside China. Economic decentralization is at the forefront of the Xi leadership’s “mass innovation” campaign to promote national economic readjustment in

70 Gao Cheng, “从中国经济外交转型的视角看“一带一路”的战略性 (The Strategic Significance of “One Belt One Road” from the Perspective of the Transformation of China’s Economic Diplomacy),” 国际观察 (International Review) 4 (2015). The One Belt, One Road initiative includes the “Silk Road Economic Belt” (丝绸之路经济带) and “21st-Century Maritime Silk Road” (21 世纪海上丝绸之路). 71 China’s coastal development initiatives under Xi Jinping include the Beijing-Tianjin-Hebei and Yangtze River Economic Belts, and pilot free trade zones in Shanghai, Guangdong, Tianjin, and Fujian. See Li Keqiang, “Report on the Work of the Government,” 3rd Session of 12th NPC, March 5, 2015, and NDRC, “Report on the Implementation of the 2014 Plan for National Economic and Social Development and on the 2015 Draft Plan for National Economic and Social Development,” 3rd Session of 12th NPC, March 5, 2015. 72 Li Keqiang, 2015 Government Work Report. 73 Li Yongquan, 丝路列国志 (The Silk Road Economic Belt: National Conditions) (Beijing: Chinese Academy of Social Sciences, 2015). 74 Wang Yi, NPC Press Conference, March 8, 2015. 21 anticipation of the most critical downturn since 2008.75 Premier Li Keqiang in 2015 insisted that “local governments must completely let go of powers that should be delegated to the market or society,” since “our people represents the largest source of vitality for economic growth.”76 Such claims, however, came against China’s post-2009 phenomenon of “advance of the state sector and retreat of the non-state sector” (国进民退) that partially reversed the 1990s trend of liberalization according to some assessments.77

The foreign economic liberalization of China’s inland border regions underscores the long-term domestic-international dynamics of China’s global economic integration.

On the one hand, it demonstrates the interaction of inside-out and outside-in processes of change in the context of China’s deepening economic integration with surrounding Asian regions. On the other hand, it reflects the interaction of top-down and bottom-up processes of reform associated with the decentralization (and recentralization) of economic decision- making authority at home. The central state’s direction of provincial development both shapes, and is shaped by, local and international responses, to produce different levels of provincial economic openness.

Substate Agency in Global Economic Interactions: China in Comparative Perspective

While the implications of economic globalization and decentralization for China’s political economy have drawn much scholarly attention, their joint implications require closer

75 Minister Zhang Mao, State Administration for Industry and Commerce (SAIC), NPC Press Conference, March 9, 2015. 76 Li Keqiang, NPC Press Conference, March 15, 2015. 77 Yang Dali and Junyan Jiang, “Guojin Mintui: The Global Recession and Changing State-Economy Relations in China,” in The Global Recession and China’s Political Economy, ed. Yang Dali (New York: Palgrave Macmillan, 2012), 33-70. 22 study. 78 In particular, China’s deeper integration into the world economy under authoritarian leadership raises the question of non-central state agency in global economic interactions.79 The Chinese case can be understood from the comparative perspectives of both advanced and developing economies, where local governments have emerged as active foreign policy agents seeking to project their economic interests at national and international levels. External economic forces drove this “localization” of foreign policy in the 1970s and 1980s in not just federal systems but also highly centralized states like

France.80 While openness to the liberal economic order has been the basis of institutional change and growth in emerging economies, liberalization has been relatively less prominent than in advanced counterparts. The BRICS (Brazil, Russia, India, China, South

Africa) have developed their own “varieties of capitalism” in which the central state has even strengthened its role in Brazil and Russia and forged a contradictory type of “state capitalism” in China.81

China and India’s economic transformation highlights the rise of local state actors over the past three decades, during which the decentralization of state authority has increased local responsibility over foreign economic affairs. While local power was a shared concern of Mao Zedong and Prime Minister Jawaharlal Nehru when they

78 Shaun Breslin, “Decentralisation, Globalisation.” 79 Lynn White, Unstately Power Vol. 1: Local Causes of China’s Economic Reforms (Armonk: M.E. Sharpe, 1998). 80 Brian Hocking, Localizing Foreign Policy: Non-central Governments and Multilayered Diplomacy (New York: St. Martin’s Press, 1993); Cal Clark and Robert Montjoy, ed., Globalization’s Impact on State-Local Economic Development Policy (Huntington: Nova Science Publishers, 2001). 81 Uwe Becker, “Institutional Change in the BRICs, Eastern Europe, South Africa and Turkey, 1998-2008,” in The BRICs and Emerging Economies in Comparative Perspective: Political Economy, Liberalisation and Institutional Change, ed. Becker (New York: Routledge, 2013), 27-52; Vidya Nadkami and Norma Noonan, ed., Emerging Powers in a Comparative Perspective: The Political and Economic Rise of the BRIC Countries (New York: Bloomsbury, 2013); Christopher McNally, “Sino-Capitalism: China’s Re-Emergence and the International Political Economy,” World Politics 64-4 (2012): 741-776. 23 established the Chinese and Indian modern systems in the 1940s, like China under Xi

Jinping, India’s economy under Narendra Modi since 2014 appears increasingly led by not top-down direction but local initiative.82 But also like China, India’s global emergence by the 2000s was driven by its key coastal states. Although local autonomy has fueled dynamic growth, empowered local leaders have emerged as both supporters and challengers of the implementation of central policy directives. What makes China and

India only “partially awakened giants” are their “good and bad” regional inequalities arising from enhanced local incentives for liberalization and protection.83

A major source of local growth has been the private sector, which accounted for more than two thirds of the Chinese and Indian economies by the end of the 2000s, with an average annual growth rate of 30 percent in China from 2000 to 2009. 84 The East Asian

“miracle” rooted in state-led development also depended importantly on multinational corporations (MNCs).85 But a distinct feature of state capitalism is the central state-owned enterprises (SOEs) that remain dominant in energy, transport, banking, and telecommunications – what are identified as “strategic” sectors for their importance to

82 William Antholis, Inside Out, India and China: Local Politics Go Global (Washington: Brookings Institution Press, 2013). 83 Shubham Chaudhuri and Martin Ravallion, “Partially Awakened Giants: Uneven Growth in China and India,” in Dancing with Giants: China, India, and the Global Economy, ed. L. Alan Winters and Shahid Yusuf (Washington and Singapore: The World Bank and Institute of Policy Studies, 2007), 175-210. 84 Organisation for Economic Co-operation and Development, “State Owned Enterprises in China: Reviewing the Evidence,” OECD Occasional Paper, January 26, 2009; OECD Economic Surveys: India (Paris: OECD, 2011). For a recent study of China’s emerging private sector, see Nicholas Lardy, Markets over Mao: The Rise of Private Business in China (New York: Columbia University Press, 2014). 85 Cal Clark and Steve Chan, “MNCs and Developmentalism: Domestic Structure As An Explanation for East Asian Dynamism,” in Bringing Transnational Relations Back In: Non-State Actors, Domestic Structures and International Institutions, ed. Thomas Risse (Cambridge: Cambridge University Press, 1995), 112-145; Michael Borrus, Dieter Ernst, and Stephan Haggard, “Introduction: Cross-Border Production Networks and the Industrial Integration of the Asia-Pacific Region,” in International Production Networks in Asia: Rivalry or Riches?, ed. Borrus, Ernst, and Haggard (London: Routledge, 2000), 1-30; Rene Haak and Dennis Tachiki, Regional Strategies in A Global Economy: Multinational Corporations in East Asia (Munich: IUDICIUM Verlag, 2004). 24 national security, including internal and external security, and to the competitiveness of other economic sectors.86 While these SOEs were on the verge of collapse by the end of the 1990s in both China and India, restructuring has transformed them into the biggest employers at home and leading investors overseas.87

Beyond Asia, the rise of corporate actors is evident in China’s trade and economic relations with Latin America especially since the expansion of Chinese overseas investment from the 2000s.88 In Brazil, not only are Chinese private firms important players in extractive industries like mining, but SOEs are also increasingly operating as

“market actors” engaging with counterparts at subnational levels.89 China’s commercial ties with Latin America demonstrate complementary relations between the central state as

“rule maker,” SOEs and private firms as “implementers” or “pioneers,” and quasi- government “facilitator” organizations.90

Conceptual Issues in Studying China’s Border Regions

The question of non-central state agency is in sharper focus when studying subnational economies in border regions. On the Sino-Indian border, for example, subnational actors

86 Roselyn Hsueh, China’s Regulatory State: A New Strategy for Globalization (Ithaca: Cornell University Press, 2011), 34; Monique Taylor, “A Party-State Centred Explanation of Policymaking in China’s Oil Sector,” in The Chinese State, Oil and Energy Security (New York: Palgrave Macmillan, 2014), 1-30; Peter Nolan, China and the Global Economy: National Champions, Industrial Policy, and the Big Business Revolution (New York: Palgrave, 2001). 87 Xu, Yi-Chong, ed., The Political Economy of State-owned Enterprises in China and India (New York: Palgrave Macmillan, 2012). 88 Katja Levy, “Introduction: China and Latin America: Bringing the Actor Back In,” Journal of Chinese Political Science 20-3 (2015): 221-225; Jorn Dosch and David Goodman, “China and Latin America: Complementarity, Competition and Globalisation,” Journal of Current Chinese Affairs 41-1 (2012): 3-19; Evan Ellis, China on the Ground in Latin America: Challenges for the Chinese and Impacts (New York: Palgrave Macmillan, 2014). 89 Julie Michelle Klinger, “Rescaling China-Brazil Investment Relations in the Strategic Minerals Sector,” Journal of Chinese Political Science 20-3 (2015): 227-242. 90 Yang Zhimin, “The Roles Played by Three Categories of Actors in China’s Engagement in Latin America to Develop Economic Ties with the Region,” Journal of Chinese Political Science 20-3 (2015): 289-300. 25 have claimed an important voice in the state-led development of India’s northeast and

China’s southwest multiethnic border regions under the Look East and Western

Development campaigns since the 2000s.91 While interdisciplinary interest in such cross- border interactions centered on the Western Hemisphere from the 1980s,92 subregional integration has grown as a defining characteristic of Asian regionalism.93 The “transborder region” as a distinct level of analysis raises three conceptual points that underpin this study:

94 (1) the importance of state action versus economic conditions, (2) the disaggregation of the state, and (3) the relationship between state and non-state actors.

Substate regions have emerged as key contexts of the contemporary world economy, where “suprastate” world regions link to subnational economies.95 These macro-micro linkages are captured at the level of the “cross-border region,” defined as a distinct

“territorial unit that comprises contiguous subnational units from two or more nation states,”96 or “transborder regions,” understood as “subnational areas whose economic and social life is directly and significantly affected by proximity to an international

91 Nimmi Kurian, India-China Borderlands: Conversations Beyond the Centre (New Delhi: Sage Publications, 2014), and “Prospects for Sino-Indian Trans-border Economic Linkages,” International Studies 42-3-4 (2005): 295-306. 92 Oscar Martinez, ed., Across Boundaries: Transborder Interaction in Comparative Perspective (El Paso: Texas Western Press, 1986); Hocking, Localizing Foreign Policy; Paul Ganster and David Lorey, ed., Borders and Border Politics in a Globalizing World (Lanham: SR Books, 2005). 93 See “Connecting to the Periphery – Subregionalism in Europe and Asia,” in Peter Katzenstein, A World of Regions: Asia and Europe in the American Imperium (Ithaca, Cornell University Press, 2005), 188-192; and James Mittelman, “Subregional Responses to Globalization,” in Mittelman, The Globalization Syndrome: Transformation and Resistance (New Jersey: Princeton University Press, 2000), 147-162. 94 Oscar Martinez, “The Dynamics of Border Interaction: New Approaches to Border Analysis,” in Global Boundaries: World Boundaries, Vol. 1, ed. Clive Schofield (New York: Routledge, 1994), 1-15. 95 Allen Scott, Regions and the World Economy: The Coming Shape of Global Production, Competition and Political Order (Oxford: Oxford University Press, 1998); Michael Storper, The Regional World (New York: Gulliford Press, 1998). 96 Markus Perkmann and Ngai-Ling Sum, “Globalization, Regionalization and Cross-Border Regions: Scales, Discourses and Governance,” in Globalization, Regionalization and Cross-Border Region, ed. Perkmann and Sum (New York: Palgrave Macmillan, 2002), 3. 26 boundary.”97 Subnational governments pursue their external interests not just through national policy but by interacting directly with foreign state and corporate partners.98 The proliferation of cross-border economic initiatives in the 1990s was associated with post-

Cold War efforts to reintegrate former socialist economies into the capitalist world market, which provided opportunities for local authorities to mobilize resources and strengthen their position against central state counterparts.99

Asian transborder regions surrounding China emerged in the form of what were defined in the 1990s as “natural economic territories” (NETs),100 “region states,”101 or

“growth triangles.” 102 These Asian configurations of regional integration differ from

Western equivalents in territorial scope, involving multiple subnational units rather than entire nation states, and in level of institutionalization, having a relatively informal governance structure. Unlike the European Union, where state power has largely shifted

97 Niles Hansen, The Border Economy: Regional Development in the Southwest (Austin: University of Texas Press, 1981), 19. 98 Ivo Duchacek, “International Competence of Subnational Governments: Borderlands and Beyond,” in Across Boundaries, 11-28. 99 Andrey S. Makarychev, “Economic Reform and New Patterns of Post-Soviet Regionalism,” in Regionalization and Globalization in the Modern World Economy: Perspectives on the Third World and Transitional Economies, ed. Alex E. Fernandez Jilberto and Andre Mommen (London: Routledge, 1998), 65-85; Perkmann and Sum, “Globalization, Regionalization,” 4-5; Bob Jessop, “Regional Economic Blocs, Cross-Border Cooperation and Post-Socialism: Policies and Prospects,” American Behavioral Scientist 38-5 (1995): 674-715, and “The Political Economy of Scale,” in Globalization, Regionalization, 25-49. 100 Robert Scalapino, “The United States and Asia: Future Prospects,” Foreign Affairs 70-5 (1991/1992): 19- 41, and “Natural Economic Territories in East Asia: Present Trends and Future Prospects,” in Economic Cooperation and Challenges in the Pacific, ed. Korea Economic Institute of America (Washington: Korea Economic Institute, 1995); Armos Jordan and Jane Khanna, “Economic Interdependence and Challenges to the Nation-State: The Emergence of Natural Economic Territories in the Asia-Pacific,” Journal of International Affairs 48-2 (1995): 433-462. 101 Ohmae, The End of the Nation State. 102 Min Tang and Myo Thant, “Growth Triangles: Conceptual and Operational Considerations,” in Growth Triangles in Asia: A New Approach to Regional Economic Cooperation, ed. Myo Thant, Min Tang, and Hiroshi Kakazu (Oxford: Oxford University Press, 1988), 23-48; James Parsonage, “Southeast Asia’s ‘Growth Triangle’: A Subregional Response to A Global Transformation,” International Journal of Urban and Regional Research 16-2 (1992): 307-317; Siou Yue Chia and Lee Tsao Yuan, “Subregional Economic Zones: A New Motive Force in Asia-Pacific Development,” in Pacific Dynamism and the International Economic System, ed. C. Fred Bergsten and Marcus Noland (Washington: Institute for International Economics, 1993), 225-269. 27 to the supranational level, there is relatively strong local state autonomy with varying forms and degrees of central state intervention.103

One issue raised by the conceptualization of transborder regions concerns the significance of state action versus economic endowments and comparative advantage. As many have argued, there is nothing “natural” about Asia’s NETs, which were produced by government policies that lowered the physical and technical barriers to realizing existing complementarities. 104 However, the state’s selective promotion of such regional integration shows that policy choice and economic conditions are not mutually exclusive.

More importantly, these NETs are defined by not just natural economic complementarities but also their dependence on the private sector “for survival and growth.”105 State power is further diminished in cases of “microregionalism,” involving “processes which, rather than resulting from predetermined plans of national or subnational governments, primarily emerge from the actions of non-state actors.”106

A second related issue then, is the relative power and influence of non-central state actors.107 Despite different geopolitical and national contexts, both European and East

Asian integration processes involved the “rescaling” of governance by the 2000s as states forged external links for development while decentralizing economic decision-making to

103 Chen Xiangming, As Borders Bend, 10 and 38. 104 Alvin So, “Globalization and the State Power in China,” in Power and Sustainability of the Chinese State, ed. Keun Lee, Joon-Han Kim and Wing Thye Woo (Abingdon: Routledge, 2009), 175-176; Jordan and Khanna, “Economic Interdependence;” Chen, As Borders Bend. 105 Scalapino, “Natural Economic Territories,” 101. 106 Shaun Breslin and Glenn Hook, “Microregionalism and World Order: Concepts, Approaches and Implications,” in Microregionalism and World Order, ed. Shaun Breslin and Glenn Hook (Palgrave Macmillan, 2002), 4. 107 Shaun Breslin, “Theorising East Asian Regionalism(s): New Regionalism and Asia’s Future,” in Advancing East Asian Regionalism, ed. Melissa Curley and Nicholas Thomas (New York: Routledge, 2007), 26-51. 28 lower levels.108 The “old” regionalism of the 1950s and 1960s, characterized by planning from above, gave way to a “new” regionalism of the 1990s led by economic and social processes from below.109 Transborder integration since the 1990s demonstrates not just forces of economic liberalization from above and below, but also inside and outside the national state.110 China’s transborder regions by the 2000s appeared more integrated with the global economy than the Chinese national economy, suggesting a need to realign local government interests with the global level.111

Finally, empirical evidence clearly shows that the extent and form of economic liberalization under “state capitalism” has varied both between and within states. The real question is not how powerful substate actors are in pursuing their external economic interests, but when and how they are more or less powerful. This question requires examining the nature of the relationship between different stakeholders, and the processes of their interaction. From this perspective, states can be understood in terms of not a

“strengthening/weakening dichotomy” but “variegated processes of adaptation and transformation.”112 The rise of “global” cities like Shanghai and even Ruili on the Yunnan-

Myanmar border corresponds to general empirical patterns of “multinodal” economic

108 Mark Beeson, “Rethinking Regionalism: Europe and East Asia in Comparative Historical Perspective,” Journal of European Public Policy 12 (2005): 969-985; Bob Jessop, The Future of the Capitalist State (Cambridge: Polity, 2002); Neil Brenner, Bob Jessop, Martine Jones and Gordon LacLeod, ed., State/Space: A Reader (Oxford: Blackwell, 2003). 109 Bjorn Hettne, “Globalization and the New Regionalism: The Second Great Transformation,” in Globalism and the New Regionalism, ed. Bjorn Hettne, Andras Inotai and Osvaldo Sunkel (New York: St. Martin’s Press, 1999); James Mittelman, “Rethinking the “New Regionalism” in the Context of Globalization,” Global Governance 2-2 (1996): 189-214, and “The “New Regionalism”,” in Mittelman, The Globalization Syndrome: Transformation and Resistance (New Jersey: Princeton University Press, 2000), 111-130; Raimo Vayrynen, “Regionalism: Old and New,” International Studies Review 5 (2003): 25-51. 110 Katzenstein, A World of Regions, 188; Hettne, “Globalization and the New Regionalism,” 7; Perkmann and Sum, “Globalization, Regionalization,” 4. 111 Breslin, China and the Global Political Economy. 112 Nicola Phillips, ed., Globalizing International Political Economy (Basingstoke: Palgrave Macmillan, 2005), 95. 29 interdependence that challenge traditional analytical approaches framing the globalization debates of the previous two decades.113

The external behavior of subnational units in particular is traditionally understood from the perspective of conflictual relations with the center. 114 In “two-level” game analyses of agricultural trade policy, a wide range of domestic interests challenge the international interests and obligations of the state.115 Globalization debates of the 1980s and 1990s were based on assumptions of centrifugal pressures undermining state authority: economic interdependence meant the “perforation” of sovereignty and rise of subnational governments seeking external sources of growth as “semiautonomous” entities.116 This fragmentation of governance was significant as a challenge to traditional mechanisms of democracy in post-Cold War Europe.117 But proponents of the “end of the nation state” even in Asia pointed to the rise of transnational “region-states” like China’s Pearl Delta region as the driving force of growth rather than what was seen in Japan as a Ministry of

International Trade and Industry (Ministry of Economy, Trade and Industry since 2001)-

113 Chen Xiangming, ed., Shanghai Rising: State Power and Local Transformations in a Global Megacity (Minneapolis: University of Minnesota Press, 2009), and “China’s Key Cities: From Local Places to Global Players,” European Financial Review (2015); Allen Scott, ed., Global City-Regions: Trends, Theory, Policy (Oxford: Oxford University Press, 2001); Philip Cerny, Rethinking World Politics: A Theory of Transnational Neopluralism (Oxford: Oxford University Press, 2010). 114 Duchacek identifies at least eight central objections to non-central international activities. See Duchacek, “International Competence of Subnational Governments,” 16-17. 115 Theodore Cohn, “The Intersection of Domestic and Foreign Policy in the NAFTA Agricultural Negotiations,” Canadian-American Public Policy 14 (Orono: University of Maine, 1993); William Avery, “American Agricultural and Trade Policymaking: Two-Level Bargaining in the North American Free Trade Agreement,” Policy Sciences 29 (1996): 113-136. 116 Ivo Duchacek, Daniel Latouche, and Garth Stevenson, Perforated Sovereignties and International Relations: Trans-sovereign Contacts of Subnational Governments (New York: Greenwood Press, 1988); Stephen Krasner, ed., Problematic Sovereignty: Contested Rules and Political Possibilities (New York: Columbia University Press, 2001). 117 Kees van Kersbergen, Robert Lieshout and Grahame Lock, Expansion and Fragmentation: Internationalization, Political Change, and the Transformation of the Nation State (Amsterdam: Amsterdam University Press, 1999); Jean-Marie Guehenno, The End of the Nation-State (La Fin de la Democratie, 1993), trans. Victoria Elliott (Minneapolis: University of Minnesota Press, 1993). 30 led miracle. 118 China’s multiethnic context fuels continued concern over empowered regional economies and China’s “spatial disintegration.”119

The relationship between central, local, and international actors can alternatively be viewed in terms of the alignment of interests that makes possible cooperation and coordination. Key to the industrialization of Brazil, India, and South Korea during the

1970s and 1980s was the alliance of state agencies with local entrepreneurs and transnational corporations.120 In addition, central governments may not only facilitate but also manipulate the global network of local governments for central purposes, as shown by

China’s “authoritarian manipulation” of its earliest coastal SEZs in Guangdong and Fujian.

While European subregions feature high-tech initiatives funded by the EU, Asian subregions are typically a product of policies “tolerated or orchestrated by central governments” seeking to exploit local initiatives in creating such special production zones.121 Asian subregionalism has thus evolved through unilateral policies with which national governments have both fostered, and responded to, bottom-up pressures in pursuit of their economic and political interests.122

Change and Continuity on China’s Periphery

Economic globalization and decentralization implies an outward and downward shift in central state agency. 123 As detailed in Chapter 2, the liberalization of subnational

118 Ohmae, The End of the Nation State. 119 Guo Rongxing, “China’s Spatial (Dis)Integration as a Multiethnic Paradox: What Do the Interprovincial Data Say?” China Finance and Economic Review 4-1 (2015). 120 Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton: Princeton University Press, 1995). 121 Katzenstein, A World of Regions, 189. 122 Jordan and Khanna, “Economic Interdependence,” 435; Katzenstein, A World of Regions, 190. 123 So, “Globalization and the State.” 31 economies is a dynamic process generated by not only central direction from inside and above, but also responses from outside and below. Transborder regions illuminate the multilayered interactions of central, local, and international actors as the intermediate space linking the global and national political economies.124

China’s provinces have clearly emerged as important players in China’s external relations since 1978,125 led by local leaders serving as “policy entrepreneurs” engaged in economic innovation.126 Provincial patterns of liberalization, however, have varied over time and space. Compared to other former socialist economies, the success of China’s market transition is widely attributed to “Chinese style” federalism and decentralization that enhanced local incentives for reform.127 But local protectionism also led to episodes of fiscal recentralization in select regions in the 1990s and 2000s including rural areas and wealthy coastal provinces.128 China’s post-WTO economy has further opened to market forces led increasingly by private enterprises, including foreign firms and China’s own

124 Chen Xiangming, As Borders Bend, 36 125 Cheung and Tang, “The External Relations of China’s Provinces.” 126 Jessica Teets, “The Politics of Innovation in China: Local Officials as Policy Entrepreneurs,” Issues and Studies 52-2 (2015): 79-109. 127 Gabriella Montinola, Qian Yingyi and Barry Weingast, “Federalism, Chinese Style: The Political Basis for Economic Success in China,” World Politics 48-1 (1995): 50-81; Susan Shirk, How China Opened Its Door: The Political Success of the PRC’s Foreign Trade and Investment Reforms (Washington: The Brookings Institution, 1994), 27-33; Jean Oi, “Fiscal Reform and the Economic Foundations of Local State Corporatism in China,” World Politics 45-1 (1992): 99-126, and Rural China Takes Off: Institutional Foundations of Economic Reform (Berkeley: University of California Press, 1999); White, Unstately Power; Zheng Yongnian, “Institutional Economics and Central-Local Relations in China: Evolving Research,” China: An International Journal 3-2 (2005): 240-269. By 2011 China and Denmark were the world’s only centralized systems that ranked similar to federal systems in fiscal decentralization. Claudia Dziobek, Carlos Guiterrez Mangas, and Phebby Kufa, “Measuring Fiscal Decentralization,” IMF Working Paper 11-126 (2011). 128 Jean Oi, Kim Singer Babiarz, Linxiu Zhang, Renfu Luo, and Scott Rozelle, “Shifting Fiscal Control to Limit Cadre Power in China’s Townships and Villages,” China Quarterly 211 (2012): 649-675; Pierre Landry, Decentralized Authoritarianism in China: The Communist Party’s Control of Local Elites in the Post-Mao Era (New York: Cambridge University Press, 2010); Liu Mingxing, Xu Zhigang, and Ran Tao, “Fiscal Federalism, Recentralization, and Local Public Finance in China,” Peking University-Lincoln Institute Center Working Paper (2011); Gu Qingyang and Chen Kang, “Impact of Fiscal Re-Centralization on China’s Regional Economies: Evidence from a Multi-Regional Model,” Paper presented at International Conference on Policy Modeling, Brussels, July 2002; Sheng Yumin, Economic Openness and Territorial Politics. 32 multinationals,129 rather than the “national champions” nurtured by state-led capitalism in the 1990s.130 But central government efforts to “seize the big and release the small” (抓

大放小) SOEs also laid the foundations for the apparent resurgence of the state sector by the end of the 2000s that threatened to marginalize non-state firms in China’s export industries.131

The Asian subregionalism within which China’s provinces have liberalized in different ways is largely conceived as a tool for development that is less politically and legally constraining, especially compared to European variants. It is more “spontaneous, springing from within and below,” unlike the pattern of the Cold War, when major powers were the dominant drivers “from outside and above.”132 The processes of provincial liberalization, however, are not as spontaneous as they appear. The “local” experimentation and innovation in China’s coastal zones from the 1980s were more accurately central experiments with incremental reforms that were in turn expanded and institutionalized under Deng’s coastal strategy.133 In the mutual interdependence between central direction and local implementation, China’s subnational units play a greater role in policy “feedback” than formulation.134 While this central-local adaptation appears key to

129 Lardy, Markets over Mao; Robert Pearce, ed., China and the Multinationals: International Business and the Entry of China into the Global Economy (Northampton: Edward Elgar, 2011); Si Zhang and Robert Pearce, “Introduction: China, Multinationals and the Global Economy,” in Multinationals in China: Business Strategy, Technology and Economic Development (London: Palgrave Macmillan, 2012); Christopher McNally, China’s Emergent Political Economy: Capitalism in the Dragon’s Lair (New York: Routledge, 2008). 130 Nolan, China and the Global Economy. 131 Yang and Jiang, “Guojin Mintui,” 35. 132 James Mittelman, Contesting Global Order: Development, Global Governance, and Globalization (Abingdon: Routledge, 2011), 100. 133 Ann Florini, Lai Hairong, and Yeling Tan, China Experiments: From Local Innovations to National Reform (Washington: Brookings Institution Press, 2012). 134 Moore and Yang, “Empowered and Restrained.” 33

China’s political “resilience,”135 the growing distinction between sustainable and a more superficial or fabricated “face” innovation over time may challenge the joint effort to justify central policy directives.136

Although central state preferences dictate policy choice, the forces of change are not unidirectional, both defining and redefining the boundaries of national mandates. What distinguishes the liberalization of China’s inland border regions in the 2000s from the coastal experience of the 1980s and 1990s is also an intensification in the other dimension of change, moving between the inside and outside. The transnational linkages characterizing China’s coastal opening were largely limited to Chinese diaspora firms within “Greater China.” 137 In 2014, the Pearl River Delta economic zone alone still accounted for 26 percent of China's exports and 95 percent of Guangdong’s exports, more than half of which came from foreign enterprises, mostly from Hong Kong.138

The internal-external dynamics of China’s inland liberalization since 2000 differ in context in two ways. First, China’s current stage of global economic integration extends from primarily “north-south” to “south-south” cooperation, in which the inland border regions are emerging players. This cooperation has engaged provincial actors more closely with multilateral organizations and foreign governments, as shown by Yunnan and

Xinjiang’s deepened participation in regional institutions. While China entered Asia’s multilateral development programs in the 1990s as an aid recipient, its recent “aid for trade”

135 Andrew Nathan, “Authoritarian Resilience,” Journal of Democracy 14-1 (2003): 6-17. 136 Teets, “The Politics of Innovation.” 137 Robert Ash and Y.Y. Kueh, “Economic Integration within Greater China: Trade and Investment Flows between China, Hong Kong and Taiwan,” in Greater China: The Next Superpower?, ed. David Shambaugh (Oxford: Oxford University Press, 1995), 59-93; Alvin So, Nan Lin, and Dudley Posten, ed., The Chinese Triangle of Mainland China, Taiwan, and Hong Kong: Comparative Institutional Analysis (Westport: Greenwood Press, 2001); Shaun Breslin, “Greater China and the Political Economy of Regionalisation,” East Asia 21-1 (2004): 7-23. 138 Hong Kong Trade Development Council, “PRD Economic Profile,” January 21, 2016. 34 initiatives to promote developing-country integration with the WTO have demonstrated its leading role in global trade.139 Furthermore, Chinese investment has focused on cross- border infrastructure development to lower the physical barriers to trade, reinforcing the roles of national governments and SOEs as dominant stakeholders in such sectors as transportation, communications, and energy. China’s trade-related infrastructure projects have presented development opportunities and challenges for its resource-rich border regions rising from a strong legacy of state-planning, realigning traditional state actors with the local governments and non-state firms that emerged from China’s coastal opening.

Second, inside China, inland liberalization also reflects the driving push of coastal enterprises who have relocated to the periphery as part of the coastal structural shift to high-tech sectors. While the promotion of labor-intensive, light industry laid the foundation for integrating coastal China into the world economy for the past three decades,

China’s inland opening from the 2000s follows the long-term convergence process that

Deng had envisioned through the transfer of coastal technology and capital. 140 This process is especially evident in the west, where, unlike the northeast plan, the western development program from the onset emphasized aid partnerships with coastal counterparts rather than FDI. 141 The mass relocation of coastal enterprises and Han

139 OECD, “Trade Related South-South Co-Operation: China,” COM/DCD/TAD (2013) 3; Rita Giacalone, “South-South Cooperation: A Bridge between Regionalism and Globalization?” in The Rise of the Global South: Philosophical, Geopolitical and Economic Trends of the 21st Century, ed. Justin Dargin (Singapore: World Scientific, 2013), 67-92. 140 Francoise Lemoine, Gregoire Mayo, Sandra Poncet and Deniz Unal, “The Geographic Pattern of China’s Growth and Convergence within Industry,” CEPII Working Paper 4 (2014). 141 PRC State Council, “关于实施西部大开发若干政策措施的通知 (Notice on Policy Measures for Implementing Western Development),” Guofa 33, October 16, 2000. For example, Kashgar SEZ was paired with China’s first Shenzhen SEZ in Guangdong under the central government’s “paired assistance” program in 2010 requiring 19 provinces and municipalities to support the development of different regions within Xinjiang. For a recent study of China’s inter-provincial economic cooperation, see Guo Rongxing, Hao Gui, and Luc Changlei Guo, Multiregional Economic Development in China (New York: Springer, 2015). 35

Chinese labor has raised public debate over China’s western development strategy “going east,” which has further intensified with Xi Jinping’s Silk Road initiative, viewed as

China’s “reform and opening” Part Two.142

Finally, a fundamental implication of the increased interaction of domestic and international forces of liberalization is the realignment of central political and economic priorities under authoritarian leadership. 143 China has consistently pursued regional diplomatic engagement as a tool for promoting national development since Deng’s modernization drive; as Deng indicated in 1981, “the door is being opened because the

Four Modernizations require it.”144 But China’s current “economic diplomacy” (经济外

交) is also viewed as “the use of economic tools to pursue external political, military, and other interests.”145 Local actors must play an important role in China’s regional economic relations as coordinators of different government agencies as well as state and market mechanisms. 146 While China’s inland opening demonstrates such multiple forces of change, it also suggests continuity with the two defining features of China’s policy toward neighbors before opening its door in 1978: “safeguarding state sovereignty and territorial integrity was the core,” and “the economy served politics.”147

142 Interviews in Shanghai, November 2015; and Shenyang, June 2015. According to one unofficial source, up to 70 percent of Xinjiang’s exports to Central Asia originates from coastal provinces, with Xinjiang primarily serving as a transit point to the European market. 143 Wang Zhengyi, “Conceptualizing Economic Security and Governance: China Confronts Globalization,” Pacific Review 17-4 (2004): 523-545. 144 People’s Daily, December 14, 1981, 1-4. 145 Zhang Jie and Zhong Feiteng, “中国周边经济外交 (China’s Peripheral Economic Diplomacy),” 时事报 告 (Current Affairs) 1 (2012). 146 Song Guoyu, “中国周边经济外交：机制协调与策略选择 (China’s Peripheral Economic Diplomacy: Mechanism Coordination and Strategy Choice),” 国际问题研究 (China International Studies) 2 (2014): 41- 52. 147 Zhang and Zhou, “中国与邻国 (China’s Relations),” 39. 36

The internal and external political motivations of China’s provincial development strategies were evident since Mao’s inward orientation from 1949, which was based on

Communist egalitarianism and reinforced by national security concerns arising from intensifying relations with the United States and Soviet Union in the 1960s. 148 Both economic and political rationales supported Deng’s designation of China’s coastal zones facing Hong Kong and Taiwan in 1986, created to advance both export-led growth and eventual reunification. 149 But while those overseas Chinese linkages were largely welcomed as an opportunity for integration, the ethnic diaspora networks along China’s inland frontier are instead a perceived threat to national unity and border stability (边疆，

民族，稳定). The security implications of liberalization make local leaders more tightly bound by the need to satisfy both central mandates of producing growth and maintaining order.150 In Xinjiang, Beijing’s strategy of integrating the west with both the outside and

China’s coastal regions (外引内联东联西出) supports its dual policy of development and stability since 1978.151 The political risks of reform mean there is less room for local innovation inside Xinjiang, whose opening appears instead driven by coastal interests.

Centrally-designated economic zones in restive minority areas like Kashgar remain more symbolic in importance, or “new bottles with old wine” that show no evidence of

148 Barry Naughton, “The Third Front: Defense Industrialization in the Chinese Interior,” The China Quarterly 115 (1988): 351-386. 149 Harry Harding, “The Concept of ‘Greater China’: Themes, Variations, and Reservations,” China Quarterly 136 (1993): 660-672; Murray Weidenbaum and Samuel Hughes, The Bamboo Network: How Expatriate Chinese Entrepreneurs Are Creating A New Economic Superpower in Asia (New York: Free Press, 1996), 85-89. 150 Yang Xianming, 超越预警：中国西部欠发达地区的发展与稳定 (The Development and Stabilization of Less Developed Areas in Western China) (Beijing: Renmin chubanshe, 2013). 151 Zhu Peimin and Wang Baoying, 中国共产党治理新疆史 (History of Communist Party of China’s Governance of Xinjiang) (Beijing: Dangdai zhongguo chubanshe, 2015). 37 replicating the models of coastal predecessors they were paired with in 2010.152 The

Xinjiang case suggests that China’s “inland” reorientation is as much about national economic and political integration as about integrating China’s late-developing regional economies into the world economy.

The shaping of China’s policy choices in line with international norms has been clearest in China’s engagement with the liberal economic system since 1978.153 However, such change remains limited to the extent that it does not undermine vital national interests, most importantly, the stability of China’s political system and state-party leadership.154

But just as local discrepancies in economic performance may make it more difficult for

China’s leaders to advance a unified reform agenda at home, China’s “partial” and

“reluctant” engagement with the global economy155 may corrode the legitimacy of China’s

“quasi-capitalist” model156 abroad.

Theoretical and Empirical Contributions

152 Interviews in Urumqi and Kashgar, September 2016; and Shanghai, October 2016; Tao Yitao, “From Coastal Opening-up to Border Opening-up: Significance and Problems of the Development of Kashgar Special Economic Zone,” Studies on China’s Special Economic Zones 1-6 (2013); Bill Chou and Ding Xuejie, “A Comparative Analysis of Shenzhen and Kashgar Development as Special Economic Zones,” East Asia 32-2 (2015): 117-136. 153 Tang Shiping, “Liberal America, Illiberal China, and the “Liberal” International Order,” Institute for China-America Studies, May 10, 2016. 154 Zhao Suisheng, “Core Interests and Great Power Responsibilities: The Evolving Pattern of China’s Foreign Policy,” in China and the International System: Becoming A World Power, ed. Xiaoming Huang and Robert Patman (New York: Routledge, 2013) 32-56; Shen Haixiong, “What Has Enabled the CPC to Serve as China’s Leading Core?” Qiushi 1 (2015): 15-21; Teresa Wright, Party and State in Post-Mao China (Cambridge: Polity Press, 2015). As defined in China’s State Council White Paper China’s Peaceful Development issued on September 6, 2011, China’s “core national interests” are state sovereignty, national security, territorial integrity and national reunification, China’s political system, social stability, and basic safeguards for ensuring sustainable economic and social development. For Chinese and foreign interpretations, see “China’s Declaration of Key Interests Misinterpreted,” Beijing Review, August 26, 2013. 155 Breslin, “Decentralization, Globalization;” Zhao Suisheng, “China: A Reluctant Global Power in the Search For Its Rightful Place,” in Emerging Powers in A Comparative Perspective, 101-130. 156 Wright, Party and State. 38

My study informs prevailing debates in international relations (IR) and China studies in four ways. First, conventional theories of IR remain constrained by unitary-actor assumptions that overstate the systemic causes and consequences of China’s external behavior—namely, strategic competition with the United States.157 Political economy debates on the state’s role in the contemporary world economy remain heavily based on unitary-state assumptions, distinguishing between “big” and “small” states, or “major powers” and “middle powers.”158 China’s current engagement of Asia has raised views of an “assertive” grand strategy in response to perceived U.S. “rebalancing” in the region in the period after the 2008 global financial crisis.159 As China’s Asia scholars also claim,

“peripheral diplomacy is inseparable with big power diplomacy,”160 and Beijing’s “pan- peripheral diplomatic strategy” ( 大周边外交战略) over the next decade remains fundamentally based on great-power interactions in China’s neighborhood.161

But China’s economic opening is an outcome of dynamic interactions of domestic and international forces, rather than being primarily a centrally-led effort to consolidate

China’s power and influence in Asia. China’s external strategy in Asia can be traced to

157 John Mearsheimer, “China’s Unpeaceful Rise,” Current History (2006): 160-162; G. John Ikenberry, “The Rise of China and the Future of the West: Can the Liberal System Survive?” Foreign Affairs 87-1 (2008); Deng Yong and Thomas Moore, “China Views Globalization: Toward A New Great-Power Politics?” The Washington Quarterly 27-3 (2004): 117-136. 158 See Chapter 4, “State Actors,” in Andre Broome, Issues and Actors in the Global Political Economy (New York: Palgrave Macmillan, 2014), 47-61. 159 Thomas Christensen, “The Advantages of An Assertive China: Responding to Beijing’s Abrasive Diplomacy,” Foreign Affairs, March/April 2011; Alastair Iain Johnston, “How New and Assertive Is China’s New Assertiveness,” International Security 37-4 (2013): 7-48; Robert Ross, “The Domestic Sources of China’s “Assertive Diplomacy,” 2009-2010: Nationalism and Chinese Foreign Policy,” in China Across the Divide: The Domestic and Global in Politics and Society, ed. Rosemary Foot (New York: Oxford University Press, 2013), 72-96; Michael Swaine, “Perceptions of An Assertive China,” China Leadership Monitor 32, May 14, 2010, and “China’s Assertive Behavior – Part One: One “Core Interests,”” China Leadership Monitor, November 15, 2010. 160 Zhang and Zhou, “中国邻国 (China’s Relations),” 70. 161 Qi Huaigao, 中国崛起 (China’s Peripheral Security); Song Guoyu “中美经贸关系发展的新常态 (The “New Normal” of China-US Economic and Trade relations),” 复旦学报 (Fudan Journal) 3 (2015). 39 long-term linkages between China’s engagement with neighbors and domestic regional development since 1978. My provincial case studies contribute to the revival of research on China’s border development since 2012 that would critically inform current scholarship on China’s political economy,162 including the subnational dimensions of China’s external economic behavior that require multilayered analytical approaches.163

Second, empirical research in political economy is largely based on the experience of advanced capitalist democracies. Research on developing economies and the implications of global interdependence remains primarily framed around the relationship between economic and political liberalization. The Chinese case points to the contexts of both authoritarian political systems and market transition, including (1) the significance of state as well as private preferences, and (2) the role of external actors in shaping domestic institutions.

Third, Chinese subnational case studies remain limited to coastal-inland comparisons or single case studies at earlier phases of national economic opening after

1978. My assessment of variation within inland China since the 2000s provides a sharper picture of China’s subnational disparities, illuminating dynamic linkages between internal and external forces of change at the later development stage. It seeks to complement rather than challenge coastal accounts of China’s opening in the 1980s and 1990s, presenting the other side of the same story. I recognize the continued dominance of central state

162 Ma Bo, “中国沿边地区区域经济一体化研究 (Regional Economic Integration of China’s Border Areas)” (PhD diss., Minzu University of China, 2011). 163 Meg Rithmire, “China’s “New Regionalism”: Subnational Analysis in Chinese Political Economy,” World Politics 66-1 (2014): 165-194; Gregory Chin, Margaret Pearson, and Wang Yong, ed., International Political Economy in China: The Global Conversation (New York: Routledge, 2015). 40 preferences, but consider the extent to which they align with, and can be changed by, local and external interests.

Finally, this study engages broader academic and policy debates on China’s emergence as a global economic power. It informs our understanding of China’s external orientation and China-centered integration in Asia’s key subregions. China’s cross-border integration with surrounding regions has clearly promoted the expansion of intra-Asian trade and investment over the past three decades. 164 Both China and Asia’s future development will critically depend on the success of China’s inland transition, and by extension, the choice “between a coastal-Mediterranean and a continental-Sinocentric pattern of economic, cultural, and political life.”165

164 Ash, “China’s Regional Economies.” 165 Katzenstein, A World of Regions, 192. 41

Chapter 2

Domestic-International Linkages on China’s Periphery

A central question in political economy is the interaction of domestic and international politics under conditions of economic interdependence.166 Efforts to integrate together domestic and international levels of analyses can be traced to Gourevitch’s “second image reversed,”167 models of “open economy politics (OEP),”168 and the British “new political economy” school from the 1990s.169 China’s case of foreign economic liberalization can first be placed within these theoretical perspectives.

This chapter responds to the existing literature in political economy and China studies on the domestic-international dynamics of foreign economic reform. I develop a theoretical framework for assessing the economic liberalization of China’s provinces, present my core arguments, and outline the methodology used to test my claims.

Internal-External Interactions in Political Economy

166 Jeffry Frieden and Lisa Martin, “International Political Economy: Global and Domestic Interactions,” in Political Science: The State of the Discipline, ed. Ira Katznelson and Helen Milner (New York: W.W. Norton, 2003), 118-146; David Lake, “International Political Economy: A Maturing Interdiscipline,” in The Oxford Handbook of Political Economy, ed. Barry Weingast and Donald Wittman (New York: Oxford University Press, 2006), 757-777; Theodore Cohn, “Liberalism and Domestic-International Interactions,” in Global Political Economy (New York: Routledge, 2016), 90-91. 167 Peter Gourevitch, “The Second Image Reversed: The International Sources of Domestic Politics,” International Organization, 32-4 (1975): 881-911. 168 David Lake, “Open Economy Politics: A Critical Review,” The Review of International Organizations 4- 3 (2009): 219-244. 169 Andrew Gamble, Anthony Payne, Ankie Hoogvelt, Michael Dietrich, and Michael Kenny, “Editorial: New Political Economy,” New Political Economy 1-1 (1996); Anthony Payne, “The New Political Economy of Area Studies,” Millennium 27-2 (1998): 253-273; Anthony Payne, ed., Key Debates in New Political Economy (New York: Routledge, 2006). 42

While international political economy (IPE) scholarship of the 1960s and 1970s was primarily concerned with the international political implications of economic interdependence, domestic politics-centered explanations of foreign economic behavior examine the impact of domestic interests and institutions on policy choice.170 OEP models of trade policy preferences identify the interest groups who favor or oppose liberalization based on the expected distributional consequences.171 Whether the winners or losers from free trade have greater policy influence, however, depends on domestic institutions: by empowering some actors over others, institutions shape how preferences translate into policy choice. 172 While preferences may explain the demand for protection or liberalization, institutions explain the supply-side of foreign economic policy.

Second-image-reversed studies further raise in question the reciprocal effects of economic openness on domestic interests and institutions.173 From the perspective of interests, declining costs of free trade create opportunities for coalition-building in support of continued openness. 174 Dynamic models of trade liberalization point to positive

“feedback effects” on domestic policy preferences and reform strategies that lessen the

170 Michael Hiscox, “The Domestic Sources of Foreign Economic Policies,” in Global Political Economy, ed. John Ravenhill (Oxford: Oxford University Press, 2014), 95-134; Helen Milner, Interests, Institutions, and Information: Domestic Politics and International Relations (Princeton: Princeton University Press, 1997). 171 James Alt, Jeffry Frieden, Michael Gilligan, Dani Rodrik, and Ronald Rogowski, “The Political Economy of International Trade,” Comparative Political Studies 29-6 (1996): 689-717; Douglas Irwin, “The Political Economy of Free Trade,” Journal of Law and Economics 37-1 (1994): 75-108. 172 Fiona McGillivray, Privileging Industry: The Comparative Politics of Trade and Industrial Policy (Princeton: Princeton University Press, 2004). 173 Jeffry Frieden and Ronald Rogowski, “The Impact of the International Economy on National Policies: An Analytical Overview,” in Internationalization and Domestic Politics, ed. Robert Keohane and Helen Milner (New York: Cambridge University Press, 1996), 25-47. 174 Ronald Rogowski, Commerce and Coalitions: How Trade Affects Domestic Political Alignments (Princeton: Princeton University Press, 1989); Helen Milner, Resisting Protectionism: Global Industries and the Politics of International Trade (Princeton: Princeton University Press, 1988). 43 likelihood of future protectionist demands.175 While such explanations suggest a virtuous cycle of liberalization, “race to the bottom” arguments are less optimistic. Free trade may instead generate domestic backlash and protectionist pressures as the need to maintain competitiveness abroad undermines public goods provision at home.176 The effect of economic openness on the welfare state is thus a major a point of debate on the domestic institutional impact of liberalization. 177 Both developed and developing country experiences show that whether global interdependence enables or constrains the state’s role in social protection depends on the character of domestic institutions.178

Existing research on the domestic-international dynamics of foreign economic reform raises four issues. First, domestic interest group-based explanations overlook the preferences of state actors. Earlier studies of U.S. foreign trade policy showed that the individual interests of political leaders mattered more than those of domestic constituents, who rarely held strong preferences on trade policy or communicated those preferences to their political representatives. 179 Claims that institutional insulation promotes liberalization also assume that leaders prefer free trade, but if leaders are protectionist, insulation from societal demands could produce more protection than otherwise.180

175 Oona Hathaway, “Positive Feedback: The Impact of Trade Liberalization on Industry Demands for Protection,” International Organization 52-3 (1998): 575-612. 176 Dani Rodrik, Has Globalization Gone Too Far? (Washington: Institute for International Economics, 1997); Brian Burgoon, “Globalization and Backlash: Polanyi’s Revenge?” Review of International Political Economy 16-2 (2009): 145-177. 177 Brian Burgoon, “Globalization and Welfare Compensation: Disentangling the Ties that Bind,” International Organization 55-3 (2001): 509-551; Alicia Adsera and Carles Boix, “Trade, Democracy and the Size of the Public Sector: The Political Underpinnings of Openness,” International Organization 56-2 (2002): 229-262; Erik Wibbels, “Dependency Revisited: International Markets, Business Cycles, and Social Spending in the Developing World,” International Organization 60-2 (2006): 433-468. 178 Linda Weiss, ed., States in the Global Political Economy: Bringing Domestic Institutions Back In (Cambridge: Cambridge University Press, 2003). 179 Raymond Bauer, Ithiel de Sola Pool, and Lewis Dexter, American Business and Public Policy: The Politics of Foreign Trade (Chicago: Aldine-Atherton, 1972). 180 Edward Mansfield and Marc Busch, “The Political Economy of Nontariff Barriers: A Cross-National Analysis,” International Organization 49-4 (1995): 723-749. 44

Furthermore, there is no explicit disaggregation of the “state,” whose interests may vary between national and subnational levels. Although the implementation of international economic agreements depends on the alignment of national leaders and their domestic constituents in Putnam’s “two-level” game,181 research within this framework has largely focused on executive-legislative divisions or partisan politics in democratic contexts.182 While showing the varying effects of domestic institutions on international cooperation, less attention is paid to the influence of organized interests on particular foreign economic policies, and the strategies of local state leaders responsible for implementing them. Broader political economy scholarship on “globalization” has produced no consensus on the contemporary relevance of the state, viewed as in retreat,183 in complex transformation,184 or resilient in face of a changing global economy.185 These debates expand traditional notions of inter-state economic diplomacy by including state- firm and firm-firm interactions, but are less interested in distinguishing the levels of the state.186 The related “new regionalism” literature is mainly concerned with the shift of state authority from national to suprastate levels,187 or the rise of non-state agents like

181 Robert Putnam, “Diplomacy and Domestic Politics: The Logic of Two-Level Games,” International Organization 42-3 (1988): 427-460; Peter Evans, Harold Jacobson, and Robert Putnam, Double-Edged Diplomacy: International Bargaining and Domestic Politics (Berkeley: University of California Press, 1993). 182 Lisa Martin, Democratic Commitments: Legislatures and International Cooperation (Princeton: Princeton University Press, 2000); George Downs and David Rocke, Optimal Imperfection? Domestic Uncertainty and Institutions in International Relations (Princeton: Princeton University Press, 1995); Milner, Interests, Institutions, and Information. 183 Susan Strange, The Retreat of the State: The Diffusion of Power in the World Economy (Cambridge: Cambridge University Press, 1996). 184 Philip Cerny, “Political Globalization and the Competition State,” in Political Economy and the Changing Global Order, ed. Richard Stubbs and Geoffrey Underhill (Ontario: Oxford University Press, 2005), 300- 309. 185 Geoffrey Garrett, “Shrinking States? Globalization and National Autonomy,” in The Political Economy of Globalization, ed. Ngaire Woods (London: Macmillan, 2000), 107-146. 186 Colin Hay, “Globalization’s Impact on States,” in Global Political Economy, 314-345. 187 Andrew Gamble and Anthony Payne, ed., Regionalism and World Order (New York: St. Martin’s Press, 1996); William Coleman and Geoffrey Underhill, ed., Regionalism and Global Economic Integration (London: Routledge, 1998). 45 multinational corporations (MNCs) and social movements, as emphasized by proponents of transnationalism.188

State rather than societal actors are the primary agents of policy change in centralized political systems such as China, where party-state elites have not only captured many of the benefits of economic reform,189 but also delivered the public goods needed to satisfy an evolving society.190 While accounts of trade liberalization in the developing world attribute openness to democracy, 191 economic openness is also a key source of growth and political legitimacy for authoritarian leaders. 192 National success in the contemporary global economy requires not the “eclipse” of the state by transnational forces, but a “leaner, meaner” state that is actively engaged with these new actors.193 The cases of both advanced and developing economies further demonstrate that changes in leaders’ ideas rather than material interests may most importantly drive reform.194 Such findings

188 Thomas Risse, Bringing Transnational Relations Back In: Non-State Actors, Domestic Structures and International Institutions (Cambridge: Cambridge University Press, 1995); Philip Cerny, Rethinking World Politics: A Theory of Transnational Neopluralism (Oxford: Oxford University Press, 2010); Samuel Huntington, “Transnational Organizations in World Politics,” World Politics 25 (1973): 338-368. 189 Lucian Pye, The Dynamics of Chinese Politics (Cambridge: Oelgeschlager, Gunn & Hain, 1981); Andrew Walder, “Elite Opportunity in Transitions from State Socialism,” in Social Stratification: Class, Race and Gender in Sociological Perspective, ed. David Grusky (Boulder: Westview, 2014), 1110-1115. 190 Teresa Wright, Party and State in Post-Mao China (Cambridge: Polity Press, 2015); Tony Saich, Providing Public Goods in Transitional China (New York: Palgrave Macmillan, 2008). 191 Helen Milner and Keiko Kubota, “Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries,” International Organization 59-1 (2005): 107-143; Barry Eichengreen and David Leblang, “Democracy and Globalization,” Economics and Politics 20-3 (2008): 289-334; Stephan Haggard and Steven Webb, Voting for Reform: Democracy, Political Liberalization, and Economic Adjustment (New York: Oxford University Press, 1994). 192 Mary Gallagher, “Reform and Openness: Why China’s Economic Reforms Have Delayed Democracy,” World Politics 54 (2002): 338-372; Bruce Bueno de Mesquita and George Downs, “Development and Democracy,” Foreign Affairs (2005); Chen Jie, A Middle Class without Democracy: Economic Growth and the Prospects for Democratization in China (New York: Oxford University Press, 2013); Beatrice Magaloni, Voting for Autocracy: Hegemonic Party Survival and Its Demise in Mexico (Cambridge: Cambridge University Press, 2008). 193 Peter Evans, “The Eclipse of the State? Reflections on Stateness in an Era of Globalization,” World Politics 50-1 (1997): 62-87. 194 Peter Hall, ed., The Political Power of Economic Ideas: Keynesianism across Nations (Princeton: Princeton University Press, 1987); Judith Goldstein, Ideas, Interests and American Trade Policy (Ithaca: Cornell University Press, 1993); Judith Goldstein and Robert Keohane, ed., Ideas and Foreign Policy: Beliefs, Institutions, and Political Change (Ithaca: Cornell University Press, 1993); Ann Krueger, “Trade Policy and 46 underscore the role of external ideas, as well as policy “feedback” and “sequencing” mechanisms at home,195 as a potential source of change in otherwise static, historical institutional approaches.196

Local states in particular can decisively shape foreign economic policy as not just implementers of central directives but also policy “innovators,” 197 as seen in China and

India’s current interactions with U.S. government and corporate counterparts at the local level.198 But despite common trends of decentralization, unlike in multiparty, democratic

India, China’s local leaders seek to satisfy the central state authorities who appoint and promote them rather than the societal groups whose support is needed to remain in office.

Second, a focus on domestic interests and institutions must also take into account existing economic conditions. The conditions of late industrialization in particular require active state intervention in managing the economy, during which the state’s role not only diminishes over time but is qualitatively transformed.199 In East Asian models of state-led development, leaders managed the initial domestic costs of reform through the selective

Economic Development: How We Learn,” American Economic Review 87-1 (1997): 1-22, and Trade Policies and Developing Nations (Washington: Brookings Institution, 1995); Beth Simmons and Zachary Elkins, “The Globalization of Liberalization: Policy Diffusion in the International Political Economy,” American Political Science Review 98-1 (2004): 171-189; Mark Blyth, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (Cambridge: Cambridge University Press, 2002). 195 Henry Farrell and Abraham Newman, “Making Global Markets: Historical Institutionalism in International Political Economy,” Review of International Political Economy 17-4 (2010): 609-638. 196 James Mahoney and Kathleen Thelen, “A Theory of Gradual Institutional Change,” in Explaining Institutional Change: Ambiguity, Agency, and Power, ed. Mahoney and Thelen (New York: Cambridge University Press, 2010), 1-37; Kathleen Thelen, “How Institutions Evolve: Insights form Comparative Historical Analysis,” in Comparative Historical Analysis in the Social Sciences, ed. James Mahoney and Dietrich Ruschemeyer (New York: Cambridge University Press, 2003), 208-240. 197 Jessica Teets, “The Politics of Innovation in China: Local Officials as Policy Entrepreneurs,” Issues & Studies 51-2 (2015): 79-109. 198 William Antholis, Inside Out: India and China: Local Politics Go Global (Washington: Brookings Institution Press, 2013). 199 Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge: Harvard University Press, 1962), 5-30. 47 liberalization of specific sectors.200 Lobbying from below initially had limited influence on central decisions to open up specific regions or sectors under given economic constraints at the onset of China’s market transition.201 In addition to administrative decentralization, what set post-1978 China’s reforms apart from those of other communist systems were strategies of gradualism protecting heavy and state-owned industries while the Chinese economy “grew out of the plan.”202 Sectoral differences in lobbying by Chinese and foreign businesses from the 1990s further show that economic factors like ownership, industry concentration, and technological sophistication can affect the nature and outcome of lobbying within a common political system.203 Understanding policy choice thus also requires considering the economic structural context in which those choices are made, and the temporal sequence of reform over time.

Third, both OEP and second-image-reversed arguments present alternatives to conventional system-level explanations of economic openness in American political economy scholarship204 that emphasize changes in the power, institutional, or normative

200 Meredith Woo-Cumings, ed., The Developmental State (Ithaca: Cornell University Press, 1999); Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton: Princeton University Press, 1990); Alice Amsden, Asia’s Next Giant: South Korea and Late Industrialization (Oxford University Press, 1989). 201 Susan Shirk, “The Domestic Political Dimensions of China’s Foreign Economic Relations,” in China and the World: Chinese Foreign Policy in the Post-Mao Era, ed. Samuel Kim (Boulder: Westview Press, 1984), 57-81; Dorothy Solinger, China’s Transition from Socialism: Statist Legacies and Market Reforms, 1980- 1990 (Armonk: M.E. Sharpe, 1993). 202 Barry Naughton, Growing Out of the Plan: Chinese Economic Reform, 1978-1993 (Cambridge: Cambridge University Press, 1995); Nicholas Lardy, China’s Unfinished Economic Revolution (Washington: Brookings Institution Press, 1998); Andrew Walder, ed., China’s Transitional Economy (Oxford: Oxford University Press, 1996). 203 Scott Kennedy, The Business of Lobbying in China (Cambridge: Harvard University Press, 2008). 204 Daniel Maliniak and Michael Tierney, “The American School of IPE,” in International Political Economy: Debating the Past, Present and Future, ed. Nicola Phillips and Catherine Weaver (Abingdon: Routledge, 2011), 11-34; Benjamin Cohen, International Political Economy: An Intellectual History (Princeton: Princeton University Press, 2008); Henry Farrell and Martha Finnemore, “Ontology, Methodology, and Causation in the American School of International Political Economy,” Review of International Political Economy 16-1 (2009): 58-71. For a comparative review of other schools, see Mark Blyth, ed., Routledge Handbook of International Political Economy: IPE as a Global Conversation (London: Routledge, 2009). 48 structure of the international system.205 A common point of debate raised by both the “new” and “old” political economy, however, is the relative weight of domestic versus international determinants of foreign economic behavior.206 The study of contemporary political economy instead requires an analysis of the interplay of domestic and international, or micro and macro forces of change.207 OEP models exclude the macro-level processes that link together national political economies. 208 By centering heavily on domestic politics, existing work on two-level games similarly ignores factors that might affect relative bargaining power or incentives to cooperate at the international level such as economic and military asymmetries or common ties to international institutions. 209

Research on international trade links together domestic and international bargaining processes, but pays inadequate attention to the interaction of actors at different levels.210

Second-image-reversed studies, on the other hand, focus more on international environmental changes rather than external agents of change.211 Gourevitch sees domestic

205 Charles Kindleberger, The World in Depression, 1929-1939 (Berkeley: University of California Press, 1973); Stephen Krasner, “State Power and the Structure of International Trade,” World Politics 28-3 (1976): 317-347; Robert Gilpin, The Political Economy of International Relations (Princeton: Princeton University Press, 1987); Robert Keohane and Joseph Nye, Power and Interdependence: World Politics in Transition (Boston: Little, Brown, 1977); Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton: Princeton University Press, 1984). 206 Keohane, “The Old IPE and the New,” Review of International Political Economy 16-1 (2009): 34-46. 207 Thomas Oatley, “The Reductionist Gamble: Open Economy Politics in the Global Economy,” International Organization 65-2 (2011): 311-341; Susan Strange, “The Future of Global Capitalism; or, Will Divergence Persist Forever?” in Political Economy of Modern Capitalism: Mapping Convergence and Diversity, ed. Colin Crouch and Wolfgang Streeck (Thousand Oaks: Sage, 1997), 182-191; Peter Katzenstein, Small States in World Markets: Industrial Policy in Europe (Ithaca: Cornell University Press, 1985), and “Small States and Small States Revisited,” New Political Economy 8-1 (2003): 9-30. For a discussion of the integration of comparative and international political economy sub-disciplines in this effort, see Ben Clift, Comparative Political Economy: States, Markets and Global Capitalism (New York: Palgrave Macmillan, 2014), 17-19 and 39-42. 208 These processes can be political (intergovernmental bargaining, cooperation), economic (contagion, network externalities), or social (diffusion, learning). Oatley, “The Reductionist Gamble,” 313, 318. 209 Hiscox, “The Domestic Sources,” 127. 210 Eugenia de Conceicao-Heldt, “Two-Level Games and Trade Cooperation: What Do We Now Know?” International Politics 50 (2013): 579-599. 211 Peter Gourevitch, Politics in Hard Times: Comparative Responses to International Economic Crises (Ithaca: Cornell University Press, 1986). 49 structure as both a consequence and cause of the international economy,212 but is mainly interested in how the state’s relative position in the international system can determine foreign economic policy, as seen in earlier arguments on late industrialization and core- periphery dependency. 213 In contrast, Krasner’s “outside-in” approach considers how external state actors can shape the domestic institutions of other states,214 while Drezner and others examine the domestic institutional impact of multilateral regimes. 215

Proponents of “new political economy” emphasize the role of non-state actors in domestic policymaking, particularly MNCs and transnational capitalist production networks. 216

However, such forces are typically viewed as constraining or replacing, rather than complementing or even enabling state authority.

The study of China’s post-World Trade Organization (WTO) political economy clearly requires an approach that links together domestic and international dimensions of change.217 In particular, the Chinese case raises the question of subnational variation in economic openness that is obscured by predominant political economy research on

212 Gourevitch, “The Second Image Reversed,” and “Squaring the Circle: The Domestic Sources of International Cooperation,” International Organization 50-2 (1996): 349-373. 213 Gerschenkron, Economic Backwardness; James Kurth, “The Political Consequences of the Product Cycle: Industrial History and Political Outcomes,” International Organization 33-1 (1979): 1-34; Immanuel Wallerstein, The Modern World System (New York: Academic Press, 1974), and “China and the World System since 1945,” Presentation at Yale University, November 18, 2013. 214 Stephen Krasner, “Changing State Structures: Outside In,” Proceedings of the National Academy of Sciences of the United States of America 108-4 (2011): 21302-21307. 215 Daniel Drezner, ed., Locating the Proper Authorities: The Interaction of Domestic and International Institutions (Ann Arbor: The University of Michigan Press, 2003); Orfeo Fioretos, Creative Reconstructions: Multilateralism and European Varieties of Capitalism After 1950 (Ithaca: Cornell University Press, 2011). 216 Payne, Key Debates; Gamble et al. “Editorial: New Political Economy.” Also see Saskia Sassen, “Embedding the Global in the National,” in States and Sovereignty in the Global Economy, ed. David Smith, Dorothy Solinger and Steven Topik (London: Routledge, 1999). 217 Shaun Breslin, “Beyond the Disciplinary Heartlands: Studying China’s International Political Economy,” in China’s Reforms and International Political Economy, ed. David Zweig and Chen Zhimin (New York: Routledge, 2007), 21-41; Rosemary Foot, ed., China Across the Divide: The Domestic and Global in Politics and Society (New York: Oxford University Press, 2013). 50 temporal and cross-national differences.218 It draws attention to not just state and external actors that are overlooked in domestic explanations of foreign economic behavior centered on societal preferences, but also local state actors. The external strategies of subnational governments remain understudied in current political economy scholarship. For example,

“substate” actors in the “new interdependence” literature are still limited to national regulatory agencies, trade associations, and non-governmental organizations.219

Finally, empirical research on the domestic-international dimensions of economic liberalization focuses predominantly on voter preferences and political institutions in advanced capitalist democracies.220 The political economy literature on the developing world and non-democracies remains primarily concerned with the relationship between economic and political liberalization.221 Cross-national studies are interested not just in the differences between democratic and non-democratic regimes,222 but more importantly the “varieties of capitalism” and democratic institutions in the industrialized world.223

Socialist systems, on the other hand, have traditionally presented a “hard case” of economic

218 Meg Rithmire, “China’s “New Regionalism:” Subnational Analysis in Chinese Political Economy,” World Politics 66 (2014): 165-194. 219 Henry Farrell and Abraham Newman, “Domestic Institutions Beyond the Nation-State: Charting the New Interdependence Approach,” World Politics 66-2 (2014): 331-363. 220 For a critique of IPE’s narrowly-derived theoretical and empirical foundations, see Nicola Phillips, ed., Globalizing International Political Economy (Palgrave Macmillan, 2005). 221 Helen Milner and Bumba Mukherjee, “Democratization and Economic Globalization,” Annual Review of Political Science 12-1 (2009): 163-181; Stephan Haggard and Robert Kaufman, The Political Economy of Democratic Transitions (Princeton: Princeton University Press, 1995); Andrew Walder, ed., The Waning of the Communist State: Economic Origins of Political Decline in China and Hungary (Berkeley: University of California Press, 1995); Andrew Walder, Andrew Isaacson, and Qinglian Liu, “After State Socialism: The Political Origins of Transitional Recessions,” Americal Sociological Review 80-2 (2015): 444-468. 222 Edward Mansfield, Helen Milner, and Peter Rosendorff, “Free to Trade: Democracies, Autocracies and International Trade,” American Political Science Review 94-2 (2000): 305-321, and “Why Democracies Cooperate More: Electoral Control and International Trade Agreements,” International Organization 56-3 (2002): 477-513. 223 Peter Hall and David Soskice, ed., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (New York: Oxford University Press, 2001); Suzanne Berger and Ronald Dore, ed., National Diversity and Global Capitalism (Ithaca: Cornell University Press, 1996); Ronald Rogowski, “Trade and the Variety of Democratic Institutions,” International Organization 41-2 (1987): 203-223; Masanobu Ido, ed., Varieties of Capitalism, Types of Democracy and Globalization (New York: Routledge, 2012). 51 liberalization given rigid institutional barriers and shared protectionist interests among bureaucrats and state-owned industries.224

The Chinese Case of Global Economic Integration Since 1978

Based on Keohane and Milner’s definition of “internationalization” as a decline in the costs of international transactions that can be empirically measured by growth in external economic flows relative to domestic ones, the Chinese economy since 1978 has clearly followed the trend of internationalization.225 China’s total volume of foreign trade grew from about half of domestic trade in 1985 to 14 percent more than the domestic trade volume by 1995.226

China’s economic opening since 1978, however, is primarily a story of coastal success. The biggest concern of the General Agreement on Tariffs and Trade (GATT)

China Working Group in 1987-1989 regarding the Chinese foreign trade system was its discriminative reform policy across regions.227 Within China, the 1997 Asian financial crisis prompted calls for policy change to mitigate the domestic and social risks of economic globalization. 228 While the gross domestic product (GDP) of Liaoning in

224 Matthew Evangelista, “Stalin’s Revenge: Institutional Barriers to Internationalization in the Soviet Union,” in Internationalization and Domestic Politics, 159-185; Janos Kornai, The Socialist System: The Political Economy of Communism (Princeton: Princeton University Press, 1992); Josef Brada, “The Political Economy of Communist Foreign Trade Institutions and Policies,” Journal of Comparative Economies 15 (1991): 211- 238; Andrew Walder, “Transitions from State Socialism: A Property Rights Perspective,” in The Sociology of Economic Life, ed. Mark Granovetter and Richard Swedberg (Boulder: Westview, 2011), 503-535; Susan Shirk, “Internationalization and China’s Economic Reforms,” in Internationalization and Domestic Politics, 186-206. 225 Keohane and Milner, Internationalization and Domestic Politics, 4. 226 National Bureau of Statistics, China Statistical Yearbook (Beijing: China Statistics Press). 227 Wang Yi, Century Negotiation: In the Days of GATT/WTO Accession Negotiation (Beijing: Party School Press, 2007), 40. Cited in Su Changhe, “Internationalization and Glocal Linkage: A Study of China’s Glocalization (1978-2008),” in Transformation of Foreign Affairs, 340. 228 Wang Yizhou, “Political Stability and International Relations in the Process of Economic Globalization: Another Perspective on Asia’s Financial Crisis,” CASS Institute of World Economic and Politics Working 52 northeast China was twice that of coastal Guangdong in 1978, that relationship was reversed by the 2000s.229

After two decades of coastal-led opening, the central government’s western, northeastern, and central development plans in 2000, 2003, and 2004 aimed to extend the gains from liberalization to China’s inland regions. From 2005 to 2013, the share of foreign trade in coastal GDP declined from 95 percent to 67 percent. Trade openness within inland

China, however, also varied during this period: the GDP share of trade declined to 20 percent in the northeast and grew at a faster rate in western China than central China, to 14 percent and 11 percent respectively.

What explains the subnational variation in China’s foreign economic liberalization?

In particular, why and how are some late-developing, inland provinces more successful than others in following the coastal model of export-led development? Existing explanations of China’s global economic integration since 1978 provide an initial analytical framework for these questions.

Explanations of China’s Global Economic Integration Since 1978

The division in political economy scholarship on internal versus external drivers of economic liberalization is apparent in accounts of China’s reform experience since 1978.

Assessments of the Chinese case can be placed along two dimensions of views.230 The

Paper, 2000; He Qinglian, 现代化的危险：当代中国的经济社会问题 (The Dangers of Modernization: Contemporary China’s Economic and Social Problems) (Beijing: Jinri zhongguo chubanshe, 1998). 229 “China’s Strategy to Rejuvenate Old Industrial Base,” Xinhua, July 19, 2005. 230 David Zweig and Chen Zhimin, “International Political Economy and Explanations of China’s Globalization,” in China’s Reforms, 1-18. 53 first dimension centers on the relative impact of domestic and international, or “inside-out” versus “outside-in” forces of change. These views raise in question the extent to which external forces constrain or are constrained by Chinese domestic interests and institutions.

The second dimension concerns the relative impact of state and non-central state, or “top- down” versus “bottom-up” forces, focused on the dynamics of market transition under authoritarian rule. Both spectrums of views can first be contrasted with alternative explanations of China’s global economic integration that do not take into account domestic politics.

System-level Explanations

System-level explanations in international relations (IR) view China’s external economic behavior as constrained or enabled by the global distribution of power, wealth, and values.231 From the perspective of U.S. hegemony, U.S. dominance and the lack of serious allies give China few strategic alternatives than to accommodate the U.S.-led liberal economic order.232 The breakup of the Soviet Union helped to prompt Deng’s “Southern

Tour” in 1992 and subsequent waves of foreign economic liberalization.233 Economic

231 James Townsend, “Reflections on the Opening of China,” in Perspectives on Modern China: Four Anniversaries, ed. Kenneth Lieberthal, Joyce Kallgren, Roderick MacFarquhar, and Frederic Wakeman Jr. (Armonk: M.E. Sharpe, 1991), 387-417; Avery Goldstein, “Power Transitions, Institutions, and China’s Rise in East Asia: Theoretical Expectations and Evidence,” Journal of Strategic Studies 30-4 (2007): 639-682. For a review of China’s IPE school informed by these traditions, see Gregory Chin, Margaret Pearson, and Wang Yong, “Introduction – IPE with China’s Characteristics,” Review of International Political Economy 20-6 (2013): 1145-1164; Zhu Wenli, “International Political Economy from a Chinese Angle,” Journal of Contemporary China 10-26 (2001): 45-54; and James Mittelman, “Globalization and Development: Learning from Debates in China,” Globalization 3-3 (2006): 377-391. For a comparative perspective of the Chinese IPE school, see Benjamin Cohen, Advanced Introduction to International Political Economy (Cheltenham: Edward Elgar, 2014), Chapter 8. 232 Chen Zhimin, “Soft Balancing and Reciprocal Engagement: International Structures and China’s Foreign Policy Choices,” in China’s Reforms, 42-61. 233 John Garver, “The Chinese Communist Party and the Collapse of Soviet Communism,” The China Quarterly 133 (1993): 1-26; David Shambaugh, China’s Community Party: Atrophy and Adaptation (Berkeley: University of California Press, 2008). 54 interdependence promotes engagement rather than confrontation, which would be costly to

China’s foreign trade and national growth. 234 At the Asian regional level, China’s integration with ASEAN from the 1990s was driven by the decline of Japan’s regional economic hegemony after the Cold War, and more recently, China’s desire to diversity its economic dependence away from the United States.235 Multilateral engagement and the internalization of global market norms further suggest that Chinese leaders have a normative incentive to remain integrated into the liberal economic order.236

On the other hand, skeptics see China’s international economic integration as driven primarily by strategic competition with the United States.237 Diplomatic or strategic aims motivated post-Asian financial crisis economic agreements in East Asia, which offer relatively limited economic gains.238 China’s current expansion of its free trade agreement

(FTA) and other regional economic networks in Asia remains a response to perceived U.S.

234 Dale Copeland, “Economic Interdependence and the Future of U.S.-Chinese Relations,” in International Relations Theory and the Asia Pacific, ed. G. John Ikenberry and Michael Mastanduno (New York: Columbia University Press, 2003), 232-352. 235 Amitav Acharya and Richard Stubbs, “Asia Pacific Region in the Post-Cold War Era: Economic Growth, Political Change and Regional Order,” in The Third World Beyond the Cold War, ed. Louise Fawcett and Yezid Sayigh (Oxford: Oxford University Press, 1999), 118-133; Richard Stubbs, “ASEAN Plus Three: Emerging East Asian Regionalism?” Asian Survey 42 (2002), 440-455; Gregory Chin and Richard Stubbs, “China, Region Building and the China-ASEAN Free Trade Area,” Review of International Political Economy 18-3 (2011): 277-298. 236 G. John Ikenberry, “The Rise of China and the Future of the West: Can the Liberal System Survive?” Foreign Affairs 87-1 (2008): 23-37; Rosemary Foot, “Chinese Strategies in U.S.-Hegemonic Global Order: Accommodating and Hedging,” International Affairs 82-1 (2006): 77-94; Alastair Iain Johnston, Social States: China in International Institutions 1980-2000 (Princeton: Princeton University Press, 2008); Amitav Acharya, Whose Ideas Matter: Agency and Power in Asian Regionalism (New York: Cornell University Press, 2009). 237 C. Fred Bergsten, “China and Economic Integration in East Asia: Implications for the United States,” Peterson Institute for International Economics Policy Brief 07-3 (2007); Gao Cheng, “新帝国体系中的制 度霸权与治理路径—兼析国际规则“非中性”视角下的美国对华战略 (Institutional Hegemony in the New Imperial System and Governance Path: American Strategies against China from the “Non-neutral” Perspective of International Rules),” 教学与研究 (Teaching and Research) 5 (2012): 57-65. 238 John Ravenhill, “East Asian Regionalism: Much Ado about Nothing?” in Globalising the Regional and Regionalising the Global, ed. Rick Fawn (Cambridge: Cambridge University Press, 2005), 215-236. 55 strategies of containment that risk “economic cold war.” 239 Changes in the external strategic environment further explain the historical pattern of China’s provincial development: just as the USSR’s collapse intensified China’s coastal liberalization in the

1990s, U.S. involvement in the Vietnam War and the 1969 Sino-Soviet border conflict drove the reallocation of domestic resources to the western interior through the so-called

“Third Front” policy.240 China’s quest for oil security partly led Mao’s successor Hua

Guafeng to introduce outward-oriented reforms in 1977, and the subsequent failure to find oil in the South China Sea prompted the shift from heavy to light industries concentrated in coastal China.241

Inside-out versus Outside-in Explanations

Domestic explanations of China’s global economic integration challenge conventional IR theories that see China’s external behavior as primarily a response to changes in the international system. From an inside-out perspective, China’s opening to the world economy depends on domestic interests and institutions rather than external factors.242 The domestic political constraints on China’s opening, including elite preferences and communist institutional barriers, were especially evident at the early stage of market

239 Jin Jianmin, “China’s Asian Economic Integration Strategy: FTA, RCEP, TPP,” Fujitsu Research Institute Research Report 412 (2013); Huang Yiping, “Averting Economic Cold War,” East Asian Forum, January 19, 2014. 240 Barry Naughton, “Industrial Policy During the Cultural Revolution: Military Preparation, Decentralization, and Leaps Forward,” in New Perspectives on the Cultural Revolution, ed. William Joseph, Christine Wong, and David Zweig, Harvard Contemporary China Series 8 (Cambridge: Harvard University Council on East Asian Studies, 1991), 153-182. 241 Kenneth Lieberthal and Michel Oksenberg, Policy Making in China: Leaders, Structures, and Processes (Princeton: Princeton University Press, 1988); Dorothy Solinger, From Lathes to Looms: China’s Industrial Policy in Comparative Perspective, 1979-1982 (Stanford: Stanford University Press, 1991). 242 Zhu Tianbao, “Building Institutional Capacity for China’s New Economic Opening,” in States in the Global Economy: Bringing Domestic Institutions Back In, ed. Linda Weiss (Cambridge: Cambridge University Press, 2003), Chapter 7. 56 transition.243 China’s WTO concessions could not proceed until the Communist Party of

China (CPC) leadership’s formal consensus in 1992 on establishing a “socialist market economy” led by “market forces, subject to macro-management by the state.”244 While

Deng’s growth strategy required “opening the door” in 1978, foreign direct investment

(FDI) liberalization from the 1990s involved inefficient, “partial reforms” marginalizing the private sector in favor of failing state-owned enterprises (SOEs). 245 China’s participation in multilateral regimes shows limited compliance with international market norms since the onset.246 Its centralized state institutions have most importantly shaped the final form of liberalization, as indicated by the bureaucratic political dynamics of

China’s WTO entry and continued regulation of foreign trade and investment in certain sectors.247

Although global market pressures opened up the textile and shipbuilding industries,248 FDI liberalization even after WTO entry remains characterized by selective regulation of strategic sectors identified as vital to national security, including energy, infrastructure, telecommunications, and finance. 249 The period after the 2008 global

243 Lucian Pye, The Dynamics of Chinese Politics (Cambridge: Oelgeschlager, Gunn & Hain, 1981); Shirk, “The Domestic Political Dimensions;” Dorothy Solinger, China’s Transition; Carol Lee Hamrin, “Competing ‘Policy Packages’ in Post-Mao China,” Asian Survey 29-1 (1984): 487-518. For a historical review of the internal political dynamics of China’s market reforms, see Wu Jinglian and Fan Shitao, “China’s Economic Reform; Processes, Issues, and Prospects (1978-2012),” in Routledge Handbook of the Chinese Economy, ed. Gregory Chow and Dwight Perkins (Abingdon: Routledge, 2015), 55-75. 244 Jiang Zemin, Selected Works of Jiang Zemin (Beijing: Foreign Languages Press, 2010), 188-194. 245 Huang Yasheng, Selling China: Foreign Direct Investment During the Reform Era (New York: Cambridge University Press, 2003). 246 Harold Jacobson and Michel Oksenberg, China’s Participation in the IMF, the World Bank, and GATT (Ann Arbor: The University of Michigan Press, 1990). 247 Margaret Pearson, “The Case of China’s Accession to GATT/WTO,” in The Making of Chinese Foreign and Security Policy in the Era of Reform, ed. David Lampton (Stanford: Stanford University Press, 2001), 337-370, and “Trade Policy and Regulatory Policies: China’s WTO Implementation in Comparative Perspective,” in China’s Reforms, 112-130. 248 Thomas Moore, China in the World Market: Chinese Industry and International Sources of Reform in the Post-Mao Era (Cambridge: Cambridge University Press, 2002). 249 Nicholas Lardy, Markets Over Mao: The Rise of Private Business in China (New York: Columbia University Press, 2014); Roselyn Hsueh, China’s Regulatory State: A New Strategy for Globalization (Ithaca: 57 financial crisis is associated with a reversal of China’s liberal reforms of the 1990s, reviving state-owned corporate giants at the expense of private and foreign-invested firms in export industries.250 China’s current model of state capitalism remains characterized by central state direction, selective industrial and trade policy, close government-business ties, and a form of “developmental corruption” that even facilitated post-Mao China’s entrepreneurism and growth.251

Outside-in accounts argue that external market forces drove the liberalization of

China’s foreign trade regime from the 1980s,252 with new coalitional possibilities among the winners from further liberalization, namely labor-intensive, light industries in coastal provinces.253 In the textile sector, international quotas prompted industrial restructuring to improve global competitiveness, demonstrating the positive feedback effects of openness on domestic reform strategies.254 While foreign investors aligned with reformist elites to push for the early deregulation of foreign exchange, 255 the entry of foreign firms

Cornell University Press, 2011); Margaret Pearson, “The Business of Governing Business in China: Institutions and Norms of the Emerging Regulatory State,” World Politics 57-2 (2005): 296-322. 250 Yang Dali and Jiang Junyan, “Guojin Mintui: The Global Recession and Changing State-Economy Relations in China,” in The Global Recession and China’s Political Economy, ed. Dali Yang (New York: Palgrave Macmillan, 2012), 33-70. 251 Benjamin Liebman and Curtis Milhaupt, Regulating the Visible Hand? The Institutional Implications of Chinese State Capitalism (New York: Oxford University Press, 2015); Christopher McNally, “Sino- Capitalism: China’s Reemergence and the International Political Economy,” World Politics 64-4 (2012): 741-776; Mark Beeson, “The Rise of China and the Future of the International Political Economy,” in Global Political Economy: Contemporary Theories, ed. Ronen Palan (Abingdon: Routledge, 2013), 232-243; Andrew Wedeman, Double Paradox: Rapid Growth and Rising Corruption in China (Ithaca: Cornell University Press, 2012); Charles Wolf, “Developmental Corruption in China: Charles Wolf Jr. on Double Paradox: Rapid Growth and Rising Corruption in China by Andrew Wedeman,” in Puzzles, Paradoxes, Controversies and the Global Economy (Stanford: Hoover Institution Press, 2015), 69-80. 252 Nicholas Lardy, Foreign Trade and Economic Reform in China, 1978-1990 (New York: Cambridge University Press, 1993). 253 Shirk, “Internationalization and China’s Economic Reforms.” 254 Moore, China in the World Market. 255 Margaret Pearson, Joint Ventures in the People’s Republic of China (Princeton: Princeton University Press, 1991). 58 transformed China’s regulatory state institutions in line with international standards.256

China’s market reforms largely began in anticipation of WTO accession,257 and moved forward with the exchange of new ideas over 15 years of trade negotiations.258 China’s multilateral engagement since 1978 further suggests that “strong” authoritarian states like

China are more capable than weak states of internalizing global norms into the domestic political system. 259 The decade after WTO entry under the Hu-Wen administration indicates that market forces led by private firms, rather than “state capitalism,” are increasingly driving China’s global economic integration.260 This trend at the local level underscores the significance of external and non-state drivers of China’s foreign economic liberalization.261

Top-down versus Bottom-up Explanations

The extent to which China’s opening is led by non-central state actors, however, is a point of debate between top-down and bottom-up perspectives. From a top-down view, central state interests dictate China’s foreign economic policy choices. The decentralization of economic decision-making power may enhance local incentives for reform. Fiscal

256 Zheng Yongnian, Globalization and State Transformation in China (New York: Cambridge University Press, 2004); Phillip Stalley, Foreign Firms, Investment, and Environmental Regulation in the People’s Republic of China (Stanford: Stanford University Press, 2010). 257 Nicholas Lardy, Integrating China into the Global Economy (Washington: Brookings Institution Press, 2002). 258 Su Changhe, “Internationalization and Glocal Linkage;” Jeremy Paltiel, “Hinges and Latches on the Open Door: The Normative Parameters of China’s WTO Accession,” in China’s Reforms, 131-151. 259 Su Changhe, “The Political Economy of the Mutual Transformation of the Domestic and International Systems: Implications for China and the International System (1978-2007),” 世界经济与政治 (World Economic and Politics) 11 (2007). 260 Lardy, Markets Over Mao; Stephan Haggard and Huang Yasheng, “The Political Economy of Private Sector Development in China,” in China’s Great Economic Transformation, ed. Loren Brandt and Thomas Rawski (Cambridge: Cambridge University Press, 2008). 261 David Zweig, Internationalizing China: Domestic Interests and Global Linkages (Ithaca: Cornell University Press, 2002); Moore, China in the World Market; Lawrence Reardon, The Reluctant Dragon: Crisis Cycles in Chinese Foreign Economic Policy (Seattle: University of Washington Press, 2002). 59 decentralization or “market-preserving” federalism explains China’s economic success compared to other former socialist economies in Eastern Europe. 262 China’s rapid industrialization after 1978 was driven by local governments and their public enterprises, as shown by the rise of “local state corporatism” in rural China after fiscal decentralization in the mid-1980s.263 Regional variation in China’s early market reforms further shows that local governments with smaller industrial bases had clearer financial incentives, weaker political interests in enterprises, and stronger monitoring capacity. 264 Local experimentation remains a defining feature of China’s current reform strategy under Xi

Jinping’s “mass innovation” campaign.265

The emphasis on positive reform incentives, however, overlooks the potential adverse effects of decentralization.266 Rather than promoting market-oriented reform, fiscal decentralization can have unintended consequences at the local level such as the hoarding of extra-budgetary revenues for public goods provision, reliance on informal finance for private sector development, and excessive local state interference in enterprises.267 Local protectionism and noncompliance in implementing central reform

262 Gabriella Montinola, Qian Yingyi and Barry Weingast, “Federalism, Chinese Style: The Political Basis for Economic Success in China,” World Politics 48-1 (1995): 50-81; Qian Yingyi and Barry Weingast, “China’s Transition to Markets – Market Preserving Federalism, Chinese Style,” Hoover Institution (1995); Susan Shirk, How China Opened Its Door: The Political Success of the PRC’s Foreign Trade and Investment Reforms (Washington: Brookings, 1994), 27-33, and “Internationalization and China’s Reforms,” 195-199. 263 Jean Oi, “Fiscal Reform and the Economic Foundations of Local State Corporatism in China,” World Politics 45 (1992): 99-126, “The Role of the Local State in China’s Transitional Economy,” The China Quarterly 144 (1995): 1132-1149, and Rural China Takes Off: Institutional Foundations of Economic Reform (Berkeley: University of California Press, 1999). 264 Andrew Walder, “Local Governments as Industrial Firms: An Organizational Analysis of China’s Transitional Economy,” American Journal of Sociology 101-2 (1995): 263-301. 265 Teets, “The Politics of Innovation.” 266 Jae Ho Chung, “Reappraising Central-Local Relations in Deng’s China Decentralization, Dilemmas of Control, and Diluted Effects of Reforms,” in Remaking the Chinese State, ed. Bruce Dickson (New York: Routledge, 2001), 46-75; Daniel Kelliher, “The Political Consequences of China’s Reforms,” Comparative Politics 18-4 (1986). 267 Kellee Tsai, “Off Balance: The Unintended Consequences of Fiscal Federalism in China,” Journal of Chinese Political Science 9-2 (2004): 7-33. 60 directives led to waves of “selective recentralization” from the 1990s,268 as seen in the reconsolidation of central fiscal control in rural localities and wealthy coastal regions.269

Decentralization-recentralization thus serves as a key institutional mechanism of central control over local counterparts. The quest for stability or “harmonious society” in an era of interdependence requires the “balancing and rebalancing” of political authority through decentralization and gradual institutional adjustments.270

From a bottom-up view, China’s opening is increasingly shaped by non-central state forces, including local governments, private enterprises, and societal interests. While decentralization enhanced local state autonomy over foreign economic policy,271 Chinese diaspora firms and MNCs played pivotal roles in liberalizing coastal China after 1978,272 as shown by the expansion of “network capital” within Greater China.273 On the other hand, China’s global economic integration may also draw domestic popular resistance.274

Ahead of China’s WTO entry, Chinese scholars argued that it would substantially

268 Zheng Yongnian, “Central-Local Relations: The Power to Dominate,” in China Today, China Tomorrow: Domestic Politics, Economy, and Society, ed. Joseph Fewsmith (New York: Rowman and Littlefield, 2010), 193-222 269 Jean Oi, Kim Singer Babiarz, Linxiu Zhang, Renfu Luo, and Scott Rozelle, “Shifting Fiscal Control to Limit Cadre Power in China’s Townships and Villages,” China Quarterly 211 (2012): 649-675; Pierre Landry, Decentralized Authoritarianism in China: The Communist Party’s Control of Local Elites in the Post-Mao Era (New York: Cambridge University Press, 2008); Sheng Yumin, Economic Openness and Territorial Politics in China (New York: Cambridge University Press, 2010). 270 Wang Zhengyi, “Conceptualizing Economic Security and Governance: China Confronts Globalization,” The Pacific Review 17-4 (2004): 534-535. 271 Robert Ash, “China’s Regional Economies and the Asian Region: Building Interdependent Linkages,” in Power Shift: China and Asia’s New Dynamics, ed. David Shambaugh (Berkeley: University of California Press, 2005), 96-131; Peter Cheung and James Tang, “The External Relations of China’s Provinces,” in The Making of Chinese Foreign and Security Policy, 91-122. 272 Zweig, Internationalizing China; Shaun Breslin, China and the Global Political Economy (New York: Palgrave Macmillan, 2007). 273 Robert Ash and Y.Y. Kueh, “Economic Integration within Greater China: Trade and Investment Flows between China, Hong Kong and Taiwan,” in Greater China: The Next Superpower? Ed. David Shambaugh (Oxford: Oxford University Press, 1995), 59-93; S. Gordon Redding, The Spirit of Chinese Capitalism (New York: Walter de Gruyter, 1993); Constance Lever-Tracy, David Ip, and Noel Tracy, The Chinese Diaspora and Mainland China: An Emerging Economic Synergy (New York: St Martin’s Press, 1996). 274 Andrew Walter, “Addressing Global Imbalances: Domestic and Global Dynamics,” in China Across the Divide, 151-174. 61 undermine the welfare functions of the state, consolidating views of interdependence as a major threat to national security and sovereignty.275 During the China-South Korea “garlic war” in 2000, anti-Korean public opinion after the suicide of marginalized Shandong farmers forced Beijing to adopt confrontational rather than cooperative strategies toward

Korean counterparts.276 Such fears of social unrest among the losers from globalization may constrain central decision-making on foreign economic policy. Hu Jintao’s emphasis on the sustainability rather than speed of growth in 2006 sought to address such pressures, although this reorientation also involved a tightening of CPC control over state and society.277

The prevailing literature on China’s political economy underscores two points.

First, a complete understanding of China’s economic opening requires assessing the interaction between, rather than relative weight of, inside-out, outside-in, and top-down, bottom-up forces of change. This assessment must center on the provinces as the primary units responding to multiple pulls from inside and outside, above and below. An exclusive emphasis on one dimension of change overlooks the dynamic relationship between these forces at later stages of development.

Second, empirical research at the Chinese subnational level remains heavily centered on the coastal provinces as the principal engines of export-led growth after 1978.

Few studies examine the implications of China’s further integration into the world

275 Wang Shaoguang, “The Social and Political Implications of China’s WTO Membership,” Journal of Contemporary China 9 (2000): 373-405; Wang Yong, “China’s Domestic WTO Debate,” China Business Review 27-1 (2000): 54-62; Fan Ning, Wang Xiaodong, and Song Qing, 全球化影响下的中国道路 (China’s Road under the Influence of Globalization) (Beijing: Zhongguo kexue chubanshe, 1999). 276 Jae Ho Chung, “From ‘Special’ Relations to a Normal Partnership?: Interpreting the ‘Garlic Battle’ in Sino-South Korean Relations,” Pacific Affairs 76-4 (2003): 549-568. 277 Tony Saich, “China in 2005: Hu’s in Charge,” Asian Survey 46-1 (2006): 37-48, and “China in 2006: Focus on Social Development,” Asian Survey 47-1 (2007): 32-43. 62 economy in 2001 on the one hand, and shift in national development priorities to inland regions from 2000 on the other. Coastal accounts of China’s foreign economic liberalization lay aside the changing pattern of relations between external actors, the center, and the majority of China’s late-developing provinces inland. Why and how China’s inland border regions have responded differently to the shared challenges and opportunities of economic globalization form the central question of this study.

Alternative Explanations

As discussed above, conventional system-level IR theories that associate China’s foreign economic liberalization with U.S. hegemony and liberal institutions and norms cannot account for the subnational variation in China’s openness. Three alternative arguments may explain the differences in provincial openness emerging within inland China.

1. Economic Endowments. Provincial economic openness may depend on natural

comparative advantage and proximity to advanced economies.278 China’s coastal

provinces were opened up first precisely because of their comparative advantages

in labor-intensive light industry. Shenzhen was designated China’s first Special

Economic Zone (SEZ) in Guangdong in 1980 given its proximity to Hong Kong,

where investors sought cheap labor and coastal access to overseas markets, while

Xiamen SEZ in Fujian similarly targeted Taiwanese investors.279

278 Brantly Womack and Guangzhi Zhao, “The Many World of China’s Provinces: Foreign Trade and Diversification,” in China Deconstructs: Politics, Trade and Regionalism, ed. David Goodman and Gerald Segal (New York: Routledge, 1994), 131-176. 279 Ezra Vogel, One Step Ahead: Guangdong under Reform (Cambridge: Harvard University Press, 1989); David Goodman and Chongyi Feng, “Guangdong: Greater Hong Kong and the New Regionalist Future,” in China Deconstructs, 177-201; Y.M. Yeung and David Chu, ed., Fujian: A Coastal Province in Transition and Transformation (Hong Kong: The Chinese University Press, 2000). 63

If trade potential explains the liberalization of China’s inland border regions,

we would expect the northeast provinces to be relatively more open given economic

complementarities and proximity to China’s major Northeast Asian partners.280

Indeed, the northeast has long been identified as the next region to follow the

coastal path of export-led growth.281 Yet despite such potential, northeast openness

has steadily declined over the past decade, and economic integration with Asian

neighbors remains limited.282 As the Jilin case shows, cross-border cooperation in

the 1990s was constrained by a lack of sustained political support and funding from

national governments, and limited private sector interest.283 To fully understand

differences in provincial openness, we must consider not just economic conditions

but also the actions of state and non-state stakeholders.

2. Provincial Leaders. Coastal accounts of China’s opening largely attribute local

reform patterns to individual provincial leaders.284 Reformist leaders push harder

for central approval of local initiatives, while conservative counterparts resist

central mandates of liberalization. Provincial leaders can be further distinguished

280 Min Tang and Myo Thant, “Growth Triangles: Conceptual and Operational Considerations,” in Growth Triangles in Asia: A New Approach to Regional Economic Cooperation, ed. Myo Thant, Min Tang, and Hiroshi Kakazu (Oxford: Oxford University Press, 1998), 23-48. 281 Chen Xiangming, As Borders Bend: Transnational Spaces on the Pacific Rim (Lanham: Rowman and Littlefield, 2005), 142-184. 282 Gilbert Rozman, “Northeast China: Waiting for Regionalism,” Problems of Post-Communism 45-4 (1998): 3-14, and “Cross-National Integration in Northeast Asia: Geopolitical and Economic Goals in Conflict,” East Asian Studies (1997): 6-43. 283 James Cotton, “China and Tumen River Cooperation: Jilin’s Coastal Development Strategy,” Asian Survey 36-11 (1996): 1086-1101. 284 Peter Cheung, Jae Ho Chung, and Zhimin Lin, ed., Provincial Strategies of Economic Reform in Post- Mao China: Leadership, Politics, and Implementation (New York: M.E. Sharpe, 1998); Bo Zhiyue, Chinese Provincial Leaders: Economic Performance and Political Mobility since 1949 (New York: M.E. Sharpe, 2002); David Goodman, ed., China’s Provinces in Reform: Class, Community and Political Culture (New York: Routledge, 1997); Hans Hendrischke and Feng Chongyi, ed., The Political Economy of China’s Provinces: Comparative and Competitive Advantage (New York: Routledge, 1999); John Fitzgerald, ed., Rethinking China’s Provinces (New York: Routledge, 2002); Vogel, One Step Ahead. 64

as “pioneers,” “bandwagoners,” and “laggards,” who produce distinct strategies of

local liberalization.285

China’s coastal strategy of opening, however, was first an outcome of

central policy choice rather than a response to local pressure. 286 Although

provincial lobbying may have played a role in the further liberalization of such

provinces as Zhejiang, Fujian, and Guangdong, the “communist coalition” of inland

provinces and heavy industry failed to draw similar preferential treatment in the

early 1990s.287 The success of local reform strategies also depended on central

priorities as well as external economic interests. Provincial leadership preferences

alone cannot account for the regional variation in economic openness.

3. National Patrons. Provincial ties with central leaders or “national patrons” may

account for differences in openness. Closer political ties with the center means

greater central support for local reform initiatives, and more faithful local

implementation of central directives. The Jiang Zemin-Zhu Rongji Shanghai

faction may explain Shanghai’s opening after the promotion of provincial leaders

into central positions under Jiang’s leadership as CPC General Secretary from 1989.

From this perspective, China’s northeast development campaign from 2003 at the

beginning of the Hu Jintao administration was an effort to consolidate the Hu -Wen

leadership’s existing power base there.

285 Cheung et al., Provincial Strategies. 286 Wu Jinglian, Contemporary Chinese Economic Reforms (Shanghai: Shanghai Far Eastern Press, 2004), 54-69; Wang Shaoguang and Hu Angang, The Political Economy of Uneven Development: The Case of China (New York: Routledge, 1999), 197. 287 Goodman and Feng, “Guangdong;” Shirk, “Internationalization and China’s Economic Reforms.” 65

However, the appointment patterns of provincial leaders correspond with

central economic interests rather than political or personal interests. The delegation

of former coastal officials to inland regions under the Hu leadership supported the

center’s strategy of diffusing liberal economic norms of governance into a region

historically characterized by political conservatism. 288 For example, Jilin’s

provincial party secretary Sun Zhengcai (2009-2012) was formerly the CPC

Secretary-General in Beijing, and his predecessor Wang Min (2006-2009), the

current party chief of Liaoning province, held previous positions in the Jiangsu

provincial government.289 Ties with national patrons in favor of liberalization

require shared economic preferences at central and local levels.

Domestic-International Dynamics of China’s Foreign Economic Liberalization

Taken together, alternative explanations of provincial economic openness do not fully explain change and variation within China’s late-developing, inland periphery. I adopt a framework for assessing the foreign economic liberalization of China’s provinces that integrates together inside-out, outside-in, top-down, and bottom-up forces of change

(Figure 2.1). The interaction of central government actors and SOEs at the central level

(quadrant 1), local government actors and enterprises at the local level (quadrant 2), and foreign governments, intergovernmental organizations, and foreign enterprises at the international level (quadrants 3 and 4), produces distinct provincial approaches to reform.

288 Lai Hongyi, Reform and the Non-State Economy in China: The Political Economy of Liberalization Strategies (New York: Palgrave Macmillan, 2006). 289 Sun Zhengcai biography, http://www.chinavitae.com/biography/Sun_Zhengcai%7C3931; Wang Min biography, http://www.chinavitae.com/biography/Wang_Min%7C2360. 66

Figure 2.1: Key Actors in China’s Foreign Economic Liberalization

Top-down Bottom-up

1 2

out - central government, local governments, Inside SOEs local enterprises

3 4

in - foreign central foreign local governments, governments, intergovernmental foreign enterprises

Outside organizations

Provincial economic openness depends on the alignment of interests at the central, local, and international levels. The more aligned these interests in favor of liberal economic reform, the greater the likelihood of liberalization and the higher the level of openness

(Figure 2.2).

Figure 2.2: Domestic-International Dynamics of Provincial Economic Liberalization

Central Interests

Provincial Local Economic Interests Openness

International Interests

Mechanisms of Change

67

To address the question of how provincial reform interests may lead to liberal policy outcomes, I raise two propositions on the possibility of change:

1. Top-down, bottom-up interactions. The first mechanism of change reflects top-

down, bottom-up interactions of local policy “feedback” and “sequencing” of

reforms over time.290 Local development strategies can have a feedback effect on

central policy choices in two ways: (1) formal appeals and lobbying, or more

importantly, (2) local policy adjustments. The creation of coastal SEZs in the 1980s,

for example, prompted local experiments with regulatory reforms which were later

implemented in other regions to harmonize domestic and WTO regulations.291

Before committing to WTO rules, the central government experimented with

market reforms in various regions and sectors through such processes of

“segmented deregulation.”292

Within inland China, such feedback dynamics were evident in inter-

provincial coordination of external economic strategies and joint lobbying for

central preferential policies from the mid-1980s. The Southwest Regional

Economic Coordination Conference formed in 1984 laid the foundation for the

Ministry of Commerce (MOFCOM)-sponsored Kunming trade fair in Yunnan,

which has promoted trade and investment with South and Southeast Asia since

1993.293 Liaoning, Jilin, and Heilongjiang’s similar efforts to create a “Northeast

Economic Circle” from 1992 led to the State Planning Commission (National

290 Hathaway, “Positive Feedback.” 291 Ann Florini, Lai Hairong, and Yeling Tan, China Experiments: From Local Innovations to National Reform (Washington: Brookings Institution Press, 2012). 292 Zweig, Internationalizing China. 293 Yang Jichang and Liu Hanyu, ed., 中国大西南在崛起 (The Rise of Southwest China) (Nanning: Guangxi Education Press, 1994). 68

Development and Reform Commission (NDRC) from 2003)’s support for

liberalizing border trade with Northeast Asian neighbors in 1996.294

Such instances, however, also suggest that China’s subnational units have

greater input in policy feedback than formulation. Since the initial phases of cross-

border economic integration, provincial influence on central decision-making

depended on convergence on overall national development and security priorities.

Jilin’s earliest external economic initiatives supported Sino-Soviet reconciliation

from the late 1980s as well as China’s quest for expanded maritime access, and was

backed by key central authorities and international development agencies. 295

Similarly, Yunnan’s opening to South and Southeast Asia from the 1990s supported

central interests in promoting border stability and ethnic unity. Rather than FDI,

the center’s Western Development plan emphasized investment from coastal

regions, aimed to promote not just development but also ethnic unity through Han

migration, albeit with unintended consequences in Xinjiang. Even within coastal

China, a rising pro-devaluation lobby during the Asian financial crisis was largely

ignored by Premier Zhu Rongji and central counterparts.296 The trade and FDI

policy reforms that the center did adopt compensated for limited devaluation, and

was consistent with Beijing’s external strategies of boosting its international image

and regional influence, and competing with Taiwan.

294 Heilongjiang Yearbook (Harbin: Heilongjiang renmin chubanshe, 1996), 113-115. 295 Yuan Shuren, An Qingchang, and Chen Cai, ed., 图们江通海航行与对外开放研究问题书籍亦 (Studies on Tumen River’s Entry into the East Sea and External Opening) (Changchun: Jilin People’s Government Economic, Technological and Social Development Research Center, 1990). 296 Thomas Moore and Dixia Yang, “Empowered and Restrained: Chinese Foreign Policy in the Age of Economic Interdependence,” in The Making of Chinese Foreign and Security Policy, 208-211 and 214-224. 69

2. Inside-out, outside-in interactions. A second mechanism of change, reflecting

inside-out, outside-in interactions, is the inflow of external interests and ideas in

ways that can change domestic authority structures. 297 External actors can

transform Chinese state institutions by inducing organizational innovations and the

creation of new agencies for managing transnational exchange. 298 China’s

environmental reforms are an early example of how international regimes and

foreign firms promoted the transformation of China’s regulatory state

institutions, 299 where leaders’ decisions were largely shaped by concerns over

China’s global image.300 In addition to non-state actors, more powerful states may

induce policy change not just through coercive bargaining but also by promoting

their practices, values, and norms.301 As the evolution of China’s state-affiliated

research institutions shows, increased engagement with foreign counterparts can

shape organizational structure and elite culture.302

At the local level, subregional economic initiatives like the Pearl River

Delta and inland variants from the 1990s required the creation of new institutional

mechanisms with foreign local governments and central agencies at home to

coordinate cross-border economic activities.303 But while Chinese Diaspora firms

297 Krasner, “Changing State Structures;” Drezner, Locating the Proper Authorities 298 Su Changhe, “The Political Economy;” Zheng Yongnian, Globalization and State Transformation. 299 Stalley, Foreign Firms. 300 Alastair Johnston, “China and International Environmental Institutions: A Decision Rule Analysis,” in Energizing China: Reconciling Environmental Protection and Economic Growth, ed. Michael McElroy, Chris Nielsen, and Peter Lydon (Cambridge: Harvard University Press, 1998), 555-599. 301 Krasner, “Changing State Structures.” 302 David Shambaugh, “China’s International Relations Think Tanks: Evolving Structure and Process,” The China Quarterly 171 (2002): 575-596; David Lampton, “The Faces of Chinese Power,” Foreign Affairs 86- 1 (2007): 115. 303 Cotton, “China and Tumen River Cooperation;” Chen Xiangming, “Beyond the Reach of Globalization: China’s Border Regions and Cities in Transition,” in Globalization and the Chinese City, ed. Fulong Wu (Abingdon: Routledge, 2006), 21-46. 70

aligned with local governments and enterprises to accelerate China’s coastal

liberalization in the 1980s, bigger MNCs may prefer to work with central

authorities if the scope of investment goes beyond the administrative and financial

capacity of local governments, while relying on their own national governments to

pressure China to lower barriers. Although local governments have assumed a

greater role in providing infrastructure for global companies, key economic

resources such as transportation and metals remain controlled by the central

government.

While external actors may shape Chinese policy choices in line with

international standards, such change may remain limited to the extent that it does

not undermine vital national interests. 304 China’s “adaptation” to global rules

depends on the importance of the specific issue to China’s modernization and

degree of institutionalization that may undermine state sovereignty. 305

Participation in global regimes has historically been selective – increasingly active

on such issues as environmental protection, and less active on “harder” security

issues.306 Such trends underscore that the extent to which top-down, bottom-up,

and inside-out, outside-in interactions can shape central state preferences in favor

304 Elizabeth Economy, “The Impact of International Regimes on Chinese Foreign Policy-Making: Broadening Perspectives and Policies…But Only to a Point,” in The Making of Chinese Foreign and Security Policy, 230-256. 305 Zhao Suisheng, “Adaptation and Strategic Calculation: China’s Participation in International Regimes and Institutions,” in international Governance, Regimes and Globalization: Case Studies from Beijing and Taipei, ed. Peter Kien-hong Yu, Emily Chow, and Shawn Kao (Lanham: Lexington Books, 2010), 69-94. 306 Albert Yee, “Explanations of China’s Compliance with International Agreements: Configuring Three Approaches to Institutional Effects on State Behavior,” in Thirty Years of China-U.S. Relations: Analytical Approaches and Contemporary Issues, ed. Guo Sujian and Guo Baogang (Lanham: Lexington Books, 2010), 197-234; Guoguang Wu and Helen Lansdowne, “International Multilateralism with Chinese Characteristics: Attitude Changes, Policy Imperatives, and Regional Impacts,” in China Turns to Multilateralism: Foreign Policy and Regional Security, ed. Wu and Lansdowne (Abingdon: Routledge, 2008), 3-18. 71

of liberal economic reform depends on the alignment of local and external interests

with not just national development priorities but also vital security interests.

Central-Local-International Dynamics of Reform: Conflict and Cooperation

Top-down, bottom-up interactions in the context of China’s hierarchical party-state system is typically framed as conflictual, with empowered local leaders challenging central control over local economic and external activities. 307 Foreign government, multilateral, and corporate partners present a major source of additional material and political support for the external economic interests of local governments. Cross-border trade and investment linkages have often developed informally under the direction of local government agencies like the commerce and foreign affairs departments with relatively limited central mediation.

The more direct actions of individual leaders, such as reformist Guangdong governor Ye

Xuanping’s mobilization of a “united front” against Premier Li Peng’s fiscal recentralization initiative in 1988-1990, support claims of local resistance and pressures of national economic fragmentation.308

However, the relationship between the center and provinces can also be more interdependent in nature. 309 In particular, Chinese central state authority over local counterparts is reinforced in two ways: personnel management and inter-provincial

307 Montinola, Qian, and Weingast, “Federalism, Chinese Style;” David Goodman, “The Politics of Regionalism: Economic Development, Conflict and Negotiation,” in China Deconstructs, 1-20; Gerald Segal, “Deconstructing Foreign Relations,” in China Deconstructs, 322-355. For an early study of the institutional structure and processes of Chinese foreign policy, See Zhao Quansheng, “Institutional Macrostructure and the Policy-making Process: From Vertical to Horizontal Authoritarianism,” in Interpreting Chinese Foreign Policy: The Micro-Macro Linkage Approach (New York: Oxford University Press, 1996), 78-114. 308 Sheng Yumin, Economic Openness; Cai Hongbin and Daniel Treisman, “Did Government Decentralization Cause China’s Economic Miracle?” World Politics 58-4 (2006): 505-535; Shirk 1993, 194- 195. 309 Lieberthal and Oksenberg, Policy Making in China, 352. 72 competition for central support. Although the number of centrally-appointed local officials has recently declined, and monitored elections have occurred at the lowest administrative levels since the 1980s,310 the top provincial leaders remain chosen by central authorities.311

When challenging central policy, provincial leaders are more likely to exploit vertical ties rather than mobilize horizontal alliances.312 Inland leaders relying on central budgetary transfers in the early 1980s sought to limit the scope of coastal preferential policies through central planner Chen Yun, who initially opposed Deng’s radical liberalization. More recently, as the key drivers of local overseas investment, the International Economic and

Technological Corporation Corporations operated by local governments have similarly aligned with MOFCOM agencies and leaders to relay their policy preferences to the center.313

Inter-regional competition for central preferential treatment provides a further incentive for provincial leaders to accommodate rather than challenge the center. 314

Yunnan’s efforts to lead China’s opening to Southeast Asia over the past decade most notably faced competition from neighboring Guangxi province. Liaoning competed with not only northeast Chinese counterparts as the potential center of Northeast Asian trade

310 Jean Oi, State and Peasant in Contemporary China: The Political Economy of Village Government (Berkeley: University of California Press, 1989); Maria Edin, “State Capacity and Local Agent Control in China: CCP Cadre Management from a Township Perspective,” The China Quarterly 173 (2003): 35-42. 311 Bo Zhiyue, “Governing China in the Early 21st Century: Provincial Perspective,” Political Science and China in Transition (Beijing: Renmin University, 2002). 312 Cai and Treisman, “Did Government Decentralization.” 313 Linda Jakobson and Dean Knox, “New Foreign Policy Actors in China,” SIPRI Policy Paper 26 (2010), 32. Local government businesses, mainly from coastal regions, accounted for more than 20 percent of Chinese businesses investing abroad in 2008. 314 Jae Ho Chung, “Reappraising Central-Local Relations.” 73 and logistics, but also coastal Shandong to open up Sino-South Korean diplomatic and commercial contacts in the late 1980s.315

In inside-out, outside-in interactions, external forces of reform are also commonly conceived as a constraint on central preferences. Foreign governments and multilateral institutions impose “official conditionality” on developing countries, while market forces drive “private conditionality” on a range of issues like macroeconomic stability, trade policy, FDI regulation, and industrial restructuring. 316 China’s WTO commitments compelled domestic administrative reforms to liberalize trade and regulate financial institutions that in effect constrained the CPC leadership by enforcing more transparency and accountability.317 WTO membership has also meant greater monitoring of China’s compliance with international rules by external agencies under the WTO as well as the U.S.

Trade Representative.318

But in addition to enforcing reform, participation in multilateral institutions can also enhance a member state’s own bargaining power and prestige in advancing its interests.319 China’s “learning” of global trade rules from 2002 led to more frequent use of WTO mechanisms to protect Chinese enterprises in trade disputes. 320 Domestic achievements in energy efficiency in the past decade have placed China in a more confident

315 Zhang Yawen, “中韩建交秘闻路 (Secrets in the Path to China-South Korea Diplomatic Normalization),” 外交学报 (Journal of Foreign Affairs College) 1 (1995): 30-33. 316 Moore and Yang, “Empowered and Restrained,” 193-198. 317 Gerald Chan, “China and the WTO: The Theory and Practice of Compliance,” International Relations of the Asia-Pacific 4 (2004): 47-72; Berry Hsu and Douglas Arner, “WTO Accession, Financial Reform and the Rule of Law in China,” The China Review 7 (2007): 53-81. 318 James Hsiung, “The Aftermath of China’s Accession to the World Trade Organization,” The Independent Review 8 (2003): 87-112. 319 Marc Lanteigne, China and International Institutions: Alternate Paths to Global Power (Abingdon: Routledge, 2005). 320 Hsiung, “The Aftermath of China’s Accession,” 97. 74 position in international climate negotiations.321 At the Asian regional level, China has similarly strengthened its voice and tools of influence through the SCO Secretariat in

Beijing since 2004 and China-ASEAN FTA since 2010.

Research Design and Case Selection

To test my claims, I incorporate “cross-case” and “within-case” analyses of three inland border regions: (1) Jilin, northeast China (2) Yunnan, southwest China, and (3) Xinjiang, western China. My time period under study begins from 2000, with China’s initiation of inland development.

I study my cases at the level of transborder regions, understood as “subnational areas whose economic and social life is directly and significantly affected by proximity to an international boundary.”322 In Asia specifically, transborder regions have also been identified as “natural economic territories,”323 “region states,”324 or “growth triangles.”325

Such regions can be importantly distinguished from other economic spaces by the direct involvement of subnational units rather than entire nation states.326 My primary units of analysis are China’s provinces as the largest subnational units coordinating policy

321 Joanna Lewis, “China’s Environmental Diplomacy: Climate Change, Domestic Politics, and International Engagement,” in China Across the Divide, 200-226. 322 Oscar Martinez, ed., Across Boundaries: Transborder Interaction in Comparative Perspective (El Paso: Texas Western Press and The Center for Inter-American and Border Studies, 1986). 323 Robert Scalapino, “Natural Economic Territories in East Asia: Present Trends and Future Prospects,” in Economic Cooperation and Challenges in the Pacific, ed. Korean Economic Institute of America (Washington: KEI, 1995), 101. 324 Kenichi Ohmae, The End of the National State: The Rise of Regional Economies (New York: Free Press, 1995). 325 Min Tang and Myo Thant, “Growth Triangles.” 326 Chen Xiangming, As Borders Bend, 10; Gilbert Rozman, “Transborder Regional Development and Regional Community Building in Northeast Asia,” Paper presented at the 2010 PCRD International Conference, Jeju, Korea, July 7-9, 2010. 75 implementation with both the center and lower administrative units, 327 classified by national program of regional development: (1) Coastal, (2) West, (3) Northeast, and (4)

Central.328

I justify my selection of inland border cases in three ways. First, I am primarily interested in explaining economic variation among China’s “late developers.” Both national and international development initiatives along China’s inland border have coastal precedents: China’s coastal strategy initiated in 1988, coastal SEZs designated in 1980-

1985, and subregional economic zones established from 1985. The key question here is why some inland provinces have been more successful than others in following the coastal model of reform and opening.

Second, my time period under study (2000-2015) captures major changes in the national and international environment that characterize the later phase of China’s development: (1) the initiation of inland development strategies in 2001-2004, (2) identification of the immediate “periphery (周边)” as the “first priority (首要)” in China’s foreign relations in 2002,329 and (3) China’s further global economic integration after WTO entry in 2001.

Third, Jilin, Yunnan, and Xinjiang share several similarities that make them useful cases for comparison.330 First, they are geographically and economically disadvantaged as

327 Jae Ho Chung and Tao-chiu Lam, ed., China’s Local Administration: Traditions and Change in the Sub- National Hierarchy (London: Routledge, 2010); Lieberthal and Oksenberg, Policy Making in China, 344. 328 China’s official classification of 34 subnational units includes 23 provinces, 5 autonomous regions, and 4 municipalities under the central government, and 2 Special Administrative Regions. This study does not include Taiwan, Hong Kong, and Macau, and refers to autonomous regions and municipalities as also “provinces.” It identifies all non-coastal provinces as “inland” provinces. State Council of the PRC, “Administrative Division,” http://english.gov.cn/china_abc/2014/08/27/content_281474983873401.htm. 329 Jiang Zemin’s Report at the 16th Party Congress, November 17, 2002. 330 John Gerring and Jason Searight, “Techniques for Choosing Cases,” in Case Study Research: Principles and Practices (New York: Cambridge University Press, 2007), 86-150. 76 landlocked regions, traditionally drawing central government support for military buildup rather than local development. Second, they share a socialist legacy of political conservatism and a high concentration of state-owned, heavy industries, implying strong local resistance to economic restructuring. Third, they face an unfavorable external security environment: military and humanitarian threats on the Jilin-North Korea border, illicit trade on the Yunnan-Myanmar border, and cross-border terrorism in Xinjiang.

Fourth, all three regions have a large ethnic minority population with close cultural ties across the border, a source of central government concern over irredentist claims and their impact on internal social and political stability.

My research design complements quantitative comparisons of provincial economic openness with assessments of qualitative changes in provincial liberalization strategies over time.331 In my cross-case analysis, I aim to explain regional differences in the levels of economic openness. I use three quantitative indicators of provincial openness:

1. The share of foreign trade in provincial GDP

2. The share of trade with Asian neighbors in total provincial foreign trade

3. The provincial share of China’s trade with those neighbors.

While the first indicator accounts for differences in the sizes of the provincial economies, the second indicator measures the level of openness specifically toward neighboring countries. This second measure of provincial trade dependence on neighbors can be further compared with the province’s contribution to China’s trade with those neighbors, the third indicator. I focus primarily on neighboring countries in the respective transborder regions:

331 Philippe de Lombaerde, Renato G. Flores Jr., Iapadre P. Leilo, and Michael Shultz, ed., The Regional Integration Manual: Quantitative and Qualitative Methods (New York: Routledge, 2011). 77

Russia, North Korea, South Korea, and Japan in the Jilin-Northeast Asia case;332 mainland

Southeast Asia (Myanmar, Laos, Vietnam, Cambodia, and Thailand) in the Yunnan-

Southeast Asia case; and the five Central Asian republics (Kazakhstan, Kyrgyzstan,

Tajikistan, Uzbekistan, and Turkmenistan) in the Xinjiang-Central Asia case.

I treat as my independent variables: (1) central, (2) local, and (3) international interests, which range from conservative to reformist. My qualitative, within-case studies trace the processes of their interactions since 2000 to demonstrate how liberal interests produce liberal policy outcomes. To account for the reciprocal effects of economic openness on interests, I focus on the temporal sequencing of reform. I focus mainly on political and corporate stakeholders, rather than popular societal forces.

1. Central Interests. Central government interests are the broadest in functional scope,

existing in strategic, diplomatic, and economic dimensions. As a narrow

representation of national commercial interests, SOEs are defined as central state

actors given their dominance of strategic industries and role in central policymaking

in those sectors. For example, China’s major national oil companies and the NDRC

share strong interests in China’s overseas energy investments.333

2. Local Interests. Although local governments may represent state interests as

implementers of national policy, they remain outside China’s official foreign policy

establishment and can be associated with domestic bottom-up forces.334 Local

enterprises include those owned by local governments, and private enterprises.

332 Jilin-Mongolia trade figures currently unavailable. 333 Barry Naughton, “SASAC and Rising Corporate Power in China,” China Leadership Monitor 24 (2008); Erica Downs, “Business Interest Groups in Chinese Politics: The Case of the Oil Companies,” China’s Changing Political Landscape: Prospects for Democracy (Washington: Brookings Institution Press, 2008). 334 Jakobson and Knox, “New Foreign Policy Actors,” 31-33. 78

Both can be distinguished from national SOEs by their more limited policy

influence at the top.

3. International Interests. In addition to top-down forces inside China, foreign

central governments and inter-governmental agencies represent top-down forces of

reform coming from the outside. The outward diffusion of state agency to

suprastate organizations typifies the EU experience, but also characterizes cross-

border economic integration in Asia’s relatively informal institutional contexts.

Foreign local governments and enterprises, including MNCs, represent external,

bottom-up forces of reform, interacting with counterparts across the border in

bilateral and multilateral settings.

Data Sources

I rely primarily on Chinese official and scholarly sources for the compilation of quantitative and qualitative data. These sources include: (1) official publications of central and local governments, (2) semi-official publications of state-affiliated research institutions, (3)

Chinese scholarly publications, and (4) field interviews.335 Table A.1 in the Appendix lists the sources of Chinese foreign economic data. I support primary-source research with field interviews conducted in 2015 with Chinese and foreign officials, scholars, policy experts, and businessmen.

I take into account five issues of consistency in my data collection. Most problematic in analyzing Chinese time-series and cross-sectional data are differences in

335 Jae Ho Chung, “Appendix: Study of Provincial Politics and Development in Post-Mao Reform Era: Issues, Approaches, and Sources,” in Provincial Strategies, 429-456. 79 measurement and reporting standards that challenge systematic comparisons over time and space.

First, there are known discrepancies between international and Chinese official data.

However, statistical databases of major international organizations correspond to official compilations of the Chinese central government. The main discrepancies relevant to this study are those in bilateral trade and investment statistics of Chinese and foreign governments. I draw bilateral economic data primarily from Chinese official sources while referencing alternative measures of foreign partners to detect any divergence in general trends.

Another potential inconsistency lies between Chinese national and subnational data.

Although I draw my provincial economic data from official sources, the figures are not always internally consistent. There are discrepancies between the aggregation of some provincial figures and national totals compiled by the National Bureau of Statistics (NBS).

However, the provincial statistical publications remain the most authoritative official source for local data. In addition, the central government published adjusted GDP data in

2006 for the period from 1978 for national-level data, and from 1993 for provincial-level data. I rely primarily on the yearbooks published from 2006, when all administrative units began to report annual GDP data according to the newly-adjusted standards.336 I base my provincial case studies mainly on local data sources.

Third, there are differences in measurement standards between different functional agencies. China’s foreign economic data is available in the respective statistical compilations of the NBS Trade and External Economic Statistics Division, and Ministry

336 Sheng Yumin’s 2010 study of provincial opening and growth in the 1978-2004 period using unadjusted GDP data yielded similar results. Sheng, Economic Openness, 94. 80 of Commerce from 2003. I rely mainly on MOFCOM data given its widest and most updated coverage, and consistency with recent statistical yearbooks.

Fourth, cross-regional comparisons within China are problematic if local accounting practices vary. To improve standardization, provincial statistical yearbooks have shifted from using data compiled by the provincial foreign trade commissions to using

Chinese customs data, although at different times: Jilin, Xinjiang, and Yunnan made this transition in 1997, 1998, and 1999. A second related issue is the separate categorization of “border trade” (边境贸易), which is included in Chinese customs data but not in foreign trade commission data. My data is based on Chinese customs figures, which also allow assessments of variation in the proportion of border trade.

A final issue of data consistency relates to the gap between official and unofficial

Chinese data. Official statistics on border trade do not account for the volume of illicit trade. But due to the wide variation in measurements of illicit trade, I rely on only official trade figures.

81

Chapter 3

The Foreign Economic Liberalization of China’s Border Regions since 2000

China’s foreign economic profile points to not just its global emergence but also the rise of distinct provincial economies varying by strength and direction of external orientation.337 Regional economic disparities peaked during the 1990s, attributed to both natural comparative advantages of coastal provinces and government policies favoring those regions under Deng Xiaoping’s export-led coastal strategy.338 But although WTO entry in 2001 furthered the competitiveness of coastal provinces, differences have also emerged between their late-developing, inland counterparts.339 A complete understanding of China’s foreign economic performance requires assessing the regional variation and change emerging within inland China. Since China’s turn to inland development in 2000, the border regions in particular have followed diverging patterns of economic openness as they have sought to expand trade and investment ties with Asian neighbors.340

337 Robert Ash, “China’s Regional Economies and the Asian Region: Building Interdependent Linkages,” in Power Shift: China and Asia’s New Dynamics, ed. David Shambaugh (Berkeley: University of California Press, 2005), 96-131. For early assessments of provincial patterns of foreign trade, see Brantly Womack and Zhao Guangzhi, “The Many Worlds of China’s Provinces: Foreign Trade and Diversification,” in China Deconstructs: Politics, Trade and Regionalism, ed. David Goodman and Gerald Segal (New York: Routledge, 1994), 131-176; and Zheng Yongnian, “Perforated Sovereignty: Provincial Dynamism and China’s Foreign Trade,” The Pacific Review 7-3 (1994): 309-231. 338 Guo Tengyun, Lu Dadao, and Gan Guohui, “近 20 年来我国区域发展政策及其效果的对比研究 (Comparative Study on China’s Regional Development Policy and Its Effects over the Past Two Decades),” 地理研究 (Geographical Research) 4 (2002). 339 China’s nine inland border regions from east to west include Liaoning, Jilin, Heilongjiang, Inner Mongolia, Gansu, Xinjiang, Tibet, Yunnan, and Guangxi. 340 Ding Yang, Xia Loufu, and Lu Chen, “型国际分工模式下的沿边开发开放问题研究 (The Development and Opening of Border Regions under the New International Division of Labor),” 江苏社会科学 (Jiangsu Social Sciences) 1 (2015): 61-68; Li Tianzi, “中国沿边的跨境经济合作的边界效应 (Boundary Effects of Chinese Cross-Border Economic Cooperation,”经济地理 (Economic Geography) 10 (2015). For studies of the variation in openness of China’s border regions in the 1980s-1990s, see Jing Xueqing, “中国沿边地区 开放开发的宏观区域划分及其模式选择 (Macro-Regional Division and Mode Selection of the Opening and Development of China’s Border Regions),” 经济地理 (Economic Geography) 4 (1998); “中国沿边地 区对外开放格局分析与调整 (Analysis of the Patterns of Opening of China’s Border Regions),” 云南地理 82

Such changes in provincial openness can be understood in the broader context

China’s structural transformation and emergence on the world market since 1978. While

China displayed its comparative advantages in labor-intensive manufacturing in the 1980s and 1990s, a key feature of post-WTO China’s trade orientation is the promotion of high- tech industries, which accounted for 25 percent of China’s total manufactured exports in

2014.341 China’s FDI growth has been accompanied by a steady increase in the role of foreign-funded enterprises, whose share of China’s foreign trade peaked at 58.4 percent in

2005.342 And more than a decade after “going global,” China’s non-financial outward investment ($118 billion) in 2015 approached the level of inward investment ($126 billion), with private enterprises emerging as increasingly active players seeking access to new, advanced markets.343

This chapter compares the level and direction of economic openness in Jilin,

Yunnan, and Xinjiang, with a focus on their dependence on Northeast, Southeast, and

Central Asian neighbors respectively. I first present the provincial dimensions of China’s

环境研究 (Yunnan Geographic Environment Studies) 1 (1998); and “论中国主要沿边省区地域开发战略 的调整: 以新疆、云南、黑龙江三省区为例 (The Regional Development Strategy of China’s Main Border Provinces: Xinjiang, Yunnan and Heilongjiang),” 地理研究 (Geographical Research) 4 (1997).

341 The World Bank, World Development Indicators, http://data.worldbank.org/indicator/TX.VAL.TECH.MF.ZS?page=4. World Bank and United Nations Comtrade data define high-technology exports as products with high research and development (R&D) intensity, such as in aerospace, computers, pharmaceuticals (high); and scientific instruments and electrical machinery (medium-high). High and medium-high-tech exports account for more than two thirds of total OECD manufacturing exports, ranging from less than 10 percent in Iceland to more than 80 percent in Japan. According to the Asian Development Bank, in 2014 China was the biggest source of Asia’s high-tech exports (excluding medium-high-tech products), expanding its share from 9.4 percent in 2000 to 43.7 percent. ADB, Asian Economic Integration Report 2015: How Can Special Economic Zones Catalyze Economic Development? (Manila: Asian Development Bank, 2015), 14. 342 National Bureau of Statistics, China Trade and External Economic Statistical Yearbook (Beijing: China Statistics Press, 2014). 343 Ministry of Commerce of the PRC. ODI to ASEAN and the United States grew by more than 60 percent in 2014-2015. According to the Economist Intelligence Unit, the United States, Singapore, Hong Kong, Japan, and Australia are the top five preferred destinations of Chinese investors. See “China Going Global Investment Index,” A Report from the Economist Intelligence Unit (2013). 83 foreign trade and investment openness. Second, I assess the cases of Jilin, Yunnan, and

Xinjiang in the 2000-2013 period, including the variation in openness toward Asian neighbors, focusing primarily on trade dependence.344 Third, I trace these differences in provincial openness to the relationship between central, local, and international interests and strategies of liberalization. The concluding section identifies major patterns in the temporal and regional variation in openness to be explained in the individual case studies that follow.

My cross-case analysis in this chapter supports two main findings. First, Yunnan and Xinjiang’s openness has increased, while Jilin’s openness has declined. Jilin was surpassed by Xinjiang and Yunnan in trade openness in 2002 and 2013 respectively.

Second, while Yunnan and Xinjiang are far more dependent on their Asian neighbors than the case of Jilin, their roles in China’s trade with those regions have steadily declined.

Subnational Dimensions of China’s Economic Openness

Inland border trade between the People’s Republic of China and Asian neighbors dates to the 1950s, when official policy promoted such trade as a source of local growth, initially in the form of barter trade. After the Cultural Revolution and disruption of commerce, both national and Asian regional initiatives supported the expansion of cross-border trade, including the creation of Border Economic Cooperation Zones and multilateral mechanisms of subregional cooperation in the early 1990s. Although the 1997 Asian

344 Compared to merchandise trade, there are numerous known issues associated with measuring China’s foreign capital flows, including problems of double counting, unrecorded FDI, and “disguised” or “unapproved” investment flows within Greater China. Data availability remains far more limited on inland than coastal regions, and on outward than inward investment. 84

Financial Crisis was another shock to China’s trade with neighbors, the volume of inland border trade grew from $0.34 billion in 1995 to $4.57 billion in 2000.345 The share of border trade in China’s total foreign trade has since remained at around 1 percent as China has integrated into wider global trade networks, but exports outpaced imports from 2005, reversing the substantial deficits that previously characterized China’s border trade.

Table 3.1: Economic Indicators of China’s Provinces (2013)

Total Per Capita Foreign Region Area Population FDI ODI GDP GDP* Trade (No. of 10,000 provinces) Million Bill. RMB RMB Billion USD Sq. km East (10) 91.6 518.18 32225.89 57722 3482.69 143.50 26.40 Northeast (3) 78.8 109.76 5444.20 46014 179.19 35.47 2.82 Central (6) 102.8 360.85 12730.56 32427 219.57 50.10 3.54 West (12) 686.7 366.37 12600.28 31357 277.55 28.66 4.39

*2012 figures Source: China Statistical Yearbook 2014; China Commerce Yearbook 2014; China Statistical Yearbook for Regional Economy 2013.

The current status of China’s provincial economies underscores the continued maritime orientation of China’s foreign trade and investment (Table 3.1). 84 percent of China’s merchandise trade in 2013 was concentrated in coastal China, which represented 38 percent of China’s population and 51 percent of China’s GDP. Coastal provinces remain dominant players in China’s trade with its top three trade partners – the United States, Japan, and

South Korea – accounting for 82 percent, 87 percent, and 86 percent of China’s trade with

345 National Bureau of Statistics, China Trade and External Economic Statistical Yearbook (Beijing: China Statistics Press, various years). 85 those countries (Table 3.2).346 Changes in the direction and structure of foreign trade since the 1980s indicate two trends within inland China: (1) a major portion of western China’s foreign trade conducted with emerging partners in Central and South Asia, and Russia, and

(2) a shift in inland border exports from primary industries to manufacturing.347

Table 3.2: Regional Shares of China’s Trade with Top Partners (2013)

USA Japan South Korea

Trade % Trade % Trade % volume National volume National volume National ($ Billion) Total ($ Billion) Total ($ Billion) Total

East 425.3700 81.68 271.7054 86.98 235.0947 85.73 Northeast 13.8983 2.67 19.0690 6.10 10.5504 3.85 Central 29.2262 5.61 14.2563 4.56 8.6596 3.16 West 23.6718 4.55 6.0762 1.95 6.6055 2.41 Regional Total 492.1663 311.1069 260.9102 National Total* 520.7487 312.3779 274.2377

*National Bureau of Statistics figures. Note discrepancies with total regional estimates. Source: China Statistical Yearbook

While FDI to China has originated predominantly from the Greater Chinese Diaspora

(Hong Kong, Macau, Taiwan, and Singapore), coastal provinces have also served as the primary recipients of such FDI.348 In 2013, coastal provinces accounted for 56 percent of

346 Hong Kong, if included, is China’s second biggest external trade partner after the United States, with a total bilateral trade volume of $400.70 billion in 2013, 90 percent of which was with coastal provinces. 347 Ash, “China’s Regional Economies,” 102-106. 348 For example, Taiwanese official data shows that in 1991-2002 almost three quarters of Taiwan’s cumulative approved FDI went to Jiangsu ($10.48 billion) and Guangdong ($8.46 billion) alone. See Ash, “China’s Regional Economies,” 110-111. For studies of the provincial dimensions of China’s FDI, see Jiang Xiaojuan, “The New Regional Patterns of FDI Inflow: Policy Orientation and the Expected Performance,” in OECD, Foreign Direct Investment in China: Challenges and Prospects for Regional Development (Paris: OECD, 2002); Li Xinzhong, “Foreign Direct Investment Inflows in China: Determinants at Location,” 86 provincial FDI, and 62 percent of China’s FDI came from Hong Kong alone ($73.39 billion).349 Coastal China was the source of 28 percent of China’s non-financial ODI, or

72 percent of provincial (non-central) ODI, and 58 percent of China’s total ODI went to

Hong Kong.350

As a Peking University study indicates, China has one of the world’s highest income inequality, with a Gini coefficient of 49 in 2012.351 But although clear economic disparities remain between coastal and inland China, differences are also apparent within inland China (Table 3.3). Northeast China remains the most open among inland regions in terms of the ratio of foreign trade to GDP (20%), followed by western (14%) and central

(11%) China. But given its much smaller GDP size, the northeast has the smallest share of China’s foreign trade (4%), compared to central (5%) and western (7%) China. The northeast is also the most open in terms of the GDP share of FDI (4%), followed by central

(2%) and western (1%) China. Central China’s share of China’s FDI, however (19%), is notably higher than those of the northeast (14%) and west (11%). While the GDP share of

ODI is the highest in the northeast, western China has the highest share of national ODI among inland regions (5%) compared to central (4%) and northeast (3%) China.

Chinese Academy of Social Sciences Working Paper (2005); and Cheng Shaoming, “From East to West: The Evolution of China’s FDI Preferential Policies,” Business and Public Administration Studies 1-1 (2006). 349 National Bureau of Statistics, China Statistical Yearbook (Beijing: China Statistics Press, 2014). There are known issues of “hidden data” in addressing FDI flows originating from Hong Kong. Singapore and Japan were China’s biggest sources of FDI in 2013 after Hong Kong ($7.22 billion and $7.05 billion), each accounting for 6% of total FDI. 350 Ministry of Commerce, China Commerce Yearbook (Beijing: MOFCOM, 2014); National Bureau of Statistics, China Statistical Yearbook (Beijing: China Statistics Press, 2014). Central ODI accounted for 61% of China’s total ODI, coastal provinces 28%, and inland provinces 11%. Coastal provinces accounted for 72% of all non-central ODI. The Camyan Islands (playing a major role in Taiwanese investment) and the United States were China’s biggest ODI destinations after Hong Kong ($9.25 billion and $3.87 billion), accounting for 9% and 4% of the national total. 351 The Gini Index ranges from 0 to 100. A Gini coefficient above 40 indicates severe income inequality based on World Bank and UN standards. The World Bank, World Development Indicators; and Gabriel Wildau and Tom Mitchell, “China Income Inequality among World’s Worst,” The Financial Times, January 14, 2016. 87

Table 3.3: Economic Openness of China’s Regions (2013)

% of Regional GDP % of National Total Foreign Foreign FDI ODI FDI ODI* Trade Trade East 66.93 2.76 0.51 83.74 55.68 28.47 Northeast 20.38 4.03 0.32 4.31 13.76 3.04 Central 10.68 2.44 0.17 5.28 19.44 3.81 West 13.64 1.41 0.22 6.67 11.12 4.73

*Central ODI=61% of national total. Regional shares of non-central ODI are: East=72%, Northeast=7, Central=9%, West=12%. Source: China Statistical Yearbook; China Commerce Yearbook.

The following section compares the patterns of foreign trade and investment openness in

Jilin (northeast), Yunnan (southwest), and Xinjiang (northwest) since 2000. While the trade openness of Yunnan and Xinjiang remained relatively stagnant in the 1980s and

1990s, Jilin’s openness grew at a pace higher than that of the national average from 1988 to 1994, more than four-fold from 7.14 percent to 33.20 percent. In 1994, Jilin’s export dependence of 17.9 percent was even higher than that of coastal provinces like Jiangsu

(13.35%), Shandong (12.64%), and Beijing (11.39%).352 Although negligible compared to coastal contributions, its share of China’s exports (1.69%) was greater than the combined shares of Yunnan (0.87%) and Xinjiang (0.47%).

However, Jilin’s trade openness dropped equally drastically after 1994, reaching

8.68 percent in 1998 at the onset of the Asian Financial Crisis, similar to Yunnan’s level and below that of Xinjiang. While China’s northeast overall was by far the most open among inland regions throughout the 1980s and 1990s, followed by the southwest and

352 Chinese Academy of Social Sciences, “论中国沿边地区对外开放战略的几个问题 (Issues in the Strategy of Opening Up China’s Border Areas),” 财贸经济 (CASS Finance & Economics) 3 (1996): 27. Export dependence is measured as the proportion of exports in GDP. 88 northwest,353 the cases of Jilin, Yunnan, and Xinjiang suggest a reversal of this trend over the past decade.

Economic Openness of Jilin, Yunnan, and Xinjiang

Table 3.4: Economic Indicators of Jilin, Yunnan, and Xinjiang (2013)

Per Foreign Area Population Total GDP Capita FDI ODI Trade GDP 10,000 Billion Million RMB Billion USD sq. km RMB Jilin 18 27.51 1298.15 47191 25.85 1.82 0.75 Yunnan 39 46.87 1172.09 25083 25.83 2.51 0.83 Xinjiang 160 22.64 836.02 37181 27.56 0.48 0.32 PRC 960 1367.82 58801.90 41908 4158.99 117.59 92.74

Source: China Statistical Yearbook; China Commerce Yearbook; Jilin Statistical Yearbook; Yunnan Statistical Yearbook; Xinjiang Statistical Yearbook.

The wealthiest among the three border regions, Jilin surpassed the national average in per capita GDP in 2009, while Yunnan and Xinjiang remain 40 and 11 percent below the national level (Table 3.4). Xinjiang represents 17 percent of China’s entire land area but is the smallest among the three cases in terms of GDP and population. Compared to

Xinjiang, Yunnan has fallen increasingly behind the national average in per capita GDP despite steady growth since 1978. Xinjiang has the highest foreign trade volume among the three cases, and Yunnan the highest level of FDI. Unlike Yunnan, Xinjiang, and China overall, Jilin has a large foreign trade deficit, which drastically widened from 2002. In

353 For a comparative study of the economic openness of China’s border regions in the 1980s-1990s, see Jing Xueqing, “中国沿边地区对外开放格局分析与调整 (Analysis of the Patterns of Opening of China’s Border Regions),” 云南地理环境研究 (Yunnan Geography and Environment Studies) 1 (1998). 89

2013, despite a similar trade volume as Yunnan, Jilin imported almost three times more goods than it exported. Economic restructuring has also progressed at a much slower pace in Jilin, where the secondary sector accounts for more than half of provincial GDP.

Despite absolute increases in the volume of foreign trade and investment across all three cases, Jilin has declined from the dominant position in openness it enjoyed in the

1990s. Trade openness in Jilin was substantially higher than in Yunnan and Xinjiang during the 1990s, peaking at 33 percent in 1994 compared to 12 percent in Yunnan and 14 percent in Xinjiang. The GDP share of foreign trade in Jilin, Yunnan, and Xinjiang remains far below the national level: 12 percent, 14 percent, and 20 percent respectively in 2013 compared to 45 percent in China overall. FDI relative to GDP began to fall in China overall after peaking in the mid-1990s, when FDI openness in all three cases still remained less than half the national level. But although FDI openness regained positive growth from the early 2000s in Yunnan and Xinjiang at the onset of China’s inland development strategy, it began to decline in Jilin from 2005.

Table 3.5: Economic Openness of Jilin, Yunnan, and Xinjiang (2013)

% of GDP % of National Total Foreign Foreign FDI ODI FDI ODI* Trade Trade Jilin 12.33 0.87 0.36 0.62 1.55 0.81 Yunnan 13.65 1.33 0.44 0.62 2.13 0.90 Xinjiang 20.42 0.36 0.23 0.66 0.41 0.34 PRC 45.28 1.24 0.98 100 100 100

*Central ODI=61% of national total. Provincial shares of non-central ODI are: Jilin=2.07%, Yunnan=2.28%, Xinjiang=0.87%. Source: China Statistical Yearbook; China Commerce Yearbook; Jilin Statistical Yearbook; Yunnan Statistical Yearbook; Xinjiang Statistical Yearbook.

90

Table 3.5 summarizes current indicators of economic openness in Jilin, Yunnan, and

Xinjiang. A cross-case comparison of foreign trade and investment openness in the 2000-

2013 period reveals changing patterns of provincial openness since China’s turn to inland development.

Foreign Trade Openness (2000-2013)

Trade openness in Yunnan and Xinjiang increased after China’s WTO entry until the onset of the global financial crisis, following the general national trend during this period (Figure

3.1). Jilin’s openness, however, declined and remained stagnant from 2003. Xinjiang has grown especially rapidly in trade openness, surpassing Jilin in 2002. While trade openness in Xinjiang more than tripled between 2001 and 2008, it only grew by 2 percent and 4 percent in Jilin and Yunnan. However, Yunnan closed the gap with Jilin in 2007, surpassing Jilin in 2013. By 2013, trade openness in Jilin reverted to figures in 2001

(12.14%), but reached twice their 2001 levels in Xinjiang (20.10%) and Yunnan (13.44%).

These trends are also apparent in provincial shares of China’s foreign trade (Figure

3.2). To keep the provincial indicators in perspective, it can first be noted that the shares of China’s foreign trade of all three regions remain well below 1 percent, in sharp contrast to 26 percent, 13 percent, and 11 percent shares of coastal provinces Guangdong, Jiangsu, and Shanghai in 2013. Among the inland border cases, Jilin’s contribution to China’s foreign trade remained the highest until the mid-2000s, but their differences narrowed by

2013, when provincial shares converged at around 0.6 percent. Xinjiang’s proportion surpassed Jilin’s in 2005, while Yunnan reached Jilin’s level by 2013. Although Jilin’s share of China’s foreign trade steadily recovered after a decline in 2003-2005, compared

91 to the cases of Xinjiang and Yunnan, it remained virtually unchanged from levels at the beginning of the 2000s.

Figure 3.1: Foreign Trade as a Share of Provincial GDP (2000-2013)

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

PRC Jilin Xinjiang Yunnan

Source: China Statistical Yearbook; Jilin Statistical Yearbook; Yunnan Statistical Yearbook; Xinjiang Statistical Yearbook.

Figure 3.2: Provincial Share of China’s Foreign Trade (2000-2013)

0.01 0.009 0.008 0.007 0.006 0.005 0.004 0.003 0.002 0.001 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Jilin Xinjiang Yunnan

Source: China Statistical Yearbook; Jilin Statistical Yearbook; Yunnan Statistical Yearbook; Xinjiang Statistical Yearbook.

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Provincial Economic Integration with Asian Neighbors

Direction of Foreign Trade

Patterns in the direction of trade show that Yunnan and especially Xinjiang are more dependent on regional partners than in the case of Jilin (Table 3.6). Japan and Russia are the only Northeast Asian countries among Jilin’s top five trade partners, although South

Korea is Jilin’s fifth biggest export destination.354 In contrast, with the exception of the

United States, all of Yunnan and Xinjiang’s top five trade partners and export destinations are in Southeast Asia and Central Asia respectively. Jilin’s four biggest trade partners are advanced, Organisation for Economic Co-operation and Development (OECD) economies, and its top three partners Germany, Japan, and the United States are also China’s major trading counterparts. Germany is Jilin’s biggest trade partner and import source, accounting for 35 percent of Jilin’s foreign trade and 46 percent of its imports. Myanmar is Yunnan’s top trade partner in terms of both exports and imports, representing 16 percent of provincial foreign trade.355 Kazakhstan accounts for 44 percent of Xinjiang’s foreign trade, including 38 percent of provincial exports and an overwhelming 73 percent of imports.

354 DPRK trade data from 2009 is unavailable in China’s official compilations. North Korea was Jilin’s biggest export destination after Russia, fifth biggest source of imports, and fourth biggest trading partner overall in 2008. 355 Yunnan’s exports to ASEAN as a whole grew by 29 percent to $8.72 billion in 2014, accounting for 59 percent of total exports. 93

Table 3.6: Top Trade Partners of Jilin, Yunnan, and Xinjiang (2013)

Total Foreign Trade Exports Imports Rank (USD Billion) (USD Billion) (USD Billion) Jilin* 1 Germany 8.966 Japan 0.700 Germany 8.751 2 Japan 3.003 Russia 0.607 Japan 2.303 3 USA 1.047 USA 0.568 Hungary 0.892 4 Hungary 0.896 Australia 0.425 Brazil 0.615 5 Russia 0.700 ROK 0.357 Belgium 0.603 Major exports: clothing, corn, steel, plywood, automobiles Major imports: auto-parts, automobiles, measuring instruments, iron ore Yunnan** 1 Myanmar 4.173 Myanmar 2.435 Myanmar 1.738 2 Malaysia 1.528 Vietnam 1.077 Malaysia 0.802 3 Vietnam 1.333 Laos 0.727 ROK 0.786 4 USA 1.237 Malaysia 0.726 Switzerland 0.738 5 Indonesia 1.234 USA 0.708 Indonesia 0.592 Major exports: chemicals, base metals, tobacco, agricultural products Major imports: minerals, machinery, electronics, telecommunications equipment Xinjiang 1 Kazakhstan 12.255 Kazakhstan 8.369 Kazakhstan 3.886 2 Kyrgyzstan 4.173 Kyrgyzstan 4.134 Uzbekistan 0.380 3 Tajikistan 1.585 Tajikistan 1.576 USA 0.187 4 Iran 1.045 Iran 1.040 Germany 0.117 5 Uzbekistan 0.872 USA 0.620 Mongolia 0.103 Major exports: garments, electrical products, shoes, textiles Major imports: crude oil, electric products, agricultural products

* Excludes Jilin-DPRK trade. Based on latest available data in 2008, Jilin-DPRK trade totaled $0.77 billion, including $0.54 billion in exports and $0.23 billion in imports. ** Hong Kong, if included, is Yunnan’s second biggest trade partner and biggest export destination. Yunnan-Hong Kong trade in 2013 totaled $3.86 billion, including $3.83 billion in exports and $0.03 billion in imports. Source: Jilin Statistical Yearbook; Yunnan Statistical Yearbook; Xinjiang Statistical Yearbook.

Trade Dependence on Asian Neighbors

Finally, a closer assessment of provincial trade dependence on Asian neighbors shows that, compared to Jilin, Yunnan and Xinjiang are far more integrated with their respective Asian

94 subregions (Table 3.7). All three provinces are more dependent on their Asian neighbors than is China on those partners, but the differences are wider for Yunnan and particularly

Xinjiang. Northeast Asia accounted for 22 percent of Jilin’s foreign trade and 16 percent of China’s foreign trade in 2013. In sharp contrast, Southeast Asia accounted for 30 percent of Yunnan’s foreign trade and only 4 percent of China’s foreign trade, while Central Asia accounted for 69 percent of Xinjiang’s foreign trade (more than half of which was with

Kazakhstan) and only 1 percent of the national total.

Table 3.7: Asian Regional Trade (2005 and 2013)

Jilin/Northeast Asia 2005 2013 Jilin-NE Asia Trade ($ Billion) 2.45 5.80 Share of Jilin's Foreign Trade 38% 22% China-NE Asia Trade ($ Billion) 327.00 682.43 Share of China's Foreign Trade 23% 16% Jilin's Share of China-NE Asia Trade 0.75% 0.85% Yunnan/Southeast Asia 2005 2013 Yunnan-SE Asia Trade ($ Billion) 1.14 7.62 Share of Yunnan's Foreign Trade 24% 30% China-SE Asia Trade ($ Billion) 31.91 153.42 Share of China's Foreign Trade 2% 4% Yunnan's Share of China-SE Asia Trade 4% 5% Xinjiang/Central Asia 2005 2013 Xinjiang-Central Asia Trade ($ Billion) 6.01 19.04 Share of Xinjiang's Foreign Trade 76% 69% China-Central Asia Trade ($ Billion) 8.73 50.27 Share of China's Foreign Trade 0.61% 1.21% Xinjiang's Share of China-Central Asia Trade 69% 38%

Notes: Northeast Asia = DPRK, ROK, Russia, Japan (Mongolia trade data unavailable). Jilin-DPRK trade in 2013 estimated based on average trade growth in 2005-2008. Southeast Asia = Cambodia, Laos, Myanmar, Thailand, Vietnam (Mainland Southeast Asia). Central Asia = Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan. Source: China Statistical Yearbook; China Trade and External Economic Statistical Yearbook; Jilin Statistical Yearbook; Xinjiang Statistical Yearbook.

95

On the other hand, although the absolute volume of Asian regional trade clearly increased in all three cases between 2005 and 2013, its share of total provincial trade declined in Jilin and Xinjiang, suggesting a diversification of trade to other partners.356 Yunnan-Southeast

Asia trade grew the fastest during this period, and its share of Yunnan’s total foreign trade also increased from 2011 after declining throughout the 2000s.

In addition, while Yunnan’s contribution to China-Southeast Asia trade recovered to 5 percent in 2013 after a decade of decline until 2009, Xinjiang’s share of China-Central

Asia trade has followed a long-term downward trend despite its strong dependence on

Central Asian neighbors. Central Asia’s share of Xinjiang’s foreign trade grew from 61 to

85 percent from 2000 to 2008. However, Xinjiang’s contribution to China-Central Asia trade fell from 75 to 47 percent, suggesting that other provinces are playing an increasingly important role in China’s trade with Central Asia.

The relative importance of other Chinese provinces is clearly evident in the case of

Jilin, whose share of China-Northeast Asia trade remains negligible (below 1%): the

Russian Far East (RFE)’s key partner is Heilongjiang, most of China-DPRK trade goes through Dandong port in Liaoning, and South Korea and Japan’s main provincial partners are coastal.357 Jilin’s limited contribution to China-Northeast Asia trade also corresponds to an overall decline in Northeast Asia’s importance in China’s total foreign trade over the past decade, unlike the cases of China’s trade with Southeast and Central Asian neighbors.

356 Central Asia’s share of Xinjiang’s total foreign trade peaked at 85 percent in 2008, but has since declined.

357 Da Zhigang. 跨境经济合作:黑龙江省深化对俄罗斯及东北亚区域合作创新和转型发展的新路径 (Cross-Border Economic Cooperation: Heilongjiang’s New Path to Deepening Regional Cooperation with Russia and Northeast Asia),” 东南亚纵横 (Around Southeast Asia) 10 (2013); Zhang Ying, “浅析辽宁对朝 边贸发展趋势 (Analysis of Trends in Liaoning’s Border Trade with North Korea),” 商业经济 (Business Economy) 11 (2007).

96

Summary: Variation in Economic Openness in Jilin, Yunnan, and Xinjiang, 2000- 2013

Provincial indicators of economic openness in Jilin, Yunnan, and Xinjiang since 2000 show a decline in openness in Jilin, and an increase in openness in Yunnan and Xinjiang. While

Jilin was the most open among the three cases in the 1990s, it was surpassed by Xinjiang in trade openness in 2002, and by Yunnan in trade openness in 2013.

The direction and structure of provincial foreign trade further indicate two main differences in the regions’ openness toward Asian neighbors. First, Jilin is less integrated with the Northeast Asian economy compared to the Yunnan-Southeast Asia and Xinjiang-

Central Asia cases, and plays a much smaller role in China’s trade with Northeast Asian partners. On the other hand, despite Yunnan and Xinjiang’s relatively higher trade dependence on Asian neighbors, their role in China’s trade with Southeast Asia and Central

Asia respectively has also generally declined, most notably in Xinjiang’s case, suggesting the growing importance of other Chinese provinces in China’s trade with those regions.

Finally, these patterns of inland openness can be understood in the context of two broader changes in China’s external economic orientation over the past decade. First, the diversification of China’s regional partners reflects the increasingly global orientation of

China’s foreign trade and investment, characterized by South-South rather than primarily

North-South cooperation. While this expansion has clearly favored Yunnan and Xinjiang’s ties with neighboring developing economies, recent trends suggest a decline in their traditionally dominant roles in China’s trade with those neighbors.

Second, the shift in coastal trade to advanced sectors has been accompanied by a shift to industrial manufactures in border regions that have traditionally enjoyed a

97 comparative advantage in primary production. China’s emergence as an outward foreign investor, driven largely by state-led investment in resource-rich developing countries, has also favored cross-border infrastructure development and the further integration of border regions with surrounding neighbors. On the other hand, as seen in the cases of Yunnan and particularly Xinjiang, China’s structural transformation has also implied the relocation of coastal enterprises and Han Chinese labor to China’s west and further marginalization of inland counterparts.

China’s inland shift in the early 2000s sought to address key development challenges in border regions: Jilin’s need to move from heavy to high-tech industries,

Yunnan’s need to diversify its growth sources from a declining tobacco industry, and poor infrastructure for drawing foreign investment in Xinjiang. In face of such challenges, the three regions have diverged in levels of economic openness and dependence on Asian neighbors. My qualitative case studies in the following chapters trace such variation in provincial openness to the interaction of central, local, and international interests in the context of Asian transborder integration. The remaining part of this chapter first highlights key differences in the progression of China’s inland development strategies in the northeast and west, then links together the individual cases.

China’s Border Liberalization in the 1990s

China’s current promotion of border development revives the heightened domestic debate of the 1990s responding to widening disparities between China’s externally-oriented coastal provinces and marginalized interior. A 1996 report by the Chinese Academy of

98

Social Sciences (CASS) task force on “opening up China’s border regions to the outside”

(中国沿边地区对外开放战略) identified major challenges facing border regions including lagging growth, coastal competition for markets and raw materials, low export dependence, reliance on primary production, and a poor foreign investment environment. In 1994, while

Shanghai, Jiangsu, Shandong, and Fujian each accounted for more than 6 percent of

China’s exports, and Guangdong more than 29 percent, Jilin, Yunnan, and Xinjiang’s export shares amounted to merely 1.69 percent, 0.87 percent, and 0.47 percent. The portion of primary exports in provincial exports was in fact the highest in Jilin, Xinjiang, and

Yunnan – 60 percent, 57 percent, and 48 percent respectively compared to the national average level of 16 percent.358 Such disparities were attributed to limited policy support as well as such economic structural factors as the slow development of non-state sectors, limited capital investment, and poor infrastructure.359 Advocates of border development thus raised demands for extending central preferential policies to border regions.360

Calls for expanding economic ties between China’s strategically important frontier regions and neighboring countries during this period were amplified by Beijing’s improving regional diplomatic relations and emerging multilateral efforts of cross-border

358 Chinese Academy of Social Sciences, “论中国沿边地区对外开放战略的几个问题 (Issues in the Strategy of Opening Up China’s Border Areas),” 财贸经济 (CASS Finance & Economics) 3 (1996): 26-27. Also see Chen Jiaqin, “90 年代中后期中国沿边地区对外经贸发展战略设想 (Foreign Trade Strategies of China’s Border Regions in the 1990s),” 国际贸易 (International Trade) 7 (1994). 359 For a discussion of structural challenges, see Jing Xueqing, “中国沿边地区城市体系结构分析与调整 (Analysis of the Urban Infrastructure of China’s Border Regions),” 地理学与国土研究 (Geography and Territorial Research) 1 (1999). 360 For example, see Hou Jingxin and Meng Weiwei (Renmin University Institute of Regional Economies), “中国沿边地区的开放格局及政策措施 (Patterns of Opening China’s Border Regions and Policy Measures),” 东北亚论坛 (Northeast Asia Forum) 3 (1993); and Zhang Lijun, Tao Tiantian, and Zheng Yingchao (Minzu University). “中国沿边开放政策实施效果评价及思考 (Evaluation of the Effects of the Implementation of China’s Open Border Policy),” 民族研究 (Ethno-National Studies) 2 (2011). 99 economic integration.361 These propositions centered on the development of regional markets in Northeast, Central, and South/Southeast Asia as a key means of opening up border regions to the world economy, 362 starting with transborder regions along the Tumen,

Mekong, and Emin Rivers.363 It was against such domestic debates that the Greater Tumen

Initiative (GTI), Greater Mekong Subregion (GMS), and Central Asia Regional Economic

Cooperation (CAREC) emerged in the 1990s, laying the institutional foundations for Jilin,

Yunnan, and Xinjiang’s further opening (Table 3.8).

361 Representative works in the 1990s include those by Chen Jiaqin of the CASS Institute of Finance and Trade Economics, who led the CASS task force on China’s border liberalization strategy, and Jing Xueqing of the Chinese Academy of Sciences (CAS) institute of Geography. 362 Specifically: (1) a Harbin-centered Northeast Asian market, linking Heilongjiang, Jilin, Liaoning, and eastern parts of Inner Mongolia to the Korean peninsula, Japan, Mongolia, and the Russian Far East and Eastern Siberia; (2) a Urumqi-centered Central Asian market, linking Xinjiang, Qinghai, Gansu, Ningxia, Shaanxi, and western parts of Inner Mongolia to Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Turkmenistan; and (3) a Kunming-centered South/Southeast Asian market, linking Yunnan, Guizhou, Tibet, Sichuan, and Guangxi to India, Nepal, Bhutan, Myanmar, and Vietnam. See Jing Xueqing, “论中国主要沿 边省区地域开发战略的调整: 以新疆、云南、黑龙江三省区为例 (The Regional Development Strategies of China’s Main Border Provinces: Xinjiang, Yunnan, and Heilongjiang as Examples),” 地 理 研 究 (Geography Research) 4 (1997).

363 Jing Xueqing, “中国沿边地区开放开发的宏观前景分 析 (Macro Analysis of the Opening and Development of China’s Border Regions),” 地理学报 (Geography Journal) 5 (1998). 100

Table 3.8: Multilateral Economic Initiatives on China’s Border

Main Multilateral Provincial Member States Priority Sectors Major Feature Program Participant Jilin, joined by China, Russia, Greater Tumen Chinese labor, Liaoning, North Korea Initiative Transport, trade and Japanese/ROK Heilongjiang, (DPRK) (1991- (1991), investment, tourism, capital, and Inner 2009), South supported by energy, environment Russian/DPRK Mongolia from Korea (ROK), UNDP resources 2005 Mongolia Transport, energy, Greater telecommunications, Mekong China, environment, Subregion Yunnan, joined Myanmar Laos, human resources, Rapidly growing (1992), by Guangxi Vietnam, tourism, trade, ASEAN market supported by from 2005 Thailand, private sector ADB and other Cambodia investment, donors agriculture Central Asian China, Regional Afghanistan, Economic Azerbaijan, Former Soviet Cooperation Kazakhstan, economies in Transport, trade (1997), Kyrgyzstan, transition Xinjiang facilitation, energy, supported by Mongolia, seeking to trade policy ADB and five Pakistan, diversify other Tajikistan, dependence multilateral Turkmenistan, institutions Uzbekistan

Source: Asian Development Bank, United Nations Development Programme.

On the Chinese side, this focus on opening up China’s inland periphery supported a national strategy of “opening to the outside and linking the inside” (外开内联), aimed as much to promote coastal-interior economic interdependence and balanced development as to promote integration with surrounding regional markets.364 Yet even by the end of the

1990s, China’s border regions displayed differences in both the level and form of

364 CASS, “论中国沿边地区 (Issues in the Strategy of Opening);” Chen Jiaqin, “中国沿边地区对外开放 战略的几点思考 (Reflections on the Opening Up Strategy of China’s Border Regions),” 东北亚论坛 (Northeast Asia Forum) 4 (1995). 101 liberalization, arising from differences in internal and external conditions, and in particular, weak institutional mechanisms for cross-border coordination.365 A decade into Beijing’s western and northeast development plans, the pace of opening was improving in the southwest relative to the northwest, and unbalanced within the northeast. The sustainable growth of open border economies depended on not just central preferential policies granted by these programs, but also local political will and development capacity. 366

Explaining the Variation in Provincial Economic Openness in Jilin, Yunnan, and

Xinjiang: Central-Local-International Dynamics of Liberalization

Jilin-Northeast Asia

Jilin’s trade openness during the 2000s was in fact at its highest when the northeast development plan was launched in 2003 (19.19%), falling to 12.33 percent by 2013, only slightly above the level in 1986 (10.90%). Unlike the positive growth in Yunnan and

Xinjiang, Jilin’s FDI openness also declined. This downward trend reflects Jilin’s continued stagnation since the mid-1990s, and can be traced to local conservatism, waning political and material support at the central and international levels, and the northeast’s structural conditions. Although the northeast plan sought to expand external ties with

365 Jing Xueqing, “中国沿边地区对外开放格局分析与调整 (Analysis of the Patterns of Opening of China’s Border Regions to the Outside),” 云南地理环境研究 (Yunnan Geographic Environment Studies) 1 (1998); “中国沿边地区开放开发的宏观区域划分及其模式选择 (Macro-Regional Division and Mode Selection of the Opening and Development of China’s Border Regions),” 经济地理 (Economic Geography) 4 (1998); and “沿边地区开放开发的形式转换: 兼论中国沿边地区开放开发的问题与对策 (Changes in the Form of Opening and Development of Border Regions: Problems and Countermeasures),” 云南地理环 境研究 (Yunnan Geographic Environment Studies) 1 (1997). 366 Huang Weixin, “我国沿边地区开放型经济发展水平评价及影响因素的实证分析 (Evaluation of the Level of Development of Open Economies in China’s Border Regions and Empirical Analysis of Influencing Factors),” 经济问题探索 (Inquiry into Economic Issues) 1 (2014).

102 neighbors, its priorities remained in local restructuring. Cross-border cooperation under the GTI framework never really took off since the 1990s. Unlike Yunnan and Xinjiang,

Jilin grew increasingly inward in its economic orientation.

Central Interests and Strategies. Despite limited achievements at the multilateral level throughout the 1990s, Tumen development was incorporated into China’s national strategy in 1996, after which the Hunchun Export Processing Zone and China-Russia Trade

Zone were established within the Hunchun BECZ in 2001 and 2002.367 The Hu Jintao leadership identified Tumen cooperation as a driver of growth in its northeast revitalization plan in 2003, aimed to promote industrial diversification, SOE reform, private sector development, and mitigation of the social costs of restructuring since the 1990s. 368

Northeast revitalization was included in China’s 11th Five Year Plan (2006-2010), and the

State Council subsequently issued long-term plans for opening up the northeast to

Northeast Asia (2012-2020) and the Russian Far East and Eastern Siberia (2009-2018).369

In Jilin, it approved China’s own model of Tumen cooperation in 2009, establishing an experimental cooperation zone in Hunchun in 2012 as well as a joint planning committee for the China-DPRK Rason free trade zone. 370 Preferential policies for Jilin aimed to

367 Yanbian Bureau of Commerce. 368 CPC Central Committee and State Council, “关于实施东北地区等老工业基地振兴战略的若干意见 (Opinions on Implementing the Strategy of Revitalizing the Northeast and Other Old Industrial Bases),” Zhongfa 11, October 5, 2003; Zheng Xiaoliang and Yongjun Wang, 振兴东北老工业基地的理论与实现 (Theory and Practice of Reviving the Northeast Old Industrial Bases) (Changchun: Jilin renmin chubanshe, 2008). 369 NDRC and State Council Leading Small Group on Revitalizing the Northeast and Other Old Industrial Bases, “东北地区振兴规划 (Northeast Revitalization Plan),” August 20, 2007; State Council, “关于促进东 北老工业基地进一步扩大对外开放的实施意见 (Opinions on Implementing the Further Opening of the Northeast Old Industrial Bases to the Outside),” Guobanfa 36, June 30, 2005; China Development Yearbook for Regional Economy 2013, 589-598. 370 State Council, “中国图们江区域合作开发计划纲要—与长吉图开发开放先导区 (Outline of the China Tumen River Area Cooperation and Development Plan—and Changjitu Development and Opening Pilot Zone),” November 16, 2009; “关于支持中国图们江区域（珲春）国际合作试验区建设的若干意见 (Opinions on Supporting the Construction of the China Tumen River Area (Hunchun) International Cooperation Experimental Zone),” Guobanfa 19, 2012. 103 attract foreign investment in such key sectors as agriculture, equipment manufacturing, and chemicals; draw private and foreign capital for SOE restructuring; and deepen regulatory reforms to support foreign-funded enterprises.371

Local Interests and Strategies. Beijing’s 2003 initiative presented a major opportunity for advancing Jilin’s external economic interests, reviving expectations of the

1990s on the rise of the northeast as China’s next growth engine after coastal counterparts.372 At the 17th National Party Congress in October 2007, CPC pledges to further liberalize border regions drove local demands for administrative reforms such as the upgrading of Hunchun port into a city directly under the provincial government.373

Jilin’s current economic strategy centers on the Changchun-Jilin-Tumen (Changjitu, 长吉

图) pilot zone, the core area for cross-border cooperation since 2009.374 Covering a third of Jilin’s population and half of its economic output, the Changjitu plan includes measures to promote industrial restructuring and infrastructure development; improve domestic and international policy coordination; and enhance local monitoring. It complements broader

371 NDRC and State Council Leading Small Group on Revitalizing the Northeast and Other Old Industrial Bases, “Northeast Revitalization Plan” and State Council, “Opinions on Implementing.” 372 Li Jingyu, “东北地区成长为中国第四大经济增长极的战略思考 (Strategic Thinking on Making the Northeast the Fourth Economic Engine for China),” 经济研究参考 (Review of Economic Research) 6 (2004): 31-2; Ning Yi and Dong Ning, 东北乍整：东北问题报告 (How to Fix the Northeast: Report on the Northeast Problem) (Beijing: Dangdai shijie chubanshe, 2004); Li Cheng, “China’s Northeast: From Largest Rust Belt to Fourth Economic Engine?” China Leadership Monitor 9 (2004). 373 Chen Xi, “在图们江区域打造沿边对外开放先行区的思考 (Thoughts on Building the First Open Border Area in the Tumen River Area),” 经济视角 (Economic Vision) 5 (2009); Jilin provincial government, “Good Trends of Accelerated Economic Development in Jilin Province” (in English), 2009. 374 Jiang Chaoliang, “2015 年吉林省政府工作报告 (Jilin Provincial Government Work Report 2015),” 4th Session of 12th Jilin People’s Congress, February 9, 2015; Wang Lihong, “扩大吉林省沿边开放对策研究 (Strategies for Further Opening Up Jilin’s Border),” 经济视角 (Economic Vision) 2 (2013).

104 regional initiatives under the GTI as well as bilateral projects with the RFE and North

Korea.375

International Interests and Strategies. GTI cooperation in the early-2000s focused primarily on institutional reforms to make the program financially sustainable after setbacks from the 1997 Asian crisis.376 2005 was a turning point for the GTI, which produced an action plan for 2006-2015 reflecting three changes in the program’s orientation.377 First, member states assumed full ownership, with the UNDP playing a continued facilitating role. The formulation and implementation of GTI policies became more dependent on national initiatives through increased participation of national working groups and the streamlining of Tumen Secretariat operations. Second, the geographic scope of cooperation expanded to include all three northeast Chinese provinces and Inner

Mongolia; eastern ports in South Korea; and eastern provinces in Mongolia. Third, the private sector was identified as a primary driving force of GTI cooperation. From the late-

2000s, Jilin’s gains from the GTI depended increasingly on inter-governmental facilitation of trade and investment, and private sector participation. Although Jilin has since 2002 led

China’s role in the GTI through the Jilin-Northeast Asia Investment and Trade Expo jointly held with the UNDP and Ministry of Commerce (MOFCOM), foreign investor interest has not increased as rapidly as domestically, and the widened geographic and sectoral scope of cooperation has also implied greater competition from other Chinese provinces.378

375 Almanac of Jilin Economic and Technological Cooperation 2011, 266-277; Jilin Yearbook 2013, 172- 179, 263-272; China Development Yearbook for Regional Economy 2013, 813-816. 376 Zhang Donghui, Tumen River Area Development Administration of Jilin Province, “The Progress and Function of the Tumen River Area Development Programme in Northeast Asian Regional Economy,” Paper presented at the Northeast Asian Economic Forum, Changchun, 2005. 377 GTI Secretariat. 378 Jilin Provincial Government; PRC Embassy in the Republic of Korea. 105

Dynamics of Jilin’s Liberalization

As the core of China’s planned economy, the northeast confronted two major internal constraints at the onset of liberalization: (1) the region’s economic structure, characterized by a dominance of SOEs and marginalization of the private sector, and (2) local conservatism, “outdated” ideas, and limited preparedness for market competition. 379

Jilin’s biggest challenge was reforming its heavily-subsidized SOEs, which represented 86 percent of the provincial economy in 2001, and implied restructuring costs three times higher than that of coastal regions.380 As northeast scholars argue, the strengthening of local interests led local governments to adopt contradictory patterns of cooperative and competitive behavior when engaging in cross-border initiatives, revealing a need to improve internal mechanisms of coordination.381

Institutional barriers posed the biggest obstacle to trade and investment across the northeast border, where the lack of understanding of respective policies, regulations, and practices remains a persistent concern for local officials and enterprises since the 1990s.382

The lowering of such “soft” barriers is a priority goal of the GTI Trade Facilitation

Committee, created in 2011 to promote trade policy transparency and coordination among

379 Interviews in Shenyang, June-July 2015, and Beijing, February and August 2015. 380 The national average share in 2001 was 65 percent. Mark Wang, Zhiming Chen, Pingyu Zhang, Lianjun Tong, and Yanji Ma, Old Industrial Cities Seeking New Road of Industrialization: Models of Revitalizing Northeast China (Singapore: World Scientific, 2014), 48. Also see Zhang Donghui, 东北老工业基地深化 国有企业改革的难点与对策 (Difficulties and Countermeasures of Deepening State-Owned Enterprise Reform in the Northeast Old Industrial Bases) (Changchun: Jilin University, 2004). 381 Zhang Yuxin and Li Tianzi (Jilin University School of Economics, Northeast Asia Research Center), “跨 境次区域经济合作中我国沿边地方政府行为分析 (Analysis of China's Local Government Behavior in Cross-Border Subregional Economic Cooperation),” 东北亚论坛 (Northeast Asia Forum) 4 (2012).

382 This is a shared concern in both Jilin-RFE and Jilin-DPRK cases. Interviews in Shenyang, May-July 2015; Chen Di, “浅谈中俄边境贸易现状及发展方向 (Present Situation and Development Trend of Sino-Russian Border Trade),” 黑河学刊 (Heihe Journal) 3 (2004); Li Dunqiu, “Economic and Social Implications of China-DPRK Border Trade for China’s Northeast,” Working Paper (2006). 106 member states.383 However, the northeast remains largely unchanged since the “1990s model” of cross-border cooperation, driven by local corruption and the quest for “quick profits” rather than sustainable returns. 384 In addition to such normative constraints, external security concerns surrounding the North Korean nuclear issue have clearly impeded economic integration. But more importantly for Jilin, its Northeast Asian neighbors are economically oriented toward other provinces. More than half of China-

DPRK trade goes through Dandong port in Liaoning, China-Russia energy and infrastructure projects favor Heilongjiang and the RFE,385 and South Korea’s “sister city” partnerships are largely with coastal governments.386

Since 2013, Yanbian officials have voiced support for the Xi leadership’s “One

Belt, One Road” (OBOR) initiative in 2013 through such projects as Changjitu.387 But a decade into China’s northeast revitalization effort, local officials raised concerns over

383 Ratnakar Adhikari and Sudeep Bajrachaya, “Greater Tumen Region Trade Facilitation Study,” UNDP China Report (New York: UNDP, 2015). 384 Interviews in Beijing, February 2015; Evgeny Tomikhin, Minister-Counsellor, Deputy Head of Mission, Embassy of Russia, “Recent Trends in Russia-China Relations,” China-Russia Workshop, East China Normal University, Shanghai, November 2015. 385 “中俄经济合作模式及路径研究 (Model and Path of PRC-Russia Economic Cooperation),” 黑龙江经 济报 (Heilongjiang Economic News), February 12, 2015; “刘瑞华：龙江陆海丝绸之路经济带建设助力 对俄深度合作 (Liu Ruihua: Construction of Longjiang Maritime Silk Road Deepens Cooperation with Russia),” 黑龙江经济报 (Heilongjiang Economic News); January 27, 2015. 386 Zhang Yongxue, “中朝边境经济合作区创新要素聚集研究 (Sino-South Korean Border Economic Cooperation Zones),” 中小企业管理与科技 (Management and Technology of SMEs) 2 (2014); Yang Long and Zhang Yanhua, “中韩地方政府跨国合作的现状与前景 (Status and Prospects of China-South Korea Cross-border Cooperation of Local Governments),” 南开学报 (Nankai Journal) 2 (2013). 387 Ma Xing et al., ““一带一路”战略引领 长吉携手谱写新篇 (“One Road One Belt” Strategy Guides Changji in Writing A New Chapter Together),” 吉林日报 (Jilin Daily), March 2, 2015; Wang Ying et al., “拓长吉图发展坦途 架东北亚合作金桥 (Extending Changjitu Development),” 吉林日报 (Jilin Daily), March 3, 2015; Zhang Qingning, “吉林：开放“后进生”冲刺自贸区 (Jilin: Opening Up the “Latecomer” Free Trade Area),” 经济观察报 (Economic Observer), January 19, 2015; Du Juan, “沿边开发开放 珲春蓄 势待发: 看珲春将如何发展成为长吉图“窗口” (Hunchun Ready for Border Development and Opening: Hunchun as a Window of Chanjitu),” 图们江报 (Tumen River News), January 29, 2015; Du Juan, “建言改 革发展 献策丝路建设: 州政协委员心系沿边开放一席谈 (Suggestions on Silk Road Reform and Development: CPPCC)” 图们江报 (Tumen River News), January 20, 2015. 107

Jilin’s lagging economy among China’s nine inland provinces,388 and even the National

Development and Reform Commission (NDRC) recognized a significant gap in openness with neighboring coastal provinces. 389 Domestic debate at the March 2015 National

People’s Congress (NPC) centered on a “new northeast phenomenon” (新东北现象) of stagnation after the region ranked within China’s bottom five in provincial growth in 2013-

2014.390 Beijing’s national plan for restructuring China’s old industrial bases for 2013-

2022 suggested a further dilution of support for Jilin’s development at the central level.391

As the NDRC explicitly indicated in 2014, the priority of China’s regional development is western development.392

Yunnan-Southeast Asia

Although not improving as strongly as Xinjiang, Yunnan’s trade openness followed a generally positive trend in the 2000s, growing from 7.23 percent in 1999 to 13.65 percent in 2013. It approached Jilin’s level in 2007, eventually surpassing Jilin in 2013. Yunnan’s openness grew more sharply in FDI terms, surpassing Jilin in 2009, while trade dependence on Southeast Asian neighbors also began to recover from 2009. Yunnan’s improving

388 Wang Lihong, “Strategies for Further Opening Up.”

389 Huang Zhengxue (NDRC), “东北老工业基地进一步扩大对外开放的基本思路 Basic Ideas for Further Opening Up the Old Industrial Base in Northeast China),” 中国经贸导刊 (China Economic and Trade Herald) 25 (2012). 390 “新常态下“东北现象” (“New Northeast Phenomenon” in the New Normal),” Xinhua, February 15, 2015; “习近平的两会时间：东北振兴真么办？(Xi Jinping at the NPC/CPPCC: How Deal with Northeast Revitalization?),” Xinhua, March 10, 2015. 391 NDRC, “全国老公也基地调整改造计划(National Plan for Restructuring and Reforming Old Industrial Bases) (2013-2022).” 392 Chen Yang, “China Sets Tasks for 2014 Western Development,” Global Times, February 10, 2014. In border regions, the NDRC in 2010 proposed the creation of open pilot zones (开发开放试验区) in Dongxing (Guangxi), Ruili (Yunnan), Kashgar (Xinjiang), and Manzhouli (Inner Mongolia). Pan Liming and Yan Xuguang, “喀什特区与国家期望 (Kashgar Special Zone and National Expectations),” 大陆桥视野 (New Silk Road Horizon) 4 (2011). 108 performance can be traced to a convergence in central and international interests that was lacking in the Jilin case, most notably in the form of China’s “bridgehead” (桥头堡) strategy of linking Yunnan to Southeast Asia from 2009, and the China-ASEAN FTA from

2010.

Central Interests and Strategies. While China entered the Greater Mekong

Subregion in 1992 as a beneficiary, it took on a leading funding and implementing role by the late 2000s, making a series of pledges at the 2008 leaders’ summit in Kunming that were adopted in the 2008-2012 action plan. 393 Within China, although the western development plan emphasized coastal Chinese aid from the onset, the central government in the past decade has promoted outward investment in cross-border infrastructure development to lower the physical barriers to foreign trade. Beijing’s incorporation of the

GMS into its “go out” strategy in 2004 directed state and private investment to less developed members Cambodia, Laos, and Myanmar in particular, supported by unilateral measures to widen the scope of preferential tariff treatment to those countries from 2006.394

Chinese investment in the GMS increased from $60 million in 2004 to $115 in 2006, more than a third of China’s total investment in ASEAN.395 Between 2006 and 2009, China

393 Wen Jiabao, Speech at the Third GMS Summit, Vientiane, March 31, 2008; Joint Summit Declaration, Third GMS Summit of Leaders, Vientiane, March 2008. For reviews of Yunnan’s participation in the GMS since the 1990s, see He Shengda, “云南参与 GMS 合作 20 年:述评与思考 (20 Years of Yunnan’s Participation in GMS Cooperation: Review and Thoughts),” Journal of Kunming University of Science and Technology (2012); and Guo Xiangyan, “(Lancang-Mekong Subregional Economic Cooperation),” 南方论 丛 (Southern Forum) 2 (2006).

394 Zhu Zhenming, “Mekong Development and China’s (Yunnan) Participation in the Greater Mekong Subregional Cooperation,” Ritsumeikan International Affairs 8 (2010), 8. 395 Lim Tin Seng, “China’s Active Role in the Greater Mekong Subregion,” East Asian Policy 1-1 (2009), 44. 109 spent $4 billion on highway construction to link Kunming to GMS areas, providing unconditional loans to GMS governments.396

Local Interests and Strategies. The Yunnan provincial government has sought to expand commercial ties with GMS states since the 1980s, producing its own policy proposals for border trade in 1985. While inter-agency coordination was a major challenge to Yunnan’s participation in the GMS in the 1990s,397 the creation of the Yunnan Lancang-

Mekong Coordination Group under the provincial Development and Reform Commission

(DRC) in 2002 laid the institutional foundation for managing GMS participation at the local level.398 Yunnan from 2002 assumed responsibility for implementing the Cross-

Border Transportation Agreement and Economic Corridors with Laos, Thailand, and

Vietnam, launched in 2005.399

Yunnan’s current development strategy centers on advancing its role as a

“bridgehead” linking China and South/Southeast Asia.400 Initially raised by Hu Jintao during a 2009 inspection tour of Yunnan, this bridgehead concept has formed the basis of local demands for preferential policies and funding. In addition to directly appealing to top leaders, provincial leaders from 2009 mobilized support from various political parties

396 Lim Ten Seng, “China’s Active Role," 41. 397 He Shengda (Yunnan Academy of Social Sciences), “云南参与 GMS 合作 20 年:述评与思考 (20 Years of Yunnan’s Participation in GMS Cooperation: Review and Thoughts),” Journal of Kunming University of Science and Technology (2012). 398 Xiong Bin and Wen Shuhui, “Towards A Better Understanding of the Political Economy of Regional Integration in the GMS: Stakeholder Coordination and Consultation for Subregional Trade Facilitation in China,” GMS Initiative Discussion Paper Series 7 (2009): 11-12; Zhu Zhenming, “Mekong Development,” 12. 399 Zhu Zhenming, “Mekong Development.” 400 Zhi Liu, “论云南参与区域合作与桥头堡建设的相互关系 (The Mutual Relationship between Yunnan’s Participation in Regional Cooperation and Bridgehead Construction),” Journal of Yunnan Normal University (2011); Wang Guoping and Chen Yashan, “新世纪以来云南面向东南亚南亚开放回顾 (Yunnan’s Opening to South and Southeast Asia since the New Century),” Southeast Asian and South Asian Studies 1 (2012).

110 through the Chinese People’s Political Consultative Conference (CPPCC) and NPC.401

The NDRC incorporated Yunnan’s bridgehead initiative into China’s national strategy in

2010, leading to the creation of a MOFCOM-led inter-ministerial coordination mechanism involving more than 30 central agencies, and partnerships between the Yunnan government and major SOEs and banks.402

International Interests and Strategies. Existing regional mechanisms provided important platforms for pursuing Yunnan’s bridgehead strategy at the multilateral level.403

Like the GTI, the GMS did not really enter its implementation stage until after the Asian financial crisis, but facilitated policy coordination at the state, ministerial, and functional working-group levels. Chinese and GMS priorities at the inaugural leaders’ summit in

2002 focused on transport infrastructure development,404 for which Premier Wen Jiabao pledged Chinese material and technical aid in 2008 and launched the annual Economic

Corridors Forum with GMS states. The current GMS agenda (2012-2022) is framed around the development of “transnational economic corridors” involving multi-sector investments and greater local stakeholder participation.405

While the GTI’s restructuring from 2006 weakened the formal institutional framework supporting Jilin’s cross-border integration, Yunnan’s opening to neighbors intensified with broader multilateral initiatives throughout the 2000s. The expansion of

ASEAN-based cooperation mechanisms boosted GMS efforts to integrate members into

401 Zhang Juzheng, “云南通往东南亚南亚之桥,” 云南政协报, June 19, 2009. Cited in Li Mingjiang, “Local Liberalism: China’s Provincial Approaches to Relations with Southeast Asia,” Journal of Contemporary China 23-86 (2014), 283. 402 Zhang Yi, Jin Jing, Li Yongqian, and Li Yongzhong, “以桥头堡战略推动云南沿边开放跨越式发展的 思考 (Thoughts on Advancing the Development of Yunnan’s Border Opening Through the Bridgehead Strategy),” 经济师 (China Economist) 5 (2013). 403 Zhi Liu, “The Mutual Relationship.” 404 Joint Summit Declaration, First GMS Summit, Phnom Penh, November 2002. 405 ADB, “The GMS Economic Cooperation Program Strategic Framework (2012-2022),” March 2012. 111 wider trade and investment networks. Most notably, the 2002 framework agreement for the China-ASEAN FTA, which went into effect in 2010, enhanced Yunnan’s incentives to expand commercial ties with Southeast Asia.406 Yunnan seeks to actively participate in the

Bangladesh-China-India-Myanmar (BCIM) Economic Corridor, which has drawn higher level attention from member governments since 2010.407 The NDRC launched the BCIM’s first Joint Study Group Meeting in December 2013 in cooperation with the Yunnan DRC in Kunming.408

Dynamics of Yunnan’s Liberalization

Under the Xi leadership, the Maritime Silk Road initiative clearly favors Yunnan’s further opening to South and Southeast Asia, as highlighted in a 2014 forum on economic cooperation between China’s border regions and neighboring countries, jointly convened by the CASS Institute of Chinese Borderland Studies, Yunnan University, National

University of Singapore, and Baoshan local government.409 Plans for a Yunnan-Guangxi pilot financial reform zone, jointly released by the State Council, People’s Bank of China,

NDRC, Ministry of Finance, MOFCOM, and other agencies in November 2013, is another source of central support for Yunnan’s opening.410 Modeled on similar coastal zones, the

406 Yunnan Academy of Social Sciences, “中国-东盟自由贸易区的建构与云南的对外开放研究 (Study on the Establishment of the China-ASEAN Free Trade Area and Yunnan’s Opening to the Outside),” 云南社会 科学 (Social Sciences in Yunnan) 5 (2002). 407 Chen Hao, “2015 年云南省政府工作报告 (Yunnan Provincial Government Work Report 2015),” 3rd Session of the 12th Yunnan People’s Congress, January 26, 2015. 408 NDRC Academy of Macroeconomic Research, “The First Joint Study Group Meeting of Bangladesh- China-India-Myanmar Economic Corridor (BCIM-EC) Was Held,” January 14, 2014. 409 “中国社会科学论坛·西南论坛(2014):中国沿边开发开放与周边区域合作”国际学术研讨会在云南 召开 (Chinese Social Science Forum, Southwest Forum (2014): China’s Border Development and Opening and Cooperation with Neighboring Regions" International Academic Seminar Held in Yunnan),” 世界知识 (World Affairs) 1 (2015). 410 “国务院同意电柜建设沿边金融中和改革试验区 (The State Council Approves the Construction of Border Financial Reform Pilot Zone),” 时代金融 34 (2013). 112 zone aims to promote service sector expansion in the southwest provinces, and also China and ASEAN’s upgrading of the FTA.

Compared to the Jilin case, local and external economic interests are closely aligned with the center’s core strategic objectives. Yunnan’s bridgehead strategy not only satisfies its economic interests, but also China’s transition to a “two oceans” strategy of opening centered on the Indian and Pacific Oceans.411 China’s oil and gas project since 2007 with

Myanmar, Yunnan’s most important trading partner, supports central goals of mitigating energy security concerns across the Malacca Strait and stabilizing energy prices in southwest China. Led by China National Petroleum Corporation (CNPC) in partnership with Myanmar Oil and Gas Enterprise and South Korean and Indian energy companies, the project is tied to the Yunnan Urban Gas Project under a 2010 agreement between CNPC and the provincial government.412

Yunnan’s foreign economic initiatives, however, still faces internal and external constraints, including significant competition from coastal provinces and especially

Guangxi,413 and domestic political uncertainties in neighboring countries. 414 As local officials claim, the effects of Beijing’s current border liberalization policies are not

411 Yunnan Government Work Report 2015; He Yue, “桥头堡建设中的云南周边国家安全环境 (Yunnan’s Security Environment in Building a Bridgehead with Surrounding Countries),” Journal of Yunnan Normal University (2011). 412 CNPC, “Yunnan Branch of Myanmar-China Gas Pipeline and Yunnan Urban Gas Project Kick Off” (in English), 1 December 2012. 413 Yunnan’s progress in liberalization, however, is even more evident when compared with Guangxi. See Li Min, “云南与广西对外开放现状与政策对比分析 (Comparative Analysis on the Current Situation and Policy of Yunnan and Guangxi’s Opening to the Outside),” 东南亚南亚研究 (Southeast Asian and South Asian Studies) 2 (2011). 414 Tian Ziyi, “云南:提升开放型经济水平的战略取向 (Yunnan: Strategic Orientation In Improving the Level of Open Economy),” 开放导报 (China Opening Journal) (2014). 113 obvious. 415 Some local scholars even raise concerns over an apparent weakening of

Yunnan’s “bridgehead” policy advantage given its initially low industrial base and lagging infrastructure construction.416

Xinjiang-Central Asia

Xinjiang’s trade openness has increased the sharpest among the three cases, growing from

9.83 percent in 2001 to as high as 36.89 percent in 2008. Although the least open in FDI terms, FDI openness steadily increased from 0.07 percent in 2003 to 0.36 percent in 2013.

While central state interests have led Xinjiang’s path of liberalization since the western development plan, these interests have increasingly converged with those of Central Asian counterparts and regional organizations, namely the Shanghai Cooperation Organization

(SCO), over the past decade. But more importantly, the higher pace of opening in north

Xinjiang compared to the restive south suggests that central security priorities dictate the economic orientation of Xinjiang, where the key drivers and beneficiaries of liberalization are coastal rather than local actors.

Central Interests and Strategies. The CPC leadership has since 1978 pursued a two-pronged policy of promoting development and stability in Xinjiang, through a strategy of building economic linkages both with foreign neighbors and between China's east and west (外引内联，东联西出，西来东去).417 Opening up the west is not just an economic

415 Research Group of Party School of Yunnan Province and Niu Jianhong, “云南沿边口岸开发开放政策 衔接研究 (Research on the Convergence of Yunnan’s Border Development and Opening Policies),” 中共云 南省委党校学报 (Journal of Yunnan Provincial Committee School of the CPC) 2 (2015). 416 Zhang Yi et al., “Thoughts on Advancing;” Tian Ziyi, “Yunnan: Strategic Orientation.” 417 Zhu Peimin and Wang Baoying, 中国共产党治理新疆史 (History of Communist Party of China’s Governance of Xinjiang) (Beijing: Dangdai zhongguo chubanshe, 2015); Jiang Xinwei, “改革开放以来新 疆对外开放战略的演进与发展 (The Evolution and Development of Xinjiang's Strategy of Opening to the Outside since Reform and Opening),” 新疆财经 (Xinjiang Finance and Economics) 6 (2010). 114 issue but a political issue of promoting national unity based on principles of “frontier, nation, stability” (边疆，民族，稳定).418 While identifying similar challenges as Yunnan as an ethnic minority and, unlike Jilin, poor region,419 the western plan in Xinjiang places heavier emphasis on political stability given more volatile tensions surrounding Uighur unrest, transnational terrorism, and the spread of “color revolutions” across the border, including in Kyrgyzstan in 2005.420 Concerns over terrorism, separatism, and extremism on China’s western border (Xinjiang, Tibet) not only relate to national “core” interests (核

心利益),421 but are also shared by SCO members since the organization’s founding in

2001.422

418 Zhu Peimin and Wang Baoying, 中国共产党治理新疆史 (History of Communist Party of China’s Governance of Xinjiang) (Beijing: Dangdai zhongguo chubanshe, 2015); Jiang Xinwei, “改革开放以来新 疆对外开放战略的演进与发展 (The Evolution and Development of Xinjiang's Strategy of Opening to the Outside since Reform and Opening),” 新疆财经 (Xinjiang Finance and Economics) 6 (2010).

419 Yang Xianming, Lu Zhaohe, Huang Ning, and Liang Shuanglu, 超越预警：中国西部欠发达地区的发 展与稳定 (Transcend Early Warning: The Development and Stabilization of Less Developed Areas in Western China) (Beijing: renmin chubanshe, 2013). 420 Zhang Lijuan, 中亚地区民族问题与中国新疆民族关系: 基于地缘政治的视角 (Ethnic Issues in Central Asia and Ethnic Relations in China’s Xinjiang: A Geopolitical Perspective) (Beijing: Social Sciences Academic Press, 2014). 421 Luo Zhongshu, “中国西部边疆研究若干重大问题思考 (Reflections on Several Major Issues in the Study of China’s Western Frontier),” 四川大学学报 (Journal of Sichuan University) 1 (2015). For discussions of China’s national security interests in Xinjiang/Central Asia and Tibet/South Asia, see Yu Xiaofeng, “非传统安全与中国 (The Emergence of Non-Traditional Security Issues in China),” in 中国 对 外关系转型 30 年， 1978-2008 (Transformation of Foreign Affairs and International Relations in China), ed. Wang Yizhou (Beijing: Social Sciences Academic Press, 2001), 313-314; and Andrew Scobell, “Terrorism and Chinese Foreign Policy,” in China Rising: Power and Motivation in Chinese Foreign Policy, ed. Yong Deng and Fei-Ling Wang (Lanham: Rowman and Littlefield, 2005), 311-314. 422 “Shanghai Convention on Combating Terrorism, Separatism and Extremism,” 15 June 2001, Shanghai, signed by China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan, and in force from 29 March 2003. More recently, China’s counter-terrorism law passed in December 2015 raised international concern over its broader implications for Xinjiang by framing the internal security discourse as part of a regional problem. 115

On the development side, poor infrastructure for drawing in foreign investors has been a primary constraint to developing Xinjiang’s export-oriented economy.423 In the past decade, however, Beijing’s promotion of outward investment has facilitated infrastructure partnerships with Central Asian neighbors, such as the CNPC-led China-Central Asia

(Turkmenistan) and China-Kazakhstan gas and oil pipelines.424 Beijing’s designation of

Xinjiang as a “core area” on the Silk Road Economic Belt in 2013 provided further impetus for investments in transport, energy, and telecommunications, 425 as suggested by infrastructure projects initiated in the west in 2013 totaling 326.5 billion RMB ($53.87 billion) according to the NDRC. But the turning point in Beijing’s policy toward Xinjiang was really the deadly riots in Urumqi in July 2009, which catalyzed a series of central initiatives to promote development and stability.

Local Interests and Strategies. Leading examples of such initiatives at the local level are the Horgos and Kasghar Special Economic Zones (SEZs),426 both launched in

2011 with such preferential policies as tax exemptions, subsidized energy supplies, low- interest loans for infrastructure projects, and improved transportation access to neighboring

423 Wang Bin, Zhang Xiao-lei, Du Hong, and Dong Wen, “新疆外向型经济发展的态势分析与应对 (Analysis of Situation and Countermeasures of the Development of Xinjiang’s Export-Oriented Economy),” 干旱区资源与环境 (Journal of Arid Land Resources and Environment) 12 (2007).

424 CNPC acquired Kazakhstan’s biggest oil produced PetroKazakhstan in 2005. 425 Xu Jianying, ““丝绸 之 路 经济 带”视野下新疆定位与核心区建设 (Xinjiang’s Positioning and Construction of Core Area on the “Silk Road Economic Belt”),” 新疆师范大学学报 (Journal of Xinjiang Normal University) 1 (2015); Mei Dongchen, “建设丝绸之路经济带给新疆沿边开放带来的机遇和挑战 (The Construction of the Silk Road Economic Belt brings Xinjiang Border Opening Opportunities and Challenges),” 对外经贸 (Foreign Economic Relations and Trade) 6 (2014); Xu Haiyan, “China-Central Asia “Twin-Track” Energy Cooperation,” China International Studies (2013): 126-137.

426 Li Shoulong and Zhang Dong, “金融支持新疆喀什、霍尔果斯经济开发区跨越式发展的几个问题 (Several Issues in Financial Support for Advancing the Development of Xinjiang’s Kashgar and Horgos Economic Development Zones),” 金融发展评论 (Financial Development Review) 12 (2011). 116 countries.427 Administered by Ili Kazak Autonomous Prefecture, Horgos SEZ incorporates a China-Kazakhstan free port (Horgos International Border Cooperation Center) agreement in 2004 and is supported by investments from Suzhou Industrial Park since 2012 as its key domestic partner. In south Xinjiang's Uighur-dominated Kashgar Prefecture, Kashgar SEZ is modeled on China's first coastal SEZ in Shenzhen, with investment pledges of 50 billion

RMB ($7.53 billion) from the central government in 2009-2013 and 9.6 billion RMB

($1.45 billion) from Guangdong in 2011-2020.

A comparison of Horgos and Kashgar SEZs in practice, however, underscores the stability imperative as a major constraint to such initiatives. Although China’s new SEZs may in principle enjoy greater local autonomy compared to coastal predecessors, 428 uncertainty over the political implications means that local governments and enterprises have less room for innovation.429 Much skepticism remains over whether the coastal model can be replicated in Kashgar SEZ, where central pledges of support are primarily symbolic compared to the Horgos case and have produced no substantive results.430

International Interests and Strategies. Xinjiang’s development initiatives have increasingly converged with the economic interests of similarly land-locked Central Asian

427 There are some practical limitations on such tax incentives for investors. For example, through 2020, a new enterprise (Chinese or foreign) in Horgos and Kashgar SEZs can enjoy a five-year exemption from China’s Enterprise Income Tax (25%) provided that at least 70% of its income is generated from one of specified key industries, followed by a another two-year reduction by 40%. Specified industries are: electric power and renewable energy, construction, agriculture and forestry, non-ferrous metals, transport and infrastructure services, IT, logistics and business services, education, culture, health and sports. Second, since the tax reduction is granted in the form of a tax refund, eligibility is assessed retrospectively by local authorities. State Council, “(Notice on Preferential Business Income Tax Policy in the Two Special Economic Development Zones of Kashgar and Horgos of Xinjiang),” November 29, 2011. 428 Tao Yitao, “From Coastal Opening-up to Border Opening – Significance and Problems of the Development of Kashgar Special Economic Zone,” Studies on China’s Special Economic Zones 1-6 (2013). 429 Interviews in Shanghai, October 2015. 430 Interviews in Urumqi and Kashgar, September 2015. Also see Bill Chou and Xuejie Ding, “A Comparative Analysis of Shenzhen and Kashgar in Development as Special Economic Zones,” East Asia 32 (2015): 117-136. 117 neighbors seeking international market access and trade diversification from Russia.

Unlike the UNDP’s declining role in the GTI, the ADB currently contributes more than a third of spending in CAREC, where investment in member states totaled more than $24 billion in 2001-2014.431 At a more macro level, border regions have been the starting point of multilateral economic cooperation under the SCO,432 which in 2003 produced a long- term plan for economic engagement through 2020, supported by agreements in 2010 on transport infrastructure. Although China is not a member, a primary aim of the Russia-led

Eurasian Economic Union (EEU), formally established in 2015, is to lower non-tariff barriers to trade, a continuing obstacle for Chinese exports to Central Asia.433

Such external interests have been reinforced by the central government’s increased emphasis on Xinjiang’s opening to Eurasia as part of China’s national development strategy. A major example is China’s upgrading of the annual Urumqi Foreign Economic

Relations and Trade Fair, held since 1992, to the China-Eurasia Trade Expo from 2011.434

Extending its scope from Central Asia to South Asia and Europe, the trade fair serves as an important diplomatic platform for China’s trade and investment deals with the SCO and other foreign partners in such areas as mining, crude oil processing, construction, and

431 ADB, CAREC Institute, 2015. 432 Sun Zhuangzhi, 中亚国家的跨境合作研究 (Cross-Border Cooperation of Central Asian Countries) (Shanghai: Shanghai daxue chubanshe, 2013); Zhang Xianliang and Ji Guangnan, “关于新疆实施沿边经济 带战略的思考 (Thoughts on the Implementation of Xinjiang’s Border Economic Zone Strategy),” 新疆社 科论坛 (Tribune of Social Sciences in Xinjiang) 3 (2009). 433 The EEU includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. Given that EEU technical standards are similar to those of the European Union, the EEU presents major potential opportunities for expanding Chinese access to the European market. Timfey Bordachev, “Creating Central Eurasia,” Presentation at China-Russia Workshop, East China Normal University, Shanghai, November 2015. 434 The expo’s Organizing Committee is led by China’s Commerce Minister. MOFCOM and China Council for Promotion of International Trade participated in the Urumqi Fair for the first time in 2008. Li Dehua and Wan Wenlu, “新疆向西开放战略：外引内联 东联西出 西来东去 (Xinjiang’s Strategy of Opening to the West),” Xinhua, May 27, 2010; “China Upgrades Urumqi Fair for Eurasia Trade,” Xinhua, September 6, 2010. 118 tourism. The first expo facilitated China’s trade liberalization agreements with Kazakhstan, while domestic and foreign investments in transport and trade logistics benefited CAREC initiatives. More recently, the ADB in June 2016 approved a $100 million loan for its first co-financing agreement with China’s Asian Infrastructure Investment Bank (AIIB) to fund a highway project in Pakistan.435 The project is part of the CAREC Economic Corridors infrastructure initiative, now repackaged into Xi’s Silk Road initiative.

Dynamics of Xinjiang’s Liberalization

While Xi’s Silk Road initiative has diverted the focus of China’s regional development from the northeast since the Hu Jintao period, OBOR’s geopolitical significance is also more apparent in Central Asia.436 As some Chinese scholars indicate, China’s westward orientation at the end of the 1990s is part of Beijing’s new “great game” with the United

States and Russia for regional influence. 437 Central Asian economic interdependence brings geopolitical gains for China especially when it is engaged in territorial and maritime disputes with neighbors in the Asia-Pacific.438 The security and economic benefits of

435 The ADB is the lead funder and administrator of this project, which is supported by an additional commitment of $34 million from the UK’s Department for International Development (DFID). ADB, “ADB Approves First Cofinancing with AIIB for a Pakistan Road Project,” June 10, 2016. 436 For arguments on such implications, see article by Pan Zhiping, Director of the Xinjiang Academy of Social Sciences Central Asia Research Institute, “Silk Road Economic Belt: A Dynamic New Concept for Geopolitics in Central Asia,” China Institute of International Studies, September 18, 2014. 437 For example, Gao Feng of China Foreign Affairs University identifies a “new Silk Road” plan of the United States, Russia’s Eurasian Union, and China’s “Go West” strategy as part of a post-Cold War power competition in Central Asia. Gao Feng, “中国的“西进”战略与中美俄中亚博弈 China’s West Strategy and China-US-Russia Game in Central Asia,” 外交评论 (Foreign Affairs Review) 5 (2013): 39-50. For western perspectives, see Alexander Cooley, Great Games, Local Rules: The New Great Power Contest in Central Asia (New York： Oxford University Press, 2012); and Thomas Fingar, The New Great Game: China and Central and South Asia in the Era of Reform (Stanford: Stanford University Press, 2016). 438 Xu Haiyan, “China-Central Asia.” 119

Xinjiang’s regional integration serve two enduring goals of consolidating China’s control over Xinjiang at home and the outward expansion of Chinese power in Central Asia.439

Given the broader strategic implications, however, such initiatives remain constrained by competing external preferences over the long-term regional architecture.

The process of economic integration has been relatively slow in Central Asia, where former

Soviet states seek to maintain a balance between Beijing and Moscow. Although economic interests are primary drivers of the current China-Russia partnership,440 Beijing’s own Silk

Road initiative has raised Russian concerns over potential conflict with EEU interests.441

The State Council’s upgrading of the administrative status of Horgos – named

China’s key land port on the Silk Road Economic Belt – to the city level in 2014 was an indication of increased central support for liberalizing trade with Central Asia.442 But as

Xinjiang’s commerce bureau chief He Yeming indicated in 2011, even Horgos free trade center has faced repeated operational suspensions due to slow infrastructure construction on the Kazakh side and poor trade policy coordination.443 The share of border trade in

Xinjiang’s total trade actually declined from 79 percent in 2008 to 52 percent in 2012, with the Xinjiang Production and Construction Corps (XPCC) and Xinjiang-based coastal

439 Michael Clarke, “China’s Integration of Xinjiang with Central Asia: Securing a “Silk Road” to Great Power Status?” China and Eurasia Forum Quarterly 6-2 (2008): 89-111. 440 Lu Nanquan, “中俄关系现状与前景 (Current Status & Prospects of PRC-Russia Relations),” 新疆师范 大学学报 (Journal of Xinjiang Normal University) 1 (2015). 441 Tatyana Kolpakova and Tatiana Kuchinskaya, “China’s “New Regionalism” as a Mechanism to Strengthen the Influence of China in the Global Integration Processes: An Example of Eurasian Economic Union,” International Journal of Economics and Financial Issues 5 (2015): 109-115. On the other hand, conflicting integration agendas of the EEU and European Union have partly driven Russia to seek Chinese support against perceived EU opposition. Bordachev, “Creating Central Eurasia.” 442 “Horgos: The Silk Road Economic Belt’s Youngest City,” Xinhua, July 17, 2014; Cui Jia, “Plan to Build Border City in Xinjiang Approved,” China Daily, July 11, 2014. 443 “China-Kazakhstan Free Trade Center Delayed,” Xinhua, September 3, 2011. 120

(Zhejiang) traders driving the remainder of trade flows. 444 One unofficial source shows that up to 70 percent of Xinjiang’s exports to Central Asia originates from coastal provinces, with Xinjiang primarily serving as a transit point to European markets.445

Summary and Conclusion: Central-Local-International Dynamics of Liberalization

The cases of Jilin, Yunnan, and Xinjiang since China’s inland turn in 2000 show that central, local, and international forces of economic liberalization have interacted in different ways to produce different patterns of provincial openness. Jilin declined in openness, to be surpassed by Xinjiang and Yunnan in trade openness from 2002 and 2013 respectively. As a study extending to four additional border provinces in the 2000-2010 period also shows, both internal and external factors work together to produce differences in Asian subregional cooperation.446 In Jilin, the Hu Jintao leadership’s push for “northeast revitalization” from 2003 generated renewed impetus for provincial engagement with

Northeast Asian neighbors since the failures of UNDP-led multilateral integration in the

1990s. Support from external partners, however, including national and local governments of Russia and North Korea, multilateral agencies, and foreign investors, waned over the past decade, while Xi Jinping’s Silk Road plan from 2013 further shifted central priorities to the western frontier. Local conservatism and the social costs of restructuring constrained

444 Xinjiang Statistical Yearbook. XPCC is a separate administrative unit under the central government that has authority over select regions in Xinjiang. For a discussion of the structure of Xinjiang’s foreign trade, see Gael Raballand and Agnes Andresy, “Why Should Trade between Central Asia and China Continue to Expand?” Asia Europe Journal 5-2 (2007): 235-252. 445 Interviews in Shanghai, October 2015. 446 Li Tianxi (Jilin University), “中国东北地区城市经济的空间分布与演化 (Northeast China’s Urban Economies’ Spatial Distribution and Evolution),” 工业技术经济 (Journal of Industrial Technological Economics) 5 (2014). The study is based on a sample of 571 cities in Jilin, Heilongjiang, Liaoning, Inner Mongolia, Yunnan, Guangxi, and Xinjiang. 121 implementation at the local level, while the breakdown of multilateral frameworks and diffusion of foreign interests undermined the development of supporting institutional mechanisms for policy coordination. Provincial development strategies grew increasingly inward, prioritized instead on intra-provincial integration within Jilin.

In Yunnan and Xinjiang, local and international interests have aligned more closely with central priorities of improving relations with neighbors, developing China’s west, and promoting ethnic unity and political stability within and across China’s borders.447 In contrast to the Jilin case, Yunnan’s economic opening has received more sustained support from foreign governments, multilateral donors, and the corporate sector. While the western development plan from 2000 initially emphasized aid partnerships with coastal regions rather than FDI, Hu Jintao’s designation of Yunnan as a “bridgehead (桥头堡)” to

Southeast Asia in 2009 was an important turning point in Yunnan’s outward orientation.

It justified and empowered local demands for expanding cross-border commerce and led to the creation of a supporting inter-agency mechanism under the State Council in 2010, demonstrating the positive interaction of top-down, bottom-up forces of liberalization.

Unlike Jilin’s limited multilateral engagement, inside-out, outside-in dynamics of change are also more prominent in Yunnan’s opening, most notably within the institutional contexts of the Greater Mekong Subregion since the 1990s and ASEAN since the 2000s.

While Xinjiang’s opening has similarly advanced within Central Asian multilateral contexts, national governments and SOEs have largely led cross-border energy and infrastructure development over the past decade. Like the Yunnan case, the central

447 Lu Hongyan, “(Speeding Up Commerce and Infrastructure Development in Border and Minority Areas),” 商业时代 (Commercial Times) 33 (2013). 122 government’s designation of Xinjiang as a “core area” for the Silk Road Economic Belt in

2014 was a driving force for Xinjiang’s further liberalization that may enhance local leverage for central preferential treatment, as suggested by the administrative upgrading of

Horgos port to the city level in 2014 to promote trade with Kazakhstan. However, the

Xinjiang case underscores the importance of local and international alignment on vital national strategic priorities. The institutionalization of border trade was reinforced by the economic interests of Central Asian partners seeking to grow out of Russian Soviet influence, but also conditioned by security considerations. In contrast to northern Xinjiang bordering Kazakhstan, the substantive implications of liberalization remains relatively limited in Xinjiang’s Uighur minority areas on the southern border, where the State

Council’s approval of Kashgar SEZ in 2010 after heightened ethnic unrest in 2009 was largely symbolic in nature. 448 Concerns over the risks of economic liberalization for internal political stability, reinforced by shared security interests of SCO members, have constrained local innovation and experimentation inside Xinjiang. Instead, coastal governments and enterprises have led Xinjiang’s surge in trade openness since the 2000s, driven by the Western development plan and the coastal economies’ own structural transformation, with unintended consequences of exacerbating the very social tensions that the center sought to address in the first place.

448 Bill Chou and Ding Xuejie, “A Comparative Analysis of Shenzhen and Kashgar Development as Special Economic Zones,” East Asia 32-2 (2015): 117-136; Guo Rongxing, China’s Spatial (Dis)Integration: Political Economy of the Interethnic Unrest in Xinjiang (Chandos Publishing, 2015). 123

Chapter 4

Linking Northeast China and Northeast Asia: Jilin’s Enduring Quest for Economic Regionalism

Why has Jilin province declined in economic openness despite the national and international push for Northeast Asian economic integration since the 1990s? As the poorest among China’s three northeast “old industrial bases” (老工业基地), the foundation of China’s planned economy, Jilin’s leaders actively sought to expand commercial ties with

Asian neighbors from the late 1980s and early 1990s.449 Favorable domestic and external environments, including China’s liberalization of inland border trade and improving political relations in Northeast Asia, presented new opportunities for such an externally- oriented development strategy.450 Indeed, the northeast was widely identified as China’s next region to follow the coastal model of export-led growth during this period given significant complementarities of Chinese labor, Russian and North Korean resources, and

South Korean and Japanese capital.451

Provincial openness in Jilin and neighboring Heilongjiang was the highest among border regions in the early 1990s, driven by China’s economic opening to Russia and North

449 Wang Zhongyu, Governor of Jilin Province, “Report on the Eighth Five-Year Plan, March 5, 1992,” in Jilin Statistical Yearbook (Changchun: Jilin Statistical Bureau, 1992). 450 Fu YN, “二十世纪吉林省与周边国家经贸合作展望 (Prospects for Economic and Trade Cooperation between Jilin Province and Neighboring Countries),” in 东北亚地区和平与发展研究 (Research on Peace and Development in Northeast Asia), ed. Liu Zhongshu and Wang Shengjin (Jilin: Jilin University Press, 1998); Liu Baorong and Liao Jiasheng, 中国沿边开放与周边国家市场 (China’s Border Opening and Neighboring Countries’ Markets) (Beijing: Legal Press, 1993). 451 Chen Jiaqin, “中国沿边地区对外开放战略的几点思考 (Reflections on the Strategy of Opening Up China’s Border Regions to the Outside),” 东北亚论坛 (Northeast Asia Forum) 4 (1995); Jing Xueqing, “中 国沿边地区开放开发的宏观前景分析 (Macro Analysis of the Opening and Development of China’s Border Regions),” 地理学报 (Geography Journal) 5 (1998); Yukiko Fukagawa, “The Northeast Asian Economic Zone: Potential for the Latecomer,” in Asia’s Borderless Economy: The Emergence of Subregional Economic Zones, ed. Edward Chen and Chi Hung Kwan (St. Leonards: Allen & Unwin, 1997), 59-88; James Cotton, “China and Tumen River Cooperation: Jilin’s Coastal Development Strategy,” Asian Survey 36-11 (1996): 1086-1101. 124

Korea in particular. 452 Between 1988 and 1994, Jilin’s foreign trade volume as a proportion of provincial GDP jumped from 7 to 33 percent, growing faster than the national rate.453 In 1994, Jilin’s export dependence (17.9%) was even higher than that of coastal provinces like Jiangsu (13.35%), Shandong (12.64%), and Beijing (11.39%),454 and its share of China’s exports (1.69%) was greater than the combined shares of Yunnan (0.87%) and Xinjiang (0.47%). Jilin surpassed the national average in per capita GDP in 2009, and remains the wealthiest among the three inland border cases under study.

Despite such rapid growth, however, Jilin’s economic openness has notably declined since the 1990s. As northeast policy experts indicated at the end of the 2000s, the

GDP gains of trade and economic cooperation with Northeast Asian neighbors appeared to be limited.455 Such assessments were little different from those at the end of the 1990s, when Jilin researchers drew attention to low levels of trade and investment from South

Korea, Japan, Russia, and North Korea.456 A decade after the Hu Jintao leadership’s

“northeast revitalization” ( 振兴东北) campaign in 2003, leaders in Beijing instead confronted a “new northeast phenomenon” (新东北状态) of economic stagnation in 2014,

452 Jing Xueqing, “中国沿边地区对外开放格局分析与调整 (Analysis of the Patterns of Opening of China’s Border Regions to the Outside),” 云南地理环境研究 (Yunnan Geographic Environment Studies) 1 (1998). 453 Statistical Bureau of Jilin Province, Jilin Statistical Yearbook (Beijing: China Statistics Press, 2014). 454 Chinese Academy of Social Sciences (CASS), “论中国沿边地区对外开放战略的几个问题 (Issues in the Strategy of Opening Up China’s Border Areas),” 财贸经济 (CASS Finance and Economics) 3 (1996), 27. Export dependence is measured as the proportion of exports in GDP. 455 Zhang Xujie (Heilongjiang Academy of Social Sciences), “东北地区与周边国家经贸合作 (Economic and Trade Cooperation between Northeast China and Its Neighboring Countries),” Northeast Asia Forum 18-3 (2009): 108-114. 456 Zhang Xiaoming and Chen Liqiang, “世纪之交吉林省同周边国家经贸合作存在的问题与对策 (Economic and Trade Cooperation between Jilin Province and Neighboring Countries at the Turn of the Century: Problems and Countermeasures),” 东北亚论坛 (Northeast Asia Forum) 4 (1998):56-59. 125 when the growth rate of all three northeast provinces ranked among China’s bottom five.457

While Jilin was two times more open than Yunnan and Xinjiang in 1994, its foreign trade-

GDP ratio fell from 33 percent to 12 percent in 2013, the lowest among the three cases.458

This chapter assesses the external economic strategies of Jilin province since 2000 in the context of Northeast Asian economic integration. The decline in Jilin’s openness from the mid-2000s reflects a long-term trend since the failure of cross-border economic cooperation in the early 1990s. This downward trend can be traced to local conservatism, waning political and material support at the central and international levels, and the northeast’s structural conditions. Although the northeast development plan sought to expand Jilin’s external ties with neighbors, unlike Yunnan and Xinjiang, Jilin grew increasingly inward in its economic orientation.

The following section reviews Jilin’s participation in cross-border development initiatives in Northeast Asia since the 1990s to provide the historical context of Jilin’s economic opening. It identifies major trends in provincial openness in this context, focusing primarily on trade openness. Second, I examine the central, local, and international interests and strategies shaping Jilin’s foreign economic liberalization in the period after China’s turn to inland development in 2000. Third, I assess the alignment of these interests to explain the variation in Jilin’s openness over time, identifying top-down, bottom-up processes of change on the one hand, and inside-out, outside-in processes on the other. The concluding section summarizes my core findings and arguments, including

457 “新常态下“东北现象” (“New Northeast Phenomenon” in the New Normal), Xinhua, 15 February 2015; “习近平的两会时间：东北振兴真么办？(Xi Jinping at the NPC/CPPCC: How Deal with Northeast Revitalization?),” Xinhua, 10 March 2015. 458 Statistical Bureau of Jilin Province, Jilin Statistical Yearbook. 126 the broader significance of Jilin’s case to other provincial cases and China’s economic orientation in general.

Jilin-Northeast Asia Economic Integration since the 1990s

Jilin’s economic integration with Northeast Asia can be traced to the Greater Tumen

Initiative (GTI), a multilateral project of the United Nations Development Programme

(UNDP) initiated in 1991 to promote economic cooperation between China, Russia, North

Korea, South Korea, and Mongolia.459 Initially centered on the Tumen River transborder region encompassing Yanbian Korean Autonomous Prefecture in Jilin, Rajin-Sonbong

(Rason) in North Korea, and Primorsky Territory in the Russian Far East (RFE), with

Hunchun Border Economic Cooperation Zone (BECZ) serving as Jilin’s key access point to international markets, the GTI covers five priority sectors of transport, trade and investment, tourism, energy, and environment.460 The GTI’s Consultative Commission has

459 The GTI originates from the Tumen River Area Development Program (TRADP), established in 1991. North Korea is no longer a member. For studies on the Tumen project, see Carla Freeman, “Neighborly Relations: The Tumen Development Project and China’s Security Strategy,” Journal of Contemporary China 19-63 (2010); Chen Xiangming, As Borders Bend: Transnational Spaces on the Pacific Rim (Lanham: Rowman and Littlefield, 2005), 142-184; Christopher Hughes, “Tumen River Area Development Programme (TRADP): Frustrated Microregionalism as a Microcosm of Political Rivalries,” in Mircoregionalism and World Order, ed. Shaun Breslin and Glenn Hook (New York: Palgrave Macmillan, 2002), 115-143; Jean- Marc Blanchard, “The Heyday of Beijing’s Participation in the Tumen River Area Development Program, 1990-1995: A Political Explanation,” Journal of Contemporary China 9-24 (2000); James Cotton, “China and Tumen River Cooperation: Jilin’s Coastal Development Strategy,” Asian Survey 36-11 (1996): 1086- 1101; Andrew Marton, Terry McGee, and Donald Paterson, “Northeast Asian Economic Cooperation and the Tumen River Area Development Project,” Pacific Affairs 68-1 (1995); and Lew Seok-Jin, ed., Tumen River Area Development Project: The Political Economy of Cooperation in Northeast Asia (Seoul: The Sejong Institute, 1995). 460 The GTS since its inception was centered on the Tumen River Economic Zone linking the port cities of Hunchun, Songbong in North Korea, and Posyet in the RFE’s Khasan region. 127 served as the main institutional mechanism for dialogue at the vice-ministerial level since the 1990s in coordination with local governments, regional banks, and the private sector.461

The GTI formally evolved in three phases since its inception under the name of the

Tumen River Area Development Programme (TRADP).462 Research and planning in the first phase (1993-1996) focused primarily on local development needs and resulted in various investment initiatives at the micro level. The second phase (1997-2000) aimed to advance multilateral cooperation in trade, investment, and environmental management, but faced significant setbacks from the 1997 Asian financial crisis. Tumen cooperation during the third phase (2001-2004) thus prioritized institutional reforms to make the TRADP financially and operationally sustainable. The eighth meeting of the TRADP Consultative

Commission in 2005 set new directions for regional cooperation under the renamed Greater

Tumen Initiative, producing a ten-year Strategic Action Plan for 2006-2015.

As a program for Northeast Asian economic integration, the GTI was widely perceived as a failure since its inception, attributed to limited political will and funding, poor infrastructure, and limited private sector interest.463 Despite such failures at the multilateral level, however, it set an important stage for outward-oriented reforms on the

Chinese side of the border. Beijing’s reopening of the Hunchun-RFE border in 1985, administrative upgrading of Hunchun to county-level municipality status in 1988, and

461 Wang Weina, Director of the GTI Secretariat, “Regional Economic Cooperation under the Framework of the Greater Tumen Initiative,” presented at the High-Level International Workshop on “WTO Agreement on Trade Facilitation: Implications for LLDCs,” Ulaanbaatar, 2-3 June 2014. 462 Zhang Donghui, Tumen River Area Development Administration of Jilin Province, “The Progress and Function of the Tumen River Area Development Programme in Northeast Asian Regional Economy,” paper presented at the Northeast Asian Economic Forum, Changchun, 2005; Wang Weina, “Greater Tumen Initiative,” in Financing Economic Integration and Functional Cooperation for Northeast Asia: Toward A Northeast Asian Economic Community, ed. Lee-Jay Cho and Chang Jae Lee (Seoul: Korea Institute for International Economic Policy, 2014), 173-182. 463 Japan, for example, continues to have only observer status. Interviews in Beijing, February 2015; and Shanghai, November 2015. 128 designation of Hunchun among China’s first open border cities in 1992, created favorable conditions for Jilin’s participation in the TRADP. The State Council set up a special office and research and development team on Tumen development under the State Science and

Technology Commission (Ministry of Science and Technology from 1998), while the governments of Jilin province, Yanbian prefecture, and Hunchun municipality formed corresponding leaders’ groups and special offices. By incorporating the Tumen project into China’s Ninth Five-Year Plan (1996-2000), the State Planning Commission (National

Development and Reform Commission) elevated the project’s status as part of China national development strategy. These initial institutional developments demonstrate the inside-out, outside-in processes of change in favor of further liberalization brought on by external interests like the GTI.

At the same time, Hunchun’s opening as a border city in the 1990s was shaped by a combination of central preferential policies and local responses, demonstrating the interplay of top-down, bottom-up forces of change. As a national Border Economic

Cooperation Zone from 1992, Hunchun was granted more state funding for infrastructure development, supported by preferential policies previously given to coastal cities.464 To drive local growth, the Jilin provincial government in 1992 transferred 10 rights of approval in border trade and economic cooperation to the Hunchun government. From the mid-1980s to 1993, the national and provincial governments invested a cumulative total of

$140 million in energy, transportation, and telecommunications sectors.465

464 Chen Xiangming, “Beyond the Reach of Globalization: China’s Border Regions and Cities in Transition,” in Globalization and the Chinese City, ed. Fulong Wu (New York: Routledge, 2006), 29, 32-33. 465 Yu GZ, “ 关于建立图们江三角洲跨国经济特区的中和研究报告 (Research Report on the Establishment of the Tumen River Delta Cross-border Special Economic Zone),” 东北亚研究 (Northeast Asian Studies) 14 (1994): 12-29. 129

However, increased central support and local empowerment did not fully translate into policy implementation at the local level, especially in the marginalized Tumen border region. As part of China’s core region for state-owned, extractive and heavy industries, border cities like Hunchun remained heavily dependent on central and provincial government subsidies. Although Jilin’s localities were allowed to provide financial incentives to foreign investors and retain export revenue, unlike their coastal counterparts, such opportunities were further constrained by the lack of light consumer exports.

Jilin’s Economic Openness and Dependence on Northeast Asian Neighbors

Despite China’s border opening initiatives from the early 1990s, the long-term pattern of

Jilin’s trade openness shows a sharp decline after peaking at 36 percent in 1993 (Figure

4.1). Along with a contraction in the absolute volume of foreign trade in 1994-1998, Jilin’s trade openness in 1998 (8.68%) reverted to levels in the late 1980s. Although provincial trade followed the national trend of rapid growth after World Trade Organization (WTO) entry in 2001, provincial openness never really recovered from the decline of 1990s. The period after the northeast revitalization plan is in fact associated with a decline in trade openness, from 19.19 percent in 2003 to 12.33 percent in 2013, virtually unchanged from levels at the beginning of the decade. This decline is even more evident when examining export dependence, which in 2013 fell to 3.22%, lower than the level in 1998 at the onset of Asian financial crisis. Unlike the national trend, Jilin has a significant trade deficit that emerged in the 2000s and widened even further from 2008. In 2013, Jilin imported almost three times more than it exported.

130

Figure 4.1: Trade Openness and Export Dependence, Jilin (1978-2013)

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0

Total Trade/GDP Exports/GDP

Source: Jilin Statistical Yearbook.

Characterizing the overall decline in Jilin’s openness from the mid-2000s has been a decline in trade dependence on Northeast Asian neighbors (Figure 4.2). 38 percent of

Jilin’s foreign trade was with Northeast Asia in 2005, but that share decreased to 22 percent in 2013. This trend parallels the overall decline in Northeast Asia’s share of China’s total foreign trade during the same period, from 23 percent to 16 percent. But while Northeast

Asian trade has traditionally played a much greater role in Jilin than China overall, that difference has also narrowed over the past decade. Northeast Asia’s declining importance in Jilin’s foreign trade reflects a stagnation in trade with Russia and particularly South

Korea, whose share of Jilin’s trade was surpassed by that of North Korea in 2008. Japan,

Jilin’s top export destination, remains the primary driver of Jilin’s trade with the region, accounting for 51 percent of Jilin-Northeast Asia trade in 2013.

131

Figure 4.2: Share of Northeast Asia Trade in Total Foreign Trade, Jilin (2005-2013)*

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0 2005 2006 2007 2008 2009 2010 2011 2012 2013

Jilin PRC

*Includes Russia, North Korea South Korea, and Japan. Jilin-DPRK trade figures in 2009- 2013 are estimated based on average trade growth in 2005-2008. Source: Jilin Statistical Yearbook; China Trade and External Economic Statistical Yearbook.

Figure 4.3: Jilin’s Share of China-Northeast Asia Trade (2005-2013)*

0.01

0.009

0.008

0.007

0.006

0.005

0.004

0.003

0.002

0.001

0 2005 2006 2007 2008 2009 2010 2011 2012 2013

*Includes Russia, North Korea South Korea, and Japan. Jilin-DPRK trade figures in 2009- 2013 are estimated based on average trade growth in 2005-2008. Source: Jilin Statistical Yearbook; China Trade and External Economic Statistical Yearbook.

132

Despite its heavy reliance on Northeast Asian neighbors for trade, Jilin’s relative importance in China’s trade with Northeast Asia remains negligible compared to other provinces, accounting for less than 1 percent (Figure 4.3). Jilin’s contribution to China-

Northeast Asia trade grew from 0.72 percent in 2006 to 0.94 percent in 2009, but declined in the post-global financial crisis period.

To summarize, the period after the initiation of China’s northeast revitalization plan in 2003 is associated with a downturn in Jilin’s foreign trade openness. This downward trend links further back to a sharp decline in openness since the mid-1990s. It has also been accompanied by a decline in Jilin’s trade dependence on Northeast Asian neighbors, consistent with an overall decline in Northeast Asia’s importance in China’s foreign trade.

Although Jilin’s contribution to China-Northeast Asia trade increased during the late 2000s, it continues to play a relatively minor role in bilateral trade.

The following section examines the relationship between central, local, and international actors and their strategies of liberalization since 2000. Jilin’s trade stagnation during this period can be attributed to the very problems that the northeast development plan sought to address more than a decade ago: local conservatism, limited central and inter-governmental support, and economic structural constraints. But compared to the

1990s, the further strengthening of local interests led local governments to adopt contradictory patterns of cooperative and competitive behavior when engaging in cross- border development initiatives.466

466 Zhang Yuxin and Li Tianzi (Jilin University), “跨境次区域经济合作中我国沿边地方政府行为分析 (Analysis of China's Local Government Behavior in Cross-Border Subregional Economic Cooperation),” 东 北亚论坛 (Northeast Asia Forum) 4 (2012). 133

The Forces of Jilin’s Foreign Economic Liberalization since 2000

Central Interests and Strategies

Despite its limited achievements throughout the 1990s, the GTI importantly catalyzed national policies aimed to promote the development of the Tumen transborder region.

After incorporating Tumen development into China’s national strategy from 1996, the

State Council approved the establishment of the Hunchun Export Processing Zone in 2000 and China-Russia Trade Zone in 2001, offering financial incentives and customs conveniences for neighboring traders.467 The biggest source of central support for Jilin’s economic opening came from the national plan for “Revitalizing the Northeast and Other

Old Industrial Bases” ( 东北地区等老工业基地振兴, or 东 北 振 兴 (Northeast

Revitalization)) in 2003, which recognized Tumen subregional cooperation as a driver of northeast growth.468 A major initiative of the Hu Jintao administration, the plan aimed to promote industrial diversification, state-owned enterprise (SOE) reform, private sector development, and mitigation of the social costs of restructuring since the 1990s.469 A

Leading Group for northeast development was created in 2005, led by Premier Wen Jiabao

467 Yanbian Bureau of Commerce. 468 In addition to the three northeast provinces Liaoning, Jilin, and Heilongjiang, the plan includes five prefecture-level cities in eastern Inner Mongolia. For studies on the northeast plan, see: Office of the State Council Leading Group on Revitalizing the Northeast and Other Old Industrial Bases, ed., 振兴东北地区等 老工业基地 2004 年度报告 (2004 Report on Revitalizing the Northeast and Other Old Industrial Bases) (Beijing: Zhongguo caizheng jingji chubanshe, 2005); Zheng Xiaoliang and Wang Yongjun, 振兴东北老工 业基地的理论与实现 (Theory and Practice of Reviving the Northeast Old Industrial Bases) (Changchun: Jilin renmin chubanshe, 2008); Ning Yi and Dong Ning, 东北乍整：东北问题报告 (How to Fix the Northeast: Report on the Northeast Problem) (Beijing: Dangdai shijie chubanshe, 2004); Qiao Mu, 振兴东 北 (Northeast Revitalization) (Beijing: Zhongguo gongren chubanshe, 2004). 469 CPC Central Committee and State Council, “中共中央国务院关于实施东北地区等老工业基地振兴战 略的若干意见 (Opinions on Implementing the Strategy of Revitalizing the Northeast and Other Old Industrial Bases),” Zhongfa 11, 5 October 2003. 134 and including 28 functional departments of the State Council, with National Development and Reform Commission (NDRC) Vice Chair as administrative director.470

The northeast plan embodied central policies favoring the development of Jilin’s outward-oriented economy in such areas as industrial, fiscal, tax, and financial reform, and targeted key industries of automobiles, petroleum, and agriculture, which together contributed 85 percent of provincial industrial growth in 2014.471 Northeast Revitalization was integrated into China’s Eleventh Five Year Plan (2006-2010) with a timeframe extending to 2020, specifying measures for further liberalization in three areas: (1) administrative reforms to develop the non-state economy; (2) the expansion of foreign trade, investment, and technical cooperation in high-tech and resource industries; and (3) promotion of the innovation capacities of local enterprises.472 From the late-2000s, the

State Council issued long-term plans for opening up China’s northeast to Northeast Asia

(2012-2020) and the RFE and East Siberia in particular (2009-2018), and established a joint planning committee with North Korea for developing free trade zones on the DPRK border.473 In Jilin specifically, the State Council approved China’s own plan for Tumen

470 State Council, “The State Council Office of the Leading Group for Revitalizing Northeast China and Other Old Industrial Bases,” August 15, 2005. 471 Sun Shiqiang (Jilin University), “挖掘国家政策效应振兴东北经济的战略分析 (Analysis of the National Policy Effect of Revitalizing the Northeast Economy) 前沿 (Front) 6 (2004); Dong Jidong, “Jilin Plans for ‘New Normal’ Growth,” China Daily (English Edition), 12 March 2015. 472 NDRC and State Council Leading Small Group on Revitalizing the Northeast and Other Old Industrial Bases, “东北地区振兴规划 (Northeast Revitalization Plan),” 20 August 2007; State Council, “关于促进东 北老工业基地进一步扩大对外开放的实施意见 (Opinions on Implementing the Further Opening of the Northeast Old Industrial Bases to the Outside),” Guobanfa 36, 30 June 2005. 473 Northeast Revitalization Division of the NDRC, “2012 年振兴东北地区等老工业基地工作进展情况和 2013 年工作要点 (2012 Progress Report on Revitalizing the Northeast and Other Old Industrial Bases and Work Priorities for 2013),” in China Development Yearbook for Regional Economy 2013, 589-598. The specific plans are: “中国东北地区面向东北亚区域开放规划纲要 (2012-2020)” (Plan for Opening Up Northeast China to Northeast Asia) and “中国东北地区与俄罗斯远东及东西伯利亚地区合作规划纲要 (2009-2018)” (Cooperation Plan between Northeast China and the Russian Far East and Eastern Siberian Region). Although the initial focus of the China-DPRK planning committee was on two zones–the Rason Economic and Trade Zone and Hwanggumphyong and Wihwa Islands Economic Zone—the former has gained greater priority. 135

River Area cooperation in 2009, launching an experimental international cooperation zone in Hunchun (中国图们江区域（珲春）国际合作试验区) in 2012.474

Local Interests and Strategies

The 2003 revitalization plan presented a major opportunity for advancing Jilin’s external economic interests, reviving expectations of the 1990s on the rise of the northeast as

China’s next growth engine after coastal counterparts. 475 External strategies for

“revitalizing” Jilin’s economy included preferential policies to attract foreign investment in agriculture, equipment manufacturing, chemicals, and other leading sectors; measures to draw private and foreign capital for SOE restructuring; and deregulatory reforms to support foreign-funded enterprises.476 The Yanbian prefectural government took active steps to promote border development from 2006, restructuring the transport, finance, and telecommunication sectors to facilitate intraregional resource-sharing. Another turning point in Jilin’s opening was the 17th National Party Congress in October 2007, where CPC pledges to further liberalize border regions drove local demands for implementing China’s first outward-oriented border development plan (沿边对外开放开发先行区域) in the

Tumen River area, aimed to promote trade and economic cooperation and transport

474 State Council, “中国图们江区域合作开发计划纲要—与长吉图开发开放先导区 (Outline of the China Tumen River Area Cooperation and Development Plan—and Changjitu Development and Opening Pilot Zone),” 16 November 2009; “关于支持中国图们江区域（珲春）国际合作试验区建设的若干意见 (Opinions on Supporting the Construction of the China Tumen River Area (Hunchun) International Cooperation Experimental Zone),” Guobanfa 19, 2012. 475 Li Jingyu, “东北地区成长为中国第四大经济增长极的战略思考 (Strategic Thinking on Making the Northeast the Fourth Economic Engine for China),” 经济研究参考 (Review of Economic Research) 6 (2004): 31-2; Ning Yi and Dong Ning, How to Fix the Northeast; Li Cheng, “China’s Northeast: From Largest Rust Belt to Fourth Economic Engine?” China Leadership Monitor 9 (2004). 476 Jilin Provincial Government, “Good Trends of Accelerated Economic Development in Jilin Province” (in English), 2009, 21-31; NDRC and State Council Leading Small Group on Revitalizing the Northeast and Other Old Industrial Bases, “Northeast Revitalization Plan;” State Council, “Opinions on Implementing.” 136 infrastructure development.477 In light of what northeast party leaders referred to as the second phase of China’s border opening since the State Council’s establishment of open border cities in 1992,478 the Jilin Department of Commerce in February 2008 announced

Jilin’s new “opening drive” (开放带动) to expand trade and economic cooperation with

Northeast Asian neighbors.479

Jilin’s current economic strategy centers on the Changchun-Jilin-Tumen (Changjitu,

长吉图) pilot zone in Yanbian Korean Autonomous Prefecture, approved by the State

Council in August 2009 as the core area for cross-border cooperation (Table 4.1).480

Covering a third of Jilin’s population and half of its economic output, the Changjitu plan includes measures to promote industrial restructuring and infrastructure development; improve domestic policy coordination within Changjitu and with China’s other regions; strengthen international coordination mechanisms; and enhance local monitoring. It complements broader regional initiatives under the GTI as well as bilateral projects with

477 Chen Xi, “在图们江区域打造沿边对外开放先行区的思考 (Thoughts on Building the First Open Border Region in the Tumen River Area),” 经济视角 (Economic Vision) 5 (2009). 478 Cui Yubin (Heilongjiang Party School) “中国第二轮沿边开放的战略取向 (The Strategic Orientation of the Second Round of China’s Border Opening),” 俄罗斯中亚东欧市场 (Russian, Central Asian, and Eastern European Market) 1 (2009). 479 Li Tie (Deputy Director, Jilin Department of Commerce), “加强与周边国家经贸合作，促进吉林省“开 放带动”战略的实施 (Strengthen Economic and Trade Cooperation with Neighboring Countries, Promote the Implementation of Jilin Province’s “Opening Drive” Strategy,” 对外经贸统计 (Foreign Economic and Trade Statistics) 2 (2008): 36-39. 480 Jiang Chaoliang, Governor of Jilin Province, “2015 年 吉 林 省 政 府 工 作 报 告 (Jilin Provincial Government Work Report 2015),” 4th Session of the 12th Jilin People’s Congress, 9 February 2015; Yi Baozhong (Jilin University), “建设长吉图先导区保税物流体系 (The Construction of the Changjitu Pilot Zone Bonded Logistics system),” 新长征 (New Long March) 7 (2010); Wang Lihong (Jilin National Cadre School), “扩大吉林省沿边开放对策研究 (Strategies for Further Opening Up Jilin’s Border),” 经济视角 (Economic Vision) 2 (2013); Wei Hua and Shu Jiale, “吉林:打造对外开放的新“国家队”(Jilin: Creating A New National Team for Opening),” 中国经济周刊 (China Economic Weekly) 46 (2012).

137 the RFE and North Korea in infrastructure, energy, and tourism. 481 Within Jilin, the

Changjitu project drove local demands for further reforms such as the creation of new financial institutions and the upgrading of Hunchun port into a city directly under the provincial government, a move that would bring more preferential treatment.482 As part of the project, the Jilin government in February 2012 launched the Changchun-Jilin Industrial

Innovation Development Zone, involving investment agreements totaling 42.5 billion

RMB ($6.8 billion) aimed to advance the modern manufacturing, services, and agriculture sectors by 2020.483

Table 4.1: The Changjitu Zone, Yanbian Korean Autonomous Prefecture

Significance  China’s first national development plan for border regions approved by the State Council in 2009, emphasizing outward-oriented development in Jilin.  The core region for transborder economic cooperation between China, Russia, and North Korea. Area 30,000 km2 (Changchun city, Jilin city, and Tumen city) Population 7.7 million Goals Stage I: Double GDP from 364 billion RMB ($ billion) in 2008 to 728 billion RMB ($111 billion) by 2012. Stage II: 19% average annual growth through 2020. Regional 1. Hunchun: Key port city and logistics center for cooperation with North Specialization Korea, Russia, South Korea, and Japan (Hunchun Pilot International Cooperation Zone, 2012-) 2. Yan-Long-Tu: Center for processing trade and development of high technology and service industries 3. Changchun-Jilin: Center for high-tech industrial development and innovation (Changchun-Jilin Industrial Innovation Development Zone, 2015-).

Source: State Council, “中国图们江区域合作开发开放纲要-以长吉图为开发开放先 导区 (Plan for China Tumen River Area Cooperation – with Changjitu as Pilot Area for

481 吉林经济技术合作年鉴 2011 (Almanac of Jilin Economic and Technological Cooperation), 266-277; 吉 林年鉴 2013 (Jilin Yearbook), 172-179, 263-272; 中国区域经济发展年鉴 2013 (China Development Yearbook for Regional Economy), 813-816. 482 Chen Xi, “Thoughts on Building;” Jilin Provincial Government, “Good Trends,” 19. Hunchun remains administered by the Yanbian prefectural government. 483 Dong Jidong, “Jilin Plans.” 138

Development and Opening), 16 November 2009;” Jilin Provincial Government, “Build the Important Engine to Drive the Revitalization of Jilin and Northeast China,” 23 November 2009; “The Changjitu Pilot Zone Ascended to National Strategy,” People’s Daily, 17 November 2009; “Jilin Special: Ambitions Grow for Changjitu,” China Daily, 23 May 2010; “The State Council’s Approval of ‘Planning Outline,’” Yanbian Daily, 2 September 2009.

International Interests and Strategies

Following limited trade, investment, and environmental initiatives and setbacks from the

1997 Asian financial crisis, GTI cooperation in the early-2000s focused primarily on internal institutional reforms to sustain the program. 2005 was a turning point for the GTI, when the Eighth Consultative Commission meeting produced a ten-year action plan for

2006-2015, later revised in 2012, reflecting three major changes in the program’s orientation.484 First, member states assumed full ownership of the GTI, with the UNDP playing a continued facilitating (rather than funding) role. The formulation and implementation of GTI policies become more dependent on national initiatives through increased participation by national working groups and the streamlining of Tumen

Secretariat operations. Second, the geographic scope of cooperation expanded to include all three northeast Chinese provinces and Inner Mongolia, eastern port cities in South

Korea, and eastern provinces in Mongolia. From the perspective of Jilin province, the leading player on the Chinese side, such expansion implied greater competition from other northeast provinces. Third, greater emphasis was placed on the private sector as a needed

484 Zhang Donghui, Tumen River Area Development Administration of Jilin Province, “The Progress and Function of the Tumen River Area Development Programme in Northeast Asian Regional Economy,” paper presented at the Northeast Asian Economic Forum, Changchun, 2005; Wang Weina, Director of the GTI Secretariat, “Regional Economic Cooperation under the Framework of the Greater Tumen Initiative,” presented at the High-Level International Workshop on “WTO Agreement on Trade Facilitation: Implications for LLDCs,” Ulaanbaatar, 2-3 June 2014; and “Greater Tumen Initiative,” in Financing Economic Integration and Functional Cooperation for Northeast Asia: Toward A Northeast Asian Economic Community, ed. Lee-Jay Cho and Chang Jae Lee (Seoul: Korea Institute for International Economic Policy, 2014), 173-182. 139 impetus for the GTI’s success over the long term. As local authorities overseeing the project indicated in 2005, Jilin’s external strategy under the GTI framework depended increasingly on support from central governments in facilitating trade and investment, coordination with local counterparts across the border, and private sector participation.485

Although Jilin’s role in the GTI was diminished by the mid-2000s given the initiative’s widened geographical and functional scope, Jilin has continued to lead China’s participation in the GTI through the Jilin-Northeast Asia Investment and Trade Expo jointly held with the UNDP and MOFCOM. The inaugural expo in 2002 attracted 2,270 foreign investors and 5,000 Chinese participants, drawing foreign investment in infrastructure development and trade contracts concentrated mostly in Hunchun, Tumen, and Yanji. 486 Under the GTI’s restructured framework, the 2006 expo convened 50 government officials at the ministerial level and above, 6,000 foreign investors, and 40,000

Chinese investors.487 Despite expanded participation by foreign governments, foreign investor interest has not grown as rapidly as domestic investment.

The GTI’s failure to draw sustained political support and funding since the 1990s instead catalyzed the promotion of China’s own multilateral initiatives for transborder development, most notably the Hunchun-centered Tumen River Area cooperation plan led by Jilin’s Changjitu project since 2009. While Russian contribution to the GTI was limited from the onset, and North Korean nuclear crises led to Pyongyang’s eventual withdrawal from the program, China’s external strategy by the end of the decade also shifted to bilateral engagement. The launching of the China-DPRK economic planning committee in 2009,

485 Zhang Donghui, “The Progress and Function.” 486 Jilin Provincial Government. 487 PRC Embassy in the Republic of Korea. 140 led by China’s Commerce Minister Chen Deming and Chang Song-thaek, head of the

Workers’ Party of Korea (WPK) Central Administrative Department (2007-2013) and Vice

Chairman of the National Defense Commission (2010-2013), was a major indicator of joint high-level support for border economic zones since their creation in the 1990s.488 After the establishment of a Rason joint management committee in 2012, Chinese state enterprises like State Grid Corp, cement and coal producer Jilin Yatai Group, and China

Railway Construction Group, reached agreements on investing in power, construction, transport, and agriculture projects in the zone. In addition to China-Russia “loan for oil” agreements from 2009, Beijing’s “One Belt, One Road (OBOR)” (一带一路) initiative for regional integration and the Moscow-led Eurasian Economic Union (EEU) have reinforced joint support for energy and infrastructure projects in the RFE since 2013.489

Central-Local-International Dynamics of Provincial Liberalization

The forces of economic liberalization in Jilin have clearly multiplied since its participation in the GTI in the 1990s, reinforced by the central push to “revitalize” the northeast from

2003, in addition to what was perceived as a second round of inland border opening from

2009 (Table 4.2). Just like the GTI did in 1991, Jilin’s Changjitu project in 2009 sought to further cooperation with North Korea, Russia, and Mongolia on resource development, and introduce advanced technologies from Japan and South Korea. But by the end of the

488 “China, DPRK To Develop Economic Zones in DPRK,” Xinhua, 14 August 2012. Occurring in the aftermath of North Korea’s May 2009 nuclear test, Chinese investment deals in such zones also raised much South Korean criticism of Beijing for failing to prioritize North Korea’s denuclearization. 489 “中俄经济合作模式及路径研究 (Model and Path of PRC-Russia Economic Cooperation),” 黑龙江经 济报 (Heilongjiang Economic News), 12 February 2015; Zhao Huasheng, “Sino-Russian Economic Cooperation in the Far East and Central Asia since 2012,” Eurasia Border Review (2014). 141

2000s, local officials attributed Jilin’s lagging economy to a poor policy environment and limited infrastructure, the same concerns that challenged Jilin’s external strategy as a frontier region in the 1990s.490 Jilin’s declining openness throughout the 2000s can be traced to both structural constraints and the northeast’s political culture, as well as a decline in central and external support especially from the late-2000s. Furthermore, weak coordination mechanisms at domestic and international levels limited the bottom-up, outside-in pressures favoring liberalization seen in other regions.

Table 4.2: Major Foreign Economic Initiatives in Jilin (2000-2015)

Trade and FDI initiatives under the Northeast Revitalization plan (2003) Northeast China-Russian Far East cooperation plan (2009) Northeast China-Northeast Asia cooperation plan (2012) Central One Belt, One Road (2014) Jilin-Northeast Asia Investment and Trade Expo (2002) Changchun-Jilin-Tumen project (2010) Tumen River Area (Hunchun) Pilot International Cooperation Zone (2012) Local

Greater Tumen Initiative (2006) (TRADP, 1991) Eastern Siberia-Pacific Ocean oil pipeline (2003) China-DPRK Rason Trade Zone (2010) China-DPRK Hwanggumphyong and Wihwa Islands Economic Zone (2010) China-ROK Free Trade Agreement (2015)

International

Top-down, Bottom-up Processes of Policy Feedback

As the engine of China’s planned economy under Mao’s modernization drive, the northeast confronted two related internal constraints since the onset of liberalization:491 (1) the region’s economic structure, characterized by a dominance of SOEs and marginalization

490 Wang Lihong, “Strategies for Further Opening Up.” 491 Interviews in Shenyang, June-July 2015; Fujian, February 2015; and Beijing, August 2015; Jiang Siqing, Wang Jiaoe, and Jin Fengjun, “全面推进东北地区等老工业基地振兴的战略思路研究 (Research on Strategic Thinking on Promoting the Revitalization of Northeast China and Other Old Industrial Bases),” 经 济地理 (Economic Geography) 4 (2010); 142 of the private sector, and (2) local conservatism, “outdated” ideas, and limited preparedness for market competition. The state-owned sector was a source of both Jilin’s industrial success under central planning and its decline after China’s market transition.492 Jilin’s biggest challenge was reforming its heavily-subsidized SOEs, which represented 86 percent of the provincial economy in 2001, the highest share in the northeast, and implied restructuring costs three times higher than that of coastal regions.493 Compounding this challenge was the lack of local initiative in implementing national reform mandates. As the northeast’s stagnation in the 1993-2012 period shows, local restructuring and management transparency remained the two biggest reform priorities even after ten years of “revitalization.”494

This lagging performance reflects not just continued state control and a lack of private sector development, but also a lack of coordinating mechanisms between industrial restructuring, market competition, and external opening.495 Although it introduced such measures as public-private partnerships to promote the role of the market, the northeast

492 Mark Wang, Chen Zhiming, Zhang Pingyu, Tong Lianjun, and Ma Yanji, Old Industrial Cities Seeking New Road of Industrialization: Models of Revitalizing Northeast China (Singapore: World Scientific, 2014), 47. 493 The national average share in 2001 was 65%. SOEs represented more than 75% of total northeast GDP in 2003, mainly in mining and processing industries, about 7% of which were under central government control. Wang et al., Old Industrial Cities, 48 and 53. Also see Zhang Donghui, 东北老工业基地深化国 有企业改革的难点与对策 (Difficulties and Countermeasures of Deepening State-Owned Enterprise Reform in the Northeast Old industrial Bases) (Changchun: Jilin University, 2004); Li Kai, “东北地区国有 经济的现状与特点 (Current Situation and Characteristics of the Northeast’s State-owned Economy),” 东北 大学学报 (Journal of Northeast University) 3 (2004). For a study of China’s state-owned economy in the 1980s and 1990s, see Nicholas Lardy, China’s Unfinished Economic Revolution (Washington: Brookings Institution Press, 1998). For the northeast’s structural problems, see World Bank, Facilitating Investment and Innovation: A Market-Oriented Approach to Northeast Revitalization, Report No. 34943-CN, 15 February 2006. 494 Kang Cheng-wen, “东北老工业基地振兴战略实施十年:绩效与差距分析 (Performance and Gap Analysis of Implementing the Strategy of Rejuvenating the Old Industrial Bases in Northeast China for Ten Years),” 哈尔滨商业大学学报 (Journal of Harbin University of Commerce) 5 (2015). 495 Jin Qiangyi (Yanbian University) “振兴东北老工业基地与对外开放度, (Rejuvenating Old Industrial Base in Northeast China and Degree of Opening Up),” 延边大学学报 (Journal of Yanbian University) 38-1 (2005), 7. 143 plan from the onset produced limited results due to local governments’ weak facilitation of private sector investment in favor of continued state direction. At the same time, the private sector lacked effective means for organizing itself and representing its interests, reinforcing a poor investment environment for both domestic and foreign investors. Furthermore, while the crowding-out of the private sector by SOEs undermined Jilin’s market transition in the 1990s, foreign-funded enterprises have instead been crowded out by the domestic private sector in the 2000s. The rapid decline in the state-owned share of provincial investment in 2000-2012, from 53 to 21 percent, was accompanied by an increase in the private sector’s share, from 14 to 25 percent. But the investment share of foreign-funded enterprises declined from the mid-2000s, from 9 percent in 2004 to 3 percent by 2012.496

As commonly argued within China, market-oriented reform more fundamentally requires change in the northeast’s conservative political culture.497 Northeast conservatism, reinforced by a deep tradition of central planning and reliance on the state sector, has undermined local incentives for implementing socially-costly reforms. As Party Secretary

Bayinchaolu indicated at a February 2015 meeting of local party chiefs ahead of the

National People’s Congress, weak public supervision and policy “inaction” at the local level remain a priority concern in Jilin.498 Amid Beijing’s national innovation campaign, even Bayinchaolu admitted that investments in technological innovation have not really translated into actual productivity. As provincial chief of expo affairs Zhao Qianghua also

496 Includes investment from Hong Kong, Taiwan, and Macau. National Bureau of Statistics, 中国区域经 济统计年鉴 (China Statistical Yearbook for Regional Economy) (Beijing: National Statistics Press, 2013). 497 Or, as others argue, northeast “laziness.” Interviews in Shenyang, June 2015; Bing Zheng (Jilin Academy of Social Sciences), “振兴东北与振兴东北文化 (Reviving the Northeast and Reviving Northeast Culture),” 社会科学战线 (Social Science Front) 5 (2004). 498 Dong Jidong, “Jilin Plans.” 144 claimed in 2015, “We talk big about innovation, but have no idea what to do.”499 The dynamic interaction of top-down direction and bottom-up innovation seen in China’s coastal opening is thus less apparent in the northeast.

Jilin’s opening has been most strongly resisted from the bottom up by state-sector workers, the primary losers from globalization since Premier’s Zhu Rongji’s national restructuring plan from the late 1990s. More recently, the New York-based New Tang

Dynasty Television in June 2010 reported on failed appeals by migrant rural workers from

Jilin to form their own union, what the state-run All-China Federation of Trade Unions called a “test for stability in the country.”500 The northeast’s labor unrest over WTO membership, severance agreements, and official corruption drew much international attention in the early years of China’s opening under WTO rules,501 while also reinforcing domestic criticism over the social implications of WTO entry.502 Although the registered urban unemployment rate in Jilin peaked at 4.3 percent in 2003, unofficial sources pointed to figures more than three times as high.503 The northeast revitalization plan sought to address further restructuring costs in 2004-2005, introducing experimental social security reforms in 2005 to facilitate burden-sharing among the central government (50%),

499 Liu Mingtai and Hao Nan, “Province Explores New Growth,” China Daily (English Edition), 16 December 2015. 500 The Ministry of Public Security in June 2010 also announced its national campaign against such public security disturbances. 501 Erik Eckholm, “Leaner Factories, Fewer Workers Bring More Labor Unrest to China,” New York Times, 19 March 2002; Tim Pringle, “Industrial Unrest in China: A Labor Movement in the Making?” Foreign Policy in Focus, 1 February 2002. 502 Wang Shaoguang, “The Social and Political Implications of China’s WTO Membership,” Journal of Contemporary China 9 (2000): 373-405; Wang Yong, “China’s Domestic WTO Debate,” China Business Review 27-1 (2000): 54-62; Fan Ning, Wang Xiaodong, and Song Qing, 全球化影响下的中国道路 (China’s Road under the Influence of Globalization) (Beijing: 中国科学出版社, 1999); Hu Angang, Economic and Social Transformation in China: Challenges and Opportunities (New York: Routledge, 2006). 503 In 1997-2002, the total number of laid-off workers from SOEs in northeast China as a whole amounted to 6.817 million, more than a quarter of China’s laid-off workers in that period. Wang et al., Old Industrial Cities, 28. 145 provincial government (30%), and enterprises (20%).504 In 2004, the Jilin Provincial Labor and Social Security Bureau announced labor-intensive projects in five major industries

(automobiles, petrochemicals, grain processing, pharmaceuticals, and photoelectronics) in addition to preferential policies for reemployment at small and medium-sized enterprises

(SMEs).505

Finally, the development of key zones such as the Hunchun international cooperation zone since 2010 shows that the prospects for cross-border integration depend less on geographic location than on the region’s administrative level, and in turn, central preferential policies. 506 The concentration of economic activity in provincial capitals further suggests that border regions like Hunchun have no major locational advantages.

Central preferential policies in foreign trade and investment under the northeast development plan have largely focused on neighboring Liaoning, including Liaoning city,

Shenyang Economic Zone, and Liaoning Coastal Economic Belt, aimed to promote integration with China’s coastal Bohai Sea region.507

Inside-out, Outside-in Dynamics of Institutional Change

Despite its limited achievements since the 1990s, the GTI provided an important foundation for Jilin’s further opening to support China’s own multilateral and bilateral initiatives from the late 2000s, demonstrating inside-out, outside in processes of liberalization. Institutional barriers, however, remain the biggest obstacle to trade and

504 Wang et al., Old Industrial Cities, 53. 505 He Na, “Employment Landscape Looing Grim in Jilin,” China Daily (English edition), 12 December 2004. 506 Li Tianzi, “地理距离、边界效应与中国沿边地区跨境次区域合作——兼论珲春国际合作示范区的 发展 (Geographic Distance, Boundary Effects, and China’s Cross-Border Subregional Cooperation: The Development of Hunchun International Cooperation Zone),” 东北亚论坛 (Northeast Asia Forum) 4 (2014). 507 Official website of Northeast Revitalization, www.chinaneast.gov.cn 146 investment across the northeast border, where the poor understanding of respective policies, regulations, and practices has been a persistent concern for businesses on the China-RFE and China-DPRK borders since the 1990s. 508 Rather than physical infrastructure constraints, the lowering of such “soft” barriers is a priority goal of both the GTI Trade

Facilitation Committee, created in 2011 to promote trade policy transparency and coordination,509 and the China-Russia Investment Commission created under Presidents Xi and Putin, headed by first Deputy Premier Zhang Gaoli and Russian counterpart Igor

Shuvalov.510 According to investors on the Chinese side of the border, the main constraint on cross-border economic projects is the lack of corresponding market reforms in the RFE and North Korea.511 On the other hand, Chinese advocates of trade with North Korea have long argued that border trade can promote market norms and practices on the DPRK side.512

Still, the northeast remains largely unchanged since the “1990s model” of cross-border cooperation, driven by local corruption and the quest for “quick profits” rather than sustainable returns.513

508 Interviews in Shenyang, May-July 2015; Chen Di, “浅谈中俄边境贸易现状及发展方向 (Present Situation and Development Trend of Sino-Russian Border Trade),” 黑河学刊 (Heihe Journal) 3 (2004); Li Dunqiu, “Economic and Social Implications of China-DPRK Border Trade for China’s Northeast,” Working Paper (2006); SJ Wang and DH Zhang, “论地方城市地方政府在东北亚地区经济合作中的地位和作用 (The Status and Role of Localities and Local Governments in Northeast Asian Regional Economic Cooperation),” 东北亚论坛 (Northeast Asian Forum) 4 (1998): 24-28. 509 Ratnakar Adhikari and Sudeep Bajrachaya, “Greater Tumen Region Trade Facilitation Study,” UNDP China Report (New York: UNDP, 2015). 510 Evgeny Tomikhin, Minister-Counsellor, Deputy Head of Mission, Embassy of Russia, “Recent Trends in Russia-China Relations,” China-Russia Workshop, East China Normal University, Shanghai, November 2015. 511 Interviews in Shenyang, July 2015. 512 Li Dunqiu, “Economic and Social Implications of China-DPRK Border Trade for China’s Northeast,” Working Paper (2006). 513 Interviews in Beijing, February 2015; and Shanghai, November 2015. 147

In addition to such normative constraints, security concerns surrounding the North

Korean nuclear issue have clearly impeded economic integration.514 While the launching of the GTI marked the first formal meeting between North and South Korean officials in

1991, the downturn in multilateral cooperation in the 2000s corresponds with the breakdown of Six Party Talks and its Working Group on Economic and Energy

Cooperation created in 2007, and Pyongyang’s eventual withdrawal from the GTI. China’s bilateral economic engagement of North Korea, however, is primarily driven by internal security interests of preventing a humanitarian crisis across the border.515 At the same time, in addition to illicit trade, illegal Chinese migration across the China-RFE border remains a major source of Russian concern. Such concerns reflect the divergent security interests that have impeded Tumen transborder cooperation since the early phases of the

GTI.516

But even with an improving security environment, Jilin’s Northeast Asian neighbors are economically oriented toward other provinces. More than half of China-

514 For studies of the geopolitical dimensions of Northeast Asian integration in the 1980s and 1990s, see Gilbert Rozman, Northeast Asia’s Stunted Regionalism: Bilateral Distrust in the Shadow of Globalization (New York: Cambridge University Press, 2004); “Northeast China: Waiting for Regionalism,” Problems of Post-Communism 45-4 (1998): 3-14; and “Cross-National Integration in Northeast Asia: Geopolitical and Economic Goals in Conflict,” East Asian Studies (1997): 6-43. 515 He Xiaofang, 兴边富民与 安 邻 、睦邻 、富邻关系 研 究 (Study on the Relationship between “Revitalizing Border Regions and Enriching Their People” and a “Secure, Good, Prosperous Neighborhood”) (Beijing: Renmin Chubanshe, 2014). 516 For the strategic and economic contexts of China-RFE cooperation in this period, see Yu Stolyarov, “The Soviet Far East: The Economy and Foreign Economic Relations,” Journal of East and West Studies 20-1 (1991): 1-15; Tsuneo Akaha, Politics and Economics in the Russian Far East: Changing Ties with Asia Pacific (New York: Routledge, 1997); Mark Valencia, ed., The Russian Far East in Transition: Opportunities for Regional Economic Cooperation (Boulder: Westview Press, 1995); David Kerr, “Chinese Relations with the Russian Far East,” in The Russian Far East and Pacific Asia: Unfulfilled Potential, ed. Michael Bradshaw (New York: Routledge, 2001); Stephen Kotkin and David Wolff, ed., Rediscovering Russia in Asia: Siberia and the Russian Far East (Armonk: M.E. Sharpe, 1995); Rodger Swearingen, ed., Siberia and the Soviet Far East: Strategic Dimensions in Multinational Perspective (Stanford: Hoover Institution Press, 1989); and Gilbert Rozman, “Troubled Choices for the Russian Far East: Decentralization, Open Regionalism, and Internationalism,” Journal of East Asian Affairs 11-2 (1997): 537-569. 148

DPRK trade goes through Dandong port in Liaoning province, 517 while China-Russia energy and infrastructure projects favor Heilongjiang and the RFE.518 Although three localities in Jilin share “sister-city” economic and cultural relationships with South Korean counterparts, a quarter of the 28 Chinese local governments with which South Korea has such ties are in coastal provinces Shandong and Zhejiang.519 The relative lack of economic complementarities in the peripheral Tumen region was a major barrier to creating global- subnational economic links in such border cities like Hunchun in the 1990s, limiting the scope of foreign manufacturing investment that drove export-led coastal growth.520 As

Jilin officials still claim, “We want to open, but have no-one to open to.”521

Conclusion: Ten Years of Revitalization, Same Northeast Phenomenon

The internal orientation of Jilin’s economy from the early 2000s can be traced to a growing divergence of interests at the central, local, and international levels. Despite the central push for reviving the northeast from 2003, the northeast’s structural and ideational

517 Li Dunqiu, “Economic and Social Implications of China-DPRK Border Trade for China’s Northeast,” Working Paper (2006); Shi ZK and Yu WS, “吉林省同朝鲜边境贸易及地方易货贸易的态势分析 (A Current Analysis of Jilin Province and North Korea’s Border Trade and Local Barter Trade),” 东北亚论坛 1 (1995): 52-55. 518 “中俄经济合作模式及路径研究 (Model and Path of PRC-Russia Economic Cooperation),” 黑龙江经 济报 (Heilongjiang Economic News), 12 February 2015; “刘瑞华：龙江陆海丝绸之路经济带建设助力 对俄深度合作 (Liu Ruihua: Construction of Longjiang Maritime Silk Road Deepens Cooperation with Russia),” 黑龙江经济报 (Heilongjiang Economic News); 27 January 2015. 519 Yang Long and Zhang Yanhua, “中韩地方政府跨国合作的现状与前景 (Status and Prospects of China- South Korea Cross-border Cooperation of Local Governments),” 南开学报 (Nankai Journal) 2 (2013); Zhang Yongxue, “中朝边境经济合作区创新要素聚集研 究 (Sino-South Korean Border Economic Cooperation Zones),” 中小企业管理与科技 (Management and Technology of SMEs) 2 (2014). The three localities in Jilin are the capital city of Changchun, Shulan county under the administration of Jilin City, and Wangqing county in Yanbian Korean Autonomous Prefecture, which have partnerships with Ulsan, Masan, and Samcheok respectively. 520 Chen Xiangming, “Beyond the Reach of Globalization,” 30. 521 Interviews in Shenyang, June 2015. 149 constraints impeded the implementation of market-oriented reforms at the local level. As the Tumen transborder case shows, the lack of political support and funding from foreign governments and investors further constrained Jilin’s external economic initiatives. It was clear after the initial years of the northeast development program that the region’s economic rehabilitation would require long-term policy support from the central government in addition to continued industrial restructuring, withdrawal of local government intervention, and an improved social security system.522

Since 2013, the Xi leadership’s “One Belt, One Road” (OBOR) initiative has revived local governments’ promotion of such projects as Changjitu.523 But a decade into

China’s northeast revitalization effort, local officials raised concerns over Jilin’s lagging performance among China’s nine inland provinces,524 while even the NDRC recognized a significant gap in openness with neighboring coastal provinces.525 Despite central pledges of continued support for the 2003 revitalization plan, many northeast Chinese perceive that the program no longer exists, pointing to the very structural problems that the program

522 Zhang Pingyu, “Revitalizing Old Industrial Base of Northeast China: Process, Policy and Challenge,” Chinese Geographical Science 18-2 (2008): 109-118. 523 Ma Xing et al., ““一带一路”战略引领 长吉携手谱写新篇 (“One Road One Belt” Strategy Guides Changji in Writing A New Chapter Together),” 吉林日报 (Jilin Daily), 2 March 2015; Wang Ying et al., “拓 长吉图发展坦途 架东北亚合作金桥 (Extending Changjitu Development),” 吉林日报 (Jilin Daily), 3 March 2015; Zhang Qingning, “吉林：开放“后进生”冲刺自贸区 (Jilin: Opening Up the “Latecomer” Free Trade Area),” 经济观察报, 19 January 2015; Du Juan, “沿边开发开放 珲春蓄势待发: 看珲春将如何发展 成为长吉图“窗口” (Hunchun Ready for Border Development and Opening: Hunchun as a Window of Chanjitu),” 图们江报 (Tumen River News), 29 January, 2015; Du Juan, “建言改革发展 献策丝路建设: 州 政协委员心系沿边开放一席谈 (Suggestions on Silk Road Reform and Development: CPPCC)” 图们江报 (Tumen River News), 20 January 2015. 524 Wang Lihong, “Strategies for Further Opening Up.”

525 Huang Zhengxue (NDRC), “东北老工业基地进一步扩大对外开放的基本思路 Basic Ideas for Further Opening Up the Old Industrial Base in Northeast China),” 中国经贸导刊 (China Economic & Trade Herald) 25 (2012). 150 sought to address a decade ago.526 Domestic debate at the March 2015 National People’s

Congress centered on a “new northeast phenomenon” (新东北现象) of stagnation after the region ranked within China’s bottom five in provincial growth in 2013-2014, characterized by a serious problem of labor outflow to other regions, especially among younger workers.527 Beijing’s national plan for restructuring China’s old industrial bases for 2013-

2022 under Xi Jinping suggests a further dilution of support for northeast development at the central level.528 As the NDRC explicitly indicated in 2014, the priority of China’s regional development is western development.529

A comparison of China’s current economic initiatives with Russia and North Korea suggests Jilin’s further marginalization as a border region. Although Chinese and Russian efforts to link together OBOR and the Eurasian Economic Union have driven energy and infrastructure cooperation in Russia’s far east, the main beneficiary of such cooperation is

Heilongjiang, as suggested by the State Council and NDRC’s 2014 initiative on the

“Heilongjiang Maritime Silk Road” (黑龙江省东部陆海丝绸之路), as well as the Eastern

Siberia-Pacific Ocean oil pipeline project led by Russia’s Transneft and China National

526 Interviews in Shenyang, May-July 2015; Ma Bin and Que Chengyu, “加快东北三省沿边对外开放的制 约因素与应对之策 (To Accelerate the Restricting Factors and Countermeasures in Northeast Border Opening),” 国际贸易 (International Trade) 6 (2014). 527 “新常态下“东北现象” (“New Northeast Phenomenon” in the New Normal), Xinhua, 15 February 2015; “习近平的两会时间：东北振兴真么办？(Xi Jinping at the NPC/CPPCC: How Deal with Northeast Revitalization?),” Xinhua, 10 March 2015. 528 NDRC, “全国老公也基地调整改造计划(National Plan for Restructuring and Reforming Old Industrial Bases) (2013-2022).” 529 Chen Yang, “China Sets Tasks for 2014 Western Development,” Global Times (English edition), 10 February 2014. In border regions, the NDRC in 2010 proposed the creation of open pilot zones (开发开放 试验区) in Dongxing (Guangxi), Ruili (Yunnan), Kashgar (Xinjiang), and Manzhouli (Inner Mongolia). Pan Liming and Yan Xuguang, “喀什特区与国家期望 (Kashgar Special Zone and National Expectations),” 大 陆桥视野 (New Silk Road Horizon) 4 (2011). 151

Petroleum Corporation (CNPC) under a 2003 agreement. 530 Although the China-DPRK joint committee on economic zones produced plans for cooperation in telecommunications, agriculture, and construction,531 substantive progress has remained limited under the Kim

Jong-un leadership since the December 2013 execution of reformist leader Jang Song-taek, as well as North Korea’s February 2013 nuclear test. 532 But as Chinese and foreign businesses have long argued, such delays stem from regulatory and normative impediments that were evident since the 1990s rather than North Korea’s nuclear development or internal politics.

Finally, China’s slowing growth since the global financial crisis has led to a resurgence of labor unrest that characterized the northeast during the early years of China’s

WTO entry. Violent protests at Jilin’s Tonghua Steel over unpaid wages in March 2016 were a reminder of similar riots in July 2009 that killed the head of its private stakeholder.533 The recent protests broke out during China’s annual parliamentary session, at the end of which Premier Li Keqiang reiterated a commitment to structural reforms and the Labor Ministry announced plans to establish a $100 billion RMB ($15 billion) fund to

530 Da Zhigang, “瞄准新一轮沿边开放 龙江起舞弄潮正逢时 (A New Round of Border Opening),” 黑龙 江经济报 (Heilongjiang Economic News), 2 February 2015; “刘瑞华：龙江陆海丝绸之路经济带建设助 力对俄深度合作 (Liu Ruihua: Construction of Longjiang Maritime Silk Road Deepens Cooperation with Russia),” 27 January 2015. For studies of China-Russia cooperation in the RFE under the Xi Jinping administration, see Liu Jialei, 东北地区东段中俄边界沿革及其界牌研究 (Study on the Evolution of the Northeast Region’s Eastern Section of the Sino-Russian Border) (Harbin: Heilongjiang Education Press, 2014); Zhao Huasheng, “Sino-Russian Economic Cooperation in the Far East and Central Asia since 2012,” Eurasia Border Review (2014). 531 PRC Ministry of Commerce Press Release, 14 August 2012. 532 For example, a year after signing an agreement with the DPRK government in 2012 to build a cement plant in Rason, Jilin Yatai announced delays in the project citing problems on the North Korean side. Heuimang Investments Group Ltd. ( 韩旺投资集团有限公司), Press Release, 2 August 2015, http://www.crig.cn/particular.aspx?id=850. 533 “Deep in a Pit,” The Economist, 19 March 2016; Sky Canaves and James Areddy, “Murder Bares Worker Anger Over China Industrial Reform,” The Wall Street Journal, 31 July 2009; David Barboza, “China Steel Executive Killed as Workers and Police Clash,” New York Times, 26 July 2009. 152 support re-employment. Although China’s northeast largely endured the restructuring of the 1990s through massive central government aid, such social unrest may further delay

Jilin’s path of liberalization.

153

Chapter 5

Linking Southwest China and Southeast Asia: Yunnan’s Rise as a Regional Bridgehead

Why and how has Yunnan transformed itself from one of China’s poorest regions into western China’s emerging link to Southeast Asian markets? Despite a brief period of growth in 1993-1995, Yunnan’s trade openness remained largely stagnant throughout the

1980s and 1990s. Foreign trade amounted to only 7 percent of GDP in 1999, far below the national average of 22 percent, and virtually unchanged from levels in the 1980s. The

2000s, however, was a period of steady growth in openness in terms of both foreign trade and foreign direct investment (FDI).534

This chapter assesses the external economic strategies of Yunnan province since

2000 in the context of Southeast Asian economic integration. The increase in Yunnan’s openness during the 2000s can be traced to growing central support under the western development plan, an expansion of multilateral mechanisms of regional cooperation, and active local promotion of economic integration with Southeast Asia especially from the late 2000s. Convergence in domestic and international interests that was lacking in the

Jilin case is most notable in China’s “bridgehead” (桥头堡) strategy of linking Yunnan to

Southeast Asia from 2009, supported by the China-ASEAN FTA (CAFTA) from 2010.

While Jilin was almost four times as open as Yunnan in 1994, Yunnan closed the gap by

2007, eventually surpassing Jilin in trade openness in 2013. Similarly, steady growth from

2003 led Yunnan to surpass Jilin in FDI openness in 2010.

534 Consistent with the national trend, Yunnan’s trade openness declined in 2007-2009 during the global financial crisis. 154

The following section reviews Yunnan’s participation in cross-border development initiatives in Southeast Asia since the 1990s to provide the historical context of Yunnan’s economic opening. It identifies major trends in provincial openness in this context, focusing primarily on trade openness. Second, I examine the central, local, and international interests and strategies shaping Yunnan’s foreign economic liberalization after China’s western development plan and shift to inland development in 2000. Third, I assess the alignment of these interests to explain the variation in Yunnan’s openness over time, identifying top-down, bottom-up processes of change on the one hand, and inside- out, outside-in processes on the other. The concluding section summarizes my core findings and arguments, including the broader significance of Yunnan’s case to other provincial cases and China’s economic orientation in general.

Yunnan-Southeast Asia Economic Integration since the 1990s

The Asian Development Bank (ADB)-led Greater Mekong Subregion (GMS) has provided the initial framework for Yunnan’s economic integration with Southeast Asia since 1992, where Yunnan and Guangxi Zhuang Autonomous Region (from 2005) are China’s lead participants alongside Myanmar, Laos, Vietnam, Thailand, and Cambodia.535 The GTI includes nine priority sectors of transport, energy, telecommunications, environment, human resources, tourism, trade, private sector investment, and agriculture. Like the GTI,

535 For studies of Yunnan’s participation in the GMS since the 1990s, see He Shengda, “云南参与 GMS 合 作 20 年:述评与思考 (20 Years of Yunnan’s Participation in GMS Cooperation: Review and Thoughts),” Journal of Kunming University of Science and Technology (2012); Chen Diyu, “云南与“大湄公河次区域 经济合作机制 (The Economic Cooperation Mechanism between Yunnan and the Greater Mekong Sub region),” 国际观察 (International Review) 6 (2008); and Guo Xiangyan, “(Lancang-Mekong Subregional Economic Cooperation),” 南方论丛 (Southern Forum) 2 (2006). 155 the GMS did not really enter its implementation stage until after the 1997 Asian financial crisis, but has provided an institutional mechanism for policy coordination at the state, ministerial, and functional working-group levels, launching an annual leaders’ summit from 2002.

China’s national goals in joining the GMS were to build a land route linking southwest China to Southeast Asian markets; strengthen regional trade, economic and technological partnerships; promote poverty alleviation and sustainable development; and consolidate diplomatic relations with Southeast Asian neighbors.536 While both Chinese and GMS interests in multilateral cooperation were primarily economic from the onset, tensions emerged over the prioritization of transborder river management and local environmental issues particularly since China’s dam construction in Yunnan.537 Given the reliance of agricultural communities on the Mekong, some border localities in Yunnan initially favored Chinese membership in the Mekong River Commission (MRC)

(Cambodia, Laos, Thailand, Vietnam),538 although the MRC also leaned toward economic cooperation from the mid-2000s.

Prospects for Mekong transborder cooperation was a driving factor in the development of an outward-oriented economic strategy among Yunnan leaders seeking greater autonomy since China’s border liberalization in 1992.539 The Yunnan government

536 National Development and Reform Commission. 537 Thi Dieu Nguyen, The Mekong River and the Struggle for Indochina: Water, War, and Peace (1999) (Westport: Praeger, 1999); Oliver Hensengerth, Regionalism in China-Vietnam Relations: Institution- building in the Greater Mekong Subregion (London: Routledge, 2010). 538 Che Zhimin and Zhou Naiguo, eds., 云南对外通道及口岸 (Yunnan’s External Channels and Ports) (Kunming: Yunnan People’s Press, 1992). 539 Yang Hongcheng, 云南省与湄公河区域合作：中国地方自主性的发展 (Yunnan Province and Mekong River Regional Cooperation: The Development of Local Autonomy in China) (Hong Kong: Chinese University Press, 2001); He Zheqiang, 云南的改革开放与发展 (Yunnan’s Reform and Opening and Development) (Beijing: Central Party School Press, 1995). 156 sought to expand commercial ties with GMS states from the 1980s, producing its own policy proposals for promoting border trade in 1985, such as tax concessions and bureaucratic streamlining. From 1992, the State Council’s approval of Hekou, Ruili, and

Wangding as national Border Economic Cooperation Zones (BECZs) supported the GMS by liberalizing border trade with Myanmar and Vietnam. Ruili, on the China-Myanmar border, created the Jiagao Border Economic Development Zone in 1991 to facilitate trade with Muse in Myanmar. In addition to Southeast Asian neighbors, local interests extended to cooperation with South Asia, including eastern India and Bangladesh.540

While the geographic scope of GMS projects within China was limited to Yunnan,

Chinese interests in the GMS were represented by central officials, especially from 1995 with increased institutionalization of the program. The joining of ASEAN by GMS members Vietnam (1995), Laos (1997), Myanmar (1997), and Cambodia (1999) elevated

ASEAN’s significance as a major player on mainland Southeast Asia. While Beijing’s

“good-neighbor” ( 睦邻) policy from the 1990s facilitated normalization of bilateral relations, including with Vietnam in November 1991, the collapse of the Burmese

Communist Party at the end of the 1980s was key to opening up border trade between

China and Myanmar, Yunnan’s biggest trade partner.541 Similarly, initial proposals for

Bangladesh-China-India-Myanmar (BCIM) cooperation from the late 1990s would not have been possible without improved China-India relations after Jiang Zemin’s state visit in 1996. As a dialogue partner of ASEAN from 1996, China’s active response to the Asian financial crisis under International Monetary Fund (IMF) initiatives, including more than

540 He Ping, 从云南到阿萨姆：戴泰民族历史与重构 (From Yunnan to Assam: Revisiting and Reconstructing Dai-Tai Ethnic History) (Kunming: Yunnan University Press, 2001). 541 China’s trade agreement with Myanmar in 1988 not only legalized cross-border trade but also facilitated China’s supply of military aid to Myanmar under the State Peace and Development Council. 157

$4 billion in aid and export credit to Southeast Asian countries, enhanced regional perceptions of China, and created a favorable environment for proposing a free trade zone with ASEAN in 2000.

Yunnan’s Economic Openness and Dependence on Southeast Asian Neighbors

Although Yunnan’s foreign trade openness remains far below the national average level, it maintained steady growth during the 2000s after declining in 1995-1999 around the time of the Asian financial crisis (Figure 5.1). The share of merchandise trade in provincial

GDP doubled from 7.23 percent in 1999 to 13.99 percent in 2007, and quickly recovered after the global financial crisis. While growth in the absolute trade volume accelerated during the 2000s after China’s World Trade Organization (WTO) entry and the initiation of China’s western development plan, exports grew at a notably faster rate than did imports from 2009, generating an increase in Yunnan’s trade surplus. Yunnan’s total foreign trade volume amounted to $25.83 billion in 2013, growing at an average annual rate of 23 percent since 2000 compared to 16 percent in the 1980s and 1990s. Provincial GDP growth also accelerated during the 2000s, reaching 1172.09 RMB billion ($189.25 billion) in 2013, almost six times greater than in 2000.542

542 Statistical Bureau of Yunnan Province, Yunnan Statistical Yearbook (Beijing: China Statistics Press, 2014). 158

Figure 5.1: Foreign Trade Openness, Yunnan (1981-2013)

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0 19811983198519871989199119931995199719992001200320052007200920112013

Yunnan PRC

Source: Yunnan Statistical Yearbook; China Trade and External Economic Statistical Yearbook.

Compared to China overall, Yunnan is clearly more dependent on mainland Southeast

Asian neighbors (Figure 5.2). In 2000-2004, Southeast Asian trade accounted for about

30 percent of provincial GDP and only 2 percent of national GDP. Yunnan’s trade dependence on Southeast Asia, however, declined during the 2000s, halving from 31 percent in 2003 to 16 percent in 2011. This decline suggests that the growth in Yunnan’s trade openness in this period was driven by other foreign partners.

On the other hand, 2011 was clearly a turning point in Yunnan’s dependence on

Southeast Asia, which regained rapid growth to reach 30 percent in 2013, eight times greater than the national level. In contrast, China’s trade dependence on Southeast Asian neighbors grew at a relatively slow rate in 2000-2013, from 2.1 to 3.7 percent. Despite periods of decline in the mid-2000s and in the aftermath of the global financial crisis,

Yunnan’s trade dependence on ASEAN as a whole also grew from 35 percent in 2000 to

159

42 percent in 2013. 543 Most of Yunnan-Southeast Asia trade has been with directly bordering Myanmar, which accounted for more than half of provincial trade with mainland

Southeast Asia during most of the 2000s, in contrast to about 5 percent of China’s trade with the region.544

Figure 5.2: Share of Southeast Asia Trade in Total Foreign Trade, Yunnan (2000-2013)*

0.35

0.30

0.25

0.20

0.15

0.10

0.05

0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Yunnan PRC

*Includes Cambodia, Laos, Myanmar, Thailand, and Vietnam (Mainland Southeast Asia). 2011 figures for Yunnan currently unavailable; 2010 figures used instead. Source: Yunnan Statistical Yearbook; China Trade and External Economic Statistical Yearbook.

The above pattern of provincial trade dependence is clearly supported by trends in

Yunnan’s contribution to China’s trade with mainland Southeast Asia during the same period (Figure 5.3). Although the proportion of Yunnan’s-Southeast Asia trade in the

543 ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. 544 Although Yunnan’s trade dependence on Myanmar has generally declined during the 2000s, it peaked at 89 percent in 2009. 160 national total more than halved from 5.29 percent in 2001 to 2.15 percent in 2009, it rapidly recovered to 4.97 percent in 2013.

Figure 5.3: Yunnan’s Share of China-Southeast Asia Trade (2000-2013)*

0.06

0.05

0.04

0.03

0.02

0.01

0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

*Includes Cambodia, Laos, Myanmar, Thailand, Vietnam (Mainland Southeast Asia). 2011 figures currently unavailable; 2010 figures used instead. Source: Yunnan Statistical Yearbook; China Trade and External Economic Statistical Yearbook.

To summarize, Yunnan’s foreign trade openness has followed two major trends. First,

Yunnan’s trade dependence remains far below the national level, but has steadily grown in the 2000-2013 period. Second, although other provinces have largely driven the growth in

China’s trade with Southeast Asia, Yunnan-Southeast Asia trade has clearly increased in importance since the late 2000s, relative to both Yunnan’s overall foreign trade and China’s trade with the region.

The Forces of Yunnan’s Foreign Economic Liberalization since 2000 161

Central Interests and Strategies

Given the region’s poor infrastructure, China’s national plan of “opening up the west” (西

部大开发) in its early phases from 2000 emphasized domestic aid partnerships with coastal regions rather than foreign investment, under which Yunnan was paired with Shanghai.545

The western plan was the first of China’s inland development initiatives and among the final major policy products of President Jiang Zemin, proposed at the Ninth National

People’s Congress (NPC) in March 1999 and officially launched in 2000. Its goals centered primarily on poverty alleviation rather than export-led growth. The State Council created a Leading Small Group for Western Development (西部地区开发领导小组) in

January 2000, led by Premier Zhu Rongji under the administrative direction of the State

Council Secretary-General, and the tenth NPC incorporated the Law on Promoting Western

Development in its legislative plan four years later.

While China entered the ADB-led Greater Mekong Subregion in 1992 as a beneficiary, it took on a leading funding and implementing role by the 2000s. The China-

ASEAN Free Trade Area, the framework agreement for which was signed in November

2002, was a key factor stimulating renewed intergovernmental interest in the GMS, as demonstrated by the launching of the GMS summit among heads of state that same month.546 Premier Zhu Rongji, accompanied by Yunnan Governor Xu Rongkai, led the

545 State Council, “ 关于实施西部大开发若干政策措施的通知 (Notice on Policy Measures for Implementing Western Development),” Guofa 33, 16 October 2000; “The Development-Oriented Poverty Reduction Program For Rural China,” October 2001; The western development plan covers 12 regions: Gansu, Guizhou, Qinghai, Shaanxi, Sichuan, and Yunnan provinces; Guangxi, Inner Mongolia, Ningxia, Tibet, and Xinjiang autonomous regions; and Chongqing municipality. For an internal assessment, see Zeng Peiyan (2003-2008 Vice Premier), 西 部 大 开 发 决 策 回 顾 (Review of Decision-Making on Western Development) (Beijing: Communist Party of China History Press and Xinhua Press, 2010). 546 Medhi Krongkaew, “The Development of the Greater Mekong Subregion: Real Promise or Fake Hope?” Journal of Asian Economics 15-50 (2004): 977-998. 162

Chinese delegation to the inaugural summit, specifying five goals of GMS cooperation: to strengthen infrastructure linkages, facilitate cross-border trade and investment, enhance private sector participation, develop human resources, and promote environmental protection and sustainable development.547 The 2002 summit embodied greater Chinese commitment to the GMS, including $30 million in loans and grants for the Laos section of the Kunming-Bangkok highway.548 Under the Hu Jintao administration, China’s funding role was further solidified at the 2008 leaders’ summit in Kunming, where Premier Wen

Jiabao made a series of investment pledges that were adopted in the 2008-2012 GMS action plan.549

Chinese commitment to such multilateral initiatives has supported the central government’s promotion of outward investment over the past decade, focused on cross- border infrastructure development to lower the physical barriers to foreign trade. Beijing’s incorporation of the GMS into its “go out” (走去出) strategy in 2004 directed Chinese state and private investment to less developed members Cambodia, Laos, and Myanmar in particular, supported by unilateral measures to widen the scope of preferential tariff treatment to those countries from 2006.550 Chinese investment in the GMS almost doubled from $60 million in 2004 to $115 in 2006, more than a third of China’s total investment in

ASEAN.551 Between 2006 and 2009, China spent $4 billion on highway construction to

547 National Development and Reform Commission, “Country Report on China’s Participation in Greater Mekong Subregion Cooperation,” 2008. 548 Yunnan Economic Yearbook 2003, 248. 549 Wen Jiabao, Speech at the Third GMS Summit, Vientiane, 31 March 2008; Joint Summit Declaration, Third GMS Summit of Leaders, Vientiane, March 2008. 550 Zhu Zhenming, “Mekong Development and China’s (Yunnan) Participation in the Greater Mekong Subregional Cooperation,” Ritsumeikan International Affairs 8 (2010), 8. 551 Lim Tin Seng, “China’s Active Role in the Greater Mekong Subregion,” East Asian Policy 1-1 (2009), 44. 163 link Kunming to GMS areas, providing unconditional loans to GMS governments.552 This centrally-led investment in the GMS has been complemented by additional state funding of major projects for western development, including 280 billion RMB ($41.95 billion) from the Ministry of Finance (MOF) in 2007.

Beijing’s “One Belt, One Road” (OBOR) (一带一路) plan for Asian economic integration is a defining feature of the Xi Jinping administration that favors Yunnan’s further opening.553 The “21st Century Maritime Silk Road” (21 世纪海上丝绸之路) in particular has reinforced Yunnan’s interests in leading China’s integration with South and

Southeast Asia within new and existing regional mechanisms (Table 5.1).554 Ahead of the

Third Plenary Session of the 18th Communist Party of China (CPC), President Xi in his

October 2013 speech to the Indonesian parliament introduced the Maritime Silk Road plan in the context of China-ASEAN community-building, and proposed the establishment of the Asian Infrastructure Investment Bank (AIIB). 555 About three-quarters of the 21 signatories of AIIB’s initial Memorandum of Understanding in October 2014 were in South and Southeast Asia, including all ASEAN states besides Indonesia. 556 A draft MOU between China and Thailand in December 2014 on railway cooperation was among the earliest products associated with OBOR in Southeast Asia.

552 Lim Ten Seng, “China’s Active Role," 41. 553 The One Belt, One Road plan includes the “Silk Road Economic Belt” running between China’s northwest and coastal regions and linking to Central Asia, the Middle East, and Europe; and the “21st Century Maritime Silk Road” running between China’s southern regions and Southeast Asia. For a timeline of associated developments, see “Chronology of China’s “Belt and Road” Initiatives,” Xinhua, February 5, 2015. 554 Yunnan Provincial Government Work Report 2015. 555 The OBOR initiative is also supported by China’s $40 billion Silk Road Fund, proposed by President Xi Jinping in November 2014. 556 In addition to China, these included Bangladesh, Brunei, Cambodia, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, the Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan, and Vietnam. 164

Table 5.1: China-Southeast Asia Economic Mechanisms

Mechanism Members Objectives PRC Coordinator ASEAN+1 (1996) Brunei, Cambodia, -Economic & social Ministry of Foreign China, Indonesia, development Affairs, Department Laos, Malaysia, -Regional peace & of International Myanmar, stability Affairs Philippines, Singapore, Thailand, Vietnam Mekong River Cambodia, Laos, -Joint management Ministry of Foreign Commission (1995) Thailand, Vietnam of Mekong River Affairs, Department Basin water of International resources Affairs ASEAN-Mekong Basin ASEAN & Mekong -Economic National Development Basin Countries cooperation among Development & Cooperation (1996) ASEAN and Mekong Reform Commission, Basin countries Department of Regional Affairs Greater Mekong Cambodia, China, -Economic & social Ministry of Finance, Subregion (ADB) Laos, Myanmar, development in GMS Department of (1992) Thailand, Vietnam transborder region International Affairs Lancang-Mekong Cambodia, China, -Border security Ministry of Foreign River Cooperation Laos, Myanmar, -Sustainable Affairs (2015) Thailand, Vietnam development -Cultural exchange BCIM Economic Bangladesh, China, -Economic National Corridor (2013) India, Myanmar connectivity via land, Development & sea, and air to Reform Commission, facilitate exchange of Department of goods and people Regional Affairs

Source: Official websites of above agencies; Xiong Bin and Wen Shuhui (Faculty of Management and Economics, Kunming University of Science and Technology), “Towards A Better Understanding of the Political Economy of Regional Integration in the GMS: Stakeholder Coordination and Consultation for Subregional Trade Facilitation in China,” Greater Mekong Subregion Initiative Discussion Paper Series 7 (2009).

Local Interests and Strategies

165

While inter-agency coordination was a major challenge to Yunnan’s participation in the

GMS in the 1990s,557 the creation of the Yunnan Lancang-Mekong Coordination Group under the provincial Development and Reform Commission (DRC) in 2002 laid the institutional foundation for managing GMS participation at the local level. 558 The reconsolidation of GMS goals at the 2002 inaugural summit clearly favored the further opening of Yunnan, officially identified by Beijing as the main Chinese province in the

GMS and China’s “land bridge” to Southeast Asian neighbors.559 Reflecting this role,

Yunnan from 2002 assumed responsibility for implementing the Cross-Border

Transportation Agreement and Economic Corridors project with Laos, Thailand, and

Vietnam, launched in 2005.560

Renewed interest in the GMS at the higher level were reflected down to the provincial level, but was also tied to the broader promotion of the China-ASEAN FTA beyond the GMS subregion.561 At the December 2002 meeting of the provincial GMS

Cooperation and Coordination Small Group, led by Yunnan Governor Xu Rongkai, the

Yunnan DRC outlined Yunnan’s significance as an early experimental area for CAFTA, emphasizing locational advantages and development opportunities in both CAFTA and the

GMS. Increased central government support for the GMS heightened Yunnan’s

557 He Shengda (Yunnan Academy of Social Sciences), “云南参与 GMS 合作 20 年:述评与思考 (20 Years of Yunnan’s Participation in GMS Cooperation: Review and Thoughts),” Journal of Kunming University of Science and Technology (2012). 558 Xiong Bin and Wen Shuhui, “Towards A Better Understanding of the Political Economy of Regional Integration in the GMS: Stakeholder Coordination and Consultation for Subregional Trade Facilitation in China,” GMS Initiative Discussion Paper Series 7 (2009): 11-12; Zhu Zhenming, “Mekong Development,” 12. 559 Yunnan Economic Yearbook 2003, 248. 560 Zhu Zhenming, “Mekong Development.” 561 Yunnan Academy of Social Sciences, “中国-东盟自由贸易区的建构与云南的对外开放研究 (Study on the Establishment of the China-ASEAN Free Trade Area and Yunnan’s Opening to the Outside),” 云南社会 科学 (Social Sciences in Yunnan) 5 (2002). 166 recognition of its rising status in China’s national strategy of opening, focused on promoting Kunming’s emergence as a commercial center of Southeast and South Asia, especially after the construction of economic corridors.562

Building on such national and multilateral initiatives since the early 2000s,

Yunnan’s current development strategy centers on advancing its role as a “bridgehead” linking China and South/Southeast Asia.563 Initially raised by President Hu Jintao during a 2009 inspection tour of Yunnan, this bridgehead concept has formed the basis of local demands for preferential policies and funding. In addition to directly appealing to central authorities, provincial leaders from 2009 mobilized support from various political parties through the Chinese People’s Political Consultative Conference (CPPCC) and NPC.564

The National Development and Reform Commission (NDRC) incorporated Yunnan’s bridgehead initiative into China’s national strategy in 2010, leading to the creation of a

Ministry of Commerce (MOFCOM)-led inter-ministerial coordination mechanism involving more than 30 central agencies, and partnerships between the Yunnan government and major state-owned enterprises (SOEs) and banks.565

562 Yunnan Economic Yearbook 2003, 248. 563 Zhi Liu, “论云南参与区域合作与桥头堡建设的相互关系 (The Mutual Relationship between Yunnan’s Participation in Regional Cooperation and Bridgehead Construction),” Journal of Yunnan Normal University (2011); Wang Guoping and Chen Yashan, “新世纪以来云南面向东南亚南亚开放回顾 (Yunnan’s Opening to South and Southeast Asia since the New Century),”Southeast Asian and South Asian Studies 1 (2012).

564 Zhang Juzheng, “云南通往东南亚南亚之桥 (Yunnan as a Bridge to South and Southeast Asia),” 云南 政协报 (Yunnan Political Consultative Conference), 19 June 2009. Cited in Li Mingjiang, “Local Liberalism: China’s Provincial Approaches to Relations with Southeast Asia,” Journal of Contemporary China 23-86 (2014), 283. 565 Zhang Yi, Jin Jing, Li Yongqian, and Li Yongzhong, “以桥头堡战略推动云南沿边开放跨越式发展的 思考 (Thoughts on Advancing the Development of Yunnan’s Border Opening Through the Bridgehead Strategy),” 经济师 (China Economist) 5 (2013). 167

Table 5.2: Yunnan-Southeast Asia Economic Mechanisms

Mechanism Members Objectives Provincial Coordinators Greater Mekong Cambodia; China -Economic & social Lancang-Mekong Subregion (ADB) (Yunnan, Guangxi); development Office of Yunnan Laos, Myanmar; -Poverty alleviation Development and Thailand; Vietnam Reform Commission China-Myanmar- Yunnan; West Bengal -Promote regional Foreign Affairs Office Bangladesh—India & northeast India; free trade zone Myanmar; Bangladesh Yunnan-Northern Yunnan; 9 provinces -Development in Foreign Affairs Office; Laos Cooperation in northern Laos northern Laos Yunnan Lancang- Working Group -Economic & Mekong Office (DRC) technical cooperation Yunnan-Northern Yunnan; 8 provinces -China-Thailand Foreign Affairs Office Thailand Cooperation in northern Thailand economic Working Group cooperation at provincial level Yunnan-Northern Yunnan; 4 provinces -Improve regional Foreign Affairs Office Vietnam Economic in Vietnam trade and investment Consultation environment -Promote Kunming- Hekou Economic Corridor Yunnan-Myanmar Yunnan; Myanmar -Information Provincial Chamber Cooperation Business exchange; business of Commerce Forum negotiation; policy study for SMEs Cross-Border Hekou-Laocai -Cross-border trade Department of Economic Zones (Vietnam); Jiegao- Commerce Muse (Myanmar); Mohan-Moding (Laos) Two Corridors, One Guangxi; Yunnan; -Economic Department of Belt Guangdong; Hainan; cooperation under Commerce 5 provinces in the China-Vietnam Vietnam Two Corridors, One- Belt Cooperative Development Plan

Source: Xiong Bin and Wen Shuhui (Faculty of Management and Economics, Kunming University of Science and Technology), “Towards A Better Understanding of the Political Economy of Regional Integration in the GMS: Stakeholder Coordination and Consultation for Subregional Trade Facilitation in China,” Greater Mekong Subregion Initiative Discussion Paper Series 7 (2009).

168

While existing regional mechanisms under the GMS and ASEAN have provided important platforms for promoting Yunnan’s bridgehead strategy at the multilateral level,566 new institutions for managing cross-border commerce have also emerged at the local level, such as consultation mechanisms between Ruili BECZ officials and Myanmar counterparts.

Outside the GMS framework, Yunnan by the late 2000s established bilateral and multilateral cooperation mechanisms with northern Vietnam, Laos, northern Thailand,

Myanmar, India, and Bangladesh (Table 5.2).

China’s OBOR initiative in 2013 embodied greater central support for Yunnan’s opening under Xi Jinping, whose first domestic inspection tour in January 2015 was in

Yunnan.567 As indicated in Premier Li Keqiang’s Work Report at the March 2014 NPC,

OBOR implied increased prioritization of the Bangladesh-China-India-Myanmar

Economic Corridor (BCIM-EC), where Yunnan is a major stakeholder, but also called for balanced development with the China-Pakistan Economic Corridor.568 Within China, the

State Council, People’s Bank of China, NDRC, MOF, MOFCOM, and other agencies, jointly released plans in November 2013 for an experimental financial reform zone in

Yunnan and Guangxi, modeled on similar coastal precedents in Zhejiang, Fujian, and the

Pearl River Delta area. 569 Yunnan’s provincial government has actively sought to implement the zone, aimed to promote not only rural financial reform, local innovation,

566 Zhi Liu, “The Mutual Relationship.” 567 “Xi’s Yunnan Visit Highlights Poverty Elimination, Ethnic Solidarity,” Xinhua, January 22, 2015. 568 Li Keqiang, 2015 Government Work Report, 3rd Session of the 12th NPC, March 5, 2015. The proposed BCIM Economic Corridor covers 1.65 million square kilometers and a total population of 440 million, and aims to facilitate cross-border exchange of goods and people through road, rail, water, and aid linkages. It runs between Yunnan and West Bengal (northeast India)’s capitals of Kunming and Kolkata, linking Mandalay in Myanmar and Dhaka and Chittagong in Bangladesh. 569 “国务院同意电柜建设沿边金融中和改革试验区 (The State Council Approves the Construction of Border Financial Reform Pilot Zone),” 时代金融 (Financial Times) 34 (2013). 169 and service sector expansion in Yunnan, but also China and ASEAN’s broader efforts to upgrade their bilateral FTA since it went into effect in 2010.570

At the micro level, the effects of increased central-local alignment on Yunnan’s opening to Southeast Asia are clearly manifested in the emergence of Ruili, bordering

Myanmar, from a marginalized border town in the 1980s to a key link to Southeast Asian markets. Among China’s designated Border Economic Cooperation Zones in 1992, Ruili’s inclusion in China’s western development plan in June 2010 elevated its status beyond a small-scale border market, driving new infrastructure investment aimed to build Ruili into an increasingly open land port.571 The central and local governments launched the Ruili

Experimental Zone in 2012-2013 as an envisioned center for trade and investment with

Southeast Asian neighbors. This zone led China’s experimentation with foreign currency exchange, making Ruili China’s first city to trade Myanmar’s Kyat, and Yunnan’s first county-level city to have a currency exchange center. It also includes the China-Myanmar oil and gas pipeline project approved by the State Council in 2007, in which Yunnan is a major stakeholder. 572 Led by China National Petroleum Corporation (CNPC) in partnership with Myanmar Oil and Gas Enterprise (MOGE) and a Daewoo-International- led consortium, the gas project is tied to the Yunnan Urban Gas Project under a 2010 agreement between CNPC and the provincial government.573

570 Yunnan Provincial Government Work Report 2015. 571 Chen Xiangming, “China’s Key Cities: From Local Places to Global Players,” The World Financial Review (2015). 572 Chen Xiangming and Curtis Stone, “China and Southeast Asia: Unbalanced Development in the Greater Mekong Subregion,” The European Financial Review (2013): 7-11. 573 CNPC, “Yunnan Branch of Myanmar-China Gas Pipeline and Yunnan Urban Gas Project Kick Off” (in English), 1 December 2012. The consortium includes India’s GAIL and Korea Gas Corporation. The oil pipeline enters Yunnan via Ruili and ends in Kunming, while the gas pipeline continues to Guizhou and Guangxi provinces. 170

International Interests and Strategies

The first GMS leaders’ summit in November 2002 particularly highlighted the convergence of Chinese and GMS priorities on transport infrastructure development.574 At the 2002 summit, the ADB’s ten-year strategic framework for GMS cooperation (2002-2012) indicated the ADB’s extended support for the program, broadening the scope of cooperation to nine sectors.575 Premier Wen Jiabao at the 2008 GMS summit pledged

Chinese material and technical assistance for infrastructure and other projects and launched the annual Economic Corridors Forum with GMS states.576 The current GMS agenda

(2012-2022) is framed around the development of “transnational economic corridors” involving multi-sector investments and greater local stakeholder participation.577

Especially after the 2002 framework agreement for CAFTA, the expansion of

ASEAN-centered cooperation mechanisms boosted GMS efforts to integrate members into wider trade and investment networks.578 The upgrading of China-ASEAN relations to a

“strategic partnership” in 2003 set the direction for bilateral dialogue under broader goals of political trust-building, leading to the creation of new economic mechanisms such as the

China-ASEAN Economic and Trade Joint Committee, China-ASEAN Science and

Technology Committee, and China-ASEAN Business Council.

574 Joint Summit Declaration, First GMS Summit, Phnom Penh, November 2002. 575 ADB, “Vientiane Plan of Action for GMS Development 2008-2012,” 2008; ADB, Connecting Nations, Linking People: Competitiveness, Connectivity, Community (Manila: ADB, 2005); Regional Cooperation Strategy and Program Update, the Greater Mekong Subregion – Beyond Borders (2007-2009) (Manila: ADB, 2006). 576 Wen Jiabao, Speech at the Third GMS Summit, Vientiane, 31 March 2008; Joint Summit Declaration, Third GMS Summit of Leaders, Vientiane, March 2008. 577 ADB, “The GMS Economic Cooperation Program Strategic Framework (2012-2022),” March 2012. 578 Yunnan Academy of Social Sciences, “中国-东盟自由贸易区的建构与云南的对外开放研究 (Study on the Establishment of the China-ASEAN Free Trade Area and Yunnan’s Opening to the Outside),” 云南社会 科学 (Social Sciences in Yunnan) 5 (2002). 171

Yunnan’s driving role in cross-border cooperation is most notable in the case of the

Bangladesh-China-India-Myanmar Forum for Regional Cooperation in South Asia, identified by provincial leaders among Yunnan’s key external strategies since the early

2000s.579 While Yunnan has actively supported the BCIM Economic Corridor (BCIM-EC) since it drew higher level attention from member states in 2010,580 provincial interest in the BCIM dates to a 1998 forum in New Delhi, where Che Zhimin, Deputy Director of the

Yunnan government’s Economic and Technology Research Center, proposed regularization of such meetings.581 Kunming hosted the first BCIM meeting in August

1999 under the name of the “Kunming Initiative,” led by the provincial Party Secretary.582

2003 was a turning point in the BCIM’s institutionalization from a nongovernmental (民

间) to an official (官方) forum, attended by central officials from the Ministry of Foreign

Affairs (MOFA) and the State Council’s Development Research Center,583 and led to the establishment of a coordinating office in Kunming in 2004.584 While the goals outlined in the 2004 Kunming Cooperation Declaration are primarily economic, Chinese interests in the BCIM extend to promotion of border security and western development, where the

579 Yunnan Yearbook 2003 and 2006. Annual work reports to the Provincial People’s Congress: Xu Rongkai, Yunnan Provincial Governor 2002; 2005 reports. 580 Chen Hao, “2015 年云南省政府工作报告 (Yunnan Provincial Government Work Report 2015),” 3rd Session of the 12th Yunnan People’s Congress, 26 January 2015. 581 Yunnan Economic Yearbook, 2002: 256-257. 582 The Yunnan Vice Governor led the Chinese delegation in subsequent meetings. Lead representatives at the 1999 Kunming Initiative included the Yunnan Academy of Social Sciences; Centre for Policy Dialogue (Bangladesh); Center for Policy Research (India); and Myanmar Ministry of Trade. 583 Yunnan officials in 2005 identified the BCIM Forum as a “half-official and half-nongovernmental” mechanism. Liaison Office of Yunnan Advisory Mission, The Seventh Conference of Yunnan Provincial Government Advisory Mission for Economic and Social Development (Kunming: Liaison Office of Yunnan Advisory Mission, 2005), 76. 584 Yunnan Yearbook 2005. 172

BCIM could evolve into a “Kunming Cooperation Organization” leading diplomatic and strategic relations with South and Southeast Asia.585

The BCIM has mobilized higher level interest under the Xi Jinping administration, most notably emerging on the China-India agenda during Premier Li Keqiang’s meeting with Indian Prime Minister Manmohan Singh in New Delhi May 2013.586 China’s NDRC launched the BCIM’s first Joint Study Group Meeting in Kunming in December 2013 in cooperation with the Yunnan DRC, where member states formally endorsed the Economic

Corridor.587 Led by the NDRC’s Vice Chairman; Joint Secretary for East Asia at the Indian

Ministry of External Affairs; Bangladesh’s Deputy Planning Minister; and a senior economic affairs official from Myanmar, the 2013 meeting clearly indicated the BCIM’s elevated status since 1999.588 It also reflected the initiative’s broader regional significance as a link between the ASEAN FTA, CAFTA, and ASEAN-India Free Trade Area.

Central-Local-International Dynamics of Provincial Liberalization

585 Wang Dehua, “加强中印缅孟次区域合作的意义 (The Significance of Strengthening China-India- Myanmar-Bangladesh Subregional Cooperation),” 开放导报 11 (2003); Ren Jia, “中印缅孟地区合作的战 略意义 (Strategic Significance of China-India-Myanmar-Bangladesh Regional Cooperation),” 南亚研究 (South Asian Studies) 1 (2003); Ren Jia and Chen Lijun, “孟中印缅地区经济合作现状与发展 (Current Status and Development of Bangladesh-China-India-Myanmar Regional Economic Cooperation),” 开放导 报 11 (2003); Zhang Fan, “中印缅孟地区经济合作的路子与切入点 (Path and Entry Point of China-India- Myanmar-Bangladesh Regional Economic Cooperation),” 热点透视 8 (2004); Chen Jidong and Zhou Ren, “能源合作：中印缅孟加强四方关系的纽带 (Energy Cooperation: Link in Strengthening China-India- Myanmar-Bangladesh Four-Way Relations),” 南亚研究季刊 (Journal of South Asian Studies) 1 (2006). 586 Ministry of External Affairs of the Government of India, “Joint Statement on the State Visit of Chinese Premier Li Keqiang to India,” New Delhi, 20 May 2013. 587 NDRC Academy of Macroeconomic Research, “The First Joint Study Group Meeting of Bangladesh- China-India-Myanmar Economic Corridor (BCIM-EC) Was Held,” 14 January 2014. 588 Anant Krishnan, “BCIM Corridor Gets Push After First Official-Level Talks in China,” The Hindu, 21 December 2013. 173

Yunnan’s trade with GMS members increased at an average annual rate of 23 percent between 2001 and 2003, while trade with ASEAN as a whole grew at an average rate of 26 percent.589 In the period after the global financial crisis, trade growth notably accelerated after the initiation of Yunnan’s bridgehead strategy from 2009, doubling between 2010 and

2012 to $10.895 billion and $6.555 billion respectively. Although Yunnan’s trade with

GMS members declined in importance in both Yunnan’s overall trade and China-GMS trade during the first decade of the 2000s, it quickly recovered after 2009. In 2013, total

GMS trade accounted for 30 percent of Yunnan’s total foreign trade, with Vietnam and

Myanmar as leading partners, and 5 percent of China’s trade with the region.

Table 5.3: Major Foreign Economic Initiatives in Yunnan (2000-2015)

Western development plan (2000) Yunnan-Southeast Asia Bridgehead Strategy (2010) Yunnan-Guangxi Financial Reform Zone (2013) Central Maritime Silk Road (2013) Yunnan-Northern Laos Cooperation Working Group

Yunnan-Northern Thailand Cooperation Working Group Yunnan-Northern Vietnam Economic Consultation Local Yunnan-Myanmar Business Forum Yunnan-Vietnam, Laos, Myanmar Cross-Border Economic Zones Greater Mekong Subregion (ADB) (1992; 2002) Mekong River Commission (1995) ASEAN-Mekong Basin Development Cooperation (1996) Bangladesh-China-India-Myanmar Forum (1999; 2002) China-ASEAN FTA (2002; 2010)

International Asian Infrastructure Investment Bank (2015) Lancang-Mekong River Cooperation (2015)

The steady growth in Yunnan’s openness during the 2000s can be traced to the increased convergence of central and international interests in favor of Yunnan’s further

589 China-ASEAN and China-GMS trade grew at slightly lower rates during the same period, 22% and 19% respectively. 174 liberalization, as demonstrated by the CAFTA framework agreement in 2002 and further institutionalization of the GMS and BCIM from 2002 and 2004 (Table 5.3). Yunnan’s increased dependence on Southeast Asian neighbors from 2009, as well as its increased contribution to China-Southeast Asia trade, can be further associated with China’s national strategy of linking Yunnan and Southeast Asia. The Yunnan case highlights a positive interaction of top-down, bottom-up processes of liberalization on the one hand, and inside- out, outside-in forces of change on the other.

Top-down/Bottom-up Processes of Policy Feedback

The devolution of state power to the provincial level in foreign trade in the 1990s increased the scope for provincial input in external economic affairs, creating space for Yunnan actors to propose and lead cross-border cooperation initiatives. During the 2000s, China’s initiatives for Southeast Asian economic cooperation not only legitimized such efforts, but also aligned with other regional approaches to trade, investment, and infrastructure development.

However, greater central political and financial support for the GMS has also implied a dilution in benefits for Yunnan, especially after the inclusion of Guangxi from

2005. China’s active participation in the GMS from 2008 further underscores the weight of central actors like the National Development and Reform Commission, Ministry of

Foreign Affairs, and Ministry of Finance.590 Since the first GMS summit in 2002, Beijing’s broadened emphasis on member-state cooperation rather than Yunnan-centered

590 NDRC, “Country Report on China’s Participation in Greater Mekong Subregion Cooperation,” 2008. 175 transborder cooperation suggests the increased role of such central authorities in formulating and coordinating China’s GMS policies.

Although Chinese priorities in the GMS have extended to addressing the negative repercussions of cross-border exchange such as illicit trade and infectious disease, support for other longstanding local interests like water management remains limited.

The extent to which the GMS agenda reflects the interests of rural border communities remains a concern driving bottom-up resistance from Thai civil society on local marginalization,591 and Vietnamese criticism of the ecological implications of China- led hydropower development.592 Similarly, Chinese energy and infrastructure investments in Myanmar have raised concern over their relatively limited benefits to the Myanmar side of the border.593 Launched under Myanmar’s military regime and completed in 2013-2014, the China-Myanmar oil and natural gas pipelines project drove a series of public protests in Myanmar over environmental and safety issues and inadequate compensation arrangements for local residents.594 But rather than public resistance across the border, the real constraints to GMS cooperation have come from inter-governmental political tensions.

China’s representation at the 2011 GMS summit by State Councilor Dai Bingguo rather than the Premier Wen Jiabao, for example, appeared to reflect frictions with Myanmar.

591 Philip Hirsch, “Globalisation, Regionalisation and Local Voices: The Asian Development Bank and Rescaled Politics of Environment in the Mekong Region,” Singapore Journal of Tropical Geography 22-3 (2001): 237-251. 592 Oliver Hensengerth, Regionalism in China-Vietnam Relations: Institution-building in the Greater Mekong Subregion (London: Routledge, 2010). 593 Interviews in Fujian and Beijing with Myanmar parliamentary and NGO representatives, February and August 2015. 594 Aung Shin, “Controversial Pipeline Now Fully Operational,” The Myanmar Times, 27 October 2013; Kyaw Min, “China-Myanmar Gas Pipeline Becomes Fully Operational,” Myanmar Business Today, 31 October 2013. 176

Compared to the GMS case, China’s participation in the BCIM demonstrates greater input and feedback from provincial officials. However, the BCIM’s development from the mid-2000s was also constrained by the external strategic environment, particularly between China and India despite their respective “Go West” and “Look East” campaigns. Despite some claims on the benefits of cross-border cooperation with southwest China on northeast India’s economy,595 Indian central government support for the BCIM remains limited by a host of strategic concerns including the impact of further dependence on China; insurgent and terrorist connections from Myanmar and Bangladesh; and security concerns especially since China’s defense agreement with Bangladesh in

2002.596 Indian reluctance amid ongoing border disputes with China has further drawn

Chinese criticism over New Delhi’s lagging support for its northeast region and preference for less formal institutional arrangements.597

On the other hand, unstable political relations among BCIM states have prompted a shift to bilateral rather than regional diplomacy. This approach is also reflected at the local level, as shown by the “Kunming to Kolkata” (K2K) meetings between Yunnan and the eastern Indian state of West Bengal since 2003 focused on building trade and transport linkages.598 But although these exchanges produced proposals recommending to central governments the establishment of a formal sister state/province relationship in 2008, the

595 Biswanath Bhattacharyay and Prabir De, “Promotion of Trade and Investment between People’s Republic of China and India: Toward A Regional Perspective,” Asian Development Review 22-1 (2005): 45-70. 596 Myint-U Thant, Where China Meets India: Burma and the New Crossroads of Asia (London: Faber, 2011). 597 Zhang Li and Peng Jing, “孟中印缅地区合作机制：推动因素与制约因素 (Bangladesh-China-India- Myuanmar Regional Cooperation Mechanism: Driving and Constraining Factors),” 南亚研究季刊 (Journal of South Asian Studies) 1 (2005). 598 Yunnan Economic Yearbook 2004, 227. 177 relatively higher-level representation from Yunnan points to the same differences in strategic priorities reflected in the BCIM.

Inside-out/Outside-in Processes of Institutional Change

Yunnan’s opening within the GMS, CAFTA, and BCIM frameworks clearly reflects domestic institutional developments associated with the interaction of inside-out, outside- in processes of liberalization, such as the creation of the Yunnan DRC’s Lancang-Mekong

Coordination Group in 2002, Kunming-based coordination office for the BCIM Forum in

2004, and MOFCOM-led coordination mechanism for Yunnan’s bridgehead strategy in

2010. At the central level, however, the GMS has evolved into a forum for promoting wider national agendas with member states, most notably CAFTA, rather primarily subregional objectives. Beijing’s increased involvement over the past decade even appears to have compromised the ADB’s normative preferences toward regional integration.599

Given China’s vital interests in state sovereignty, the ADB’s approach to transborder integration is less pronounced in both central and local Chinese narratives on the GMS agenda, which instead focus on Yunnan’s regional economic linkages both within and beyond the ADB framework. Yunnan’s interests in GMS cooperation from the mid-2000s further extended to functional areas not formally included among GMS priority sectors, like mining and extractive sectors.

Under the Xi Jinping administration, Premier Li Keqiang in March 2016 even led the first state leaders’ meeting of China’s own “Lancang-Mekong River Cooperation” initiative with GMS members, notable for its focus on political and security issues.600

599 ADB, Regional Cooperation Strategy and Program Update. 600 PRC Foreign Ministry, “Five Features of Lancang-Mekong River Cooperation,” 17 March 2016. 178

Proposed at the China-ASEAN summit in November 2014, its first foreign ministers’ meeting was held in Yunnan’s border city of Jinghong (capital of Xishuangbanna Dai

Autonomous Prefecture) in November 2015, producing an agreement on security, economic, and social exchanges based on principles of “pragmatic,” “government-guided,” and “project-based” cooperation. It includes another ministerial mechanism on law enforcement and border security, which facilitated joint surveillance operations soon after its initiation.

On the other hand, as the Xinjiang case shows, the Xi leadership’s new regional initiatives like the AIIB have complemented existing ADB projects such as a Pakistan highway project approved in 2016, the first joint funding agreement between the two regional banks.601 Still, the AIIB appears clouded by internal disagreement even within the Ministry of Finance over the institution’s orientation away from the more traditional

China Development Bank model, which attaches less importance to norms of conditionality.602

Unlike the GMS and to a greater extent BCIM, CAFTA’s emergence in 2002 depended primarily on central government consensus at a time of impending WTO entry and expanding regional free trade agreements. Although Chinese assessments of the GMS center primarily on its economic value,603 CAFTA since its proposal masked disagreement between Beijing-based strategists favoring the geopolitical benefits of multilateralism, and

601 The ADB is the lead funder and administrator of this project, which is supported by an additional commitment of $34 million from the UK’s Department for International Development (DFID). ADB, “ADB Approves First Cofinancing with AIIB for a Pakistan Road Project,” 10 June 2016. 602 Interviews in Shanghai, November 2015. 603 CASS, GMS 和次区域经济合作研究 (Study on Greater Mekong Subregional Economic Cooperation) (Beijing: Shehui kexue wenxian chubanshe, 2007). 179

China’s Southeast Asia experts who were more concerned about its economic costs.604

CAFTA, however, has been in important driver of provincial reform from the outside-in.

While Yunnan was the core platform for implementing the GMS, and even drove the institutionalization of the BCIM, CAFTA demonstrates provincial leaders using central policy to facilitate their own development interests. Emphasizing Yunnan’s locational advantages as China’s “bridgehead” in Southeast Asia, the Yunnan provincial government from 2003 raised policy proposals for developing international transit routes, establishing border trade and export processing zones, providing services or technical training, and further developing existing mechanisms like the GMS.605 Scholarly debate during this period centered on how to promote trade and economic interactions through similar measures.606 At the same time, CAFTA has also raised provincial concerns over losses for its agricultural sector, competition from other Chinese provinces, and the weakening of existing policy advantages for border trade;607 as well as such external challenges as the relative weakness of its three bordering countries within ASEAN, and greater cost advantages of sea rather than land routes in China-ASEAN trade.

Conclusion: From Marginalized West to Rising Bridgehead

604 Sheng Lijun, “China-ASEAN Free Trade Area: Origins, Development and Strategic Motivations,” Institute of Southeast Asian Studies Working Paper 1 (2003); interviews in Xiamen, November 2015. 605 Yunnan Yearbook 2003, 16-17. 606 Tang Guohui, Zhu Yongming, and Li Haiyan, “云南参与次区域合作对策探讨 (Discussion of Measures for Yunnan’s Participation in Subregional Cooperation),” 东南亚 (Southeast Asia) 3 (2003): 13-17; Liu Fang, “云南在中国-东盟自由贸易区建设中的机遇与挑战 (Opportunities and Challenges for Yunnan in the Construction of the China-ASEAN Free Trade Area),” 云南财贸学院学报 (Journal of Yunnan Finance and Trade School) 20-4 (2004): 80-83; Zhang Wei and Zhang Meirong, “论云南在中国-东盟自由贸易区构建 过程中面临的挑战与对策 (Challenges and Countermeasures Facing Yunnan in the Construction Process of the China-ASEAN Free Trade Area),” 经济问题探索 (Economic Issues) 7 (2004): 83-85; Li Xinghe, ed., 云南论坛 (Yunnan Forum) (Kunming: Yunnan University Press, 2007). 607 Although growing in absolute terms, Yunnan’s small-scale border trade as a share of total provincial trade declined from 15.73% in 2009 to 10.23% in 2012. Yunnan Statistical Yearbook 2013. 180

Yunnan’s rise from a marginalized border region to an emerging link to Southeast Asia can be attributed to a close alignment of domestic and international priorities, most clearly embodied in the China-ASEAN FTA from 2002 and China’s “bridgehead” strategy from

2010. The dynamics of Yunnan’s foreign economic liberalization since China’s western development plan in 2000 are further illuminated when compared to the Jilin case. While the restructuring of the Greater Tumen Initiative from 2006 weakened the formal institutional framework supporting Jilin’s integration with Northeast Asia, Yunnan’s opening to neighbors intensified with the expansion of multilateral initiatives throughout the 2000s, during which the GMS became part of China’s broader national agenda for

Southeast Asian integration.

Jilin’s trade dependence was up to four times higher than that of Yunnan in the

1990s, but by the time the bridgehead strategy was officially initiated in 2010, Yunnan closed the gap in trade openness and surpassed Jilin in terms of FDI openness. Under the

Xi Jinping leadership, the Maritime Silk Road initiative since 2013 clearly favors Yunnan’s further opening to South and Southeast Asia, as highlighted in a 2014 forum on economic cooperation between China’s border regions and neighboring countries, jointly convened by the CASS Institute of Chinese Borderland Studies, Yunnan University, National

University of Singapore, and local government of Baoshan on the border with Myanmar.608

Compared to the Jilin case, local and external economic interests in Yunnan are also closely aligned with the center’s core strategic priorities. Yunnan’s bridgehead

608 “中国社会科学论坛·西南论坛(2014):中国沿边开发开放与周边区域合作”国际学术研讨会在云南 召开 (Chinese Social Science Forum, Southwest Forum (2014): China’s Border Development and Opening and Cooperation with Neighboring Regions" International Academic Seminar Held in Yunnan),” 世界知识 (World Affairs) 1 (2015). 181 strategy not only satisfies economic interests of cross-border integration, but also China’s transition to a “two oceans” strategy of opening centered on the Indian and Pacific

Oceans. 609 China’s oil and gas project since 2007 with Myanmar, Yunnan’s most important trading partner, supports central goals of mitigating energy security concerns across the Malacca Strait and stabilizing energy prices in southwest China. Yunnan’s foreign economic initiatives, however, still faces internal and external constraints, including significant competition from coastal provinces and Guangxi, 610 domestic political uncertainties in bordering countries, and strategic distrust in Vietnam and India, with which China remains engaged in recurring territorial disputes.611 As local officials claim, the effects of Beijing’s current border liberalization policies are not obvious.612

Some local scholars even raise concerns over an apparent weakening of Yunnan’s

“bridgehead” policy advantage given its initially low industrial base and lagging infrastructure construction.613

Despite Yunnan’s advancement since participating in the GMS in 1992, the relationship between different stakeholders points to two related trends characterizing

China’s broader institutional environment. First, given the range of functional agencies involved in the multisectoral projects, horizontal inter-agency coordination is a key

609 Yunnan Government Work Report 2015; He Yue, “桥头堡建设中的云南周边国家安全环境 (Yunnan’s Security Environment in Building a Bridgehead with Surrounding Countries),” Journal of Yunnan Normal University (2011). 610 Yunnan’s progress in liberalization, however, is even more evident when compared with Guangxi. See Li Min, “云南与广西对外开放现状与政策对比分析 (Comparative Analysis on the Current Situation and Policy of Yunnan and Guangxi’s Opening to the Outside),” 东南亚南亚研究 (Southeast Asian and South Asian Studies) 2 (2011). 611 Tian Ziyi, “云南:提升开放型经济水平的战略取向 (Yunnan: Strategic Orientation In Improving the Level of Open Economy),” 开放导报 (China Opening Journal) (2014). 612 Research Group of Party School of Yunnan Province and Niu Jianhong, “云南沿边口岸开发开放政策 衔接研究 （Research on the Convergence of Yunnan’s Border Development and Opening Policies）, 中共 云南省委党校学报 (Journal of Yunnan Provincial Committee School of the CPC) 2 (2015). 613 Zhang Yi et al., “Thoughts on Advancing;” Tian Ziyi, “Yunnan: Strategic Orientation.” 182 challenge at both central and provincial levels. In particular, the coordinating roles of the

NDRC’s Lancang-Mekong Coordination Group and provincial office under the Yunnan

DRC remain limited. Internal policy coordination is primarily vertical, with the central government leading the formulation of GMS policies. Second, although local governments play a greater role in policy implementation, there is limited coordination with other key stakeholders with relatively limited policy influence, including SOEs, the private sector, and border communities who are more directly affected by the initiatives.

183

Chapter 6

Linking Northwest China and Central Asia: “Go West” Goes East in Xinjiang

Why and how has Xinjiang grown so rapidly in trade openness during the 2000s, after limited growth in the 1980s and 1990s? When China entered the World Trade

Organization (WTO) in 2001, Xinjiang’s foreign trade as a share of provincial GDP stood at 9.83 percent, only slightly higher than the level in 1985 of 7.64 percent, and just a quarter of the national level of trade openness. In just seven years from 2001 to 2008, however,

Xinjiang’s trade openness peaked at 37 percent, or 65 percent of the national level. The share of Central Asian trade in Xinjiang’s total foreign trade during this period grew from

57 to 85 percent, more than three quarters of which was with Kazakhstan. While it shared similar levels of trade openness as Jilin in 1985, Xinjiang by 2013 was almost twice as open as Jilin, further widening the gap with its western counterpart Yunnan.

This chapter assesses the external economic strategies of Xinjiang Uighur

Autonomous Region since 2000 in the context of Central Asian economic integration. Like the Yunnan case, the rapid growth in openness during this period can be traced to increased alignment of local and international interests with central state priorities of improving relations with neighbors, and developing China’s west. Xinjiang’s trajectory of reform, however, further underscores the significance of vital national strategic priorities, namely the promotion of ethnic unity and political stability within and around China’s borders.

While this security mandate has underpinned China’s western development strategy since its inception in the late 1990s, the deadly ethnic clashes in Urumqi in 2009 was a major catalyst for the reconsolidation of central control over Xinjiang’s development.

184

A comparison of Xinjiang’s northern region and the Uighur-dominated south in particular suggests that bottom-up, outside-in forces of change remain constrained by central concerns over the political risks of economic liberalization, reinforced by shared security interests of foreign governments. Instead, coastal governments and enterprises have emerged as key drivers and beneficiaries of Xinjiang’s surge in openness since the

2000s, led by the western development plan and the coastal economies’ own structural transformation. Fueling local resentment over a western strategy “going east,” the central government’s approach to Xinjiang’s development has unintended consequences of exacerbating the very social tensions that it sought to address in the first place.

The following section reviews Xinjiang’s participation in cross-border development initiatives in Central Asia since the 1990s to provide the initial context of

Xinjiang’s economic opening. It identifies major trends in provincial openness in this context, focusing primarily on trade openness. Second, I examine the central, local, and international interests and strategies shaping Xinjiang’s foreign economic liberalization after China’s western development plan and turn to inland development in 2000. Third, I assess the alignment of these interests to explain the variation in Xinjiang’s openness over time, identifying top-down, bottom-up processes of change on the one hand, and inside- out, outside-in processes on the other. The concluding section summarizes my core findings and arguments, including the broader significance of Xinjiang’s case to other provincial cases and China’s economic orientation in general.

Xinjiang-Central Asia Economic Integration since the 1990s

185

Xinjiang is of central significance to China’s national economic and strategic interests, representing a sixth of China’s land territory and bordering 8 of China’s 14 land neighbors:

Kazakhstan, Kyrgyzstan, and Tajikistan in Central Asia; Afghanistan, Pakistan, and India in South Asia; and Russia and Mongolia in the northeast. Xinjiang’s development has historically been subject to geopolitical rivalries in the region, from the nineteenth century power contest between Russia and Britain, to the Sino-Soviet split in the 1960s, and to what is currently viewed as a “new great game” between China, Russia, and the United

States for regional influence.614

After two decades of closure, Xinjiang’s border trade resumed in 1983 and was formally approved by the central government three years later. The linking of Xinjiang’s

Alashankou port with Kazakhstan in 1990 as part of the New Eurasian Land Bridge, and establishment of four border economic cooperation zones (BECZs) along the Xinjiang-

Kazakhstan border in 1992, 615 not only opened up Xinjiang’s foreign trade but also connected China’s coastal regions to Europe.616 Since the early 1990s, Xinjiang’s key position on the Eurasian Bridge and central preferential policies associated with BECZs

614 Alexander Cooley, Great Games, Local Rules: The New Great Power Contest in Central Asia (New York: Oxford University Press, 2012); “The New Great Game in Central Asia: Geopolitics in a Post-Western World,” Foreign Affairs, 7 August 2012; Thomas Fingar, The New Great Game: China and South and Central Asia in the Era of Reform (Stanford: Stanford University Press, 2016); Martha Brill Olcott, “Central Asia: The End of the “Great Game”?” in International Relations of Asia, ed. David Shambaugh and Michael Yahuda (Lanham: Rowman and Littlefield, 2008); Georgi Kantchev, “The Great Game on Central Asia’s High Plain,” Foreign Policy, 2 June 2014; Stephen Blank, “Wither the New Great Game in Central Asia?” Journal of Eurasian Studies 3-2 (2012): 147-160. 615 “边疆城市开放与开发 (The Opening and Development of Xinjiang Cities),” 民族团结 (Ethnic Unity) 2 (1996). The BECZs include Yining, Bole, Tacheng, and Jeminay. 616 Cao Zhiheng and Liu Gang, “从丝绸之路到新亚欧大陆桥 (From the Silk Road to the New Eurasian Continental Bridge),” 大陆桥视野 (Land Bridge Horizon) 8 (2009). Located in Xinjiang’s Bortala Mongol Autonomous Prefecture, Alashankou port by 2004 was China’s second biggest inland port in terms of annual cargo volume after Manzhouli, on the Inner Mongolia-Russia border. Ministry of Commerce, “Xinjiang Alashankou Port to be the Biggest Inland Port in China,” 16 March 2004.

186 drew interest from export-oriented coastal economies such as the Pearl River Delta seeking to participate in Xinjiang’s industrialization.617 Xinjiang assumed a leading role in China’s opening to Central Asia by hosting the annual Urumqi Foreign Economic Relations and

Trade Fair from 1992, upgraded to the Ministry of Commerce-led China-Eurasia Trade

Expo in 2011. 618 The Urumqi Fair has progressed from facilitating barter trade and agricultural cooperation in the 1990s to promoting current deals in energy and extractive industries that reflect higher-level support and a widened geographical scope of interest.

Xinjiang’s economic opening in the 1990s was shaped by a changing external strategic environment on the one hand, and China’s national development needs on the other. China’s leadership in establishing the Shanghai Five in 1996 with its three Central

Asian neighbors and Russia in 1996 reflected the significance of Central Asia in emerging

Sino-Russian strategic engagement. Unlike China’s economic engagement with ASEAN and Northeast Asian partners in the 1990s, the Shanghai Five’s formation was primarily motivated by security interests, as embodied in the Treaty on Deepening Military Trust in

Border Regions and Treaty on the Reduction of Military Forces in Border Regions signed in Shanghai and Moscow in 1996 and 1997. The Declaration of the Shanghai Cooperation

Organization (SCO) in June 2001 coincided with the Sino-Russian Treaty of Good-

Neighborliness and Friendly Cooperation, affirming China and Russia’s regional leadership as well as Central Asian neighbors’ need to balance their dependence on the two powers.

617 Li Yiqun, “走向欧亚大陆桥—珠江三角洲与新疆的沿边开放 (Eurasia Bridge—Border Opening of the Pearl River Delta and Xinjiang),” 开放时代 (Open Times) 1 (1994). 618 Li Dehua and Wan Wenlu, “新疆向西开放战略：外引内联 东联西出 西来东去 (Xinjiang’s Strategy of Opening to the West),” Xinhua, 27 May 2010; “China Upgrades Urumqi Fair for Eurasia Trade,” Xinhua, 6 September 2010. 187

Xinjiang’s Economic Openness and Dependence on Central Asian Neighbors

Xinjiang's trade openness has clearly increased since 1978, accelerating in the period after

China's western development plan in 2000 and WTO entry in 2001, until the global downturn in 2008 (Figure 6.1). Foreign trade as a share of regional GDP peaked at 37 percent in 2008, a 5-fold increase since 1985. The total volume of foreign trade reached

$27.56 billion in 2013, growing at an average annual rate of 25 percent since the 1980s.619

Trade growth was the fastest between 2002 and 2008, an annual rate of 45 percent.

Xinjiang, however, remains less than half as open as China overall. In 2013, foreign trade accounted for 45 percent of national GDP but only 20 percent of Xinjiang's GDP. In addition, although Xinjiang's share of China's foreign trade has steadily increased since

1978, it remains under 1 percent, below Xinjiang's share of China's GDP of 1.5 percent.

Figure 6.1: Foreign Trade Openness, Xinjiang (1985-2013)

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

1990 2001 1985 1986 1987 1988 1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

PRC Xinjiang

Source: China Statistical Yearbook, Xinjiang Statistical Yearbook

619 Unlike Yunnan, however, annual trade growth has been lower in the 2000s than during the 1980s and 1990s. 188

Figure 6.2: Share of Central Asia Trade in Total Foreign Trade, Xinjiang (2000-2013)*

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Xinjiang PRC

*Includes Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan Source: Xinjiang Statistical Yearbook.

Like the Yunnan-Southeast Asia case, and unlike the Jilin-Northeast Asia case, Xinjiang’s trade dependence on Central Asian neighbors is far greater than China’s overall dependence on those neighbors. More than half of Xinjiang's foreign trade is with its five

Central Asian neighbors Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and

Uzbekistan, which accounted for 69 percent of Xinjiang's total foreign trade in 2013

(Figure 6.2). In contrast, only 1 percent of China’s foreign trade in 2013 was with those countries. Unlike the case of Yunnan, where the Southeast Asian portion of foreign trade steadily declined in 2000-2011, Central Asia's share of Xinjiang's trade grew from 57 percent in 2001 to 85 percent in 2008. Xinjiang's biggest trade partner, Kazakhstan alone accounted for 64 percent of Xinjiang-Central Asia trade in 2013 and 44 percent of

189

Xinjiang's total foreign trade. In 2000-2005, Kazakhstan represented more than 85 percent of Xinjiang-Central Asia trade and more than half of Xinjiang’s total foreign trade.620

While Yunnan’s trade dependence on Southeast Asia began to increase from 2011, however, the importance of Central Asia in Xinjiang’s foreign trade has declined since

2008. Despite Xinjiang's heavy trade dependence on Central Asia, Xinjiang's contribution to China-Central Asia trade has rapidly diminished over the past decade. Xinjiang accounted for up to three quarters of China-Central Asia trade in 2000, but only 38 percent in 2013, indicating that other provinces are playing an increasingly important role in

China's trade with Central Asia (Figure 6.3).

Figure 6.3: Xinjiang’s Share of China-Central Asia Trade (2000-2013)*

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

*Includes Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan Source: Xinjiang Statistical Yearbook

620 For a historical review of Xinjiang-Kazakhstan trade patterns since the 1990s, see Li Sheng and Shi Lan, 哈萨克斯坦及其与中国新疆的关系 (Kazakhstan and Its Relationship with China’s Xinjiang) (Harbin: Heilongjiang Education Press, 2014), 407-440. 190

Xinjiang’s trade with Central Asia has three components: (1) economic activities of the

Xinjiang Production and Construction Corps (XPCC), a separate administrative unit under the central government with authority over select regions in Xinjiang; (2) Xinjiang-based coastal traders, mainly from Zhejiang province; and (3) petty trade, mostly with

Kazakhstan.621 XPCC trade accounted for 43 percent of Xinjiang-Central Asia trade and

39 percent of Xinjiang’s overall foreign trade in 2005, although these shares declined below 40 percent by the end of the decade.622 Consisting mainly of small-scale border trade, local-local trade, and tourism, border trade is a major feature of Xinjiang’s overall trade.623 The total volume of border trade expanded during the 2000s, from $ 0.98 billion in 2001 to 14.36 billion in 2013. Since the mid-1990s, more than half of Xinjiang’s total foreign trade has been border trade; this share reached up to 79 percent in 2008, or 57 percent of national border trade.624 In 2011-2012, Xinjiang’s border trade accounted for

45 percent of national border imports and 40 percent of border exports, the highest shares among China’s nine inland border provinces for a decade.625

To summarize, Xinjiang’s foreign trade openness has followed three major trends.

First, trade openness rapidly increased in 2001-2008 before the impact of the global

621 For a discussion of the structure of Xinjiang’s foreign trade, see Gael Raballand and Agnes Andresy, “Why Should Trade between Central Asia and China Continue to Expand?” Asia Europe Journal 5-2 (2007): 235-252. 622 Xinjiang Production and Construction Corps Statistical Yearbook. 623 Zhao Qingsong (Xinjiang University of Finance and Economics), “论析新疆边境贸易转型升级的路径 与对策 (The Path of Change and Upgrading of Xinjiang’s Border Trade),” 对外经贸实务 (Foreign Economic Relations and Trade in Practice) 2 (2014). 624 Xinjiang Statistical Yearbook; Zhu Luchen, Wang Xing, Luo Peng, Zhou Changhong, and Bai Jiali, “新 疆边境贸易发展状况及对策研究 (Research on the Development Status and Countermeasures of Xinjiang Border Trade),” 北方经济 (Northern Economy) 19 (2011). 625 Zhao Qingsong (Xinjiang University of Finance and Economics), “论析新疆边境贸易转型升级的路径 与对策 (The Path of Change and Upgrading of Xinjiang’s Border Trade), 对外经贸实务 (Foreign Economic Relations and Trade in Practice) 2 (2014). 191 financial crisis, a pattern that is consistent with the overall national trend. Second, while

Central Asia has traditionally accounted for a dominant share of Xinjiang’s foreign trade, this share has declined since 2008. Third, despite Xinjiang’s heavy trade reliance on

Central Asia, its traditionally dominant contribution to China-Central Asia trade has faced an even longer-term decline during the 2000s, suggesting the rise of other Chinese regions as drivers of trade with Central Asia.

The Forces of Xinjiang’s Foreign Economic Liberalization since 2000

Central Interests and Strategies

The CPC leadership has since 1978 pursued a two-pronged policy of promoting development and stability in Xinjiang. After a decade of coastal-led opening, central policy toward Xinjiang from the late 1980s supported broader national strategies of

“comprehensive opening, tilting to the West” (全方位开放,向西倾斜) and building economic partnerships both with foreign neighbors and between China's east and west (外

引内联，东联西出，西来东去).626 This emphasis on internal-external linkages is a prominent feature of China’s western development plan since the 2000s: “opening up the west” (西部大开发) is also tied to a strategy of “opening to the west” (向西开放), namely

Central Asia and Europe.

626 For historical reviews of Xinjiang’s external economic strategy, see Zhu Peimin and Wang Baoying, 中 国共产党治理新疆史 (History of Communist Party of China’s Governance of Xinjiang) (Beijing: Dangdai zhongguo chubanshe, 2015); and Jiang Xinwei, “改革开放以来新疆对外开放战略的演进与发展 (The Evolution and Development of Xinjiang's Strategy of Opening to the Outside since Reform and Opening),” 新疆财经 (Xinjiang Finance and Economics) 6 (2010).

192

Proposed by President Jiang Zemin at the ninth National People’s Congress (NPC) in March 1999, opening up China’s west is not just an economic issue but a political issue of promoting national unity based on principles of “frontier, nation, stability” (边疆，民

族，稳 定 ). 627 Xinjiang’s development is guided by a wider national campaign of

“Reviving the Border, Enriching Its People” (振兴边境、富裕边民, or 兴边富民) led by the State Ethnic Affairs Commission from 1998, and officially launched in 2000 alongside the western development plan.628 The common goal of these central initiatives is to promote both coordinated development of inland and coastal regions, and ethnic and national unity.

While identifying similar challenges as Yunnan as a minority region and, unlike

Jilin, a poor region, central development strategies in Xinjiang place heavier emphasis on political stability given more volatile tensions surrounding Uighur ethnic unrest, transnational terrorism, and the spread of “color revolutions” across the border, including in Kyrgyzstan in 2005.629 The official discourse on Xinjiang’s internal stability is thus

627 The 10th National People’s Congress in 2004 included the Law on Promoting Western Development in its legislative plan. For an internal account of the making and implementation of China’s western development plan, see Zeng Peiyan (Vice Premier under Jiang Zemin in 2003-2008), 西部大开发决策回顾 (Review of the Decision on Western Development) (Beijing: Xinhua Press, 2010). 628 The “Reviving the Border, Enriching its People” plan covers 135 border counties nationwide, 56 border farms of the Xinjiang Production and Construction Corps, and 107 ethnic autonomous areas. It accounts for 1.9 million square km of land and a population of 21 million, 48 percent of which are ethnic minorities. Yang Yang and Zhu Xiaoyun (Xinjiang Party School), “新疆实施“兴边富民行动”的主要模式 (The Main Mode of Xinjiang’s Implementation of “Reviving the Border and Enriching Its People”),” 实事求是 (Seek Truth From Facts) 4 (2010). 629 For a study of central policies in Xinjiang in the context of western development, see Yang Xianming, Lu Zhaohe, Huang Ning, and Liang Shuanglu, 超越预警：中国西部欠发达地区的发展与稳定 (Transcend Early Warning: The Development and Stabilization of Less Developed Areas in Western China) (Beijing: Renmin chubanshe, 2013). For a historical study of the geopolitics of Xinjiang-Central Asia ethnic issues, see Zhang Lijuan, “中亚地区民族问题与中国新疆民族关系: 基于地缘政治的视角 (Ethnic Issues in Central Asia and Ethnic Relations in China’s Xinjiang: A Geopolitical Perspective) (Beijing: Social Sciences Academic Press, 2014). 193 closely linked to China’s external security narrative in Central Asia. Concerns over the

“three evils” (三股势力) of terrorism, separatism, and extremism on China’s western border (Xinjiang and Tibet) not only relate to Chinese national “core interests” (核心利

益),630 but are also shared by SCO members since the organization’s founding in 2001.631

On the development side, unlike the northeast plan, China’s western development plan was initiated in 2000 with an emphasis on poverty alleviation through coastal rather than foreign investment. 632 Its first major project, however, underscored the central importance of Xinjiang’s energy resources for sustaining rapid industrialization and national growth – the West-East Gas Pipeline project led by China’s biggest oil producer

PetroChina (under state-owned China National Petroleum Corporation (CNPC)) from 2002, and in full operation from 2005.633 Beijing’s promotion of outward investment further facilitated energy and infrastructure partnerships with Central Asian neighbors, including

630 Luo Zhongshu, “中国西部边疆研究若干重大问题思考 (Reflections on Several Major Issues in the Study of China’s Western Frontier),” 四川大学学报 (Journal of Sichuan University) 1 (2015). For discussions of China’s national security interests in Xinjiang/Central Asia and Tibet/South Asia, see Yu Xiaofeng, “非传统安全与中国 (The Emergence of Non-Traditional Security Issues in China),” in 中国 对 外关系转型 30 年， 1978-2008 (Transformation of Foreign Affairs and International Relations in China), ed. Wang Yizhou (Social Sciences Academic Press, 2001), 313-314; and Andrew Scobell, “Terrorism and Chinese Foreign Policy,” in China Rising: Power and Motivation in Chinese Foreign Policy, ed. Yong Deng and Fei-Ling Wang (Lanham: Rowman and Littlefield, 2005), 311-314. 631 “Shanghai Convention on Combating Terrorism, Separatism and Extremism,” 15 June 2001, Shanghai, signed by China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan, and in force from 29 March 2003. India and Pakistan signed the MoU in June 2016 on joining the SCO as full members. For a discussion of SCO cooperation on the “three evils,” see Pan Guang, 稳步前进的上海合作组织 (The Shanghai Cooperation Organization: Its Progress and Prospect) (Beijing: Shishi chubanshe, 2014), 10-18. 632 Meng Ge (Xinjiang Party School of Economics), “新疆实施边境扶贫试点主要模式调研 (Investigation of the Main Mode of Xinjiang’s Implementation of the Border Poverty Alleviation Pilot Program),” 新疆社科论坛 (Xinjiang Social Sciences Forum) 1 (2013).

633 The West-East Gas pipeline consists of: (1) the Xinjiang-Shanghai line initiated in 2002 by PetroChina, linked to the Kazakhstan-China gas pipeline, (2) the Xinjiang-Guangdong line initiated in 2008 by China National Oil and Gas Exploration and Development Corporation (CNODC, a joint venture of CNPC and PetroChina), linked to the Central Asia-China gas pipeline, and (3) the Xinjiang-Fujian line initiated in 2012, also linked to the Central Asia-China gas pipeline. Plans are underway for two additional pipelines. 194 the China-Central Asia and China-Kazakhstan gas and oil pipelines led by CNPC, which acquired Kazakhstan’s biggest oil produced PetroKazakhstan in 2005, and the China-

Kyrgyzstan-Uzbekistan railway project.634

Concrete plans for inland border development did not really take off until the 17th

CPC National Congress in October 2007, which solidified Hu Jintao’s egalitarian “socialist harmonious society” policy doctrine, and also introduced Xi Jinping and Li Keqiang to the

Politburo Standing Committee as part of the transition to the current fifth generation of party leadership. The Ministry of Finance invested 280 billion RMB in major development projects in the west in 2007, while the State Council emphasized border trade as a key component of Xinjiang’s development strategy.635 By 2007, Xinjiang had established 33 open border counties, 36 open border cities, and economic and trade relations with more than 100 countries.636

Poor infrastructure for drawing in foreign investors and regional multilateral organizations, however, has been a fundamental constraint to developing Xinjiang’s export-oriented economy.637 The National Social Sciences Foundation under the State

Council, as well as the State Ethnic Affairs Commission, supported research initiatives in

2004 on promoting cross-border economic and technical cooperation as part of the western

634 Turangul Hamut and Alimjan Ablat (Xinjiang Normal University), “中吉乌铁路建设对新疆经济的影 响 (Impacts of the China-Kyrgyzstan-Uzbekistan Railway on the Economic Development of Xinjiang),” 经 济地理 (Economic Geography) 8 (2009). 635 State Council, “关于进一步促进新疆经济社会发展的若干意见 (Suggestions On Further Promoting Xinjiang’s Economic and Social Development),” Guofa 32 (2007), 27 July 2007. 636 Huang Mingfeng, “新疆进出口贸易与经济增长的实证分析 (Empirical Analysis of Export and Import Trade and Economic Growth in Xinjiang),” 统计与咨询 (Statistics and Consulting) 5 (2007). 637 Wang Bin, Zhang Xiaolei, Du Hongru, and Dong Wen, “新疆外向型经济发展的态势分析与应对 (Analysis of the Development of Xinjiang’s Export-Oriented Economy),” 干旱区资源与环境 (Journal of Arid Land Resources and Environment) 12 (2007).

195 development strategy.638 These projects drove proposals for establishing a “western border international economic cooperation belt” (缘西边境国际经济合作带) linking China’s west (Inner Mongolia, Gansu, Xinjiang, Tibet, Yunnan and Guangxi) with 14 bordering countries in Central and South/Southeast Asia (including Russia and Mongolia).639 Such proposals aimed to promote both western development and sustained high growth, addressing concerns over potential losses in macroeconomic efficiency arising from

China’s western development and inland reorientation. The envisioned integration of

China’s western border regions with surrounding neighbors is now an official part of

Beijing’s national development strategy in the form of Xi Jinping’s “One Belt, One Road”

(OBOR) (一带一路) initiative of regional integration.640

Central government plans for border opening in the Twelfth Five Year Plan (2011-

2015) emphasized Xinjiang and Inner Mongolia’s opening to the west, and Guangxi and

Yunnan’s opening to Southeast Asia as regional “bridgeheads” (桥头堡).641 Xinjiang’s development prospects were further boosted by the State Council’s renewal of central policy support and funding for its “Action Plan for Reviving the Border and Enriching Its

People (2011-2015),” aimed to promote infrastructure development, poverty alleviation,

638 These include a National Social Sciences Foundation project on “implementing the western development strategy and building the western border international economic cooperation zone” (西部大开发战略的实 施与缘西边境国际经济合作带的构建) and the State Ethnic Affairs Commission Social Sciences Foundation project on “opening up the border and the western region’s road to industrialization” (沿边大开 放与西部地区工业化道路的修正) 639 Dong Fan (Beijing Normal University), “缘西边境国际经济合作带的构建依据与发展规划(Proposal for An International Economic Cooperation Belt along China’s Western Border),” 北京师范大学学报 (Journal of Beijing Normal University) 5 (2004). 640 Xiao Zhaosheng (NDRC), “ 新 疆 沿 边经济带重大交通基础设施布局策略 (Major Transport Infrastructure of the Xinjiang Border Economic Zone),” 综合运输 (Comprehensive Transportation) 11 (2013). 641 Wang Rengui, Mu Wanjun, and Zhao Shuang, “中国沿边崭露全方位开放新局 (New Trend of Comprehensively Opening Up China’s Border Regions),” 中亚信息 (Central Asian Information) 5 (2012). 196 education, border opening, and industrial development in these and 10 other regions.642

Such initiatives supported the National Development and Reform Commission (NDRC)’s

2010 proposal for developing Dongxing (Guangxi), Ruili (Yunnan), Kashgar (Xinjiang), and Manzhouli (Inner Mongolia) as open pilot areas. 643 Under the Xi Jinping administration, Beijing’s designation of Xinjiang as a “core area” on the “Silk Road

Economic Belt” (丝绸之路经济带) in 2013 provided further impetus for investments in transport, energy, and telecommunications, 644 as suggested by infrastructure projects initiated in the west in 2013 totaling 326.5 billion RMB ($53.87 billion) according to the

NDRC for the construction of highways, airports, and hydropower and wind power stations.

Local Interests and Strategies

2001 was a key turning point in Xinjiang’s outward-oriented development trajectory, marking the initiation of western development, consolidation of SCO-led regional cooperation, and China’s WTO entry.645 Local leaders in northern Xinjiang’s Ili Kazakh

642 Haliyun (Xinjiang Party School) and Yang Yinguan, “ 新疆实施兴边富民行动成效及展望 (Effectiveness and Prospects of Xinjiang’s Implementation of Reviving the Border and Enriching Its People),” 新疆社科论坛 (Xinjiang Social Sciences) 5 (2015); “云南省“兴边富民行动”再获国家支持 (Yunnan Province Again Wins National Support for “Reviving the Border and Enriching Its People””, 时代风采 7 (2011). 643 Pan Liming and Yan Xuguang, “ 喀什特区与国家期望 (Kashgar Special Zone and National Expectations),” 大陆桥视野 (New Silk Road Horizon) 4 (2011). 644 Xu Jianying (CASS Institute for Borderland Studies), ““丝绸之路经济带”视野下新疆定位与核心区建 设 (Xinjiang’s Positioning and Construction of Core Area on the “Silk Road Economic Belt”),” 新疆师范大 学学报 (Journal of Xinjiang Normal University) 1 (2015); Mei Dongchen (Xinjiang University of Finance and Economics)， “建设丝绸之路经济带给新疆沿边开放带来的机遇和挑战 (The Construction of the Silk Road Economic Belt Brings Opportunities and Challenges for Xinjiang’s Border Opening),” 对外经贸 (Foreign Economic Relations and Trade) 6 (2014); Xu Haiyan, “China-Central Asia “Twin-Track” Energy Cooperation,” China International Studies (2013): 126-137. 645 Li Dong (XPCC-owned assets management company), “抓住国际边境合作中心成立机遇 加快区域经 济发展 (Seize the Opportunity to Build and International Border Cooperation Center; Accelerate Regional Economic Development),” 新疆社会科学 (Xinjiang Social Sciences) 2 (2005); Gao Zhigang (Xinjiang 197

Autonomous Prefecture sought central government support for economic, diplomatic, and cultural partnerships with Central Asian neighbors, citing both economic complementarities and favorable domestic and international policy prospects.646 Border governments saw the western development plan as a major opportunity for translating resource and geographical advantages into competitive advantages in the commodity market, shifting the local economy from traditional forms of agricultural production, and upgrading industrial enterprises.647

Central policies for inland border development under the Twelfth Five-Year Plan from 2011 drove local government propositions for advancing both Central Asian cooperation and the integration of domestic markets in support of the strategy of “linking west to east, east and west” (东来西往,东进西出).648 The National Social Sciences

Foundation’s 2011 project on mechanisms of Xinjiang-Central Asian local government

University of Finance and Economics), “ 新 疆 经 济 发 展 的 战 略 (Xinjiang’s Strategy of Economic Development),” 开放导报 (China Opening Herald) 3 (2004).

646 Wang Youwen and Zhu Xiaomin (Central Asia Research Group, Xinjiang Academy of Social Sciences Yili Economic and Social Development Institute), “中亚五国市场与伊犁州向西开放问题研究 (Research on Five Central Asian Markets and Opening Yili to the West),” 中共伊犁州委党校学报 (Journal of Yili Prefecture Party School) 1 (2002): 20-26. 647 Sun Hui (Huocheng County CPC Organization Department), “发挥优势 加快霍城经济腾飞 (Play Out Advantages, Accelerate Huocheng’s Economic Take-Off),” 中共伊犁州委党校学报 (Journal of Yili Prefecture Party School) 2 (2001); ““塞外江南”第一城伊宁市: 访伊宁市委书记焦宝华 (Interview with Yining Municipal Party Secretary Jiao Baohua),” 科技与经济画报 (Science and Economy) 6 (2005).

648 For example, see Wang Xisha (Bayingolin Mongol Autonomous Prefecture Party School), “打造向西开 放的桥头堡 推动新疆跨越式发展 (Building the Bridgehead of Opening to the West; Promoting Xinjiang’s Leapfrog Development),” 实事求是 (Seek Truth from Facts) 1 (2011); and Wu Shuanglan and Li Jianyao (Kuitun Municipal CPC Committee Party School), “促进新疆伊犁州对外经济发展的思考 (Thoughts on Promoting the Development of the Foreign Economy in Xinjiang Yili Kazakh Autonomous Prefecture),” 中 国商界 (Business China) 7 (2010). 198 cooperation (新疆与中亚国家地方政府合作机制问题研究), focused local attention on promoting Xinjiang’s “bridgehead” role in SCO cooperation through the creation of cross- border development zones and partnerships in energy and mineral resource sectors.649

Under Xi Jinping, the Xinjiang Development and Reform Commission in April 2015 issued plans for developing various special economic zones as part of a proposed “Xinjiang

Border Economic Belt” (新疆沿边经济带).650

In addition to local interests within Xinjiang, the western development plan revived investment interest from coastal governments and enterprises from the early 2000s. Major players like Shandong were drawn by the geographical and resource advantages of such regions as Tacheng in Ili Kazakh Autonomous Prefecture in promoting border trade with

Russia and Kazakhstan, especially in the context of economic restructuring in

Commonwealth of Independent States (CIS) neighbors.651

Leading examples of Xinjiang’s border development initiatives are the Horgos and

Kasghar Special Economic Zones (SEZs),652 both launched in 2011 with such preferential

649 Jiang Xinwei (Xinjiang Normal University Central Asia and China’s Northwest Frontier Political Research Center), “新疆与上合组织成员国地方政府合作探析 (Local Government Cooperation between Xinjiang and SCO Member Countries),” 新疆社科论坛 (Tribune of Social Sciences in Xinjiang) 5 (2011); Zhang Xianliang and Ji Guangnan (Xinjiang University Party Committee and Xinjiang Social Science Information Center), “关于新疆实施沿边经济带战略的思考 (Thoughts on Implementing the Xinjiang Border Economic Zone Strategy),” 新疆社科论坛 (Tribune of Social Sciences in Xinjiang) 3 (2009). 650 “”新疆沿边经济带开发开放战略研究”初具雏形，课题组建议; 新疆可培育三个“经济增长极” (“Xinjiang Border Economic Belt Development and Opening:” Preliminary Form and Research Group Proposal; Xinjiang Can Build Three “Economic Growth Centers,”” 新疆新闻在线 (Xinjiang News Online), 13 April 2015. 651 Shandong Provincial Government Office in Xinjiang, “关于我省开发新疆塔城地区机不可失的调查报 告 (Investigation Report on Opportunities Not to Be Missed For Our Province to Develop the Xinjiang Tacheng Region),” 山东政报 (Shandong Political News) (2001). Major industries in Tacheng include textiles, food processing, and household utilities, while energy and extractive industries are relatively developed in the Kazakh and Russian border regions. 652 Li Shoulong and Zhang Dong (People’s Bank of China in Urumqi), “金融支持新疆喀什、霍尔果斯经 济开发区跨越式发展的几个问题 (Several Issues in Financial Support for Advancing the Development of 199 policies as tax exemptions, subsidized energy supplies, low-interest loans for infrastructure projects, and improved transportation access to neighboring countries.653 Administered by

Ili Prefecture, Horgos SEZ incorporates a 2004 China-Kazakhstan free port (Horgos

International Border Cooperation Center) agreement and is supported by investments from

Suzhou Industrial Park since 2012 as its key domestic partner. In south Xinjiang's Uighur- dominated Kashgar Prefecture, Kashgar SEZ is modeled on China's first coastal SEZ in

Shenzhen, with investment pledges of 50 billion RMB ($7.53 billion) from the central government in 2009-2013 and 9.6 billion RMB ($1.45 billion) from Guangdong in 2011-

2020.

International Interests and Strategies

Xinjiang’s development initiatives have increasingly converged with the economic interests of regional multilateral organizations and similarly land-locked Central Asian neighbors seeking international market access and trade diversification from Russia.

Unlike the UNDP’s declining role in Northeast Asia’s Greater Tumen Initiative, the ADB currently contributes more than a third of spending in the Central Asia Regional Economic

Cooperation (CAREC) program, where investment in member states totaled more than $24

Xinjiang’s Kashgar and Horgos Economic Development Zones),” 金融发展评论 (Financial Development Review) 12 (2011). 653 There are some practical limitations on such tax incentives for investors. For example, through 2020, a new enterprise (Chinese or foreign) in Horgos and Kashgar SEZs can enjoy a five-year exemption from China’s Enterprise Income Tax (25%) provided that at least 70% of its income is generated from one of specified key industries, followed by a another two-year reduction by 40%. Specified industries are: electric power and renewable energy, construction, agriculture and forestry, non-ferrous metals, transport and infrastructure services, IT, logistics and business services, education, culture, health and sports. Second, since the tax reduction is granted in the form of a tax refund, eligibility is assessed retrospectively by local authorities. State Council, “(Notice on Preferential Business Income Tax Policy in the Two Special Economic Development Zones of Kashgar and Horgos of Xinjiang),” 29 November 2011. 200 billion in 2001-2014.654 At a more macro level, border regions have been the starting point of multilateral economic cooperation under the SCO, which in 2003 produced a long-term plan for economic engagement through 2020, supported by agreements in 2010 on transport infrastructure.655 Hu Jintao’s participation in the China-Central Asia gas pipeline launching ceremony alongside Turkmen, Kazakh, and Uzbek counterparts in December

2009 signified the economic and political significance of the project under the SCO framework.656 Although China is not a member, a primary aim of the Russia-led Eurasian

Economic Union (EEU), formally established in 2015, is to lower non-tariff barriers to trade, a continuing obstacle for Chinese exports to Central Asia.657

Such external interests have been reinforced by the central government’s increased emphasis on Xinjiang’s opening to Central Asia and Europe as part of China’s national development strategy of opening to the west. A major example is China’s upgrading of the annual Urumqi Foreign Economic Relations and Trade Fair, held since 1992, to the

China-Eurasia Trade Expo from 2011.658 Extending its regional scope from Central Asia to South Asia and Europe, the trade fair serves as an important diplomatic platform for

654 ADB, CAREC Institute, 2015. 655 Sun Zhuangzhi, 中亚国家的跨境合作研究 (Cross-Border Cooperation of Central Asian Countries) (Shanghai: Shanghai daxue chubanshe, 2013); Zhang Xianliang and Ji Guangnan, “关于新疆实施沿边经济 带战略的思考 (Thoughts on the Implementation of Xinjiang’s Border Economic Zone Strategy),” 新疆社 科论坛 (Tribune of Social Sciences in Xinjiang) 3 (2009). For a discussion of economic cooperation under the SCO, see Pan Guang, 稳步前进的上海合作组织 (The Shanghai Cooperation Organization: Its Progress and Prospect) (Beijing: Shishi chubanshe, 2014), 57-98. 656 Xu Haiyan (CASS) “China-Central Asia “Twin-Track” Energy Cooperation,” China International Studies (2013): 126-137. 657 The EEU includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. Given that EEU technical standards are similar to those of the European Union, the EEU presents major potential opportunities for expanding Chinese access to the European market. Timfey Bordachev, “Creating Central Eurasia,” Presentation at China-Russia Workshop, East China Normal University, Shanghai, November 2015. 658 The expo’s Organizing Committee is led by China’s Commerce Minister. MOFCOM and China Council for Promotion of International Trade participated in the Urumqi Fair for the first time in 2008. Li Dehua and Wan Wenlu, “新疆向西开放战略：外引内联 东联西出 西来东去 (Xinjiang’s Strategy of Opening to the West),” Xinhua, 27 May 2010; “China Upgrades Urumqi Fair for Eurasia Trade,” Xinhua, 6 September 2010. 201

China’s trade and investment deals with the SCO and other foreign partners in such areas as mining, crude oil processing, construction, and tourism. The first expo in 2011 facilitated China’s trade liberalization agreements with Kazakhstan, and domestic and foreign investments in transport and trade logistics in support of CAREC initiatives. More recently, the ADB in June 2016 approved a $100 million loan for its first co-financing agreement with China’s Asian Infrastructure Investment Bank (AIIB) to fund a highway project in Pakistan.659 The project is part of the CAREC Economic Corridors infrastructure initiative, now repackaged into Xi’s Silk Road initiative.

Central-Local-International Dynamics of Liberalization

Top-down/Bottom-up Processes of Policy Feedback

Xinjiang’s foreign economic liberalization since 2000 has clearly depended on central government policies for developing China’s west and opening to Central Asia and Europe.

At the same time, Beijing’s development initiatives in Xinjiang have required active coordination with foreign partners, as well as local governments and enterprises in Xinjiang and coastal regions. The current emergence of Horgos port as the center for cross-border energy and infrastructure projects on the “Silk Road Economic Belt” can be traced to energy cooperation with Kazakhstan since the late 1990s and coastal investment from

Jiangsu.

659 The ADB is the lead funder and administrator of this project, which is supported by an additional commitment of $34 million from the UK’s Department for International Development (DFID). ADB, “ADB Approves First Cofinancing with AIIB for a Pakistan Road Project,” 10 June 2016. 202

But in addition to economic interests, central strategies toward Xinjiang’s development reflect concerns over internal and external political stability.660 The turning point in Beijing’s policy toward Xinjiang was really the deadly riots in Urumqi in July

2009, which catalyzed a series of central initiatives to promote development and stability.661 A comparison of Horgos and Kashgar SEZs in practice underscores the central government’s national security imperative as a major constraint to such cross-border initiatives. Although China’s new SEZs may in principle enjoy greater local autonomy compared to coastal predecessors,662 uncertainty over the political implications means that local governments and enterprises within Xinjiang have less room for bottom-up innovation.663 Much skepticism remains over whether the coastal model can be replicated in Kashgar SEZ, where central pledges of support are primarily symbolic compared to the

Horgos case and have produced no substantive results.664

More recently, China’s counter-terrorism law passed in December 2015 raised international concern over its broader implications for Xinjiang by framing the internal security discourse as part of a regional problem. This law coincided with the State

Council’s September 2015 white paper on “ethnic equality, unity, and development in

660 Yan Hailong and Gan Changchun (Xinjiang Development and Reform Commission Economic Research Institute), “加快推进新疆沿边经济带开发开放的思考与建议 (Thoughts and Suggestions on Accelerating the Opening and Development of Border Economic Zones),” 经济研究参考 (Review of Economic Research) 65 (2013); Xu Haiyan (CASS), “ 新疆在向西开放战略中的机遇挑战与对策分析 (Xinjiang’s Opportunities, Challenges, and Countermeasures in the Strategy of Opening Up the West),” 西部学刊 (Western Journal) 1 (2014). 661 Interviews in Urumqi and Kashgar, September 2015. 662 Tao Yitao, “From Coastal Opening-up to Border Opening – Significance and Problems of the Development of Kashgar Special Economic Zone,” Studies on China’s Special Economic Zones 1-6 (2013). 663 Interviews in Shanghai, October 2015. 664 Interviews in Urumqi and Kashgar, September 2015; Bill Chou and Xuejie Ding, “A Comparative Analysis of Shenzhen and Kashgar in Development as Special Economic Zones,” East Asia 32 (2015): 117- 136. 203

Xinjiang,”665 and followed a white paper released in October 2014 on the historical role of the Xinjiang Production and Construction Corps to mark the 60th anniversary of its founding.666

Inside-out/Outside-in Processes of Institutional Change

While Xi’s Silk Road initiative has diverted the focus of China’s regional development from the northeast since the Hu Jintao period, OBOR’s geopolitical significance is also more apparent in Central Asia.667 As some Chinese scholars indicate, China’s westward orientation at the end of the 1990s is part of Beijing’s new “great game” with the United

States and Russia for regional influence. 668 Central Asian economic interdependence brings geopolitical gains for China especially when it is engaged in territorial and maritime disputes with neighbors in the Asia-Pacific.669 The security and economic benefits of

Xinjiang’s regional integration serve two enduring goals of consolidating China’s control over Xinjiang at home and the outward expansion of Chinese power in Central Asia.670

665 State Council Information Office, “Historical Witness to Ethnic Equality, Unity and Development in Xinjiang,” 24 September 2015. 666 State Council Information Office, “The History and Development of the Xinjiang Production and Construction Corps,” October 2014, Beijing. For a study of the XPCC’s evolving role from the perspective of Han “colonization” of Xinjiang, see James Seymour, “Xinjiang’s Production and Construction Corps, and the Sinification of Eastern Turkestan,” Inner Asia 2-2 (2000): 171-193. 667 For arguments on such implications, see Pan Zhiping (Director of the Xinjiang Academy of Social Sciences Central Asia Research Institute), “Silk Road Economic Belt: A Dynamic New Concept for Geopolitics in Central Asia,” China Institute of International Studies, 18 September 2014. 668 For example, Gao Feng of China Foreign Affairs University identifies a “new Silk Road” plan of the United States, Russia’s Eurasian Union, and China’s “Go West” strategy as part of a post-Cold War power competition in Central Asia. Gao Feng, “中国的“西进”战略与中美俄中亚博弈 (China’s West Strategy and China-US-Russia Game in Central Asia),” 外交评论 (Foreign Affairs Review) 5 (2013): 39-50. For western perspectives, see Alexander Cooley, Great Games, Local Rules: The New Great Power Contest in Central Asia (New York: Oxford University Press, 2012); and Thomas Fingar, The New Great Game: China and Central and South Asia in the Era of Reform (Stanford: Stanford University Press, 2016). 669 Xu Haiyan, “China-Central Asia.” 670 Michael Clarke, “China’s Integration of Xinjiang with Central Asia: Securing a “Silk Road” to Great Power Status?” China and Eurasia Forum Quarterly 6-2 (2008): 89-111. 204

Given the broader strategic implications, however, such initiatives remain constrained by competing external preferences over the long-term regional architecture.

The process of economic integration has been relatively slow in Central Asia, where former

Soviet states seek to maintain a balance between Beijing and Moscow. Although economic interests are primary drivers of the current China-Russia “strategic cooperative partnership,” 671 Beijing’s own Silk Road initiative has raised Russian concerns over potential conflict with EEU interests.672

The State Council’s upgrading of the administrative status of Horgos – named

China’s key land port on the Silk Road Economic Belt – to the city level in 2014 was an indication of increased central support for liberalizing trade with Central Asia.673 But as

Xinjiang’s commerce bureau chief He Yeming indicated in 2011, even Horgos free trade center has faced repeated operational suspensions due to slow infrastructure construction on the Kazakh side and poor trade policy coordination.674 The share of border trade in

Xinjiang’s total trade actually declined from 79 percent in 2008 to 52 percent in 2012, with the Xinjiang Production and Construction Corps and Xinjiang-based coastal traders driving the remainder of trade flows. 675 One unofficial source shows that up to 70 percent of

671 Lu Nanquan, “中俄关系现状与前景 (Current Status and Prospects of PRC-Russia Relations),” 新疆师 范大学学报（Journal of Xinjiang Normal University）1 (2015). 672 Tatyana Kolpakova and Tatiana Kuchinskaya, “China’s “New Regionalism” as a Mechanism to Strengthen the Influence of China in the Global Integration Processes: An Example of Eurasian Economic Union,” International Journal of Economics and Financial Issues 5 (2015): 109-115. On the other hand, conflicting integration agendas of the EEU and European Union have partly driven Russia to seek Chinese support against perceived EU opposition. Bordachev, “Creating Central Eurasia.” 673 “Horgos: The Silk Road Economic Belt’s Youngest City,” Xinhua, 17 July 2014; Cui Jia, “Plan to Build Border City in Xinjiang Approved,” China Daily, July 11, 2014. 674 “China-Kazakhstan Free Trade Center Delayed,” Xinhua, 3 September 2011. 675 Xinjiang Statistical Yearbook. 205

Xinjiang’s exports to Central Asia originates from coastal provinces, with Xinjiang primarily serving as a transit point to European markets.676

Conclusion: “Go West” Goes East in Xinjiang

While Xinjiang’s opening has advanced within Central Asian multilateral contexts, national governments and SOEs have largely led cross-border energy and infrastructure development over the past decade. Like the Yunnan case, the central government’s designation of Xinjiang as a “core area” for the Silk Road Economic Belt in 2014 was a driving force for Xinjiang’s further liberalization that may enhance local leverage for central preferential treatment, as suggested by the administrative upgrading of Horgos port to the city level in 2014 to promote trade with Kazakhstan.

The Xinjiang case, however, underscores the central importance of vital national strategic priorities. The substantive implications of liberalization remains relatively limited in Xinjiang’s Uighur minority areas on the southern border, where the State

Council’s approval of Kashgar SEZ in 2010 after heightened ethnic unrest in 2009 was largely symbolic in nature. 677 Concerns over the risks of economic liberalization for internal political stability, reinforced by shared security interests of foreign governments, have constrained local innovation inside Xinjiang. Instead, coastal governments and enterprises have led Xinjiang’s surge in trade openness since the 2000s, driven by the

Western development plan and the coastal economies’ own structural transformation, with

676 Interviews in Shanghai, October 2015. 677 Bill Chou and Ding Xuejie, “A Comparative Analysis of Shenzhen and Kashgar Development as Special Economic Zones,” East Asia 32-2 (2015): 117-136; Guo Rongxing, China’s Spatial (Dis)Integration: Political Economy of the Interethnic Unrest in Xinjiang (Chandos Publishing, 2015). 206 unintended consequences of exacerbating the very social tensions that the center sought to address in the first place.

Despite increases in Xinjiang’s overall openness, a closer look at Xinjiang’s regional trade patterns reveals a clear decline in Xinjiang’s contribution to China-Central

Asia trade, from over 70 percent in 2000 to below 40 percent in 2013. Since 2008, the

Central Asian share of Xinjiang’s foreign trade has also declined from 85 percent to 69 percent in 2013. While China-Kazakhstan trade through Horgos grew by 56 percent from

2012 to 2013 to $11 billion, more than a third of total bilateral trade, Kashgar SEZ has produced limited tangible results since its establishment. The West-East Gas Pipeline project since the early 2000s is a prime example of what is viewed among the local Uighur community as a central strategy of drawing Xinjiang’s “milk and honey” to the east. 678

Kashgar SEZ is merely a “new bottle with old wine” in Xinjiang, where development programs over the past several decades mask the roots of ethnic tension.679 Similarly, the

Xi Jinping leadership’s current Silk Road plan represents the second stage of China’s coastal-led reform and opening since 1978, furthering local resentment over a Western development strategy moving east.680

678 Interviews in Kashgar, September 2015; James Dorian, Brett Wigdortz, and Dru Gladner, “Central Asia and Xinjiang, China: Emerging Energy, Economic, and Ethnic Relations,” Central Asian Survey 16-4 (1997): 465-467. 679 Interviews in Urumqi and Kashgar, September 2015; Chou and Ding, “A Comparative Analysis of Shenzhen and Kashgar.” 680 Interviews in Kashgar, September 2015; and Shanghai, November 2015. 207

Chapter 7

Conclusion: Asian Integration and the Liberalization of China’s Regional Economies

China’s economic integration into surrounding Asian regions over the past three decades is linked to the development of its own regional economies. In this context of multilayered interdependence, China’s opening to the world economy under authoritarian leadership is driven not just by central state direction, but also by local and external forces of change.

In response to what have primarily been coastal accounts of China’s opening since 1978, this study draws attention to the change emerging within the late-developing, inland periphery in the post-World Trade Organization (WTO) period from 2000.

In addition to a narrowing gap in openness between coastal and inland regions,

China’s current regional economic profile reflects differences in the strength and direction of openness within inland China. To explain this variation in provincial openness, my case studies of Jilin (Northeast China-Northeast Asia), Yunnan (Southwest China-Southeast

Asia), and Xinjiang (Northwest China-Central Asia) traced the linkages between internal and external processes of liberalization since China’s inland reorientation in 2000. This concluding chapter first presents a cross-case comparison of the three border regions since

2000 to show that differences in the alignment of central, local, and international interests produce divergent provincial trajectories of reform and levels of openness. It then draws implications for China’s development path, discusses broader theoretical and empirical contributions of the study, and identifies related areas for further research.

Variation in Trade Openness: Jilin, Yunnan, and Xinjiang

208

The three border cases under study were leading participants in transborder development initiatives that emerged in Asia from the 1990s: the United Nations Development

Programme (UNDP)’s Greater Tumen Initiative (GTI) in Northeast Asia in 1991, Asian

Development Bank (ADB)’s Greater Mekong Subregion (GMS) in Southeast Asia in 1992, and ADB’s Central Asia Regional Economic Cooperation (CAREC) in 1996. Provincial participation in such multilateral programs was facilitated by the central government’s opening of Border Economic Cooperation Zones (BECZs) in 1992 modeled on coastal precedents of the 1980s, marking the initial phase of China’s border liberalization. As a level of analysis, the transborder region sharpens my focus on the development trajectories of China’s regional economies in the context of integration with surrounding Asian regions.

While China’s northeast was the most open among inland regions throughout the

1980s and 1990s, followed by the southwest and northwest, my case studies of Jilin,

Yunnan, and Xinjiang since 2000 indicate a reversal of this pattern over the past decade.

Jilin’s stagnation and the rise of Yunnan and, in particular, Xinjiang, is evident in terms of both degree of trade openness, measured in terms of foreign trade as a share of provincial

GDP, and direction of trade openness, or trade dependence on Asian neighbors, measured in terms of trade with neighbors as a share of total provincial foreign trade.

Degree of Openness

By far the most open among the three cases in the 1990s during the initial phases of Asian transborder economic cooperation, Jilin declined in openness throughout the 2000s, contrary to the expectations of the central government’s 2003 plan for “reviving” the

209 northeast (振兴东北). Shortly after the “go west” (西部大开发) plan was initiated in 2000,

Jilin was surpassed in trade openness by Xinjiang in 2002, and by Yunnan ten years later in 2013.681 By 2013, both Yunnan and Xinjiang grew twice as open as they were in 2001

(13.65 percent and 20.42 percent respectively in 2013), with Xinjiang’s trade openness in particular tripling from 2001 until the onset of the global financial crisis in 2008. Jilin’s openness (12.33 percent), however, reverted to figures in 2001, depicting the same

“northeast phenomenon” of economic stagnation that the central leadership sought to address at the beginning of the decade.

Direction of Openness: Dependence on Neighbors

An examination of the direction of trade openness further indicates a decline in dependence on Asian neighbors in Jilin, and an increase in regional trade dependence in Yunnan and

Xinjiang (Figure 7.1). Jilin’s trade with Northeast Asian partners halved from almost two- fifths of its total foreign trade in 2005 to under a quarter in 2013. Compared to Jilin,

Yunnan and to a greater extent Xinjiang grew more dependent on Southeast Asian and

Central Asian partners between 2000 and 2013. In 2013, mainland Southeast Asia accounted for 30 percent of Yunnan’s foreign trade, while Central Asian neighbors represented up to 69 percent of Xinjiang’s foreign trade. However, while Yunnan’s openness toward Southeast Asia follows a pattern of decline and rapid recovery from 2011,

Xinjiang’s openness toward Central Asia shows an opposite trend of growth and decline from 2008.

681 Statistical Bureau of Jilin Province, Jilin Statistical Yearbook (Beijing: China Statistics Press, 2014); Statistical Bureau of Yunnan Province, Yunnan Statistical Yearbook (Beijing: China Statistics Press, 2014); Statistical Bureau of Xinjiang Uighur Autonomous Region, Xinjiang Statistical Yearbook (Beijing: China Statistics Press, 2014). 210

Figure 7.1: Trade Dependence on Asian Neighbors

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Jilin-NE Asia Yunnan-SE Asia Xinjiang-Central Asia

Source: Jilin Statistical Yearbook, Yunnan Statistical Yearbook, Xinjiang Statistical Yearbook. Notes: 1. NE Asia = Russia, North Korea, South Korea, Japan. 2. SE Asia = Vietnam, Laos, Thailand, Cambodia, Myanmar 3. Central Asia = Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan 4. 2000-2004 data for Jilin unavailable. Above figures are estimated based on 2005-2013 trends.

Alignment of Interests

The diverging patterns of provincial openness can be traced to differences in the alignment of central, local, and international interests and strategies. Table 7.1 summarizes the major development initiatives at the three levels that served as turning points in each province’s external orientation in the 2000-2015 period.

211

Table 7.1: Forces of Liberalization: Jilin, Yunnan, and Xinjiang

Jilin (Northeast): Yunnan (Southwest): Xinjiang (Northwest): Stunted Rustbelt Rising Bridgehead West Going East Central Northeast Revival Go West (2000) Go West (2000) (2003) One Belt, One Road One Belt, One Road One Belt, One Road (2013) – Maritime Silk (2013) – Silk Road (2013) Road Economic Belt Local Changjitu plan (2009) Southeast Asia Horgos, Kashgar zones Hunchun zone (2012) Bridgehead (2009) (2009) Yunnan/Guangxi zone Xinjiang Border (2013) Economic Belt (2015) International Greater Tumen Greater Mekong Central Asia Regional Initiative (1991; 2006) Subregion (1992; 2002) Economic Cooperation China-DPRK zones Bangladesh-China-India- (1997; 2000) (2010) Myanmar (1999; 2002) Shanghai Cooperation China-ROK FTA (2015) China-ASEAN FTA (2010) Organisation economic plan (2003) Eurasian Economic Union (2015)

In Jilin, the central government’s push for reviving the northeast under the Hu Jintao leadership from 2003 provided renewed impetus for provincial engagement with Northeast

Asian neighbors, but the political and material support from external partners, and eventually Beijing itself, diminished over the past decade. Local development strategies grew increasingly inward, prioritized instead on intra-provincial integration and industrial restructuring within Jilin, as represented by the Changchun-Jilin-Tumen (Changjitu) plan from 2009. More than a decade into the northeast development program, Jilin remains a

“stunted rustbelt” waiting for regionalism.682 Its decline in openness during the 2000s and weakening dependence on Northeast Asian neighbors is part of a longer-term stagnation since the failures of cross-border cooperation of the 1990s.683

682 Gilbert Rozman, “Northeast China: Waiting for Regionalism,” Problems of Post Communism 45-4 (1998): 3-13, and Northeast Asia’s Stunted Regionalism: Bilateral Distrust in the Shadow of Globalization (Cambridge: Cambridge University Press, 2004). 683 This study is primarily interested in foreign economic performance understood in terms of openness. Jilin grew the fastest among the three cases in terms of GDP per capita, surpassing the national average level in 212

In Yunnan and Xinjiang, local and external interests and strategies aligned more closely with central government priorities of developing China’s west, improving ties with

Asian neighbors, and promoting political stability within and across the border. Compared to Jilin, Yunnan’s opening to Southeast Asia received more sustained support from foreign governments, multilateral agencies, and foreign investors, particularly within ASEAN institutional frameworks. Following the downturn of the 1997 Asian financial crisis,

Yunnan steadily emerged as China’s rising “bridgehead” (桥头堡) to Southeast Asia, the official name given to Yunnan’s development strategy from 2009.684 Yunnan’s eventual surpassing of Jilin in trade openness in 2013 and growing dependence on Southeast Asian neighbors from 2011 reflect this outward orientation in recent years.

While Yunnan’s opening to Southeast Asia has been driven primarily by commercial interests, the Xinjiang case underscores the significance of the central state’s vital security priorities of promoting national ethnic unity and political stability. A key tool has been the promotion of coastal investment and Han Chinese migration to the west rather than foreign direct investment (FDI), a defining characteristic of Beijing’s western development plan since it was initiated under the Jiang Zemin leadership in 2000.

Xinjiang’s development trajectory thus embodies a Go West strategy “going east,” or what skeptics see as a disguised, second phase of China’s coastal-led opening.685 Although

Xinjiang is clearly the most successful case in terms of increased openness, most of its

2009. Compared to Yunnan and Xinjiang, foreign trade has been a relatively less important driver of this growth. 684 Zhi Liu, “论云南参与区域合作与桥头堡建设的相互关系 (The Mutual Relationship between Yunnan’s Participation in Regional Cooperation and Bridgehead Construction),” Journal of Yunnan Normal University (2011); Zhang Yi, Jin Jing, Li Yongqian, and Li Yongzhong, “以桥头堡战略推动云南沿边开放跨越式发 展的思考 (Thoughts on Advancing the Development of Yunnan’s Border Opening Through the Bridgehead Strategy),” 经济师 (China Economist) 5 (2013). 685 Interviews in Urumqi, Kashgar, and Shanghai, September-October 2015. 213 foreign trade originates from China’s coastal east – up to 70 percent according to unofficial data.686 While Xinjiang’s trade dependence on Central Asia declined from 2008, official data also shows a steady decline in Xinjiang’s share of China-Central Asia trade from more than 75 percent in 2000 to below 40 percent in 2013, suggesting that other provinces are assuming a greater role in China’s trade with the region.687

Mechanisms of Change

An understanding of how central, local, and international interests and strategies translate into reform outcomes requires examining the processes of their interaction across two dimensions:

Top-down, Bottom-up Dynamics of Policy Feedback. Despite central reform mandates under the northeast plan, bottom-up responses favoring implementation in Jilin were constrained by local political conservatism and the social implications of restructuring since the 1990s, most notably in the form of labor unrest that peaked in the early 2000s.688

In Yunnan, President Hu Jintao’s naming of Yunnan as a “bridgehead” to Southeast Asia in 2009 was a turning point in Yunnan’s external orientation, justifying and empowering local demands for central preferential policies. 689 2009 was also a turning point in

686 Interviews in Shanghai, October 2015. 687 National Bureau of Statistics, China Statistical Yearbook (Beijing: China Statistics Press, 2014), Xinjiang Statistical Bureau, Xinjiang Statistical Yearbook (Beijing: China Statistics Press, 2014). 688688 Northeast China’s registered urban unemployment rate in 2002 was the highest among China’s regions (5%), with unofficial estimates at levels up to three times higher. China Statistical Yearbook; Tan Ailing, “东北振兴国策出台前后 (Before and After the Emergence of the National Policy of Northeast Revival),” 二十一世纪经济导报 (21st Century Economic Herald), 13 August 2003. 689 Zhang Juzheng, “云南通往东南亚南亚之桥 (Yunnan as a Bridge to South and Southeast Asia),” 云南 政协报 (Yunnan Political Consultative Conference), 19 June 2009; Li Mingjiang, “Local Liberalism: China’s Provincial Approaches to Relations with Southeast Asia,” Journal of Contemporary China 23-86 (2014), 283; Su Xiaobo, “From Frontier to Bridgehead: Cross-border Regions and the Experience of Yunnan, China,” International Journal of Urban and Regional Research 37-4 (2013): 1213-1232. 214

Xinjiang’s development trajectory, when heightened ethnic tensions catalyzed a series of cross-border initiatives such as the Horgos (Xinjiang-Kazakhstan) and Kashgar (Xinjiang-

Kyrgyzstan/Tajikistan) special economic zones (SEZs).690 A closer comparison of these zones, however, reveals that coastal governments and enterprises remain the primary drivers and beneficiaries of Xinjiang’s foreign trade, more than half of which is with

Kazakhstan in the north.691 Compared to Horgos, Kashgar SEZ in Uighur-dominated south

Xinjiang remains primarily symbolic rather than producing any substantive results. The political risks of economic reform mean that there is limited room for the local innovation and experimentation characterizing China’s coastal SEZs from the 1980s, with contradictory effects of widening the ethnic divide that the western development plan aimed to address from 2000.692

Inside-out, Outside-in Dynamics of Institutional Change. The breakdown of multilateral mechanisms and diffusion of foreign interests undermined the coordination of local policies and regulatory systems across the border in Jilin, particularly after the GTI’s expansion in geographic and functional scope from 2006.693 In contrast, the growth in

Southeast Asian multilateral networks in the context of promoting the China-ASEAN FTA

690 Li Shoulong and Zhang Dong (People’s Bank of China in Urumqi), “金融支持新疆喀什、霍尔果斯经 济开发区跨越式发展的几个问题 (Several Issues in Financial Support for Advancing the Development of Xinjiang’s Kashgar and Horgos Economic Development Zones),” 金融发展评论 (Financial Development Review) 12 (2011). 691 Xinjiang Statistical Yearbook; interviews in Urumqi, Kashgar, and Shanghai, September-October 2015. 692 Interviews in Urumqi and Kashgar, October 2015; Tao Yitao, “From Coastal Opening-up to Border Opening-up: Significance and Problems of the Development of Kashgar Special Economic Zone,” Studies on China’s Special Economic Zones 1-6 (2013); Bill Chou and Ding Xuejie, “A Comparative Analysis of Shenzhen and Kashgar Development as Special Economic Zones,” East Asia 32-2 (2015): 117-136. 693 Zhang Donghui, Tumen River Area Development Administration of Jilin Province, “The Progress and Function of the Tumen River Area Development Programme in Northeast Asian Regional Economy,” paper presented at the Northeast Asian Economic Forum, Changchun, 2005; Wang Weina, Director of the GTI Secretariat, “Regional Economic Cooperation under the Framework of the Greater Tumen Initiative,” presented at the High-Level International Workshop on “WTO Agreement on Trade Facilitation: Implications for LLDCs,” Ulaanbaatar, 2-3 June 2014; Interviews in Shanghai, November 2015. 215 from 2002 facilitated new institutional developments to support Yunnan’s engagement with Southeast Asia, including the creation of an inter-agency coordination mechanism in

2010 under the State Council.694 The institutionalization of border trade in Xinjiang was not just reinforced by the economic interests of Central Asian neighbors seeking to grow out of Soviet Russian influence, but also conditioned by shared interests of regional political stability under the Shanghai Cooperation Organization (SCO) framework from

2001.695

Summary of Findings and Arguments

The three border cases of Jilin, Yunnan, and Xinjiang since China’s inland reorientation in

2000 show that central, local, and international forces of reform have interacted in different ways to produce regional differences in openness. Central state support is a necessary but not sufficient condition for advancing the foreign economic interests of China’s regions.

China’s opening to Asian neighbors is not only directed from the top down, but also depends on the alignment and temporal sequence of responses from the bottom up and outside. Local and external interests diverged from the center in the stagnant northeast, and converged over time in the rising southwest. This convergence occurred on both

694 Zhang Yi, Jin Jing, Li Yongqian, and Li Yongzhong, “(Thoughts on Advancing).” 695 Jiang Xinwei, “新疆与上合组织成员国地方政府合作探析 (Local Government Cooperation between Xinjiang and SCO Member Countries),” 新疆社科论坛 (Tribune of Social Sciences in Xinjiang) 5 (2011); Zhang Xianliang and Ji Guangnan, “关于新疆实施沿边经济带战略的思考 (Thoughts on Implementing the Xinjiang Border Economic Zone Strategy),” 新疆社科论坛 (Tribune of Social Sciences in Xinjiang) 3 (2009); Pan Guang, 稳步前进的上海合作组织 (The Shanghai Cooperation Organization: Its Progress and Prospect) (Beijing: Shishi chubanshe, 2014). 216 security and economic dimensions in the most rapidly opening but politically restive northwest.

China’s border development patterns underscore the supremacy of the central state’s vital political priorities inside and outside China’s borders as an enduring feature of the PRC’s economic strategy. The evolution of China’s regional development policy from the inland-centered, Maoist era of self-sufficiency, to the Deng period of export-led coastal growth, to the current phase of redistribution since the end of the Jiang administration reflects central management of regional development as a key tool for maintaining political stability.696 Hu Jintao’s “centrally-coordinated regional development strategy” (统筹协调

区域发展战略), proposed in October 2002 when he succeeded Jiang Zemin as Chinese

Communist Party (CCP) General Secretary, particularly implied a heavier role of the central government after a period of economic decentralization in the 1980s and 1990s.

But while the opening of China’s regional economies has depended on central policy choice, the Chinese state can be increasingly constrained by the forces of its own making. The northeast’s labor unrest was a major focus of President Hu Jintao and Premier

Wen Jiabao’s visits to the region in 2002-2003 ahead of their decision to “revive” the northeast, but undermined the further implementation of socially-costly restructuring under the plan. Similarly, ethnic clashes in Xinjiang in 2009 catalyzed Beijing’s current initiatives to “open up” the western border with unintended consequences of further marginalizing the Uighur minority. Although Deng Xiaoping stated in 1981 that “the door

696 Frederick Teiwes, “Provincial Politics in China: Themes and Variations,” in China: Management of A Revolutionary Society, ed. John Lindbeck (Seattle: University of Washington Press, 1971), 116-189; Dali Yang, “Economic Transformation and Its Political Discontents in China: Authoritarianism, Unequal Growth, and the Dilemmas of Political Development,” Annual Review of Political Science 9 (2006): 143-164, and Beyond Beijing: Liberalization and the Regions in China (New York: Routledge, 1997). 217 is being opened because the Four Modernizations require it,” 697 this quest for modernization within the boundaries of central political mandates exacerbates the very pressures of globalization that China’s party-state leadership seeks to mitigate.

Alternative Explanations

In addition to conventional system-level perspectives in political economy that do not account for subnational variation in development outcomes, this study responds to alternative explanations of China’s regional disparities. The emphasis on actors and their policy strategies first brings to question the significance of economic and geographic preconditions as determinants of openness. China’s provincial trade patterns clearly correspond to natural comparative advantage and proximity to advanced economies.698

However, these regional trends show that economic structure and policy choice cannot be taken as mutually exclusive. Just as Beijing’s coastal strategy from 1978 was based on the east’s comparative advantages in labor-intensive, light industry and ties to Greater China, the Go West plan from 2000 was partly driven by central direction and the coastal regions’ own structural transformation. Both western and northeast plans emphasized the complementary development of China’s regions based on respective endowments in

697 Sam Ho and Ralph Huenemann, China’s Open Door Policy: The Quest for Foreign Technology and Capital: A Study of China’s Special Trade (Vancouver: University of British Columbia Press, 1984), 21. A defining feature of Deng’s policy from 1978 initially raised by Zhou Enlai in 1963, the “Four Modernizations” aimed to promote the fields of agriculture, industry, national defense, and science and technology. 698 Brantly Womack and Guangzhi Zhao, “The Many Worlds of China’s Provinces: Foreign Trade and Diversification,” in China Deconstructs: Politics, Trade and Regionalism (London: Routledge, 1994), 59- 98; Robert Ash, “China’s Regional Economies and the Asian Region: Building Interdependent Linkages,” in Power Shift: China and Asia’s New Dynamics, ed. David Shambaugh (Berkeley: University of California Press, 2005), 96-131. 218 national resources and industrial bases.699 My framing of regional variation as an outcome of transnational processes precisely takes into account the changing structural contexts within which policy choices are made.

A related structural issue is the geopolitical conditions that may affect the trajectory of provincial development. Geopolitical constraints, however, are factored into the interests of central and inter-governmental actors, and top-down forces of interaction. The

Jilin-Northeast Asia case in particular underscores the problem of enduring geopolitical tensions and limited political will despite the economic complementarities and geographic proximity that formed the basis of Asia’s “natural economic territories” since the 1990s.700

The GTI in the early-1990s facilitated the earliest official meetings between North and

South Korean counterparts, but also saw the eventual withdrawal of North Korea amid tensions over its nuclear development. Cross-border cooperation on the China-DPRK border, however, continued at the bilateral level. While limited physical infrastructure is a major obstacle facing the west’s external strategy, the lack of soft infrastructure is a key problem of transborder cooperation under the northeast’s GTI, which remains stuck in the

“1990s model” of quick profits and local corruption.701 In Southeast Asia, China’s oil and

699 Li Guirong, “振兴东北工业基地与西部大开发的互动效应研究 (Research on the Interaction Effects between Reviving the Northeast Industrial Bases and Opening Up the West),” 生产力研究 (Productivity Research) 2 (2005): 126-127. 700 Rozman, “Northeast China” and Northeast Asia’s Stunted Regionalism; Robert Scalapino, “Natural Economic Territories in East Asia: Present Trends and Future Prospects,” in Economic Cooperation and Challenges in the Pacific, ed. Korean Economic Institute of America (Washington: KEIA, 1995); Armos Jordan and Jane Khanna, “Economic Interdependence and Challenges to the Nation-State: The Emergence of Natural Economic Territories in the Asia-Pacific,” Journal of International Affairs 48-2 (1995): 433-462. 701 Interviews in Shanghai, November 2015. In addition, although northeast China’s dominant state-owned sector is commonly cited as a source of stagnation, the decline in the state-owned share of provincial investment has been the sharpest in Jilin, from 60 to 21% between 1999 and 2012, compared to 66 to 37% in Yunnan and 79 to 41% in Xinjiang. The domestic private sector’s share of Jilin’s total investment in fact surpassed the state-owned share in 2011, but this growth has been accompanied by a decline in the foreign- funded share (including Hong Kong, Taiwan, and Macao) of provincial investment during the period of the northeast plan from 2004, from 9 to 3%. National Bureau of Statistics, China Statistical Yearbook for Regional Economy (Beijing: China Statistics Press, 2013). 219 gas pipelines project with Myanmar, where Yunnan is a major stakeholder, seeks to relieve both energy security and geopolitical concerns across the Strait of Malacca by enhancing access to the Indian Ocean.702 While shared security interests of SCO member states under the name of anti-terrorism, separatism, and extremism have favored the selective development of border zones in Xinjiang, regional integration plans under Beijing’s “One

Belt, One Road” (OBOR) (一带一路) and the Russia-led Eurasian Economic Union (EEU), where China is not a member, point to potential geopolitical constraints on multilateral cooperation in Central Asia.703

Finally, rather than focusing primarily on the relative weight of the central state versus local and external actors, this study is concerned with the nature of their interaction over time. Since China’s coastal opening, the direction of China’s regional development has depended on not only central policy choices but also the joint adaptation of such choices with local and external responses. Within inland China, local feedback dynamics were evident in inter-provincial coordination of foreign economic strategies and joint lobbying for central preferential policies through the Southwest Regional Economic

Coordination Conference since 1984 and Northeast Economic Circle since 1992.704 The coastal SEZs since the 1980s are the earliest examples of more indirect feedback through local experimentation before China’s commitment to WTO rules. 705 China’s environmental policy reforms also provide early cases of foreign governments,

702 Li Yi, “中缅油气管道：50 亿美元的尴尬困局 (China-Burma Oil and Gas Pipelines: A 5 Billion Dollar Predicament),” 财经 (Caijing), May 7, 2013. 703 Interviews in Shanghai, November 2015. 704 Yang Jichang and Liu Hanyu, ed., (The Rise of Southwest China) (Nanning: Guangxi Education Press, 1994); Heilongjiang Yearbook (Harbin: Heilongjiang renmin chubanshe, 1996), 113-115. 705 Ann Florini, Lai Hairong, and Yeling Tan, China Experiments: From Local Innovations to National Reform (Washington: Brookings Institution Press, 2012). 220 international regimes, and multinational corporations shaping China’s regulatory state institutions in line with global standards.706

China’s Economic Trajectory: Change and Continuity on the Chinese Periphery

My border case studies examine change within the Chinese periphery in the later phase of national development since 2000, characterized by a turn to inland development, deepened integration into the global economy, and an emphasis on engaging immediate neighbors.

China’s border development patterns point to major differences in the interests and strategies driving the opening of the west and northeast, as well as the dynamic relationship between China and Asia’s regional development.707

Wider in temporal and spatial scope, the western plan has drawn greater central policy support and funding compared to the northeast plan.708 But its initial emphasis was on domestic partnerships with coastal counterparts rather than FDI, including through infrastructure investments to “send the west’s electricity to the east” (西电东送) and

706 Phillip Stalley, Foreign Firms, Investment, and Environmental Regulation in the People’s Republic of China (Stanford: Stanford University Press, 2010); Elizabeth Economy, “The Impact of International Regimes on Chinese Foreign Policy-Making: Broadening Perspectives and Policies…But Only to a Point,” in The Making of Chinese Foreign and Security Policy in the Era of Reform, ed. David Lampton (Stanford: Stanford University Press, 2001), 230-256. 707 Jian Jun, “西部开发东北振兴比比看 (Comparative Study of Opening Up the West and Reviving the Northeast),” 西部大开发 (Opening Up the West) (2004): 19-20; Liu Pingping, “西部大开发与振兴东北的 政策去向比较分析 (Comparative Analysis of the Policy Directions of Opening Up the West and Reviving the Northeast),” 四川经济管理学院学报 (Journal of Sichuan Economic Management College) 1 (2005): 37. 708 The western development plan covers 29% of China’s population and 71% of its land, and specifies a timeframe of 2000-2050. The northeast plan covers 8 percent of China’s population and land, and extends to 2025. While the inter-ministerial Leadership Small Groups (领导小组) for both plans are chaired by the Premier, the administrative leadership of the western plan, led by the State Council Secretary-General, and northeast plan, led by the National Development and Reform Commission Vice-Chairman, suggests the higher priority given to western development. NDRC, www.ndrc.gov.cn. 221

“transport the west’s gas to the east” (西气东输).709 In contrast, the State Council’s plan for the northeast emphasized an FDI-led development strategy through Japanese, South

Korean, and European investment.710 FDI as a share of provincial GDP, however began to increase in Yunnan and Xinjiang from the early 2000s, especially in Yunnan, where FDI openness surpassed Jilin’s level in 2010. Furthermore, Beijing’s promotion of outward investment has driven Chinese state and private investment to less developed neighbors on the western border over the past decade.

Most importantly, China’s border development is as much about domestic economic and political integration as about integrating its marginalized regions with surrounding Asian markets. The envisioned linkages between China and Asia’s regional development is clearly embodied in Beijing’s principle of “linking the outside and inside, east and west” (外引内联，东联西出，西来东去), currently centered on opening western China to Central and South/Southeast Asia. 711 The political imperative of

709 PRC State Council, “国务院关于实施西部大开发若干政策措施的通知 (State Council Notice on Several Policy Measures for Implementing Western Development),” Guofa 33 (2000); Li Wanming, Li Cuijin and Xue Ping, “西部大开发的现状分析及前景展望 (Analysis of the Current Status of Opening Up the West and Future Prospects),” 新疆农业经济 (Xinjiang Agricultural Economy) 1 (2005): 28-29; Sun Tianqi and Liu Wei, “西部开发与东北振兴-两大区域经济结构的比较与支持政策的思考 (Opening Up the West and Reviving the Northeast – Comparison of Regional Economic Structure and Thoughts on Policy Support),” 河南经融管理学院学报 (Journal of Henan College of Financial Management) 6 (2004): 68-69; Lu Lijun and Zheng Yanwei, 东部企业西进的模式与行为 (Model and Behavior of Eastern Enterprises Moving West) (Beijing: Zhongguo jingji chubanshe, 2004). 710 PRC State Council, “国务院办公厅关于促进东北老工业基地进一步扩大对外开放的实施意见 (State Council Office Opinions on Implementing the Further Opening of the Northeast Old Industrial Bases to the Outside),” Guofa 36 (2005), and 振兴东北地区等老工业基地 2004 年报告 (2004 Report on Reviving the Northeast and Old Industrial Bases) (Beijing: Zhongguo caizheng jingji chubanshe, 2005); Zhang Guohong, “外商直接投资与经济增长-兼论东北老工业基地振兴中利用外资问题 (Foreign Direct Investment and Economic Growth – The Problem of Foreign Investment Utilization in Reviving the Northeast Old Industrial Bases),” 学术交流 (Scholarly Exchange) (2005): 83-84. 711 “新疆向西开放战略：外引内联东联西出西来东去 (Xinjiang’s Strategy of Opening to the West: Linking the Inside and Outside, East and West),” Xinhua, 27 May 2010; “新疆：对外开放大通道，东联 西出桥头堡 (Xinjiang: Grand Path to Opening to the Outside: Bridgehead Linking East and West),” Xinhua, 16 September 2011. 222 promoting national unity is an enduring feature of China’s development strategy since

Deng’s designation of coastal zones facing Taiwan and Hong Kong in the 1980s, aimed to promote not just export-led growth but also eventual reunification.712

Compared to the coastal case, however, China’s inland development amplifies the internal political challenges of opening up economically marginalized but strategically important frontier regions. China’s inland shift in 2000 coincided with the State Ethnic

Affairs Commission’s national campaign of “Reviving the Border, Enriching Its People”

(振兴边境、富裕边民, or 兴边富民), aimed to promote both balanced development of inland and coastal regions, and national political unity.713 Research initiatives led by the

State Council and State Ethnic Affairs Commission in 2004 produced proposals for creating a “western border international economic cooperation belt” (缘西边境国际经济

合作带), now officially encapsulated in Beijing’s OBOR strategy of national development since 2013.714 But while Beijing’s coastal strategy and its emphasis on integrating Greater

China was also partly motivated by political aspirations of national unification, the ethnic diaspora networks along the inland frontier are instead perceived as a threat to national unity and border stability. As most clearly manifested in the Xinjiang case, the security

712 Harry Harding, “The Concept of ‘Greater China’: Themes, Variations, and Reservations,” China Quarterly 136 (1993): 660-672. 713 Yang Yang and Zhu Xiaoyun (Xinjiang Party School), “新疆实施“兴边富民行动”的主要模式 (The Main Mode of Xinjiang’s Implementation of “Reviving the Border and Enriching Its People”),” 实事求是 (Seek Truth From Facts) 4 (2010); He Xiaofang, 兴边富民与安邻、睦邻、富邻关系研究 (Study on the Relationship between “Revitalizing Border Regions and Enriching Their People” and a “Secure, Good, Prosperous Neighborhood”) (Beijing: Renmin chubanshe, 2014). 714 Dong Fan, “缘西边境国际经济合作带的构建依据与发展规划(Proposal for An International Economic Cooperation Belt along China’s Western Border),” 北 京 师 范 大 学 学 报 (Journal of Beijing Normal University) 5 (2004). 223 implications of economic liberalization make local leaders more tightly bound by the need to satisfy both central mandates of producing growth and maintaining order.715

Debates on China’s national economic model from the period of rapid growth in the 1990s to the current post-global financial crisis period have questioned the sustainability of what is now referred to as the “Beijing Consensus” or “authoritarian capitalism.”716 China’s global economic orientation, however, will critically depend on the direction of China’s own regional development. Just as local discrepancies in economic performance may make it more difficult for China’s leaders to advance a unified reform agenda at home, China’s “partial” engagement with the global economy may corrode the legitimacy of the Chinese capitalist model abroad.

Contributions

The domestic-international dynamics of liberalization are empirically significant in the globalized world economy, but obscured by theoretical traditions fixed at one level of analysis. By looking inside the state, Gourevitch’s second-image-reversed, models of open economy politics, and the British “new political economy” schools present alternatives to conventional explanations of openness that emphasize changes in the power, institutional, or normative structure of the international system. A common point of concern in both

715 Yang Xianming, 超越预警：中国西部欠发达地区的发展与稳定 (The Development and Stabilization of Less Developed Areas in Western China) (Beijing: Renmin chubanshe, 2013); Lai Hongyi, “National Unity and Security in China’s Western Development,” Provincial China 8-2 (2003): 123-125. 716 Zhang Jun, “Making Sense of China’s Growth Model,” Project Syndicate, 20 January 2014; Joshua Kurlantzick, “Why the ‘China Model’ Isn’t Going Away,” The Atlantic, 21 March 2013; Huang Yasheng, “Rethinking the Beijing Consensus,” Asia Policy 11 (2011): 1-26; Zhao Suisheng, “The China Model: Can It Replace the Western Model of Modernization?” Journal of Contemporary China 19-65 (2010): 419-436; “The China Model: The Beijing Consensus is to Keep Quiet,” The Economist, 6 May 2010. 224

“new” and “old” political economy scholarship, however, is the relative weight of internal and external factors rather than their dynamic interaction over time.717

This division in the political economy literature is reflected in accounts of China’s reform experience since 1978. 718 From the perspective of domestic interests and institutions, new coalition alignments among the winners from free trade, including labor- intensive, light industries in coastal regions, drove the liberalization of China’s foreign trade regime from the 1980s. The period after WTO entry in 2001 further shows that market forces led by the private sector, rather than state capitalism, are increasingly shaping

China’s development path. On the other hand, regional and sectoral differences in openness suggest that the final form of economic liberalization remains constrained by elite preferences and centralized state institutions. Although global market pressures opened up the textile and shipbuilding industries in the early phase of national reform, a key feature of China’s FDI reforms is the selective regulation of strategic sectors like energy, infrastructure, and finance. Similarly, waves of selective decentralization and recentralization have served as an institutional mechanisms of central control over local counterparts in rural and wealthy coastal areas.

As my case studies demonstrate, reform outcomes clearly depend on not just the relative power and influence of the central state versus other stakeholders, but also the processes of their interaction under changing conditions of interdependence. This study makes three broader contributions to the fields of political economy and China studies:

717 Thomas Oatley, “The Reductionist Gamble: Open Economy Politics in the Global Economy,” International Organization 65-2 (2011): 311-341; Robert Keohane, “The Old IPE and the New,” Review of International Political Economy 16-1 (2009): 34-46. 718 David Zweig and Chen Zhimin, “International Political Economy and Explanations of China’s Globalization,” in China’s Reforms and International Political Economy, ed. Zweig and Chen (New York: Routledge, 2007), 1-18. 225

Non-Central State Agency

Local economic autonomy is a fundamental governance issue that has not only possessed

China’s leaders since the dynastic era, but also confronted other advanced and developing economies since the “localization” of foreign policy from the 1970s – ranging from federal systems like the United States, centralized systems like France, and India, where decentralization over the past few decades has also facilitated what has largely been coastal-led growth.719 Especially compared to European variants of transborder integration, where state authority has shifted upwards to the supranational level, the Asian case highlights the expanding boundaries of local state agency under conditions of increased interdependence. But the real analytical question is not whether substate actors are more or less powerful in pursuing their interests, but when and how they are more or less powerful. China’s border development corresponds to general empirical patterns of

“multilayered” interdependence that require a reframing of traditional globalization debates on the 1990s on either the “end of the state” or “bringing the state back in.” The focus should instead be on the (re)alignment of stakeholders that makes possible coordination and even manipulation, as shown by local leaders’ interpretation of central policy directives and the center’s selective management of local and external responses in line with national objectives.

719 Brian Hocking, Localizing Foreign Policy: Non-central Governments and Multilayered Diplomacy (New York: St. Martin’s Press, 1993); Cal Clark and Robert Montjoy, ed., Globalization’s Impact on State-Local Economic Development Policy (Huntington: Nova Science Publishers, 2001); Mark Beeson, “Rethinking Regionalism: Europe and East Asia in Comparative Historical Perspective,” Journal of European Public Policy 12 (2005): 969-985; William Antholis, Inside Out, India and China: Local Politics Go Global (Washington: Brookings Institution Press, 2013); Barry Naughton and Yang Dali, ed., Holding China Together: Diversity and National Integration in the Post-Deng Era (Cambridge: Cambridge University Press, 2004). 226

Authoritarian Leadership and Market Transition

By pointing to the implications of authoritarian political leadership and market transition, this study responds to the political economy literature based largely on the experience of advanced capitalist democracies. Specifically, China’s case highlights the significance of state as well as private interests, the central state’s management of both bottom-up and external forces of economic liberalization, and the internal and external security dimensions of foreign economic policy.

China’s Regional Development

Third, by tracing the subnational dynamics of state behavior, this study responds to conventional explanations of China’s external orientation as a response to changes in the international system, most notably viewed through the lens of major-power competition for regional influence.720 Current debates on China’s engagement of Asian neighbors through new initiatives like the Asian Infrastructure Investment Bank (AIIB) in response to U.S.-led “alternatives” reflect such views. Beijing’s current promotion of Asian integration under Xi Jinping’s Silk Road initiative, however, can be traced to long-term development interests of China’s own regions embedded in China-centered economic multilateralism in Asia since the 1990s.721 In addition, previous case studies of China’s

720 John Mearsheimer, “Can China Rise Peacefully?” The National Interest, 25 October 2014; Avery Goldstein, “Power Transitions, Institutions, and China’s Rise in East Asia: Theoretical Expectations and Evidence,” Journal of Strategic Studies 30-4 (2007): 639-682; James Townsend, “Reflections on the Opening of China,” in Perspectives on Modern China: Four Anniversaries, ed. Kenneth Lieberthal, Joyce Kallgren, Roderick MacFarquhar, and Frederic Wakeman Jr. (Armonk: M.E. Sharpe, 1991), 387-417. 721 Peter Katzenstein, A World of Regions: Asia and Europe in the American Imperium (Ithaca, Cornell University Press, 2005), 188-192; James Mittelman, “Subregional Responses to Globalization,” in Mittelman, The Globalization Syndrome: Transformation and Resistance (Princeton: Princeton University Press, 2000), 147-162; Chen Xiangming, As Borders Bend: Transnational Spaces on the Pacific Rim (New York: Rowman and Littlefield, 2005), 142-184. 227 subnational development have been framed by coastal-inland comparisons at earlier phases of national opening since 1978. By emphasizing change and variation within the inland periphery, I present the other side of what have primarily been coastal accounts of China’s global economic integration.

Further Research

Finally, this study ties to three areas of further research: (1) domestic-international linkages in political economy, (2) subnational analysis in Chinese political economy, and (3) the politics of transborder development.

Domestic-International Interactions in Political Economy

First, this study advances a “third-wave” transition in political economy scholarship focused on how the interaction of domestic and international processes shape foreign policy choices, linking conventional system-level explanations of openness and domestic politics-centered alternatives.722 China’s case since 1978 draws particular attention to how external forces of economic liberalization constrain, and are constrained by, domestic interests and institutions.723

722 Oatley, “The Reductionist Gamble;” Susan Sell, “Ahead of Her Time? Susan Strange and Global Governance,” in Susan Strange and the Future of Global Political Economy: Power, Control and Transformation, ed. Randall Germain (New York: Routledge, 2016); Michael Allen, “The Influence of Regional Power Distributions on Interdependence,” Journal of Conflict Resolution (2016): 1-28; Henry Farrell and Martha Finnemore, “Ontology, Methodology, and Causation in the American School of International Political Economy,” Review of International Political Economy 16-1 (2009): 58-71. 723 Shaun Breslin, China and the Global Political Economy (Houndmills: Palgrave Macmillan, 2007); David Zweig and Chen Zhimin, ed., China’s Reforms and International Political Economy (New York: Routledge, 2007). 228

Systematic approaches to analyzing such domestic-international linkages have emerged in four strands of literature in comparative and international political economy.

By emphasizing positive feedback effects that reinforce political support for free trade, research on the domestic politics of trade liberalization draws attention to the temporal sequence of policy choices shaped by bottom-up responses.724 The global financial crisis regenerated research applying historical institutionalism to political economy similarly focused on temporal process and external factors in particular as a source of endogenous change.725 This work on transnational interactions could be further integrated with the literature on policy diffusion centered primarily on international processes of coercion, competition, learning, and emulation,726 as well as the IR literature on network effects that reconceptualizes power in terms of the position of actors in global networks rather than a hierarchical state system.727

724 John Barton, Judith Goldstein, Timothy Josling, and Richard Steinberg, The Evolution of the Trade Regime: Politics, Law, and Economics of the GATT and the WTO (Princeton: Princeton University Press, 2006); Oona Hathaway, “Positive Feedback: The Impact of Trade Liberalization on Industry Demands for Protection,” International Organization 52-3 (1998): 575-612; Helen Milner, Resisting Protectionism: Global Industries and the Politics of International Trade (Princeton: Princeton University Press, 1988); Paul Pierson, “When Effect Becomes Cause: Policy Feedback and Political Change,” World Politics 45-4 (1993): 595-628. 725 Henry Farrell and Abraham Newman, “Making Global Markets: Historical Institutionalism in International Political Economy,” Review of International Political Economy 17-4 (2010): 609-638, and “Domestic Institutions Beyond the Nation State: Charting the New Interdependence Approach,” World Politics 66-2 (2014): 331-363; Orfeo Fioretos, “Historical Institutionalism in International Relations,” International Organization 65-2 (2011): 367-399; Susan Sell, “The Rise and Rule of a Trade-Based Strategy: Historical Institutionalism and the International Regulation of Intellectual Property,” Review of International Political Economy 17-4 (2010): 762-790; Paul Pierson, Politics in Time: History, Institutions, and Social Analysis (Princeton: Princeton University Press, 2004). 726 Fabrizio Gilardi, “Transnational Diffusion: Norms, Ideas, and Policies,” in Handbook of International Relations, ed. Walter Carlsnaes, Thomas Risse, and Beth Simmons (Thousand Oaks: Sage, 2012), 453-477; Beth Simmons, Frank Dobbin, and Geoffrey Garrett, “Introduction: The International Diffusion of Liberalism,” International Organization 60-4 (2006): 781-810; Beth Simmons and Zachary Elkins, “The Globalization of Liberalization: Policy Diffusion in the International Political Economy,” American Political Science Review 98-1 (2004): 171-189. 727 Miles Kahler, ed., Networked Politics: Agency, Power, and Governance (Ithaca: Cornell University Press, 2009); Emilie Hafner-Burton, Miles Kahler, and Alexander Montgomery, “Network Analysis for International Relations,” International Organizations 63-3 (2009): 559-592. 229

Subnational Analysis in Chinese Political Economy

Second, this study joins two major trends in the Chinese political economy literature since the late 1990s: (1) a move from debates on the causes and direction of national reform to analyses of local economic variation, and (2) a move away from traditional statist assumptions to a focus on non-state actors and transnational processes.728 Regional case studies in Chinese political economy correspond to a broader subnational and “multilevel” turn in comparative politics reinforced by general empirical trends of decentralization, theoretical efforts to “scale down” the state, a growing interest in local periphery politics, and technological advances in the study of spatial data. 729 Employing institutional, ideational, and historical approaches to explain regional differences, this work further distinguishes itself from earlier studies on decentralization by presenting China’s regional economies as independent entities undergoing endogenous change rather than simply responding to national policy priorities.

Chinese subnational case studies have centered on two main questions: (1) the impact of decentralization on Chinese economic reforms, emphasizing experimentation, learning, and adaptation by empowered local agents;730 or (2) the limits of local autonomy, emphasizing central control over diverse subnational actors as a source of the CCP’s

728 Meg Rithmire, “China’s “New Regionalism”: Subnational Analysis in Chinese Political Economy,” World Politics 66-1 (2014): 165-194; Gregory Chin, Margaret Pearson, and Wang Yong, “Introduction – IPE with China’s Characteristics,” Review of International Political Economy 20-6 (2013): 1145-1164. 729 Daniel Ziblatt and Lily Tsai, “The Rise of Subnational and Multilevel Comparative Politics,” Annual Review of Political Science 14-1 (2010); Zuo Cai, “Scaling Down: Subnational Comparative Case Studies in Comparative Politics and Chinese Politics,” European Political Science 14-3 (2015): 318-339; Richard Snyder, “Scaling Down: The Subnational Comparative Method,” Studies in Comparative International Development 36-1 (2001): 93. 730 Cai Hongbin and Daniel Treisman, “Did Government Decentralization Cause China’s Economic Miracle?” World Politics 58-4 (2006): 505-535; Lawrence Lau, Yingyi Qian, and Gerard Roland, “Reform without Losers: An Interpretation of China’s Dual-Track Approach to Transition,” Journal of Political Economy 108- 1 (2000): 120-143; Gabriella Montinola, Yingyi Qian, and Barry Weingast, “Federalism, Chinese Style: The Political Basis for Economic Success in China,” World Politics 48-1 (1995): 50-81. 230 political resilience.731 The primary concern is on the implications of local variation for the sustainability of the Chinese growth model and in turn CCP survival. This focus on the fragmentation of governance is also evident in subnational research on democracies in post-

Cold War Europe.732 But rather than viewing local and central state authority in zero-sum terms, a focus on their mutual dependence expands the scope of research on subnational variation in Chinese political economy. 733 In addition to vertical mechanisms of governance, the expansion in horizontal networks among China’s regions has also been part of central efforts to manage the growing tensions between central control and local autonomy.734

Transborder Regions

China’s inland policy reorientation has been accompanied by a revival in Chinese scholarship on the development of border regions over the past decade.735 While the last

731 Pierre Landry, Decentralized Authoritarianism in China: The Communist Party’s Control of Local Elites in the Post-Mao Era (New York: Cambridge University Press, 2008); Maria Edin, “Remaking the Communist Party-State: The Cadre Responsibility System at the Local Level in China,” China: An International Journal 1-1 (2003): 1-15. 732 Eduardo Moncado and Richard Snyder, “Subnational Comparative Research on Democracy: Taking Stock and Looking Forward,” Comparative Democratization 10-1 (2012): 4-9; Tomila Lankina, “Sisphean Endeavor or Worthwhile Undertaking? Transcending Within-Nation, Within-Region Subnational Democracy Analysis,” Comparative Democratization 10-1 (2012): 14-18; Tomila Lankina, Alexander Libman, and Anastassia Obydenkova, “Authoritarian and Democratic Diffusion in Post-Communist Regions,” Comparative Political Studies 49-12 (2016): 1599-1629; Kersbergen, Kees van, Robert Lieshout and Grahame Lock, Expansion and Fragmentation: Internationalization, Political Change, and the Transformation of the Nation State (Amsterdam: Amsterdam University Press, 1999). 733 Jae Ho Chung, Centrifugal Empire: Central-Local Relations in China (New York: Columbia University Press, 2016), and “The Evolving Hierarchy of China’s Local Administration: Tradition and Change,” in China’s Local Administration: Traditions and Changes in the Sub-National Hierarchy (Abingdon: Routledge, 2009), 1-13. 734 Jae Ho Chung, Centrifugal Empire: Central-Local Relations in China (New York: Columbia University Press, 2016). 735 For example, China’s leading research database shows a sharp increase in the number of Chinese journal articles on border development and opening (沿边开发开放) in 2006-2014, after a period of general decline since 1994. Most of the current literature centers on the Heilongjiang-Russia and Guangxi-Southeast Asia cases. www.cnki.net. 231 peak in scholarly interest on border development emerged in the mid-1990s after the establishment of Border Economic Cooperation Zones in 1992, the recent growth in research corresponds to a second phase in China’s border opening from the 17th Party

Congress in 2007, and the central government’s subsequent ten-year plan for border development (2011-2010).736 Xi Jinping’s promotion of OBOR since 2013 has stimulated debate on the external strategies of border regions,737 as suggested by a new high-level forum on border development since 2012 led by the Heilongjiang and Guangxi Academies of Social Sciences, and similar collaborations between national research bodies, local government and academic institutions, and Asian regional partners.738 Beijing’s current revival of “Silk Road” integration corresponds to forecasts of an eastward reorientation in the world’s economic center over the next decade, and is further supported by national policy narratives on the ideational projections of Chinese power, as embodied in the

“Chinese Dream” of “national rejuvenation.”739

736 “我国沿边地区开发开放规划正在编制 (China Compiling its Border Development and Opening Plan),” 商业研究 (Commercial Research) 3 (2013). 737 PRC State Council, “关于支持沿边重点地区开发开放若干政策措施的意见 (Opinions on Several Policy Measures for Supporting the Development and Opening of Key Border Areas),” Guofa 72 (2015); Cao Min and Zhang Zhen, “推进沿边重点地区开发开放步伐 构筑推进“一带一路”建设重要支撑——国 家发展改革委、商务部有关负责人答记者问 (Accelerating the Pace of Opening and Development of Key Border Areas to Promote the Construction of “One Belt One Road”: Interviews with the National Development and Reform Commission and Ministry of Commerce),” 中国经济导刊 (China Economic and Trade Herald) 3 (2016). 738 “首届“中国沿边地区发展高层论坛”在哈尔滨举行 (The First “High-Level Forum on the Development of China’s Border Regions” Held in Harbin),” 黑龙江社会科学 (Heilongjiang Social Sciences) 3 (2012); Deng Shihai, ““中国沿边开发开放与周边区域合作”国际学术研讨会综述 (Summary of the International Symposium on “China’s Border Development and Opening and Cooperation with Surrounding Regions),” 中国边疆史地研究 （Chinese Borderland History and Geography Studies）1 (2015). 739 Richard Dobbs, James Manyika, and Jonathan Woetzel, No Ordinary Disruption: The Four Global Forces Breaking All the Trends (New York: PublicAffairs, 2015). For the domestic and external motivations of the “Chinese Dream,” see Xi Jinping, The Governance of China (Beijing: Foreign Languages Press, 2014), 37- 39; 53-60; and 315-324. 232

This study highlights the broader conceptual and methodological significance of transborder regions as a framework for analyzing the interactive relationship between national and global political economies. 740 As configurations of state authority and opportunities for economic, political, and social integration, border regions present rich possibilities for exploring the transnational dynamics of globalization.741 While this study has focused on cross-border economic integration and its varying effects on local development, it opens to two areas of related research: (1) the security dimensions of interdependence, and (2) the normative implications of globalization from the perspective of cultural identity and assimilation. Further research on the politics of transborder development would encourage meaningful dialogue across the political science subfields and other disciplines within area studies.

740 Allen Scott, Regions and the World Economy: The Coming Shape of Global Production, Competition and Political Order (Oxford: Oxford University Press, 1998). 741 Paul Ganster and David Lorey, ed., Borders and Border Politics in a Globalizing World (Lanham: SR Books, 2005); Michele Lamont and Virag Molnar, “The Study of Boundaries in the Social Sciences,” Annual Review of Sociology 28 (2002): 167-195; Markus Perkmann and Ngai-Ling Sum, ed., Globalization, Regionalization and Cross-Border Region (New York: Palgrave Macmillan, 2002); Oscar Martinez, ed., Across Boundaries: Transborder Interaction in Comparative Perspective (El Paso: Texas Western Press, 1986). 233

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Appendix

Table A.1 Sources: Chinese Economic Data

Source Compiler Publisher Years National China Statistical Yearbook (中国统 National Bureau of China 1981-2014 计年鉴) Statistics Statistics Press China Commerce Yearbook (中国商 Ministry of Ministry of 1984-2014 务年鉴) Commerce Commerce

China External Economic Statistical National Bureau of China 1994-2005 Yearbook (中国对外经济统计年鉴) Statistics, Trade & Statistics Press External Economic Statistics Division China Trade and External Economic National Bureau of China 1990-2013 Statistical Yearbook (中国贸易外径 Statistics, Trade & Statistics Press 统计年鉴) External Economic Statistics Division

China Economy and Trade Yearbook PRC State Council 中国经济出版 2013 (中国经济贸易年鉴) State-Owned Asset 社 Supervision & Administration Commission China Reform Yearbook (中国改革 National 2013 年鉴) Development and Reform Commission Regional China Statistical Yearbook for National Bureau of China 2013 Regional Economy (中国区域经济 Statistics Statistics Press 统计年鉴) China Development Yearbook for China 2013 Regional Economy (中国区域经济 Financial and 发展年鉴) Economic Publishing House Development Zones Yearbook (中国 China 2013 开发区年鉴) Financial and Economic Publishing House 298

China Central Western Area National China 2006 Development Yearbook (中国中西部 Development and Financial and 地区开发年鉴) Reform Economic Commission Publishing House Jilin Jilin Statistical Yearbook (吉林统计 Statistical Bureau China 1984-2014 年鉴) of Jilin Province Statistics Press Jilin Yearbook (吉林年鉴) Jilin Yearbook 2013 Press Almanac of Jilin’s Economic and 2011 Technical Cooperation (吉林经济技 术合作年鉴) Yunnan Yunnan Statistical Yearbook (云南统 Statistical Bureau China 1988-2014 计年鉴) of Yunnan Statistics Press Province Yunnan Economic Yearbook (云南经 Statistical Bureau 2013 济年鉴) of Yunnan Province Yunnan Yearbook (云南年鉴) Yunnan 2013 Yearbook Press Xinjiang Xinjiang Statistical Yearbook (新疆 Statistical Bureau China 1989-2014 统计年鉴) of Xinjiang Uighur Statistics Press Autonomous Region Xinjiang Yearbook (新疆年鉴) China 2013 Statistics Press

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