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China Policy Institute Discussion Paper 8 DE FACTO FEDERALISM AND DYNAMICS OF CENTRAL­LOCAL RELATIONS IN CHINA by Professor Yongnian ZHENG © Copyright China Policy Institute June 2006 China House University of Nottingham University Park Nottingham NG7 2RD United Kingdom Tel: +44 (0)115 846 7769 Fax: +44 (0)115 846 7900 Email: [email protected] Website: www.nottingham.ac.uk/china­policy­institute The China Policy Institute was set up to analyse critical policy challenges faced by China in its rapid development. Its goals are to help expand the knowledge and understanding of contemporary China in Britain, to help build a more informed dialogue between China and the UK and to contribute to government and business strategies. 1 De Facto Federalism and Dynamics of Central­Local Relations in China By Yongnian Zheng Abstract China does not have a federalist system of government. Nevertheless, with deepening reform and openness, China’s political system in terms of central­local relations is functioning more and more on federalist principles. Federalism as a functioning system in China has been understudied. This paper defines the political system existing in China as de facto federalism, and attempts to explore the sources and dynamics of this federalism. China’s de facto federalism has mainly been driven by two related factors—decentralization and globalization. This paper argues that while economic decentralization in the 1980s led to the formation of de facto federalism, globalization since the 1990s has accelerated this process and generated increasingly high pressure on the Chinese leadership to institutionalize de facto federalism. 2 De Facto Federalism and Dynamics of Central­Local Relations in China By Yongnian Zheng * China does not have a federalist system of government—it has neither constitutional division of power between the different levels of government nor separation of power within the branches of government. Nevertheless, with deepening reform and openness, China’s political system in terms of central­local relations is functioning more and more on federalist lines. The growth of socio­ economic infrastructure favourable for federalism has led China scholars, especially Chinese dissident scholars, to use the term of federalism when they refer to China’s central­local relations. Nonetheless, federalism as a functioning system in China has been understudied. This paper defines the political system existing in China as de facto federalism, and attempts to explore the sources and dynamics of this federalism in an era of reform and openness. Defining federalism: formal institutional vs. behavioural In academic circles, federalism is usually defined in two ways. First, it can be defined from a formal institutional perspective. In this context, federalism is often regarded as a form of government that differs from unitary structures in terms of the distribution of power between central and sub­national governments, the separation of powers within the government and the division of legislative powers between national and regional representatives. In this sense, a true federation involves both a distribution of political power specified in the constitution and a direct relationship between political power and the individual citizen. Only a few countries fit what could be called an ideal model of federalism. For example, K. C. Wheare (1964) regards the United States, Canada and Switzerland as federal countries but Malaysia and India only as “quasi­federal.” This is because states and local governments in the former are not totally dependent on their central government for matters that are local in nature, while in the latter they depend heavily upon their national government despite the fact that these nations possess a federal structure. Federalism presents itself in various forms of institutional arrangement. These forms can be divided into parliamentary federalism (for example, Canada and Germany), and presidential federalism (for instance, in Latin America). A new form of federalism—executive federalism—is also emerging where major constitutional issues are decided by the executive branch rather than by legislatures. Needless to day, federalism works better in some countries than others, and the performance of federalism is often subject to local historical trajectories and institutional arrangements. Germany is an example of where federalism works well. This is due to historical trends that preceded the founding of the Federal Republic in * Yongnian Zheng is Professor and Head of Research, China Policy Institute, University of Nottingham. An earlier version of the paper was presented at the conference on Designing Political Society in a Multi­ Cultural and Plural­Generational World,” Keio University, Japan, November 22, 2005. The author is grateful to all participants for their useful comments on the paper. 3 1949, including a socially and culturally homogeneous population, a tradition of federalism going back several centuries, a strong sense of nationalism and institutional experience with federal processes. World War II accentuated strong regionalism and resulted in a social levelling stemming from massive movement of the German population. The war experience also provided strong incentives for the creation of a system of checks and balances to prevent the rise of dictatorships in the future. Constitutionally, Germany is a parliamentary state that is a fusion between the functions of the executive and legislative branches, and a cooperative and interwoven distribution of executive, legislative, and judicial powers among three branches of government. There is a fixed revenue­sharing system specified in the constitution and a true multiparty system that makes gridlock a distinct possibility on contentious issues. At the same time, the size and scope of German entitlement programmes has led to executive federalism in some areas. Reunification in 1990 created financial strains because of the large resource requirements of the former East Germany, and Germany’s membership of the European Union may create additional federalist issues, since some of the provisions of the EU contradict specifications of the German constitution. In the developing world, federalism has worked less satisfactorily. For example, in Brazil, many of the difficulties stem from key elements of the federalist system that constrain presidential initiative and contribute to policy gridlock: a symmetric bicameralism in which the powerful senate forces the president to explicitly consider a regional balance of partisan forces, severe regional disparities in the legislature, a constitution that embeds many policies and procedures that other countries treat through ordinary law, a very high share of fiscal resources that remain with the sub­national governments, strong governors’ powers coupled with strong propensities for political leaders to seek gubernatorial regional careers and an extremely poor nationalized party system. This form of federalism has seriously constrained reform efforts by the national government. But given the strength of state interests within the national congress, the balance of forces in terms of intergovernmental relations in Brazil is unlikely to change in the near future. Among post­communist countries, Russia is evolving into a federal state. Historically, Russia was a “tribute” state, with a strong impulse toward centralization. Moscow dominates Russia in a way that no other central government dominates its regions, and the party lists guarantee that Muscovites will get elected. The president has too much power, and it will be important to create a functioning system of checks and balances in the face of a strong impulse toward centralization. Possibilities of countervailing forces in Russia will include competitive elections, a functioning central state that can distribute revenue, and a functioning court and legal system to define and enforce a process for dealing with conflict. Russia in transition is developing a federal state structure but it does not fit well into any existing category of federalism. Apparently, federalism is a concept in flex, and presents itself in various forms of political arrangement. If the Chinese state is defined in terms of formal institutions, it cannot be considered federal. The country has constitutionally remained a unitary state whereby all local governments are subordinate to the central government. The principle of territorial distribution of power has not been changed since 1949 when the People’s Republic was established. According to China’s constitution, all provincial governments are local state administrative organs: 4 they must accept the unified leadership by the State Council, implement administrative measures, regulations and decisions by the State Council, and be responsible and report to the State Council (Pu et al., 1995: 223). On the other hand, the State Council can define the specific functions and powers of the local governments, nullify their decisions, locally impose martial law and direct its auditing agencies to conduct inspections of financial discipline. Similarly, while provincial people’s congresses have the right to make local laws, the Standing Committee of the National People’s Congress can annul these laws if they conflicts with national legislation. There is also no clear demarcation regarding the scope and content of the respective legislative authority between the central and provincial congresses.1 Nevertheless, this should not prevent us from classifying

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