Beyond Beijing: Liberalization and the Regions in China (review)

In Beyond Beijing, Dali Yang provides a carefully grounded study of the regional dimensions of economic change and public policy in contemporary China. The book focuses on the causes and consequences of the growing disparities between the coastal and the interior provinces in China since the advent of economic reform in the late 1970s. The result is a theoretically informed and empirically based analysis that illuminates the economic logic and causal dynamics of regional development, market formation, and power relations in post-Mao China.

The book begins with an overview of changes in China's regional development policies and practices, from the policies of Mao Zedong, which sought to correct the inherited uneven development between coast and interior by targeting the inland areas for a large share of the nation's industrial investment, to the coastal development strategy of Deng Xiaoping. After four decades of communist rule the patterns of regional development under Deng reverted to those that prevailed when the CCP first came to power. Indeed, while the marketization and decentralization of the national economy would naturally have resulted in faster growth along the coast and in increasing inequalities, Deng's strategy involved preferential treatment for the coast and a distorted price policy that favored the economically more advanced and served to widen the regional gaps in wealth.

Yang argues that the coastal strategy of the reformers was logically and politically correct in that it reduced both the political shocks and the obstacles involved in a "big bang" approach to change, and created a demonstration effect by providing successful models that generated momentum for further reform. Yang uses a simple game-theory model effectively to explicate the dynamics of the "competitive liberalization" that resulted from the coastal strategy. When multiple localities confront fiscal pressure from subsidies or lack of business investment, and one locality liberalizes prices or offers preferential treatment to investors, then goods and investments will move into the liberalized locality while the remaining localities will confront procurement and investment shortages along with continuing fiscal pressure. Thus, once ideological constraints are overcome and the effects of liberalization become clear, local governments have strong incentives to emulate and compete against each other in order to liberalize their practices and offer more attractive terms to investors. As Yang demonstrates in his empirical analysis, the dynamics of competitive liberalization were played out in China and resulted in a bandwagon of special economic zones.

The coast, however, experienced the sustained advantages of early liberalization as the interior faced price distortions that left them selling raw materials to the state at low prices while buying manufactured goods from the coastal region at higher market prices. The pro-coastal policy unjustly exacerbated regional inequalities. Yang argues that the pro-coastal policy helped to consolidate Zhao Ziyang's reform coalition, while at the same time it fostered considerable discontent in the interior and laid the foundation for the mobilization against Zhao in the wake of the Tiananmen crackdown in June 1989.

Although central leadership positions are dominated by a coastal oligarchy, the interior managed to influence the direction of central policy by virtue of their perceived "negative power." That is, there was the potential for continued underdevelopment and relative deprivation in these regions to undermine political stability, economic growth, and national unity. The high concentration of ethnic minorities makes the western provinces particularly sensitive and Yang notes that as a result of these concerns, Tibet and Xinjiang have received more funds from the central government than other provinces. However, problems in these areas are ultimately not economic and thus fall outside the purview of Yang's economic logic.

After 1988, the central government moved toward a policy of more balanced development and imposed a fiscal reform in 1993 in order to accomplish this. Fiscal constraints have made it difficult for the central government to increase investment in the interior. The State Council has attempted instead to use low-cost measures such...