Editorial

Inter-governmental relations are at the heart of China’s governance for two fundamental reasons:

• First, its sheer population and geographical size, varying degrees of socio-economic development among the regions, and the many units at five levels of government make inter-governmental relations an omnipresent governance issue.

• Second, decentralization has enabled subnational governments to play crucial, direct and supporting roles in China’s market reform since the late 1970s.

Inter-governmental relations have cause-and-effect relationships with critical issues in public finance and management, even as priorities change. For example, the decades-long emphasis on infrastructure development and debt financing is giving way to providing public services, which calls for redefining the roles of subnational governments (PRC State Council, 2016). Successive waves of reform clearly show that inter-governmental issues are part and parcel of the evolving role of government in China’s economy and society.

New in this PMM theme

Intended to further Public Money & Management’s (PMM) agenda of broadening the journal’s international coverage, this theme aims to say something new about the socio-economic dynamics of evolving inter-governmental relationships in China. We highlight a few points below, while encouraging readers to discover others on their own.

First, our theme features a study of special administrative regions, among other non-standard forms of local government, as a policy innovation. Seldom discussed as such in the academic literature, this innovation has been variously adopted as a reaction to specific historical circumstances (for example the return of two Western colonies) and as an initiative to reach historic goals (for example multi-ethnic society and experimenting market economy). Observing the 20th anniversary of the reversion of Hong Kong and Macao to Chinese sovereignty, the authors of the study describe how the actual implementation of ‘one country, two systems’ has sought to balance the national goal of unity and the local urge for self-governance. This case study actually contains three sub-cases that show how the central government and the two regions have strived to fulfill a 50-year diplomatic pledge even as political, economic and social realities change locally, regionally, nationally and internationally. It illustrates the necessity of accommodation within a co-evolution framework (with ‘voice’ among other actions) when the option of exit does not exist. Lest readers are reminded of Hirschman (1970), we note that in this case, while loyalty is similarly at issue, economic growth has enabled China to sweeten its offerings to Hong Kong and Macao; Hirschman was addressing situations of decline. Of greater potential generalizability is what might be called the Chinese iron law of cyclical association:

A long period of division is inevitably followed by unity, and unity by division.

This conjecture is being confirmed by two current situations elsewhere: Spain restraining a separatist Catalonia; and the European Union negotiating with a departing United Kingdom, which itself has a long colourful history of unions and disunions.

Chinese names

In China, the family name comes first, followed by given name; thus it is Xi Jinping and not Jinping Xi. Most Chinese surnames have one character; most given names have two characters, but sometimes one only. To avoid confusion, the surname of a Chinese person in the text is capitalized when s/he first appears. For example: LI Yang and MA Jun.

Second, the theme presents the emergence of collaborative governance as a new way to solve seemingly intractable inter-governmental problems of matching service function with financing sources along jurisdictional lines. Building on the amply documented trend of decentralization, two papers demonstrate how collaboration has worked or not worked. In one paper, two adjacent municipal governments worked successfully on an integrated urban transportation system and less successfully on improving water quality along a river running through both jurisdictions. In another paper, local regulators enlist the co-operation of businesses and nonprofit organizations to promote compliance with food safety standards set by government. These arrangements stand in sharp contrast to the set-up described in another paper on China’s social safety net programme. There, the central government provides the funding and its local offices administer service delivery and dispense funds. Together these papers convey a sobering sense of inertia and hopeful signs of change.

Without elaboration, we note several additional aspects: half of the papers in our theme deal with human services in a socio-political context, while China’s infrastructure development and creative financing have attracted most professional and popular attention. Also, a majority of the papers in the theme deal with local actions, while recognizing the central government’s dominant role in setting the boundaries of local discretion. Finally, substantive policies are impotent without fiscal capacity, and fiscal capacity is shaped by fiscal policy. China’s fiscal policy is powered by its economy and motivated by its quest for greatness. Therefore, the historical, technical and domestic accounts are complemented by a concluding essay that accentuates the future, the value-laden? and the global, and a call for dialogue on China from a comparative perspective.

The content of the theme

Our theme begins with an article by Wilson WONG and Hanyu XIAO (see p. 411) on how the agreed-upon principle of ‘one country, two systems’ has been implemented in Hong Kong and Macau. As special administrative regions (SARs) of China, they are in a unique constitutional relationship with the central government, and in expanding economic relations with neighbouring jurisdictions. At this 20-year milestone of the 50-year guarantee, the authors detect signs of China’s absorption of Hong Kong and Macao into the thriving regional economy of the adjacent Guangdong Province. The future will tell the pace of de facto political integration in the remaining 30 years of de jure special status.

ZHANG Guang’s (p. 419) historical account of the evolution of China’s inter-governmental fiscal system since the establishment of the People’s Republic of China almost 70 years ago serves two purposes in this theme. As a stand-alone piece, it provides a concise account, and a precise timeline, of fiscal decentralization in the context of evolving overall fiscal policy reforms, as China went through dramatic cycles of political and economic transformation. In relation to the subsequent three papers on specific public services, Zhang’s paper gives a common fiscal framework and shows the critical role of fiscal policy in determining fiscal capacity, which in turn affects the quantity and quality of public services.

The first public service paper, by YU Hong, WANG Li, and Zhirong Jerry ZHAO (p. 427), deals with the financing of China’s basic social safety net, specifically the sharing of financial responsibility by the central government and provincial governments. After tracing the continuing need for public assistance to economic inequality exacerbated by the market economy, the authors address China’s social welfare policy, along with the means of their financing. Following a review of the literature on inter-governmental fiscal relations, they report a quantitative analysis of spending at the provincial level. Their results show a re-centralization in China’s safety net programmes during the period 2004–2014, and the greater reliance of poor provinces on central governmental transfers.

The second public service paper, by May CHU and Jianhua WANG (p. 437), concerns the regulation of food safety in China. The authors identify three phases of risk management and the key players in each phase. These include both government regulators and non-governmental entities. The authors argue that their close collaboration through inter-governmental and other arrangements is essential for success in a highly-dispersed food production and marketing environment. This means that regulators should be aware of the cost borne by the regulated and consumers in the entire food chain. While there is agreement about the government’s legitimate role in regulating food safety, we intend for this paper to indirectly draw attention to the controversial role of government in monitoring and regulating social activities in general.

The third public service paper, by XIE Baojian, YE Lin, and SHAO Zijie (p. 445), covers two more public services that affect people’s quality of daily life: efficient transportation and clean water. Geopolitics takes on a new meaning as integrated transportation systems and rivers often transverse multiple jurisdictions, as in Guangzhou and Foshan in the Guangdong Province. This paper reports the experience of these two municipalities in financing and managing these two public services. While the case for collaboration may seem obvious or even compelling, collaboration is complex in design and difficult to administer. The focus on collaboration among governments foretells a potentially critical development in future inter-governmental relationships in China.

Collectively the papers have some elements of theory and some aspects of practice. They mostly deal with contemporary phenomena during the period after the late 1970s when China opened up to the world and began the market economy reform. We view inter-governmental relations in China as an integral component of Chinese governance system. As such, it could be better understood with a comprehensive view of the strategic issues facing China domestically and internationally. Furthermore, topical research in specialized fields of finance and management could be, and should be, better related to scholarship on Chinese governance from an international comparative perspective. A concluding essay by James CHAN (see p. 453) addresses these issues and calls for a new theory, additional research, and dialogue to find the best way to govern China and the world. We hope that this theme will help prepare PMM’s readers to participate in such a consequential debate.

Concluding remarks

We note in conclusion that the research sites for three out of five papers in this theme are in or near Guangdong Province on the southeast coast of China. (Full disclosure: one of us is a native son of the province, and the other a current resident of Hong Kong, which historically had been part of Guangdong.) By virtue of its geographical location, the people there tend to be more outward-looking and mobile, accounting for a sizeable portion of Chinese now living not only in southeast Asia, but in far-away Britain and North America. They have also played an outsized role in contemporary Chinese history. One hundred years ago, Sun Yat-sen staged the republican revolution that ended over 2,000 years of imperial rule. In 1992, when the nationwide transition to a market economy seemed to falter, DENG Xiaoping made his famous ‘southern tour’ to steady the course of reform. He knew what Vogel (1990) had documented: Guangdong was (always) one step ahead in China. Common folks there have a simpler explanation and keener insight:

Do what you like, as the mountains are high and the emperor far away.

Therefore, throughout history, Chinese rulers, be they emperors or Chinese Communist Party leaders, have to contend with this reality: the top pronounces policy measures, the bottom devises counter-measures.

Acknowledgments

We thank PMM’s editor, Professor Andrew Massey, and managing editor, Michaela Lavender, for their encouragement and support. We are grateful to City University and Education University, both in Hong Kong, for co-sponsoring a workshop in March 2017 where draft papers were presented for critique. Professor Alfred Wu’s efforts were instrumental for the success of the workshop. We appreciate the comments and suggestions made by the following reviewers: Bin CHEN, Gillian Fawcett, GAO Jie, Alfred HO, MA Liang, Ian Scott, Anwar Shah, John K. Yasuda, and Jerry Zhao.

Additional information

Notes on contributors

James L. Chan

James L. Chan is Professor Emeritus of Accounting, University of Illinois at Chicago, USA.

Xiaohu Wang

Xiaohu Wang is Professor of Public Policy, City University of Hong Kong, China.