Economic competition between localities in China

[nodular]

from the blog, "Edge Perspectives with John Hagel"

http://edgeperspectives.typepad.com/edge_perspectives/2006/09/index.html

(recommended to read)

two paragraphs in the blog quoted from a 9/15/06 Wall Street Journal article:

"Local governments are encouraging a frenzy of construction to boost their economies – even as China’s central government seeks to throttle back economic growth . . . .

More than a quarter century of economic overhauls has produced a striking contrast in China. Politically, the Communist central government maintains a tight grip over the entire country: economically; it is losing control."


While acknowleging the article's point, the blog goes on to say the WSJ article misses the important point:

"Much of the economic growth of the country has been triggered by intense competition across municipal and provincial governments to attract private investment. As I pointed out in an earlier blog, this is in sharp contrast to Europe and even the United States. In these regions, public policy discussions tend to emphasize the benefits of harmonization of economic policy. China has been pursuing a different approach. Economic policy diverges significantly across provincial and municipal boundaries, leading to very different trajectories of growth and rates of growth. This produces a rich environment of public policy competition, where local governments compete with each other to design more attractive economic policies to attract investment. In many cases, as illustrated by the example of Panyu’s emergence as a center of diamond polishing, the competition leads local governments to choose not to enforce burdensome regulations defined by the national government.

"The result has been an increasingly complex tapestry of economic policies across China. This in turn has led to the emergence and evolution of highly diverse local business ecosystems that make regional centers like Beijing, Shanghai and Shenzhen quite different from each other in terms of business specialization, infrastructure capabilities and talent pools. Adam Segal’s book on Digital Dragon remains one of the most insightful explorations of the business impact of this regional diversity in China's economic policy. Although his particular focus is on the high tech industry, the dynamics he explores are playing out in such diverse industries as diamond polishing, motorcycles and textiles."

The very complexity of the situation in China is overwhelming---as a result, most of us oversimplify it---even, apparently, business executives doing business there.

In the long run, I tend to think it will be impossible for the Chinese government to retain complete political control in such a complex environment. Economically, apparently, they have already ceded much control. I think in this regard, the regions of China are analogous to states in the U.S. (I disagree with Hagel here.)

[Muddy Waters Guitar]

1. I've also read this somewhere

In a genuinely weird paradox, though, China's central government is asserting more control at least with respect to environmental laws-- apparently fostering a sort of competition (with rewards) among the local governments for the ones most environmentally responsible. In fact, China is moving in the direction of Japan as far as tough environmental protection laws.

That would be a very sad irony if a still-authoritarian (though admittedly loosening) central Chinese government proves to be more effective at protecting the environment than one of the world's oldest democracies, in North America. But IIRC, Jared Diamond himself predicted this might occur.

[nodular]

2. As sad irony yes.

However, that possibility is still quite far away. The Chinese environment is just unacceptable at this point. Hopefully, these efforts may yield fruit.