Beijing Tells the Provinces To Slow Down

Zhang Ping, director of China's powerful National Development and Reform Commission (NDRC) — the leading economic planner — called on China's provinces to slow down their economic growth targets for 2011 and take into consideration the effects of growth on "energy, environment, water and land." Zhang said only five or six provinces have lowered their growth targets to 8 or 9 percent — 8 percent being the Communist Party's estimated rate of growth necessary to maintain sufficient job creation. The others have targeted 10 percent growth rates or higher, and some aim to double their total output in five years. Zhang's comments point to the central government's pragmatic desire for the provincial growth targets to be consistent with the national target. Beijing also does not want provinces to set themselves up for a deadline-driven rush that will increase costs or intentionally use fake numbers to please the central government. Beijing eventually wants to reduce its emphasis on using economic indicators to judge political performance, since it sets rapid growth as the sole good, which has led to a variety of economic policy abuses and social distortions. The government wants a more accurate picture, and is urging the provinces to prepare for lower and — ideally — more sustainable growth. It is also trying to alleviate the massive pressure on China's domestic resources and ability to acquire sufficient resources from abroad. The provinces show no self-restraint because they are profiting from the easy credit and endless economic boom and, on a deeper level, because they fear a recession would create unemployment-charged uprisings that would see them alone in their tower under siege. But Zhang's comments are also emblematic of a deep tension in China's system. Struggles between the central political power and the provincial powers define Chinese history. The country has three core economic and population regions — the North China Plain and Yellow River Delta (Beijing), the Yangtze Delta (Shanghai), and the Pearl River Delta (Guangdong) — with mountains splitting the south from the north. In addition, there are other populous enclaves like the Northeast or Sichuan Basin, the far western deserts and wastelands, and the breakaway province of Taiwan. The country is equally disposed to division and warring kingdoms as it is to unity through rigidly centralized bureaucracy. The center demands the regions adhere to its edicts and remain unified to protect against foreign exploitation or invasion; the regions amass wealth for themselves, compete with each other, and ignore or resist the center. The Communist Revolution marked a 30-year period of national reformation and central consolidation. But eventually, China found it needed economic growth, and the opening up of 1978 gave room for special zones and eventually entire provinces to re-engage in market activity. The result was an explosion of economic growth that continues. Within this growth, the economy has waxed and waned, primarily responding to the central government's devolving power to the provinces to allow them to race, and then struggling to tighten the reins. Now, China is manifestly nearing the peak of that super-cycle of economic expansion. The failure of the growth model is particularly a problem after the global crisis when exports collapsed. China poured credit into the economy to skip over the recession, but at the expense of rising costs for the natural resources necessary to maintain this growth and deepening disparities in wealth and social frustrations. Small steps to tighten growth in 2010 had limited effects, giving way to a reassertion of the desire for growth. Thus, the top technicians in control of the country's financial system face the dilemma of making forceful demands to slow the economy at the risk of driving it into the ground — or continuing with small adjustments and thereby revealing their weak will and emboldening the provincial warlords. The provinces show no self-restraint because they are profiting from the easy credit and endless economic boom and, on a deeper level, because they fear a recession would create unemployment-charged uprisings that would see them alone in their tower under siege. Beijing has faced the dilemma before — notably in the late 1980s and mid-1990s — but it is especially hesitant to force its way now because of a monumental political change approaching. The older generation of leaders is passing the torch in 2012-13, and power transitions cannot yet be said to be a casual or comfortable affair in the People's Republic. So, a generational division overlays the central-provincial divisions — some of the young leaders, finding support from the central policy specialists, are more inclined to impose controls on the economy and try to engineer a smooth descent, so that they do not inherit an about-to-burst or already bursting bubble and instead have the option of reaccelerating when they take power to benefit their personal networks and consolidate power. But some powerful voices in the older generation, aided by the provincial warlords and their patrons, seem to lack the appetite for risky policy moves. They are constrained by the niggling fear that however well planned, an attempt to moderate growth now could trigger an irreversible slowdown and the conclusion of the growth super-cycle that has held for the past 30 years. An economic disjunction of that magnitude could in turn precipitate the kind of totalizing socio-political revolution that has occurred every 30 or 40 years in China's modern history. They are demanding a proud legacy when they retire and the regime is demanding a smooth transition for its own sake. But there is no guarantee they will get this, and, for now, the policy tug-of-war intensifies.