Provincial Wars Over Trade Concern Chinese

CHINA'S leaders are battling an outbreak of regional trade protectionism that is carving the nation's economy into ``fiefdoms'' and reviving age-old fears of warlordism and political partition. Throughout the country, local governments backed by police and armed militia are waging inter-provincial trade wars by setting up illegal blockades against nonlocal products, Chinese officials say.

``The current wave of protectionism is the worst in the last 40 years in terms of the variety of barriers and scope of products involved,'' says Zhang Caiqing, a Commerce Ministry official who monitors domestic trade. ``It exists to a certain extent in every province.''

From China's rugged northwest to the eastern seaport of Tianjin, regions have banned the import of scores of goods ranging from bicycles and washing machines to soap, according to officials and state press reports.

Local authorities in different provinces have set up thousands of checkpoints to screen incoming traffic along roads and waterways. The roadblocks collect so much cash through hundreds of indiscriminate fines and fees that some areas call them ``smokeless industry,'' official reports say. (See story below at right.)

To force consumers to shop locally, some regions have illegally minted their own currency. Others have ordered factories to buy quotas of native products and threatened to cut off the electricity of companies that smuggle in outside goods.

Trade protectionism is one response of financially strapped local governments to a nationwide austerity drive begun in September 1988. Austerity has caused China's worst market slump in a decade, doubling losses at state enterprises as the value of stockpiled goods leapt 50 percent to $23 billion. Regions are scrambling to shore up falling revenues and protect local jobs.

But the ``wattled walls'' rising between regions signify far more than a reaction to a sluggish market, Chinese officials say. Historically, they symbolize a resurgence of ancient, centrifugal forces that have challenged rulers of this vast country since Emperor Qin Shi Huang first unified China in 221 BC.

Internal documents have identified the rich, free-wheeling southern province of Guangdong as a possible hotbed for secession, Chinese sources say. ``The pursuit of [regional] interests, if unchecked, will lead not only to economic separatism but also to ... the creation of `impenetrable,' independent kingdoms,'' wrote Labor Ministry official Dang Xiaojie in a recent book entitled ``Economics of Bloc Authorities.''

Today, the trade barriers also represent the distortions of an economy caught between central planning and a market system, as China's leaders wrangle over whether to reimpose state controls or advance market-oriented reforms. Communist Party conservatives blame the blockades on a misguided dispersion of economic powers by the central government to regions since 1979. ``There has been too much decentralization,'' warned Yuan Mu, the conservative spokesman of the State Council, China's Cabinet, last month. ``Our urgent task is to correct decentralization, the carving up of the market, and regional blockades,'' Mr. Yuan told the official People's Daily.

Advocates of reform, however, argue that old-fashioned central mandates are no match for robust new regional interests. ``Even if the central government tried to retrieve all the powers it delegated to local governments, it would be of no use because reform has altered the pattern of interests,'' says Qiao Gang, an official at the State Council's Development Research Center.

Local trade barriers mainly reflect China's failure to push through key market-oriented reforms, Mr. Qiao and other officials say. They add that regions will act out of their own interests to form an integrated, national market if Beijing frees prices, promotes private property rights, and gives enterprises autonomy.

Short of enacting politically risky market reforms, Beijing cannot hope to eradicate the regional trade protectionism, which has reached a level unsurpassed since the warlord era of the 1920s and '30s, officials say.

Local protectionism was minimal under China's highly centralized system from the 1950s to the 1970s, when Beijing allocated goods, capital, and labor with a top-down economic plan. Provinces had little say. But reforms launched by senior leader Deng Xiaoping in 1979 boosted provincial authority. To spur growth, Beijing granted regions broad powers over local revenue, investment, and economic management. At the same time, Beijing failed to create the tools of market regulation that would have curbed local authority.

Protectionism first appeared in 1980, soon after provincial authorities took charge of an economy still deeply distorted by China's fixed-price network. Regions began restricting the outflow of grain and other scarce commodities with low fixed prices. Provinces hoarded raw materials to supply thousands of new factories. Today the hoarding continues, with the cotton of Henan, the coal of Shanxi, and the soybeans of Heilongjiang hard to procure in other provinces, official press reports say.

But the depressed retail market has shifted the focus of protectionism from raw materials to processed goods. Thousands of tiny, shoestring factories spawned in the provinces during boom years now face bankruptcy. Color TV sets, refrigerators, and cars that once provided local revenue are rusting in warehouses.

The government announced a tightening of ministerial controls last month over the output of textiles, electronics, and light industrial goods. In August, Beijing ordered ministries to set up interprovincial enterprise conglomerates to cut through blockades. It has also reimposed state monopolies over cotton, grain, and other strategic goods.

Under a new five-year economic plan, Beijing says it will seek to expand its portion of local revenues. Nevertheless, regional leaders are fiercely resisting Beijing's drive to check their power, Western diplomats and Chinese sources say.

``For a long time, the central government controlled everything,'' says a Chinese journalist. ``Now, regions have the powers of small kingdoms.''

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