China's Provincial Leaders Resist Beijing's Bid to Control Economy

ACTIVISTS are again putting pressure on China's leadership. But unlike the protesters of the 1989 democracy movement, the new champions of reform have been invited to the negotiating table. China's latest activists are city and provincial leaders from across the country who are challenging Beijing's hold on the economy and, ultimately, its dictatorial way of governing.

The ``Establishment activists'' are thwarting efforts by Beijing to take back economic powers granted to regions as part of the economic reforms of the last decade.

With reform-minded national leaders either purged or cowed into passivity, regional leaders are the strongest rivals to conservative Communist Party elders who are trying to revive the power of Beijing in economic planning, say Western diplomats.

Through their resistance, Chinese dissidents and Western diplomats say, the regional leaders are presenting Beijing with a stark choice: Either institute a degree of federalism or face a further decline in central control and possible economic disintegration.

The provincial leaders from vibrant coastal provinces like Guangdong and Jiangsu don't uphold liberal ideals or a program for progressive change. They are simply defending their political powers.

But by pressing for pluralism from within ``the system,'' the local leaders could unwittingly help clear away some of the political obstacles to democratic reform, according to the dissidents.

``The provinces won't let the communist leadership put the genie of reform back in the bottle,'' says a dissident who was jailed for several months for his role in the pro-democracy movement.

``Beijing eventually will have to bow to the power of the regions and condone at least a measure of pluralism,'' the dissident said on condition of anonymity.

Beijing shies from whipping local leaders into line because it must rely on them for revenues and political support. The leadership desperately needs the help of provincial heads to salvage its legitimacy and halt economic decay, say Western diplomats.

Historically, the regional leaders are much like the warlords, upstart mandarins, and charismatic rebels who chipped away at the central power of several declining dynasties in traditional China.

But their quiet regional uprising was, in effect, hatched in Beijing, as party leaders delegated sweeping powers to the provinces during the past decade.

With the approval of the capital, regional leaders dismantled much of the machinery for socialist central planning. They assumed many powers over taxation and economic decision making as part of market-oriented economic reforms.

Beijing is now summoning the regional leaders to a National Planning Conference to cobble together an economic plan for 1991.

The leadership aims to recover full control over taxation and finance. It will especially try to ``greatly curtail'' the power of the regions in lending and granting tax exemptions, says the official newspaper Information Daily.

The fact that the ad hoc meeting is being called testifies to the political heft and defiance of the regional leaders.

For several weeks, Premier Li Peng has vainly tried to persuade leaders from outlying areas to accept a five-year plan and a 10-year plan for the economy that would put renegade regions back under Beijing's thumb.

Because of the deadlock, the leadership has repeatedly put off a meeting of the Communist Party's central committee that will endorse the plans. Originally scheduled for last month, the party plenum will not be held until next month or next year, say Chinese sources and Western diplomats.

With 1991 fast approaching, communist leaders hope to emerge from the coming meeting with a stopgap economic agenda for next year.

The impasse underscores how communist leaders must forego their dictatorial ways and act as consensus builders in order to sustain the political and financial support of the provinces.

The leadership has appealed to the provinces for greater revenue since it shelved reform and began a costly revival of orthodox socialism two years ago. Beijing has just a 47 percent share of total tax income, according to Information Daily.

Several signs show how the revival of orthodox socialism has caused state spending to outstrip state revenue and made Beijing more dependent on provinces:

An austerity program begun 26 months ago that includes a tightening of central controls has caused an economic slump and a reduction in tax revenue.

Beijing next year enters the peak period for repaying domestic debt it incurred largely to forestall unrest among urban workers. It must pay out $2.5 billion on 21 billion yuan in state bonds issued since 1981, say Finance Ministry officials quoted in the official New Century magazine.

China is printing money to feed the inefficient sector of large state enterprise, the sacred cow of the economy in the view of doctrinaire, veteran leaders.

From January to June, Beijing handed over $5.9 billion to the flagging enterprises, but half of the dole went to produce goods that now sit in warehouses as inventory, according to the official Economic Daily.

One third of the large industrial companies, 12,502 of them, are in the red and total losses from the sector registered $2.7 billion for the first half of 1990, or twice the figure for the same period last year.

Beijing still has the institutional tools to shake down the provinces for more revenue. It could deny recalcitrant regions resources and funds in the coming five-year plan.

Also, Beijing could fire uppity provincial and city heads or uproot them from their power bases by reassigning them elsewhere. It has rotated 13 regional and municipal leaders since June 1989 but failed to dislodge others, most notably Guangdong Province Governor Ye Xuanping.

Today, however, the discredited communist leadership must cajole rather than push regional leaders, say the diplomats.

``In the past the party could rely on its prestige and popularity to give it automatic clout on any issue anywhere in China,'' says a Western diplomat. ``But now with the crackdown since last year, economic troubles, and corruption everywhere, the party has lost its legitimacy and it will find it very hard to reverse the decentralization of power.''

The tug-of-war between Beijing and the regions is likely to remain deadlocked until party elders either push China into a severe economic crisis or bow out to moderate leaders who tolerate the dispersal in power, say diplomats and dissidents.