Strategic Decentralization and the Influence of China's Scale

Key Insight

While China is formally a centralized, one-party state, in practice it operates with a high degree of decentralization, a necessity given its immense size and population. Unlike federal systems, there is no formal division of powers, and the Communist Party controls bureaucracy at all levels, with its central Organization Department appointing senior leadership across provinces and cities. Policies like the 'one-child' population control were enforced consistently nationwide. However, local governments enjoy considerable discretion and autonomy. Fiscal decentralization is remarkably high; a 2004 IMF study found that subnational government expenditure averaged 54 percent in China from 1958 to 2002, rising to 85 percent by 2014. This figure is extraordinary compared to 25 percent in democracies and 18 percent in non-democracies over similar periods, making China's observed decentralization levels consistent with federal democracies.

Historically, China was less centrally planned than the Soviet Union, even during its Communist centrally planned economy phase (1956-1979). In 1979, China's central planners controlled 600 commodities and a few thousand prices, whereas the USSR's state planners determined 60000 commodities and millions of prices. Local Chinese governments held substantial authority in allocating key commodities; for instance, in the late 1970s, localities allocated 50 percent of cement, 40 percent of coal, and 25 percent of steel, while the USSR's distribution was almost entirely centrally managed. By 1979, China had 883000 state-run factories, with 800000 controlled by city and county governments, compared to the Soviet Union's 40000, many run from Moscow. This decentralization of production was partly due to China's geographic diversity and poor transportation, but also a deliberate strategy by Mao Zedong to ensure production continuity against external attacks.

China's vast size (1.4 billion people, fourth largest by area) profoundly influences its development strategy. Challenges, when multiplied by its population, are immense, yet resources are also gigantic, though marshaling them effectively is difficult. A primary goal has been resource mobilization, with efficiency often a secondary concern. For example, between 2000 and 2010, China created over 20 million new jobs and built 8 million new urban housing units annually to meet basic needs, tolerating considerable waste in this 'extensive' growth phase. This scale also provides a unique advantage: the latitude to conduct large-scale policy trials. With 31 province-level jurisdictions (average population 45 million), new ideas can be tested in specific areas; successes are replicated, while failures do not damage the national system, enabling a trial-and-error policy approach. However, this autonomy can lead to local agendas diverging from national strategy, as seen in the automobile industry where numerous local carmakers emerged despite Beijing's policy to concentrate production.