Regional policy: implementation, impact and effectiveness

Editor's note 20Mar14: Source D142-7.

Regional policy is a standardized national program: its object, objectives, implementation modalities are regulated directly by the State Council. Economic development policy has been greatly developed in content. For example, "to promote the rise of central planning" policies includes strengthening economic and harmonious development, increasing social and national cohesion, reducing the gap between the central and eastern regions. It specifically stresses the status of agriculture and the issues of regional production, safety, and environmental protection.

Although the policy encourages private economic development, in practice the relevant departments are rendered powerful in order to constrain private actors. How to balance actions performed between these two actors remains difficult, as the Central Government is reluctant to decentralize the rights of investment and management to local governments.

The primary objectives of regional policy are to implement policies promoting harmonious development, to develop regions which are not as economically advanced and to promote development in other regions (such as the western regions) where population density is low but potential is high.

In 2010, the National Government developed the strategy called "Rise of Central China", which was intended to solve the problem of food and energy security and to prevent laborers from flooding the east coast. However, since the 2010 economic downturn the Government's plan to invest in the central region has been disrupted.

Regional policy implementation entails huge state financial commitments, in strategic investments, loans, and private capital.

In some areas of public projects, increased use of banks and private finance is employed. China provides policy support for banks to obtain franchises, including different options such as investment in public projects, covering of operating expenses and subsidies for non-government investment projects
The Government has developed other targeted policies as means of control, in order to ensure a continued voice in a low investment ratio. The main instruments in this regard are the approval mechanism (project selection) and the cooperation mechanisms (with the private sector) and have been particularly successful in transportation, mining, and manufacturing.

The scope of state intervention depends on the number of participants. The initiator of regional policy is the State Department. In fact, it has sole responsibility for the National Development and Reform Commission (NDRC).

The Central Government oversees local implementation of programs and projects through the leadership team which acts as intermediary between local and central authorities, coordinating implementation.

According to a specified program, the main beneficiaries of policy implementation should be local governments, institutions, individuals, and other agencies involved in financing. For example, although railway policy is vague, it relies on the internal policy of railway construction companies or operators for its actual operation who are the direct beneficiaries.

The auditing and financial sector is also involved in the policy, in order to address concerns over corruption mainly in the engineering sector. Other beneficiaries may include non-governmental companies (such as environmental companies, etc.), other institutions (such as training institutions for workers, project-related service providers) and individuals (for example, providing new employment opportunities).

In the actual operation of economic policy, every direct participant will maximize the efficiency of fund utilization. They will directly or indirectly attempt to obtain the maximum benefit through political influence. Direct interests can be rapidly pushed forward but if one does not have political influence, benefits may be obtained much more slowly.

Implementation, impact and effectiveness

Regional development policy holds a dominant position as the main form of economic policy, employing various instruments such as finance and tax measures, investment in infrastructure, government administrative tools. The National Government is the main Regional policy maker; while policy is implemented by local administrations. The executive agency approves and oversees projects, but have little influence on financing and management. Projects are generally controlled by the Ministry of Finance and NDRC, using the National Development Bank

State assistance is concentrated in infrastructure development projects, such as town reconstruction, roads, and water supply and others. After the Zigui local government received funding, they cooperated with the housing construction sector and the municipal sector to develop towns. This competence however did not extend to transportation. Unofficial participants (consultants, architects, etc.), will participate in the follow-up phase of the project development. This process also involves service providers. Local governments try to seek loans from commercial banks. Private equity funds, accounting firms, and local building consultants will participate in this process; their main job is to determine the amount of financing through scale of engineering and method of repayment.

Financial control of central, regional and local budgets is the primary instrument of regional policy. Financial instruments may prove problematic if the government does not have sufficient budgets; or other implementation costs are not involved in the financial assistance which usually focuses on construction. Regional policy is closely linked with rural development policy. While it is undeniable that further investment would greatly improve the Zigui infrastructure (especially sewage and waste management), the consumers’ role in boosting the local economy is almost negligible, and investment may have a diminishing marginal benefit.

Regional policy investment has had institutional side effects such as corruption or inability of public administration to keep up with the pace of economic development. In addition, the policy overemphasises industry and has adverse environmental effects. Overall, the policy leads to physical and human capital investment, economic growth and job creation.

• < Prev
• Next >