To forge a ‘one-China market’, Beijing must overcome local resistance

Despite years of efforts, it remains challenging to get local players to cooperate, rather than compete, with one another as Beijing tries to shape an integrated, unified market

Dominik Mierzejewski

Published: 3:30pm, 27 Feb 2024

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With tensions growing at home and abroad ahead of China’s third plenum, a key economic planning session, the government faces the dual challenge of managing its relations with the local authorities and, more critically, of fostering cooperation between the local governments in the national pursuit for greater economic integration.

The challenge is that the local authorities have a strong tendency to prioritise local economic development. They do collaborate, notably in the Yangtze River Delta between Jiangsu, Zhejiang and Shanghai, as well as in economic clusters such as the Greater Bay Area. But cooperation rarely goes beyond relatively small areas.

In 2021, China released its 14th five-year plan, vowing to “accelerate the development of a unified domestic market” and “optimise the market environment according to internationally advanced rules and best practices”. Since then, the central government has ramped up its focus on the domestic economy under its “dual circulation” strategy.

Last December, the State Council unveiled a host of measures to accelerate the integrated development of domestic and international trade. In pushing for a dual circulation economy, the central authorities have introduced pilot programmes across nine regions to integrate local and foreign trade, encouraging enterprises, industry clusters and brands to support the effort.

Implementation, however, is proving more challenging than conceptualisation. A critical question is whether economic unification is feasible in a country as diverse as China. Also, to what extent are incentives necessary for the local authorities to embrace the concept of a “one-China market”?

Despite the difficulties, some progress has been made, most prominently in the cooperation between the cities of Shanghai and Chongqing.

A factory worker on the production line of a food company in Qijiang district, Chongqing, on October 11, 2023. In recent years, the government has been pushing to diversify the city’s economy from its largely industrial base. Photo: Xinhua

As part of a vision to establish a financial centre in western China by next year, Chongqing has ambitions to develop into a financial centre in the footsteps of Shanghai. Agreements have been signed to support this endeavour, with the Shanghai Stock Exchange and major brokerage Guotai Junan Securities pledging support. Including Shanghai, Chongqing’s partners have promised investment, financial help and commerce.

But the cooperation between two top-tier cities directly governed by the State Council is not representative of the situation across the country.

For instance, the provinces of Guangdong and Heilongjiang have an extensive cooperation pact, including helping each other in pushing economic reforms. In particular, the cities of Shenzhen and Harbin have agreed to combine Shenzhen’s economic, technological and management superiority with Harbin’s strengths in natural resources, property and space to develop their economies to greater advantage.

In practice, however, cooperation between the two regions has been less than ideal. The cultural difference between the south’s business-oriented mentality and north’s more conservative approach has been seen as an obstacle to more effective cooperation.

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Even for the Greater Bay Area, with its focus on building internationally competitive advantages, in line with China’s strategy to build economic strengths in global markets, the strategy is primarily focused on Guangdong, reinforcing its position as an exceptional economic region on the mainland.

In addressing the complexities of economic integration, the leaders in Beijing must get local players to buy in.

There is the carrot-and-stick approach. Local leaders who fail to cooperate properly could find their political careers limited even as incentives can be offered, such as special funding for interprovincial projects. The previous focus on provincial-level economic achievements and moves such as money transfers to local authorities have only strengthened the protectionism mentality, narrowing the space for cooperation.

The increasing centralisation of power under the central government in recent years may be a factor in boosting local cooperation, especially as local governments rack up huge debts in pursuing development. Estimates of the debt level varies; the finance ministry said it exceeded 40 trillion yuan (US$5 trillion) last October, a record high.

Economic centralisation, however, raises questions about the traditional divisions of responsibility. Under Deng Xiaoping’s reforms, China enjoyed a high level of economic decentralisation and growth as it embraced globalisation and developed as an export-led economy.

Now, as the country moves towards a more domestic-oriented economy, the government faces challenges in bringing together local players to cooperate, rather than compete, with one another as it tries to shape a one-China market.

With economic and technological development still uneven across geographical lines, Beijing’s dream of achieving a unified Chinese market looks set to be dominated by fierce local competition for domestic and international investments and resources.

Dominik Mierzejewski is head of the Centre for Asian Affairs and associate professor in the Department of Asian Studies at the Faculty of International and Political Studies at the University of Lodz, Poland