Interregional Competition and Local Economic Initiatives in China: Shandong in the Reform Years

Abstract

In the process of China’s economic reforms, the local state has come to the forefront and played a more and more active role in pushing economic development. What is behind such local state’s activism? This paper attempts to answer this question by focusing on the mechanism of interregional competition. It argues that with the emergence of uneven economic development between regions, local leaders have become increasingly aware of the competitive environment and have felt enormous pressures and challenges from other regions for fast economic growth. Backward regions are anxious to close the gap between them and advanced regions, whereas more richly endowed regions are worrying about being overtaken by newcomers. Such a keen sense of competition (or competition mentality) has compelled local leaders to take the initiative in search of new strategies (e.g., developing hightech industries and new forms of industrial organization such as enterprise groups) in order to increase their regions’ comparative advantages in the economic arena. Accordingly, local leaders’ efforts to cope with interregional competition have facilitated the transition to a market economy.