Fiscal Reforms, Investment, and Regional Development in Jiangsu Province

Abstract

Fiscal and investment reforms are important components of China`s economic reforms, and have exerted tremendous impact on uneven regional development in China. This paper shows that dramatic changes have taken place in Jiangsu`s fiscal systems and investment patterns. Reforms have stimulated local revenue growth, but Jiangsu`s revenue submitted to the central government has also been large. Consequently, the provincial budget was squeezed, and the localities have used local strategies to create more extrabudgetary revenues for local spending. Bargaining and local protection have been intense. Meanwhile, with the declining control of the central government over investment, localities and the nonstate sector have emerged as major agents financing regional development in Jiangsu. Regions are able to channel investment into more profitable sectors, expecially township and village enterprises (TVEs). Fiscal and investment reforms have stimulated economic growth, but have also contributed to rising interregional and rural intercounty inequalities. However, central cities struggled with fiscal control and problematic state-owned enterprises (SOEs), leading to the decline of overall intercounty inequality in Jiangsu.