On July 8, the government of China's southernmost Hainan Province announced that it was to hand over 177 of its administrative powers to county-level governments. The move practically dismantled the powers of the prefecture-level government, which stands between provincial and county-level governments.

It is written in China's Constitution that the country has a four-tier administrative division, consisting of Central Government, provincial-level government, county-level government and township-level government. However, in the 1970s and 1980s, during China's transition from a planned to a market economy, the Central Government decided to set up prefecture-level governments to administer county-level governments. The major consideration was to enhance social administration to deal with accelerated population flow due to urbanization and to build cities in the headquarters of prefecture-level governments to boost the economy of surrounding areas.

Over time the historical background for prefecture-level governments has lost validity and in some cases become a barrier to development. As a result, some provincial governments began trials to limit the power of prefecture-level governments as early as the 1980s.

According to Zhang Bin, a researcher with the Institute of Finance and Trade Economics of the Chinese Academy of Social Sciences, trials have been conducted in two ways. In some trials county-level governments are given financial power. In others they receive control over human resources and administrative approval.

Of China's mainland provinces, municipalities and autonomous regions, 22 have conducted trials to limit the power of prefecture-level governments, mostly of the first type mentioned previously. Hainan Province has opted for the second model, which grants the county government additional administrative powers.

Two approaches

Zhang Zhanbin, an economics professor at China National School of Administration (CNSA), said that under the prefecture-over-county scheme, counties have to unconditionally follow administrative orders from prefecture-level governments to best serve economic development. In the 1990s, when many state-owned enterprises (SOEs) began to encounter financial difficulties in the face of fierce market competition, some prefecture-level governments that had relied heavily on taxes from SOEs started to shift the burden to county governments. The result was a yawning gap between cities and the countryside.

In 1992, eastern Zhejiang Province led the country in activating a trial reform that granted powers to 13 county governments. By August 2002, 313 administrative powers governing economic development had been granted to 20 counties in Zhejiang.

This reform boosted the economic development of Zhejiang's counties. In 2003, of the top 100 counties in China in terms of economic scales, 30 were from Zhejiang. The success achieved by Zhejiang has prompted reforms in other provinces.