Although China is not a federal country, its public finance system does carry features of fiscal federalism. Since 1949, although the central government has consistently sought to exercise strong control over the country, it has at times done so by decentralist rather than centralist policies. The Dengist policies since economic reform began, for example, have had a strongly decentralist element, with continuing devolvement of control to the provincial governments, sometimes to such a degree that some observers have commented: "the centre pretends to rule and the provinces pretend to be ruled". This is also a period that witnessed the revival of old regionalisms, as well as the creation of new regionalisms brought about by increased local autonomy, rapid economic growth and increasingly globalizing trade and business linkages. While the oft-cited "China deconstructs" scenario seems at present far-fetched, the challenges posed by central-peripheral conflicts, ethnic resource contest and ethnoterritorial aspirations are real, in particular as they are being exacerbated by the country's "retreat from equality ? and growing interregional economic disparity. In the light of these daunting exigencies, this paper explores the political economy of regional development in China, focusing on the intricate link between the country's ethnic diversity and the role of the State in the economy, as the Asian giant warily enters a new stage of economic reform. Keywords: China, regionalism, ethnic diversity, inequalities, uneven development, regional disparities
