Rethinking the Institutional Foundations of China’s Hypergrowth: Official Incentives, Institutional Constraints, and Local Developmentalism
Fubing Su, Ran Tao, and Dali L. Yang
This article examines the institutional foundations of the remarkable growth of the Chinese economy, paying particular attention to official incentives, institutional constraints, and local developmentalism. It begins by outlining two approaches that explain the role of local officials as agents of economic growth: the fiscal incentives approach, which views local officials as revenue maximizers; and the fiscal federalism approach, which views officials as promotion maximizers. It then discusses the tournament thesis based on Chinese policy and empirical data before proposing a three-pronged framework that analyzes China’s political economy and explains why the country’s revenue-maximizing local officials have pursued a particular form of developmentalism since the early 1990s. This framework takes into account a number of phenomena in China’s economic development and transition, including massive industrialization and urbanization, local protectionism, the privatization of state-owned enterprises, and the rise of TVEs (township and village enterprises).