The Fundamental Institutions of China’s Reforms and Development

Summary

中国制度非常糟糕（没有产权保护，政府腐败，法律制度并不完善等等），但是仍然获得高速经济增长，从而对主流经济理论形成挑战。

一种通常的观点：有产权保护就有市场

作者的主要论点：The trajectory of China’s reforms, reform strategies, outcomes, achievements and problems are mainly determined by chin’s political and economic institutions.

RDA - rigionally decentralized authoritarian regime

Regionally decentralized authoritarian (RDA) regime

What is RDA?

a combination of political centralization (personnel) and economic regional decentralization.

sub-national governments have influence or even direct control rights over a substatial amount of resources, such as land, firms, financial resources, energy, raw material.

Early stages of the reforms: central government delegated more autonomous power and provided stronger incentives to sub-national governments

• regional competition on both quantifiable targets and regional reform experiments.

misunderstandings about what exactly constitutes an institution

• narrow interpretations of institution; narrow measurement of institution ( property rights and contract enforcement)

• (semi-formal and informal functions)

WHY China has a Regionally Decentralized Authoritarianism?

historically inherited - Imperical Governance & Great Leap Forward

the Cultural Revolution : mobilized the masses and ccp leaders at all sub-naitonal levels to follow Mao directly to fight against party and government bureaucrats. (anarchy type of decentralization trough which party and government organizations at the central and sub-national levels were replaced by mass organizations.)

after CR: The CCP central leaders forged a new concensus on the following major issues the monopolistic political power of the CCP must not be challenged; b) within the confines of , and to strengthen, conditions a), economic development should be interpreted as the essence of socialism, and thus of the utmost importance; c) regarding the central decision-making process, personalistic regime should be replaced by party rule, i.e. a consensus0based collective decision0making process. (change from a personality ruled party into a system governed by rules, clear lines of authority and collective decision-making institutions.)

the third plenum of the 11th CCP Central Committee

Local experiment-based central decision-making process

• Decision-making powers for trying out concrete measures were delegated to sub0national governments whereas the central government kept control of sreatgic political and economic issues. (Collectively: including sub-national officials’ contributions through their local policy experiments)

• reform without official endorsement (land reform and privatization)

• Heterogeneous in regions and markets win the competition in regions.

• the future central and sub-national leaders are selected based on economic development performance.

Personnel Control

Appointments, promotions and motions of sub-national officials in China are ultimately determined by the central government.

• 上一级政府对下一级政府的人事任命进行决断

• Regional officials at different levels sign target responsibility contracts with their superiors.

• hard targets (economic) priority targets (political, keeping order)

• rotation and cross - region transfer

Central Regional Relationship

• selection process for the future central and sub-national leaders

• none of 中央政治局常委 是中央部门提拔上来的，都是省级升上来的。

How the structure originated from the birth of Chinese empire

MQX Model (2 types of authoritarian structures)

MQX model: The stylized hierarchical organization; two types of authoritarian structures: a multi-regional organizational form (M form) (China), and a unitary form (U form) (Soviet Union)

• Extends the basic idea of tournament competition to different institutions organized in different ways

• Chinese regions are alike (and self-sufficient); Regions in Soviet Union and Central-Eastern Europe are highly specialized.

Test two types of incentives Variance Co-variance Matrices of the exogenous random shocks.

• the absolute performance incentive: Inversely related to the noise level of each official’s own performance

• and the relative performance incentive: positively related to the correlation between the performances of two officials.

总之是比较条件方差（$Var(\epsilon_1|\epsilon_2)$ (U) 大于 $Var(\epsilon_A|\epsilon_B)$ (M)）这说明M中对于官员绩效的考核更有效率，从而提高更大的激励。

Evidence

data:

• shocks: firm-level dataset of Chinese state-owned enterprises, industry specific shocks and region-specific shocks are estimated by running the log-linear CD production function.

• promotionregional representation in the CCP’s Central Committee (党的中央委员会=-=) as a proxy for the promotion chances of officials in taht region

• economic performance: regional growth rate in national income

• upgrade counties to cities

• separately - itemized （计划单列）

Finding: enabling and empowering sub-national governments by granting them more autonomy power together with high-powered incentives enhances regional economic growth effectively

Challenge: a governor may be picked to assume important positions in the central government in the future being assigned to a province with fast economic growth to show his performance.(Instead of career motivating regional development , placing favourable future leaders into easy performing regions to justify their later promotion.

Chinese Regional Competition and the Debate on Fiscal Federalism

Chinese fiscal decentralization is neither self-enforcing nor market-preserving

Tiebout theory: economic gains to subnational officials form attracting additional residents is central, voice or exit.

why Tiebout competiton doesn;t work in china: (Tiebout conditionsare violated)

(1) incentives of officials does not comes from constituencies.

(2) thee is no commitment to limiting the central authorit’s power in fiscal policy (94年分税制改革)

(3) Factor mobility in China at the time reform started was poor. – inter- jurisdictional competition among regions becomes impossible. (can’t vote with their feet)

• factors became more mobile as an outcome of the reforms, rather than as a precondition for them,

(4) Chinese sub-n officials are responsible for much broader roles in the economy – applying fiscal federalism modesl which focus on fiscal policy alone is misleading.

Regional Institutional Experiments

Political Resistance

Regional experiecnes as a method to weaken political resistance (persuade the unconvinced)

Reduce the encertainties of reforms

成立条件：实验不会影响经济体的其他部分； 因而，how experiments are coordinated is essential – 而组织由于the size of sub0organizations 相关– what is the boundary of different levels of government?

Institutional Foundation for Regional Experiments