Introduction

• The strong pro-business role of Chinese local officials stands in stark contrast with the rent-seeking behavior (“the grabbing hand”) of local officials in other transitional and developing countries (Krueger, 1974; Frye and Shleifer, 1997)

• “market-preserving federalism”, argues that the pro-business incentives given to Chinese local officials are a result of a policy of fiscal decentralization and high-powered intergovernmental fiscal revenue-sharing contracts (Oi, 1992)

• Employing provincial-level data Jin et al., (2000) finds empirical evidence, which supports the fiscal decentralization view

• The role of political incentives or career concerns on the part of local officials in China is another explanation of why Chinese officials acted so differently

  • Readiness of the Chinese central government to reward and punish local officials on the basis of their economic performance motivates them to promote the local economy (Blanchard and Shleifer, 2001)

  • The multi-divisional form structure of the Chinese economic system allows a yardstick competition among local officials (Qian and Xu, 1993)

• Maskin et al. (2000) find that the political status of a Chinese province (measured by the number of Central Committee members) is correlated with the provincial economic ranking

• Besley and Case (1996) show that economic performance of a state relative to neighbouring states has a positive impact on the re-election prospects of US governors

• Groves et al. (1995):

  • In the 1980s, the Chinese industrial bureaus selected managers of state-owned enterprises (SOEs) on the basis of firm performance

  • Since Chinese SOE managers are semi-officials situated in the bureaucratic hierarchy, this manager selection rule reflects a general shift in personnel control since the late 1970s from the political criterion to the performance criterion

Internal career mobility and personnel control in China

• Five layers of the state administration: the centre, provinces, prefectures, counties and townships

  • The CCP acts as the HQ of this “multidivisional” system

  • Dual presence of the CCP and government organs at each level of China’s political hierarchy

• There is strategic importance of provincial leaders (Qian and Xu,, 1993)

• China’s reform of its personnel control system coincided with the beginning of its economic reforms

• Political conformity, which was the only important pre-reform criterion for promotion, gave way to economic performance and other competence-related indicators

• “Obsession” with economic ranking among peers -> i.e. provincial yearbooks

• In 1980, the CCP officially proposed the abolition of the lifetime appointment of party and government officials and installed a mandatory retirement system

  • Required to retire at the age of 65 if they are not promoted to higher positions in the central government

  • Implemented in 1982

  • Led to two large waves of retirement in 1983 and 1985

  • But was not...

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