This article empirically investigates the effects of administrative monitoring on the misuse of funds by local governments and provides a representative model of fiscal decentralization with political centralization, where administrative monitoring relies on the top‐down hierarchy of the bureaucratic system in China based on a unique data set from audit programs. We show a double effect between distance and monitoring in local China. The incentive for misusing public funds can be strengthened if the county (a) is governed by a leader whose tenure is longer than 3 years, (b) is governed by a politician from outside the county, or (c) receives more transfer payments. These findings suggest that the administrative monitoring of local governments can be vital to remedying the misuse of public funds.

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How can China develop so quickly and yet maintain stability? Most scholars pinpoint the efforts of China's local government leaders as a primary factor. Regarding what motivates these leaders, however, scholars display wide disagreement. The widely accepted “promotion tournament” hypothesis stresses competition among local leaders as the driving force, but empirical test results vary considerably and create controversy. We argue that tests of promotion competition should target leadership behaviour rather than institutional inducements; the latter are, at best, a necessary condition of the former. Informed by extensive fieldwork, this study proposes an alternative and more direct approach to verifying the promotion tournament hypothesis by examining the impacts of promotion competition on leaders’ performance efforts. Our test results show, however, that competition for promotion has no significant impact on local leaders’ behaviour, thereby indicating that the promotion tournament hypothesis cannot be the primary explanation for China's economic achievements and regime resilience. In so doing, our study illuminates the oversimplified assumptions behind a prevailing proposition in Chinese politics and offers empirically informed insights into the tensions between political institutions and leadership behaviour.

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