China's economic reforms have resulted in spectacular growth and poverty reduction. However, China's institutions look ill-suited to achieve such a result, and they indeed suffer from serious shortcomings. To solve the "China puzzle," this paper analyzes China's institution—a regionally decentralized authoritarian system. The central government has control over personnel, whereas subnational governments run the bulk of the economy; and they initiate, negotiate, implement, divert, and resist reforms, policies, rules, and laws. China's reform trajectories have been shaped by regional decentralization. Spectacular performance on the one hand and grave problems on the other hand are all determined by this governance structure. (JEL O17, O18, O43, P21, P25, P26)

We model an organization as a hierarchy of managers erected on top of a technology (here consisting of a collection of plants). In our framework, the role of a manager is to take steps to reduce the adverse consequences of shocks that affect the plants beneath him. We argue that different organizational forms give rise to different information about managers' performance and therefore differ according to how effective incentives can be in encouraging a good performance. In particular, we show that, under certain assumptions, the M-form (multi-divisional form) is likely to provide better incentives than the U-form (unitary form) because it promotes yardstick competition (i.e. relative performance evaluation) more effectively. We conclude by presenting evidence that the assumptions on which this comparison rests are satisfied for Chinese data.

The arrangement of atoms and bonds in a molecule influences its physical and chemical properties. The scanning tunneling microscope can provide electronic and vibrational signatures of single molecules. However, these signatures do not relate simply to the molecular structure and bonding. We constructed an inelastic tunneling probe based on the scanning tunneling microscope to sense the local potential energy landscape of an adsorbed molecule with a carbon monoxide (CO)-terminated tip. The skeletal structure and bonding of the molecule are revealed from imaging the spatial variations of a CO vibration as the CO-terminated tip probes the core of the interactions between adjacent atoms. An application of the inelastic tunneling probe reveals the sharing of hydrogen atoms among multiple centers in intramolecular and extramolecular bonding.

Halogens are among the most electronegative elements, and the variations in size and polarizability of halogens require different descriptions of the intermolecular bonds they form. Here we use the inelastic tunneling probe (itProbe) to acquire real-space imaging of intermolecular-bonding structures in the two-dimensional self-assembly of halogenbenzene molecules on a metal surface. Direct visualization is obtained for the intermolecular attraction and the "windmill" pattern of bonding among the fully halogenated molecules. Our results provide a hitherto missing understanding of the nature of the halogen bond.

China's thirteen years of economic reforms (1979)(1980)(1981)(1982)(1983)(1984)(1985)(1986)(1987)(1988)(1989)(1990)(1991) have achieved an average GNP annual growth rate of 8.6%. What makes China's reforms differ from those of Eastern Europe and the Soviet Union is the sustained entry and expansion of the non-state sector. We argue that the organization structure of the economy matters. Unlike their unitary hierarchical structure based on functional or specialization principles (the U-form), China's hierarchical economy has been the multi-layer-multi-regional one mainly based on territorial principle (the deep M-form, or briefly, the M-form). Reforms have further decentralized the M-form economy along regional lines, which provided flexibility and opportunities for carrying out regional experiments, for the rise of non-state enterprises, and for the emergence of markets. This is why China's non-state sector share of industrial output increased from 22% in 1978 to 47% in 1991 and its private sector's share from zero to about 10%, both being achieved without mass privatization and changes in the political system.