This paper investigates the impact of governance quality on economic growth in China. After developing a theoretical framework for the effect of governance quality on local economic growth, this article studies the panel data in provincial regions over the period 2001–2015 by constructing a new comprehensive index of provincial governance, and checks the robustness of the empirical findings from four aspects. The results show that governance quality has a positive effect on economic growth, due to good governance strengthening the “helping hand” or weakening the “grabbing hand” of power. Governance quality presents diminishing marginal returns, which means that the high-speed economic growth effect becomes less and less, while the high-quality economic development effect becomes more and more. Higher governance quality could bring a high-speed economic growth effect in the western region, while higher governance quality could bring a high-quality economic development effect in the eastern region. Compared with fixed-asset investment, human capital has played a more important role in economic growth. In order to promote the sustainable development of China’s economy, policy makers should improve local governance quality, strengthen the capacity of independent innovation, and promote the accumulation of high-quality human capital.

Good governance is an important guarantee for the sustainable development of regional economy. Since the Reform and Opening-up, China's local economic development has made remarkable achievements, which has aroused the concern of the academic community. The main contents of China's local governance quality assessment include: government capacity, marketization, and rule of law, which means a new multidimensional perspective on local governance assessment: "power allocation + governance capacity + rule of law". This paper designs the index system of China's local governance assessment based on literature investigation and coefficient of variation, which utilizes two approaches: qualitative analysis and quantitative analysis. Furthermore, the investigation analyzes the panel data (2001-2014) of provincial regions in China by utilizing global factor analysis and weighted average. The results indicate that the improvements in government capacity, marketization, and rule of law were higher in the majority of provinces studied in central and western China between 2001 and 2014, while they were lower in most of provinces researched in northeastern China in the same period, which resulted from policy differences. In 2014, government capacity, marketization, and rule of law were higher in the majority of provinces investigated in eastern China, while they were lower in most of provinces surveyed in the rest of China, which was due to the differences in policies support, resources management, absolute geographical location, per capita GDP, and market economy. In order to improve local governance quality and achieve sustainable economic growth, it is very important to establish local governance structure as "effective government + efficient market", China should pay more attention to weak aspects of local governance and some provincial regions in western, central and northeastern China.

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Based on the existing literatures, this paper analyzes the panel data of provincial regions in China by using the global factor analysis method and the weighted average method. The results show that both the absolute and the relative improvements in government capacity, market ability and rule of law were higher in the majority of provinces studied in the central and western China between 2001 and 2015, while they were lower in most of provinces researched in the northeastern China.