Local Officials' Incentives and China's Economic Growth: Tournament Thesis Reexamined and Alternative Explanatory Framework

Abstract

To explain China's dramatic economic growth, researchers have proposed a “tournament thesis.” According to this thesis, the central government's ability to set growth targets has played a crucial role in growth since political promotion is largely based on local economic growth. We use provincial officials' career mobility data to test this thesis. For both time periods (1979–1995 and 1979–2002), economic performance, measured in annual, average and relative terms, did not affect these officials' career advancement. We then sketch an alternative analytical framework to explain Chinese local officials' strong urge for developmentalism and, finally, draw policy implications from this explanatory framework.

Planning centrality, market instruments: Governing Chinese urban transformation under state entrepreneurialism

“…Secondly, the structural explanation stresses the dynamics of land revenue generation (Tao et al, 2010) to meet the demands of local public expenditure (Su et al, 2012). Due to the particular political economic system (tax-sharing and land institutions), local governments have faced an increasing gap between income and expenditure.…”

An Economic Analysis of the Political Promotion System in China

“…In order to formalize the above-mentioned idea in an integrated mathematical framework, Zhou (2004) borrows from Lazear and Rosen (1981) to build up his formal model. Although Zhou and his coauthors provide evidence to empirically support their theoretical hypothesis (see, e.g., Chen et al, 2005;Li and Zhou, 2005), there are several queries on Zhou's model (see, e.g., Tao et al, 2009Tao et al, , 2010Su et al, 2012). Firstly, although it is theoretically predicted that the local official whose economic performance is better will be promoted, in the real world local officials whose economic performance is poorer may also be promoted.…”

Chinese Political and Economic Governance System and the Imbalance between Consumption and Investment

“…Under the tax-sharing reform scheme, local governments are given land lease revenues as extra-budgetary funds to alleviate their fiscal burden (Nitikin et al, 2011;Liu and Sun, 2009;Su et al, 2012). As a natural result, local governments have vehemently pursued the development of the real estate sector.…”

“…By keeping monopoly power over the primary market for land, local governments have strong incentives and discretion to raise land prices by controlling the size of land supply through the land reserve system. Because real estate assets are relatively scarce, illiquid, and of fixed supply in the short run, the increase in land prices is in turn transmitted to a surge in housing prices, and the burden is borne by house purchasers (Su et al,2012).…”

“…They have provided preferential tax treatment, repressed land use fees, offered fiscal subsidies, and overlooked environmental protection to provide a favorable treatment of investors (Su et al, 2012;Cai, 2009 (Huang, 2010a), and facilitates local governments in providing low-cost financing from the statecontrolled financial system to investors. (4) Local bureaucrats often help to maintain monopoly positions for favored firms in local markets.…”