The Fundamental Institutions of China's Reforms and Development

TLDR

China’s economic reforms have spurred spectacular growth and poverty reduction, driven in part by regional decentralization. The paper seeks to solve the “China puzzle” by analyzing China’s regionally decentralized authoritarian institutions. The study examines how a central‑government personnel monopoly coupled with subnational economic control enables local authorities to initiate, negotiate, implement, divert, and resist reforms, policies, rules, and laws. The analysis finds that China’s institutions are ill‑suited and suffer serious shortcomings, with both spectacular performance and grave problems arising from the governance structure. JEL codes: O17, O18, O43, P21, P25, P26.

Abstract

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)