Local government reform in China: a rational actor perspective

There has been a series of comprehensive reform initiatives in recent Chinese history aimed at improving bureaucratic efficiency, flexibility and innovation through management and fiscal decentralization. The local government sector in China carries major functional responsibilities from economic development to social welfare provision. It is responsible for over 70 percent of total government expenditure. Now, in the new millennium, the Chinese central government seeks to transform local government as part of its market liberalization strategy. This includes ‘privatizing’ local enterprises (a process begun during the 1990s) and a rationalization of local bureaucracy. Although still a highly centralized administration, there has been a significant move away from a uniform approach to local government where now differentiation between regions and localities is actively encouraged. Within a still tightly constrained political structure, however, the reforms have done more than improve China’s economic output. They have created incentives for local officials to engage in rent seeking and utility-maximizing behaviours. The article explores the reform initiatives and critically assesses results against this background.