Opinion | The era of the entrepreneurial Chinese local government is over
- Local governments, so crucial to China’s economic take-off, have arguably become the biggest drag on the economy and must now be reined in
Decentralisation of decision-making from the central government to local authorities is widely regarded as one of China’s most effective policy reforms of the past four decades. As the Communist Party’s priorities shifted from class struggle to economic development, decentralisation turned out to be a tremendous catalyst for growth.
Compared to the centrally planned system, local governments were better positioned to tailor economic decisions to local conditions. Local governments were also better placed to facilitate economic activity in an underdeveloped market, including by protecting ownership rights and coordinating business transactions.
Mayors acted as CEOs of municipal economies, and all levels of local government implemented investment promotion programmes, offering a wide range of subsidies to potential investors. As a result, local governments were crucial to China’s economic take-off.
But decentralisation is not the same as market liberalisation, even though it did initially lead to efficiency gains. The power to allocate resources remains in the hands of government, albeit local rather than national.
