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Local Government Corporatization: Pros and Cons


Zhao Shukai, Development Research Center of the State Council

Since reform and opening-up, the Chinese government has shifted the focus of work onto economic development and created the "Chinese Miracle" with a continued and high-speed growth. In the process of economic development, local governments are committed to pursuing economic growth, thus marked with numerous features of corporate companies. The local governments follow the company's management rule, incorporate the "cost-benefit" analysis principle of corporation decision-making into government policy-making, and run the government like a company. Taking "local government corporatization" as the angle for analyzing China's local government operation mechanism, incentive mechanism and power allocation could offer a relatively convincing explanation for the attribute of local governments since reform and opening-up. Specific manifestations of corporatization of local governments can be observed in their routine work such as taking attracting businesses and investment as the priority task and pursuing fiscal revenue increase as the foremost impetus. Fragmentation of local governments is characterized as follows: first, fragmentation of "values", or obedience by the lower-level officials to the upper-level ones is merely symbolic; second, fragmentation of "systems", namely upper-level arrangements and decisions are implemented according to respective needs among different levels of government and different government departments; third, fragmentation of "functions", or there lacks integration of functional departments and disjunction in the policy process. The internal mechanism for current local government operation is governed by local governments' stimulus mechanism, fragmented power structure and campaign-based behavior model. These three factors influence and strengthen one another, which have become the hard nut in the system that reform finds it hard to crack. The political prerequisite for local government corporatization is centralization respectively by the central government, individuals and the Party. Social consequences resulting from local government corporatization include the following aspects. First, a large number of resources are used for meeting local economic development goals while available resources for public services and social management are occupied. Second, internal local social tensions and conflicts fail to be effectively resolved or eased: on one hand, local governments lack the motivation to address social conflicts; on the other, local governments themselves are also involved in social conflicts as stakeholders or even the creators for such conflicts, which is fully reflected in land expropriation campaign. Third, the local governments are incapable of meeting local society's demand for public goods and services, thus fail to win political support accordingly. This has further enlarged the gap between the local government and the local people and made governments become estranged from the people and less able to mobilize them. The corporate-oriented development model of local governments did boast obvious advantages in propelling economic development in the initial period, but disadvantages began to loom up thereafter. If China's reform in the previous stage had been conducted without touching the fundamental political system, then the country's reform in the next stage will face the fundamental problem of how to change the operation mechanism of local government corporatization and really transform it into the system of state power in the modern sense.

Local Government Corporatization: Pros and Cons