Chinese Journal of Sociology ›› 2018, Vol. 38 ›› Issue (2): 1-45.

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“Bureaucratic & Economic Markets” and China's Growth Story

ZHOU Li   

  1. Guanghua School of Management, Peking University
  • Online:2018-03-20 Published:2018-03-20

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Abstract:

This paper extends the theory of "bureaucratic & economic markets" and reinterprets the unique growth mechanism of the Chinese economy and the intriguing interaction between government and market. In China we observe an interesting "mutual embededness" of bureaucratic markets for local officials and economic markets for firms across jurisdictions:local leaders compete in bureaucratic markets where their promotion is closely linked with economic performance of firms in their jurisdictions, and in the meantime, firms compete in economic markets and receive critical support for their respective jurisdictional governments. The performance-based bureaucratic competition motivates local leaders to help local firms grow and win the economic competition, and the interregional mobility of physical and human capital limits the tendency of local leaders to predate or grab local firms. The economic performance of firms in market competition provides feedback and is an ultimate test of the effectiveness of government-business cooperation and local industrial policies. The extended theory of "bureaucratic & economic markets" contributes to the existing literature by highlighting three critical preconditions for effective government-market cooperation:providing political incentives to ensure bureaucrats "do things in the right way", external market constraints to "prevent bureaucrats from doing evil", and necessary information feedback to guide bureaucrats to "do the right thing". For any country or region, its ability to satisfy these three conditions becomes critical for fostering an effective interaction between government and market and sustaining economic growth. In the past decades China has shaped a growth model based on the interplay of "bureaucratic & economic markets" which generally satisfied the three preconditions and laid the institutional foundation for China's economic miracle. This dual-markets model has resulted in friendly handshaking between political and private entrepreneurs, productive cooperation between political and economic elites, and a remarkable combination of China's time-honored heritage of strong bureaucracy with the western tradition of market economy. The dual-markets model also has its limitations, especially in the sphere of provision of public services, which exactly explains various "government failures" associated with China's high economic growth in the past 40 years.

Key words: bureaucratic competition, market competition, government-business cooperation, industrial policy