Chinese Style Decentralization And Environmental Governance

The Chinese style fiscal decentralization characterized by economic decentralization and political centralization largely explains China's rapid growth in recent decades.Economic decentralization gives the local government "residual claims" to share the fruits of economic development.Political centralization allows the central government absolute control over and encourage local governments.Meanwhile,the vertical political appointment by the central government prevents local government from being captured and Rent-seeking.The effect of Chinese-style fiscal decentralization is undoubtedly a tremendous success measured by economic performance alone,but the shortcomings of decentralization have also begun to emerge in recent years,one of them is poor environmental governance.The environmental issues require government intervention because of externality.And local governments in China are mainly responsible for the provision of public goods under the Chinese style fiscal decentralization.However,the local governments are extremely inefficient in environmental governance.Why Chinese local governments so inefficient in environmental governance? We will trace the incentive and behavior of local governments in the context of China's political and economic framework.This paper will investigate the reason why Chinese style decentralization leads to inefficiency of environmental governance and puts forward correspondingly suggestions.Based on Province-Managing-County Reforms as a natural experiment of fiscal decentralization,we found a marked deterioration in the quality of water in area under Province-Managing-County Reforms,The COD(Chemical Oxygen Demand)and NH(Ammonia Nitrogen)are significantly increased.The reasons are as follows: First,local government are more driven to economic growth related behaviors under Chinese-style fiscal decentralization.The reformed county governments are more inclined to invest in productive fields such as infrastructure construction after expansion of financial power,which squeezing the environmental protection expenditure.Second,China's fiscal decentralization will exacerbate horizontal competition and vertical competition between administrations,which is not conducive to collaborative governance of environmental pollution because of spillover effects.In addition,China's household registration system limits the residents to "voting by foot" to show their evaluation of local governments in providing environmental public goods.So the benefits of decentralization supported by the theory of classic decentralization can not be seen.The reform of city-county consolidation provides an evidence of centralization.As a policy aiming at optimizing the urban space and coordinating the development of the city and county,city-county consolidation can help reduce repeat construction and optimize industrial distribution to improve the quality of urban public service.The policy would help to improve market segmentation under fiscal decentralization which do harm to the coordinated management of the environment.However,it does not help to the distorted fiscal expenditure structure of local governments under fiscal decentralization.And the policy is conductive to increase investment,and the effect of Pollution Haven Hypothesis exists in the foreign capital entry.City-county Consolidation increased the supply of construction land quota while the government is facing the land finance temptation,so excessive land development behavior has brought a large number pollution.Because there is no fundamental change in incentives that local governments face under Chinese fiscal decentralization.Therefore,this paper believes that the solution to environmental problems in China is not enough just strengthen accountability and coordinated governance.In essence,it is necessary to establish mechanism which stimulate environmental governance be compatible with promotion of local officials.