An Analysis Of Economic Competition Among Local Governments In China

Economic competition among Local governments is an objectivesocio-economic phenomenon. This kind of competition to a certain extentplays a positive role for promoting the development of local economy.However, with the constant improvement of China's market economy system,the negative effects of local governments' economic competition has becomeincreasingly evident. Upon this problem this paper intends to propose anumber of reform proposals as tentative solutions. Included in this thesis arefour parts as follows.Part one presents an overview of local economic competition theory.Research on the government competition started in the last 1990s.Representative scholars abroad include A. Breton Woods, Apolte and CarstenHerrmann Pillach. Breton first proposes the concept of "CompetitiveGovernment", and he put all ranks of government as a special product andservice providers, these providers are involved into competition due to thedistribution of resources and controlling power. Apolte provides explanation of"Institutional Competition". He classifies residents in different areas which aredefined by geographical distribution, and residents with different areas willhave competitions for their respective interests. Upon governmentcompetition Herrmann Pillach lays particular emphasis on institutionalcompetition and system competition, and he believes that in analyzing thegovernment competition, we must first disintegrate the complicatedinter-governmental /inter-organization network. Under the perspectives ofownership, system, taxation and financial capacity, Scholars home alsoconducted research on local governments' economic competition andpublished a number of their research results.Based on precedent research, this paper intends to define localgovernments' economic competition. Local governments originate fromdifferent local organs of state power, and are a representative of regionalinterests. Economic competitions among local governments include thecompetition for more national resources, for favorable policies, for market, forattracting foreign businesses and investment, for skilled/ trained personnel, forthe expansion of local enterprises etc. This kind of competition possessescharacteristics of "political", "dynamic", " limited scope" and "economicdouble-edged" etc.In Part two economic competitions among local governments areillustrated and analyzed. At the beginning of this part is an overview of ourlocal economic competition. Whether in the separated Chunqiu and Zhanguoperiod, or in the unified and prosperous Tang and Yuan dynasties, there werephenomena of making policies suited to local conditions for the developmentof the Territory economy. After the founding of New China, and with thegradual transference of central government's power to the hands of localgovernments, the power of local governments gradually expanded. Accordingto different characteristics of each stage, the period can be divided into fourstages: The first stage is from the founding of New China to 1978, known as"Period of Planned Economy";the second stage is from 1978 to 1991,known as "Reform and Opening Period" or "Period of Transition fromPlanned Economy to Market Economy";The third stage is from 1992 to 1999,known as "Initial Period of the Market Economy";The last stage is from 1999up to now, known as "Period of Maturity of Market Economy". Meanwhile, anumber of representative programmatic documents in each period areexplicated in this paper. Then, I draw a conclusion that reasons for economiccompetition are as follows: the expansion of local autonomy, wider scope forsystem creation during social transition, potential large rent for expectedsystem, the growing pressure of social economy, political motivationstimulated by cadre assessment system. Finally, with consequences of somelocal governments' disorderly and excessive competition in certain areas, thenegative effects of local economic competition are illustrated: the duplicationof infrastructure construction, abuse of preferential policies, localprotectionism, the dislocation or overrun of local government functions.Part three covers the construction and analysis of local governments'economic competition models in China. Upon the negative effects of localgovernments' economic competition, models are constructed respectively."Chicken Game" Model for redundant infrastructure construction. Providedthat sufficient information, A and B local governments within one communitymake their competitive choice on whether to build the infrastructure projectthat has large external effects for that community (and suppose onegovernment is enough to carry out that project). Through analysis we draw aconclusion that through changes in payment methods (such as changes inachievement standards), to a certain extent, we can avoid redundantconstruction and save resources. "Prisoners Dilemma" Model for excessivesupply of preferential policies. In order to strive for investment projects somelocal governments provide much more preferential policies and institutionalconditions that even destroy the preferential bottom line established by centralgovernment. Through analysis we can see that to avoid vicious competitionsand ensure the national overall economic interests, we must change theinstitutional conditions and strengthen the intervention of higher-levelgovernments. "Common to Disaster" Model for local protectionism. All localgovernments are aware of their local protective behavior is detrimental to theoverall interests, but no one has the initiative to pause because anyone doesthis will lose immediate opportunities for development. Through analysis it isevident that local protectionism is detrimental to the long-term interests of thebackward areas. To develop their economy, backward areas should form analliance with developed areas nearby to establish regional economy. At thesame time, we should intensify the supervision of central government."Competitive Response" Model for overrun of local government functions forthe development of local economy. Local governments selectively cooperatewith or confront central government's overall macro-control policies. Overrunof local government functions interferes with the national overallmacro-control. Through analysis we should notice that local governmentsshould not only focus on their immediate interests, but also consider theoverall national situation. The central government should strengthen theoverall macro-control.Part four concerns with the regulation of local governments' economiccompetition. First of all, we must reinforce the authority central government.Regulating local governments' economic competition requires the enforcementof central government's macro-economic regulation and control. However, thisdoes not mean taking back the powers which were delegated to the localgovernments, but strengthening the supervision and control over localgovernments for carrying out effective division of powers. Second, we mustimprove our laws and regulations, standardize the relationship between localgovernments, punish offender, formulate specialized legal provisions, clarifythe powers and responsibilities of local government, scientifically clarify thescope, content, methods, procedures and power of intervention of localgovernment's economic behavior to prevent the abuse of power of localgovernment. Then it is necessary to improve local government's performanceappraisal mechanism to enable local officials to establish the correct conceptof achievements. Standards of performance appraisal can not only ensure localeconomic development and social harmony, but also promote a comprehensiveand sustainable development of local economy. Finally, we should developregional economy, increase local interregional cooperation, improveinterregional coordination mechanisms to avoid the frequent economic frictionbetween local governments, strengthen links between local government,integrate resources within the region, and jointly promote the development ofChina's market economy.