Two China Models and Local Government Entrepreneurship

Abstract

In recent years, the “China model” of development has been proposed and promoted. Some proponents of the China model even suggest that there emerges a “Beijing Consensus” which has a high possibility of replacing the Washington Consensus. This article argues that there exist at least two China models, which have contrasting features with distinctive roles played by entrepreneurs within China’s local governments. In the earlier years of the reform era, the role of market was expanding, and local governments mainly played an enabling role in facilitating the growth of non-state sectors and in following the demand-driven growth path to expand local tax bases under the revenue-sharing system. After 1998 onward, the current government-led investment-driven development model gradually emerged with local governments’ focus evidently shifting towards rent-seeking and monopolizing financial resources for their own investment projects. The article discusses the incentive compatibility issues associated with local governments under the two China models and documents in detail local governments’ entrepreneurship in investment financing.

Keywords: China Model, Incentive Compatibility, Local Government Entrepreneurship