The logic that places organizational policy at the apex of the CCP's political strategy is best summarized in remarks attributed to Deng Xiaoping during his famed “southern inspection tour”:

THE CCP'S ADAPTATION TO EXTENSIVE DECENTRALIZATION

The 1990s were a decade of extraordinary change in China's localities, including the counties surveyed in the Jiangsu Elite Study. The acceleration of reform after 1992 worsened preexisting economic disparities between Northern and Southern Jiangsu, but from the standpoint of Party officials concerned with building legitimacy, rapid expansion in the Sunan counties surveyed here is evidence of effective governance and adaptability of local institutions to changing economic incentives.

Game theoretic models of politics have long established that both the nature and the quality of information available to players are critical to the understanding of political outcomes (Schelling, 1960; Fudenberg and Tirole, 1991; Rasmusen, 1989). They contrast games in which players share a substantial body of common knowledge about the structure constraining their choices, as well as the identity, capabilities, and preferences of all participants, with games of incomplete or imperfect information. Equilibria are reached with greater ease if the body of common knowledge is large and the proportion of private information is kept to a minimum.

In formal game theory, the number of players is usually small and the nature (or quality) of information among players is fixed before the game is played out: It is usually not measured empirically. However, uncovering how Chinese local officials play the promotion game requires more empirical details than stylized game theory can offer. The nested hierarchy of the bureaucracy, coupled with the high degree of decentralization of the appointment system, turns the political control of local officials into a complex principal–agent problem: A large number of agents are monitored by a multiplicity of principals who each have some authority to grant rewards (promotions) or inflict punishments (dismissal or demotion).

How do local officials seeking advancement understand this complex environment? Rather than assuming common knowledge, it is worth exploring whether the multiplicity of players of the promotion game have a shared understanding of the institutions that structure their careers.

Any government contemplating decentralization must choose a few key parameters that are crucial to the relationship between the center and the localities. It can set the number of layers of local governments; it can decide how various types of local governments interact with each other: Should they form a nested hierarchy or should each level have well-defined responsibilities independently of each other? Finally, in an authoritarian regime that does not hold local elections, the center can set the lower boundary of the “reach of the State” (Shue, 1988). Critical to this reach is the lowest level of government that is directly under central authority. If the center appoints everybody, the system is completely centralized, but the costs of monitoring local agents are likely to be high in a large geographical expanse like China. A fully centralized system can pretend to control everything, but it may overextend its reach and control very little in practice. Overly centralized systems also stifle economic growth. On the other hand, if the center manages too few agents, its monitoring costs are likely to be lower, but the agents will acquire considerable de facto resources and authority under this decentralized regime, and thus become potential challengers to central authority.

In post-1978 China, personnel management has been a central element in loosening these seemingly contradictory constraints.

In November 2002, Hu Jintao became the fourth general secretary of the Chinese Communist Party (CCP) of the “reform era,” which began in earnest in December 1978. The carefully orchestrated leadership transition was widely regarded as the most predictable and peaceful transfer of power in the history of the People's Republic. The contrast with the events of the late 1980s that rocked the communist world could not have been greater. When communism ended, first in Eastern Europe, then in the Soviet Union itself, the future of the Chinese regime seemed very much in doubt. The series of demonstrations during the spring of 1989 proved that the CCP was not immune to the kind of political instability that led to the destruction of communism elsewhere. Although by the summer of 1989 the Chinese leadership seemed to have “won,” scholars outside China ascribed the use of force against demonstrators to the desperation of a Party weakened by ten years of reforms; Deng's pyrrhic victory signified a “transition postponed,” but certainly not a precluded one (Shue, 1992; Pei, 1994).

Fifteen years later, the transition has still not taken place. Instead, the post-Tiananmen leadership surprised the world by embracing a breathtaking series of politically difficult reforms: deeper integration with the world economy, culminating with World Trade Organization membership in 2001; the restructuring of the state sector, including massive layoffs; the privatization of much of the housing sector in urban areas; and the generalization of partially competitive elections at the village level.

Authoritarian regimes that allow political competition at the lowest level of local government do not to so in order to organize their own downfall but because they seek to enhance the legitimacy of the Party and, in turn, extend the duration of their regime. For ruling parties that are threatened by corruption and entrenched local elites, the parsimonious use of the ballot box allows the incorporation of social groups previously excluded from the political system, institutionalizes elite recruitment and rejuvenation, and more generally enhances the responsiveness of the ruling Party to pent-up social demands without risking its hold on national power. The KMT's strategy on Taiwan before 1987 is one of the most successful examples of adaptability to limited and carefully controlled political competition. Even though in the end the ruling party accepted a complete democratization process, the KMT was able to hold onto power for a considerable amount of time, while at the same time holding locally competitive elections.

Since the late 1980's, the Chinese government attempted to rejuvenate grassroots politics and reinforce the legitimacy of the CCP through a series of reforms affecting the recruitment of local leaders. Communist Party functionaries now interact with elected village governments, a configuration of local power that would seem to be at odds with the principal–agent logic that guaranteed tight Party control over government units, as we examined in the previous chapters.

During the reform era, the center of gravity of the Chinese political economy tilted decisively toward cities. The unprecedented pace of China's economic transformation favored urban growth, which in turn increased the political relevance of municipalities and the officials who rule them. Cities now control a far greater share of the country's resources than at any point in the history of the People's Republic. In 2000, municipalities accounted for 51.8% of China's GDP, 50.1% of its industrial output, and 76% of the value of services (Jiang and Cui, 2001). This increased economic might was largely purposeful. The center aimed some of its boldest reform initiatives at municipalities, symbolized by the early creation of special economic zones as early as 1979 (Crane, 1990; Kleinberg, 1990). After 1984, economic decentralization was generalized to other areas, but Premier Zhao Ziyang stressed that coastal cities would enjoy economic privileges that would not be extended to the less developed and more rural hinterland (D. Yang, 1990). The leadership's urban bias survived the crisis of 1989: Until 2002, Jiang Zemin and Zhu Rongji — both former mayors and Party secretaries in Shanghai — presided over further reform initiatives that benefited cities (Naughton, 1995; Wang and Hu, 1999).

In parallel with their rapid economic transformation, cities also enjoy greater formal institutional weight.

The decentralization of personnel policy raises several theoretical and empirical issues for our understanding of the evolution of the Chinese political system. Pessimists have good reasons to expect failure: Local management of cadres requires myriad principals to monitor and reward an even greater number of agents posted in thousands of local government and Party organizations. Even if we assume that localities comply with central directives most of the time, the sheer number of bureaucratic layers severely reduces the likelihood that a central directive will be implemented at the lowest level. With China's five levels of administration, the odds are higher than 50% (namely, a coin toss) if all local agents comply 88% of the time! This harsh mathematical proposition conforms to the often-heard saying that “the sky is high and the Emperor is far away,” as cadres sometimes put it when discussing the gap between Beijing's expectations and the more prosaic realities of their localities.

But what if the emperor has good ears, a few carrots, and uses a stick from time to time? We already know that JES respondents believe that cadre policy has been carried out in a fashion that is broadly consistent with the central government's stated objectives.