¹ Based on the International Comparison Program, as reported in the World Bank's World Development Indicators Database. In non-PPP adjusted 2000 U.S. dollars, the increase was from $153 to 11, 162.

² For instance, Qian and Weingast assert that “the critical component of China's market-oriented reform, which began in 1979, is decentralization”; Qian, Yingyi and Weingast, Barry R., “China's Transition to Markets: Market-Preserving Federalism, Chinese Style,” Journal of Policy Reform 1 (1996)CrossRefGoogle Scholar. Montinola, Qian, and Weingast characterize China's reform-era political system as “market-preserving federalism” and see in this various economic benefits; Montinola, Gabriella, Qian, Yingyi, and Weingast, Barry R., “Federalism, Chinese Style: The Political Basis for Economic Success in China,” World Politics 48 (October 1995)CrossRefGoogle Scholar. Qian and Roland argue that “one of the most distinct features of China's transition has been associated with devolution of authority from the central to local levels of government”; Qian, Yingyi and Roland, Gerard, “Federalism and the Soft Budget Constraint,” American Economic Review 88 (December 1998), 1156Google Scholar. Other articles that link the success of economic reforms to political decentralization include Chen, Ping, “China's Challenge to Economic Orthodoxy: Asian Reform as an Evolutionary, Self-Organizing Process,” China Economic Review 4, no. 2 (1993)CrossRefGoogle Scholar; and Xu, Chenggang and Zhuang, Juzhong, “Why China Grew: The Role of Decentralization,” in Boone, Peter, Gomulka, Stanislaw, and Layard, Richard, eds., Emerging from Communism: Lessons from Russia, China, and Eastern Europe (Cambridge: MIT Press, 1998)Google Scholar. Adherents note that decentralization can have costs—increased inequality, policy externalities, the creation of local “dukedom” economies—but argue that in China these were outweighed by the benefits; Qian and Weingast (fn. 2), 3. Blanchard and Shleifer make the more nuanced claim that fiscal decentralization helped in China, but only because it was combined with political centralization; Blanchard, Olivier and Shleifer, Andrei, “Federalism with and without Political Centralization: China versus Russia,” IMF Staff Papers 48 (December 2001)Google Scholar.

³ For a discussion of some dysfunctional behaviors caused by decentralization, see Wedeman, Andrew H., From Mao to Market: Rent Seeking, Local Protectionism, and Marketization in China (New York: Cambridge University Press, 2003)CrossRefGoogle Scholar.

⁴ For one similar view, see Fewsmith, Joseph, Dilemmas of Reform in China: Political Conflict and Economic Debate (Armonk, N.Y.: M. E.Sharpe, 1994)Google Scholar. For a few of the many works that emphasize the role of factions in Chinese politics, see Nathan, Andrew J., “A Factionalism Model for CCP Politics,” China Quarterly 53 (January-March 1973)Google Scholar; Solinger, Dorothy, “Politics in Yunnan Province in the Decade of Disorder: Elite Factional Strategies and Central-Local Relations, 1967–1980,” China Quarterly 92 (December 1982)CrossRefGoogle Scholar; Baum, Richard, Burying Mao: Chinese Politics in the Age of Deng Xiaoping (Princeton: Princeton University Press, 1994)Google Scholar; Dittmer, Lowell and Wu, Yu-Shan, “The Modernization of Factionalism in Chinese Politics,” World Politics 47 (July 1995)CrossRefGoogle Scholar; and Huang, Jing, Factionalism in Chinese Communist Politics (New York: Cambridge University Press, 2000)CrossRefGoogle Scholar. We concur with those who see factions as fluid, evolving as the focus of competition changes, and having policy preferences as well as material interests. Since the early 1990s all major factions have accepted the goal of marketization, s o this is no longer a point of contention; they differ in their personnel networks, sectoral and regional connections, and commitment to income redistribution. The main point here is that the key axis of competition ran vertically, dividing members of different factions at each level of the state hierarchy, rather than horizontally, pitting a coalition of local officials against their central counterparts.

⁵ For recent discussions, see Rodden, Jonathan, “Comparative Federalism and Decentralization: On Meaning and Measurement,” Comparative Politics 36 (July 2004)CrossRefGoogle Scholar; and Ebel, Robert D. and Yilmaz, Serdar, On the Measurement and Impact of Fiscal Decentralization (Washington, D.C.: World Bank, 2002)CrossRefGoogle Scholar.

⁶ Burns, John P., “Strengthening Central CCP Control of Leadership Selection: The 1990 Nomen-klatura,” China Quarterly 138 (June 1994)CrossRefGoogle Scholar.

⁷ Nathan, Andrew J., “Authoritarian Resilience: China's Changing of the Guard,” Journal of Democracy 14 (January 2003), 13Google Scholar. We list important changes in the division of powers between center and localities in a longer version of the paper on Treisman's Web site at www.polisci.ucla.edu/faculty/treisman/.

⁸ Deng, for instance, in his famous December 1978 speech, “Emancipate the Mind, Seek Truth from Facts and Unite as One in Looking to the Future,” advocated devolving more decision-making power to the “various localities, enterprises and production teams,” running together what in the West would be thought of as political decentralization and economic liberalization; Deng, People's Daily Online, Selected Works ofDeng Xiaoping, http://english.people.com.cn/dengxp/.

⁹ Of course, distance has always facilitated noncompliance, as suggested by the old Chinese saying, “Qiang zai wai jun ming you suo bu shou” (When the emperor is far away, a general does not obey all his orders).

¹⁰ See Granick, David, Management of the Industrial Firm in the USSR: A Study in Soviet Economic Planning (New York: Columbia University Press, 1954), 112–16 and 133Google Scholar. Granick suggests this was common practice in the Stalinist 1930s: “It is in the plants that grass-roots ideas originate; they may later be taken up by higher bodies and spread to all industries or they may be condemned in official instructions. Nevertheless, it is here that they get their first test and hearing.”

¹¹ Qian, Yingyi and Xu, Chenggang, “Why China's Economic Reforms Differ: The M-Form Hierarchy and Entry/Expansion of the Non-State Sector,” Economics of Transition 1 (June 1993)CrossRefGoogle Scholar; Xu and Zhuang (fn. 2).

¹² Qian and Weingast (fn. 2).

¹³ Chandler, Alfred J., Strategy and Structure (New York: Doubleday, 1962)Google Scholar; Williamson, Oliver, Markets and Hierarchies (New York: Free Press, 1975)Google Scholar; Qian and Xu (fn. 11).

¹⁴ Maskin, Eric, Qian, Yingyi, and Xu, Chenggang, “Incentives, Information, and Organizational Form,” Review of Economic Studies 67 (April 2000)CrossRefGoogle Scholar.

¹⁵ Cao, Yuanzheng, Qian, Yingyi, and Weingast, Barry R., “From Federalism, Chinese Style to Privatization, Chinese Style,” Economics of Transition 7, no. 1 (1999), 123–24CrossRefGoogle Scholar.

¹⁶ Xu and Zhuang (fn. 2), 194.

¹⁷ Montinola, Qian, and Weingast (fn. 2), 78.

¹⁸ Chung, Jae Ho, Central Control and Local Discretion in China: Leadership and Implementation during Post-Mao Decollectivization (New York: Oxford University Press, 2000), 77Google Scholar. For details from Fengyang County, see Hinton, William, The Great Reversal: The Privatization of China, 1978–1989 (New York: Monthly Review Press, 1990), 48–73Google Scholar.

¹⁹ Chung, Jae Ho, “Reappraising Central-Local Relations in Deng's China: Decentralization, Dilemmas of Control, and Diluted Effects of Reform,” in Dickson, Bruce J., ed., Remaking the Chinese State: Strategies, Society, and Security (New York: Routledge, 2001), 58Google Scholar.

²⁰ The accuracy of Chinese GDP statistics after 1998 has been disputed; see, for example, Rawski, Thomas, “What Is Happening to China's GDP Statistics?” China Economic Review 12, no. 4 (2001)CrossRefGoogle Scholar. Some consider official growth rates to be exaggerated. By contrast, a national economic census in 2005 concluded GDP had been underreported largely due to inadequate measurement of the service sector.

²¹ Rose-Ackerman, Susan, “Risk Taking and Reelection: Does Federalism Promote Innovation?” Journal of Legal Studies 9 (June 1980)Google Scholar.

²² Hongbin Cai and Daniel Treisman, “Political Decentralization and Policy Experimentation” (Manuscript, Department of Political Science, UCLA, 2005).

²³ Ibid.

²⁴ A vast body of literature in industrial organization explores how the degree of administrative decentralization and the arrangement of responsibilities within a hierarchy may affect innovation and productive efficiency under different conditions. For two examples, see Sah, Raaj K. and Stiglitz, Joseph E., “The Architecture of Economic Systems: Hierarchies and Polyarchies,” American Economic Review 76 (September 1986)Google Scholar; and Bolton, Patrick and Farrell, Joseph, “Decentralization, Duplication, and Delay,” Journal of Political Economy 98 (August 1990)CrossRefGoogle Scholar.

²⁵ Chung (fn. 18), 90; Fewsmith (fn. 4), 28.

²⁶ People's Daily, December 7, 1978, quoted in Chung (fn. 18), 41.

²⁷ Fewsmith (fn. 4), 23–24.

²⁸ Sen Lin, “A New Pattern of Decentralization in China: The Increase of Provincial Powers in Economic Legislation,” China Information 7 (Winter 1992–93), 31.

²⁹ The memory of the catastrophic famine of 1958–61 may also have emboldened peasants; see Yang, Dali L., Calamity and Reform in China: State, Rural Society, and Institutional Change since the Great Leaf Famine (Stanford, Calif.: Stanford Univesity Press, 1996)Google Scholar.

³⁰ Qian and Weingast (fn. 2), 6, italics in original.

³¹ Ibid., 13, 15.

³² Burns, John P., “Local Cadre Accommodation to the 'Responsibility System' in Rural China,” Pacific Affairs 58 (Winter 1985), 619–21CrossRefGoogle Scholar.

³³ Fewsmith (fn. 4), 125. Demand from the population was also important in the spread of the HRS; Luo, Xiaopeng, “Rural Reform and the Rise of Localism,” in Hao, Jia and Lin, Zhimin, eds., Changing Central-Local Relations in China: Reform and State Capacity (Boulder, Colo.: Westview Press, 1994)Google Scholar.

³⁴ Lee, Peter Nanshong, “Enterprise Autonomy Policy in Post-Mao China: A Case Study of Policy-Making, 1978–83,” China Quarterly 105 (March 1986), 57CrossRefGoogle Scholar.

³⁵ Fewsmith (fn. 4), 74; Lee (fn. 34); Naughton, Barry, “False Starts and Second Wind: Financial Reforms in China's Industrial System,” in Perry, Elizabeth and Wong, Christine, eds., The Political Economy ofReform in Post-Mao China (Cambridge: Harvard University Press, 1985)Google Scholar.

³⁶ Stoltenberg, Clyde D., “China's Special Economic Zones: Their Development and Prospects,” Asian Survey 24 (June 1984), 639CrossRefGoogle Scholar.

³⁷ Naughton, Barry, “Deng Xiaoping: The Economist,” China Quarterly 135 (September 1993), 509CrossRefGoogle Scholar.

³⁸ Cheung, Peter T. Y., “The Guangdong Advantage: Provincial Leadership and Strategy toward Resource Allocation since 1979,” in Cheung, Peter, Chung, Jae Ho, and Lin, Zhimin, eds., Provincial Strategies of Economic Reform in Post-Mao China: Leadership, Politics, and Implementation (Armonk, N.Y.: M. E. Sharpe, 1998)Google Scholar.

³⁹ Shawn Shieh, “Provincial Leadership and the Implementation of Foreign Economic Reforms in Fujian Province,” in Cheung, Chung, and Lin (fn. 38), 309.

⁴⁰ Stoltenberg (fn. 36), 640–41.

⁴¹ Shieh (fn. 39), 305.

⁴² Cheung (fn. 38), 122.

⁴³ Feng, Chongyi and Goodman, David S. G., “Hainan: Communal Politics and the Struggle for Identity,” in Goodman, David S. G., ed., Chinas Provinces in Reform: Class, Community, and Political Culture (New York: Routledge, 1997), 61–62Google Scholar.

⁴⁴ Wang, Ya Ping and Murie, Alan, “The Process of Commercialization of Urban Housing in China,” Urban Studies 33, no. 6 (1996)Google Scholar.

⁴⁵ Huang (fn. 4), 371–75.

⁴⁶ For instance, in 1985 Beijing sent Liang Buting, a protege of Hu Yaobang, to serve as party secretary and inject “reformist spirit” into the conservative province of Shandong; Chung (fn. 18), 133.

⁴⁷ Huang (fn. 4), 375.

⁴⁸ For a similar view, see Solinger (fn. 4).

⁴⁹ Qian, Yingyi and Weingast, Barry R., “Federalism as a Commitment to Preserving Market Incentives,” journal of Economic Perspectives 11 (Autumn 1997), 90CrossRefGoogle Scholar; see also Montinola, Qian, and Weingast (fn. 2); and Shirk, Susan, The PoliticalLogic ofEconomic Reform in China (Berkeley: University of California Press, 1993), chap. 9Google Scholar.

⁵⁰ Frank Gibney, Jr., “China's Renegade Province,” Newsweek International, February 17, 1990, 35.

⁵¹ Yumin Sheng, “Governing Economic Openness: Provincial Level Evidence from China, 1977—2002” (Manuscript, Yale University, 2004), 11; Baum (fn. 4), 39–47.

⁵² Ye was reassigned to a ceremonial post in Beijing.

⁵³ Willy Wo-Lap Lam, “Plenum's Push for Growth Masks a Power Scramble,” South China Morning Post, November 20, 1993, 11, quoted in Yang, Dali L., BeyondBeijing: Liberalization andthe Regions in China (New York: Routledge, 1997), 103Google Scholar.

⁵⁴ Yang (fn. 53), 104.

⁵⁵ Fewsmith, Joseph, China since Tiananmen: The Politics ofTransition (New York: Cambridge University Press, 2001), 42CrossRefGoogle Scholar.

⁵⁶ Huang, Yasheng, “The Post-Deng Era: Why China Will Not Collapse,” Foreign Policy 99 (Summer 1995)Google Scholar.

⁵⁷ Lam, Willy Wo-Lap, The Era of Jiang Zemin (New York: Prentice Hall, 1999), 216–17Google Scholar.

⁵⁸ Ibid.

⁵⁹ Huang (fn. 56), 61.

⁶⁰ Cheung, Peter T. Y., “Changing Relations between the Central Government and Guangdong,” in Yeung, Y. M. and Chu, David K. Y., eds., Guangdong: Survey of a Province Undergoing Rapid Change (Hong Kong: Chinese University Press, 1998), 27Google Scholar.

⁶¹ Jin, Hehui, Qian, Yingyi, and Weingast, Barry R., “Regional Decentralization and Fiscal Incentives: Federalism, Chinese Style,” Journal of Public Economics 89 (September 2005)CrossRefGoogle Scholar; Zhuravskaya, Ekaterina V., “Incentives to Provide Local Public Goods: Fiscal Federalism, Russian Style,” Journal of Public Economics 76 (June 2000)CrossRefGoogle Scholar; Qian, Yingyi, “How Reform Worked in China,” in Rodrik, Dani, ed., In Search ofProsperity: Analytical Narratives on Economic Growth (Princeton: Princeton University Press, 2003)Google Scholar.

⁶² Jin, Qian, and Weingast (fn. 61).

⁶³ For a similar formalization, see Jin, Qian, and Weingast (fn. 61).

⁶⁴ Another problem with this argument is that it ignores the central government's potential to either support or impede economic activity; see Treisman, Daniel, “Fiscal Decentralization, Governance, and Economic Performance: A Reconsideration,” Economics and Politics 18 (July 2006)CrossRefGoogle Scholar.

⁶⁵ Wong, Christine, Heady, Christopher, and Woo, Wing T., Fiscal Management and Economic Reform in the People's Republic of China (New York: Oxford University Press, 1995), 86–87Google Scholar.

⁶⁶ Ibid., 90; see Table 1.

⁶⁷ Jin, Qian, and Weingast (fn. 61).

⁶⁸ Qian and Weingast (fn. 2), 17.

⁶⁹ See Oksenberg and Tong (in sources to Table 1), 28.

⁷⁰ Xin-Qiao Ping, “Fiscal Decentralization in Chinese Economic Reform” (Manuscript, China Center for Economic Research, Peking University, 2000).

⁷¹ Ibid., 21.

⁷² Loosely regulated local extrabudgetary funds also existed in Russia in the 1990s, a country Jin, Qian, and Weingast (fn. 61) suggest grew more slowly because of poor fiscal incentives.

⁷³ Wang, Shaoguang, “China's 1994 Fiscal Reform: An Initial Assessment,” Asian Survey 37 (September 1997), 805CrossRefGoogle Scholar.

⁷⁴ OECD, OECD Economic Surveys: China (Paris: OECD, 2005), 32Google Scholar.

⁷⁵ Tsui, Kai-yuen and Wang, Youqiang, “Between Separate Stoves and a Single Menu: Fiscal Decentralization in China,” China Quarterly 177 (May 2004), 71–90CrossRefGoogle Scholar.

⁷⁶ More recently, criteria have included environmental protection and worker safety.

⁷⁷ Tsui and Wang (fn. 75), 77.

⁷⁸ Li, Hongbin and Zhou, Li-An, “Political Turnover and Economic Performance: The Incentive Role of Personnel Control in China,” Journal ofPublic Economics 89 (September 2005)Google Scholar.

⁷⁹ Maskin, Qian, and Xu (fn. 14).

⁸⁰ Qian, Yingyi and Roland, Gerard, “The Soft Budget Constraint in China,” Japan and the World-Economy 8 (June 1996)CrossRefGoogle Scholar; Qian and Roland (fn. 2).

⁸¹ For details, see www.novexcn.com/sev regs jiangsu encor for.html. www.novexcn.com/qin-huangdao perf treat for.html. www.novexcn.com/imp forinvest inves xiamen.html. www.novexcn.com/encou for inv heilongjiang.html. and www.novexcn.com/guangdo im prov encor f in.html (accessed March 2, 2006).

⁸² Shaoguang Wang, “Central-Local Fiscal Politics in China,” in Hao and Lin (fn. 33), 100.

⁸³ OECD (fn. 74), 170.

⁸⁴ Jin, Jing and Zou, Heng-fu, “Soft-Budget Constraints and Local Government in China,” in Rodden, Jonathan, Eskeland, Gunnar, and Litvack, Jennie, eds., Fiscal Decentralization and the Challenge of Hard Budget Constraints (Cambridge: MIT Press, 2003)Google Scholar.

⁸⁵ Wong, Y. C. Richard and Wong, M. L. Sonia, “Competition in China's Domestic Banking Industry,” Cato Journal 21 (Spring-Summer 2001)Google Scholar.

⁸⁶ Jonathan Sprague, “Beyond Bankruptcy: The Gitic Failure Puts Foreign Lenders on Alert,” Asiaweek, January 29, 1999.

⁸⁷ Ibid. Similar, although smaller, cases occurred in Guangzhou and Dalian; see Kyodo News International, Asian Economic News, June 26, 2000.

⁸⁸ Washington Post, January 12,1999, A14.

⁸⁹ Fang, Jiachun, Jinrong Tuoguan Jingdian Anli Yanju (Studies of classical cases in financial trust) (Beijing: Economic Science Publisher, 2002)Google Scholar.

⁹⁰ Boardman, Harry G., “The Chinese State as Corporate Shareholder,” Finance and Development 36 (September 1999)Google Scholar.

⁹¹ Nicholas Lardy, “The Challenge of Bank Restructuring in China,” in Bank for Settlements, International, Strengthening the Banking Systems in China: Issues and Experience (Basel, Switzerland: Bank for International Settlements, 1999), 20Google Scholar.

⁹² Nicholas Lardy, “The Case of China” (Manuscript, Brookings Institution, Washington D.C., 2000), 24; Boardman (fn. 90).

⁹³ Lardy (fn. 91), 30.

⁹⁴ One might expect a temporary increase if discipline were increasing, but if the proportion continues to rise year after year, some source of financing must be covering the losses.

⁹⁵ Victor Shih, “Dealing with Non-Performing Loans: Political Constraints and Financial Policies i n China” (Manuscript, Northwestern University, Department of Political Science, 2005), 17–18.

⁹⁶ OECD (fn. 74), 43.

⁹⁷ Qian and Roland (fn. 80), 222.

⁹⁸ For an interpretation of agricultural reforms that emphasizes local initiatives, see Yang (fn. 29).

⁹⁹ The specific events on which these classifications are based, along with the sources, are listed in a longer version of the paper on Treisman's Web site at www.polisci.ucla.edu/faculty/treisman/.

¹⁰⁰ On the case of Wuhan, see Solinger, Dorothy, “Despite Decentralization: Disadvantages, Dependence and Ongoing Central Power in the Inland—The Case of Wuhan,” China Quarterly 145 (March 1996)CrossRefGoogle Scholar.

¹⁰¹ This is, of course, a matter of degree. Personal connections were always important in shaping the support group of the usually pragmatic Deng.

¹⁰² Chen (fn. 2).

¹⁰³ For example, Qian and Roland (fn. 2), 1156.