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industrial output, and from the taxes remitted by lower levels of administration. At the next lower level were 30 provinces and below them another 320 cities and districts, which together owned 83,000 public industrial enterprises (an average of 235 per jurisdiction). Together, these firms produced 52 percent of national output in 1985. Below the cities and districts were 2,000 largely rural county governments, which owned another 68,000 public enterprises (an average of only 33 per jurisdiction), producing 13 percent of national output. Below the rural counties were 91,000 townships and towns with an average of fewer than 2 public enterprises each, and below these townships were another 80,000 villages with less than 1 enterprise on average. The fiscal reforms of the 1980s gave each of the 93,000 government jurisdictions above the village level clearer residual rights to increases in revenues (Walder, 1995a:275).

It is evident that the scale of the economy, the size of its revenue base, and the degree of industrialization drop dramatically as one moves from the top of this hierarchy of redistributive systems down to the smaller cities, counties, and townships. It is less immediately evident that as a result, the centrally defining features of redistributive economies disappear as one moves down the hierarchy.1

The Intensity of Fiscal Incentives for Governments

The lower the level of the government's jurisdiction, the more its revenues rely on agriculture rather than industry, and therefore the lower its per capita revenues. Economic growth has a disproportionate impact on the revenues of less industrialized jurisdictions. Kornai's analysis of redistributive economies assumes a centralized system that itself already depends heavily on a developed national industrial base. The fiscal incentives for the smaller cities, counties, and especially townships and villages, where there is still a significant agricultural population, are much stronger than this model assumes. Additions to the industrial bases of these lower jurisdictions have a larger proportionate impact on revenues, and therefore fiscal decentralization creates more intense fiscal incentives in the lower reaches of the government hierarchy (Byrd and Gelb, 1990; Oi, 1992).

The Capacity to Redistribute Within an Industrial System

While the vast majority of China's (mainly small) industrial enterprises are held by these lower jurisdictions, the number of enterprises per jurisdiction drops dramatically as one moves down the hierarchy. While there are almost 4,000 firms at the center, there are on average only 350 at the province


The discussion in the next three subsections is a condensation of Walder (1995a).

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