The Corporatization Behavioral Model of Local Governments and the Path of China’s Urbanization

Abstract

As an important participate in the development of China’s market economy, local governments play a central role in promoting China’s economic development. To understand the rapid growth of China’s economy, it is vital to understand the behaviors of local governments. With regard to the operation model of local governments in China, previous researches are mainly carried out on the reciprocal relationship between the central and local governments, the competitions among local governments, and the behavioral patterns of local governments under the unique institutional framework in China, which focuses on how local governments would react to the incentives and institutional constraints. However, researches on how local governments actually perform are relatively in short. This paper makes an innovative proposal to explore the pattern of local governments from the micro-behavioral perspective. In the model, local governments are regarded as an indigenous subject of behaviors in the Chinese economic development system to analyze its specific operational logics. This paper proposes to view Chinese local governments as rational economic subjects, just like companies”, to understand the behavioral pattern of local governments from the perspective of company operation”, which makes it easier to understand how local governments will perform under the constraints of the external system. According to the research, we conclude that local governments are just like rational companies, trying their best to maximize the fiscal revenue, including tax, land revenue, minimize the fiscal expenditure of some aspects, such as expenditure on local education, sanitary fixture, and maximize the expenditure on other areas, such as city construction, land development. According to the logics of the model, we analyze the logics of local governments’ actions in urban operation, and explore the logics of China’s land fiscal, China’s urbanization model and its path. The research shows that, under the constraints of China’s tax institutions, land institutions, land property institutions, household registration system and social security system, the logics of the corporatization” of local governments lead to China’s rapid development of land fiscal, which has been the main and steady revenue channel of local governments since later 1990s. Meanwhile, the logics are applied to the urbanization model of land, no people” of China in the past few decades, under the model that local governments can benefit from the land selling and do not need to burden the costs of people urbanization.