The Evolving Role of Government in China's Transitional Economy

Abstract

This paper recounts the changing economic role of Chinese government, both at the central and local levels, in the reform process. The previously all-encompassing role of the central government has been greatly reduced, mandatory plans abolished, prices decontrolled, and administrative controls decentralised. Decentralisation has reoriented the interest of local governments towards reform and system innovation, fostered a climate for reform initiatives and spontaneous reform at local level, and induced competition among different localities that has again provided incentives for local governments to change, to adapt to changes, and to innovate. Decentralisation, however, has also led to dilemmas and problems, and created instability and uncertainty in China's macro-economic conditions and central-local relations.