Abstract :
After three decades of spectacular economic successes,
China is facing a significant challenge. The string of recent scandals –
environmental degradation, melamine-tainted milk powder, fake drugs
and chemicals – have all pointed to government weakness in protecting public
safety, exposing an enormous gap between China’s growing economic
prowess and its capacity to govern. With the leadership now focused on
improving the regulatory regime, will China “catch up” and build the public
institutions needed? This article argues that the reactive, incremental
retrenchment of government in the 1980s and 1990s, combined with
inadequate finance, had broken the intergovernmental fiscal system and created
large distortions in the incentive structure facing government agencies
and public institutions (shiye danwei 事业单位). Until the intergovernmental
fiscal system is repaired and incentives are fundamentally reformed for the
public sector, the top-down programme to redirect China’s development
and build a service-oriented government will have limited effect.
