Autonomy and Performance: Decentralization Reforms in Zhejiang Province, China
| Published date | 01 May 2017 |
| Author | Jianxing Yu,M Ramesh,Xun Wu |
| Date | 01 May 2017 |
| DOI | http://doi.org/10.1002/pad.1786 |
AUTONOMY AND PERFORMANCE: DECENTRALIZATION REFORMS IN
ZHEJIANG PROVINCE, CHINA
XUN WU
1
, M RAMESH
2
*AND JIANXING YU
3
1
Hong Kong University of Science and Technology, Hong Kong
2
National University of Singapore, Singapore
3
Zhejiang University, China
SUMMARY
Decentralization reforms rarely live up to the high hopes and expectations of the reformers for a variety of reasons rooted in
actions and omissions of the governments pursuing it or in the context in which it is undertaken. The paper examines the expe-
rience of Zhejiang Province where decentralization was successful in achieving and indeed exceeding initial expectations. The
remarkable feature of its reforms was ‘performance-based’decentralization wherein localities showing superior performance
were awarded additional autonomy at a faster speed while the rest were given additional support to build their capacity for
assuming more responsibility in the future. To understand the effects of this unique pattern of decentralization, the paper
compares the performance of participating and non-participating counties under five waves of reforms between 1992 and 2008,
based on indicators such as gross domestic product, industrial output and local government revenue. It finds that performance-
based decentralization not only helped overcome the problem of capacity deficits but also fostered capacity in weaker counties
to assume more autonomy in the future. The paper confirms that speed and sequence of transfer of autonomy and responsibilities
to local governments are as important as the content of decentralization. Copyright © 2017 John Wiley & Sons, Ltd.
key words—governance reform; decentralization; local governments; economic policy; China; Zhejiang
INTRODUCTION
Governments around the world have enthusiastically embraced decentralization in recent decades as a means to
strengthening governance and improving policy outcomes (Grindle, 2007). The mixed, albeit largely negative,
experience with it has not diminished the conceptˈs appeal among reformers (Rondinelli et al., 1983a; Treisman,
2007; Fan et al., 2009). Making decentralization work as intended remains a challenge, however, because its per-
formance depends on a host of institutional and contingent factors that stymie generalization. The purpose of this
paper is to contribute to the understanding and practice of decentralization by examining the experience of Zhejiang
Province in China, where it has succeeded beyond the reformersˈown expectations. The paper starts by discussing
the challenges of making decentralization work and then examines how they were addressed in Zhejiang with the
purpose of drawing lessons for other developing countries engaged in decentralization reforms.
The case of Zhejiang is remarkable because its economic and governance reforms, including decentralization
measures, catapulted it from a laggard to one of the most developed provinces in the country. Following reforms,
the provinceˈs industrial output expanded 40-fold over two decades and the size of the provincial economy rose
from being the 16th largest in the country in 1978 to fourth largest in 2012.
The manner in which the province awarded autonomy to county governments and build their governance
capacity offers vital insights into the provinceˈs rapid economic development. The key features of the provinceˈs
decentralization reforms were (i) promoting competition among local governments for investment and resources,
(ii) awarding more autonomy to more capable county governments, and (iii) granting additional resources to
*Correspondence to: M Ramesh, Lee Kuan Yew School of Public Policy, National University of Singapore, Singapore. E-mail: mramesh@nus.
edu.sg
public administration and development
Public Admin. Dev. 37,94–109 (2017)
Published online 28 February 2017 in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/pad.1786
Copyright © 2017 John Wiley & Sons, Ltd.
weaker county to prepare them for competition with stronger counterparts. The ensuing reforms, best described as
‘performance-based decentralization’, unleashed a cycle of innovation and growth across counties of different
levels of capability.
Our analysis of decentralization reforms in Zhejiang suggests several significant implications for both the theory
and practice of decentralization. First, it offers a solution to the capacity mismatch that occurs when local govern-
ment capacity is inadequate for the increased responsibility bestowed by decentralization (PrudˈHomme, 1995).
Often, expanding the autonomy of local governments before they are ready for it undermines rather than enhances
their capacity and performance (Kwon, 2013). Asymmetrical decentralization based on performance offers incen-
tives for innovation to more capable governments while allowing those with less capacity to catch up. Second, our
analysis highlights the nature of the linkage between decentralization and competition among local governments
(Saich and Yang, 2003). Greater autonomy provides county governments the opportunity to strengthen their rela-
tionships with foreign and domestic investors so as to win in competition against other localities that offers critical
insights into the behaviours of local governments in China. Third, the emphasis on performance in this form of
decentralization creates a strong feedback loop that can help sustain momentum for further reforms by encouraging
local governments to pursue achievable goals. Early success can also help to build political support for more
extensive and difficult reforms in the future.
The rest of this paper is organized in five sections. The section on Decentralization: Promises, Pitfalls, and
Pathways summarizes the key issues in governance pertaining to linkage between decentralization and economic
development. The section on Decentralized Governance in China highlights the evolution of administrative decen-
tralization in Zhejiang from the perspective of county-level governments, while the following section on Decentral-
ization Reforms in Zhejiang offers a detailed account of the five waves of decentralization reforms in the province.
The section on Discussion: the Performance of Performance-based Decentralization assesses the outcomes of these
waves of decentralization reforms by comparing the performance of participating and non-participating counties
under five waves of reforms between 1992 and 2008, based on indicators such as gross domestic product (GDP),
industrial output and local government revenue. Finally, the concluding section offers discussion on the dynamics
of performance-based decentralization and suggestions regarding design and implementation of decentralization.
DECENTRALIZATION: PROMISES, PITFALLS AND PATHWAYS
Decentralization is inspired by the belief that decentralized governance allows citizens to demand better services
from their governments, monitor performance and insist on improvement in quality of services if dissatisfied, thus
strengthening governmentsˈresponsiveness as well as accountability (Tiebout, 1956; Rondinelli et al., 1989;
Bardhan and Mookherjee, 2006). The result of the enhanced engagement between citizens and their local govern-
ment is said to promote better public services and higher economic growth, in addition to democratic participation
and accountability. Widespread interest in the subject has spawned a mountain of research on the concept, practice
and impacts of decentralization. Most studies focus on its effects on public sector outputs and outcomes (for sum-
mary of this research, see Rondinelli et al., 1983a; Manor, 1999; Treisman, 2007; Faguet, 2012) while a few assess
its effects on governance (e.g. see de Mello and Barenstein, 2001; Faguet, 2014). Studies addressing governance
aspects of decentralization devote considerable attention to transparency, community participation and rule of
law (World Bank, 1997; Litvack et al., 1998; Diamond, 1999), although there is no empirical evidence or compel-
ling logic supporting the linkage between these features and success of decentralization (Treisman, 2007).
Notwithstanding the voluminous and diverse literature on decentralization, surprisingly, little is known about
how to make it work effectively. Available evidence goes no further than suggesting that the success of decentral-
ization depends largely on how it its implemented (Litvack et al., 1998; Shah et al., 2004; Falleti, 2005; Conyers,
2007; World Bank, 2008; Smoke, 2010). The performance of decentralization depends crucially on, according to
Paul Smoke (2015a), ‘the substance, timing, and sequencing of how new systems and processes are rolled out on
the ground’. Some studies do suggest the importance of better monitoring and improved incentives but do not pro-
vide substantiating evidence (Litvack et al., 1998; Channa and Faguet, 2012). The fact is that the specific
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AUTONOMY, PERFORMANCE AND DECENTRALIZATION IN ZHEJIANG
Copyright © 2017 John Wiley & Sons, Ltd. Public Admin. Dev. 37,94–109 (2017)
DOI: 10.1002/pad
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