Reflections on Reconstructing China's "Doing Business" and "Central-Local Relations"

Author Name MENG Jianjun (Visiting Fellow, RIETI) / PAN Motao (WUHAN University)
Creation Date/NO. March 2022 22-J-012
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In 2015, the Chinese central government placed the domestic business environment reform goal in a prominent position following the World Bank's concept of "Doing Business." At the same time, local governments launched broader administrative reforms through trial and error in policy practice. As a result, the traditional "central-local government relationship"—the most fundamental institutional environment—combined the respective characteristics and institutional changes and innovations of local government policy, reflecting a diverse institutional relationship amongst the three levels of government, namely "central - provincial – municipal."

While using game theory to analyze the decision-making relationship between the central government and provincial governments, this paper examines institutional reforms promoted by municipal governments through comparative case studies. Our findings show that in the process of the "Doing Business" policy diffusion, learning, and innovation, the central government is generally tacit and supportive of local governments' institutional innovation. In addition, in different places, due to diversities in economic capacity, reform areas, administrative culture, and other factors, the "central - provincial - municipal" three levels of government reflects a diverse and balanced relationship, and with goals of spontaneity and adaptability, local and city governments enact flexible system design.