The State Investment System and its Response to Reform

Abstract

This chapter presents a political economy analysis of the development of China’s state investment system and its response to reform. Political economy analysis as used here means that the focus of the analysis is on the orientation, interests and interest conflicts among the different economic authorities and agents, and on showing how these have shaped the processes of concrete investment decision-making, financing and implementation. The main focus is on fundamental forces and interaction mechanisms shaping the investment system rather than on the miscellaneous policy details and related shifts. The conflicts of interest have existed not only between central and local governments, but also among different bureaucracies of the same rank (mainly planning, fiscal, banking and specific industrial bureaucracies). On the other hand, there has been widespread collusion among local government agents, locally run enterprises and local branches of state banks, as well as between enterprises and their immediate supervisory agencies. All aim to avoid project approval requirements and procedures and to obtain loans outside the credit plan.

Keywords

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