Decentralizing China : Analysis of Central Strategies in China's Fiscal Reforms

China's post-Mao reforms have devolved significant economic and fiscal power from central to local governments. However, decentralization from above involves political risks: weakened central control and increased local discretion may allow local governments to engage in self-interested activities with negative externalities to other regions and even the whole nation. A crucial question thus arises: how can the national government enjoy the benefits of decentralization while at the same time keeping the undesirable local behaviors in check? Through analysis of China's fiscal reforms, this paper suggests that the institutional advantageous position of the central government and its shrewd bargaining strategies played an important role in helping the central government maintain control over the fiscal system and inducing mutually acceptable outcomes for both the center and localities