Special Deals with Chinese Characteristics
Chinese local governments wield their enormous political power and administrative capacity to provide “special deals” for favored private firms. We argue that China’s extraordinary economic growth comes from these special deals. Local political leaders do so because they derive personal benefits, either political or monetary, from providing special deals. Competition between local governments limits the predatory effects of special deals.
We thank Yasheng Huang, Ruixue Jia, Santiago Levy, Jonathan Parker, Maurice Obstfeld, Raghuram Rajan, Meg Rithmire, Antoinette Schoar, Yingyi Qian, Yong Wang and Xiaodong Zhu for helpful discussions. We are grateful to Xin Wang for his assistance with the State Administration of Industry and Commerce data. Feng Lin, Kazuatsu Shimizu and Jihoon Sung provided extraordinary research assistance. The data from the US Census has been reviewed by the U.S. Census Bureau to ensure no confidential information is disclosed. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.