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This paper aims to shed light on where China's reform process is heading by tracing the trajectory of its market-oriented reforms. It shows that Chinese market socialism is facing a dilemma. Developing the capital market and hardening local government budget constraints which are necessary for the structural adjustment of the economy would require China to go beyond the limits of market socialism. Focusing on socialist values and ideology might gain more political traction for the party but could also seriously change the political climate and trigger an unorganized collective action among government officials that unleashes massive bureaucratic interventions and destroys the market's vitality.

In recent years, the "China model" of development has been proposed and. - promoted. Some proponents of the China model even suggest that there emerges. - a "Beijing Consensus" which has a high possibility of replacing the Washington. - Consensus. This article argues that there exist at least two China models, which. - have contrasting features with distinctive roles played by entrepreneurs within. - China's local governments. In the earlier years of the reform era, the role of market. - was expanding, and local governments mainly played an enabling role in. - facilitating the growth of non-state sectors and in following the demand-driven. - growth path to expand local tax bases under the revenue-sharing system. After. - 1998 onwards, the current government-led investment-driven development model. - gradually emerged with local governments' focus evidently shifting towards. - rent-seeking and monopolising financial resources for their own investment. - projects. The article discusses the incentive compatibility issues associated with. - local governments under the two China models and documents in detail local. - governments' entrepreneurship in investment financing. (China/GIGA)

Fiscal recentralization in China in the 1990s introduced incentives that changed the form of corruption at the local government level from the helping-hand to the grabbing-hand type. Against the background of the experience of China, this paper describes how the central-local government revenue-sharing rule introduces strategic considerations that affect the form of corruption & thereby economic growth. Information regarding the possibilities for substitution in the form of corruption is shown to be relevant for decisions regarding fiscal centralization. However, the consequences of the decisions made in China suggest that such information was either not available or was not taken into account. 3 Figures, 23 References. [Copyright 2004 Elsevier B.V.]