SHANGHAI -- China owes its economic-growth miracle largely to local governments. But, as the country attempts to build a more modern and sustainable economy, in a context of lower overall growth, local governments need to adapt. What will happen when they do?
Despite the occasional inappropriate intervention, local governments have been very successful in preserving the market and fostering the spirit of entrepreneurship over the last three decades or so. They have promoted local infrastructure investment, reined in bureaucracy, created an attractive business environment, and enacted preferential short-term supportive policies. But it was always GDP growth that was their main -- and, in a sense, only -- objective.