Research / BFI Working PaperMay 20, 2019

Special Deals with Chinese Characteristics

Chang-Tai Hsieh, Chong-En Bai, Zheng Michael Song

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.

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