Despite rapid economic growth, many people in China still cannot afford to provide for their basic needs such as health and education. The Communist Party leadership in Beijing ("the Center") believes that this problem stems not just from poverty but also from local governments' failure to provide adequate social goods. Local governments in China are responsible for expenditures on all social goods including pensions, health care, and unemployment insurance. Beginning in the 1990s, the Center has pushed for a series of national standards calling for higher social spending at local levels; but its effort has been unsuccessful. Since 1994, when the Center consolidated its political and fiscal control and increased its revenues, the nation?s total social spending has declined and variation in social spending by local governments has increased. Why? The Center may bear some responsibility for these disappointing outcomes by its decision to grant some local governments the right to deviate from the national standard, but not others. After 1994 why did the Center delegate social policymaking authority instead of enforcing uniform levels of high social spending in all localities? More importantly, when local governments were given authority, why did some spend more and others less? Both questions are approached through a model of strategic interaction between the Center and localities. The Center pushes local governments for higher social spending to head off potential social unrests and maintain regime stability; but local officials seek private rents by focusing on economic projects rather than social goods. In this model, the Center?s delegation decision may be influenced by the monitoring costs originated from the hidden information in a locale about what level of spending it will adopt. Specifically, the Center would delegate in cases where the budgetary decisions are decentralized to the county level rather than being made at the provincial level because it is more costly for the Center to learn the hidden information from county-units, and local governments have a substantial information advantage. As for why localities would spend differently, the model suggests that the career incentive of local officials plays a role. In cases where local leaders are more interested in advancing their political careers rather than predating short-term revenues, they would spend more on social goods in order to impress the Center, which holds the ultimate personnel appointment power. The model is tested using a new dataset on the development of China?s local social policy based on local policy yearbooks across all provinces and lower levels of government. In-person interviews with government officials supplement this information. In addition, detailed case studies comparing four provinces provide more information concerning the questions being examined. This study enriches our understanding of China?s opaque political system and the logic of social welfare provisions in non-democracies. The analysis sheds light on why current practice conflicts with the dominant view in the political science literature, which would predict that social spending would be low in non-democracies.
