ABSTRACT

This chapter examines China's central-local relations from the perspective of tine interaction between the market and the state. Accompanied by economic development and institutional innovation in the localities, the changes that the market mechanism has brought in have also profoundly altered China's central-local power structure. The full play of the market mechanism necessitates legal, regulatory, physical, and social frameworks—roles and functions that can only be provided and protected by the state. The relationship between market and state thus also concerns a society's institutional development. The decentralization approach and the changes in the property rights structure, combined with the stimulus of opening to the outside world, have allowed a dynamic market mechanism and competitive environment to emerge in the country. From 1978 to 1990, the proportion of agricultural procurement regulated by state prices dropped from 94.4 percent to 25.2 percent, while the proportion regulated by the market increased from 5.6 percent to 52.2 percent.