Despite the optimistic tone of government propaganda, the Chinese economy is facing serious challenges. Conversations with ordinary people in China reveal a pervasive sense of pessimism. Almost everyone has a story about how the economic downturn has made their lives more difficult. Some even openly hold the government accountable for the tough situation. Chinese officials, from Shanghai to Henan, have commented on the sluggish economy, describing the situation as “daunting.” A Henan official even disclosed that between 70 and 80 percent of this year’s new college graduates are unable to find jobs.
The dominant explanations for China’s economic difficulties focus on structural economic challenges or fiscal and monetary policies. The Chinese government has introduced policies to address these issues. However, this article examines China’s economic challenges from a different perspective, arguing that the local cadre incentive structure is a crucial yet often overlooked factor in the performance of the Chinese economy.
The Cadre Incentive Structure and Economic Growth
The study of the cadre incentive system has been central to understanding China’s economic growth. According to Kevin O’Brien and Li Lianjiang, local cadres in China are assigned numerous responsibilities and targets under the cadre responsibility system. These targets are divided into two categories: “hard targets,” which are binding and involve measurable outcomes, and “soft targets,” which are non-binding and lack measurable criteria. Local leaders consistently prioritize achieving hard targets over soft ones because the former carry greater weight in performance evaluations.
Among these, GDP growth has been the most significant hard target. In many cases, it becomes a veto target, meaning failure to meet the GDP growth target can override and nullify all other accomplishments. Consequently, this intense focus on GDP growth spurred tournament-style competition among local governments, with officials adopting growth-maximization strategies to enhance their promotion prospects.
Other scholars have further explored the relationship between economic growth and the cadre incentive structure. Lynette Ong demonstrated that economic targets, such as GDP growth and local debt levels, influence local officials’ policy decisions, such as favoring lending to state-owned enterprises (SOEs) over private companies.
Yuen Yuen Ang’s research highlighted the power of cadre incentives to stimulate local economies. All cadres, regardless of their specific roles, are required to meet investment attraction targets, resulting in a policy orientation hyper-focused on economic development.
Similarly, David Bulman showed that the cadre incentive system is the most critical factor in local economic growth. His study found that among six townships with identical geography, climate, and resources, those prioritizing GDP growth outperformed those focused on maintaining stability.
Economic Development Is No Longer a Priority
However, recent interviews reveal a significant shift in the cadre responsibility system, a change that has had a profound impact on economic growth. Local cadre incentives, once instrumental in driving economic growth, now hinder it. Economic development is no longer a priority for local cadres.
The first major change in the cadre evaluation system is the de-emphasis of individual responsibility and the rise of “collective” responsibility. Under the new system, cadre evaluations are divided into two categories. The first category is individual evaluation, which assesses cadres based on five criteria: “morality,” “capability,” “hardworking,” “performance,” and “incorruptibility” (德能勤绩廉). Despite “performance” being one of the five criteria, actual job performance is not measured at the individual level.
One local official noted that, unlike Key Performance Indicators (KPIs) in private firms, individual evaluations in the government are highly subjective. As long as cadres show up to work and avoid committing crimes, anyone can pass their individual evaluation. After all, as the cadre remarked, “We are all co-workers and CCP members; how can anyone tell who is better than the others?”
The real performance evaluation occurs at the office level. For example, in the case of investment attraction, a key local indicator according to Yuen Yuen Ang, the responsibility for meeting investment attraction targets falls on the local investment attraction office, rather than on individual cadres. As a result, the higher-level government evaluates the office as a whole, rather than individual performance.
In practice, this means that the head of the office is held accountable if the office fails to meet its investment attraction target. Individual office workers are not directly blamed. While they may receive reprimands from their office leaders – a punishment they often consider “nothing” – they will not face additional penalties, such as a reduced salary or a demerit on their personal file.
The new cadre evaluation system has significantly reduced the incentives for local cadres. By removing individual incentives from the evaluation process, cadres have lost their self-motivation for work. Many describe their daily work life as “striking the bell every day like a monk” (当一天和尚，撞一天钟), meaning they are passively carrying out their duties. This issue has become particularly salient since local governments abolished performance-related bonuses in order to formalize the cadre salary system and reduce cadres’ “grey zone earnings.” Hitting targets no longer translates into material gains for local cadres.
In particular, older cadres in lower offices are often the least motivated to work. Having passed the age cut-off for promotion, they see no prospects for career advancement. However, they cannot be dismissed due to China’s life-tenure civil service system. As a result, they have little incentive to complete tasks and tend to “muddle through” (混) the rest of their careers until retirement. One young cadre described them as “sneaky” (油), doing the bare minimum while avoiding responsibility.
Their leaders, often younger, have limited means to direct them. Since age and seniority carry weight in the system, younger office leaders are also reluctant to command older cadres and tend to leave them alone. A former CCDI official remarked that even inspection teams ignore them.
Consequently, a cadre from Shanghai commented, “I am 40 now, and this is my last chance for promotion. If I don’t get promoted in the next five years, I’ll lay flat. Why should I care anymore? If my superior tells me to do something, I’ll yell back.”
Increased Inspections
Another change in the evaluation system is the growing number and importance of top-down inspections. The previous cadre evaluation system, as described by many scholars, was outcome-focused. Cadres were allowed to use any means necessary to meet numerical targets within the evaluation framework. As a result, local governments often infringed on citizens’ legitimate rights in order to achieve these goals. Reflecting on this period, a local cadre described local governments as “nothing really different from gangs and mobs.” The mob-like nature of local government was one of the reasons behind the widespread local mass incidents in the 2000s and early 2010s.
As a result, the Chinese government introduced top-down inspections to monitor the task completion process. Typically, these inspections audit local accounts and money flows, as well as review the official documents at each step of policy implementation. One local official explained these inspections with an example: Before the inspection system was introduced, if a township had a policy to help farmers raise pigs, the inspection would only focus on whether each family owned pigs. As long as each family had pigs, everything would be considered fine. Now, in addition to evaluating the final outcome, the inspection focuses on each step of the implementation process, from the bidding documents for pig procurement to photos of pigs being distributed to each family.
These inspections have significantly reduced illegal activities during the policy implementation process, and local officials now view themselves as much less “mob-like.” However, these inspections have also caused significant delays in policy implementation. Not only must officials ensure they follow the rules carefully, but they must also leave traces of completion at each step of the policy implementation process.
As a result, local officials often find themselves overwhelmed with paperwork. In fact, leaving perfect traces of paperwork to satisfy inspections has even become more important than completing the task itself. Combined with the lack of individual incentives, many officials believe that their only responsibility is paperwork, and that the success of the policy has little to do with them.
The need to follow rules has also led to the end of many extralegal practices that had been nevertheless proven economically effective for decades. For example, the Third Plenary Session of the 20th Party Congress reiterated the ban on “illegal industrial policies,” such as attracting businesses with “excessive tax incentives.” At the local level, tax bureaus zealously investigate tax breaks and subsidies. As one commerce bureau official complained, these tax bureau officials are like “detectives investigating criminals.”
As a result, local governments have lost one of their most effective tools in investment attraction. Even though local governments try to get creative and find other ways to use subsidies and incentives to attract investment, commerce bureau officials complained that the tax bureau “makes the investment attraction job difficult, particularly at a time when the economy is so bad.”
The Chinese economy is, first and foremost, political; political factors such as cadre incentives are crucial for understanding China’s economic development. For a long time, China’s rapid growth depended on pro-growth local officials who were eager to adopt growth-maximization policies. However, the situation has changed, and cadres are now completely different. They have minimal interest in pursuing growth; instead, they focus on completing paperwork and dealing with inspections. The cadre evaluation system further discourages officials from actively taking responsibility and completing tasks, creating cadres who are indifferent to any outcomes, including economic growth.