From Predator to Debtor: Soft Budget Constraint and the Semi-Planned Administration in Rural China

Abstract

This article explores the institutions of the Chinese semi-planned administration under which the grassroots role of debtors has loomed large and made possible the transition of grassroots cadres from predators to debtors. The institutional features of the semi-panned administration -- the institution of target responsibility, the legacy of cost shifting, and the paternalistic care provided by the socialist state -- together with related policy measures explain the pathology of budget deficits and debt problems at the grassroots level across rural China. An investigation into the public finances of grassroots governments in Wenzhou, Wuxi, and Jianshi illuminates how the Chinese semi-planned administration has shaped individual cadres` calculations and behavior, perpetuated their irresponsible spending, and reproduced local soft budget constraints. This article argues that without an outright revamping of the institutions of the Chinese semi-planned administration, the current practice of simply writing off rural debt through financial bailouts perpetuates soft budget constraints across the countryside.