Research On Investment Behavior Of Local Governments During The Economic Transition Period In China

Chinese economy has kept increasing continually and quickly for more than30years since the reform and open to the outside world. The increase is amazing for thewhole world. With the background of worldwide financial crisis, Chinese economystill keeps quick increasing and becomes the engine of economic recovery and growth.Large numbers of researches show that the main factor which motivates the rapidincrease in China is the investment of production factors, especially the large increaseof capital element. The growth pattern in China is investment. From the point of viewof behavioral agents in economic growth, although market-oriented reform has beencarried out, the dominant position of business investment has been intensified further,but the government still plays an important role during the period of economictransformation. Administrative decentralization reform especially makes localgovernments possess unprecedented economic power and become the main subjectsof economic growth. For more than30years, the investment of local governmentsgrows quickly. The result of investment behavior is obvious. It not only motivates theeconomic development in regions, but plays an important role in keeping fast growthin Chinese economy. The investment of local governments is the importantfoundation in realizing the continual and rapid increase in Chinese economy.Driven by the investment motivation, the investment behavior of localgovernments is the specific investment activity of local governments in order to getthe desired objective. The rationality of investment behavior of local governmentsdepends on the rationality of its investment motivation, investment objective andinvestment methods. This essay applies some relative theories, such as, governmentbehavior theory in Western Economics, regional investment theory, and InstitutionalEconomics, etc. It analyzes investment behavior of local governments in Chinathrough the methods of gaming and equalization, particularly studies the cause ofintensification and alienation of investment behavior of local governments during the process of system transformation (economic transformation period). It analyzes indepth the influence of market economy led by governments and financialdecentralization system to the motivation, benefits target, constraint conditions, andgame strategies of investment behavior of local governments, reveals the system rootof the variance in investment behavior of local governments, and further explores thepositive aspects and adverse effects caused by investment behavior of localgovernments to regional economy and macro economy from theory and empiricalstudy. And then, strategies and suggestions on rationally regulating investmentbehavior of local governments are put forward. Through this research, it is helpful tounderstand and analyze the irrational system origins in local governments’ behavior,such as, local protection, repeated construction, opportunism in government sectors,and competing preferential investment policy, etc. which exist within economictransformation period. Therefore, the function of local governments can be definedscientifically. Investment behavior of local governments can be regulated. Theregulation and system of investment behavior can be established which embodies therequirement of scientific outlook on development. The steady and continual growth ofeconomy can be maintained.The investment behavior of local governments does have its rationality andnecessity during the economic transformation period. But during the period ofeconomic transformation in China, under the pressure of finance, competition withother local governments, and political achievements, the investment behavior of localgovernments may produce variance. That is, such investment behavior makes localgovernments pursue local benefits only, but produce adverse effects to thedevelopment of the whole nation and the whole society. One of the major problemsexisting in investment field in China is the non-standard investment behavior of localgovernments. There are six chapters in this essay.Introduction: Illustrate the purpose and significance of the essay. Defineinvestment behavior of local governments. Summarize and comment on the existingresearch findings briefly. Put forward the basic idea and the structure of the essay.Chapter One is about the theoretical premise of investment behavior of localgovernments during economic transformation period. Government intervention in economy in Western Economics and government behavior theory provide thefoundations of macro theory for studying investment behavior of local governmentsduring economic transformation period. And regional investment theory providesmicro methodology. As an important system variable, investment behavior of localgovernments has great influence on the economic growth within the region. Thedistinctiveness and the “Double Themes” existing in economic transformation periodin China make local governments possess special status and function. This is thenecessity of the emerging of investment behavior.Chapter Two is about the empirical analysis of investment behavior of localgovernments during economic transformation period. From empirical point of view,describe investment behavior of local governments; analyze investment scale,investment structure and investment efficiency; get the conclusion of empiricalresearch. Provide practical basis for local governments to establish moderateinvestment scale, optimize investment structure, improve investment efficiency, andbuild perfect investment strategies and mechanism.Chapter Three is about the alienation analysis of investment behavior of localgovernments during economic transformation period. The investment behavior oflocal governments may deviate from rational investment behavior orbit. Theexcessive investment brings about alienation which has deep system origins. Thegovernment-led economy is the important premise of the alienation of investmentbehavior. The competition among local governments which is dominated by localgovernments worsens the alienation of investment behavior. Within the period ofeconomic transformation in China,“Financial Incentives” created by financialdecentralization system and “Promotion Incentives” which is the main assessmentcriteria and which is used to measure economic performance, make the investmentfunction of local governments generalize and have the tendency of excessiveinvestment.Chapter Four is about the effect analysis of investment behavior of localgovernments to economic development. The levels of investment of localgovernments have remarkable positive effect to the short-term economic growth. Butfor the long-term quality and structure of economic development, the investment behavior of local governments for economic growth only can produce adverse effect.The excessive investment of local governments increases local debts. It increases notonly the pressure on local public finance, but risks of finance. The investmentbehavior of local governments is the main factor of the rapid growth of Chineseeconomy. It is also the key factor of fluctuation of macro economy.Chapter Five is about the choice of strategies which can correct and standardizethe investment behavior of local governments. Regulate the investment behavior oflocal governments. First of all, promote the changing of local governments intopublic service oriented governments. Define definitely the investment scope of localgovernments. Standardize the relationship between governments and enterprises. Setup scientific assessment system for local governments to assess their politicalachievements. Second, make clear the allocation of public finance and taxationbetween the central government and local governments. Define affairs and rightsbetween the central government and local governments reasonably. On the base of it,make clear the scope of expenditure of local governments. Strengthen budgetconstraints strictly. Third, strengthen macroeconomic controls. Direct investmentbehavior of local governments through macroeconomic policy. Completemanagement systems of investment and financing of local governments. Promote thetransforming of economic development pattern, etc.The study on investment behavior of local governments during economictransformation period is benefit to further understanding the special nature ofeconomic transformation in China, further knowing the systemic foundation ofinvestment behavior of local governments, and further grasping the underlyingreasons of economic fluctuation. And thus promote system reform; accelerate thetransformation of economic development pattern; and realize scientific development.