Changing Cadre Incentives: The Untold Story of China’s Economic Challenge

Changes in the local cadre incentive structure are a crucial yet often overlooked factor in the performance of the Chinese economy.

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 targe