The Review of Austrian Economics, 16:4, 327–346, 2003.
2003 Kluwer Academic Publishers. Manufactured in The Netherlands.
Permanency and Flexibility of Institutions: The Role
of Decentralization in Chinese Economic Reforms
PHILIPPE DULBECCO Philippe.Dulbecco@cerdi.u-clermont1.fr
MARIE-FRANC¸ OISE RENARD
e d’Auvergne, Clermont Ferrand, France
Abstract. The purpose of this paper is to offer a Lachmannian analysis aimed at studying the coherence and the
efﬁciency of reforms in China in terms of institutional change. The idea is that transition dynamics cannot be
analyzed by reference to market criteria only; transition is, above all, a change in institutions. Every transition
economy thus faces the problem of creating a new institutional framework which associates the co-ordination
of activities by the market with the preservation of a centralized mechanism of resource allocation. We expl-
ain that, in China, this role is played by decentralization. Indeed, we demonstrate that Chinese economic reforms,
of which the main institutional vector is decentralization, show the particularity of reconciling, within one single
logic, the permanency of a well-established institutional order required for the co-ordination of individual plans,
and the ﬂexibility of institutions necessary for the move towards the market. We then defend the theory that both the
success and the originality of Chinese economic reforms rest on their capacity to resolve the permanency-ﬂexibility
KeyWords: institutional change, Chinese reforms, decentralization
JEL classiﬁcation: P11, P30.
The Chinese reform is so particular that one sometimes speaks of the Chinese model of
reform. This speciﬁcity has been explained by numerous analyses which insist on the
smooth view of the reforms as opposed to the big bang approach (shock therapy). In this
way, authors like Perkins (1994) or Liew (1995) use different arguments to discuss the
gradualism thesis: whereas for the former, gradualism reveals all the obstacles that stand
between the partially reformed Chinese economy of the early 1990s and a full market
system, the latter considers that gradualism, at the opposite, is associated with a strong
central state who is able alone to provide the favorable conditions to reform. In a very
narrow perspective, Sing (1993) defends the idea of a step by step approach to Chinese
reform, based on the notion of an optimal combination of market mechanisms and planning.
Still in the same line of thought, Jin and Haynes (1997) use a dualist and leading sectoral
approach to explain that China has used some leading sectors in order to help the emergence
of new elements of the market economy while continuing to exploit the basic components
of the old system, the whole contributing to the maintenance of a relative stability of the
economic and social framework.
Finally, Fan (1994, 1996) characterizes the Chinese model
of reforms as a dual-track transition model, thus underlining the rapid development of a new