AbstractIn China, political control is centralized and economic management is decentralized. This gives rise to a serious principal–agent problem, in which the agents are often better informed than the principal. China also has a semi-marketized economy involving much state intervention. This intervention serves both a political and an economic function. It enables the Communist Party to remain in political command and generates formidable patronage resources. It also provides the policy instruments, including incentive structures for officialdom, to maintain a “developmental state.” The combination of economic decentralization and a semi-marketized economy creates a problem of weak accountability and a breeding ground for rent-seeking and corruption. For a quarter of a century China's leadership gave overwhelming priority to the objective of achieving rapid economic growth. This policy was viewed as providing political legitimacy and securing the best protection against social instability. It is argued t...