China is a central planned economy characterized by political centralization and fiscal decentralization. Specifically, the central government holds absolute power in decid- ing state affairs and controls the personnel management. Local governments are self- constraint institutions given freedom in practising fiscal policies adapted to regional conditions, which partly attributes to the spectacular economic development in recent decades. Under the performance-based promotion scheme, officials motivated by ca- reer concern pay great attention to economic growth. The most important way for the central authority to accomplish state objectives is the assignment of local leading politicians. Known as the one-step management principle, local government officials are appointed by upper-level authorities. For the sake of maintaining efficiency, com- pulsory retirement was introduced in 1982 to eliminate oligarchy and prevent political networks of particular interest groups. At the provincial level, the top two politicians, the Party Secretary (PS) of the Provincial Party Committee (PPC) and the Provincial
Governor (PG) of the Provincial Peoples Government (PPG) are required to leave their positions after the age of 65, and the regulation of other leading politicians is the age of 60. At the meantime, the central government strongly encourages young politicians to become involved in political tournaments. According to related policies, there should be at least two officials in the PPG who are younger than 50 and at least one official younger than 45.
Age is an important component of the performance evaluation process. The central government sets age limits for promotion. A concrete ceiling is defined in this paper to describe such a circumstance. The probability of being promoted after a certain age is almost zero, which incentivises local officials that are highly motivated to become promoted to perform well before the cutoff age. Although there is no official docu- ment with details of such a concrete ceiling, in practice the top two politicians over 60 and deputy politicians over 55 in provincial leading positions are outside the promis- ing period and less likely to be considered for professional advancement Wang et al. (2011); Xu (2011); Qiao et al. (2014); Yu et al. (2016)). The promising period is defined as the age interval before 55, the peak of which is around 54 when officials have the highest likelihood of further promotion at provincial level. Then the stagnating period starts from the age of 55 when the chance of advancement to leading positions is quite limited. This age ceiling is observable to all political candidates.
In terms of the decision-making at the provincial level, the PPC, the institution with the highest power holds a meeting after receiving the orders from the central authorities to discuss the social and economic plan for the next year. The PS is the most influential politician. A policy cannot come into force unless passed by other constant members of the PPC. The PPG deals with policy implementation. The PG has the chief responsi- bility but the deputy Governors also participate in the discussion and manage specific affairs. Therefore, it is hard to ignore the role of the other leading politicians in provin-
cial development.
The cadre evaluation process starts at the end of each year. The likelihood of being promoted is based on performance throughout a year. Under the performance-based scheme, the growth rate of GDP is the core criterion used in the evaluation. During the evaluation, local officials are promoted or are left in their current position3. In addition to age and GDP growth, there are other factors considered by central authorities, such as education, personal capability and experiences (Wang et al. (2011); Jia et al. (2015); Shih et al. (2012). But there is no doubt that the GDP growth is the regime-wide core target to obtain higher ranking in the Party.
4.3 Conceptual framework
This section explains the decision problem of local bureaucrats who are motivated to maximise their benefit either from political advancement or private gain. I assume there are two types of political candidates office-seeking and rent-seeking and they differ in the distribution of effort in government affairs. Given that all candidates are opportunistic, their fundamental incentive is the maximization of the payoff. They face the problem of selecting the outcome of interest and the allocation of working effort. The total payoff obtained from the current position comes from two channels: political ambition and rents. The priority of a candidate is professional advancement based on the expectation of future career progression.
Under political centralization, the central government possesses the highest power in personnel arrangement. Performance evaluation is the process that the central govern- ment uses to identify the excellent candidates for political promotion. It is a zero-sum game in that only a few candidates can win the opportunities for further advance- ment. The political competition is extremely intense at the provincial level where the
most promising candidates are selected to join the central power group. About 70% of provincial politicians will not be promoted and will have to leave the leading po- sitions at the end of their term once they exceed the age limit, which can be viewed as the end of their political career. This fiercely competitive situation attributes to the decision problem of political candidates that they must maximise the probability of being promoted before it is too late and choose other compensation if they fail. The strategy of selecting the right target to maximise private benefits is based on the ex- pectation of future political career. Whether a candidate is considered for promotion by the central government is determined by age. Specifically, the probability of being considered is a discontinuous function of age at 55, i.e. politicians will not be qualified once they are older than 55. This concrete ceiling is observable to all candidates and cannot be manipulated by individuals. In addition, it is unconditional on performance.
The actual likelihood of being promoted is determined by the current position and corresponding performance. Although the criteria vary from particular positions in practice, the growth rate is the core criterion used in the performance evaluation sys- tem for all candidates. When officials are in the promising period, younger than 55, they have a positive expectation of advancement and fully devote their efforts to the political competition. They hold strong office-seeking incentives and are more likely to spend most of their effort in stimulating economic growth in order to please the central government and maximise the likelihood of being promoted. As a consequence, they prioritise advancement over rents. The first hypothesis is thus that officials concentrate in accelerating economic growth before the cut-off age of 55.
Once they pass the promising period, the opportunity for further promotion is quite limited. Officials then have a negative expectation of their career progression prospects and start seeking alternative targets. Hence, we would expect that the office-seeking incentive is deflated at the cutoff age. In the stagnating period, one possible strategy is
to focus more on gaining rents, i.e. maximise private gains before leaving the current position. As found in Chapter 3, this manifests itself in collecting revenue for the sake of grabbing more rents. As such, the second hypothesis is that officials perform better in raising government revenue past the cut-off age of 55.