Inflation and investment controls in China

by Yasheng Huang

Why has China been able to avoid the crippling hyperinflation that has bedeviled so many developing and reforming centrally planned economies? This is puzzling because the potential for inflation in the Chinese economy is enormous, the fiscal control by the central government is weak, and China's tax and monetary policies are still passive. This book analyzes an important aspect of this issue - how the central government has been able to tame inflationary investment demand and to impose investment reduction policies that go against the economic interests of Chinese local officials. Yasheng Huang focuses on the controlling role of political institutions and argues that one of the central functions of the political institutions is to make allocative decisions about bureaucratic personnel. Drawing on institutional economics, he hypothesizes that centralized personnel allocations help reconcile some of policy differences between the central and lcoal governments and provide vital informati