Performance, Factions, and Promotion in China: The Role of Provincial Transfers

Factionalism and performance are the dominant explanations of elite dynamics in China. While recent studies focus on the interaction between the two, this article introduces a crucial mediating factor—fiscal transfers—which has largely been overlooked. At the provincial level, leaders have incentives to obtain more transfers from the center and invest to boost GDP growth. Simultaneously decreasing their reliance on transfers is another performance indicator. The resulting balance is political, as leaders may receive more support based on their political connections. Based on two datasets of leaders and provincial finances from 1997 to 2015 and the introduction of instrumental variables, this article finds that while political ties can increase fiscal transfers, they also provide crucial information for leaders to achieve the optimal balance between transfers and growth. The political nature of transfers is also much more pronounced for provincial secretaries than governors. This study has implications for the literature on elite politics and links this research field with the literature on fiscal decentralization.