The Structural Impact of Policy Centralization on the Chinese Economy: A Deep Game from Innovation Diffusion to Compliance-Driven Forces

Structural Reshaping through Policy Centralization: A Paradigm Shift in China's Economic Governance

For a long time, China's rapid economic growth has largely depended on a bottom-up policy experimentation mechanism. Between 2004 and 2020, China produced a large volume of policy documents, over 80% of which originated at the local level, reflecting local governments' capacity for policy innovation in areas such as agricultural reform and family responsibility systems. This model allowed local governments to find solutions best suited to their specific regional economic conditions through trial and error, enabling policies to diffuse naturally.

However, since 2013, this pattern has fundamentally changed. Research data shows that the proportion of top-down central policies in local agendas has significantly increased, rising from about 30% to over 40%. This centralization trend is not just a procedural change; it more profoundly reflects a shift in China's governance logic—from encouraging policy innovation and local adaptation to strict adherence to central directives and rapid execution.

Paradigm Shift in Incentive Mechanisms: From "Innovation Diffusion" to "Compliance-Driven"

The driving force and incentive mechanism for policy diffusion are key to understanding this shift. Before centralization, local officials gained promotion opportunities by successfully introducing and promoting innovative policies, which encouraged local bureaucrats to actively push policy diffusion. Once officials left office, the speed of policy diffusion would noticeably slow, demonstrating the dependency of policy innovation diffusion on officials.

After 2013, this incentive structure fundamentally changed. Research found that the driving force for local officials' promotions shifted from encouraging policy innovation to rewarding the rapid and thorough compliance with central directives. This change led to two key consequences: first, a significant increase in the adoption rate of central directives by local governments; second, a noticeable slowdown in the diffusion speed of locally tested policies. This means that the policy lifecycle and diffusion path have undergone a structural change, with the space for local autonomous experimentation being narrowed by central macro-control.

Structural Costs: Decreased Fit and the Trade-off Between Match and Innovation Efficiency

Although centralization by the central government has a clear direction in setting strategic goals (such as national security and specific environmental targets), its performance in terms of economic efficiency and industrial choice has not been ideal. Research indicates that the adaptability of top-down industrial policies in matching local existing supply chains and established investment bases is far inferior to bottom-up policies. For example, some policies issued by the central government, when implemented in regions where resource endowments did not match, led to a large number of projects becoming "zombie projects," causing huge losses in industrial output and export decline.

The cost of this "policy mismatch" is significant, including substantial losses in industrial output, reduced exports, and lower patent output. This indicates that over-reliance on top-down directives causes policymakers to lose the optimal balance between "finding economic winners" and "achieving local optimization."

Conclusion: A Structural Trade-off Between Efficiency and Control

In summary, China's trend toward policy centralization represents a structural trade-off from "decentralized innovation-driven" to "centralized control-guaranteed."### Conclusion: The Structural Trade-off Between Efficiency and Control

In summary, China's trend towards centralization in policy-making represents a structural trade-off from "decentralized innovation-driven" to "centralized control-guaranteed." This shift has enhanced the stability of macroeconomic regulation to some extent, but at the micro level, it has weakened the adaptability and trial-and-error space of policies, leading to reduced policy effectiveness and increased economic costs. China is systematically placing some of its growth and policy innovation potential under tighter political control, which foreshadows long-term structural changes in global governance and industrial layout.