Do networks or performance impact the promotion of Chinese officials? Evidence from prefecture‐level cities

• Author: Chung‐Hua Shen,Chin‐Hwa Lu
• DOI: http://doi.org/10.1111/1468-0106.12309
• Published date: 01 October 2020
• Date: 01 October 2020

ORIGINAL MANUSCRIPT

Do networks or performance impact the promotion

of Chinese officials? Evidence from prefecture-level

cities

Chin-Hwa Lu

1

| Chung-Hua Shen

2,3

1

Department of Finance, China University

of Technology, Taipei, Taiwan

2

Institute of Banking and Money, Nanjing

Audit University, Nanjing, China

3

Department of Finance and Banking, Shih

Chien University, Taipei, Taiwan

Correspondence

Chung-Hua Shen, Department of Finance

and Banking, Shih Chien University,

No.70, Dazhi St., Zhongshan Dist., Taipei,

Taiwan

Email: chshen01@ntu.edu.tw

Funding information

Ministry of Science and Technology,

Taiwan, Grant/Award Number: NSC

102-2410-H-163 -001

Abstract

This study examines the effects of connections and eco-

nomic performance on the promotion of Chinese city

mayors. Our study differs from the published literature in

four respects. First, this study covers a comprehensive data

set, including 1,422 mayors from 284 prefecture-level cit-

ies. The use of a large data set helps resolve mixed results

of past studies. Second, we use a broader range of top

leaders. Third, we apply a more comprehensive definition

of connections than earlier studies. Finally, we examine the

effects of the policy shift of the 11th 5-year plan on promo-

tion of mayors. Our results reveal that the performance of a

city mayor assisted his/her promotion to party secretary

before 2006 but not afterwards. However, a mayor’s con-

nection with five types of top leaders is helpful. Among the

four types of connection,colleagueship is the most effective

in expediting the promotion of mayors. Graduating from

the same university and department is also helpful but to a

lesser extent. Township connection is not useful.

KEYWORDS

alumnus, Chinese city mayor promotion, colleagueship, connection,

economic performance, political tournament

1|INTRODUCTION

The determinants affecting the promotion of provincial leaders in China has recently received wide

attention in the published literature. In Western society, promotion and compensation are commonly

Received: 9 December 2017 Revised: 10 December 2018 Accepted: 20 June 2019

DOI: 10.1111/1468-0106.12309

Pac Econ Rev. 2020;25:539–573. wileyonlinelibrary.com/journal/paer © 2019 John Wiley & Sons Australia, Ltd 539

used as incentive devices to reward improved performance. When compensation has reached the

limit, promotion becomes particularly important. Using firm-level data and controlling compensa-

tion, Baker, Jensen, and Murphy (1988), Milgrom and Roberts (1992), and Fairburn and Malcomson

(2001) suggest a positive relation between employee promotion and performance. Performance is

also important for the promotion of government officials. In China, Li and Zhou (2005) find a posi-

tive relationship between the promotion of governors and their economic performance at provincial

level. Zhou, Li, and Chen (2005), Zhang (2005), and Wang and Xu (2010) report similar findings.

Apart from performance, connection is important for promotion in China. Studies from social

fields confirm that connection culture (i.e. social networks or circles) is deeply rooted and prevailing

in Chinese society (Luo, 2016; Luo & Yeh, 2012; Luo & Cheng, 2015). Connections affect bank

loan contracts (Khwaja and Mian, 2005; Claessens, Feijen, & Laeven, 2008; Infante & Piazza, 2014;

Shen & Lin, 2015; Shen, Lin, & Wang, 2015), government bailout policy during a crisis (Chen,

Shen, & Lin, 2014; Faccio, Masulis, & McConnell, 2006), import licenses for monopoly of raw

materials and commodities (Mobarak & Purbasari, 2006) and initial stock returns after initial public

offering (Fan, Wong, & Zhang, 2007).

Using Chinese city mayor data. the present study aims to systematically examine the roles of per-

formance and connection in promotion. Previous studies have examined the effects of the economic

performance of mayors on their promotion without considering connection and have obtained mixed

results (He & Sun, 2012; Luo, She, & Chen, 2015; Yao & Zhang, 2013). Some studies consider the

effect of both performance and connection on promotion, but they use provincial or central commit-

tee party data (Jia, Kudamatsu, & Seim, 2015; Keller, 2016; Shi, Adolph, & Liu, 2012; ). Zuo (2015)

uses city mayor data and finds that performance and connection do not affect promotion. Landry, Lü,

and Duan (2018) use data for Chinese local leaders from provincial, prefecture, and county levels

and find that performance has a positive effect on local official promotion at the county level of gov-

ernment but not at provincial and prefecture levels. In contrast, connections are useful for both pro-

vincial governors and county executives.

Our study differs from the past studies in five respects. First, we use mayors of Chinese prefec-

tural cities as the sample. The reason why we care about promotion of mayors is that they are, in fact,

policy executive officers and this research can complement past studies paying attention to theory on

elite promotion. The central government and provincial governors possess the authority to provide

preferential conditions for investors, such as tax deductions, land provision, and delayed labour pen-

sion provision. However, a good policy without the appropriate implementation may fail in practice.

Given that city mayors are the main policy executive officers, their efficiency and efficacy in

implementing polices will directly affect the outcome of policies. Hence, the promotion of policy

executors may be equally important as that of policy decision-makers. For example, incompetent city

mayors could postpone foreign investment by increasing red tape or use environmental protection as

an excuse to increase the cost of investment. Thus, how mayors are promoted is an important issue.

Second, we consider a broader range of top leaders than that adopted in past research in studying

connections. The range of top leaders is important for city mayors for top leaders owning the decisive

power on the promotion of mayors but is often overlooked. Zuo (2015) and Landry et al. (2018) con-

sider only governors and provincial secretaries as top leaders in defining city mayors’connections.

From high to low, we consider five types of top leaders, including Politburo Standing Committee

(PSC) members, Politburo members, central secretaries, provincial secretaries, and governors.

1

Using

these top leaders, we examine whether central government leaders or provincial leaders exert stron-

ger influence on the promotion of mayors.

540 LU AND SHEN

Third, we consider a more comprehensive definition of connection than earlier studies. Specifi-

cally, we consider four types of connections between a city mayor and their top leaders, where the

four connections are: from the same hometown (Townsman), graduated from the same school

(Alumnus_S), graduated from the same department (Alumnus_C), and had worked in the same sector

in the Chinese Communist Party (CCP) or government offices (Colleague). We consider both single

and multiple connections so that we can examine two interesting issues: which connections are cru-

cial for promotion and whether multiple connections can enhance the probability of promotion.

Fourth, we examine the varying effects of the connection and performance on promotion. We

assume that an exogenous institutional change in 2006 with the establishment of the 11th 5-year plan

affects the determinants of official promotion. The Chinese Government renews its overall political,

economic, and social plans every 5 years. In the 11th 5-year plan that started in 2006 , the govern-

ment shifted the focus from “fast economic growth”to the “harmonious development”of society.

Since then, harmonious development, instead of fast economic growth, has become the focus of gov-

ernment policy. In the 12th 5-year plan, industry restructuring, harmonious development, and innova-

tive economic growth are emphasized. With the shift in policy, the relationship between economic

performance and promotion may also change. We separate the sample into two subsamples using

2006 as the dividing year. If the authority has actually promoted harmonious development since

2006, performance proxied by economic growth should be less important during the period after

2006 than that before 2006.

Finally, we use data relating to the turnover of 1,422 city mayors, which expands our sample size

from only using provincial data. The data set covers the period from 1992 to 2013, including 1,657

mayors from 284 prefecture-level cities in 26 provinces or autonomous districts. From the total,

235 mayors remain in place, and 1,422 have been transferred to other positions with some pro-

moted (promotion), demoted (demotion), or moved to other cities (city transfer). The comprehensive

data set provides a good representation of the population during the period from 1993 to 2013. The

expanded sample size enables us to investigate the issue without small sample bias.

The remainder of this paper is organized as follows. Section 2 contains a three-part literature

review. The first part reviews the related literature on the performance-based promotion and the

“political tournament”in China. The second part further reviews the literature, discussing economic

performance and promotion of governors and mayors. The third part introduces literature on social

networks and connections and their effects on official promotion. Section 3 explains the measures of

connection and the definition of top leaders in this study. Section 4 introduces the models used to test

the hypotheses. Section 5 describes the data sources and the empirical results. Section 6 concludes.

2|LITERATURE REVIEW

2.1 |Performance and promotion: Political tournament

The role that local governments play in economic growth in China has long been a topic of discus-

sion. Since 1980, in China, the standards of selecting and promoting officials have changed from

using pure political indices to economic ones, especially local GDP growth. This phenomenon has

been particularly true since the tax-sharing reform was established in 1994. Around 70% of tax reve-

nues are allocated to the central government and 30% to local governments (Zhou, 2008). The tax-

sharing reform weakened the fiscal capabilities of local governments and enhanced the fiscal author-

ity of the central government. Since the reform was implemented, review standards for local officials

have mainly been based on economic efficiency; that is, GDP growth and fiscal revenue. Officials of

LU AND SHEN 541