What's driving Chinese local gov to add own, stricter rules (层层加码) in enforcement: Nie Huihua
The Renmin Uni prof says hierarchy & incomplete contracts create a “pressure-driven” system in China, rewarding higher levels while shifting costs downward and leading to stricter local enforcement.
Employees across China's state apparatus have been repeatedly reminded to practice thrift and avoid lavish spending, part of the country's ongoing campaign to enforce clean governance, as mandated by the Communist Party of China (CPC)'s Eight-Point Decision (八项规定).
Formally known as The Eight-Point Decision on Improving Party and Government Conduct and Building Closer Ties with the People 《关于改进工作作风、密切联系群众的八项规定》, the policy was unveiled on December 4, 2012, during a meeting of the CPC Central Committee's Political Bureau.
The International Department of the CPC Central Committee has published an explanatory document:
It is worth noting that there is a very interesting nuance between "The Eight-Point Decision (中央八项规定)" and "The Spirit of the Eight-Point Decision (中央八项规定精神)," as Wang Dongqi, a professor at Central Party School/National Academy of Governance, explains:
区别在于两者规范的对象不一样。中央八项规定针对的主体是中央政治局委员，中央八项规定精神适用范围则更加广泛。
The difference lies in the scope of application. The Eight-Point Decision specifically targets members of the Party's Politburo (the Party's top leadership), while the "Spirit of the Eight-Point Decision" is much broader in scope.
…
根据中央八项规定，各地各部门也制定了自己的具体规定，这些规定均属于落实中央八项规定精神的细则。
Based on the Eight-Point Decision, various localities have developed their own detailed rules and measures. These specific regulations are all considered practical extensions of the spirit of the Eight-Point Decision.
Your host would venture that this interpretive flexibility has created a situation where enforcement varies from region to region. Authorities in some regions have reportedly implemented the rules so stringently that any gathering of three or more triggers scrutiny—an example of the "adding their own, stricter rules" (层层加码), which has become a topic of public debate.
Huihua (Fred) NIE (聂辉华), Professor at the School of Economics, Renmin University of China, recently voiced concerns about such overreach. Prof. Nie earned his degrees in China and completed a year of postdoctoral research at Harvard University under the guidance of Nobel Laureate Professor Sir Oliver Hart.
One of his key arguments: when some 100 million state employees now hesitant to spend, it will almost inevitably have an impact on the broader economy, especially in light of the government’s repeated calls to “boost consumption.” (For reference, China's catering industry generated some 5.2 trillion RMB in 2023—about 4.2% of GDP—and directly or indirectly employs up to 35 million people.)
This may help explain why People’s Daily recently published a commentary headlined "Cracking Down on Improper Dining Doesn’t Mean All Dining Is Improper. 禁止违规吃喝，不是吃喝都违规", a timely and necessary pushback.
So, why does this phenomenon persist? Professor Nie argues it is rooted in systemic dynamics, not merely bureaucratic overreach.
He notes that China's governance system is characterized by hierarchy and incomplete contracts—factors that give rise to what he calls a "pressure-driven governance model." In this model, benefits accrue to higher levels while costs and risks are pushed downward, resulting in excessive caution and ever-stricter local enforcement.
Incomplete contracts—caused by bounded rationality and transaction costs—mean that rules cannot fully spell out the rights and obligations of each side, giving local authorities room for maneuver.
To address these issues, Professor Nie calls for clarifying the limits of government power, reducing the scope of incomplete contracts, and moving from an "unlimited government" toward a system of more clearly defined and limited governance.
Below is the full translation of the piece.
"层层加码"的底层逻辑是什么？
What's driving local goverments to add their own, stricter rules (层层加码) in enforcement?
Core Argument: Under China's unique governance system, a combination of hierarchy and incomplete contracts creates a "pressure-driven governance model." This model manifests in two ways: first, benefits are concentrated upward while costs are pushed downward; second, risk aversion leads to excessive rigidity, escalating demands at each level of implementation.
I. Background
Recently, a nationwide campaign has been launched to crack down on improper dining practices. The goal is undoubtedly commendable: to curb corruption such as illicit banquets and misuse of public funds, purify governance, and protect officials by keeping them from misconduct. The public certainly supports this. However, it's worth noting that some local governments have taken enforcement to extremes, distorting the policy to the point of undermining its original intent.
For example, certain localities now scrutinize any group dining— reportedly defining "group dining" as three or more people eating together. Does that mean a family (of more than three) eating out at a restaurant is now violating the rules? Originally, the policy targeted improper dining, but now all dining seems to carry risk.
What's particularly baffling is that China is currently facing an economic downturn, partly due to weak domestic demand—in other words, insufficient consumption. Many economists argue that stimulating consumption, rather than resorting to large-scale investment as in the past, should be the priority for economic recovery. Why am I especially concerned about this overzealous and stricter enforcement? China's state apparatus (体制内) employs roughly 80 to 100 million people, including civil servants, public sector staff, and state-owned enterprise workers. In 2023, China’s catering industry generated about 5.2 trillion yuan (roughly USD 716 billion) in revenue, accounting for 4.2% of GDP, and directly or indirectly employed 30 to 35 million people, including delivery workers. If these roughly 100 million state-apparatus employees become afraid to spend, imagine the economic fallout. Many small-town restaurants might go out of business.
From both a livelihoods and economic stimulus perspective, this kind of excessive enforcement is counterproductive. Even People's Daily has weighed in—recently publishing a commentary titled "Cracking Down on Improper Dining Doesn’t Mean All Dining Is Improper. 禁止违规吃喝，不是吃喝都违规". This was a timely and necessary pushback, but the piece didn't address the root cause of such overreach. That’s what I aim to explain in today’s video.
II. The Root Causes of "Adding Own, Stricter Rules"
There are two defining features of China's state-apparatus system: hierarchy and incomplete contracts. Once you grasp these two fundamental features, you'll be able to make sense of many phenomena unique to Chinese political economy.
A. Hierarchy
In a hierarchical system, resources are allocated top-down, while responsibilities are pushed downward. In extreme cases, this leads to a culture where officials prioritize superiors over facts—power answers only to its source.
B. Incomplete Contracts
Due to bounded rationality, transaction costs, and unforeseen contingencies (e.g., 9/11, pandemics), contracts—or in this case, policy mandates—cannot fully specify every obligation or response. This explains why local governments in China seem to have limitless authority: they regulate everything from the skies to the ground, and even the air in between. Their responsibilities have no clear boundaries—an incomplete contract by design.
Under China's governance model, hierarchy + incomplete contracts = a pressure-driven system. This system manifests in two ways:
Benefits are extracted upward, while costs are pushed downward.
Risk aversion leads to excessive rigidity—escalating demands at each level ("playing it safe by going overboard").
In such a system, over-enforcement ("层层加码") serves two purposes:
Signaling loyalty to superiors (a way to prove compliance).
Reducing uncertainty in meeting broad, ambiguous targets, thus mitigating information asymmetry.
But for those at the lower levels, this creates severe distortions, forcing them to bear the consequences. In the digital age, where information asymmetry has drastically decreased, this phenomenon is especially damaging. The root issue is incentives, not information gaps.
Take China's highway system, for example. Roads are classified into five tiers: expressways (高速公路) and Class I to IV highway (一至四级公路), with expressway lanes standardized at 3.75 meters wide. Why isn't there over-enforcement here? Because the contract is complete—the rules are clear, with no room for arbitrary escalation.
Similarly, why don't local governments engage in endless "involution 内卷" over public restroom cleanliness? Because there’s no top-down pressure to do so.
The point is: Without hierarchy and incomplete contracts, phenomena like blanket dining bans, arbitrary fees, and excessive administrative demands would be inexplicable.
III. How to Reduce the Phenomenon?
So, how do we fix this? The answer is simple: Return to common sense and respect human nature. Many of these issues don’t require complex economic theories—basic rationality is enough. Why is common law called common law? Because it’s rooted in common sense. If a policy is so convoluted that only a handful of elites can interpret it, then it’s not a good policy—at least not one suited for broad application.
For the state apparatus, hierarchy won’t disappear overnight. Digital technology may eventually flatten bureaucratic layers, but that will take time. The more urgent task is reducing incomplete contracts—clearly defining the boundaries of power. As the saying goes:
For the government: "What is not permitted by law is forbidden."
For the public: "What is not forbidden by law is permitted."
In other words, the government should operate under complete contracts, while citizens should enjoy the freedom of incomplete contracts.