Editor's note: The following is the 2nd excerpt of Shi Zhengfu's recent interview with the Shanghai Economic Review in which he talks about the changing role of government and the inseparability of politics and the economy.  [See 1st excerpt]

Shanghai Economic Review: In the future, the government will play a new and different role. In other words, we have to change the functions of our government. What do you think of this?

Shi: It's the same as managing a company; a company will never rely on one, permanent strategy. When the circumstances change, the strategy will be adjusted accordingly. When it comes to the government, the question is on what level the government's role has to be changed.

There is still no consensus about the role of local governments over the coming decades. In my opinion, local governments are not only the builders of infrastructure but also the planners of overall development. They are responsible for economic growth, social stability, culture and education, and environment protection.

SER: Is it necessary for local governments to free themselves from their economic role?

Shi: In the past, we proposed that the economy should be divorced from politics. But in light of the financial woes of developed countries, economists might rethink this proposal. Local governments are not isolated units and are not free from competition. Is it better for a local government to take economic growth, environment protection and social development into consideration or to just focus on public services and leave economic growth to entrepreneurs? This is a question which, as yet, remains unanswered. But, from the outset, we are taking it granted that it is a good thing to separate the economy from politics. While this might be the case at national level, it may not be true at local level.

From my perspective, the economy is not entirely separable from politics and it is better if a local government can keep a balance between the two. After all, sustainable economic growth is not possible without a good social environment. As the invisible hand of the market might create problems, we cannot simply reply on market self-regulation; instead local governments have to be more decisive in the way they reconcile conflicting interests.

SER: As economic goals will bring tangible benefits to local governments, do you think local governments will treat economic goals and social goals equally?

Shi: "GDP is everything" has a historical sense of logic. In the past decades, the principal task was economic growth because we were stuck in a cycle of grinding poverty. But our focus has gradually shifted as the economy has developed. For example, as the economy grows and the wellbeing of the people is ensured, our tolerance for environmental pollution is decreasing.

SER: Is GDP the only measure of local governments' performance?

Shi: We have a comprehensive measurement system which factors in economic, environmental and social performances. There is in addition a "central government veto" measurement, so the behavior model of local governments is not completely GDP-motivated. As a matter of fact, the underlying incentive is economic development and the promotion of officials.

Shi Zhengfu is director of Center for New Political Economy, Fudan University and chairman of Comway Capital Group. He is also the author of the newly published book Supernormal growth: China's economy between 1979 and 2049.

The article was translated by Liu Qiang. Its original unabridged version was published in Chinese.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

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