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ARPXXX10.1177/0275074018761807The American Review of Public AdministrationFan and Yang

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American Review of Public Administration

How Is Public Housing Policy Implemented 1­–14

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DOI: 10.1177/0275074018761807
https://doi.org/10.1177/0275074018761807
Implementation of Four Major Programs journals.sagepub.com/home/arp

Yongmao Fan1 and Hongshan Yang1

Abstract
One challenge that policy implementation studies face is how to build a structural framework using different variables. This
article constructs a path-incentive model of implementation as an analytical framework with which to examine the relationship
between central and local government. It consists of two key variables: policy path and incentive. The model embraces four
types of implementation: administrative implementation, experimental implementation, flexible implementation, and symbolic
implementation. Based on a case study of China’s major public housing policies from 1998 to 2013, the article finds that even
if policy goals and the implementation path are sometimes unclear, a strong top-down incentive mechanism will encourage
local governments to actively engage in policy experiments. This local explorative approach can enhance an understanding of
the policy environment and avoid apportioning blame to the central government for defective policy making. In China, policy
implementation not only turns policy goals into real outcomes but also is a means of improving policy paths and incentive
mechanisms.

Keywords
public housing, policy path, incentive mechanism, local implementation, China

Introduction Research Question 1: Does implementation succeed

The key to the effectiveness of a national policy lies in its
local implementation. However, the concern for many
national governments is that under certain conditions, the
subnational or lower level governments may go against the
intentions of national policy makers by not following policy
guidelines or finding ways around them if they deem such
action to be in their interest.
This is especially true for countries with multiple-level
government such as China, in whose unitary system the juris-
diction of national and subnational governments is both vague
and changeable. Central government enjoys formal legiti-
macy and direct power, whereas local governments possess
wide, albeit unclear discretion. Sometimes the central gov-
ernment does not simply delegate its own responsibilities to
local governments but changes local governments’ responsi-
bilities and powers via legislation. Local governments, in
turn, may oppose central policies by means of strategic coun-
termeasures. Thus, local conditions and motivations and even
the nature of national policies can decide whether a national
policy is evaded or altered.
The purpose of this study is to identify the circumstances
in which local governments successfully implement central
policies. In particular, it tried to answer the following
question:
because central policies are well designed or because
local governments respond to the incentives provided by
the center?
China’s public housing policy serves as a good case study for
answering these questions and examining the behavioral
logic behind the local implementation of central policies.
China officially started establishing a market-based public
housing distribution system in 1998, when the State Council
issued the “Notification on Further Deepening the Reform of
the Urban Housing System and Accelerating Housing
Construction”; since then, it has adopted a number of poli-
cies aimed at providing affordable housing. Thus, the 1998
reform is considered a milestone for the housing distribution
system in China (Ye & Wu, 2008). After more than a decade
of experimentation, a basic policy framework for the provi-
sion of urban housing is now in place. In general, the central
1
Renmin University of China, Beijing, P. R. China
Corresponding Author:
Hongshan Yang, School of Public Administration and Policy, Renmin
University of China, No. 59 Zhongguancun Street, Haidian District, Beijing
100872, P. R. China.
Email: yanghsh@ruc.edu.cn
2 American Review of Public Administration 00(0)
government decides on policies and mandates with respect to
affordable housing and local governments—in particular, the
municipalities—are responsible for the construction, financ-
ing, and management of housing projects. However, many
local governments lack the means to finance social housing
projects (Man, 2011). More often than not, as Torenvlied
(1996) found, the compliance problem arises when there is a
conflict of interest between implementation agencies and
politicians. Thus, the effectiveness of housing policies may
depend largely on whether the central politicians provide
sufficient incentives for local implementation agencies to
carry out their housing policies, as well as on how local offi-
cials respond to those incentives.
This article starts by constructing its own analytical
framework, a path-incentive model, and then examines the
implementation and model conversion of China’s public
housing policies. The local responses to both policy paths
and implementation incentives are investigated to examine
these intergovernmental issues. Examining the actual prac-
tices of local governments in implementing national policies
helps us to understand how these local governments survive
within the Chinese intergovernmental system.
Although this study focuses on the behavior of local gov-
ernments in implementing central policies, it also contributes
to the general literature by suggesting that a change of policy
path or incentive mechanisms by the central government can
have different effects. When certain conditions are met, local
governments may implement central policy in the way that
central officials envisage it should be implemented.
Literature Review
Since the 1970s, policy scholars have studied policy imple-
mentation by using either top-down approaches (Mazmanian
& Sabatier, 1981, 1983; Van Meter & Van Horn, 1975) or
bottom-up approaches (Berman, 1978; Hjern & Hull, 1982;
Hjern & Porter, 1981; Hull & Hjern, 1987; Lipsky, 1978). As
Sabatier (1986) observed, the top-down approach starts by
examining a policy decision by central government and then
asks to what extent the actions of officials responsible for
implementation and identifying target groups are consistent
with that policy decision and what the principal factors
affecting policy output are. The bottom-up approach starts by
identifying the network of actors involved in service delivery
in one or more local areas and asks them about their goals,
strategies, activities, and tools.
Many factors affect local policy implementation. O’Toole
(1986) reviewed more than 100 studies on policy implemen-
tation and identified more than 300 key variables. Efforts
have been made to structure these variables (Matland, 1995;
Schofield, 2004). Structural elements affecting policy imple-
mentation can include policy features and motivational
mechanisms (Schofield, 2004). Two schools of thought have
evolved to describe and study implementation: the policy
path school and the incentive mechanisms school.
Policy path theory focuses on features of public policy
such as goals and conflicts of interest and stresses how these
can affect policy implementation. Paths can include tools,
evaluation standards, and even the degree of legal autonomy
proposed by policy makers. Matland (1995) has provided
comprehensive theoretical evidence for the importance of
the policy path. He created the ambiguity-conflict model in
which four policy implementation paradigms are identified
to focus on the theoretical significance of ambiguity and con-
flicts of interest in policy implementation: administrative
implementation, political implementation, symbolic imple-
mentation, and experimental implementation. For their part,
Chinese scholars have noticed, too, how policy features
affect policy implementation. In his analysis of the acts of
collusion within local governments in China, Zhou (2008)
argued that local countermeasures designed to modify cen-
tral policies are not due to the low level of competence of
local officials but are because conditions differ significantly
from one region to another and, thus, implementation pro-
cesses, effects, and outcomes may similarly vary. Yin, Pan,
and Lu (2007) argued that an ill-defined policy or a policy
without specific requirements was not necessarily bad
because when local environmental conditions are unclear,
local officials responsible for implementation may have
more discretion. This may be conducive to mobilizing local
governments to implement central policy and may avoid
undermining the legitimacy of the central authorities.
Incentive mechanisms theory puts emphasis on the incen-
tives offered to local governments to implement central
policy. Unlike policy path theory, it stresses the impact of
the center’s top-down incentive mechanisms on local policy
implementation and highlights the expected benefits that
those local officials implementing policy can expect to
enjoy. Incentives may be either political or economic.
Political incentives usually take the form of promotions for
lower level officials. The prospect of a promotion is a funda-
mental motivation for local officials to comply with and
implement policies adopted by higher levels of government
(Zheng & Wang, 2001). Economic incentives tend to take
the form of fiscal decentralization,1 whereby the expected
additional revenues are earmarked for the local level.
At the same time, it could be the case that a local govern-
ment receives various incentives all at once and that some of
those incentives conflict with one another. Under this sce-
nario, the effectiveness of local implementation will be
determined by how strong either the economic incentive or
political accountability is: If one or the other of these mecha-
nisms is sufficiently strong, then local implementation will
take place. In such cases, there is a difference between real
action, sneak action, pseudo action, and slow action, as
Chen, Lin, and Xue (2010) observed. Meanwhile, Qian and
Weingast (1996) argued that a particular form of decentral-
ization known as “market-preserving federalism Chinese
style” played a crucial role in laying the foundation for
China’s success because it gave local governments
Fan and Yang 3
more fiscal authority. Some empirical studies have shown,
moreover, that local governments prefer to spend money on
economic growth measures than on public services (Fu &
Zhang, 2007; Lv & Wang, 2008; Tao, Lu, Su, & Wang,
2009). In their dual incentive model of implementation,
Chen et al. (2010b) recognized the importance of both politi-
cal and financial incentives and concluded that local policy
strategies were a result of mixed incentive models.
Although the two schools of thought can help us to under-
stand policy implementation, both display inherent logical
inconsistencies. Policy path theory assumes that once a
national policy has been decided, it will automatically be
carried out if policy goals and tools are clearly defined and if
the policy does not conflict with local policies. However,
because under the current fiscal decentralization system
local budgets and revenues are independent, local govern-
ments in China need resources to be able to implement cen-
tral policies. Thus, even if the central policy is clearly defined
and not in conflict with local policies, local governments will
sit on the fence or find other ways to avoid implementing
central policy if there are no incentives.
However, incentive mechanisms theory assumes that
strong incentives provided by central government will have a
real impact on local governments, thereby turning policy
goals into policy outcomes. Policy makers are usually able to
identify public issues that demand attention and put them on
the government’s formal agenda in a timely manner.
However, it is often the case that if policy goals and the
means of implementation are unclear, even highly motivated
local governments cannot find the policy tools suitable for
local needs because of the diverse functions of those tools.
Sometimes, an incentive mechanism is an insufficient policy
tool on its own. Indeed, selecting the appropriate policy tool
and designing successful implementation strategies require
that those officials responsible for implementation show
more political savviness than has been the case until now. As
Hood (1986) argued, the selection of policy tools is more of
a political issue than a technical one.
Regardless of how these policy elements change, it can
be seen that some central policies are well implemented but
others are not. For this reason, it is necessary to summarize
how major policies are implemented and analyze why
implementation is sometimes effective and sometimes inef-
fective. Although most existing studies focus on the charac-
teristics of China’s housing policies (Cao & Keivani, 2014;
Chen & Deng, 2014; Chen & Han, 2014; Chen et al.,2010a;
Wang & Murie, 1999, 2011; Wang, Wang, & Bramley, 2005;
Zhao & Bourassa, 2003), an analysis from the perspective of
local behavior is needed.
With regard to China, both the applicability of policies
and the motivation for implementation are complicated.
Under a centralized system, national policies are made by the
central government, which does not take into account local
conditions, and thereby ensures that the applicability of poli-
cies is low (O’Brien & Li, 1999). Alesina and Spolaore
(2003) called this the “costs of the scale of the state,” and
Zhou (2011) explained that the aim of China’s state system is
to uphold state authority at the cost of the effectiveness of
governance. To secure loyalty to its authority and advance its
policy, central government may consider using both political
and economic incentive mechanisms, depending on which is
stronger and more effective under any given circumstances
at the local level.2
Research Design
This article uses the case study method, meaning that it seeks
to explain some current circumstances and describe some
social phenomena (Yin, 2009). Specifically, to test the
hypotheses, it examines major housing programs in China
from 1998, when the guidance document referred to above
was released by the State Council, to 2013, when the last
major national housing policy was announced (in December).
It draws on a content analysis of all official documents
related to housing policy. Some principles of data collection
are followed (Yin, 2009) so that the problems of establishing
the construct validity and reliability of the case study can be
addressed. We use multiple sources of evidence in our
research. Official documents, news coverage, and statistical
figures are all examined and their significance are under-
stood with the help of several qualitative interviews. The
interviewees included housing officials from the Ministry of
Housing and Urban-Rural Construction who knew the back-
ground to China’s housing policies. To increase sample rep-
resentation and take into account the different characteristics
of the various regions and the different implementation
behaviors, local housing officials from China’s eastern,
western, and central regions—where economic conditions
vary from one to the other—were also included. Specifically,
these interviewees came from Beijing (a developed city in
the eastern region), Xinjiang Province (an underdeveloped
province in the western region), and Anhui Province and
Shanxi Province (developing provinces in the central region).
Other interviewees were research fellows and experts who
had either been involved in policy making or intensively
studied it. They worked for the State Council Development
Research Center, the China Agriculture University, and the
Xinjiang Agriculture University.
Analytical Model
Based on the literature summarized above, we have con-
structed an explanatory model of policy implementation—a
path-incentive model—by integrating the two variables of
policy path and policy incentive. Here, policy path refers to
policy goals, tools, and evaluation standards. Whereas
Matland’s ambiguity-conflict model stresses only the impor-
tance of a clear policy path, our model includes incentives
offered by the center for implementing central policies.
These incentives link policy implementation to the expected
4 American Review of Public Administration 00(0)
Table 1.  The Path-Incentive Model of Policy Implementation.
 
Clarity of path High Full implementation
Low Experimental implementation
benefits for local officials involved. The incentives can be
positive or negative. Whereas positive ones encourage the
compliance of local officials by increasing the political or
economic benefits they can expect to enjoy—such as promo-
tion, administrative decentralization, preferential policies,
and additional financial revenues—negative incentives
penalize local officials under the system of accountability
with reprimands, administrative sanctions, and even criminal
legal measures.
In terms of the clarity of policy path and the strength of
incentive, our model of policy implementation can be divided
into four types: full implementation, experimental imple-
mentation, flexible implementation, and symbolic imple-
mentation (see Table 1 below).
Full Implementation
Full implementation implies that the policy path is clear so
that local officials well understand what their responsibilities
and obligations are and central government can assess policy
implementation based on defined performance standards. It
also implies that the incentives mechanism is strong, in
which case, local officials usually behave like rational actors,
giving priority to central policies. A typical feature of full
implementation is that local governments create special
institutions with full-time employees to implement policy;
sometimes, implementation is carried out in campaign style.
Full implementation is independent of policy environment
and is less affected by external factors than are other types of
implementation.
Flexible Implementation
Local governments will implement central policies flexibly
if, despite well-defined goals and tools and a clear policy
path, implementation is made difficult by technical con-
straints and/or insufficient resources or if the expected ben-
efits fail to materialize. Although local governments in
China are obliged to follow central policy guidelines under
the unitary system, fiscal decentralization requires them to
use their own financial resources to implement central poli-
cies. If those funds are perceived as insufficient and central
grants are unavailable, local governments may amend those
policies. For example, local governments can adjust policy
goals by establishing detailed implementation rules that
abide by the original policies and principles, and they can
Incentives
Strong Weak
Flexible implementation
Symbolic implementation
also make use of tools and goals that differ from the original
ones and may even have an impact very different from the
intended one. In addition, they can make changes in institu-
tional arrangements without the formal approval of central
policy makers; as a result, the former may ride roughshod
over the latter’s intentions. Scholars have noted that if there
is only low-level pressure to carry out central policies, it is
likely that policies will be either poorly implemented or
implemented in adaptive and flexible ways (Wang, Liu, &
Sun, 2011). The well-known Chinese saying “Shang you
zhengce, xia you duice” (the center has its policies but local
governments have their countermeasures) is illustrative of
how local governments find ways of avoiding the imple-
mentation of central policies.
Experimental Implementation
This type of implementation occurs when a policy path is
poorly defined but policy makers provide strong top-down
incentives for local governments. Sometimes, policy makers
offer only general guidelines, and they may disagree on pol-
icy goals, tools, and evaluation methods. Moreover, when
the policy environment is built on shaky foundations and
implementation is at risk, policy makers may tend to obfus-
cate the policy path to give local officials more discretion in
implementation. To make implementation more effective,
the central government may encourage local governments to
conduct experiments with preferential policies and financial
support. As rational actors expecting benefits from imple-
menting central policies, the local officials involved will be
motivated to explore the various possibilities. This experi-
mental implementation allows local governments not only to
make specific policy plans but also to redesign policies based
on local conditions. Another well-known Chinese saying,
“Crossing a river by touching stones,” is a vivid metaphor for
this approach.
Symbolic Implementation
Symbolic implementation occurs when the policy path is
poorly defined and the incentive mechanisms are weak. An
ambiguous policy path means that implementers have no spe-
cific task criteria or time requirement, which could make it
difficult to evaluate policy outcomes. Weak incentive mecha-
nisms will result in local officials’ engaging in symbolic or
“window-dressing” acts (Goffman, 1959), such as holding
Fan and Yang 5
Figure 1.  The conversion of the policy implementation model.
meetings to inform about the contents of the policy, running
publicity campaigns to promote the policy, and forwarding
documents to lower level officials without doing anything in
practice. Some local officials will wait and see how others
behave before deciding on their own strategies.
Hypotheses
Unlike other scholars who monitor policy implementation in
China and have proposed a policy implementation model
that is static (O’Brien & Li, 1999; Wang et al., 2011), we
argue that the policy implementation model is a dynamic
one. The four types of implementation can be converted
within the path-incentive matrix (Figure 1) if one of the two
variables—policy path or policy incentive—is changed.
Even after a policy has been put in place, its implementation
can still be converted from a symbolic model to a flexible,
experimental, or administrative model as long as certain con-
ditions are met.
Based on the discussions above, we have three hypothe-
ses to test:
Hypothesis 1: Other conditions being constant, the
clearer a policy path is, the better local governments can
implement central policies.
Hypothesis 2: Other conditions being constant, the stron-
ger the incentive mechanisms—political or economic—
are, the better local governments can implement central
policies.
Hypothesis 3: When conditions change, policy imple-
mentation can be converted from one type to another.
Case Study of Housing Policy: Local
Implementation of Four Major
Programs
The basic policy framework for the provision of public
urban housing in China includes four major public pro-
grams: the Housing Provident Fund (HPF) program, the
Economical and Comfortable Housing (ECH) program, the
Low Rent Housing (LRH) program, and the Public Rental
Housing (PRH) program.3 Table 2 below compares all four
programs in terms of policy paths and incentive mecha-
nisms. It is evident that not all these programs have clearly
defined policy goals, content, and methods; rather, they
offer only general guidelines and authorize local govern-
ments to draw up the details on their own. Moreover, the
incentive mechanisms for implementation vary from one
program to another.
The HPF Program and Its Implementation4
The HPF program debuted as an experiment in Shanghai in
1991 and became an official national housing program in
1994. After a trial conducted over several years, the State
Council issued the “Housing Provident Fund Management
Regulations” in 1999, whereby the HPF became a compul-
sory saving program in which both employers and employ-
ees contributed a certain percentage of the employees’
salaries—initially 5%—to HPF accounts belonging to
employees as a basis for housing purchases. This document
required municipalities to establish local HPF management
agencies, which were responsible for the day-to-day opera-
tions of the program. In 2002, the State Council revised the
“Housing Provident Fund Management Regulations” to fur-
ther clarify the institutional setting and management system
of the program.
In the early stages of the HPF program, the State Council
required management agencies or so-called Provident Fund
Management Centers (PFMCs) to be established at the local
level. Local governments took action immediately after the
program had been announced. Within 1 year, most provinces
had drawn up their own detailed fund management regula-
tions or policy implementation rules and PFMCs had been
established in many municipalities. However, the opaque
subordinate relationship of the PFMCs to the higher eche-
lons of government and the policy’s weak incentive mecha-
nisms allowed local governments to implement the policy in
6 American Review of Public Administration 00(0)

Table 2.  Comparison of the Major Public Housing Programs (1999-2013).

Program Documents Date issued Policy path Incentive mechanisms

HPF HPF Management April 1999 Establishment of the HPF nationwide system, Supervised by financial and
Regulations decisions made by the HPF committee, auditing agencies
program run by the HPF centers, special
accounts held in banks, overseen by
financial agencies
HPF Management March 2002 Revisions based on problems in Supervised by financial and
Regulations (Revised) implementation auditing agencies, prohibited
activities listed
ECH ECH Management May 2004 Municipal and county governments Construction land assigned,
Rules authorized to define the ECH policy goals, administrative fees lowered or
construction standards, range of provisions waived
and target groups
State Council Opinions August 2007 Urban local governments authorized to General principles to improve the
on Resolving Urban decide the income levels and the ECH ECH housing system, no specific
Housing Difficulties of housing standards incentive mechanisms identified
Low-Income Families
ECH Management December Municipal and county governments Construction land assigned,
Rules 2007 authorized to define the ECH policy goals, administrative fees lowered or
construction standards, range of provisions waived
and target groups
LRH Urban LRH April 1999 No specific policy goals, local governments General principles only, no
Management Rules authorized to define standards specific incentive mechanisms
identified
Ways to Provide LRH December Detailed standards and management rules General principles only, no
for the Poorest 2003 provided, no specific policy goals, local specific incentive mechanisms
Urban Residents governments authorized to define low identified
income standards
State Council Opinions August 2007 Households receiving the monthly minimum Local governments to report on
on Resolving Urban standard of living assistance and meeting their annual development plans
Housing Difficulties of the criterion for experiencing housing to the Ministry of Construction,
Low-Income Families difficulties to be 100% covered by the LRH the Ministry of Construction
system in large and medium-sized cities and the Ministry of Supervision
by the end of 2007 and in all county- to be responsible for supervising
level cities by the end of 2008, local the implementation of the
governments authorized to define low provisions of this document,
income standards and financing and draw local governments that do not
up rules on housing sources take necessary measures to be
publicly criticized
LRH Rules November Detailed management rules laid down, no General principles only, no
2007 specific policy goals, municipal and county specific incentive mechanisms
governments authorized to define low- identified
income standards
PRH Guidelines to Increase June 2010 Importance of PRH for promoting social Supervised and examined
PRH Construction housing stated, local governments by construction and other
authorized to define range of provisions departments
and target groups
PRH Management July 2012 Detailed rules (including legal Supervised by municipal or
Rules responsibilities) on application, county government, no specific
approval, distribution, use, opt-outs, and incentive mechanisms identified
management, provincial departments
authorized to draw up more detailed local
rules
Notification on Merging December No specific policy goals, local governments General principles only, no
LRH with PRH 2013 advised to improve PRH rental pricing specific incentive mechanisms
mechanisms and distribution system identified

Note. HPF = Housing Provident Fund; ECH = Economical and Comfortable Housing; LRH = Low Rent Housing; PRH = Public Rental Housing.
Fan and Yang 7
flexible ways. As one senior official of the PFMC in Taiyuan,
Shanxi Province recalled,
The leadership structures in the PFMCs are unclear: some
PFMCs are subordinated to real-estate management centers
while others are part of a local finance department or even some
other agencies.
In one extreme case, a municipality was able to establish
two or more PFMCs without any unified system of supervi-
sion (Wang, 2002). This type of implementation has given
rise to several outcomes, as the same senior official
summarized:
The HPF program has failed to provide housing to much of the
population and has not proved efficient in either raising or using
funds; the overall scale of the fund was too small to meet the
house purchasing needs of residents and the funds were often
misappropriated or embezzled.
In an effort to readdress the implementation problems
of the HPF program, the central government revised the
“Housing Provident Fund Management Regulations” in
March 2002. That revised document made the policy path
much clearer and introduced a strong incentive mecha-
nism. Moreover, it made clear that each municipality
could establish only one PFMC. To improve the imple-
mentation of the new regulations, in May 2002 the State
Council issued the “Notice on Further Strengthening the
Housing Provident Fund Management,” which clearly
stated that each municipality was allowed to establish
only one HPF management committee and one manage-
ment center; the latter was not to be affiliated with any
other department and could not be run as a business enter-
prise. In addition, the notice required local governments
to establish a system for fundraising and spending and
stipulated very detailed rules for entrusted banks, personal
accounts, the granting of personal loans, and supervision
and accountability mechanisms.
As the central HPF policy path became clearer and clearer,
local governments began to be more meticulous about how
they worded their management rules. Beijing is such a
municipality. Its PFMC official recalled,
When Beijing drew up its municipal HPF management rules of
2005, the agency was described as a “public service unit” (“shiye
danwei”) subordinated to the Beijing municipality.5
With regard to the agency’s functions, the official further
explained,
We are responsible for implementing the rules drawn up by the
Beijing municipal HPF Committee. We carry out the day-to-day
running and enforce laws related to the HPF . . . In particular, our
agency keeps records of each participant’s accounts, approves
the withdrawal and use of funds, and is subject to supervision by
the departments of finance, auditing, and urban construction.
The official’s counterparts in Anhui and Shanxi agreed
that the institutional establishment and leadership relations
of the PFMCs have become uniform in almost all cities.
Today, national HPF standards allow little room for local
flexible implementation.
The ECH Program and Its Implementation
The Chinese government launched the ECH program in 1994,
when the “Urban Economical and Comfortable Housing
Construction Management Rules” were jointly issued by the
Ministry of Construction6 and two other ministries. In 2004,
the Ministry of Construction and three other ministries issued
the “Economical and Comfortable Housing Management
Rules,” which clarified the nature of public housing policy
under the ECH program. Although this document failed to
provide detailed definitions of policy aims and construction
standards, the ECH program has since become a major source
of affordable housing for urban families. Its goal is to accom-
modate low- and middle-income urban households, which
may not be able to purchase housing at market prices.7 In
2007, the revised “Economical and Comfortable Housing
Management Rules” were issued by seven central ministries;
they declared the noncommercial nature of ECH houses and
supplemented the program’s opt-out and supervision mecha-
nisms. Indeed, the ECH relies heavily on the generosity of
local governments, which provide most of the development
subsidies (Rosen & Ross, 2000) and are expected to provide
free or low-cost land to ECH developers as well as lower or
even waive various development and real estate taxes. In
addition, both the abovementioned documents state that local
governments should be responsible for financing infrastruc-
ture construction related to ECH projects and should limit the
sale prices of ECH units; however, neither of the two docu-
ments specifies the ratio of ECH housing to the total housing
stock. All these factors serve as disincentives to local govern-
ments, which have to find their own ways of dealing with this
central policy.
Compared with the HPF program, the target groups, pro-
vision mechanisms, sale prices, and management rules were
eventually all clearly defined in the ECH documents. For
example, in 2007, the State Council set a nationwide stan-
dard stipulating that ECH units should be around 60 square
meters.8 Local governments were required to provide free
land, lower local government fees and other charges, and
keep a lid on developers’ profits to lower housing prices.
However, this new document continues to draw criticism
from local governments. As one of the housing officials
interviewed for this study commented,
Generally speaking, the central document is vague on housing
sources, fundraising, and construction. Overall, the ECH PRH
policy still needs to be more specific.
Although its policy path is ostensibly clear, the ECH pro-
gram provides no concrete economic or financial incentives
8 American Review of Public Administration 00(0)
for local governments (Lin & Gao, 2007). Under the existing
intergovernmental fiscal relationships shaped by the 1994
tax reform, the Chinese intergovernmental system is charac-
terized by an imbalance of revenue powers and expenditure
responsibilities between the various levels of government
(Jia & Bai, 2002; Yang, 2006). These fiscal imbalances,
along with the large number of unfunded central government
mandates, have driven many local governments to rely on
revenues from land transfer fees for the financing of infra-
structure investment and economic development.
With respect to ECH construction, the central government
provides no financial support to local governments through
budgetary spending or intergovernmental transfers; thus, the
latter have to bear most of the construction costs and lack
both the financial means and the incentives to implement
ECH policy. As a result, many local governments implement
ECH policy flexibly in ways that serve their own interests.
As the PFMC official from Anhui admitted,
Instead of prioritizing land provision as requested, a priority for
many of us is to continue to maintain a flourishing local
commercial housing market in order to receive sizable revenues
related to commercial housing sales.
His comments were backed up by two research fellows in
Beijing, who provided detailed illustrations of local imple-
mentation strategies:
In order to meet the quantity requirements, some local
governments list shantytown renovation projects or housing
projects for government employees and other local housing
policies—such as those on improving substandard housing,
redeveloping dilapidated housing, and providing limited price
housing—as local ECH projects.
A direct result of this approach is that the price of ECH
units remains beyond the reach of the target groups (Duda,
Zhang, & Dong, 2005). Yang and Shen (2008) showed the
price of ECH housing in Beijing was at least 15% higher than
what a medium-income family could afford. As the flexible
implementation of the ECH program became more wide-
spread, affordable housing projects accounted for only a small
part of the total housing stock, thereby underscoring that gov-
ernment support for middle- and low-income households in
urban China was insufficient. The situation has improved
somewhat since 2007, when stricter central rules were issued:
Even a small number of local governments were averse to
ECH and claimed to have dropped it as vehicle for affordable
public housing, the majority began to take ECH very seriously.
A housing official from Xinjiang province reported that in
September 2015 alone, the province’s capital city, Urumqi,
distributed 721 ECH units in 33 different locations.9
In addition, the implementation of the ECH program suf-
fers from poor administration, weak accountability mecha-
nisms, widespread corruption, and even fraud. A senior official
at the Ministry of Housing and Urban-Rural Construction
revealed what was discovered when the department examined
local ECH implementation:
Local governments can manipulate housing types and housing
prices together with developers in order to receive more revenue.
In some extreme cases, ineligible applicants have received low-
rent housing and a number of high-income households have
managed to acquire government-subsidized ECH housing. At
the same time, many eligible families have been denied housing
assistance.10
The LRH Program and Its Implementation
The 1998 monetization reform created the need to establish a
social rental housing system for those who could not afford
either to purchase ECH units or to rent houses at market
prices. They included senior citizens, disabled people, and
extremely low-income households. In 1999, the Ministry of
Construction issued the “Urban Low Rent Housing
Management Rules.” These were followed in 2003 by a doc-
ument titled “Ways to Provide Low Rent Housing for the
Poorest Urban Residents,” which promoted the introduction
at the local level of new construction and rent subsidies.
Although local governments were urged to launch the LRH
program, the document did not indicate how they were to
raise funds for this purpose. Instead, they were asked to look
for multiple funding sources, such as annual budgetary allo-
cations at different levels of government, earmarking part of
HPF capital gains, and similar revenues from other local
housing funds (Ba, Xu, & Miao, 2006). The central govern-
ment indicated that it might be able to provide some support
from the national annual budget; however, such funding was
not fully secured and often very limited, as a result of which
local governments have had to bear most of the cost. For
these reasons, the program has grown very slowly (Han,
2008). In 2006, the central government mandated that every
municipal government allocate 5% of the net gains from land
conveyance fees to the LRH program.
It is true that the LRH program targets the lowest income
families in urban areas and stipulates that rents are to be set
by the government and that quantitative construction and
program coverage requirements must be met. But in the first
few years of its implementation, it did not define a clear pol-
icy path or provide a strict accountability mechanism, which
meant that local governments had leeway to make decisions
on construction targets, the scope of the program coverage,
and detailed management rules. Therefore, even if local gov-
ernments fail to implement the LRH program, they are not
called to account. The following comment by an official in
Shanxi is representative:
We were not very concerned about the poor implementation of
the LRH construction program because neither we nor the
central government had any specific plans.
Fan and Yang 9
An official report released by the Ministry of Construction
in February 2007 revealed that at the end of 2006, there were
still 145 cities at the prefecture level (roughly one quarter of
the total number of such cities) and 141 cities at the county
level that had not yet established LRH systems. The report
also found that many cities were very slow in building LRH
apartments.11 Some major cities, such as Beijing, did not
start LRH projects until 2007. Thus, at the national level,
LRH projects were unable to meet the housing needs of the
majority of lowest income urban families (Jia & Liu, 2007).
Funding considerations were behind local poor imple-
mentation or even resistance to implement the LRH pro-
gram.12 One housing policy expert in Beijing explained that
the LRH program demanded financial input from local gov-
ernments, which were also responsible for running and over-
seeing the LRH program. Because they are essentially land
owners and rely heavily on revenues from land sales, local
governments in China are inevitably sensitive to the impact
that LRH projects could have on such sales. Owing to finan-
cial constraints, many local governments implemented this
program in a symbolic way only—that is, by building a few
token housing units or delaying the start of construction. An
official report by the National Audit Office cites such cases:
In Chongqing, the first LRH houses entered into use in 2011,
whereas Shanghai’s first LRH new builds were not finished
until 2012. Another means of cushioning the impact of LRH
projects on land sales is to use the least commercially attrac-
tive locations for those projects.13 However, the same expert
gave the following warning:
This strategy could raise some social issues such as not-in-my-
backyard conflicts or the creation of new ghettos in urban areas.
Since 2003, the LRH program has been revised twice, as a
result of which its policy path and accountability mechanism
have both become clearer. For example, the State Council
Opinions on Resolving Urban Housing Difficulties of Low-
Income Families of August 2007 required that households
receiving the minimum standard of living assistance and meet-
ing the criteria for experiencing housing difficulties should be
100% covered by the LRH system in large and medium-sized
cities by the end of 2007 and in all county-level cities by the
end of 2008. The document also required that local govern-
ments report on their development and annual plans to the
Ministry of Construction, stating that any local government
that had not implemented measures would be subject to criti-
cism. Since then, both the central government and local gov-
ernments have expedited the implementation of LRH projects.
For its part, the Ministry of Housing and Urban-Rural
Construction drew up a national LRH plan for the period 2009
to 2011 under which more than 7 million LRH units were to be
delivered nationally. From 2008 to 2012, the number of LRH
projects that were started totaled 5.97 million units and those
completed totaled 4.2 million units.14
In December 2013, the Ministry of Housing and Urban-
Rural Construction, along with two other ministries, issued a
document calling for the merger of LRH projects with PRH
ones from 2014 onward. This merged policy is called the
PRH policy and all ongoing LRH projects now come under
PRH rules once they have been completed.15 An outcome of
merging LRH and PRH projects could be the streamlining of
management and overcoming the stigma attached to LRH
projects, which, in turn, could lead to the full implementation
of not only the PRH but also the LRH program.
Although LRH projects as standalones have been termi-
nated at the central level, they are being continued by some
local governments. One housing policy expert in Xinjiang
province confirmed that this is the case:
Our city is still treating LRH as an important public housing
program. They simply do not openly acknowledge this.
A local newspaper reported in September 2015 that the
capital city of Xinjiang province planned to distribute 302
LRH units and 1,695 PRH units, which constituted the city’s
second public-housing cluster in that year.16
The PRH Program and Its Implementation
The youngest of the four programs, the nationwide PRH pro-
gram was launched in June 2010, when seven central minis-
tries jointly issued the “Guidelines to Increase Public Rental
Housing Construction,” which called on local governments
to prioritize the development of PRH by continuously
increasing capital investments and giving priority to PRH
projects in land use allocation. The development of PRH is
expected to benefit many low- and middle-income families
who are ineligible to apply for low-rent public housing but
are not wealthy enough to buy apartments in the open mar-
ket. The specific terms for applying to take part in the pro-
gram are to be decided by the municipal governments. PRH
has become the basic form of public housing provision in
China. However, in the 2010 document, the PRH policy
path—including forms of investment, financial sources, con-
struction types, and rent standards—was not clearly defined.
To promote the PRH program, the central government has
stipulated quota requirements within a strong incentive and
accountability system. In 2011, the State Council emphasized
the key role of the PRH program in promoting affordable
housing and required local governments to take more respon-
sibility for stabilizing housing prices and guaranteeing the
availability of affordable housing. It stated that local govern-
ments making insufficient efforts to keep housing prices sta-
ble and promote the construction of PRH would be held
accountable. The State Council started signing agreements
with the individual provinces on annual housing construction
quotas, mandating local governments to meet what it called
this “indispensable and demanding work requirement” (“ying
10 American Review of Public Administration 00(0)
Table 3.  Public Rental Housing Construction, 2009 to 2014 (in Million Units).
Year Construction plan
2009 3.87
2010 5.80
2011 10.00
2012 7.00
2013 6.30
2014 (first half)
2014 (target) 7.00
Source. Online report by Jingwei Ai published on July 28, 2014, at http://finance.sina.com.cn/
renwu”), and instructing them to provide significant funds for
housing construction.
Even though the policy tools are unclear, local govern-
ments have had to explore new ways of operating to carry out
this central mandate. Many of them have tried to attract
social organizations to participate in PRH projects by various
creative means, such as providing discounted government
loans, lowering taxes or fees, or launching build–operate–
transfer or build–transfer projects. Chongqing, Tianjin,
Nanjing, and Beijing are the first cities to promulgate their
own pilot PRH program rules.17 Chongqing, moreover, is the
first to construct PRH on a large scale. It is estimated that in
2011—the first year of implementation of the program—
more than 10 million square meters of PRH housing was
allocated to residents, half of the total housing volume avail-
able for rent in Chong Qing in 2010 (Li, 2011). The scale of
the PRH program has exceeded any other social housing
projects in Chong Qing. Meanwhile, one housing official in
Beijing commented that,
Beijing will speed up PRH construction projects and distribution
processes and the scope of its program coverage is larger than at
the national level.
He went on to give more details for the year 2016:
By October 2016, we will begin distributing 32,000 apartments
in 29 PRH construction projects across the whole city . . . Each
district and responsible agency must complete their work well,
and the implementation results will be an important part of their
performance evaluation.
These local policy experiments have provided learning
opportunities and experiences that have allowed the PRH
construction and management model to be fine-tuned. Based
on them, the Ministry of Housing and Urban-Rural
Construction issued the “Public Rental Housing Management
Rules” in 2012, which outlined the policy path in detail,
including the procedures for application, approval, distribu-
tion, use, and opting out.
More recently, the central government further expanded
public housing construction, including PRH projects, as part
Target number
Units completed of completed Completed
3.33  
5.90 3.30
10.43 4.32
7.22 (by October) 5.05 (by October)
6.60 4.70 5.40
5.30 2.80
4.80  
of its stimulus spending program to promote economic
growth. In 2013, it was reported that if the government met
its target of building 36 million units by 2015, affordable
housing would be available for 20% of urban households,
compared with about 7% in 2013.18 The latest available sta-
tistics show that 82% of the 36 million public housing
units—most of which are PRH units—were finished by
2014.19 This development suggests that China is approaching
“full implementation” of public housing projects and gover-
nance of public housing is being recentralized. As Table 3
shows, from 2010 onward, the number of completed PRH
projects exceeded the plan. Thus, the PRH program stands
out in terms of full implementation.
Discussion on Model Conversion
As shown above, few programs were implemented in full
during the very early stages. Rather, local government sought
their own strategies of dealing with the programs and changed
them when policy components were changed. The HPF pro-
gram was made more specific. When the State Council estab-
lished an accountability system listing what it regarded as
violations, a more solid foundation was laid for local imple-
mentation, as a result of which the HPF program tended
toward full implementation. Not least owing to weak incen-
tives and because local fiscal revenues were not increased, the
ECH program was flexibly implemented by local govern-
ments. After being amended several times by the national
government in terms of goals and contents, it has been subject
to full implementation; however, supervision and account-
ability mechanisms still need to be improved. With regard to
the PRH program, local policy experiments gradually ceased
and full implementation could be observed once the central
government had fleshed out the program with concrete policy
details. Similarly, the LRH program suggests model conver-
sion from symbolic to fuller implementation.
The implementation of these programs is always in flux.
If incentives are effective and the policy path clearly defined,
full implementation can be achieved and can turn policy
goals into real outcomes. Otherwise, local governments are
left with more leeway to experiment. Even after a policy is in
Fan and Yang 11
place, its implementation can be converted from one type to
another as the policy path or incentive mechanisms change.
Thus, the path-incentive matrix is an interchangeable and
dynamic model.
Conversion has a special implication for the national gov-
ernment, which will have two means of making policy
implementation more effective. First, the national govern-
ment can clarify the policy path. If the policy contents are
unclear, local governments may have a different or even sub-
jective understanding of policy goals, tools, and implementa-
tion standards. To prevent the implementation of a policy
deviating from its main aim, the policy goals and tools need
to be stated in detail and, ideally, an accountability system
should be in place. However, if local governments are
expected to conduct policy experiments, an ambiguous pol-
icy path may be a good technical choice for the center.
Second, the national government can introduce incentive
and accountability mechanisms. Introducing strong incentive
mechanisms is one way to encourage local governments to
explore new policy paths. In other words, strong incentives
mean efficient strategies to resolve any conflicts of interest
between the local implementation agencies, on one hand,
and national politicians, on the other, as Torenvlied (1996)
argued.
Conclusion
China’s public housing policies demonstrate that different
policies can be implemented in different ways and that the
policy implementation model can be changeable. Regardless
of whether a policy is implemented well or poorly, implemen-
tation always reflects the logic of the rational choice of local
officials. Thus, from this perspective, the first two of our
hypotheses stated above are correct: For a national policy to
enjoy effective local implementation, both a clear policy path
and strong incentives are required (and quite often work in
combination). Moreover, our third hypothesis is correct too: In
our model matrix described above, local implementation can
be converted from one type to another if conditions change.
At the same time, it should be noted that more often than
not, local compliance behavior is the combined result of
many factors. As Fan (2015) has found, local officials have
to consider a number of factors in deciding how to handle
central policies: For example, they have to determine whether
policies are to be strictly implemented or only insofar as they
yield political or economic benefits.
This study finds that even though the policy path is some-
times unclear, this does not necessarily mean that central
government decision making is flawed. When the policy
environment is unstable and the policy path vaguely defined,
opportunities for experimentation may arise and the central
government may avoid taking the blame for defective policy
making. At the same time, ambiguity can give local govern-
ments more discretion to test new policy tools and tech-
niques. If policy issues have not been thoroughly analyzed,
experimental implementation can be conducive to policy
learning and the exploration of new paths (Greenberg &
Robbins, 1986; Linder & Peters, 1989; Sabatier, 1986).
This study also shows that policy implementation not
only turns policy goals into real outcomes but also is affected
by policy paths and incentive mechanisms. At the same time,
appropriate incentive mechanisms can encourage new policy
experiments, which themselves lead to policy improvements.
As Ostrom (1990, 2005) observed, central regulatory agen-
cies often lack knowledge of incentives for resource users.
This is true for China as well as for many other countries.
To summarize, this study contributes to the literature not
only by examining local government practices and behaviors
in implementing national programs but also by describing
how local officials respond to both policy paths and incen-
tive mechanisms. Thus, it also helps us understand how the
Chinese intergovernmental system works. Our findings sug-
gest that changes in the policy path or incentives made by the
national government will have different effects on imple-
mentation. As a result, this study also contributes to the lit-
erature by addressing the link between intergovernmental
relationships and policy implementation, two important
streams of research in the field of public administration.
Finally, the path-incentive model provides a theoretical per-
spective from which to understand and predict local behav-
iors. In addition, it points to ways of improving policy
implementation in general.
In closing, we point out that our model has its limitations
in such a complex and rapidly changing world. It is limited
in the sense that it focuses on just one policy area in China. It
has not been applied to local implementation in other policy
areas or in any other country. Furthermore, in our current
research and case studies, we have not conducted a full com-
parison of the political and economic incentives—for exam-
ple, determining under which conditions one type of incentive
can outweigh the other. Over time, our model will be
improved through more use and new evidence.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect
to the research, authorship, and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support
for the research, authorship, and/or publication of this article: The
National Foundation of Social Sciences of China (No. 16BZZ029)
funds this article.
Notes
  1. In China, local governments have no power either to estab-
lish a new tax base or to adjust tax rates; the power to set the
tax base and change tax rate lies solely with the central gov-
ernment. Local governments have some fiscal autonomy and
share some tax revenues with the central government. In col-
lecting some local taxes, they may have certain preferential
12 American Review of Public Administration 00(0)
measures. However, they do have discretion over budgeting
issues; based on their fiscal ability and local demands, they
manage their budgets independently. This Chinese-style fis-
cal decentralization differs from that discussed in the public
finance literature in the context of fiscal federalism in the
West. It was Qian and Weingast (1996) who first used the term
“Chinese style” to define this system of fiscal decentralization.
  2. According to Wu (2012), there are two political mechanisms to
ensure local accountability to central government: the nomen-
klatura system and the target responsibility system. Based on
nomenklatura authority, provincial leaders must follow the
orders of central supervisors, whereas municipal leaders have
to follow those of their provincial counterparts. Under the tar-
get responsibility system, local cadres must remain vigilant
with regard to central policy and respond to it carefully and
energetically. Local officials are instructed to pay consider-
able attention to tasks weighted heavily by the central govern-
ment. Those who perform well in carrying out such tasks are
rewarded with promotions within the hierarchy. In addition,
there is an economic system called “asymmetric decentraliza-
tion,” which includes fiscal incentives (Wu, 2012). Having
given up some fiscal powers, the central government was able
to improve its monitoring ability because local governments
were thought to be more willing to reveal their financial situ-
ations when they had full control over local finances. It was
believed that such fiscal decentralization could improve local
fiscal discipline in the long term. As Wong (1992) noted, local
governments had to bear the responsibility for overspending in
the decentralized system. If local governments spent beyond
their means, they were judged to have failed both politically
and economically. The World Bank (2007) commented, “These
systems have elements of ‘upward’ accountability of county
governments as they require county governments to comply
with higher-level mandates . . . and implement the projects and
programs financed by earmarked transfers” (p. 96).
 3. China’s housing policies are aimed, among other things, at
improving substandard housing, redeveloping dilapidated
housing, and providing limited price housing. However, they
are basically local policies. As this study examines—from the
perspective of intergovernmental relations—how local gov-
ernments implement national policies, they are not within the
focus of this article.
  4. In addition to supporting housing marketization, the Housing
Provident Fund (HPF) program seeks to provide affordable
housing to low- and medium-income households.
 5. This quote can be found on the Beijing Provident Fund
Management Center (PFMC’s) official website at http://www.
bjgjj.gov.cn/zcfg/dffg/200801/t20080124_830.html
 6. The Ministry of Construction was renamed the Ministry of
Housing and Urban-Rural Construction in 2008.
  7. The case of Hang Zhou provides more information about the
changes in Economical and Comfortable Housing (ECH)
policy from 1994 to 2004. See http://www.chinanews.com/
sh/2013/08-30/5228621.shtml
 8. See State Council Document No. 24 (2007) on the State
Council official website at http://www.gov.cn/zwgk/2007-
08/13/content_714481.htm
 9. See Wulumuqi WanBao (Urumqi evening newspaper),
September 30, 2015, at http://epaper.xinjiangnet.com.cn/epa-
per/uniflows/html/2015/09/30/A15/A15_24.htm
10. Other such anecdotal evidence can be found in a report pub-
lished in December 2009 on the website of the World and
China Institute at http://www.world-china.org/newsdetail.
asp?newsid=2789
11. The entire report is available at http://news.163.
com/07/0215/09/37C4STQP000120GU.html
12. See the report released by the National Audit Office on April
28, 2012, at http://www.audit.gov.cn/n6/n41/c20123/content.
html
13. See the report released by the National Audit Office on April
28, 2012, at http://www.audit.gov.cn/n6/n41/c20123/content.
html
14. See the official news coverage in Renmin Wang (people.
cn) on December 16, 2013, at http://finance.people.com.
cn/n/2013/1206/c1004-23770709.html
15. The official notification can be found at http://www.mohurd.
gov.cn/zxydt/201312/t20131209_216476.html
16. See Wulumuqi WanBao (Urumqi evening newspaper),
September 30, 2015, at http://epaper.xinjiangnet.com.cn/epa-
per/uniflows/html/2015/09/30/A15/A15_24.htm
17. Chongqing promulgated its Public Rental Housing (PRH)
experimentation rules on June 8, 2010 (http://www.cq.gov.
cn/publicinfo/web/views/Show!detail.action?sid=3718125),
Tianjin on March 10, 2011 (http://www.tj.gov.cn/zwgk/wjgz/
szfwj/201103/t20110316_135215.htm), Nanjing on September
26, 2011 (http://www.njdaily.cn/2011/1213/55256.shtml), and
Beijing on March 19, 2012 (http://www.bjjs.gov.cn/publish/
portal0/tab662/info69486.htm).
18. See the official website of the People’s Daily, November 8,
2013, at http://finance.people.com.cn/n/2013/1108/c364101-
23474081.html
19. See the online report published by Jingwei Ai on July 28, 2014, at
http://finance.sina.com.cn/zl/stock/20140728/074919835264.
shtml
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Author Biographies
Yongmao Fan, PhD, is an associate professor in the School of
Public Administration and Policy at Renmin University of China.
Hongshan Yang, PhD, is a professor in the School of Public
Administration and Policy at Renmin University of China.