Government-Business Relations in Greater China and Challenges for Public Administration Essays

Government-Business Relations in Greater China and Challenges for Public Administration Essays Government-Business Relations in Greater China and Challenges for Public Administration Essay Government-Business Relations in Greater China and Challenges for Public Administration Essay 1 Government-Business Relations in Greater China and Challenges for Public Administration Abstract This paper examines the development of government-business relations in China, Hong Kong, and Taiwan and identifies important managerial issues from the Chinese experience. The paper first introduces theoretical concepts about the role of government in economic development and arguments about business promotion and government regulation policies. It then reviews economic development in the three societies and changes in their government-business relations. Three critical managerial issues related to the government-business relations are accountability of incentive policies, effectiveness of government regulation, and anti-corruption of administrative reform. Implications of the Chinese experiences are provided in the conclusion section for future studies of government-business relations. 2 Introduction The topic of government and business relations (G-B relations) has recently become one of the major public policy issues for many developed, developing and economic transition countries. For developed countries, the interest in G-B relations is related to the impact of global financial crisis and the need for government intervention in the financial system (e. g. , government relieve funds and proposed new regulations). In addition to the problem of financial crisis, developing and economic transition countries emphasize the issue of G-B relations because of their special concerns about economic development. For these countries, it is important for them to reform their governments to establish a sound modern market system and implement good development policies to attract the needed foreign capitals and investment. The study of G-B relations in Greater China is valuable for researchers because of the success of China’s economic reform and the changes of economic environment in Taiwan and Hong Kong. 1 Since 1978, China has successfully implemented various reform policies to increase economic growth and to improve the quality of public life. These policies have promoted rivate business development in China and have gradually changed the Chinese system from a totally government-controlled planning system to a market-oriented capitalist system. The G-B relations in China have changed dramatically since the implementation of development and reform policies. Chinese leaders today have to develop new policies to address many negative problems that are associated with the development chan ges. For Taiwan and Hong Kong, the G-B relations have also changed after the success of their economic development and miracles since the 1990s. : The G-B relations in Taiwan have been influenced by the development of Taiwan’s democratization movement and the changes in Taiwan’s political environment. Unlike the past dominant control of the government over the 3 business through the ruling party of Kuomintang (KMT), business communities and enterprises are now influencing the formulation and implementation of public policies through the contribution of campaign financing to political parties and politicians, especially after the administration of Democratic Progressive Party (DDP) in 2000. The G-B relations in Hong Kong have been affected by recent events, such as the 1997 handover to China, the Asian Financial Crisis, and the 2003 SARS outbreak. Unlike the traditional development policy of positive non-interventionism, the government of Hong Kong Special Administration Region (HKSAR) has played an active role and implemented important public policies to protect public safety and to promote business development. This paper examines the G-B relations in China, Hong Kong, and Taiwan by focusing on their development experience. The paper consists of three major sections. The theoretical background section introduces important concepts about the role of government in economic development and arguments about business promotion and government regulation policies. The development background section reviews key development policies in the three societies and changes about their G-B relations. The managerial issue section analyzes major challenges that are related to business promotion, government regulation, and administrative reform. Theoretical Concepts of Government-Business Relations To study G-B relations in Greater China, we need to understand theoretical concepts and arguments about the role of government in economic development, the essentials of business promotion policies, and the development of government regulation. A. The Role of Government in Economic Development The important role of government in the modern economic system has been well recognized in the literature of public finance, public policy and developed economics. From the 4 ublic finance perspective, for example, Musgrave and Musgrave (1980) explain the issue of market failure and promote three functions of government, which include the allocation of social and other goods that the market will not of itself provide, the equitable distribution of income and wealth; and the stabilization of unemployment and control of inflation. From the public policy consideration, Nicholas Stern (1991) emphasizes five arguments for governmental interventio n in the economy. The arguments consist of concerns for market failure (i. e. relating to externalities, public goods, and imperfect information), concerns to prevent or reduce poverty and improve income distribution, the assertion of a right to certain facilities or goods (e. g. , education, health, and housing), the importance of paternalism (e. g. , relating to education, pensions, and drugs); and the rights of future generations (e. g. , relating to the environmental). The issue of state or government involvement in economic growth has been further emphasized and debated in the literature of development economics. The issue of debate is not whether a state or government should be involved in economic development, but what the appropriate role of government might be in promoting growth and development. The neoclassical arguments of development emphasize the role of foreign trade and investment and the importance of a free market in stimulating competition during the development process (Galenson, 1985; Wade, 1990, 1992). They recognize the role of state in the process of development but emphasize a passive and limited role of government in such activities as maintaining stability and providing physical infrastructure. Statist arguments of development offer a different approach on this issue. They point out that the successful experience of many newly industrialized countries (NICs) is related not only to the operation of the free market but 5 also to the active role of government in directing public and private resources to change the structure of their economy (Johnson, 1982; Ho, 1981; Lin, 1989). Considering these different arguments, Liou (1998a) introduces five major roles of government in the process of economic development. The five roles are protector, controller, distributor, promoter, and regulator. As the protector role, government needs to formulate and implement public policies (i. e. , national defense policy and public safety policy) to protect citizens and businesses from foreign attacks, criminal and illegal activities. These policies should promote a safe and stable environment without political interruption and social unrest. Next, to assure a safe and stable economic environment, government needs to play a control role to adjust public policies (i. e. monetary policy and fiscal policy) that are related to the management of nation’s macroeconomic environment. These policies are important to the macroeconomic problems of inflation and unemployment. Third, to assure social equity, government also needs to play a role of distributor to develop public policies (e. g. , social welfare policy and rural development policy) to prevent unfair distribution of public resources among various clas ses, regions, and disadvantaged groups. Fourth, government plays a role of promoter of economic growth and social development and needs to use public policies (e. . , business incentive policies and international trade policies) to invest in public infrastructure and to promote the development and advancement of business sectors in both domestic and international markets. Finally, as a regulator, government also focuses on the regulation of industry and business operations for public interests. Regulation policies (e. g. , environmental regulation, finance and insurance regulation) are developed to maintain the balance between the development of business and industry competition and the protection of natural environment and individual rights. While the 6 first three roles apply to public issues in general, the last two roles (promoter and regulator) are specifically related to our study of G-B relations and will be further examined next. B. Business Promotion Policies To promote economic development, governments at all levels have designed various public policies to support the establishment of business companies and plants, to attract the relocation of new and expansion business, and to foster further development of existing business. As mentioned previously, many of the NICs have implemented various incentive policies to promote business development in their countries. These business promotion policies include, for example, general incentive policies to encourage the accumulation of production factors (e. g. , tax measures, Research Development funds) and specific industrial targeting policies to promote the growth of particular industries (e. g. , subsidizing credit or import protection for technology industries) (World Bank 1993). Business promotion policies have also been emphasized in developed countries to promote state and local economic development (e. g. , Eisinger, 1988). For example, in the United States, Clark and Montjoy (1998: 169-170) summarize economic development programs in terms of four types: (1) subsidizing traditional inputs such as capital (e. g. , direct loans and loan guarantees, tax-exempt bond financing, development corporations), land (e. g. , land banking, site development provision), and labor (e. g. low-cost/mass production, and high quality/lean production); (2) lowering political costs of doing business, including tax abatements and incentives, and limitations on the regulatory environment; (3) promoting entrepreneurial activities of market development (e. g. , export promotion, research and dissemination) and business services (e. g. , policy planning, RD support and consortia); and (4) developing 7 attractive social amenities (e. g. , arts, environment) and improving distressed areas (e. g. , enterprise zones). The widespread use of incentive policies have resulted in some critiques about their efficiency and equity. On the efficiency (or effectiveness) side, researchers of local incentive programs in the United States have argued that these programs have little influence on either the level or the distribution of economic growth, especially when compared them with the impact of market factors (e. g. , Bartik 1991; 1992). From the equity perspective, researchers indicated that many of the traditional incentives simply transfer money from the public sector to successful firms (moving these firms from place to place) and do litter to help those in need (Rubin 1998). Researchers further pointed out that the use of financial incentives is based on political considerations because tax and incentives are easy to control and manipulate when comparing them with other determinative factors such as the quality of the local labor force (Wolman and Spitzley 1996). They also noticed that policymakers enact tax incentives not on the basis of rational economic analysis, but as a defensive measure against regional competition (Grady 1987). C. Government Regulation and Reform While business promotion policies attempt to support the development of industries and firms, government regulation policies are designed to address side effects or negative issues that are related to business development. The term regulation has been referred to as â€Å"any attempt by the government to control the behavior of citizens, corporations, or subgovernments† (Meier, 1985:1) or â€Å"the diverse set of instruments by which governments set requirements on enterprises and citizens† (OECD, 1999: 16). Researchers (Buchholz, 1992; OECD, 1999) identified three types of economic, social, and administrative regulations. Economic regulation focuses on the 8 direct government intervention in corporations and market decisions such as pricing, competition, market entry or exit. Social regulation is related to government protection of citizen and social values such as health, safety, the environment and social cohesion. Administrative regulation has to do with government formalities and paperwork. Researches further explain some rationales for government regulation, which include problems of monopolies and natural monopolies (e. g. , utilities), externalities (e. . , pollution of river by factory), information inadequacies (e. g. , food, drug and beverage labeling), public goods and moral hazards (e. g. , defense, security, and health services), unequal bargaining powers (e. g. , health and safety at work), and distributive justice and social policy (e. g. , victim protection and prevent discrimination) (Baldwin and Cave, 1999). Since the late 1970s, the pervasive use of regulation, along with the growth of regulatory cost, has resulted in many suggestions for regulatory reforms. The purpose of regulatory reform is to improve the quality of regulations in terms of enhancing performance, reducing costs, or finding alternative policy tools (OECD, 1999: 16). Specifically, for economic regulations, reform aims to increase economic efficiency by reducing barriers to competition and innovation, through deregulation and use of efficiency-promoting regulations. For social regulations, reform aims to verify that regulation is needed and to design regulatory or other flexible and low cost instruments (e. . , market incentives and goal-based approaches). Finally, for administrative regulations, reform aims at eliminating aspects of red tape that is no longer needed, streamlining and simplifying those that are needed, and improving the transparency of application. While trying to reduce government intervention and inefficiency problems, many regulatory reforms (i. e. , deregulation or privatization) have resulted in new problems to industries and consumers. For example, deregulation is very popular among the public and 9 usiness, but deregulation alone is insufficient in resolving the problems of regulation because it is considered as a reactive approach to addresses problems developed in the past and it focused not on the system or new challenge, but on instruments and techniques (OECD, 1999; Liou, 2007a). In practice, the implementation of deregulation in many sectors and industries has produced problems, which require additional governmental action. For example, the electricity meltdown in California is related to deregulation efforts in the electric utilities industry. Policymakers in other states have delayed the implementation of deregulation and have considered other supporting mechanisms (e. g. , multi-state trading zones) to avoid the same problem in the future (Swope, 2001). In the commercial banking industry, researchers (e. g. , Krause, 1994) reported that the deregulation policy and other changes (i. e. , the Depository Institutions Deregulation and Monetary Control Act, the ideological changes of relevant congressional banking subcommittee members) serve as the most important explanation of the instability facing the banking industry. The financial crisis of 2008 provided additional evidences to show the failure of government regulation and deregulation reform in the US banking and insurance industries. The explanations of theoretical concepts and arguments are important for the study of G- B relations in Greater China because of the important role of government in the Chinese societies, the contribution of business promotion policies to their economic development, and the need for effective regulation policies to address new challenges. Economic Development in China, Hong Kong and Taiwan A. Economic Development in China Before the reform years, we can categorize the Chinese state-society relations as a state- dominated society, including the state control over business and commercial activities (Liberthal, 10 1995; Liou, 2000a). The Communist Party-state controlled almost all aspects of social life through a huge and complex administrative structure, various monitoring policies and systems, and continued political and ideological struggles. The result of total state control over society was a highly homogeneous society: people receiving low salaries from government or state- owned agencies, spending and consuming foods and other goods according to ration coupons or quotas controlled by the government. There were no major business operations and commercial activities in most of the cities. The government controlled the ownership, production, distribution and consumption of all business operations. Since the late 1970s, Chinese government has emphasized the â€Å"reform and opening-up† policy to promote the country’s modernization and economic development. For the past thirty years, the government has implemented many policies to adjust the role and operation of government and to promote business investment and production. In the area of business promotion, policy changes implemented include, for example, the contract responsibility system (CRS) in both the rural-agricultural and the urban-industrial areas to encourage business activities and market operation (e. g. , Gao, 1996; Lu and Tang, 1997), and the special economic zones (SEZs) to provide preferential policies (e. g. , lower tax rates) in coastal regions to attract oreign investors for the needed capital and human resources (Bell et al. , 1993; Stoltenberg, 1984). One recent example of preferential policies in SEZs is the project of Tianjin Harbor Port Development District to provide tax benefits, export promotion and logistic services to promote business development. In the area of government reform, Chinese leaders have introduced various policy changes to its huge administra tive system to remove bureaucratic inefficiency problems (Burns, 1993). 2 Among these reforms, the strategies of administrative decentralization and deregulation 11 re directly related to the topic of G-B relations. The decentralization strategy refers to the effort of the central government to decentralize decision-making powers (especially in economic related activities) to local administrative units to improve the quality of government decisions. After the decentralization strategy, local governments have become very active in economic activities and local officials’ pro-business attitudes are critical to the implementation of development policies (Chen, Jefferson, Singh, 1992; Waste, 1986). The deregulation strategy consists of both process and structure changes. On good example of the process change has been the reform of China’s administrative examination and approval system to support business development. The administrative examination and approval was based on the old planned economic system and tended to be irrational and inefficient in its operation (e. g. , overlapping functions, black-box operations). The reform calls for the development of an open and transparent system and emphasizes the application of scientific principles in making related decisions (e. . , items to be examined, standards and conditions for the approval). A high level â€Å"Leading Group for Administrative and Examination Approval System Reform† was established in 2001 to comprehensive review projects that are subject to administrative examination and approval. From 2002 to 2004, the State Council eliminated or moderated 1,806 such projects. By the end of 2004, the number of p rojects that needed review and approval by State Council departments had been cut by half (OECD, 2005). The structural change refers to the separation of economic enterprises from administrative agencies because the old administrative system not only included many industrial organizations but also controlled the operation of these organizations. One good example of the structure change has been the reform of state-owned enterprises (SOEs). 3 The SOEs reforms consist of such stages as the expansion of SOEs’ autonomy rights in production related decisions (from 1978 to 1992), the transformation of SOEs 12 nto the modern enterprise system (between 1992 and 1997) and related laws (e. g. , a Competition Law and a Company law of 1993), and the establishment of an effective corporate governance to address related financial and social security issues (e. g. , Yang, 2008). These development policies have successfully improved China’s macroeconomic performance and business development. On the overall economic performance, for example, China’s gross domestic product (GDP) has grown an average 9. percent a year since the reform and its GDP has risen from Rmb 362. 4 billion in 1978 to Rmb 31,404. 5 billion in 2008. Chinese people have become richer, with annual GDP per capita rising from Rmb 379 in 1978 to Rmb 16,084 in 2006. The success of China’s economic reform has resulted in some challenging issues that affect its G-B relations. The first issue is the serious safety problems in the areas of consumer protection. Several food safety incidents have been reported at the national or international levels. At the national level, for example, in 2004, one incident of counterfeit baby formula was noticed by the public because at least 13 babies in Fuyang, Anhui and 50-60 more in the rural areas of Anhui province died of malnourishment from ingesting fake milk power (China Daily, 2004). At the international level, for example, in 2007, Mattel Inc. recalled 18. 2 million Chinese made toys produced with lead painting because of the violation of require rules by its supplier Early Light Industrial Co. (McDonald, 2007). The issue of consumer protection emerged again in 2008 when over 12,000 children have been made ill by milk power contaminated with industrial chemical melamine (China Daily, 2008). The second challenging issue has to do with environmental problems, in terms of soil contamination, river cessation, water pollution and air pollution. A World Bank study (2007) estimated that up to 760,000 people die prematurely each year in China because of air and water pollution. High levels of air pollution in China’s cities lead to 350,000 to 400,000 premature deaths and another 300,000 die 13 because of poor-quality air indoors. There were additional 60,000 premature deaths each year due to poor-quality water. The final issue is related to labor safety and protection. One of the major factors contributing to China’s economic development is the abundance of low-cost labor that enabled both domestic and foreign companies to produce cheap products. Along with the development, these labors have encountered many problems in their working places, such as no labor contract with employers, long working hours, below minimum wages, no medical insurance and social welfare services, workplace injuries, and physical assault and personal humiliation from supervisors. The problem of labor protection is evidenced in the report of rising labor disputes and workplace accidents. One study has noted that labor dispute cases in 2005 are 314,000, which is more than double the number of cases in 2000 and nearly 10 times that of 1995 and that the number of workers involved in disputes grew from 467,000 in 2001 to 740,000 in 2005 (Wu, 2006). One recent example about workplace accident is the explosion of the Xinxing Coal Mine in Hegang City, Heilongjiang Province on November 21st, 2009, claiming 108 lives in this incident (Xinhua News Agency, 2009). B. Economic Development in Hong Kong Unlike the past Chinese development experience, Hong Kong has be very successful in its economic development for many years and has been considered as one of the Asian economic miracles. Before the handover in 1997, the colonial government had implemented various economic development policies to adjust the role or intervention of governmental in creating a free and open market system (Cheung, 2000; Wade, 1990; Yu, 1997). For example, before the 1970s, the government was criticized as a laissez-fair role with low expenditure service and low participation. Between the 1970s and the 1990s, the colonial government adopted a policy of positive non-interventionism to seek collaborations between the government and big business 14 corporations and to invest in public infrastructures and services to support economic development. 4 After the 1990s, with the emergence of electoral and legislative politics, the government moved to a model of consensus capitalism to include wider social interests by forming an alliance among the administrative bureaucrats, business entrepreneurs, and professional elites. These economic development policies have successfully changed Hong Kong’s economic structures from the past manufacturing industries (e. g. , textile, electronics) to the new financial and service industries (e. g. , real estate, insurance, brokering and banking). After the handover in 1997, the government of HKSAR has encountered several challenging events that affect its economic development and social stability. These events include Asian financial crisis in 1997, the dot-com bubbles in 2000, the 9/11 terrorist attacks in the US and subsequent recession in 2001-02, the SARS outbreak in 2003, and the recent financial crisis in 2008. Unlike the past approach of positive non-intervention, the government emphasized the principle of â€Å"Big Market, Small Government† to encourage entrepreneurship and fair competition on the one hand, and a proactive approach (but also pro-market) on the other hand to deal with these challenges and other rapid changes in the world (Tsang, 2006). The government has been successful in adjusting its labor and financial policies to reduce unemployment rates and stabilize the stock and currency markets and in implementing strict regulations to protect public safety and health. These policies were supported by external stimulus activities from the Mainland China. After the Closer Economic Partnership Arrangement (CEPA) in 2004, Hong Kong has deepened its economic integration with the Mainland China. More Mainland visitors and enterprises come to Hong Kong for leisure, business and investment. Local Hong Kong companies have easier access to the vast Mainland market. The results have been strong recovery with consistent high GDP growth rates since 2004 (i. e. , 8. 46 in 2004, 7. 12 15 in 2005, 6. 75 in 2006, and 6. 83 in 2007). At the end of 2007, the GDP reached to HK$1,627. 5 billion (US$208. 7 billion) and GDP per capita was HK$235,134 (US$30,157). The G-B relations in Hong Kong have changed since the 1990s (Loh, 2004; Lui, 2008; Ngo, 2000; Tang, 1999). On the business side, the decline of traditional British company, the rise of local Chinese business groups, and the increase of mainland connection have changed the traditional institutional framework between the colonial administration and business elites. After the deregulation and decentralization policies in the 1990s, he new family-based local business groups have consolidated their interests and expanded their markets in deregulated areas of telecommunications, energy, and public transportation. While the dominance of business interests in Hong Kong politics has continued, the economic structures and competition rules have become more fragmented and complicated after the handover in 1997. On the government side, the SAR government has to follow the framework of Basic Law to deal with conflicting demands from business groups, community leaders and the general public in their fight for social welfare programs and political participation rights. This was not an easy task for the first SAR government (under the leadership of the Chief Executive Tung Chee-hwa) as it was been criticized for supporting big business over other sectors. The Tung administration was challenged later in July 1, 2003 by over 500,000 people demonstration against the proposed Article 23 national security legislation. The new SAR government (under the leadership of the Chief Executive Donald Tsang) has learned to seek more broad-based support for its development policies and has gradually resumed control after successfully dealing with a series of legitimacy crisis. Future challenges for the government will include political, economic, social and cultural changes that are related to the close tie between Hong Kong and the mainland, including, for example, political right and participation of Hong Kong residents (i. e. , related to 16 the general direct election), disappearing of the middle class (i. e. , related to the gap between the rich and the poor and the relocation of mid-management positions to the mainland), and conflict of self-identification crisis (i. e. , related to the defining of Hong Kong’s relationship with China) (e. . , Loh, 2004; Lui, 2008; Martin, 2007) C. Economic Development in Taiwan Taiwan’s post-WWII economic development can be understood from the studies of various developmental plans and policies (e. g. , Kuo, Ranis and Fei, 1981; Li, 1995; Liou, 2002a). For example, between 1952 and 1989, the government implemented eight four-year plans and one six-year plan, which gradually transformed Taiwan’s e conomic systems in different stages and periods, including the colonial agricultural development (before 1950s), the mport-substitution development (1950-62), the export promotion development (1962-80), and the accelerated liberalization development (after 1980). Within these plans, the government had established several economic institutions (e. g. , Economic Planning Council and Council for Economic Planning and Development in the1970s) to emphasize such policy measures as land reforms, fiscal policy reforms (e. g. , tax collection system, investment encouragement programs), monetary policy adjustments (e. g. , interest rate policy, foreign exchange management, regulation of banking, insurance, and securities), and population and manpower initiatives (e. . , family planning, vocational training). These development plans and polices have been supported by the effectiveness of Taiwan’s administrative system and the entrepreneurship of medium and small businesses. In recent ye ars, two major policy issues have affected Taiwan’s economic development. The first issue has been the emphasis on economic liberalization policy since the 1980s, which include the reduction of government control and regulation in economic spheres and the gradual 17 elimination of state subsidies to manufactures. The goal is to transform Taiwan’s economic system to replace its labor-intensive industries with technology-intensive or capital-intensive industries. One example of the liberalization policy is the privatization of state-owned enterprises (SOEs), which includes the merge or shut down enterprises in the face of continuing losses (e. g. , Taiwan Alkali Co. ) and the privatization of all government controlled commercial banks to establish private banks and financial institutions for the promotion of capital industry (Liou, 1992; 1994). The second issue has to do with the democratization movement in Taiwan’s political system, which consists of the lifting of martial law in 1987, the election of Lee, Teng-hui (a native Taiwanese in the Kuomingtang, KMT) as President in 1992, the emergence of several opposition parties (especially the Democratic Progressive Party, DPP), and the election of Chen, Shui-bian (the leader of the DPP) in 2000. Taiwan’s G-B relations have changed along with the new challenges in economic and political environment. Taiwan has gradually lost its comparative advantage of inexpensive labor and cannot compete with those offered from neighboring countries. The relocations of many manufacturing and labor intensive industries to the Mainland China and Southeastern countries (e. g. , Vietnam) have resulted in the rise of unemployment population in Taiwan. Taiwan’s investment has deteriorated because of the influence of special interest groups on government policy since the 1990s under the Lee, Teng-hui’s administration. Regarding the investment issue in the Mainland China, Lee’s â€Å"patience over haste† policy has been ineffective in limiting the increase of Taiwanese businesses investment in China and has brought internal conflicting arguments in Taiwan’s society. The past sound development environment has been further deteriorated because of the inexperience of Chen Shui-bia’s administration, the inconsistence of government’s policies (e. g. , policy on the nuclear power development), the connection between politicians and business 18 conglomerates, and the increasing political confrontation between the Pan-Blue Coalition and Pan- Green Coalition parties. The election of Ma, Ying-jeou in 2008 has not immediately resolved Taiwan’s economic challenges. Unlike the past high growth records, Taiwan’s GDP growths have been relatively low after 2000, from 4. 06 in 2000, -1. 69 in 2001, 4. 7 in 2002, 2. 20 in 2003, 5. 19 in 2004, 3. 52 in 2005, 4. 04 in 2006, and 6. 03 in 2007. Both the amount of GPD and GDP per capita only increased small percentages between 2000 and 2007, with GDP increased from NT$10,032 billion (US$ 321,230 million) to NT$ 12,635. 8 billion (US$ 384,768 million) and GDP per capita increased from NT$453 ,422 (US$ 14,519) to NT$ 553,507 (US$ 16,855). 5 Managerial Issues in Government-Business Relations The previous review of developmental experience in China, Hong Kong and Taiwan has showed that G-B relations in these societies have become complicated along with the economic development and changes. It is clear that all three governments have emphasized the government-guided strategy to promote their economic development. Despite differences in the intervention level and scope (e. g. , less intervention in Hong Kong), all three governments have made institutions arrangements and policy changes to create a free market system and a safe social environment to attract foreign investment and to assist local business development. These governmental policies and changes are critical to support the entrepreneurship development in these societies, which has been considered as one of the major characteristics of their development experience (e. . , Liou, 1998b; Yu, 2007; 1997). To understand the interaction of government and business, we further analyze key managerial issues that are related to business promotion, government regulation, and administrative reform. A. Business Promotion and Accountability Concern 19 The first managerial issue in the study of G-B relations is the accountabil ity concern of business promotion policy. As explained previously, all three governments have implemented various incentive policies to promote business development in their societies. While they are successful in attracting foreign investment to provide the needed financial capitals, technical skills, and managerial knowledge, these incentives have also resulted in some negative consequences such as unfair treatments between domestic firms and foreign companies, special favors to big businesses over small firms, unequal developments between regions with and without such incentives, resource waste and low return of investment rates, and no consideration of side costs associated with economic growth (e. . , air pollutions, increase of public debts). These negative consequences about incentive policies indicate the need for developing a well-organized evaluation system to assure the accountability of these policies. In recent years, public administration researchers have emphasized the value of accountability for results to promote the outcome and performance based management (e. g. , Rainey, 2003; Romzek and Dubnice, 1987). To address accountability concerns, development evaluation becomes an important task for the management of incentive policies. Public managers need to conduct various performance evaluation methods to monitor the costs and benefits of each tax incentive for the purpose of protecting public interests (Liou, 2007b). The challenges for managers are in the process of making incentive decisions and the criteria used to make such decisions. In many cases, incentive decisions have been challenged with different considerations, such s short term interests vs. long term interests, and economic benefits vs. social or environmental welfares. While no easy and clear answers for these questions, public managers have to pay attention to these controversial issues and to promote accountability in every aspect of the development process. 20 B. Government Regulation and Effectiveness Challenge The second managerial issue in the G-B relations is the controversial role of government regulation in the p rocess of economic developmen