This book examines how China's decentralization process has affected and will affect the country's macroeconomic performance and the market function. With an innovative application of game theory, the author develops an analytical framework that can explain the behaviour of the central and local governments under alternative institutional environments. The study also suggests how to establish desirable rules of games in China's political and economic institutions through appropriate reforms. This book is particularly suitable for students and researchers studying the Chinese economy, but it will also appeal to economists and political scientists working on intergovernmental relations in other countries.