Policy discontinuity and waves of growth: evidence from Chinese provinces

Leadership turnover in China’s provincial governments disrupts the multi-year investment commitments that drive industrial upgrading, yet whether this cost appears immediately or compounds as policy continuity erodes remains unclear. Officials expecting short tenures have little incentive to defend a predecessor’s unfinished projects, so the cost of turnover should depend less on the leadership change itself than on how long the resulting discontinuity is allowed to persist. Using a province-year panel spanning 1992–2023, we construct a novel High-quality Industrial Structure (HIS) index from provincial sectoral shares. Officials with six or more years of tenure raise HIS significantly relative to those with under two years. An instrumental-variables design exploiting the fixed timing of National Party Congresses confirms that turnover causes this decline rather than merely correlating with it. A local-projection analysis further shows that the cost is not immediate but emerges only after a lag of roughly three years. Mechanism analysis indicates that this operates through a policy-continuity channel: turnover destabilizes discretionary capital spending far more than fixed recurrent spending. The evidence suggests that cadre evaluation tied to short-run outcomes penalizes continuity, and that protecting multi-year capital commitments may matter more than reforming the rotation system itself.