This chapter describes and analyses the traditional way adopted by Chinese banks to manage and incentivise bankers in the context of state ownership and intervention. It provides an overview of the modernisation reform of Chinese banks and argues that the essential factor that contributed to the successful reform was the predominant role of the state. The governance of banks was subject to state intervention, and bankers were identified and managed as state cadres. Therefore, bankers’ remuneration was administratively managed, and bankers were incentivised with the opportunity of political promotion. Reciprocally, the administration of remuneration and political incentives acted as a channel for state intervention in banks. However, this administrative and politicised approach was inconsistent with the principles of modern corporate governance, and reform to push forward the modernisation of bankers’ remuneration was considered necessary.

This chapter investigates the practices of remuneration and political incentives in major Chinese banks in recent years and the implementation of the regulatory initiatives. The investigation is split into two parts, focusing on SOCBs and listed JSCBs, respectively. Low remuneration level, weak pay-performance sensitivity, the lack of economic incentives, and the predominance of political incentives are the major features of the practices of SOCBs, which are consistent with the traditional administrative and politicised approach. It is found that the regulatory initiatives based on international principles are not effectively implemented; however, the requirements that enhance state intervention have been strictly followed. The majority of the listed JSCBs are connected to the central or local state through direct or indirect ownership. Political incentives also play an important role in these JSCBs. In contrast, remuneration incentives are effective in privately owned JSCBs.

This chapter identifies the book’s two basic aims: (1) explaining what policy makers and scholars interested in building tax capacity in developing countries may learn from the Chinese experience; and (2) articulating a framework for understanding the politics of taxation in China. It then explains how the unique approach of the book, which focuses on ground-level tax administration, serves these two aims. In relation to the first aim, the book will argue that contrary to assumptions in the current literature, there are fundamentally different types of state capacity in taxation, which follow potentially irreconcilable choices in the face of difficult trade-offs. In relation to the second aim, the book uses the structure of tax administration to illustrate the heterogeneity of political incentives within the Chinese state, critical information bottlenecks, and the political motives behind invocations of law. Unifying the pursuit of these two aims is a reflective conception of law as a special form of securing social order, which sees legal ordering as fundamentally different from social ordering based on state coercion. A summary of the ensuing chapters follows.