Shunpei Takemori, professor at Keiogijuku University, insisted that when a kind of pessimism caused by"Knightian uncertainty" prevailed in the late 1990s, it was the aggressive liquidity supply by the FRB that acted as "aggressive optimist" and swept away pessimism. On the other hand, emerging economies such as China and India are expected to sustain the growth of the world economy through vitality and optimism. If so, what has been sustaining this optimism in the Chinese economy? Likely, it is not the central bank or central government. In the reform era, it has been cooperation among local governments, local branches of major banks, and developers that have been acting as "aggressive optimist". The pattern of economic development in China in the reform era can be characterized as follows. First, because the market mechanism is not perfect, there is always the chance of rent-seeking. Second, under chronic fiscal deficit, local governments attempt to maximize their non-tax revenues. Third, the lack of an efficient financial system dictates that intervention by local governments into local financial markets has a strong effect on local economies. However, in the late 1990s, when a series of fiscal and financial reforms were enacted, the type of intervention by local governments changed from that in the 1980s. Roughly speaking, the main means of rent-seeking in local economies in the1980s was intervention into local financial markets. A representative example of this pattern of intervention is development in the Sunan area, labeled as "local state corporatism" by Jean Oi. Meanwhile, after the mid 1990s, local governments tended to intervene in local land markets, using the status of monopolistic supplier with regards to property rights for land. Compared with the pattern of intervention in the 1980s, rent-seeking through the land market has tended to distort the market and adversely effect economic welfare. In this case, local governments do not take any risk by themselves, but require opportunities for rent-seeking through political means and thrust the risk on ordinary people, especially peasants. In short, whether or not local governments can regain the role of "aggressive optimist" in terms of aggressive risk taker and promoter of market competition will play a key role in the sustainable development of the Chinese economy in the future.
