THIS chapter provides the foundation for arguments made throughout subsequent chapters of the book by examining the factors that shaped local cadre behavior from the mid-1980s through the mid-1990s. The most powerful of these factors were the incentives contained in the revenue-sharing fiscal system and the cadre evaluation system. First, the fiscal system created a revenue imperative for local officials by requiring that local governments be largely self-financing, and since township governments were heavily dependent on industry to meet their revenue requirements, they had a strong incentive to promote local industrial development. At the same time, the nature of the division of fiscal revenue among levels of government and the inability of higher levels to credibly commit to fiscal contracts created incentives for local governments to evade central tax policy as a means of retaining more revenue at the local level. Second, the cadre evaluation system powerfully shaped local official behavior by linking both the remuneration and advancement of local leaders to performance on economic as well as sociopolitical norms. Economic norms centered around the promotion of industrial development, while sociopolitical norms mandated the financing and provision of public goods and thus reinforced the revenue imperative facing local leaders. These features of the cadre evaluation system, put in place beginning in 1979, are among the often-overlooked aspects of political reform – albeit not democratic political reform – that occurred at the outset of the reform process in China.