Mechanism of Institutional Transformation under the Constraints of Government Interests

In the process of institutional transformation, the government is not only representative of public interest but also is an independent interest subject which features duality of interest. It is assumed that the government aims at maximizing the public interest when providing the system, it can be bound by government interest. Thus the paper discusses the mechanism of institutional transformation and draws a conclusion on the economic meaning and implication: only through breaking the government interest of the old system bring will a new and more efficient system be provided. The realistic or more optimal approach is to push the reforms in all areas at the same time by similar“steps”while considering coordination among various institutions. For the promotion of China’s current reform, the government’s own interests must be broken. In order to do that, political reforms must be promoted.