In the past 40 years, local government competition has played a very important role in China’s economic growth. However, the rapid economic growth has been accompanied by challenges in public health, public education, resources and the environment, etc. How to improve the level of public services and gather innovative elements such as human and capital with a better capacity of carrying is a realistic problem that urgently needs to be considered. The outbreak of COVID-19 epidemic is a major test for the national and local governance system. While forcing the improvement of local public service capabilities, the competition for public services around the prevention and control of the epidemic becomes visible. To clarify the realistic background and institutional constraints that lead local competition to economic growth rather than public services, and to guide public services to become a new competition yardstick for local governments through new institutional arrangements, can provide new impetus for China’s regional coordinated development, which is also the internal requirement of the modernization of national governance for local government reform.
Firstly, this paper adopts a two-region model to show that the failure of local public services to coordinate with economic growth is a natural result of local government behavior choices. Under the new incentive and restraint mechanism, it is possible to move from economic growth competition to public service competition. Secondly, based on the typical facts of local public services, around the current major adjustments in China’s productivity layout, the empirical tests find that the full flow of population and capital elements in the new era relies on the spatial network system with infrastructure and public services as carriers, and public services have become a carrier for central cities and urban agglomerations to attract core resources. Furthermore, from the central-local-social perspective, based on a two-regime spatial Durbin model with fixed effects, the results show that reforming the performance evaluation index system, expanding local government information disclosure, enhancing public opinion supervision and public participation, and stimulating the vitality of social organizations provide a realistic and feasible way to promote the establishment of a competitive relationship of “racing to the top” and “aiming high” to improve the overall public service level and promote the equalization of public services.