Dancing with the Devil: The Political Economy of Privatization in China

From 1978 through the turn of the century, China was transformed from a state-owned economy into a predominantly private economy. This fundamental change took place under the Chinese Communist Party (CCP), which is ideologically mandated and politically predisposed to suppress private ownership. In Dancing with the Devil, Yi-min Lin explains how and why such an ironic and puzzling reality came about. The central thesis is that private ownership became a necessary evil for the CCP because the public sector was increasingly unable to address two essential concerns for regime survival: employment and revenue. Focusing on political actors as a major group of change agents, the book examines how their self-interested behavior led to the decline of public ownership. Demographics and the state's fiscal system provide the analytical coordinates for revealing the changing incentives and constraints faced by political actors and for investigating their responses and strategies. These factors help explain CCP leaders' initial decision to allow limited private economic activities at the outset of reform. They also shed light on the subsequent growth of opportunism in the behavior of lower level officials, which undermined the vitality of public enterprises. Furthermore, they hold a key to understanding the timing of the massive privatization in the late 1990s, as well as its tempo and spread thereafter. Dancing with the Devil illustrates how the driving forces developed and played out in these intertwined episodes of the story. In so doing, it offers new insights into the mechanisms of China's economic transformation and enriches theories of institutional change.

Table of Contents:
Introduction Privatization and Institutional Change: Toward an Eclectic Perspective Driving Forces of Privatization Political Actors as Change Agents: The Main Storyline Note on Statistical Analyses, Data Sources and Chinese Materials 1. The Changing Fate of Private Ownership since 1949 Socialist Transformation and the Mao Era From Getihu to "Equal Protection" of Public and Private Property Rights Reversal or Moderation of Privatization? Broad Trends of Change Summary and Questions 2. Demographic Pressures Structure and Change of the Post-1949 Population Buildup of Employment Pressures Labor Market: Occupational and Spatial Movements Ageing and Old Age Support Summary 3. The Evolving Structure of Public Finance "Unified Revenue and Spending" Fiscal Contracts Revenue Partitioning Implications 4. Careerism and Moral Hazard in Early Marketization Large Is Beautiful: Political Performance Assessment under Economic Decentralization The TVE Spectacle The SOE Sideshow Summary 5. Rule Bending for the Necessary Evil Uneven Paces of Early Privatization The Wenzhou Story Retold Beyond Wenzhou Summary 6. FDI and Privatization Centrally Imposed Constraints and Local Rule Bending FDI Entry Mode and Resource Dependence Bi-polar Concentration of Risk Taking Summary 7. The Tipping Point and Beyond The Triggers The Political Bandwagon From Industrial Development to Urbanization Asset Stripping and Insider Control The End Game: SASAC and the Remaining SOEs Summary Conclusion Institutional Stability and Unintended Consequences of Rule Compliance Non-compliance and Political Risk Management Path Dependence in Endogenous Institutional Change Bibliography

About the Author :
Yi-min Lin is Associate Professor in the Social Science Division, Hong Kong University of Science and Technology. His research interests include political economy, organizations and institutions. He is also the author of Between Politics and Markets: Firms, Competition, and Institutional Change in Post-Mao China, published by Cambridge University Press.

Review :
"The author carefully studies the interactions among the political actors in this important era and offers insights on institutional change using China as a case study. The title is particularly suitable for readers interested in the political economy of modern China. Accessible to all readers." -- CHOICE "Yi-min Lin's study illuminates the underlying economic and political forces that led the Chinese Communist Party to tolerate and even encourage the growth of private businesses, which he estimates accounted for about two-thirds of China's economic activity by 2014." -- Nicholas R. Lardy, Anthony M Solomon Senior Fellow, Peterson Institute for International Economics "This carefully researched book offers a new and compelling explanation on how and why public ownership has declined in socialist China over the last 30 some years." -- Shaoguang Wang, Department of Government and Public Administration, Chinese University of Hong Kong