Between Politics and Markets: Firms, Competition, and Institutional Change in Post-Mao China

Between Politics and Markets: Firms, Competition, and Institutional Change in Post-Mao China

Between Politics and Markets: Firms, Competition, and Institutional Change in Post-Mao China

Between Politics and Markets: Firms, Competition, and Institutional Change in Post-Mao China

Synopsis

Between Politics and Markets examines how the decline of central planning in post-Mao China was related to the rise of two markets--an economic market for the exchange of products and factors, and a political market for the diversion to private interests of state assets and authorities. Lin reveals their concurrent development through an account of how industrial firms competed their way out of the plan through exchange relations with one another and with state agents.

Excerpt

Differential treatment of firms is only a partial feature of state action in the new economic game. An important development in the reform is that increasing numbers of state agents have directly engaged in profit-seeking activities. in other words, the referees have not only bent the rules according to their own preferences but have also become active players themselves. the intensification of this entrepreneurial pursuit in the reform has led to a reprioritization of the allocative and regulatory decisions of state agents, which has had an important impact on the ability of industrial firms to compete and on economic institutional change.

In this chapter, I examine how industrial firms' profit-seeking activities have been affected by those of state agents. My focus centers on the interaction between regular industrial firms and front organizations used by state agents in pursuit of profits. the latter have been set up, run, or facilitated by state agencies outside the scope of their regular administrative functions and budgets since the mid-1980s. Mostly registered as independent public enterprises in the tertiary sector, such economic entities are managed by former or incumbent officials or the persons they trust. They receive funding and favorable regulatory treatment from, or with the help of, their government sponsors, and contribute a significant part of their revenue to the slush funds of the latter. in view of their close ties with the private interests of the individuals in their sponsoring state agencies, I call these economic entities the backyard profit centers of state agencies.

I first highlight the main features of backyard profit centers. Then I explore how the behavior and performance of industrial firms have been affected by their interactions with these economic entities in three aspects: competition, transaction, and collusion. It seems clear from this account that the industrial firms that are able to minimize the menaces and capture the opportunities in such interactions have an edge over those extensively exposed to the downside. the findings add further evi-

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