Abstract
This article investigates a natural experiment in China’s Zhejiang province in order to identify why local officials across the province had varying motivations and capacities for protecting and promoting private entrepreneurship after 1949. As the result of communist revolution before 1949, all Zhejiang’s counties were divided into two categories in 1949: guerrilla counties and non-guerrilla counties. In guerrilla counties, local cadres were marginalized by the newly established provincial power structure and faced huge political insecurity, while their counterparts in non-guerrilla counties could rely on the patron–client network that was built by the provincial leadership for promotion. The local cadres in guerrilla counties were forced to cultivate popular support from below in order to guarantee their political survival, i.e., they looked after local economic interests by supporting local private sector development in exchange for the grassroots’ support. This mutual protection between local elites and potential private entrepreneurs explains why, relative to the non-guerrilla counties, the private sector was effectively protected after 1949 and therefore better developed in the long run. We argue that the analytical framework developed by this research can go beyond Zhejiang to apply to other provinces.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
By grassroots constituencies, we do not necessarily mean the ordinary people. In China’s context, they could also include local low-level officials, such as county, township, and urban district level cadres, and merchants, etc.
According to this research, many authoritarian countries use a myriad of formal democratic institutions, such as legislatures, multiple parties, elections, federalism, and so forth, as the credible power-sharing scheme to maintain the alliance between the dictator and other ruling elites, co-opt opposition, deter rebellion, and mobilize mass support (Gandhi and Przeworski 2007; Magaloni and Kricheli 2010; Myerson 2008; Svolik 2009). Empirical studies have found these formal institutions are associated with national economic performance, such as investment and economic growth (Gandhi 2008; Gehlbach and Keefer 2009; Wright 2008).
We thank one anonymous reviewer for pointing this out.
In this research, the private sector refers to those indigenous domestic private businesses and firms.
Local variation in economy is not specific to Zhejiang. Scholars of China’s political economy are well aware of the fact that there are a variety of local development models in China. Kellee Tsai (2007: Ch 6) discusses in detail different private sector development models across China. We argue in the “Conclusion” section that the theoretical framework we develop here could be used to explain the geographic economic variations in a wider context beyond Zhejiang.
For example, Ningbo received large state investments (in the form of infrastructure such as ports), relative to Wenzhou and Taizhou, but it is also graced with a flourishing private sector. The contrast of Wenzhou vs. Ningde (both received negligible state investments) in footnote 9 also shows that the impact of the state investments is not that large.
For example, Jiaxing is opposite to Ningbo, separated by a narrow bay. But Jiaxing lagged far behind Ningbo in economic development. Similarly, the Ningde area in Fujian province borders Wenzhou. Both are mountainous districts. In most of the post-1949 period, both had poor infrastructure, such as ill-kept roads and railways, was geographically close to Taiwan, and received little investments from the state. Despite the similarity, Ningde is much poorer than Wenzhou.
For a detailed account of the local guerrillas fighting in southern China, including in Zhejiang province, during the period of 1935–1937, see Benton (1992).
Strictly speaking, these three only worked in the Eastern Zhejiang Guerrilla Area for a short period during the Anti-Japanese War. Among them, only Yang was a local.
This was reflected by the average proportion of the local cadres who held positions of county party and vice-party secretaries of a county between 1949 and 1966. In 80 % of all 64 counties with data availability, the proportion is less than 20 %, while in half of the counties the proportion is less than 10 %. The highest figure was found in Yuhuan county (35 %). The data are from various county gazetteers collected by the authors. For space reason, we do not report the detailed results. They are available on request.
For a general account of the evolution of the Cultural Revolution in Zhejiang, see Forster (1990a).
Most of the narratives of the deviant economic activities in this section are drawn from different county gazetteers, official publications, and governmental archives in various counties collected by the authors. Some are from the field interviews conducted by the authors from 2008 to 2011. The interviewees include government and party officials, party historians, private entrepreneurs, and ordinary peasants and villagers, etc.
For example, in one village of Liushi township in Yueqing County, the work team stayed in the village for 3 months but did not uncover any negative evidence against the village cadres because the village residents who had received private plots were satisfied with their local leaders and therefore had no motivation to cooperate with the work team. Interview with the old village residents at Yueqing county, May 2009.
In contrast to Liushi, Lishui county’s local officials followed the laws from above to the letter, with the result that the local people held a massive grudge against them. They paid a heavy price for their bullying behaviors in past years as they were criticized by the struggle meeting organized by the dissident villagers in siqing. Interview with party historians at Lishui county, April 2008.
For a discussion of the radical agricultural policies during the CR, see Zweig (1989).
Many scholars, e.g., Tsai (2007), Whiting (2001), etc., have noted the widespread existence of such phenomena in the reform and dubbed them “wearing red hats.” Our research shows that the wearing red hats phenomena are actually the continuation of the practices that had already existed in the early 1970s.
In Yueqing county, the rebel group backed by the guerrilla cadres defeated the old southbound leadership and then the faction supported by the military. Interview conducted in April 2009 in the county with party historians and old village residents.
The provincial officials in office since the 1990s were mainly recruited from Hangzhou-Jiaxing-Huzhou, which are typical non-guerrilla regions, as well as from the province-affiliated SOEs.
As mentioned before, the official statistics very likely overestimate the weight of collective TVEs because private enterprises usually registered their firms as collective enterprises (wearing a red hat) or as the appendage of government agencies (hang-on enterprises) to avoid potential political risks associated with private businesses. For introductions about how these coping strategies were widely used by private entrepreneurs after reform until the early 1990s, see Liu Y-L (1992), Oi (1995), and Tsai (2007). For how these strategies were in operation particularly in Zhejiang, see Cao (2006) and Zhang and Jin (2005).
Some counties are missing in our dataset because we cannot get relevant data. In addition, we do not include island counties such as Shengsi county and Daishan county since their economy relies heavily on the fishing industry. Jingning county was omitted from our analysis because of its special political status in Zhejiang as a minority autonomous county.
This research only includes indigenous domestic non-state industrial enterprises. As another robust test, we also try the regression using the growth rate of per capita GDP as the dependent variable, which generates very similar results as what we report in this research.
Using the non-state per capita industrial output is likely to overestimate the true size of the private sector. But the results in Panel B still give unbiased estimation of the true parameter without measurement error.
The representative political figures of this group include Jiang Weiqing, Xu Jiatun, Peng Chong, and so on.
References
Bernstein T, Lu X. Taxation without representation in contemporary rural China. Cambridge: Cambridge University Press; 2003.
Benton G. Mountain fires: the red army’s three-year war in south China, 1934–1938. Berkeley: University of California Press; 1992.
Cao Z. The development of private economy and reform on state-owned property rights (Minying Jingji fazhan and Gongyou Jingji Chanquan Biange). Beijing: Jingji kexue Press; 2006.
Cai H, Treisman D. Did government decentralization cause China’s economic miracle? World Poli. 2006;58:505–35.
Dittmer L. Chinese informal politics. China Q. 1995;34:1–34.
Easter G. Personal networks and postrevolutionary state building: Soviet Russia reexamined. World Poli. 1996;48(4):551–78.
Forster K. Rebellion and factionalism in a Chinese province: Zhejiang, 1966–1976. Armonk: M.E. Sharpe, Inc; 1990a.
Forster K. The Wenzhou model for economic development: impressions. China Info. 1990b;5:53–64.
Forster K. Localism, central policy, and the provincial purges of 1957-1958: the case of Zhejiang. In: Cheek T, Saich T, editors. New perspectives on state socialism in China. New York: M.E. Sharpe; 1997. p. 191–232.
Forster K. Zhejiang in reform. Sydney: World Peony Ltd; 1998.
Gandhi J. Political institutions under dictatorship. Cambridge: Cambridge University Press; 2008.
Gandhi J, Przeworski A. Authoritarian institutions and the survival of autocrats. Comp Poli Stud. 2007;40(11):1279–301.
Gehlbach S, Keefer P. Investment without democracy: ruling-party institutionalization and credible commitment in autocracies. J Comp Econ. 2009;32:123–39.
Haber S. Authoritarian government. In: Weingast BR, Wittman D, editors. The Oxford handbook of political economy. New York: Oxford University Press; 2006.
Huang M. Blue book of China’s non-state-owned economy 2006–2007. Beijing: Social Science Academic Press; 2007.
Huang Y. Capitalism with Chinese characteristics: entrepreneurship and the state. Cambridge: Cambridge University Press; 2008.
Liu A. The “Wenzhou model” of development and China’s modernization. Asian Survey. 1992;32:696–711.
Liu Y-L. Reform from below: the private economy and local politics in the rural industrialization of Wenzhou. China Q. 1992;130:293–316.
Lu X. Booty socialism, bureau-preneurs, and the state in transition: organizational corruption in China. Comp Poli. 2000;32(3):273–94.
Magaloni B, Kricheli R. Political order and one-party rule. Ann Rev Poli Sci. 2010;13:123–43.
Myerson RB. The autocrat’s credibility problem and foundations of the constitutional state. Am Polit Sci Rev. 2008;102:125–39.
Nathan A. A factionalism model for CCP politics. China Q. 1973;53:33–66.
Oi JC. Communism and clientelism: rural politics in China. World Poli. 1985;37(2):238–66.
Oi JC. Fiscal reform and the economic foundations of local state corporatism in China. World Poli. 1992;45(1):99–126.
Oi JC. The role of the local state in china’s transitional economy. China Q. 1995;144:1132–49.
Parris K. Local initiative and national reform: the Wenzhou model of development. China Q. 1993;134:242–63.
Perry EJ, Wong C. The political economy of reform in Post-Mao China. Cambridge: Harvard University Press; 1985.
Shih V. Factions and finance in China: elite conflicts and inflation. New York: Cambridge University Press; 2008.
Shih V, Adolph C, Liu M. Getting ahead in the communist party: explaining the advancement of central committee members in China. Am Poli Sci Rev. 2012;106(1):166–87.
Svolik M. Power sharing and leadership dynamics in authoritarian regimes. Am J Poli Sci. 2009;53:477–94.
Tsai K. Adaptive informal institutions and endogenous institutional change in China. World Poli. 2006;59(1):116–41.
Tsai K. Capitalism without democracy: the private sector in contemporary china. Ithaca: Cornell University Press; 2007.
Whiting S. Power and wealth in rural China: the political economy of institutional change. New York: Cambridge University Press; 2001.
Wright J. Do authoritarian institutions constrain? How legislatures affect economic growth and investment. Am J Poli Sci. 2008;52(2):322–43.
Zhang S, Jin X, editors. Case studies in China’s institutional change, volume of Zhejiang. Beijing: Zhongguo Caizheng Jingji Press; 2005.
Zweig D. Agrarian radicalism in China, 1968–1981. Cambridge: Harvard University Press; 1989.
Author information
Authors and Affiliations
Corresponding author
Appendix
Appendix
Rights and permissions
About this article
Cite this article
Zhang, Q., Liu, M. The Political Economy of Private Sector Development in Communist China: Evidence from Zhejiang Province. St Comp Int Dev 48, 196–216 (2013). https://doi.org/10.1007/s12116-013-9127-x
Published:
Issue Date:
DOI: https://doi.org/10.1007/s12116-013-9127-x