Organizer: William Hurst, Northwestern University, USA Chair: Andrew C. Mertha, Cornell University, USA Discussant: Andrew C. Mertha, Cornell University, USA Political science has traditionally focused most of its attention on national governments. Comparatively less effort has been devoted to understanding subnational institutions and central-local relations. The study of Chinese politics has been something of an exception to this rule, however, as many scholars have taken pride in the degree to which their studies expose something beyond elite machinations or broad debates in Beijing. What we seek to fill is a gap that we perceive in much of the scholarship in the last decade that has neglected important micro-level processes in subnational political economy and governance. We know a great deal about the broad contours of local debt and access to credit, state enterprise ownership reform, village elections, and public goods provision. But we do not yet have a clear picture of exactly how these processes have played out across different types of firms and localities or of precisely how and why what happened in Shanghai or with large conglomerates may be different from how things played out with county-level firms or in villages across Shaanxi or Sichuan.
Our papers adopt such an approach to address, respectively, the effects of Chinese state enterprise ownership reform in very different types of firms, the comparative structure of bond markets in China and India and their effects on local access to credit, the design and functioning of Chinese local governments in their oversight of diverse forms of rural credit cooperatives, and the outsourcing of local public goods provision in an urban setting.
NB: Paper is Co-Authored with Chih-shian Liou (Presenter 2)
Ever since the earliest ideas were put forward in the 1980s, reform of state-owned enterprises (SOEs) has been among the most contentious and difficult policy problems for Chinese leaders. Over the past two decades, China has lurched from an initiative of consolidating massive enterprise groups modeled on Korean chaebol, to a plan to close down or sell of smaller firms while retaining state ownership of large ones, to a new set of policies aimed at promoting corporate governance reform while strengthening the state sector relative to private industry. The basic story of how and why these policies were adopted and the manner in which the central state pressed for their implementation is well known. The micro-processes through which individual firms and localities were effected, however, are not as well understood. This paper examines two sets of cases in the construction and building materials sector - a major multi-national conglomerate controlled directly by the central state and a set of small local state-owned firms in a country in China’s “Upper Changjiang” region - the late 1990s and first half of the 2000s to analyze micro-level changes brought about through the policy of “grasping the large, while releasing the small”. Through this analysis, we shed light back onto the dynamics underpinning more macro shifts in Chinese political economy.
NB. Paper is Co-Authored with William Hurst (Presenter 1)
Ever since the earliest ideas were put forward in the 1980s, reform of state-owned enterprises (SOEs) has been among the most contentious and difficult policy problems for Chinese leaders. Over the past two decades, China has lurched from an initiative of consolidating massive enterprise groups modeled on Korean chaebol, to a plan to close down or sell of smaller firms while retaining state ownership of large ones, to a new set of policies aimed at promoting corporate governance reform while strengthening the state sector relative to private industry. The basic story of how and why these policies were adopted and the manner in which the central state pressed for their implementation is well known. The micro-processes through which individual firms and localities were effected, however, are not as well understood. This paper examines two sets of cases in the construction and building materials sector - a major multi-national conglomerate controlled directly by the central state and a set of small local state-owned firms in a country in China’s “Upper Changjiang” region - the late 1990s and first half of the 2000s to analyze micro-level changes brought about through the policy of “grasping the large, while releasing the small”. Through this analysis, we shed light back onto the dynamics underpinning more macro shifts in Chinese political economy.
Experiences of a wide range of decentralized countries suggest fiscal indiscipline among subnational governments can give rise to national indebtedness and macroeconomic instability. A large body of literature drawing almost exclusively upon experiences of countries with competitive elections and multiparty structure advocate that design of political institutions, namely electoral incentives and political party structure, can help provide solutions to fiscal indiscipline. This leaves the case of authoritarian countries largely unexplained even though they are not unscathed from problems associated with local government soft budget constraints. Using China as a case study, this paper makes two contributions to the existing literature: first, it extends the literature on hardening budget constraint beyond democracies where electoral incentive and multiparty competition are unavailable to enforce fiscal discipline; second, it reevaluates the validity of Market-Preserving Federalism that has held China up as an exemplar of how its fiscally decentralized structure has promoted growth. The Chinese Communist Party’s cadre evaluation system and dual (tiao-kuai) accountability system have made it an imperative for local officials to augment fiscal revenue and allow them to tap resources at credit institutions. Fiscal indiscipline is manifested in mounting local government debt, the lion’s share of which is unrepaid loans owed to local credit institutions. The central government was forced to bail out the credit institutions that are “too big to fail”. The center has also rescued local governments by implications since the credit institutions were among their largest creditors.
Controlling the allocation of credit is an important source of power and a way to reduce the cost of funds to those who have such control. At the same time, an important driver of economic development is the ability to make large, long-term investment. This requires access to credit. Who gets credit? And, under what conditions? The structure of bond markets influences the answers to these questions, and affects the fiscal capacity, developmental prospects, and ultimately the political autonomy of sub-national governments at various levels. This relationship between bond markets and the character of federalism and center-local authority is often overlooked. This paper compares changes in the institutions of bond finance in China and India over the last twenty-five years. Contrary to arguments that there is an emerging de facto federalism or localism in China, developments in bond finance suggest otherwise, confirming the view of other finance-sector analyses that, formally at least, there has been a powerful, persistent, centralization trend afoot there. In India, the evidence from the structure of bond finance reflects the broader decentralization trends in that country. This paper offers a political explanation for these outcomes, based on differences in: 1) international variables (these countries’ external macro-economic positions), and 2) domestic variables (the configuration of dominant coalitions and the structure of property rights).
As part of a larger process of political reform in China, the CCP's "small state, big society" reforms sought to withdraw the local state from society and encourage societal actors to fill that void. These reforms have gradually encouraged a changing state-society relationship at the local level in China, where social actors increasingly take over aspects of the local state's former responsibilities. This article examines the changing state-society relationship in China empirically through a case study of Shanghai, where the local government is formally outsourcing public goods projects to non-profit organizations. I examine local government outsourcing of public-goods provision to civil society groups, concentrating on the learning process for both partners regarding social versus state capabilities and perspectives.
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