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Home arrow Political science arrow Dancing with the devil : the political economy of privatization in China

Summary and Questions

The foregoing overview illustrates a process of government policy change toward private ownership that started in the late 1970s, as well as a concurrent decline of the public sector that progressed at uneven paces across space and accelerated from the mid-1990s through the turn of the century. Without downplaying the role of entrepreneurial forces, I want to stress that accounting for the driving forces of this fundamental transformation requires close attention to the decisions and actions of political actors at both the national and local levels. The central government has been an important part of the story in that it has made a series of landmark decisions that have had sweeping and long-lasting impact on the revival and growth of private ownership. These include, among other things, legalizing self-employment and private enterprise, granting and expanding entry for FDI, initiating ownership restructuring among SOEs, and instituting legal, regulatory, and political measures that improve the ecological environment of private economic activities. Local governments, as I will show, are important players too, as most of the changes have taken place—oftentimes beyond centrally set limits—under their direct purview. To account for the mechanisms of this endogenously induced institutional change, a number of questions need to be addressed.

First, what drove the national leadership’s decision to open up the space for private economic activities and gradually expand it ? Second, what explains the tolerant and even facilitating measures that some local authorities took to make allowance for private business and foreign capital beyond what was authorized by the central leadership during the years before massive privatization began in the late 1990s? Third, why did so many public enterprises disappear from the mid-1990s through the turn of the century? Fourth, what explains the spatial and temporal variations in the pace of domestic private business growth across different jurisdictions? Fifth, what explains the sectoral and spatial spread and deepening of FDI beyond the initial entry barriers and regulatory restrictions? Sixth, what has been behind the changing organizational patterns (and the varying diluting effects on public ownership) of FDI? Last but not least, what has shaped the boundaries between public and private ownership following the tipping point of the precipitous collapse of public enterprises in the late 1990s? I will take up these questions in the ensuing chapters.

 
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