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Rule Bending for the Necessary Evil

the creation of China’s new economy in the post-Mao era was a process driven by forces converging from different directions. The increasing difficulties of expanding public enterprises, as discussed in the preceding chapter, were accompanied by an accelerating growth of genetically private enterprises. This growth increased competition, filled in the gaps left open by faltering public enterprises, and demonstrated the vitality of private ownership as an alternative to the preferred institutional choice of CCP leaders. Key to this growth were the efforts of private entrepreneurs to defy and overcome the institutional constraints in an initially hostile political environment. In so doing, they reshaped the conditions of their own existence. The players who directly faced such challenge (and opportunity) were officials of the party- state who held allocative, regulatory, and extractive power over the local economic space. How they responded out of self-i nterest calculations had an important bearing on the cost of private business and thus affected the pace of privatization before the drastic policy change at the national level in the mid to late 1990s.

The self-interest calculus of local officials was subject to the influence of the postreform system of political performance assessment and fiscal relations, which made reliance on public enterprises for economic growth their dominant strategy. As a policy choice, therefore, early privatization would most likely occur where that initially dominant strategy had faltered.1 This [1] [2]

condition, however, does not in itself establish a sufficient causal link. The reason, I argue, is that overseeing early privatization inevitably required local officials to bend the rules set by the central leadership on the private sector. Understanding how they tackled the inherent political risk of rule bending and why they did so differently in different local contexts is crucial for explaining the varying attitudes of local governments toward the private sector despite early exhaustion of sales-focused expansion of local public enterprises.

  • [1] 1. There was a concurrent mechanism at work, though. Party-state officials could collude with private business people and among themselves to create and expand the space for the private economy, as
  • [2] have discussed in a previous study (Lin 2001). Such collusion was nevertheless pervasive and spreading
 
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