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


since may 1, 1991, every day at dawn a special squad of the People’s Armed Police Force has been performing a solemn and elaborate ceremony to raise the Chinese national flag at Tiananmen Square in Beijing. It is part of a concerted effort by the CCP to promote nationalism. Sometimes televised live, the ceremony always attracts a big crowd of spectators. Ironically, many of those who watch it on any given day do not know the original meaning of the national flag, as can be verified by random and repeated surveys.1 In fact the CCP has been largely reticent about the matter. The National Flag Law (1990), for example, makes no mention of what exactly the five-star pattern means.[1] [2] Nor can an explicit and uniform answer be found in any official document disseminated for use by schools and media organizations in civic education and political propaganda related to this subject.[3] The unforthcoming attitude of the CCP toward fully informing Chinese citizens about the historical origins of the country’s best-known political symbol is indicative of the ambivalence and uneasiness with which the Party has overseen the growth of private ownership and the spread of capitalism in the post-Mao era. In struggling for regime survival, the communist leadership has had to make increasing compromises on its basic ideological principles, including the dominance of public ownership and socialism.

This book offers an account of how and why this has happened. I focus on the behavior of political actors. The basic premise of my analysis is that jobs— especially nonfarm jobs—and revenue are essential concerns of contemporary rulership. Deficiencies in addressing these concerns under the Maoist system were among the factors leading to the start of economic reforms in the late 1970s. That undertaking has served as a tool for the post-Mao rulers to tackle the twin imperatives by redefining economic institutions according to their own priorities and preferences, and by realigning the behavior of political and economic actors with the new rules of the game. The result is an extraordinary span of fast economic growth for nearly four decades.

The remaking of the rules governing economic activities, however, has not always followed the political will of the CCP leadership. It is an evolutionary and interactive process where institutional rules—both preexisting and new—have unintended consequences that subvert institutional stability and lead to paths deviating from the intended course. Such consequences may stem from compliant behavior, noncompliant behavior, or both among subordinate actors in pursuit of self-interest. I have shown that the compliant behavior of many local officials to promote the marketization and expansion of public enterprises during the 1980s and early 1990s was closely coupled with a growth of moral hazard, which gradually weakened the financial and organizational health of these enterprises and thereby contributed to their demise. I have also shown that in the reform, private enterprises and foreign capital were able to re-emerge and expand partly because the formal rules were bent in their favor by many of those holding regulatory and gatekeeping authorities, who saw the benefits of doing so as complementing or outweighing those of compliant behavior. Such noncompliance inevitably involved political risks/costs, which nonetheless were often contained with various justifications in the name of addressing the formal agendas of the party-state. As more and more public enterprises turned from carriers of the twin mission (of employment and revenue) into sinking ships of personnel and financial liabilities, the tenaciously growing private sector became an increasingly indispensable lifeboat for the CCP’s political rule. Ultimately, expediency and desperation prevailed over principles, resulting in massive sell-offs of public enterprises and substantial liberalization and institutionalization of the space for private ownership.

  • [1] With the help of research assistants I conducted six small-sample surveys (n = 30) on this issue atTiananmen Square on May 27, 2007, September 12, 2007, September 25, 2008, March 2, 2009, February15, 2010, and April 28, 2011. The percentages of respondents (aged fifteen or above) failing to give a correct answer are 87%, 93%, 73%, 83%, 97%, and 83% respectively.
  • [2] As described in the introduction, two of the four small stars were originally meant to represent capitalist classes.
  • [3] In an explanatory note on China’s national flag, national emblem and capital city, the NationalPeople’s Congress completely omits the rationale offered by the designer of the national flag and insteaddepicts the five-star pattern as symbolizing the “great solidarity of all the revolutionary people under theleadership of the CCP” ( The same omission is made in an article on the national flag posted at a web page of the officialXinhua News Agency ( The only full account froman official source about the origins of the flag design is offered in an article posted at a web page of thePeople’s Daily, which is nevertheless listed as an obscure information item under the heading of “WhatHappened in History Today” ( Less authoritative accounts from various nonofficial sources also exist, though there is no “standard version” defined by the central authority for such accounts.
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