Why is China’s Soes Reform Always Disappointing?-a New Political Economic Explanation

Abstract : After three decades’ reform, SOEs remain as powerful but inefficient. The continual failure to adopt necessary reform leads to great disappointment amongst China watchers and requests an explanation. This paper offers a new political economic explanation to the logic of SOEs reform. It argues that the existing SOE literature is built on a conception which equates the Chinese Communist Party (the CCP) with the Chinese state. This commonly accepted conception leads to a belief that the potential economic gains to the Chinese state would be sufficient to induce the CCP to adopt necessary reform. However, this conception is deeply flawed and seriously misleading. The relation between the CCP and the Chinese state is far more complicated than it is commonly assumed and conflicts of interests arise in the case of SOEs reform. SOEs, in particular those in upstream industries are crucial to the CCP’s political survival. Economic gains to the Chinese state come at political costs to the CCP which therefore prevents the latter from adopting actions that benefit the former.

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The Calculus of Lawmaking

Abstract : We present a novel theory regarding when Chinese politicians choose to make law, and test the theory using a unique dataset on statutes, formal regulations, and informal policy directives adopted by 31 provinces and 49 cities during the 2000-2014 period. Contrary to conventional assumptions, we argue that parliamentary bodies in China are not designed to exercise independent constraints on the executive, but are intended to coordinate with political leaders to enact policy, much in the way their counterparts in majority-controlled parliamentary democracies do. Because the Chinese government does not need to enact formal law to pursue policy, however, formal legislative or rulemaking procedures are followed only when rule permanence, interagency coordination, symbolism, and/or political dominance are desired. Further, the distinction between legislation and the (far less costly) adoption of formal regulations has mainly to do with public symbolism. In light of this theory, we present evidence that provincial politicians in China are more interested in legislative symbolism than city (and national) politicians, and highlight other empirical regularities in subnational lawmaking by analyzing both (a) the determinants of the frequency of the adoption of formal legal rules and (b) policy priorities in legislative or rulemaking activities.

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Structural Change, Urban Bias and the Political Economy of Rural Land Policy in China

Abstract : Despite China's pro-market reforms in many areas, the rural land policy still features a very restrictive property right. While peasants have the right to farm their plots (which are allotted to them by village administrations), their rights to sell and/or rent the plots are severely restricted. These restrictions have been argued to entail enormous efficiency costs, adversely affecting the welfare of hundreds of millions of rural residents. However, the political incentives to remove the ownership restrictions have been lacking. In this paper, we present a political economy model of rural land policy taking into account some key characteristics of China's context. Our model features structural transformation under a political regime that caters predominantly to the interest of urban residents. We assume a government facing conflicting incentives on whether to remove restrictions on ownership of rural land. By providing further incentives for rural-urban migration, removing the restrictions releases labor to the urban sector, expands the modern sector and, as a result, increases the leader's rent base. On the other hand, the possibly large increase in labor supply following land reform increases the risk of urban unrest due to wage depression (or unemployment) in the urban sector. To take into account the two conflicting motives of the government, we consider a two-sector economy where the government's rent base depends on the size of the urban sector. Our analysis sheds light particularly on how the rapid transformation of China's economy toward more urbanization and higher productivity of the urban sector could affect the government's incentive toward the choice of rural land property right. The model shows that while a higher urbanization increases the government's incentive to remove the ownership restrictions, improvements in productivity of the urban sector have a counteracting effect.

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