To Become Homo Economicus: the Communist Party’s Embrace of China’s Monopolistic Sectors

Yunzhi Hu (Peking University)
Yang Yao (Peking University)

Abstract: How has the Chinese Communist Party (CCP) maintained its economic influence during China’s transition from a planned economy to a market economy? Using individual-level data from urban China, we argue that one way the CCP has managed to maintain its economic power is by co-opting employees in monopolistic sectors during the transitional period. We base this on three findings: (1) CCP members who have joined the Party before they start their career are more likely to obtain a job in monopolistic sectors. Also, compared to employees in competitive sectors, employees already in monopolistic sectors are more likely to join the CCP. (2) CCP members in monopolistic sectors enjoy premiums in earnings and greater opportunities for promotion compared to their counterparts in competitive sectors and to non-CCP members in monopolistic sectors. As a result CCP members in competitive sectors have incentives to switch to monopolistic sectors and non-CCP members already there want to join the CCP. (3) Further investigation suggests a bilateral selection during the Party’s recruiting process: People working in monopolistic sectors are more eager to submit applications to the CCP organization, and those working in monopolistic sectors find it easier to get accepted. The results are robust to various specifications including OLS, fixed-effects and endogenous switching model. This implies that the CCP organization has adapted its recruiting criteria to favor those who control economic rents.