Participatory Autocracy: Private Entrepreneurs,
Legislatures, and Property Protection in China
ARCHIVES
by
M ASSACHUSETTS INSTITUTE
OF TECHNOLOGY~
Yue Hou
B.A. Economics and Mathematics
DEC 0 7 2015
Grinnell College, 2009
LIBRARIES
SUBMITTED TO THE DEPARTMENT OF POLITICAL SCIENCE
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE
OF
DOCTOR OF PHILOSOPHY
AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
SEPTEMBER 2015
@ 2015 Massachusetts Institute of Technology. All rights reserved
Signature of Author.
Signature redacted . .
Department of Political Science
Certified by .......
Signature redacted
August27, 2015
Lily L. Tsai
Associate Professor of Political Science
Accepted by ....
Signature redacted
Thesis Supervisor
Ben Ross Schneider
Ford International Professor of Political Science
Chair, Graduate Program Committee
2
Participatory Autocracy:
Private Entrepreneurs, Legislatures, and Property Protection in China
by
Yue Hou
Submitted to the Department of Political Science on August 27, 2015
in Partial Fulfillment of the Requirements
for the Degree of Doctor of Philosophy in Political Science
ABSTRACT
This dissertation addresses the puzzle of why individuals in authoritarian systems
seek office in formal institutions, which are often dismissed as weak and ineffective. I
argue that individuals seek office mainly to protect their property from government
expropriation in China. In contrast to prior work, I argue that instead of being
passive takers of existing institutional arrangements, private entrepreneurs in China
actively seek opportunities within formal institutions to advance their interests. By
holding seats in local legislatures, entrepreneurs signal to local bureaucrats that they
have access to higher-level government officials to report illicit predatory behavior.
This signal, in turn, deters local officials from demanding bribes, ad hoc taxes, and
other types of informal payments.
I deploy both qualitative and quantitative methods to support the argument.
First, to understand state-business relations in China, I conducted 106 in-depth interviews with private entrepreneurs, government officials, and local scholars in five
provinces during 16 months of fieldwork. I show that even while government expropriation is an endemic problem, private entrepreneurs who are also legislative
officeholders are less likely to experience severe expropriation. Second, using a nationally representative survey of private entrepreneurs, I quantitatively show that
entrepreneurs who have seats in the local legislatures on average spend 25 percent
less on informal payments to local officials compared to entrepreneurs without such
a political status.
To investigate the causal link between formal office and protection of property,
I conducted field experiments on Chinese bureaucrats to understand how local bureaucracies respond to constituents with connections to formal institutions. These
experiments involved directly contacting officials to examine how they respond to
realistic messages from citizens. Using an experimental manipulation, I demonstrate
3
that Chinese bureaucrats are 35 percent more likely to respond to a constituent with
connections to formal institutions.
These findings challenge prominent theories of authoritarian politics, which see
authoritarian institutions as instruments to arrange power sharing, rent distribution,
or information collection. Adopting an "institution as resource" perspective, I show
that within authoritarian institutions, entrepreneurial actors can seek opportunities
to advance their interests and improve their well-being through formal means, even
when these formal institutions are relatively weak.
Thesis Supervisor: Lily L. Tsai
Title: Associate Professor of Political Science
4
To my family: Zeng Xuhua, Hou Yunlong, Zhu Zaixi, Tang Guoquan,
Tang Meirong, and Hou Jialin
5
6
.................................................
Acknowledgments
-
I have grown tremendously during my six years at MIT and have accumulated a
large debt of gratitude along the way.
First and foremost, I would like to express my sincere gratitude to Lily Tsai,
my committee chair. Lily has provided unparalleled guidance, encouragement, and
support since the moment she called me and welcomed me to the program. She
took me to China my first summer at MIT and I learned from her how to conduct
careful fieldwork and to understand my own country through an analytical lens. She
has believed in me and in this project from the beginning and has been my closest
reader, providing valuable comments and moral support throughout. I cannot thank
her enough for her mentorship and support. David Singer was my advisor for the
first two years and - despite my (hopefully temporary) "defection" from IPE
he has continued to serve as an advisor and a supporter. His insights helped me
frame this dissertation and keep it relevant for a greater audience. Yasheng Huang
is an authoritative figure in Chinese political economy. He not only serves as a
sounding board for my arguments, but also generously provided me with the private
entrepreneur survey data, which constitutes a main empirical component of my
dissertation. Danny Hidalgo joined the committee last, but his contribution has
nevertheless been essential. His office is next door to mine and whenever I have had
a method question I would go ask him. He has constantly given me new ideas to
test and taught me to approach problems with rigorous design. I will always see my
advisors as role models; I will aspire to bring their levels of rigor and depth to my
own scholarship and to become the kind of teacher to my students that they have
been to me.
I would like to thank many other faculty members in the department for their
mentorship. Adam Berinsky and Teppei Yamamoto are also my go-to people for
advice and feedback - I go to them so often that many think that they are also on
my committee. Rich Nielsen and Lucas Stanczyk have also been frequent sources of
guidance. Suzanne Berger, Kathy Thelen, and Fotini Christia have served as role
models of great female scholars, and they have all been extremely generous with their
time and advice. I would also like to express my gratitude to Gina Bateson, Andrea
Campbell, Devin Caughey, Taylor Fravel, Jens Hainmueller, In Song Kim, Chap
Lawson, Evan Lieberman, Rick Locke, Melissa Nobles, Mike Piori, Dan Posner, Ben
Schneider, Ed Steinfeld, Charles Stewart, and Chris Warshaw.
I could not have asked for a better cohort of colleagues: Chris Clary, Jeremy Ferwerda, Chad Hazlett, David Hyun-Saeng, Nicholas Miller, Krista Loose, and Joseph
Torigian. Not only are they all talented political scientists, they have provided
good humor throughout the journey. I would also like to thank Greg Distelhorst,
Yiqing Xu, Laura Chirot, Martin Alonso, Elizabeth Dekeyser, James Dunham, Dan
7
de Kadt, Dean Knox, Jia-chuan Kwok, Elisa Heaps, Joyce Hodel, Dian Li, Akshay Mangla, Michele Margolis, Ben Morse, Renato Oliveira, Tom O'Grady, Kai
Quek, Blair Reed, Tesalia Rizzo, Leah Rosenzweig, Mike Sances, Kyoung Shin,
Leah Stokes, Andreas Wiedemann, Weihuang Wong, and Ketian Zhang for their
camaraderie and insights.
I thank Paige Bollen, Janine Claysmith, Pam Clements, Maria DiMauro, Diana
Gallagher, Fuquan Gao, Daniel Guenther, Paula Kreutzer, Scott Schnyer, My Seppo,
Tobie Weiner, and Susan Twarog for their friendship and help.
I am very grateful to my Grinnell professors, especially Eliza Willis, Janet Seiz,
and Emily and Tom Moore for encouraging me to pursue political science. I thank
Don and Doris Sundell for having provided me with a loving home away from home.
Outside the department, I have received comments and support from Daron Acemoglu, Oscar Almen, Yuen Yuen Ang, Lisa Blaydes, John Carey, Ling Chen, Shuo
Chen, Bruce Dickson, Mary Gallagher, Xiang Gao, Jennifer Ghandi, Jingkai He,
Junzhi He, Wenkai He, Yusaku Horiuchi, Jeremy Horowitz, Biliang Hu, Kyle Jaros,
Junyan Jiang, Gary King, Daniel Koss, James Kung, Pierre Landry, Horacio Larreguy, Xiaojun Li, Hanzhang Liu, Lizhi Liu, Peter Lorentzen, Hao Liu, Xiaobo
Lu, Chris Lucas, Melanie Manion, Tianguang Meng, Gwyneth McClendon, Daniel
Moskowtiz, Ben Nobles, Ben Olken, Steve Oliver, Jennifer Pan, Liz Perry, Rahul
Sagar, Tony Saich, Paul Schuler, Niloufer Siddiqui, Rory Truex, Jeremy Wallace,
Erik H. Wang, Yanbo Wang, Yuhua Wang, Changdong Zhang, Dong Zhang, and
Shukai Zhao.
I am grateful for the financial support of the MIT Political Science Department,
MIT Center of International Studies, and the Chiang Ching-kuo Foundation for
International Scholarly Exchange Doctoral Grant. I thank Jennifer Morales for
copyediting and Yao Yao of Zhejiang University for her research assistance.
I have accumulated a group of talented and supportive friends at MIT and Cambridge, in particular I thank Wanli Fang, Pian Shu, Lan Wei, Yushan Jiang, Yuan
Xiao, Steve Voinea, Lilei Xu, Yang Sun, Xitong Li, Luo Zuo, Kexin Zheng, Song Lin,
Jingsi Xu, Taiyi Sun, Zhifei Ge, Lupeng Liu, Yang Du, Qian Liu, Dimitrios Tzeranis,
Le Cong, Zawadi Lemayian, Yang Liu, and especially Hang Chen for being there for
me.
I am also fortunate to have maintained close contact with my "older" network
of friends, who are now in many different parts of the world but nevertheless have
continued to support me and inspire me, especially Deng Dui, Song Zhiyuan, Le Yue,
Li An, Li Lemin, Long Fangzhou, Wu Xuan, Zhao Wei, Zhou Mi, Duan Dawei, Liang
Yi, Wutyi Ang, Phoebe Leung, Haleema Shehryar, Wang Nan, Natalie Michelson,
Steven Parker, and the Rees family.
Last but not least, I thank my wonderful family. My aunts, uncles, and cousins
Tang Lirong, Tang Yuehua, Hou Huazhong, Hou Xiaoyu, Hou Xiaoli, Wang Xing, Li
Qian, Hou Weixin, and Hou Tian, most of whom are living in Hunan, have always
welcomed me when I am home and taken care of my parents and grandparents
while I am away. I own them a tremendous debt. My grandparents, Zeng Xuhua,
Hou Yunlong, Zhu Zaixi, and Tang Guoquan, have given me endless care and love.
8
My grandpa Yunlong, who encouraged me to watch the news while having dinner
with him starting about when I was six, was the earliest influence on my interest
in political and social issues. Finally I thank my parents, Tang Meirong and Hou
Jialin, for their unconditional love, support, and encouragement. Even while raising
me, they have managed to accomplish many enormous achievements in their own
careers. Because of the work they do, they have provided me with great insights on
the Chinese economy and are always interested in learning about my work. Their
diligence, curiosity, and open-mindedness have made me who I am. This dissertation
is dedicated to my family.
9
Contents
Abstract
3
Acknowledgments
7
Chapter 1 Introduction
11
Chapter 2 China's Legislative System
46
Chapter 3 Motivations to Run
72
Chapter 4 Protection from Predation
124
Chapter 5 Legislator Status as a Political Capital Signal
155
Chapter 6 Conclusion
195
Bibliography
209
10
Chapter 1
Introduction
"The fundamental economic dilemma of a political system is this: A government that
is strong enough to protect property and enforce contracts is also strong enough to
confiscate the wealth of its citizens." (Weingast 1993)
A small Chinese city named Hengyang, located in the central province
of Hunan, made national news in early 2013.
A bribery report was
leaked through a China Central Television (CCTV) reporter's microblog
account: A Hunan provincial legislator, Zuo Jianguo, chairman of the
board of a real estate company, was accused of having bribed her way into
the provincial legislature (the provincial people's congress) by buying
votes from prefectural lawmakers in Hengyang. The Chinese legislatures
are called people's congress, which run both at the national and subnational level. Chinese legislators are called people's congress deputies.
In China, citizens directly elect legislators in their county and district.
All higher-level legislators are elected by the corresponding lower-level
legislators. For example, county and district legislators elect prefectural
legislators, who then elect provincial legislators.
Provincial legislators
then elect national legislators (National People's Congress deputies). It
was reported that by buying votes from each of the county-level legisla-
11
tors at the cost of 3,000 yuan per person, Zuo secured a prefectural seat
at the total price of 700,000 yuan.1 In the same year, through buying
votes from each and every prefectural legislator, she further secured a
seat at the provincial congress assembly. The total amount spent bribing these voters came to an alarming three million yuan.2 Interestingly,
the whistle-blower, Huang Yubiao, who tipped off the CCTV reporter,
was himself a provincial candidate. He also bribed the prefecture-level
voters, but failed to get a seat in the provincial assembly. 3
It turned out that Zuo and Huang were not the only candidates who bribed their
local legislators to get elected to the higher-level legislature.
After receiving the
bribery report, the Hunan Chinese Communist Party (CCP) Committee (the Chinese Communist Party Committee will be referred as "the Party Committee," hereafter) Discipline Commission conducted a thorough investigation into other Hengyang
legislators, uncovering some astonishing facts: In 2013, 56 of Hengyang's 76 deputies
to the Hunan provincial people's congress secured their positions by bribing 518 local people's congress members from Hengyang. In total, these candidates spent 110
million yuan in bribes to deputies and relevant staffers in the Hengyang people's
congress office. As a result of the investigation, 56 provincial legislators have been
removed and the 518 Hengyang prefectural people's congress deputies involved have
resigned. 4
Interestingly, among the initial 93 Hengyang provincial candidates, 44 were private entrepreneurs. Among the 15 deputies whose seats were originally designated
1 One U.S. Dollar
-
6.06 Chinese yuan in 2013.
2 For a news report in Chinese, see http://goo.gl/osxUJr
3 Another Chinese news report: ittp://news.sina.con.cn/c/2014-01-26/031029345758.shtnl
4 Source(Chinese): http://usa.chinadaily.con.cn/epaper/2013-12,/30/content_17205118.htm
12
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for "industrial workers," all of them turned out to be private entrepreneurs. Of the 13
deputy seats designated for "peasant candidates," only three were real "peasants" and
the remaining 10 were also private entrepreneurs. An internal report accused these
entrepreneur candidates of having started the practice of vote-buying, after which
other candidates had to follow suit (Internal Report, 2014). Among the 56 candidates ultimately elected as provincial legislators, 32 were private entrepreneurs .5
Why do private entrepreneurs 6 seek office in authoritarian legislatures, where these
formal institutions are often dismissed as weak and ineffective in interest representation or influencing policy? If the costs of getting into these legislatures are so
high, what are the benefits of holding a seat? Existing theories share a state-centric
perspective: Autocrats design the structure of the system as well as the payoffs
to each player. Representatives and other actors simply cooperate and obtain the
prearranged payoffs accordingly. In contrast to the existing literature, I show that
representatives in authoritarian institutions are more than passive rule-followers and
"institution takers." Instead, by joining formal political institutions such as legislatures, individuals actively seek opportunities to advance their interests.
This dissertation studies the Chinese legislatures.
I argue that individuals or,
more specifically, private entrepreneurs seek office in Chinese legislatures mainly to
protect their property from government expropriation. Becoming a legislator gives a
private entrepreneur access to higher-level government channels for reporting illicit
predation and violations of property rights by lower-level officials. Even if he7 does
not use this access, the entrepreneur uses his legislator status to "flex his muscles"
5 Source(Chinese): http://www.360doc.com/content/13/1229/13/6791042_340982375.shtml
6 Following Lardy (2014, 4), private enterprises in this dissertation refer to the universe of household businesses, registered private companies, and firms in which the majority or dominant owner
is private. For a more comprehensive discussion on the ownership structure of Chinese firms and
definition of the private sector, see Dickson (2008, Chapter 2); Huang (2008, Chapter 1); Pearson
(1997, 16-18); and Tsai (2007, 71).
7
I use the male pronoun in all instances, because the majority of private entrepreneurs and
legislators are male.
13
to bureaucrats and send a strong and credible signal that he has access to a highlevel political network. Such a signal presents a credible threat and therefore deters
predatory local officials. Here, Chinese entrepreneurs do not seek legislative office
to make laws or to influence policies; rather, they use their formal political status
to protect property. Such privileges, which might not be intentionally designed by
the upper-level autocrats, are well-aligned with the incentives of the ruling elite.
Holding political office as a strategy for shielding property from expropriation is
by no means China-specific. During Suharto's authoritarian rule in Indonesia, high
government positions were used as protection rackets (Winters 2011). In Mubarak's
Egypt, businessmen competed for parliamentary seats, which grant immunity from
charges of corruption (Blaydes 2011).
During his dictatorship, Porfirio Diaz in
Mexico encouraged regional political leaders to go into business and to turn potential
political enemies into third-party enforcers of the individualistic property rights
system (Haber, Razo and Maurer 2003). Even in Singapore, a state reputed to have
a highly impersonal system of law, exceptional cases exist in which political leaders
have been exempted by the Corrupt Practices Investigation Bureau, so that their
wealth can be remain untouched (Francis 2006).
This project is in conversation with two important bodies of literature in comparative politics. First, it challenges prominent theories of authoritarian institutions,
the majority of which share a state-centric perspective in explaining the functioning
of authoritarian institutions and the incentive structure within them. The theory of
"co-optation" argues that autocrats set up these institutions to identify and co-opt
members of the opposition (Bueno de Mesquita et al. 2003; Gandhi and Przeworski
2006; Gandhi and Przeworski 2007; Gandhi 2008; Malesky and Schuler 2010). The
theory of "power-sharing" suggests that these institutions are designed to facilitate
monitoring and power-sharing among the ruling elite (Magaloni 2008; Myerson 2008)
14
and sometimes to bribe and split the opposition (Wright 2008). The theory of "information flow" proposes that authoritarian institutional settings enable information
flow between citizens and political leaders, and thus enable responsive policymaking
(Brownlee 2007; Manion 2008; Simpster 2014; Schuler 2014). I challenge these statecentric approaches, where institutions were created to perfectly serve the interests
they advance at later periods. Instead, similar to Thelen (2004), I see institutions as
"resources and instruments," which entrepreneurial actors "gradually adapt to their
purposes." The opportunities these actors discover, therefore, are not necessarily
part of the initial institutional arrangement.
Second, this dissertation qualifies an emerging view that individual firms can
strengthen property security through formal means, even when these formal institutions are relatively weak. Prevailing explanations of property security formation
treat the state as the primary enforcer of property rights (e.g., Acemoglu and Johnson 2003; Levi 1988; Ostrom 1990).
In their theories, firms are mere policy and
institutional takers, and they usually resort to informal means when formal institutions are weak or non-functioning. Recent works on post-Soviet economies give more
weight to individual firms in explaining property security formation in transitioning
economies. For instance, Markus (2012) discusses bottom-up strategies (e.g., making alliances with other shareholders) that firms in Russia and Ukraine use to secure
property rights; Gans-Morse (2012) documents occasions and identifies conditions
when Russian firms use formal institutions to solve property disputes. My argument is consistent with their firm-centric approach to understand property security
formation as a bottom-up process. In contrast to Jensen, Malesky and Weymouth
(2013) who argue that authoritarian legislatures are too weak to restrain dictators or
single parties from committing expropriations, I show that individuals can actually
use authoritarian institutions to deter local expropriation.
15
The remainder of the chapter is structured as follows.
The next section sur-
veys literature on the role of authoritarian legislatures. I then present the case for
my theory regarding Chinese entrepreneurs' strategy to protect their property from
expropriation, followed by a discussion on the observable implications.
The next
section dives into the literature on property protection in transitional economies
and discusses how my argument complements this body of literature. The following section discusses how the theory compares with other possible explanations on
Chinese entrepreneurs' political participation. The chapter ends with a description
of data I will use in the dissertation.
The Role of Authoritarian Legislatures
Before elaborating my argument, I first review major schools of thought that theorize
authoritarian legislatures and discuss why existing theories remain inadequate in
explaining the case of Chinese legislatures and the behavior of the participants,
especially that of the private entrepreneurs.
Earlier studies on authoritarian institutions see authoritarian legislatures as "rubberstamp" institutions that have little impact on policy.
They are created to fulfill
demonstration purposes. Rustow (1985) sees legislative elections as a merely "political tactic" that "payfs] homage to virtue" in the authoritarian Middle East. Magaloni
(2006) argues that elections help the PRI, Mexico's dominant party, to establish an
"image of invincibility," deterring potential opponents from entering the political
market.
In the same vein, Geddes (2008) argues that rubber-stamp parties and
elections remind potential opponents of the difficulty of overthrowing the regime
and thus serve the function of deterring coups.
A rich body of literature suggests that authoritarian institutions co-opt opposition
16
.W&__
or potential opposition by making policy concessions and by sharing power. Gandhi
and Przeworski (2006, 2007) suggest that authoritarian legislatures facilitate policy
concessions by providing a forum in which "demands can be revealed and agreements can be hammered out." Authoritarian legislatures are especially ideal for
policy concession because they "allow for an environment of controlled bargaining"
(Gandhi 2008, 78). Focusing on the institution's role in alleviating commitment and
monitoring problems, Boix and Svolik (2013) and Svolik (2009) argue that dictators
make credible power-sharing commitments to the ruling elite through legislatures
and other authoritarian institutions to solicit support and to enhance authoritarian survival.
Similarly, Magaloni (2008) argues that political organizations make
possible intertemporal power-sharing deals between dictators and their allies.
Dictators can also co-opt potential elites through legislatures by sharing rents, the
forms of which include monetary rewards, perks and privileges (Gandhi and Przeworski 2006). In Egypt, parliamentarians receive loans without interest or collateral,
and even immunity from criminal prosecution (Blaydes 2011; Kienle 2004). In Jordan, parliamentarians can distribute discretionary funds as they see fit in responding
to constituents' and their own needs (Lust-Okar 2006a). In China, national legislators enjoy better access to information and protection from corruption investigation
(Truex 2014).
According to a 2013 survey of 100 Chinese private entrepreneurs,
41% believe that entrepreneurs who are legislators have easier access to government
contracts and policy information. 8
An emerging literature views authoritarian legislatures as an important source of
information on regime stability, public opinion and policy implementation. Compared to democratic regimes, autocrats face greater challenges in collecting inforination about the behavior of their local agents, public approval of policies, and
8 This survey was conducted by a private company, which asked to be anonymous.
17
sources of discontent
(Distelhorst and Hou 2015; Lorentzen 2013). Autocrats re-
spond to these informational challenges with a variety of information-gathering institutions including media freedom (Distelhorst 2013; Egorov, Guriev and Sonin
2009; Lorentzen 2014), technological and human surveillance (Morozov 2012), public opinion polling (Henn 1998), constituency services (Distelhorst and Hou 2015),
and electoral contests. Magaloni (2006) argues that elections in Mexico not only
communicate information about the regime's strength and discourage potential divisions within the ruling party, but also about supporters and opponents of the
regime. Schuler's observation (2014) of the Vietnam legislatures reveals that the
Vietnamese Communist Party allows discussion and debate on issue areas where
responsibility for policy implementation is outside of party control. By exercising
agenda control, the Communist Party collects information on policy implementation
while making sure its authority remains unchallenged. Similarly, scholars of Chinese
legislatures argue that the Chinese Communist Party uses the legislative system to
collect information on public opinion and citizen preferences (e.g., Manion 2008;
Manion 2014; O'Brien 1994a; Truex 2013).
The Argument
Although my argument builds on a number of important scholarly works oil authoritarian legislatures, it stands in direct contrast to these explanations in terms
of our views on institutions. Existing views treat institutions as tools of the state:
Authoritarian legislatures are institutional arrangements for power-sharing, distribution of rents, or information collection. These institutions are well-designed to fulfill
the purposes of autocrats and to anticipate and advance various parties' interests.
These views are essentially functionalist approaches that try to explain the functions
18
of authoritarian legislatures ex post. In adopting this approach, they largely ignore
the processes of search, innovation and negotiation whereby entrepreneurial actors
discover new channels, usually within these institutions, to advance their interests
(Knight 1995).
Instead of viewing institutions as tools of the state, I borrow the perspective of
"institutions as resources," an approach which treats institutions as "instruments
that actors gradually adapt to their purposes and in which they become invested
only after they have acconmodated their practice to them" (Thelen 2004). In their
studies on advanced democracies, institutions are resources that provide opportunities for particular types of actions, especially for collective action (Hall and Thelen
2009). Authoritarian institutions allow a different set of opportunities for particular types of actions. Collective action is not likely to be welcomed (King, Pan and
Roberts 2013), yet entrepreneurial actors can seek opportunities to advance their
interests and improve their well-being through a variety of institutional channels, as
long as the outcomes are compatible with the incentives of the ruling autocrats.
The core argument is that the parliamentary system in China is not merely a static
and functional response of an authoritarian regime to maintain political stability
and legitimacy.
Instead, it provides entrepreneurial actors with opportunities to
advance their own interests, so long as the realization of interests is well-aligned
with the incentives of the ruling elite. In the case of China, private entrepreneurs,
who operate their businesses in an environment where property rights are largely
unprotected, seek office in the local legislatures to protect their property.
The
status of a local legislator sends a clear and credible signal of one's strong political
network with upper-level officials, and this signal deters predatory behavior by lowerlevel bureaucrats, who are afraid of retribution or punishment from the legislator's
political network.
The ruling elite is aware of local expropriation but does not
19
tolerate unconstrained expropriation. Therefore, entrepreneurs' action of obtaining
legislative office to deter expropriation, although not necessarily created by top-down
design, is incentive-compatible with the motivations of the ruling elite.
In the Chinese legislatures, the interaction between a number of important societal actors is complex.
To make sense of the complex system, it is imperative
to understand the preferences of each actor. I focus on the relationship between
three main actors in the Chinese authoritarian system: the higher-level officials, the
lower-level bureaucrats, and the entrepreneur deputies. Other relevant actors will
be discussed at the end of this section.
Higher-Level Officials
Here, higher-level officials is a broad category, and the term "higher-level" corresponds to the group of actors -
"lower-level" bureaucrats -
which I discuss next.
These higher-level officials include the ruling elite in Beijing who exercise the most
power and establish the rules of the game. The group includes the General Secretary of the Communist Party/the President of the PRC, his peers at the Politburo
Standing Committee, and a small group of political and business elite that surround
them. Consistent with major theories on authoritarianism, this project assumes that
the primary interest of the ruling elite is to stay in power. To consolidate power,
autocrats use legislative institutions to collect information and to share rents with
other elites and potential opposition.
Legislatures are an important source of information for the ruling elite. With the
absence of democratic elections, which reveal citizen preferences, autocratic leaders
struggle to gather information regarding public approval of policy implementation,
as well as the behavior of their local agents (Lorentzen 2013). To respond to this information constraint, non-democratic regimes collect information through a variety
of alternative channels. My argument aligns with the view that authoritarian elec-
20
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...............
.
WN"",
toral contests provide autocrats with information about the society and the bureaucracy (Blaydes 2011; Magaloni 2006). Through legislative plenums and legislative
proposals, autocrats not only acquire information on public opinion, but also on the
behavior of lower-level bureaucrats (Birney 2007). In the case of China, higher-level
autocrats have limited information on the behavior of lower-level bureaucrats, but
the system provides incentives for other actors to collect information and to report
back.
Apart from information collection, the ruling elite also uses legislatures to share
spoils with other elites. For instance, Truex (2014) carefully documents the "return
to office" to members of China's national people's congress and estimates that companies with a national legislator would enjoy an average of 1.5 to 2 extra percentage
points in returns and a 3 to 4 percentage point boost in operating profit margin,
compared with similar companies without a top executive as a national legislator.
Many scholars have argued that authoritarian legislatures can be used as a platform
to arrange policy concession (e.g., Gandhi 2008), but the Chinese legislatures do not
seem to serve such a function for the ruling elite because the legislative function of
local legislatures is quite weak.
The dissertation does not study the origins of authoritarian legislatures, but it
contrasts major theories of authoritarianism in understanding the decisions of the
ruling elites. Autocrats might have created semi-democratic institutions for a variety
of purposes, and other benefits might evolve over time. In existing theories, autocrats
almost always maximize their utility with institutions of their creation, and other
actors in the system simply comply. Rarely do scholars study the institutional byproducts created by actors other than the ruling elite.9 Property security is one such
9
Blaydes (2011) briefly mentions that there might exist "endogenous by-products" of institutional
equilibrium that could potentially undermine the stability of regime, but there is no further
elaboration.
21
by-product of Chinese local legislatures that is exploited by private entrepreneurs.
It would be a stretch to argue that property security of private entrepreneurs is
a major concern for the Chinese ruling elite. Quite to the opposite, I would agree
with Levi's assessment that most rulers are predatory because they "design property
rights and policies meant to maximize their own personal power and wealth" (Levi
1981). Thus, the only conclusion I can make here is that the individualistic strategy
of property protection exercised by private entrepreneurs is incentive-compatible
with the ruling elite. Wedeen (1999) characterizes unintentional decisions made by
autocrats as "strategies without a strategist;" here, I go one step further and argue
that autocrats can even be non-strategic, allowing other actors to exploit institutions
for multiple purposes.
Besides the ruling elite, higher-level officials in this model also include the superiors of the bureaucrats who work in local government offices and agencies. Here, "superior" and "higher-level" are relative terms. For example, when I study county-level
tax collectors, their higher-level officials would be their direct superiors level tax bureau heads, and their indirect superior -
county-
officials working at the prefec-
tural, provincial, and national tax bureaus. However, when I study prefectural-level
tax collectors, the very same "higher-level" prefectural tax bureau officials become
"lower-level bureaucrats" in this case, and their higher-level superiors include their
direct superiors -
prefectural tax bureau heads, and indirect superiors -
officials
working at the provincial and national tax bureaus.
These individuals are the principals of their lower-level superiors.
Principals
(higher-level officials) assign agents (lower-level bureaucrats) specific tasks and evaluate these agents based on a performance standard. Just like any principal-agent
relationship, principals cannot always successfully monitor the behaviors of their
agents and they suffer from problems of hidden information and hidden actions. In
.............
, ""T
this context, a main concern of these principals is that lower-level agents sometimes
exploit their offices for private means.10 These higher-level officials, aware of the
problem, have developed a toolkit of methods to monitor and evaluate their agents
(e.g., Lu and Landry 2014). Local legislatures provide higher-level officials an additional source of information on the behavior of their agents: a fixed number of
seats are designated to local businessmen at each level of local people's congresses,
and these local legislator-entrepreneurs provide reliable and important information
on how local bureaucrats do their jobs.
Local legislatures also provide a formal means for higher-level officials to befriend
local entrepreneurs who, as we will discuss below, are established and successful
in the local economy. There are numerous reasons local governments and officials
need to nurture friendly relationships with local business elites. Local businesses,
as Kennedy points out, are "central to accomplishing government objectives such
as a growing economy, stable prices, high employment, and expanding tax receipts"
(Kennedy 2009). In resource-scarce areas, business elites are especially important
as sponsors for public projects and the functioning of local administration (Lu 2000;
Sun, Zhu and Wu 2014). Patron-client ties are also built based on personal connections. Kennedy observes that "[olfficials provide entrepreneurs access to scarce
goods, credit, government and overseas markets, and protection from onerous regulations. Entrepreneurs, in return, provide officials with payoffs and gifts, employment,
and business partnerships" (Kennedy 2005, 10). Local political and business elites
make connections through organized lectures, parties, meetings, and get-togethers
organized by various government bureaus, associations, and individual business elites
(Wank 1996). The nature of some of these events might be informal. On the other
10 How they do so will be discussed in the subsequent section.
23
hand, conversations and friendships nurtured through plenary sessions, meetings,
visits, tours, and other events related to local people's congresses provide opportunities for formal business-government interactions (Sun, Zhu and Wu 2014). Minxin
Pei, a political scientist and a critic of the Chinese government, describes the predatory and corrupt nature of the ruling elites in the following way:
The most lethal strain of leadership degeneration is escalating predation
among the ruling elites. The most visible symptom is corruption, but
the cause is intrinsic to autocratic rule. Typically, first-generation revolutionaries have a strong emotional and ideological attachment to certain
ideals, however misguided they may be. But the post-revolutionary elites
are ideologically cynical and opportunistic. They view their work for the
regime merely as a form of investment. And, like investors, they seek
ever-higher returns.
As each preceding generation of rulers cashes in its illicit gains from
holding power, the successors are motivated by both the desire to loot
even more and the fear that there may not be much left by the time
they get their turn at the trough. This is the underlying dynamic driving corruption in China today. In fact, the consequences of leadership
degeneration are easy to see: faltering economic dynamism and growth,
rising social tensions, and loss of government credibility (Pei, 2012).
Lower-Level Bureaucrats
Lower-level bureaucrats are the agents of their higher-level principals.
In this
project, lower-level bureaucrats are subnational government bureaucrats who interact with local businesses across all relevant agencies. These bureaucrats come from
local taxation bureaus, administrations for industry and commerce, environmental
24
protection agencies, administrations of work safety and coal mine safety, administrations of quality supervision, inspection and quarantine, the police bureau, and other
local agencies. It is estimated that 2.5% of China's local population is employed in
the local public sector, a proportion two times greater than the global mean of 1.1%
(Ang 2012). Among these local-level civil servants, 61.8% frequently or occasionally
interact with local businesses (Hou, Meng and Yang 2014).
In this stylized argument, I assume that these bureaucrats have two main objectives in mind: to get promoted and to extract rents when possible." The "grabbing
hand" nature of local bureaucrats is a common assumption in the public choice literature (e.g., Krueger 1974; Olson 1965; Shleifer and Vishny 2002, Chapter 1). In
China, there certainly exist a significant number of local bureaucrats who are publicly spirited and serve their constituents. But at the same time, many bureaucrats
are exploitative and would extract rent from local businesses whenever possible.
Many argue that, receiving a comparatively low salary, Chinese civil servants naturally seek moonlighting opportunities and to engage in inappropriate practices often
associated with corruption (Chan and Ma 2011; Lu 2000). These bureaucrats extract rents from local businesses by imposing informal taxes, fees and fines through
ad hoc investigations. In the Chinese context, these informal payments are often
called tanpai, and I hereafter use the terms extraction, predation, and expropriation
as interchangeable equivalents.
These informal payments range from "protection
fees" paid to local bureaus, to "pre-paid" tax collected by local taxation bureaus,
and from "forced donations" to, for example, build a new road in the village to ad
hoc fines and payments. Writing on Chinese private entrepreneurs, Tsai observed
that "[iln any given week, the typical factory owner may be approached by dozens of
" 1On this assumption, one might object that some Chinese local bureaucrats could be publicly
spirited, pursuing justice and acting according to moral and ideological principles, even at some
cost to their wealth or career prospects. In those cases, we would observe a very low level of
extraction.
25
different agencies requesting seemingly random user charges, surcharges, and contributions for local projects" (Tsai 2004). Income from extraction could either go
to local governments' budgets to support legitimate provision of public goods, or it
could go to bureaucrats' pockets (Tsai 2004). It is perhaps more justified to extract
local business if the extracted income goes to public projects, but from the perspective of entrepreneurs, extraction is undesirable and is considered an infringement on
their property.
Ang, a scholar of the Chinese bureaucracy, provides institutional explanations in
understanding the prevalence of predation at the local level:
... China's fast-growing economy has not been governed by a purely
salaried civil service. Instead, Chinese bureaucracies still remain partially prebendal; at every level of government, each office systematically
appropriates authority to generate income for itself. Such a bureaucratic
form normally invites predation and hinders capitalism. ... (Ang 2009)
Local bureaucrats want to extract rents, but they do not want to get caught preying
on businesses. They are more likely to get caught or be reported if they prey on
individuals who have access to the bureaucrats' principals. Some bureaucrats might
have more information than others about the local elite network, but in general, these
low-level officials have limited information about each local entrepreneur: Who is
politically connected? Who has friends in the governments who can protect him?
Facing information constraints, low-level bureaucrats usually find it costly and,
many times, impossible to identify each and every piece of information regarding
elite connections. In this limited information environment, bureaucrats make careful
decisions about whom to extract rent from. A local people's congress membership is
a strong and clear signal of one's local political network. An entrepreneur who is a
legislative deputy signals his access to the upper-level officials and an elite network
26
he obtains through participating in the legislature. Receiving this signal, a low-level
bureaucrat is likely to avoid extracting the business, for fear that the legislatorentrepreneur might report to the upper-level officials.
EntrepreneurLegislators
Business elite is the second largest group represented in the Chinese local legislatures. A good portion of these business elites come from the state-owned sector,
but the private sector is becoming increasingly more represented in Chinese people's
congresses (Li, Meng and Zhang 2006). Business elites who have a seat in the legislatures are fundamentally different from those who do not: Legislators' firms are
usually the better performers in the local political economy and in their industry.
They tend to have higher returns, operating profit margins, and revenues (Truex
2014).
Getting a seat in the local legislatures is a complex and competitive process. According to the 2010 Electoral Law, county- and district-level legislators are directly
elected by their local constituents, and legislators at the prefectural, provincial,
and national levels are elected by their lower-level legislatures. The total number of
seats at each level is stipulated in the Electoral Law. A temporary Party-led election
committee, the majority of whose members come from the local Communist Party
committee, is formed prior to elections to manage the electoral process. To ensure
broad representation, the election committee assigns strict quotas specifying that
each congress should have a certain proportion of government and party officials,
entrepreneurs, peasants, intellectuals, and deputies representing other occupations
(O'Brien and Li 1993). According to the Electoral Law, the ballot must list 1.33 to
2 candidates per legislative seat (Manion 2014), and the election committee decides
on the final number.
27
Thus, if a private entrepreneur wants to get elected, the first thing he should do
is to get nominated. Nominations are made either by the corresponding Communist
Party committee, or collectively by lower-level deputies and individuals. Thus, nominated candidates are either "Party nominees" or "voter nominees" (Manion 2014).
-
By design, private entrepreneurs are usually nominated through the first channel
Party nomination.
For example, among the 700 seats at a provincial people's congress, 100 seats
are directly nominated by (allocated to) the Communist Party Committee.
The
remaining 600 seats are allocated to those voting districts (i.e., Prefectural and PLA
units) at the next level within the province, and the Communist Party Committee
in these districts then decides how to allocate those seats. If a prefecture is allocated
60 seats among the 600 seats, the prefectural Communist Party Committee would
directly nominate some candidates and then distribute some seats to the voting
district at the next level down - the districts and counties.
After several rounds
of distribution and allocation, a county might receive a number of allocated seats.
Assuming that a county receives 5 allocated seats, it is a given that one seat would
go to a local party or government leader, presumably the county Communist Party
secretary or the county head, and one seat would go to a female candidate, and three
remaining seats can be up for grabs (Interview G151). If a private entrepreneur is
thinking of running for provincial legislator, he should think carefully whether he has
a shot at one of the three seats, but if a female entrepreneur wants to run, she might
want to consider whether she has a good chance securing the female seat. All of these
strategic calculations and decisions are usually made by the entrepreneur candidate,
the election committee, the local Communist Party Committee officials (especially
those at the Organization Department and the United Front Work Department),
relevant personnel at local people's congress standing committee offices, and other
28
relevant organizations that might be involved in nominating candidates. As one can
imagine, a significant amount of informal lobbying is going on during the nomination
process. Anecdotal evidence suggests that this type of lobbying is highly costly and
informal -
and thus risky -
and getting nominated is only "step one" in securing
a seat in a local legislature.
In sum, to be elected as a provincial legislator for instance, a private entrepreneur
first needs to be nominated either by the provincial Party committee, a prefectural
Party committee, or a county/district Party committee, all of which make the final
nomination but receive recommendations from democratic Party committees, local
governments, and various organizations. After the entrepreneur makes it onto the
ballot, he will be voted on by the corresponding prefectural legislators. Since the
number of candidates is usually 20% to 50% more than the number of seats, an
entrepreneur candidate usually engages in some form of campaign to secure votes
and, in some cases, such a campaign entails bribery.
Becoming a legislator entails costs of various forms. As discussed above, there are
costs to lobby to receive a nomination and costs to campaign for seats. Apparently,
it is also costly after one becomes a legislator.
There are opportunity costs of
time spent on collecting public opinion information, writing legislative and policy
proposals, as well as sitting in meetings and social gatherings. Moreover, Sun, Zhu
and Wu (2014) have uncovered the high costs private entrepreneurs must bear to
socialize with other deputy "friends," especially with government and Party officials.
If the costs of being a legislator are so huge, interested entrepreneurs must be
expecting greater benefits in return. What are the benefits of holding an office in
the Chinese legislatures? The degree to which Chinese legislators influence law or
policy making is still debatable and certainly varies by region (Cho 2009; Manion
2008). Nonetheless, entrepreneur legislators enjoy preferential treatment, including
29
easier access to government contracts, credit and land; immunities when facing
prosecution; and, most importantly, access to an elite political network, which deters
local predators.
The Citizenry
Citizens are not involved in higher-level legislative elections but they directly elect
legislators at the district and county levels. Their political participation takes two
forms: casting a vote, and nominating individuals as "voter nominees." The cost of
the former is very minimal, and the cost of the latter is significant. Contrary to the
stereotypical image of citizens in a strong authoritarian state, Manion (2014) argues
that, at the very local levels Chinese voters can use their electoral power to select
"good types," i.e., Legislators who reliably represent local interests, by collectively
nominating candidates as "voter nominees." How Chinese citizens use their limited
power to influence electoral and policy outcomes is an extremely interesting topic
on its own, but in the case I study, private entrepreneurs are usually nominated as
"Party nominees" and not "voter nominees," and the role of citizens is minimal in
influencing Party committees' decision on whom they nominate.
The Signaling Mechanism
A lower-level bureaucrat extracts from local business when he considers it relatively safe to do so. Safe conditions are those under which the extracted business
does not have any means, most likely through personal acquaintances or the media, to report the extractive behavior to the superior of the low-level bureaucrat.
When an extractive local bureaucrat faces an entrepreneur, he calculates the costs
and benefits of rent extraction. If the firm owner holds a seat in the local people's
congress, what does it signal?
The status of local people's congress membership might signal a variety of things:
The business is likely to be an established and profit-making business in its industry;
30
it is probably a major taxpayer and an important job creator in the local economy;
and relatedly and most importantly, being a legislator signals one's connection with
local political elites. Through attending required plenums, collaborating in working
groups, and participating in legislature-related or other events, the entrepreneur
deputy expands his personal network to incorporate political elites who are also
deputies.
Friendship is not guaranteed but connections are made and enhanced
through these activities. Well aware that entrepreneurs who are legislative deputies
have access to this extensive network of political elites, including potentially his own
direct superior, a low-level bureaucrat will be particularly careful when making a
decision to extract or not. If he decides to extract an entrepreneur with a legislator
status, it is likely that the entrepreneur will contact relevant higher-level officials in
his PC network to report the extractive behavior. Obviously, the higher-level official
does not have the obligation to respond to such a report and he could choose to ignore
it (which could be the case especially if he ordered the extraction). However, since
the report comes from a fellow PC deputy, the higher-level official is more likely to
take it seriously and deliver a satisfactory response.
Besides signaling political capital, being a legislator also signals one's legal power
to formally supervise local governments. The most important measures the local
legislatures can take include the law enforcement examination and appraisal of local
governments. During an examination, local people's congresses form supervisory
groups and investigate problems. They can sometimes force governments to correct
problems but their enforcement power is not particularly strong (Cho 2009, 58).
A second supervision mechanism is through appraisal of government agencies and
officials. An annual performance appraisal is required at the local people's congress
standing committee, and local deputies can exercise "deputies' appraisal" when they
31
see fit.' 2 Compared with examination, appraisal has legally binding force: a local
legislature can dismiss officials if they fail the appraisal. There are an increasing
number of cases where local officials from a variety of bureaus have been dismissed
from office because of the appraisal procedure, although the total number is still
considered insignificant."
In theory, the status of a local legislature also signals
one's abilities to exercise supervisory powers, although in real life these powers are
infrequently exercised, and therefore, their potential use as a threat is minimized.
Strategies to Protect Property
The view of the state as "the grabbing hand" is not China-specific, as scholars of
business-state relations have identified violations of property rights by state agencies
in many transitional economies (Frye and Shleifer 1997). Friedman and colleagues,
using data from 69 countries (many of them developing economies in Eastern Europe and Latin America), find that entrepreneurs in countries with heavy burdens
of corruption and bureaucracy are more likely to go "underground" to dodge the
"grabbing hand." (Friedman et al. 2000). More nuanced country-level studies are
done on specific cases (Shleifer and Vishny 2002 Chapter 9; Gans-Morse 2013). In
these systems where property rights are weakly secured, how do firms fend off the
grabbing hands of local predators? Existing studies have documented various ways
private firms defend their property rights from expropriation by the state or powerful elites. In these cases, since formal protection is usually either unavailable or
ineffective, firms usually resort to informal means, such as:
12
For instance, see the "responsibility and power of the Zhejiang provincial legislature" document
at http://www.zjrd.gov.cn/portal/Desktop.aspx?PATH-cnzjrd/srdjg/rmdbdh/zq
1 3 For a comprehensive list, see Cho 2009(61).
32
Awl"kww'w-
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-
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1,
(i) Private or corrupt force. When formal institutions fail to function, one default
option is to resort to private force. One such example is the criminal protection
rackets and private security agencies that played a central role in property security in early 1990s Russia. Corrupt force includes protection rackets provided by
bureaucrats and law enforcement officials, which in Russia replaced criminal protection rackets by the late 1990s. Using state resources, these protection rackets
provided private clients with property protections (Gans-Morse 2013).
(ii) Forging informal connection and exchanges. Another commonly used method
is to resort to informal connections. Wank documented that in 1980s China, private
firms invited "backstage bosses" -
public officials -
to join their firms as advisors,
shareholders, and board members so that these bosses could assist their businesses
with information on business-related policy, lowering tax bills, and preventing government expropriation (Wank 1999)." Another important channel of connection is
kinship, which provides a framework for entrepreneurs to get access to resources (Ruf
1999). Entrepreneurs with relatives in government share similar privileges as those
who hired backstage bosses, one of which is individualized protection of property.
(iii) Delegated law. Private actors might also resort to strategies of delegated
law to enforce property rights. Non-state actors are the main arbitrator in this
strategy. Business associations are one example of such a non-state actor. In the
late medieval period, merchant guilds served as an institutional mechanism to protect merchants against abuses by city governments. Such protection was achieved
through merchants' coordinated punitive actions against predators (Greif, Milgrom
and Weingast 1994).
In a similar fashion, by establishing norms of transactions
among members and sorting out disputes when necessary, business associations in
14
These "backstage bosses" can still be observed in the current Chinese economy. In 2011, 49.3%
of all SOE firms listed in the Chinese stock market have hired retired government officials. See
http://www.infzm.coni/content/60155 for a report.
33
Russia provide property security exclusively to their members (Gans-Morse 2013).
(iv) Partial ownership. Firms sometimes creatively construct ownership structures and forge sponsorships that protects their property and property rights. For
instance, in China, "backyard profit centers" of state agencies are entities registered
as independent public enterprises managed by incumbent or former public officials or
persons they trust. These relatively undocumented entities receive favorable regulatory and funding treatment from or with the help of their government sponsoring
agencies and de facto state protection for their private property rights (Lin and
Zhang 1999). In the 1990s, entrepreneurs could also seek partial local government
ownership of their businesses, which helped limit state predation (Che and Qian
1998; Oi 1992). This method of ownership disguise ceased to be necessary when the
private sector was officially recognized as legal (Tsai 2007).
In present-day China, private entrepreneurs have a toolbox of strategies to protect themselves. They still actively engage in informal connections and exchanges
(Kennedy 2005); they sometimes use political connections to facilitate use of courts
(Ang and Jia 2014); they creatively register themselves as foreign investors and use
"round-tripping" to avoid heavy taxation and regulation (Xiao 2004); they continue
to partner with state ownership and foreign investors (Huang 2005); they obtain
CCP party memberships (Dickson 2008); and they resort to organizations such as
business associations (Kennedy 2005).
In this dissertation, I do not attempt to
argue against any of these studies or dismiss any of these strategies as ineffective
or unimportant. Instead, I am proposing an important addition to the "toolbox"
of strategies: Chinese entrepreneurs, in addition to using many informal coping
strategies, join legislatures to protect their property from predation.
I argue that this strategy is different from other strategies in the following respects.
The first distinction is its formal nature.
34
Compared with other strategies that
heavily rely on political connections, the strategy of using legislative membership to
protect one's property can be purely formal. An entrepreneur does not have to go
through any informal exchange to establish or enhance political capital once he has
a seat in the legislatures. A second distinction is its "low-cost" nature. Although
securing a legislative seat might incur high costs, once an entrepreneur has a seat in
the legislature, his position serves as a signaling mechanism without any additional
investment. On the other hand, other strategies such as forging informal connections
or relying on partial ownership can only be sustained through iterated and costly
interaction between entrepreneurs and other parties.
Lastly, the focus of this project is on property security and not on property rights
formation, yet the strategy of using legislative office to protect property has implications that go beyond maintaining individualistic property security.1 5 If private
entrepreneurs in China become more influential and willing to advocate for reform
over time, they might challenge and ultimately change the function of legislatures,
increasing accountability and expanding and formalizing property security and property rights protection through legislation. I entertain these possibilities in greater
depth in the concluding chapter.
Alternative Frameworks
This project contributes to the literature on authoritarian institutions and the
political economy of property rights. Dominant theories in both literatures take a
"state-centric" approach, which assumes little individual agency, and in which firms
and individuals are mere takers of institutional arrangements.
15
The literature on emergence of property rights is also experiencing an ongoing debate regarding
the role of the state and the role of individuals. For a review of this matter, see Markus (2015),
Chapter 1.
35
How would state-centric theories explain entrepreneurs' participation in legislatures and their privileged position in regard to property security'?
One possible
explanation could be that the "entrepreneurs in the legislature" phenomenon is simply a state-engineered process. The state co-opts business elites by both giving them
political status and extracting less from them. "Less extraction" is one type of rents
individuals receive in return. Firms have no autonomy in deciding whether they get
a seat or not, as well as whether they experience predation or not.
Although this state-engineering theory would predict an empirical association
between entrepreneurs with legislator status and the severity of property extraction similar to what I establish, qualitative evidence suggests that such a stateengineering theory might not fully explain Chinese entrepreneurs' political participation. If these entrepreneur deputies were co-opted, we would not have observed
these entrepreneurs behaving against state interests.
Truex (2013) suggests that
NPC deputies exhibit a behavior pattern of "representation with bounds," reflecting
the interests of their constituents on non-sensitive issues but not on sensitive ones.
Politically sensitive topics include freedom of speech, association and the press;
political rights; multi-party competition; and high-level corruption, among others.
However, at the local level, I observe cases where deputies are active and outspoken on issues that are politically sensitive. For instance, in a district-level people's
congress located in a coastal province, among the 301 policy proposals from private
entrepreneurs between 2007 and 2013, 37 were sensitive or contentious proposals."
One proposal asked the local government to "resolve land disputes now" and "give
back land to rural residents" (Proposal S 119-2012), while another entrepreneur proposed that "better compensation policy" is needed for relocated residents "whose
1 6 Similar to King, Pan and Roberts (2013) and Truex (2013), I define issues related to democratic
reform, threatening the legitimacy of the central or local governments, and collective action as
sensitive issues.
36
houses are torn down for development projects" (Proposal S39-2012).
Another
provocative entrepreneur demanded "real district-level self governance" (Proposal
S35-2013). Not being co-opted, entrepreneurs sometimes propose potentially genuine opposition and progressive reforms in the legislature.
A second state-centric argument would be a "state capacity" one. A local government expropriates businesses more heavily when local revenue is low or when
expenditure is high, and goes more easily on them when local revenue is abundant
or when spending is low. Consequently, a local government decide on the numbers
of entrepreneurs to include in the legislature, reflecting either stronger or weak reliance of the local government on entrepreneurs. Similarly, a revised version of local
state corporatism theory argues for a fiscal dependency theory: Local governments
increase their credibility of property security in the eyes of investors by raising taxes,
so that the government is more dependent on the revenue these local business provide (Lewis 1997). These state-capacity hypotheses are theoretically plausible, but
they are not supported by macro-level evidence in the Chinese case.
Figure 1.1
plots the prefectural-level extraction rate against local government revenues (left)
and against local government expenditure (right) between 2002 and 2006. The flat
lines suggest that there is essentially no correlation between government revenue (or
expenditure) and how much local government extracts local business in a given year.
Therefore, the state-capacity argument is not supported.
37
Fig 1.1: Local extraction vs government revenue /income
0O
0
0
0
0
10
14
12
Governent
00
000
0
00
0
0
1
0
0
0
11
12
13
14
15
16
Go~ommen Exponditure
Revenoo
Note. The first graph plots the bivariate coirrelation between prefecture-level governent revenue (logged) and average local extraction level. The local extraction
level is calculated as the average of extractive payments of all surveyed local private
entrepreneurs in a given prefecture and a given year. Similarly, the second graph
shows the bivariate relation between prefecture-level government expenditure and
local extraction level. The flat lines suggest that there is no correlation between
government revenue (or government expenditure)~ and local extraction level. Extraction data is from ACFIC 2002, 2004, and '2006 surveys. See subsetion Data for
more details about the ACFIC survey. Government revenue and expenditure data
Yearbook.
is from China Statisti
Observable Implications
After establishing the core assumptions of the model and elaborating the lpreferences of the key actors, now I nmove on to the observable implications of the theory. If
the system funictions as described, private entrepreneurs compete for seats a~t local
legislatures to protect their property from being expropriated by lower-level bureaucrats;
lower-level bureaucrats expropriate local businesses, but avoid those who
have seats in the local
legislatures; higher-level officials interact with entrepreneur-
legislators and collect information on lower-level bureaucratic behavior.
One
observable implication is a particularly obvious one: Private entrepreneurs
believe that a seat in local
legislatures protects their property from expropriation.
38
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- -
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---. 111.
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Most entrepreneurs probably have multiple goals to achieve after joining a local
legislature, but my theory would suggest that the main motivation for them to
compete for seats is property security. I closely assess this implication in Chapter 3.
The first implication deals with "motivation," and the next implication deals with
"effectiveness." If the strategy of using legislative office to protect property is an
effective one, we would not only observe that private entrepreneurs want to join
the institution, but should also observe that there are real benefits after an individual becomes a legislator. If such a strategy is in fact ineffective, there is no reason
entrepreneurs would bear high costs to compete for seats, after observing the ineffectiveness. Therefore, we should observe that entrepreneur-legislators are in fact less
likely to be expropriated by local bureaucrats, compared with their peers without
political status. I assess this observable implication in Chapter 4.
Finally, I closely examine the mechanism of the property protection strategy. My
argument suggests that legislator status signals political connections and thus deters
expropriation.
If a seat in local legislatures indeed signals political network and
prestige, bureaucrats should treat individuals with connections in local legislatures
with preference. Chapter 5 explores this implication in greater depth.
Data
My argument on authoritarian institutions and the private sector is broadly comparative, but the empirical evidence is drawn from the analysis of aggregate and
individual-level data for the case of China. Contemporary China provides an ideal
setting to study the role of authoritarian legislatures. With a population of 1 billion citizens who are eligible to vote in county- and district-level legislative elections,
China has the largest "electorate" and is one of the most politically significant among
authoritarian regimes. Also, the institutional arrangement of Chinese legislatures
39
k96
resembles many contemporary authoritarian regimes. Examining institutional settings and incentive structures within the Chinese context is therefore conducive to
both theory building and empirical testing.
As Tullock (1987) points out, collecting information on autocracies is highly challenging, and as a result, data is usually sparse and poor. Researching contemporary
authoritarian China is no exception, and data quality in China presents a real challenge. 7 I collect information on Chinese legislatures, private entrepreneurs, and
their strategies to protect property through a mixed-method approach, combining
quantitative survey methods with 106 in-depth interviews and two field experiments.
Each method covers a variety of regions in China. I supplement these materials with
official documents, news reports, and secondary sources from existing research. The
chapter appendices provide additional details: on the implementation of interviews
(appendix to Ch.3), on the surveys (Ch.4), and on the experiments (Ch.5).
To understand the business environment of private entrepreneurs and state-business
relations in China, I conducted 106 in-depth interviews with Chinese private entrepreneurs, government officials, scholars, and journalists during 16 months of field
research between 2012 and 2015, across five provinces in China. These interviews
were arranged through a combination of local government and academic contacts, as
well as my own solicitations. All interviewees were guaranteed anonymity. These interviews were semi-structured, and each lasted between half an hour to a few hours.
The five provinces and prefectures Beijing -
Zhejiang, Guangdong, Hunan, Guizhou, and
were selected to reflect important differences between coastal and in-
land provinces in terms of economic and private sector development, as well as
regional differences in institutional arrangement and government capacity.
Zhe-
jiang and Guangdong Provinces, located in coastal China, are the richest provinces
17For
discussions on data quality in China, for one example, see Tsai (2009).
40
in the country, 18 and both have a developed private sector. Local governments in
these provinces have reputations for being "business-friendly" and "service-oriented."
On the other hand, Hunan and Guizhou Provinces, located in central and western
China, have less sizable economies and less developed private sectors. Governments
in these provinces are reputed to be more aggressive and less friendly towards businesses.19 I also spoke with local scholars studying similar topics in Beijing. These
in-depth interviews not only helped me develop a deep understanding of everyday
business-state interactions and a theory of property protection in the Chinese context, they were also invaluable in identifying broad patterns and scope conditions
for my theories on property protection in transitional economies.
After developing a basic understanding of business-state interactions based on observations in these locations, the next step is to make generalizations about private
entrepreneurs and property protection for a broader.range of locales. A nationally
representative survey of private entrepreneurs allows me to exploit variation of entrepreneurs' political participation in China across not only space, but also time and
industry. The survey was conducted every other year jointly by the All China Industry and Commerce Federation (ACFIC), the China Society of Private Economy
at the Chinese Academy of Social Science, and the United Front Work Department
of the Central Committee, and the Communist Party of China ("ACFIC survey"
hereafter).
The ACFIC survey sampled private entrepreneurs from 31 provinces
and among all major industries, and it is by far the most commonly used Chinese
private entrepreneur survey by scholars (e.g., Ang and Jia 2014; Li, Meng and Zhang
2006; Sun, Zhu and Wu 2014). In the questionnaire, private entrepreneurs' political
status, as well as their personal and business background, was asked. Importantly,
entrepreneurs responded to the question of how much expropriation by local govern18
Phoenix Finance News (Chinese) http://finance.ifeng.com/a/20150202/13475261_O.shtml
19
For one example, see Institutional Indices in Li, Meng and Zhang (2006).
41
ment they have experienced. Direct interviews were conducted using a questionnaire.
The richness of this dataset allows me to analyze the determinants, the severity, as
well as variation of local-level expropriation. The survey also provides important
information on private entrepreneurs' political participation in a variety of political organizations, including the people's congresses, people's political consultative
conferences, and other government affiliated organizations and associations. Such
data allows me to compare the effectiveness of political participation in different
channels.
With the help of Chinese local collaborators, I conducted a survey on local government officials and bureaucrats in ten representative prefectures in China. This
survey measures the perceived importance of the private sector in the local economy and invites subjects to discuss the motivations of private entrepreneurs who
become involved in politics. Although respondents were clearly informed about the
academic nature of the survey, public servants are a particularly risk-averse and
politically sensitive population, and anyone should take their self-reported answers
with a grain of salt. Nevertheless, this survey provides a valuable perspective from
potential "predators" who are often accused by private entrepreneurs of acting upon
self-interests regardless of any sense of property rights.
To further investigate the causal link between formal office and protection of property, I conducted two original field experiments on Chinese bureaucrats to observe
how local bureaucracies respond to citizens with connections to formal institutions
in a real-life context. These experiments involve directly contacting officials to examine how they respond to realistic messages from putative private entrepreneurs.
Data generated from the experiments allow us to examine behavioral outcomes and,
more specifically, officials' preferences towards individuals with different political
statuses and ties, as well as to evaluate whether the signaling mechanism I proposed
42
"I'll
111-1- -
-_.-, _ ,
wwrmw
in the theory is in fact at work.
43
Appendix
The survey experiment among Chinese local tax officers is the following:
Survey Content
The local tax bureau of County A in Jiangxi Province2' has recently received an
order from the provincial office that it needs to collect 100,000 yuan extra tax to
meet the annual target. The local tax bureau head decides to launch a new round
of tax collection from local businesses who are suspected tax evaders. They have
narrowed down their targets to a list of two private enterprises. They would love
to get your help on how they should go about collecting extra taxes and fees from
these two enterprises.
On the following page, you will receive some information about these firms. Please
read it carefully, and make a recommendation to the tax bureau on the order in which
to visit these firms to collect extra taxes.
If you think the information is sufficient, you can also make a proposal on "suggested amount of extra tax" to be collected from each firm. If you think County A
should not collect extra tax at all from one or both firms, you should also note that.
20I
did not interview any tax collector in Jiangxi Province so this survey is understood as hypo-
thetical.
44
Statement of Consolidated Income for the year ended June
30, 2012 (Unit: 10,000 yuan) and basic firm owner info
(political position only appears in treatment condition and it is randomized into one
of the two firms).
A
B
Manufacturing
Manufacturing
46
M
College
County PC Deputy
45
M
College
none
1598.35
825.03
773.32
400.81
950.49
537.11
413.38
169.36
Firm
Industry
Firm Owner Info
Age
Gender
Highest Degree Held
Political Position (If any)
Firm Info
Revenue
Total cost and operating expense
Earnings before income taxes
Taxes and Fees
(a) If you are asked for advice by the County A tax bureau and had to pick just
one firm to collect additional revenue from, which one do you think they should
pick? Why?
(b) If the tax bureau of County A decided to collect additional tax from both
companies, how much should they collect from each firm?
45
Chapter 2
China's Legislative System
This chapter serves two functions: First, it provides a brief overview of China's
current legislative system and its history; and second, through a detailed survey of
the CCP history and how the Party leadership has envisioned the people's congress
system, it dismisses the argument that co-optation of the business class was or is a
main function of the Chinese legislature.
The chapter is organized as follows: The first section provides an overview of the
Chinese legislature -
the people's congresses -
with a focus on deputy composi-
tion, selection, competitions, rights and responsibilities. The next section surveys
the history of the people's congress system with a focus on how the Party leadership has envisioned the role of the legislatures. The Party uses the legislatures to
mobilize cadres to discuss and implement new policies, to gather feedback on developing problems, and to show the public that it does not run the country in total
secrecy. On the other hand, contrary to the co-optation hypothesis, co-opting the
business class has not been an explicit function of the Chinese legislature: there is
no quota for seats designated to the business class; the CCP has strong control over
local legislatures; and legislators do not make laws or have much influence over local
policies. Therefore, evidence is not consistent with the co-optation hypothesis. The
chapter then briefly discusses the functions of the Chinese People's Political Con-
46
.........
...
sultative Conferences (CPPCC), a political advisory board to the governments and
a political institution that is often informally referred to as the "lower house" of the
people's congresses. I show that CPPCC also provides a certain degree of political
network, but the opportunity is much smaller compared with the legislatures. The
final section concludes.
The Chinese Legislatures: A Snapshot
The institutional focus of this dissertation is China's local legislatures -
the local
people's congresses. Local people's congresses are established in the following administrative levels: provinces, municipalities directly under the Central Government
(zhizxia shi -0$WrN), counties, prefectures, prefectural districts, counties, nationality(ethnic) counties, and townships (Article 95 of the Constitution).21 When I talk
about "subnational" or "local" legislatures, I refer to people's congresses below the
national level. Some levels of subnational people's congress have more power than
others -
the biggest difference is that people's congresses at the provincial and
prefectural levels have the power to make laws, while the rest do not. All levels of
local legislatures share many similar functions.
21At the village level, the villager's assemblies represent "a form of direct democracy that would
supplement the indirect democracy of the people's congresses" at higher levels (Oi and Rozelle,
2000).
47
Figure 2.1: Hierarchy of China's Legislatures
F
National People's Congress
Provincial and zhixia Prefecture People's Congress
Prefectural, zhixia County People's Congress
County and Ethnic Township People's Congress
Township People's Congress
As stated in Article 2 of the Constitution of the People's Republic of China,
"[tjhe National People's Congress and the local people's congresses at various levels
are the organs through which the people exercise state power."
Article 3 states
that "the National People's Congress and the local people's congresses at various
levels are constituted through democratic elections.
people and subject to their supervision."2 2
They are responsible to the
National and subnational legislators
exercise state power through "law and regulation making" (Article 99), "appointment
and dismissal of government officials" (Article 101), "supervision" (Article 104), and
"appointment, dismissal, training, assessment of public administration staff (Article
107, see appendix for more detail).
Local legislatures make local policies, while only legislatures above the county
level make local laws. The lawmaking power of local legislatures is fundamentally
restricted because in principle "Chinese legislatures should report to, and get prior
22
The Constitution. rJI A
JM
M http://www.npc.gov.cn/npc/xinwen/node_505.htm-#45.
For an English translation, see the official website of the National People's Congress at
http://www.npc.gov.cn/englishnpc/Constitution/2007-11/15/content_1372965.htn.
Accessed
May 11, 2015 and May 19, 2015.
48
approval from, the CCP in all important matters of lawmaking" (Cho 2009, 20).23
Moreover, similar to the lawmaking process at the national level, where the lion's
share of legislative initiative, drafting has been "the responsibility of the administrative organs of the State Council" (Tanner 1999, 118), at the local level, local
governments take the initiative in agenda-setting and drafting (Cho 2009, 42; Macfarquhar 1998). As a result, even if the business sector is highly represented in some
local legislatures, it is still impossible to initiate laws or regulations to formally provide protection to property. And of course, enforcement of such laws or regulations
is another issue.
Appointment and dismissal of government officials and public administration staff
is also more of a de jure power rather than a de facto one. Although government officials are formally appointed and, in rare cases, dismissed by local people's congresses,
the decisions are usually made in advance by the Party and the local governments.
In rare cases do legislators appoint or dismiss government officials at their own will.
Local legislatures also have the power to "supervise the work of the people's government." The supervision power is regarded as the most important role of the local
legislatures (Cho 2009).
The people's congresses were invited to oversee policy implementation in the 1980s
(O'Brien 1994b). As a result, people's congress deputies have been slowly gaining a
new reputation as "remonstrators" (Macfarquhar 1998; O'Brien 1994a). During this
period, the Party has come to consider legislative supervision as "a useful means
of checking and preventing corruption in governments" (Cho 2009, 47). Legislative
supervision has since played an increasingly important role in local politics, making
officials more accountable to the people (Alm6n 2005; Xia 2000).24 Deputies super23
Tanner (1999), on the other hand, has argued that the CCP's control over lawmaking has experienced an erosion in post-Mao China (Chapter 4).
24
To the contrary, some China scholars have also argued that "local people's congresses play virtually no role in supervising policy implementation of county and township/town government"
49
vise governments through two methods: examination of the enforcement of laws and
appraisal of government officials.
There are two types of appraisal: self-evaluation (AIRU*il ) and deputies' appraisal (ifiF
). The first type of appraisal usually happens during the annual
plenums of people's congresses, while the deputies' appraisal can happen anytime
of the year. In terms of self-evaluation, people's congress deputies at all levels have
the responsibility and the power to attend hearings and to review government work
reports, to question and interpellate, and to take part in special investigative commissions on governmental bureaus and officials. A county-level people's congress in
Guangdong Province, for instance, dismissed six local officials from their posts in
2010. Similar dismissals by local legislators have also happened in Yunnan, Zhejiang, Sichuan and Hunan (Cho 2009, 61; Xia 2000). Since the deputies have the
power to dismiss government officials from their posts and to appoint new ones, they
could use their formal power to significantly affect officials' career prospects. The
"power to dismiss" could trigger government officials' preferential treatment towards
people's congress deputies and their friends. And "the power to appoint" certainly
adds more incentive for government officials to treat people with political connections differently.
Dickson (2008), for example, argues that the appraisal process
gives deputies "some degree of influence and oversight" (172).
The second type of appraisal is deputies' appraisal. People's congress deputies
are sometimes assigned to "appraisal or supervision groups," and one group usually
corresponds to one specific government agency. In theory, the group should conduct
investigations for several months by visiting relevant officials and interviewing residents (Cho 2009, 59); in fact, these supervision groups usually visit the assigned
agency once a year, when the agency hosts a focus-group meeting
(Zhong 2003, 154).
50
(Gif)
and dis-
cusses their work. The supervision group then evaluates the quality of the agency's
work and writes up an appraisal report to the people's congress standing committee. The report will be delivered to the Party committee and, if a majority of the
supervision group members do not approve the officials or agencies supervised, an
official will face punishment including dismissal.
The People's Congress Deputies
Legislators in people's congresses are called people's congress deputies. According to
Article 97 of the Constitution, people's congress deputies at the county, prefecture
without districts, prefectural districts, and township levels are directly elected by the
constituents. Deputies at the provincial, zhixia prefectural, and prefectural levels
are elected by their lower-level people's congresses. The Constitution vaguely states
that local deputy quotas and electoral processes should be regulated by "law." The
term of local people's congress deputies is five years, but the Constitution does not
specify a term limit (Article 98).
People's congress deputies are supervised either by constituents at the county level
and below, or electoral units at the higher levels. Constituents or electoral units
have the right to dismiss deputies according to a specified process (Article 102) (see
appendix for more details regarding the rights and responsibilities of national and
local legislators).
Being a legislator in China is a part-time job. It is clearly stated in the Deputy Law
that deputies shall not "be separate from their own production and work" but when
they attend people's congress meetings and other events and activities organized by
the people's congress during the off-meeting period, deputies should give priority to
their legislative duties, and arrange their work accordingly.
51
-_1
To ensure that deputies exercise their rights, the Deputy Law stipulates a set
of "guarantees" or "privileges" for deputies, and "immunity" and "responsiveness to
proposals" deserve highlighting:
Table 2.1: Privileges Enjoyed by Deputies (Deputy Law)
Article 32: [Immunity]
Deputies at county level or above cannot be arrested or prosecuted, unless the
people's congress presidium (in sessions) or standing committee (off sessions) issues
a permission.
Article 42: [Responsiveness to proposals]
Relevant government bureaus and organizations should take deputy proposals, critiques, and suggestions seriously. It is required to reply to them within 3-6 months.
Recall that my answer to the question of why entrepreneurs join local legislatures
is that they use their legislator status to protect property from expropriation. The
"immunity" privilege provides an alternative explanation: Private entrepreneurs seek
seats in legislatures because they get immunity from prosecution.
In Egypt the
strong guarantee of parliamentary immunity is particularly appealing to business
elites, who seek protection from arrest, detention, or charge of criminal activity
(Blaydes 2011, 10).
In Chapter 4, I describe an incident in which a prefectural
entrepreneur-legislator used his immunity privilege to successfully escape possible
criminal charges, but overall such cases do not happen very often in China.
Local legislators also enjoy "responsiveness" from government bureaus toward their
policy proposals and suggestions. The benefit of "responsiveness to proposals" is not
directly related to the outcome of interest -
government expropriation -
but it
is relevant from the perspective of research design; in Chapter 5, I use two field
experiments to study preferential behaviors of bureaucrats toward entrepreneurs
with connections in local legislatures.
In these experiments, I indirectly invoke
legislators' right to receive "responsiveness" from local governments.
52
Composition, Selection, and Competition
One consensus from the studies of legislative recruitment is that "opportunities to
serve in legislatures are quite unevenly distributed in all societies" (Matthews 1985).
It is very much so in China.
Local people's congress deputies come from a variety of industries, sectors, and
occupations. Representation varies by region, yet government officials and business
elites are usually the largest groups represented in the Chinese local legislatures. A
small portion of the business elite come from the state-owned sector; the private
sector is increasingly claiming a larger number of seats in Chinese people's congresses (Li, Meng and Zhang 2006). The most represented occupations in Zhejiang
Provincial people's congress, for instance, are government, military and CCP officials
(35.5%), peasants and workers (20.6%), and private entrepreneurs (17.0%) (Table
2.2). The percentage of private entrepreneur deputies is similar to a county people's
congress in Hunan (21.1%), a district people's congress in Guangdong (22.0%), and
much higher than counties in Guizhou (<10%). 25 These percentages also correspond
to the percentage of entrepreneurs represented in the NPC, which is about 20%.
25
The information on local legislatures is not public, therefore I am anonymzing the names of
the locations. Usually, local people's congress websites publish deputy names, party affiliations,
gender and perhaps a picture. Occupation and detailed contact information is usually not public.
53
Table 2.2: Deputy Composition of Zhejiang's 12th Provincial People's Congress
Number
226
108
13
131
Percentage
35.5%
17.0%
2.0
20.6%
158
636
24.9%
Other
Total
%
Government, Military and CCP Officials
Private Entrepreneurs
SOE Entrepreneurs
Peasants and Workers
Note. Number of private entreprises and SOE represented are subject to measurement errors, because the ownership structure for some of the firms is unclear based on their websites.
List and occupation is from Zhejiang Online
at http://zjnews.zjol.com.cn/05zjnews/system/2013/01/19/019099130.shtml and
http://blog.sina.com.cn/s/bloga3f2f5990101hp2h.html (accessed May 13, 2015).
In other cases, deputy occupation information is not easily accessible, making similar
analysis and comparisons difficult. We should keep in mind, however, that Zhejiang
is a province where the private sector is well developed, and the representation of the
private sector in the local legislature might be higher than in some other provinces
where the private sector is weak.
Getting a seat in the local legislature is a complex and competitive process. According to the 2010 Electoral Law, county- and district-level legislators are directly
elected by their local constituents, and legislators at the prefectural, provincial, and
national levels are elected by their lower-level legislatures.
The total number of
seats at each level is stipulated in the Electoral Law. 26 A temporary Party-led election committee, the majority of whose members come from the local Communist
Party committee, is formed prior to elections to manage the electoral process. To
ensure broad representation, the election committee assigns quotas specifying that
each congress should have a certain proportion of government and party officials,
entrepreneurs, peasants, intellectuals, and deputies representing other occupations
(O'Brien and Li 1993). According to the Electoral Law, the ballot must list 1.33
26
Electoral Law of the People's Republic of China for the National People's Congress and Lo-
cal People's Congresses (2010 Amendment) lEffectivel.
http://en.pkulaw.cn/display.aspx?cgid-127960&lib-law.
54
3
AK AJP
ij@*
Accessed May 25, 2015.
PKU Law.
to 2 candidates per legislative seat, and the election committee decides on the final
number (Manion 2014).27
Since this dissertation focuses on entrepreneur-legislators, I mainly discuss how
it works for a private entrepreneur to get a seat in a local legislature. The process
works somewhat differently for candidates from the government, the Party, and
the military, since these candidates are, for the most part, hand-picked by their
organizations. In contrast, campaigns for seats set aside for private entrepreneurs
are more competitive.
If a private entrepreneur wants to get elected, the first thing he must do is to get
nominated. Nominations are made either by the corresponding Communist Party
committee, or collectively by lower-level deputies and individuals. Thus, nominated
candidates are either "party nominees" or "voter nominees" (Manion 2014). Private
entrepreneurs are usually nominated through the first channel -
party nomination
by design.28
-
Here, I use provincial people's congresses as an example, but the process of getting elected as a private entrepreneur should be similar at other levels. For example,
among the 700 seats in a provincial people's congress, 100 seats are directly nominated by (allocated to) the Communist Party committee. The remaining 600 seats
are allocated to those voting districts (i.e., Prefectural and PLA units) at the next
level within the province, and the Communist Party committee in these districts
then decides how to allocate those seats. If a prefecture were allocated 60 seats
among the 600 seats, the prefectural Communist Party committee would directly
2
IFor an overview of the election procedure, see Chapter 6 of Alm6n (2005).
28
Starting in 2011, selected Chinese local people's congresses experimented with a new form of
nomination: independent candidate nomination. Here, a local legislator candidate can be on
the ballot as an "independent candidate" if he is nominated by a certain number of constituents,
and formal endorsement from any parties or government affiliated organizations is not necessary.
In 2011, 11% of the total number of independent candidates in thirteen selected locations were
entrepreneur-candidates (He and Liu 2012).
55
nominate some candidates and then distribute some seats to the voting district at
the next level down -
the districts and counties. After several rounds of distribu-
tion and allocation, a county might receive a number of allocated seats. Assuming
that a county receives 5 allocated seats, it is a given that one seat would go to a
local party or government leader, presumably the county Communist Party secretary or the county head, and one seat would go to a female candidate, and three
remaining seats can be up for grabs (Interview G151).
If a private entrepreneur
is thinking of running for provincial legislator, he should think carefully whether
he has a shot at one of the three seats; but if a female entrepreneur wants to run,
she might want to discuss with relevant sources whether she has a good chance securing the female seat. All of these strategic calculations and decisions are usually
made among the entrepreneur candidate, the election committee, the local Communist Party committee officials (especially those at the Organization and the United
Front Work Department), personnel at local people's congress standing committee
offices, and other organizations that might be involved in nominating candidates
(Interview G151). As one can imagine, a significant amount of informal lobbying is
going on during the nomination process. Anecdotal evidence suggests that this type
of lobbying is highly costly and informal, and thus risky, and getting nominated is
only "step one" in securing a seat in a local legislature.
In sum, to be elected as a provincial legislator for instance, a private entrepreneur
first needs to be nominated either by the Provincial Party Committee, a Prefectural
Party Committee, or a County/District Party Committee, all of which make the
final nomination but receive recommendations from democratic party committees,
local governments, and various organizations. After the entrepreneur makes it onto
the ballot, he will be voted on by the corresponding prefectural legislators. Since
the number of candidates is usually 20% to 50% more than the number of seats, an
56
entrepreneur candidate usually engages in some form of campaign to secure votes
and, in some cases, such campaigns incur high costs and might even entail bribery.
Entrepreneur-legislators I interviewed usually refrained from talking about the
campaign process, but contrary to the standard assumption that deputy seats are
"arranged" and tightly controlled (Chen 1999, 67), many of my interviewees think
that securing a seat is "highly competitive" (Interview 0126; P1311), "costly" (Interview P124; P1222), "too much work" (Interview P1212), and especially so if a
legislator wants to go one level up (Interview P134). Cho reveals that influential
regional figures, including entrepreneurs, "have asked legislative leaders to help them
to become deputies since the mid-1990s" (Cho 2009, 84). Finally, while spending
money to secure a seat is important, it is essential for entrepreneur-candidates to
secure endorsement from the local people's congress standing committee and the
local Party committee. A private entrepreneur, Mr. Wang, who has spent three
million yuan and had already secured a seat in the prefectural people's congress
in 2011, had to renounce his deputy title because he did not seek the endorsement
from the county-level people's congress standing committee. The county PC chair
and the county tax bureau head visited his office, offering him the option of getting
audited by the tax bureau or renouncing his title (Zhang 2014). It is likely that
getting audited would have cost him more than three million yuan.
The People's Congress System: Not for Co-optation
Since I am arguing that property protection is an unintentional institutional arrangement derived by individual legislators from people's congresses, it is imperative to
understand the functions of the people's congress system by design as it originated
and develops. In this section, I show that although the people's congress system
57
plays some role in facilitating the inclusion of the capitalist class into the regime,
the Party leadership did not envision "co-optation" as a main function of the people's
congress system.
Co-optation theorists argue that when autocrats face threats of rebellion, they
offer rents and policy concessions to co-opt potential opposition (Gandhi and Przeworski 2006). In the following section, I argue that the CCP has not faced threat
of rebellion from the business class and therefore does not yet have the urge to
co-opt this class; and even if the people's congress system distributes rents to its
members, it is not a system of co-optation. More specifically, I show that: the CCP
regime has historically been "anti-capitalist" until very recently; and the CCP has
kept tight control over the people's congress system and has not granted legislatures
and legislators more power in the reform period. These pieces of evidence are not
consistent with the co-optation hypothesis regarding the functions of the people's
congress system.
The people's congress system took its roots in the first civil war period, with
several organizations emerging as embryonic forms of the people's congress system.
These groups included the CCP-led peasants associations, the Sheng Gang strike
workers' association (
!! @)
in 1925, the Citizens Congress ($ri
and the Shanghai mayoral government after the successful 1927 workers'
revolution (Zhang 2002, 304).
The Chinese People's Political Consultative Conferences (CPPCC, discussed further in the next section) functioned as the "temporary Congress" from 1949 until
1954, when the Constitution set up the People's Congress as China's legislature. The
people's congress system was closely modeled after the Soviet legislature. The 1954
set-up of the people's congress system was modeled after the Soviet system based
on the 1936 Soviet Constitution, which certainly did not have a "pro-capitalism"
58
element (Cai 1992, 17-18).
Between October 1954 and the end of 1957, the standing conmiittee of NPC held
a total of 89 meetings, averaging 2 to 3 meetings per month. During this period
the NPC discussed and decided critical issues facing the new republic, selected state
leaders, and stipulated a set of important laws and statues (Zhang 2002, 317).
Sinologist John Fairbank observed the activities of Beijing's first people's congress
meeting in 1949: "When I stepped into the conference hall, I saw many people: They
were wearing uniforms, work clothes, short sleeves, Qi Pao
(V$, traditional Chi-
nese dresses), western suits, traditional Chinese long suits, and someone wearing a
skullcap. All these different looking individuals were discussing (political and social)
issues together. ...
then I looked up and saw the word "deputy." Representative-
ness! Beijing is a diverse city. If deputies all look the same, how could they be
representative!" (Zheng 2014)
However, the liveliness of the people's congresses did not last long. During the
first wave of the Anti-Right Movement (1957), 62 NPC members were labeled and
purged as "rightists" due to their criticisms of and suggestions to the Party and the
government. As a result of this purge, deputies could no longer exercise the power
given to them by law and did not dare to discuss politics and policies. Legislative
and policy proposals from NPC deputies dropped from 243 in the 4th plenum of the
first NPC to only 46 proposals in the second plenum of the third NPC. Between 1959
and 1966, NPC did not make a single law and the Party "took over most important
issues" (Zhang 2002, 319). During the Cultural Revolution (1966-1976), people's
congresses completely stopped functioning, and any previous efforts to strengthen
and develop the people's congress system were "basically down the drain" (Jiang
2009).29 By then, the NPC's reputation was "a mere formality that the people mock
29
Also, see Chapter 3 of O'Brien (1990) for a comprehensive account on the early development and
struggle of the NPC.
59
as a rubber stamp; in the people's eyes the people's congress system exists in name
only; people regard the NPC as a phony organ or idle talk" (O'Brien 1990, 60).
The year 1982 marks the revival of the people's congress system. The new 1982
Constitution restated the roles of people's congresses, which remain largely unchanged today.30
The CCP has traditionally been an "anti-capitalism" party: In the 1950s, it initiated a land reform that redistributed lands from landlords to peasants; the welfare
of the peasants was the objective of the Communists' program and the basis of
their political power. The fact that landlords and rich peasants were killed by tens
of thousands hardly suggests the CCP began as a capitalist-friendly party (Chang
1951). Forms of "capitalist exploitation" were also to be curbed. Such policies stifled
industrial production. Mao's fear that a "capitalism will be restored" and "the whole
of socialism will be done away with" launched the Cultural Revolution (1966-1976),
which threw the Chinese political system into chaos (MacFarquhar and Schoenhals
2006).
In the revised 1982 Constitution, the CCP still remained "anti-capitalism." The
Constitution stated that "[t]he proletariat dictatorship will inevitably replace the
dictatorship of bourgeoisie ...
the socialist system has incomparable superiority
over the capitalist system." In the 1990s, entrepreneurs continued to be excluded
from the Party partly because they supported the student demonstrators in 1989
(Dickson 2008, 119). The incorporation of the private sector by the Party did not
happen until 2001, when then-Party General Secretary Jiang Zemin introduced a
new guiding theory for the CCP called the "three represents" (_
K'fi
), calling
for the party to represent advanced social productive forces, advanced culture, and
the greatest majority of the people. This new theory "paved the way for a renewed
30
See Cai (2007) for a description of the people's congress system reform starting 1978.
60
IIF2
'''fMil!MMMMMPTMPMME|Wim'imillF"MI
WI'!EPA'"II'M'1"MSIIUPIUM
it'il'RWP'fi"
P'Ul'UPI'!'m1F'
recruitment of entrepreneurs into the party" (Lardy 2014, 119). And in 2002, Jiang
Zeming announced that the Party is "determined to encourage, support and guide
the development of the nonpublic sector" at the 16th CPC National Congress (Guo
et al. 2014).
In the reform period, the composition of the NPC, local people's congresses and
their committees were to include members of formerly disparaged social groups,
including "tails of capitalism," and Party leaders expected them to "penetrate society,
to build legitimacy, and to contribute to system maintenance" (O'Brien 1990, 8).
However, two factors have limited people's congresses from becoming a genuinely
attractive institution for elite co-optation in the reform period: the Party's tight
control of the people's congress system and lack of power among individual legislators
while the power of people's congress committees strengthened.
First, the Party insisted on having tight control over the people's congresses,
from nomination of legislator candidates to agenda setting at the people's congress
meetings. The 1982 Constitution made it clear that the Party controls the people's
congress system and that strong party leadership of and oversight over people's
congresses persist today. Jiang (2009) believes that the Party's leadership of the
legislatures is essential in ensuring the "socialist characteristics" of the legislative
system.
Cai Dingjian, a legal scholar who has worked in the National People's
Congress and the Shenzhen prefectural people's congress for more than ten years,
argues that a main political reform within the people's congress system should be to
"separate the Party from the people's congresses" (Cai 2011). Otherwise, legislators
are simply "writing laws that are already written, deciding on issues that are already
decided, dismissing individuals who are already dismissed by the organization department, and supervising issues already supervised by (Party) leaders" (Cai 2011).
Kevin O'Brien comments that NPC deputies "often discussed improving one-party
61
rule" but "few suggested ending it" (O'Brien 1990, 6).
Relatedly, the Party leadership again rejected the proposal of a bicameral legislature system, which was supposed to divert more power to the legislature from
the CCP. It was first proposed in 1954 by Zhang Bojun, the then-president of the
China Democratic League, and it was not received well (Liu 2004). When the Constitution was under revision in 1981, the discussion came up again and the majority
of the NPC deputies were supportive of a bicameral legislature. Among the many
advocates was Hu Qiaomu, a member of the Politburo, who proposed that the NPC
should reduce its size from 3,000 deputies to 1,000, and split into two congresses.
Hu argued that having 500 deputies in one congress would be much easier and more
efficient for quality discussions and debates to take place, and the new set-up would
give people less of an impression that the National People's Congress was simply
a "rubber stamp" (Cai 2006, 91-92).31
With a smaller NPC, deputies would play
a larger role in law making, supervision, and representation (O'Brien 1990, 137).
This proposal, although originating high in the leadership, was again rejected by
Deng Xiaoping, who believed that coordination costs would be too high for two
congresses when disagreement arose. Deng's decision was backed by other Party
leaders such as Ye Jianying, who proposed for a stronger people's congress standing
committee as an alternative solution to the rubber stamp iniage problem (Cai 2006,
91-92; O'Brien 1990, 137). Party leaders were concerned that the bicameral system,
if implemented, would have constrained the power of the CCP over the legislative
system.
Second, the 1982 Constitution increased the power of people's congress standing
committees instead of increasing the power of people's congress deputies. According
to the revised Constitution, local people's congresses at the county level or above
3101n the other hand, defenders of the status quo argued that a bicameral system would further
weaken the NPC (O'Brien 1990, 138).
62
should be able to establish their own standing committees. These committees have
the right to discuss and decide important local issues and policies; to supervise local
governments; etc. Standing committees at the provincial level have the power to
issue and enact local laws and regulations (Cai 2007; Zhang 2002). Scholars argue
that the NPC and LPC standing committees act as "second chambers" in view of
their independent authority to pass laws or local regulations alone (Zhang 2012, 53).
The establishment of local people's congress standing committees and the push for
more professionalized standing committees was an important reform, but it did not
grant people's congress deputies more power.
In the first few congressional sessions in the reform era, the Party's goal was primarily to bring things back to normalcy. Zhang Qianfan, a prominent legal scholar,
comments that "there were genuine efforts at institution-building at the beginning
of the reform period, with the intention of making the NPC a fully functioning legislature. From the time of the first NPCSC Chairman, Peng Zhen, who personally
suffered from lawless persecution during the Cultural Revolution, the status of the
People's Congresses gradually improved" and that "the People's Congresses are still
'rubber stamps,' but occasionally they do surprise those who take such an image for
granted" (Zhang 2012, 123).
Further, if the people's congress system serves to co-opt the business elite, we
should expect that (i) the CCP sees the business class as a threatening force; (ii)
the official quota makes formal arrangement to include a certain portion of entrepreneurs.
First, most scholars argue that the business class has been largely
supportive of the regime and is far from being a threatening force (Dickson 2008;
Pearson 1997; Tsai 2007).
Such view is shared by many Chinese scholars, who
see Chinese entrepreneurs' political participation as mostly "symbolic" (Lang 2009).
Nicholas Lardy argues that CCP recruits entrepreneurs into the system because it
63
still fears that entrepreneurs might organize outside of the Party, as appeared to be
the case in 1989 (Lardy 2014, 120). But Lardy does not provide further evidence to
support this claim.
In Communist Poland, the Polish United Workers' (Communist) Party intended
to "introduce to the Sejm [Parliament] a significant group of 25 percent of Catholic
deputies" with the goal of broadening "the political base" (Gandhi and Przeworski
2006). In China, such quotas usually guaranteed that individuals from ethnic minorities, the military, and returnees from abroad are represented in the legislatures,
but formally there is no guarantee that entrepreneurs take a certain percentage of
the seats (Cai 1992, 129-134).2
If one concludes from the quota system that the
people's congress is designed to co-opt the ethnic minorities, the military, and the
returning Chinese, it cannot be concluded that it is also intended to co-opt the
business class.
Summary
In sum, to answer the question of why, if it seldom has performed any legislative
functions, the people's congress system exists at all, Kevin O'Brien concludes that
"for thirteen of its first twenty-four years, NPC sessions were not held, and in other
years, it was dormant for long stretches of time. It appeared on the political stage
mostly to mobilize cadres and mass activists to take part in implementation of
new policies and to gather feedback on developing problems." Another important
function in its earlier years was to "relax habitual secrecy and to announce changes to
the attentive public" (O'Brien 1990, 86). In Cai Dingjian's answer to this question,
he argues that theoretically the high concentration of power in the people's congress
system was a response to the highly state-controlled economy in its earlier years
32
Informal quota which gives certain number of seats to entrepreneurs exist at some local legas described in O'Brien and Li 1993. In Chaohu Prefecture of Anhui Province, for
example, the prefectural Party secretary promised two provincial PC seats (and the possibility
of NPC seats) to two private entrepreneurs in exchange for local investment (Zhang 2014).
islatures,
64
(Cai 1992, 17-21).
In Jordan, the government allocates "an unofficial quota for parliamentarians'
relatives and acquaintances to avoid friction with deputies, and better still, to secure
safe haven from the deputies' comments and criticism" (Lust-Okar 2006b). In Iran,
MPs have "authority over how money is spent" within their district (Mahdavi 2015).
In Mexico under the PRI, legislators distributed pork to constituents in exchange
for votes (Magaloni 2006). In Egypt under Mubarak, targeted spending increased
so much that it raised inflation prior to elections (Blaydes 2011).
In contrast, Chinese legislators have much less power and resources than legislators
in these nondemocratic or semi-democratic regimes. Because the Party continues
to have a tight grip on the decision making of people's congresses and the system
grants legislators so few powers, people's congresses are not an attractive option to
co-opt business elites. Very recently the people's congress system started to offer
an olive branch to previously excluded individuals "a presence in policy making"
and the result might have been "increased support for the Party rule," 33 but the
evidence was lacking regarding whether (i) the Party leadership had this exchange
relationship in mind; and (ii) such a strategy actually worked.
Chinese People's Political Consultative Conferences
A discussion of Chinese legislatures is not complete without mentioning the Chinese
People's Political Consultative Conferences (CPPCC). Annual National and local
CPPCC sessions and people's congress sessions usually happen back to back, and
33 See O'Brien (1990, 155) for more discussion on this relationship.
65
they are usually referred to jointly as "the two conferences" (hang hui,
1
Ac-
cording to the Constitution, the CPPCC is "a broadly representative organization
of the united front," including deputies from the CCP, eight democratic parties,
non-partisan public personages, people's organizations, ethnic minority groups, and
patriotic personalities from all walks of life, including compatriots of Taiwan, Hong
Kong and Macau, and overseas Chinese." CPPCC operates at every level where
there is a people's congress. The two main functions of the CPPCCs are "political
consultation" and "democratic supervision." CPPCC deputies practice their rights
mostly through policy consultation proposals, and respective government agencies
are required to respond to their proposals within a given time frame." Unlike the
people's congress deputies, the CPPCC deputies are nominated by democratic parties and other organizations without any broad electoral process, and they are voted
on internally by the CPPCC standing committee members. A local commentator
has argued that the CPPCC deputy selection method is in fact an "invitation-only"
process, which discounts the consultative and supervision functions of the CPPCC,
therefore making it more like an "honors club."" He and Thogersen (2010) also
argue that CPPCCs lack "either the power of decision or veto" when it comes to
policy discussions.
Deputies coming from the CCP constitute a small percentage of the total number
of deputies in the CPPCCs. Other deputies come from a wide spectrum of sectors
and organizations. The 834 deputies of Shanghai's 12th CPPCC, for instance, were
nominated by 32 different parties and organizations. Among the organizations eli-
34
35
Charter of the Chinese People's Political Consultative Conference (2004 Revision) [Effective].
e http://en.pkulaw.cn/display.aspx?cgid-51997&lib-law. Accessed
May 21, 2015.
The National CPPCC Website. http://ww.cppcc.gov.cn/2011/09/27/ART11317102198751744.shtml.
Accessed May 13, 2015.
36
"How to become a CPPCC deputy" http://sd.china.com.cn/zhuanti/2015/changshi_0124/511.html.
Accessed May 21, 2015.
66
-
_.
-a,
AWWW9W9W6_
11
-__-4
gible to nominate included the CCP Shanghai party committee, which contributed
30 CCP party officials. The rest of the deputies came from other democratic parties
and a variety of organizations and sectors. For example, Shanghai's ACFIC nominated 39 deputies to the CPPCC, and they were mostly private entrepreneurs. 3 7
Deputies from the "economic sector" took 92 seats, and a significant portion came
from the private sector as well. It appears that besides the 30 CCP deputies who
work in government agencies and the CCP party committees, the vast majority of
other CPPCC deputies come from the business sector, academia, and democratic
party committees.
In several studies of political connections in China, scholars have treated a CPPCC
membership as the equivalent of a PC membership (e.g., Li, Meng and Zhang 2006;
Li and Zhou 2005; Stuart and Wang 2014). However, from the perspective of private
entrepreneurs, the opportunities to network with relevant government officials within
the CPPCC are much more limited compared with those within the people's congress
at the same level. The CPPCC still provides a valuable platform for entrepreneurs to
socialize with other business and social elites, and some entrepreneurs see the status
of "CPPCC deputy" as a stepping stone towards a people's congress membership
(Interview P154).38
The rest of this dissertation focuses primarily on private entrepreneurs' engagement within the people's congresses, but CPPCC memberships and their networks
were sporadically mentioned during my interviews and discussed throughout the dissertation. To some extent, the "CPPCC membership" is a weaker "treatment" than
the "PC membership" in terms of the political network the membership brings. In
37The Official Shanghai CPPCC website does not provide occupation information
for
deputies.
The occupation information is extracted from a Chinese politics blogpost
http://blog.sina.com.cn/s/bloga3f2f5990101g0xq.html), and thus the data reliability should be
taken with a grain of salt. Accessed May 13, 2015.
38
1t is also possible for a PC canididate to be "arranged" to become a CPPCC deputy. See Macfarquhar(1998, 664) for an interesting example from Shandong Province.
(
-9
67
Chapter 4, I further test whether a CPPCC membership has any "protective effect"
on private entrepreneurs' property quantitatively.
Discussion
This chapter argues that "co-optation of the business class" has not been a main
function of the people's congress system as envisioned by the Chinese Communist
Party. The Party has historically been a very anti-capitalist party. In the reform
era, it started to include the capitalist class into the legislative system, granting
them the rights to question political leaders and articulate group interests, yet it
was "limited inclusion" at best and far from the function of co-optation.
Further, even assuming that the Party leadership intentionally offers legislative
seats to industrialists and entrepreneurs in exchange for building legitimacy and
penetrating society, it would be difficult to conclude that such strategy has ever
worked. Local legislators still have limited influence over local laws and policies;
the inclusion of the business class' voice cannot interfere with the Party's decisions
(O'Brien 1990, 179); the business class has not become the Party's "most important
base of support" (Dickson 2008); and private entrepreneurs continue to feel that
they are the "lower class" in the political economy.
Using empirical evidence from fieldwork and a national survey, the next chapters
show that in contemporary China, private entrepreneurs still see predation as one
of the major challenges in operating a business. Among a variety of strategies, they
believe that a seat in the local legislatures protects their property from expropriation.
I also show that such a strategy is in fact effective.
68
Appendix
Table A2.1: State power exercised by the people's congresses
Article 99 [Law and Regulation Making]
Local people's congresses at various levels ensure the observance and
implementation of the Constitution and other laws and the administrative regulations in their respective administrative areas. Within the
limits of their authority as prescribed by law, they adopt and issue resolutions and examine and decide on plans for local economic and cultural
development and for the development of public services.
Local people's congresses at or above the county level shall examine
and approve the plans for economic and social development and the
budgets of their respective administrative areas and examine and approve
the reports on their implementation. They have the power to alter or
annul inappropriate decisions of their own standing committees.
The people's congresses of nationality townships may, within the limits
of their authority as prescribed by law, take specific measures suited to
the characteristics of the nationalities concerned.
Article 101 [Appointment and Dismissal of Government Officials]
Local people's congresses at their respective levels elect and have the
power to recall governors and deputy governors, or mayors and deputy
mayors, or heads and deputy heads of counties, districts, townships and
towns.
Local people's congresses at or above the county level elect, and have
the power to recall, presidents of people's courts and chief procurators of
people's procuratorates at the corresponding level. The election or recall
of chief procurators of people's procuratorates shall be reported to the
chief procurators of the people's procuratorates at the next higher level
for submission to the standing committees of the people's congresses at
the corresponding level for approval.
69
Table A2.2: State power exercised by the people's congresses (continued)
Article 104 [Supervision]
The standing committee of a local people's congress at or above the
county level discusses and decides on major issues in all fields of work in
its administrative area; supervises the work of the people's government,
people's court and people's procuratorate at the corresponding level; annuls inappropriate decisions and orders of the people's government at
the corresponding level; annuls inappropriate resolutions of the people's
congress at the next lower level; decides on the appointment or removal
of functionaries of State organs within the limits of its authority as prescribed by law; and, when the people's congress at the corresponding
level is not in session, recalls individual deputies to the people's congress
at the next higher level and elects individual deputies to fill vacancies in
that people's congress.
Article 107 [Appointment, Dismissal, Training, Assessment of Public
Adminsitration Staff]
Local people's governments at or above the county level, within the
limits of their authority as prescribed by law, conduct administrative
work concerning the economy, education, science, culture, public health,
physical culture, urban and rural development, finance, civil affairs, public security, nationalities affairs, judicial administration, supervision and
family planning in their respective administrative areas; issue decisions
and orders; appoint or remove administrative functionaries, train them,
appraise their performance and reward or punish them.
People's governments of townships, nationality townships, and towns
execute the resolutions of the people's congresses at the corresponding
levels as well as the decisions and orders of the State administrative
organs at the next higher level and conduct administrative work in their
respective administrative areas.
70
The National People's Congress and local people's congress deputy law further
specifies the rights and responsibilities: 39
Table A2.3: Rights Enjoyed by Deputies
Article 3 Deputies enjoy the following rights:
1. To participate in the people's congress sessions and to participate in the deliberation of all bills and proposals, reports and other issues, and putting forward their
opinions;
2. To propose legislation, inquisition and collective dismissals, in accordance with
law;
3. To advise, critique, and suggest on all aspects of works;
4. To participate in elections (of upper-level people's congress deputies) if applicable;
5. To participate in all votes held by the people's congresses at corresponding levels;
6. To acquire information and guarantees necessary for their performance of duties
according to law; and
7. To enjoy other rights stipulated by law.
Table A2.4: Responsibilities of Deputies
Article 4 Deputies shall perform the following duties:
1. To play an exemplary role in abiding by the Constitution and laws, to guard state
secrets, to assist implementation of the Constitution and law in the production,
work, or public activities which they take part in, to assist the implementation of
the Constitution and the laws;
2. To attend people's congress sessions on time, to earnestly deliberate and assess
bills, proposals, reports, and other topics, to express opinions, and to accomplish all
tasks during the sessions;
3. To actively participate in organized visits, research trips, investigations and other
activities related to deputy responsibility;
4. To develop and enhance further study and research ability, and to enhance their
capacity for performing their duties as deputies;
5. To keep close contact with constituents and electoral units, to listen to them and
to collect their opinions and demands, and to serve the people.
6. To consciously abide by social morality and be clean, self-disciplined, impartial,
decent and diligent; and
7. To serve other duties stipulated by the law.
39
"Law of the People's Republic of China on Deputies to the National People's Congress and
LVAK fdt&
Deputies to Local people's congresses" (2010 Amendment) [Effective]. rPA
Website: Law Info China. http://en.pkulaw.cn/display.aspx?cgid=13968'&lib-law. Accessed
May 19, 2015.
71
Chapter 3
Motivations to Run
On most people's congress websites, there is usually one page called "A Glimpse
of Deputies" (Dai Biao Feng Cai M
A A), dedicated to the profiles of selected
people's congress deputies. This page exhibits deputies' manifestos, which usually
are about how they see their people's congress deputy status as a glory and how
they fulfill the duty that comes with that glory. The manifesto of Deputy Cheng
Tianqing, a prefectural people's congress deputy from Changzhi prefecture of Shanxi
Province, represents a typical manifesto from an entrepreneur-deputy (Figure 3.1).
This manifesto was published in January 2010, with the title of "Cheng Tianqing: It
is a glorious responsibility for a people's deputy to make sure every single proposal
is of good quality." The author line shows "Cheng Tianqing, Prefectural people's
congress deputy; Chairman of the board at the Shanxi ZhongDe Plastic-Steel Profile
Co., LTD." It starts with the following statement:
In 2003, I was elected as a prefectural people's congress deputy with great
honor. I understand that in order to be a qualified people's congress
deputy, I have to represent people's interests, to bring people's wishes
(to the meetings), and to follow the Constitution and the law. Not only
do I have to be a role model at work and at public events, I also need to
72
enhance my understanding of theories related to the people's congress, to
develop my study skills, and to understand what the masses care about.
I will devote myself completely to serving the people.
Figure 3.1: "A Glimpse of Deputies"
A
'!:
2003V, f)t
*.
WN~s1ma
2010-01-21
MzAAktA%. AMA, W1-ftA t{AR& A Xkai J*A
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eea-
Note. A screenshot of "A glimpse of deputies" page at the Changzhi prefectural
people's congress website. The word "national" was obviously a typo.
Following the opening statement, he states that "A small enterprise belongs to an
individual, but a big enterprise belongs to the society" -
an expression that many
entrepreneurs use, which usually expresses their willingness to contribute to the
government's tax revenue and to public projects. He then showcases donations his
company has made in recent years and policy proposals he submitted as a deputy to
local governments. He ends his manifesto with a strong emphasis that "great honor
73
comes with great responsibility."
These kinds of manifestos are interesting to read, but they are highly monotonic
-
the selected people's congress deputies always describe being a deputy as a great
"honor" and a "glorious" moment for themselves and for their companies, and they
always stress that they represent the people.
They hardly talk about other, less
altruistic, motivations for being a people's congress deputy.
Do individuals compete for seats at people's congresses for the honor and to
serve the public? Are there any other less altruistic motivations to join the legislatures? The first observable implication derived from my argument is that private
entrepreneurs believe that being a legislator makes their property more secure. This
chapter will assess this implication from the perspective of private entrepreneurs,
and further validate it from the perspective of government officials.
The first section gives an overview of the private sector development in China
with a focus on the relevant legal development on property protection. It then provides a discussion on the definitions and interpretations of the term "expropriation,"
a central concept of the dissertation. Using interview evidence, the next section
establishes the fact that private entrepreneurs see predation as a major problem in
operating a business, and that securing property becomes a main motivation for
them to seek legislative office. Complemented with survey data, the chapter then
shows that government officials also acknowledge the predation problem and uiderstand that there is a need for entrepreneurs to use legislative office to protect
business and property. A final section surveys a small sample of legislative and policy proposals from entrepreneur-legislators. I show that although property security
has been a main concern for entrepreneur-legislators, they seldomly formally discuss
this issue when they submit legislative or policy proposals. In those rare cases when
they do talk about property security, they are very careful with their language to
74
avoid triggering political backlash.
The Private Sector and Property Security
China's private sector began to reemerge and expand after it was eliminated in
1956 when all significant industrial and commercial assets had been taken over by the
state (Dickson 2008, 34). Half a century later in 2005, the private sector contributes
to more than 50 percent of gross domestic product (GDP) (Dickson 2008, 62). By
2012, its share of industrial output was up to 76 percent (Cooper 2014). Yasheng
-
Huang attributes China's growth almost completely to the private sector growth
"China succeeded where and when bottom-up, private entrepreneurship flourished
and it stagnated where and when entrepreneurship was suppressed" (Huang 2008,
7). Many scholars have provided comprehensive descriptions of the development of
China's private sector in post-Mao era,40 and this section focuses specifically on the
development of property security for the private sector.
Legal Development
Frye (2004) defines property rights as "a bundle of rights that include the power to
consume, obtain income from, and alienate assets, such as land, labor, or capital."
Similar to Markus (2015), the focus of this project is on the rights in "tangible assets
that generate income streams." Intellectual property rights are outside of the scope
of this project.41
It is argued that property rights security is fundamental in supporting economic
40
For instance, see Dickson 2008, Chapter 2; Lardy 2014, Chapter 3; Tsai 2007, Chapter 3; Young
1995.
411 share Markus (2015)'s view that it is more difficult for state actor to profit from threats to
entrepreneurs' intellectual property rights and "the state may neglect to enforce intellectual PR.,
but it is typically private pirates who profit most from such neglect" (Markus 2015, 18).
75
growth (Frye 2004; Johnson, McMillan and Woodruff 2002; North 1973), and it has
been puzzling how the Chinese private sector developed despite a hostile business
environment that offers weak property rights protection. Before 1987, private enterprises were officially forbidden to operate in China. It was not until October 1987
that the CCP recognized the "private economic sector as a necessary supplement to
state sector " at the 13th Congress, followed by a constitutional amendment which
acknowledged the private sector as a complement to the socialist public economy in
1988 (Clarke, Murrell and Whiting 2008). The "Provisional Regulation on the Administration of Urban and Township Individual Industrial and Commercial Households," passed in 1987, provided a legal form to small proprietorship (ibid). The
period after the Tiananmen Square incident in 1989 entailed some retreat in terms
of economic reform, but it did not last long. More laws and regulations that lead
to greater economic openness and ownership flexibility were passed. Among those
include a Company Law passed in 1993 and the Economic Contract Law amended
in 1993. In 1997, the CCP further recognized the private sector as "an important
component of the economy" at its 15th Congress, followed by another constitutional
amendment which acknowledged the private sector as "major component" of the
socialist market economy (ibid). Subsequently, the Contract Law and the Law on
Individual Wholly Owned Enterprises were passed in 1999.
In 2001, then General Party Secretary Jiang Zemin made the famous announcement welcoming private entrepreneurs into the party at the monumental 80th birthday of the CCP.
Although scholars doubt that this announcement made much of
a difference, as entrepreneurs were often party officials first before they went into
business anyway (Clarke, Murrell and Whiting 2008), the number of private entrepreneurs who become CCP national congress representatives grew from 7 in 2002
42
See http://www.people.com.cn/GB/shizheng/252/5792/.
the CCP party's founding day
76
Accessed May 27, 2015.
July 1st is
to 34 in 2012. At least it is a signal that more private entrepreneurs are welcomed in
the decision-making process of the CCP regime.4
Again, a relevant constitutional
amendment and a series of laws and statutes were passed, generally favoring private
business operators.
In 2005, the State Council announced "Several Opinions of the State Council on
Encouraging, Supporting and Guiding the Development of Individual and Private
Economy and Other Non-Public Sectors of the Economy", which constituted the
first systematic policy documents supporting non-public sector development by the
State Council. Since there are 36 items in this document, people refer to it as the
"cnon-public sector 36"
("1tA
") document. A revised new "non-public sec-
tor 36" document was announced by the State Council in 2010 and was well received
by the private sector. The proposed "suggestions" include encouraging private capital to invest in state-dominated industries, ensuring that local governments provide
stronger protection and a better environment for private businesses." The private
sector saw the "non-public sector 36" as a positive gesture but acknowledged that
implementing these "suggestions" would need much more work by specific government agencies and compliance by the local governments." In the most recent CCP
plenum in 2013 (the third plenum of the 18th CCP Congress), the status of the
private sector was further strengthened: both the public sector and the non-public
sector have since been recognized as "important components" of the socialist market
43
Source (Chinese): http://news.chiia.com/18da/news/11127551/20121107/17513818.html.
Accessed May 27, 2015.
44
See
Chinese
source
at:
http://baike.baidu.com/link?url=Izk4NEYZfWxGa3xWy-
ineFlWrEOBKUkECAuHM-fETp5IGVExvSxYIi5xswI-RBL6FyXHWNDwd2VuOY4va#2
Accessed May 27, 2015.
45
Many entrepreneurs believe the 36 items in the new "non-public 36" documents
see
For instance,
remained vague and more specific policies are called for.
(Accessed May
http://www.china.com.cn/news/shanghui/2012-07/27/content_26029737.htm.
see
27, 2015) Some entrepreneurs were discontent how slow the implementation was:
http://finace.sina.com.cn/roll/20110520/00269869925.shtml.(Accessed May 27,2015)
77
economy.46
One observes a clear pattern of the private sector gradually gaining official recognition in China: The CCP usually recognized the greater importance of the private
sector at a national congress, after which a series of statutes, regulations and principles were passed, perhaps followed by an amendment of the Constitution. These
legal and policy changes may not be readily enforceable to the benefit of private
business owners, but at least they "represent a policy orientation and discourse that
may be expected to work its way gradually into governmental practice" (Clarke,
Murrell and Whiting 2008). Or, that is the hope.
Property Rights Violation and Expropriation
Although we witness the increasingly important status of the private sector recognized by the CCP and the state as well as statutes and regulations passed in support
of private sector development, it is still commonly believed that property rights are
largely unprotected against state predation in China (Che and Qian 1998; Haggard
and Huang 2008). Laws and regulations are not strictly enforced. The courts do
not have the de facto power to secure property rights, nor are other governmental
bodies capable of filling this role (Clarke, Murrell and Whiting 2008).
Scholars disagree on whether there is significant improvement in terms of business
environment and legal protection for private entrepreneurs over the past decades.
Huang (2005) points out that, despite legal recognition, with the introduction of
foreign investment and the re-emphasis on the state-sector, the 1990s China sees
the retreat of the private sector. On the other hand, Oi (1992) argues that stronger
property rights did exist among entrepreneurs through collective ownerships, a sys46
Again,
Chinese
source
at
sina.com
18/1757401615.shtml). Accessed May 27, 2015.
78
(http://edu.sina.com.cn/official/2013-11-
-. 1.1 I'll lwl-
_-;
.&_
WAWUW6WWW.W
tem she labels as "local state corporatism." Rodrik (2008) argues that "best-practice"
institutions (here, a system of strong property rights protection) might not be the
best solution to problems in developing economies; instead, "second-best" institutions which take into account of context-specifics might generate better results. He
believes that foreign investors, aware of China's dependent court system and weak
property rights protection, still gave China relatively high marks on the rule of law
in the 1990s since they evidently felt they were protected in China (Rodrik 2004).
Entrepreneurs might have felt more protected in the 1990s compared to the earlier times.
However, according to a recent survey, 51% of the surveyed private
entrepreneurs still reported that they have been expropriated by local government
to some extent.47 Among the entrepreneurs I interviewed, property insecurity is
still a major concern for doing business in China. Many entrepreneurs agreed that
although local government has become more service-oriented and treated the private sector with more respect, many lower-level bureaucrats are still "very ruthless
in getting what they want" (ye man *!V)
and there is "nothing one could do but
cooperate" (Interview P125; P135; P137).
Markus describes predators in modern developing states as "high-powered minibeasts:" they could be "policemen, party functionarties, local administrators, directors of state-owned enterprises, tax collectors, or the agents at any of the myriad
of departments with the power to halt productive activity (sanitation, fire safety,
social security, etc.)" (Markus 2015, 11). In China, there has been little de facto
legal or institutional constraint that limits governments from encroaching on private
enterprises in China (Che and Qian 1998). The state's grabbing hand is essentially
unconstrained, and these mini-beasts interfere with local businesses in a frequent
basis.
47
The ACFIC Survey.
79
Expropriation or Law Enforcement?
From the perspective of private entrepreneurs, there are two types of "expropriations"
imposed by local governments (Dai 2008; Fan 1995; Li and Gong 2013). The first
type is strictly illegal - bureaucrats taking property away from a firm without formal
or legal causes. Bureaucrats or government officials who engaged in this type of
expropriation usually know that such behaviors are illegal and would prefer not to
get caught.
The second type of expropriation is sometimes described by entrepreneurs as "selective enforcement of laws and regulations."
In contrast to the first type, these
selective law enforcements are perfectly legal from the perspective of officials and
bureaucrats because their acts are supported by laws or regulations. In those cases,
expropriation is in part fining companies for infractions, and there are much discrepancy on which company one selects to enforce laws or regulations upon.
It might be easier for readers to understand "selective law enforcement" in China
after a brief description of China's tax structure for businesses, since many incidences
of expropriations are tax-related. China's tax regime remains one of most hostile
ones for businesses. The World Bank Doing Business 2015 Report ranks China 120
out of 189 economies in terms of "paying taxes," which is a measure of tax burden for
businesses.4 8 Using Shanghai as a representative case for China, the total tax rate
(defined as a percentage of profit) is 64.5, a number almost doubling the East Asia
and Pacific OECD average rate of 34.4, and much higher than the OECD's average
rate of 41.3 (WorldBank 2015). Given such a high tax rate, most of my entrepreneur
48
According to the doing business website, "paying taxes" measures "the tax that a medium-size
company must pay or withhold in a given year, as well as measures of the administrative burden
in paying taxes. These measures include the number of payments an entrepreneur must make;
the number of hours spent preparing, filing, and paying; and the percentage of their profits they
must pay in taxes." URL: http://www.doingbusiness.org/data/exploreeconomies/china#payingtaxes. Accessed May 20, 2015.
80
interviewees confessed that it would be impossible if they become completely honest
in their financial accounting, and they believe most companies have to engage in
"reasonable tax evasion" in order to survive (Interview P156; P1312; P1218). Such
claims are substantiated by a fascinating study which compared financial statements
of a large set of companies that concurrently applied for government-funded innovation grants and that filed financial statements with a different state agency in
collaboration with the State Administration of Taxation in one Chinese city. The
study discovered that more than half of these companies cooked their books and the
companies with better political connections are more likely to commit fraud (Stuart
and Wang 2014). Tax collectors, on the other hand, are well aware of the prevalence
of "selective tax evasion"' and often use it as opportunity to investigate upon firms
when they need extra revenues. Examples are given in the next chapter.
Many times, it is difficult to distinguish whether the threat of expropriation falls
into the legal or illegal category. As Markus (2015) depicts the cases of Russia and
Ukraine, "(s)uch treats (of expropriation) may include a municipal court issuing
an injunction paid for by a competitor; a policeman shutting down some retailers
to intimidate others; a local officials pressuring a firm to give a job to his relative
lest the company lose its operation license" (22). Expropriations by bureaucrats in
China do not look too different from these cases, and the following section provides
examples to illustrate how they look like in China.
81
Expropriation: More Evidence
Interview Data and the Issue of Desirability
In China, localities vary substantially in private sector development as well as their
support of private sector development (Tsai 2007, Chapter 6).
Therefore, I was
careful to choose for my fieldwork locations that represent different levels of private
sector development and business-state relations.
Between 2012 and 2015, I con-
ducted 106 in-depth interviews with entrepreneurs and government officials in four
provinces and two provincial-cities in China: Zhejiang and Guangdong on the east
coast, where private economy thrives and local governments are relatively marketoriented; Guizhou in Southwestern China, a province with the lowest GDP per
capita in the nation and where the private sector is small and developing; Hunan,
a province in Central China with medium-level private sector development.
The
two provincial-level cities are Beijing and Shanghai. Appendix A provides detailed
information on these interviews.
I was mostly interested in interviewing entrepreneurs who are local legislators,
and entrepreneurs who are equally successful in their business but do not make it
to the local legislatures. I also interviewed some entrepreneurs who do not belong
to either of the two camps. The ideal sampling strategy is to randomly select a
representative sample of legislator-entrepreneurs and non-legislator entrepreneurs in
a given location. This strategy, however, was unrealistic, because local legislators'
information is largely private, and it is usually impossible to successfully schedule
an interview with the manager or management-level employee of a company that is
represented in local legislatures without an introduction. Therefore, I had to rely on
introductions to access the subjects I was interested. Besides entrepreneurs, I also
collected perspectives from government officials who frequently interact with local
82
.....
businesses. Similarly, the sample of officials is non-random and was assembled via
introduction. Finally, I interviewed local scholars who conduct research on businessstate relations.
Although neither the entrepreneur nor the government official samples were a
random sample, I tried to get an entrepreneur sample that represents the main
industry and a representative variety of industries in each location; and a government
official sample that represents a wide variety of bureaucrats and officials who interact
with local businesses on a frequent basis. These samples ensure a wide range of views
are expressed. Introductions through trusted connections ensure that respondents
were open and forthcoming.
The main purpose of the qualitative analysis is to substantiate the argument by
presenting a variety of perspectives. Several findings emerged from the open-ended
interviews. First, private entrepreneurs live with arbitrary expropriation every day
and they do not feel that their property is secure. This finding is consistent with
Kellee Tsai's 2002 survey on private entrepreneurs, where 71% of her respondents
believe that "laws protecting property rights" is an area in need of further improvement (Tsai 2007, 81). Second, different types of private entrepreneurs experience
different levels of expropriation. Entrepreneurs of small firms, who usually have no
channel for making connections with local officials, are at the greatest risk experiencing expropriation. There is very little they can do except comply. As a direct
contrast, private entrepreneurs who are local legislators and whose companies are
large and successful do not worry too much about arbitrary predation. They usually
have friends in different bureaus in the local governments, and they can usually make
phone calls to their "government friends" if they are not happy with local bureaucrats. A third group of entrepreneurs is situated between the petty entrepreneurs
and the powerful entrepreneurs. Their businesses also might be quite successful and
83
they might have a few friends in various local government bureaus. However, these
entrepreneurs are not local legislators, and they have to resort to other channels
to make connections and to sustain their relationships with local officials.
These
friends in the government, in turn, could also help entrepreneurs shield their businesses against expropriation. Compared to entrepreneurs who have a seat in local
legislature and who can build their connections to multiple government agencies efficiently through that office, these entrepreneurs have to build connections individually with each government agency, a method that is much more time-consuming
and costly. Finally, both legislator- and non-legislator-entrepreneurs believe that
legislator status is conducive to greater property safety.
Social desirability and political sensitivity are potential issues in the context of
this study, and they could lead to significant bias.
For example, entrepreneurs
whose businesses have been expropriated by local bureaucrats might exaggerate the
frequency and severity of local predation; on the other hand, entrepreneurs could
under-report levels of expropriation out of fear of retribution, especially if they do
not trust the interviewer.
As for government officials and bureaucrats, because
expropriation is mostly informal or illegal, they have little incentive to truthfully
report their behavior to me.
The structure of the open-ended interview process and the way I conduct the
interviews help alleviate these potential problems. First, I started the qualitative
research unaware that entrepreneur-legislators are highly protected from local predation. My questions towards entrepreneurs are mostly about their opinions on the
current business environment, and property security issues emerged naturally from
these conversations without any prompting. Therefore, "confirmation bias" due to
prior beliefs is not a major concern (Nickerson 1998).
Second, my interviewees were usually introduced by trusted acquaintances, and
84
the non-random arrangement ensured relatively open and honest conversations. All
interviews were conducted in Chinese and, as a native speaker, I tried my best to
avoid using terms that have any political connotations. Moreover, the fact that I
come from a non-Chinese research institute helped build trust, according to some
of my interviewees.
Small Enterprises and Local Predation
The size of firms is loosely defined in my sample. If a firm is one of the leading
companies in an industry, or represents a main contributor to local tax revenue, I
treat it as a large or successful enterprise. On the other hand, if a firm hires fewer
than 100 employees and is regarded as a small business in the local economy, I treat
it as a small enterprise.
49
Small business owners usually believe that they have "no chance" to become a
local legislator, and they believe they have little influence over local policy. They
are usually cynical and believe that local legislators have no say in local policy
making and legislation. When asked if he would be willing to run for office in the
local legislature, a cynical Mr.
Wong, a small business owner in the firecracker
manufacturing industry in Hunan Province, quickly replied "no" - "political status
of local legislator is an empty title" and "it is useless" (Interview P137). Similarly,
when asked this question, Mr.Wu, a small online commerce business owner in Hunan,
laughed at the impossibility of himself winning an office (Interview P122).
Interviewer: Have you ever thought of running for district legislator?
Mr. Wu: No way. I am such a grassroots entrepreneur and I would
have zero influence over government policy and decisions.
49
The official definition of SME, according to the National Bureau of Statistics, is an enterprise
that has less than 0.4 billion total assets and less than 0.3 billion sales (Shen et al. 2009)
85
.......
...........
Many of these entrepreneurs believe that their businesses are at high risk of being
expropriated by local bureaucrats.
As illustrated, they see themselves as "non-
influential" in the local political economy, and their properties are usually "unprotected." Such local expropriation takes a variety of forms. Local expropriation could
be bureaucrats taking products for free or forcing a discount. Mr. Zhang, a co-owner
of a small drugstore in Hunan, often receives tax collectors at his store, who take
the Chinese medicines produced by his company for free (Interview P137). Mr. Xu,
who runs a small clothing retail shop in Hunan, has also frequently received tax
collectors, who force him to give discounts (Interview P138). Local expropriation
could mean forced purchases ordered by governments. Mr. Liu, an entrepreneur in
Zhejiang province, had to involuntarily purchase business insurance, an order issued
by district government (Interview P1332). Local expropriation could also occur in
the forms of "public goods project donations," "protection fees" collected by local
police station, or "extra tax payments" collected by local taxation bureau (Interview
P135; P1373; P1375).
Not only do these small business owners experience regular harassment by local
bureaucrats, they are also well aware that expropriation is discriminative. During a
conversation with ten representatives from small ceramic manufacturing companies,
they unanimously agreed that the industry leader and firms with people's congress
deputies would never be arbitrarily inspected and unlikely to be expropriated by the
local bureaucrats (Interview P135).
To be clear, these small enterprises are not the main focus of my research. If my
"treatment group" consists of entrepreneur-legislators, my "control group" consists
of entrepreneurs who run sizable businesses but have not yet made it to the local
legislatures.
Thus, small enterprises are not in my control group.
Nevertheless,
they operate in the same political economy where large enterprises operate, and
86
interviews with them help me understand the local business environment and local
business-state relations.
Legislator-Entrepreneursand Low Predation
Private entrepreneurs who have a seat in the local legislature are usually owners
or in the top management of large and successful companies in the region. Contrary
to the petty entrepreneurs, they usually do not see local predation as a big problem
for their businesses.
They believe legislator status is conducive to their business
development, but they also generally do not think that they are in any position to
influence policy through the legislative process.
Some entrepreneurs are "invited" into local legislatures, while others have gone
through a competitive process to obtain a seat. It is difficult to obtain information
on how exactly each legislator has obtained his seat, but my understanding based
on interviews is that entrepreneurs who are invited into local legislatures are usually those with companies that are essential to the local economy (e.g., the biggest
taxpayer; a main job creator; etc.), although most entrepreneurs who are legislators
have quite successful enterprises. Mr. Tan, the CFO of a major manufacturing company in Hunan, was invited by the prefectural people's congress standing committee
to join the prefectural legislature, and he did not have to deal with the competition
at all. He believed that his company always has a seat5 0 in the prefectural, and even
in the provincial, legislature. The board of directors decides who among them takes
a seat in a given term (Interview P1217). Many other legislators had more competitive experiences in running for office. Mr.Qian, the owner of a big interior design
firm in Hunan, told me in vague language that he needed to do "a lot of work" with
the local ACFIC office in order to get nominated. He was also frustrated that he
50
He told me that it was originally his boss (the chairman of the board of directors) who was
invited to be a member at the prefectural people's congress. His boss did not want to do it, and
gave the position to him, as they both represent the same company.
87
is not going to be a prefecture people's congress deputy for a second term, despite
the "effort" he put in. The message behind this vague language is that the work
to nurture a good relationship with the local ACFIC office and to get nominated
usually involves money and is highly costly (Interview P131). Mr. Kang, a real estate developer and a local legislator from the Central Henan province, believes that
legislative elections were competitive and are becoming increasingly so. Mr. Kang
did not elaborate on why and how elections are becoming more competitive, but my
understanding was that more entrepreneurs become interested in the positions and
the "price" subsequently rises. When I asked him how exactly he obtained his seat,
he told me that it involved a lot of "management" or "handling" (yun zuo
a vague term frequently mentioned by entrepreneurs to describe how they manage
their relations with government officials and how they get nominated and elected as
legislators (Interview P1311).
Entrepreneurs who are local legislators generally think that their legislative or
policy proposals are "unimportant," and are never "treated seriously by corresponding governments." Mr. Zhou, a second-term district-level legislator in Hunan, is one
such nonbeliever in the system (Interview P126):
Interviewer: Have you ever submitted any policy proposals?
Mr. Zhou: Many times! I have always proposed for tax reduction.
I do not believe in other tax rebate or tax return policies (shuishou
fanhuan zhengce
) They are mostly for show and useless.
I think the most straightforward way to help us entrepreneurs is direct
tax reduction. But I am frustrated that my proposals are never adopted
by local governments. Not even once!
88
owl-
Mr. Zhao, the CEO of a pharmaceutical company in Guizhou, also believed that
proposals are "useless" and his main responsibility in people's congress meetings is
"to clap hands" (Interview P126). Mr. Ma, the owner of a trading firm in Zhejiang,
believes that political connections obtained through the People's Congress are "way
more important" than the power to propose legislative bills or policy suggestions
(Interview P1222).
Legislator-entrepreneurs, although unable to influence much legislation, do see
one main benefit of office: they are usually less likely to get expropriated by local
bureaucrats. As a matter of fact, most of entrepreneur-legislators I interviewed do
believe that they are "protected from predation" as a legislator (Interview P1312;
P136; P123). Mr. Sun, a legislator-entrepreneur in Hunan, calls local bureaucrats
"selective predators."
As a legislator, he has never been "selected" to be preyed
upon. The above-mentioned Mr. Qian, who has been doing business in Hunan for
more than 20 years, recalled that his company was frequently inspected by the local
taxation bureau in the early years (Interview P124).
Mr.
Qian: The situation in the past was much worse.
collectors were relentless (ye man
Those tax
W!'W) and they would just come to
my company to take stuff. Eventually my wife and I could not stand it
and we decided to take it to the courts.
Interviewer: Really? Take civil servants to courts?
Mr. Qian: Yes. There was this one specific tax collector who was so
hated by many entrepreneurs in the district and we decided to do something together." We were not sure what the results would be though.
51
This was the only time when one of my interviewees discussed some sort of "collective action"
or legal action. It is an empirical question how often entrepreneurs resort to courts to settle
disputes beyond the scope of this project. For a related discussion, see Ang and Jia 2014.
89
Interviewer: How about now? Are tax collectors less relentless?
Mr. Qian: Inspection and random check-ups seldom happened anymore soon after I became a prefecture legislator. It might be that the
business environment has improved. Or it might be those tax people
knew that I am more powerful and connected now.
Mr. Zhou (a friend of Qian who happened to be with Qian and who is
also a private entrepreneur): No. The tax collectors are not much better.
They still come to my (yoga) studio at random times to cause trouble.
Mr. Gao, the owner of a large computer and electronic resale store in Hunan, has
also experienced the difference before and after he obtained a seat at the county
people's congress (Interview P139).
Interviewer: I heard expropriation is a common problem here. Has
your business ever been affected?
Mr. Gao: Yes, it has happened in the past. I forgot which government
bureau it was, but there was this one time when a few officials came
to my store and asked me to give them a few computers for free as a
contribution to the government. It was not too much and I just gave
them a few computers for free.
Interviewer: Do you think it would happen again?
Mr. Gao: I don't think so. But it is not a big deal. If they come again,
I will give them what they want. I would even invite them to lunch or
dinner.
90
il-
-
Not only do legislator-entrepreneurs experience less severe expropriation, they may
sometimes even reject expropriation with no obvious consequences. For instance, Mr.
Zhao once refused to contribute to a government-sponsored charitable foundation,
when the foundation asked him for an involuntary donation. Some legislators even
impose business on other companies through the people's congress network. Mr.
Zou, a prefecture legislator and a manager of an entertainment business in Guizhou,
bragged about his good connections with the local tourist administration bureau
and he managed to convince the bureau to send all local travel agents' customers to
see the entertainment show produced by Mr. Zhao's company (Interview P128).
Big Enterprises and Non-legislators, Some Expropriation
Entrepreneurs who are not local legislators have other ways to build connections
with local bureaucrats and to protect their property. But it is costly for them to make
friends with officials and bureaucrats in every bureau.
These firms present good
opportunities for local bureaucrats to prey upon, and entrepreneurs here have high
incentives to secure more political status, such as the position of people's congress
deputy.
Owners of large and successful companies that look like a people's congress company have diverging opinions about the people's congress. Mr. Deng, the owner of
a well-established, million-yuan IT business in Guizhou usually has contracts with
local government.
He insisted that he would not enjoy "sitting through people's
congress plenums," even if he had not been to one. He also believed that businessgovernment relations are determined by local governments, not by local legislatures
(Interview P1215). Other entrepreneurs would disagree with Deng's "personality argument," because if one really does not want to attend people's congress meetings,
he could easily send a colleague as a replacement to these meetings, or even make
the colleague, who is usually a member of the board, run for a seat at the legislature
91
-
4L
instead. Rather than a personal status, people's congress is more of a status for the
whole company (Interview P1217; G136). Although Deng is not a local legislator,
he is the founder of a local IT business association and maintains close ties with
local governments through this business association (Interview P1215).
Interviewer: Does your company experience any expropriation from
local bureaucrats?
Mr. Deng: Connections matter a lot. A company can avoid arbitrary
inspections and fines if it maintains a good relation with local bureaucrats. I have been running my business in this same district for almost
ten years. I use the business association I started to interact with local
bureaucrats.
Interviewer: Let's imagine a hypothetical scenario. If the neighboring district issues a new tax policy that is more favorable towards IT
companies, would you consider moving your company to that district?
Mr. Deng: Absolutely not. Even if I save 10% on tax payments, I
might actually lose more, since I would know nobody in the new district
taxation bureau.
Interviewer: What is the loss?
Mr. Deng: You know, some arbitrary tax collection by tax collectors.
Mr. Tao, a young and savvy entrepreneur who started his own online travel agency
a few years ago in Hunan, already has a "very good relationship" with various local
government bureaus yet is not a legislator or CPPCC deputy. He also has friends
working at the local taxation bureau in a neighboring district who informed him
about a new tax refund policy that was going to be implemented one year later. He
92
-VF--VR-
-
-
-T--777
then worked to convince the taxation bureau in his own district to "selectively enforce
the policy early." In doing so, he was able to enjoy a lower tax rate that was supposed
to become effective one year later. He did not want to tell me how he established
this solid relationship with the local taxation bureau, but he suggested that not all
firms could convince the taxation bureau and enjoy this benefit. Although he has
good friends in the district taxation bureau, he does not have any friends in the
local administration for industry and commerce, which forces him to join some local
business associations and to pay significant fees (Interview P133).
Mr. Sang, a medium-size real estate developer in Guizhou, talks about the difference between his company and other real estate developers who have seats in the
local legislatures. "Those companies and SOEs are different from us. When they
start a new development, even the provincial party secretary will show up (to support their new project). They also get better policy from the government. We just
cannot compete with them." When I asked him how he develops his connections
with local government, he was vague: "We have to do informal things. If we are
totally formal, we would not have any good policy or good land (for real estate development)." Although for "personality reasons" Sang did not want to join politics,
he has other entrepreneur friends who are in the people's congress who Sang can
"ask for help from" if he is "in trouble" (Interview P1211).
Mr. Ouyang, a vice-president of a big brand attire manufacturing company in
Zhejiang, proudly introduced his company as the second biggest tax contributor in
the county. Because of its importance in the local economy, the company received
a good amount of support from the local government.
Interviewer: What kind of support can you get?
Mr. Ouyang: Our company recently built a new factory space and
93
purchased new facilities which are all connected above the factory floor
space. The factory space arrangement did not pass inspection from the
local work safety bureau, but there was actually no way to rearrange the
equipment so that it meets the safety standard. Of course we did not
want to pay a fine, and I decided to talk to one of the vice county heads,
who oversees the safety bureau. We know each other and I managed to
solicit his support. In the end, our company did not have to pay a fine,
while keeping the facility as it is.
Interviewer: Can other manufacturing firms get a similar deal?
Mr. Ouyang: I think it might be really difficult for smaller companies
to secure such a deal. They do not have as a great relationship with the
local government as we do.
Although his company is a local government's favorite, it cannot be exempted from
all arbitrary inspections by local government agencies, especially the taxation bureau.
Ouyang referred to the taxation bureau as "relentless," and the company
had to comply whenever tax collectors decide to drop by and collect "extra tax."
Again, in these cases, entrepreneurs who have large companies and do not yet have
a legislator status usually resort to other means to fend for their property.
Counting Motivations
The above qualitative illustration provides clear evidence that Chinese entrepreneurs
are experiencing various types and levels of expropriation, and that entrepreneurs
who are local legislators feel less threatened that their property will be expropriated.
Because most of these interviews are open-ended, the topic of "motivation to run
94
for office" did not come up during every conversation.
Nevertheless, there were
interesting occasions when my entrepreneur-legislator interviewees mentioned their
motivation to run for local offices:
Interviewer: Do you think writing policy proposals will result in anything concrete in local policies?
Mr. Pan: Of course not. I wrote proposals every year asking for better
roads connecting our prefecture to the nearby ones. The only response I
received from the government was, "do not propose this anymore." My
entrepreneur friends in the people's congress all share the same perspective.
I believe 80-90% of them wanted to join the legislature simply
because they were looking for a "protective umbrella."
Interviewer: Do you belong to the 80%?
Mr.
Pan: No, I do not. I join because I hope I can represent the
interests of my district.
(Pan clearly forgot what he just said regarding the "ineffectiveness" of
policy proposals.)
Similarly, Mr. Lang, a prefectural legislator and an owner of a trading company
uses an interesting metaphor (Interview P154):
Mr. Lang: Doing business in China is like sailing a small boat in a
turbulent sea. The government is a giant boat sailing near by. A small
-
boat should sail next to the big one, but it should not go too close
that will be very dangerous. When a business owner joins politics, s/he
95
will make the boat sail much more smoothly.5 2
Individuals have multiple and diverse motivations to join politics, and there exist
optimists who believe that their voice can sometimes be heard during legislative
and discussion sessions. Mr. Gao, for instance, joins the district legislature mainly
because he was "interested in understanding local politics and policy," and thinks
some of his policy proposals have "been considered by some leaders," but he also
admits that due to his higher social status, local bureaucrats "respect" him much
more and their practices of inspections and check-ups became "more standardized"
(Interview P139).
To analyze these interview texts more systematically, I perform a simple text
analysis on all my interview transcripts, counting different motivations to run for
legislative office any private entrepreneur has mentioned. A second coder who is a
native speaker of Chinese performed the same task to reduce any individual coder
effect. Here are some main motivations:
Table 3.1: Counting Motivations
Motivation
To help develop business
To build connections with local elites
To protect business from local predation
To represent local interests
To understand local policies
To influence policy
Total
N
32
38
20
2
1
1
48
Percentage
67%
79%
42%
4%
2%
2%
Data Source: Author's Interview Data. Individuals sometimes discussed multiple
motivations to run for office, therefore the total percentage adds up to more than
100 percent.
52
Chinese entrepreneurs love to use metaphor, and usually reject my request to give more concrete
examples.
96
We should, again, take such data with a grain of salt -
some individuals might
be more outspoken and honest than others, and some entrepreneurs might be more
risk-averse than other entrepreneurs. But the fact that almost nobody states that
their main motivation to join the local people's congress is "to represent local interests" and "to influence policy" should give readers some confidence that these
entrepreneurs did, to some extent, speak their mind.
Entrepreneurs pointed out that one of the main motivations for them to compete
for legislative office is to protect their business from local predation (Table 3.1).
The top three most mentioned reasons or motivations to run are "to help develop
businesses," "to build connections with local elites," and "to protect business from
local predation." These reasons are highly correlated, in the sense that among the
20 individuals who run because a legislative office "protects their business," many
also believe that such an office helps develop businesses, as well as develops and
enhances connections with local elites.
First, "developing business" is a direct translation from Chinese, and its meaning is a little different from the English term "business development." In Chinese,
business development could either mean organic business development, or aggressive development through informal means. Second, "building connections with local
elites" could be a means to many other ends. Stronger connections could help with
many aspects that are related to "business development": They could deter future
predation, bring more government contracts, or help bidding for a newly vacated
parcel of land. In other words, the motivation to build connections with local elites
explains how entrepreneurs may use legislative office to "help develop business" and
"ensure property security." These answers remind us of Bruce Dickson's 2005 survey of private entrepreneurs, where he surveyed his private entrepreneur subjects
why they join the CCP. In his survey, 54.3% of the subjects wanted to join because
97
of the "economic benefits to themselves or their firms." Other motivations include
"to avoid the interference of party and government organizations in their business
affairs," to "gain better protection from economic competitors," and to have "easier
access to material resources and financial and tax benefits" (Dickson 2008, 93-94).
In Chapter 5, I show that the benefits of being a CCP member are becoming increasingly marginal, but the mechanisms that explain how entrepreneurs took advantage
of CCP membership are relevant in understanding how entrepreneurs use legislator
status to protect their business.
One more important caveat needs to be made here. Although my argument is
that property security is the main motivation for private entrepreneurs to run for
office, I do not wish to argue that it is the only reason. Cho (2009) observes that
deputies from the private sector seem to aspire to political status the most, because
they hope to "make up for their weak and unstable political status" (108). Truex
(2014) argues that rent-seeking is a main motivation and estimates a two percentage point increase in returns for entrepreneurs who are National People's Congress
deputies, but he also argues that "rents that are too extravagant could crowd out
representative norms and even engender public unrest" (Truex 2013, 188). Similar to my argument, Li, Meng and Zhang (2006) suggest that an entrepreneur's
decision to enter politics in China can be explained by the underdevelopment of
market and market-supporting institutions, and Dickson (2008) suggests that people's congress membership gives individuals protection from government seizures of
land and properties, and in general helps further cultivate personal relationships
with leaders (Chapter 5 tests this statement empirically). Last but not least, many
entrepreneurs see people's congress deputy status as "a great honor." 53
53
Such accounts usually appear in media and in official people's congress websee
(i)http://www.pkrd.gov.cn/s/15/t/25/a/4232/ifo.jspy;
For
instance,
sites.
(ii)http://www.baotounews.com.cn/epaper/btrb/html/2012-02/11/cotentl178777.htm;
(iii)http://news.dahe.cn/2013/01-17/101927309.html.
98
Selective Predators
So far we have mostly heard what private entrepreneurs have to say. How about
government bureaucrats, who are often accused of being the "predators?" Bureaucrats, for obvious reasons, do not use the words "predation," "expropriation," or
"exploitation" when they refer to their interactions with local businesses. Instead,
government officials frequently use alternative phrases such as "irregular check-ups"
(tuji jiancha 5 ii
(wancheng renwu 7-c
-791), "additional income," and "the need to accomplish goals"
ff
). Tax collectors usually would avoid additional inspec-
tions on firms with people's congress deputy to "avoid troubles" (Interview G133;
G131). Mr. Qi, a tax officer in a prefectural-level tax bureau in Hunan, sees people's
congress status as a "protective umbrella" (bao hu san RUP*) for entrepreneurs.
Interviewer: How exactly does this "protective umbrella" work?
Mr. Qi: Most taxation bureau heads are people's congress deputies at
some level, and entrepreneur-deputies are likely to be friends with these
bureau heads. We, naturally, will treat friends of my boss nicer and be
more cautious.
Interviewer: Do legislator-entrepreneurs have better companies so that
you do not need to inspect them as much?
(I was trying to get at
"arbitrary inspections.")
Mr. Qi: Yes, it is less likely that we inspect deputies' companies. My
superiors sometimes suggest that I should check upon these companies
after I inspect everybody else, or at least after the annual plenum of
people's congress (so that deputies interact less, and Qi's boss wouldn't
have to deal with entrepreneur-deputies who have complaints).
99
Mr. Lee, another tax collector in Hunan, sees people's congress deputies as "the
privileged class" and are "annoying" to deal with. After a few encounters with those
deputy-entrepreneurs, he decided -to avoid unnecessary interactions with them, since
they can "easily phone (his) bosses" (Interview G133).
In some cases, local governments are not fiscally capable of delivering public
goods projects, and they sometimes collect money from local entrepreneurs for nonpersonal purposes.
Consistent with the findings in Sun, Zhu and Wu (2014), my
interviewees suggest that entrepreneurs with a people's congress status are more
likely to donate, but some also "have the guts to say no" (Interview G1213; G1214).
Saying no is usually not an option for many entrepreneurs, because bureaucrats
could probably find quite a few policy documents to authorize collecting money
from these companies anyways. On the other hand, bureaucrats are less likely to go
to entrepreneurs who have a seat in the legislature, or are known to be friends with
local officials.
Surveying Local Bureaucrats
During my interviews, I quickly realized that it was much more difficult to talk
with government officials compared with entrepreneurs on topics of expropriation,
or even more generally, on business-state relations. These topics naturally make
people think of corruption, and sometimes conversations just came to an abrupt
stop, or led to questions from my interviewees about the "real intention" of my
academic research. Therefore, I bring in an additional source of data to analyze the
perspective of local officials, especially about entrepreneurs who join politics.
The China Youth Survey, which took place in the fall of 2013, is one of the first
100
large-scale academic surveys of government and Party leaders in China. 54 A total
of 3,120 surveys were distributed, and 2,372 surveys were completed. Among these
officials, 55.6% are male; their average age was 36, and on average they have spent
11 years in the government or CCP offices (For additional details on this survey, see
Appendix B). Since the focus of my study is business-state relations, I only look at
bureaucrats and officials who "frequently" or "at times" interact with local businesses
(55% of the sample).
The following question was asked in the China Youth Survey:
There are many reasons private entrepreneurs join the legislature.
Which are the main reasons, do you think, they join the legislature?
Subjects chose among multiple listed motivations, 55 and Table 3.2 presents a summary table of what Chinese bureaucrats think. Consistent with the accounts that
I collected from Chinese private entrepreneurs (shown in Table 3.1), the majority
of Chinese officials believe that entrepreneurs join the legislatures to develop their
businesses, to build connections with local elites, and to protect their business from
local predation. 56
54
Other studies using this dataset include Meng, Pan and Yang (2014).
My qualitative data provided the list of possible answers for the motivation question.
56
The option of "to protect business from local predation" might appear politically undesirable for
government officials to answer, and we embedded this option in a list experiment (Blair and Imai
2012) for half of the subjects in our sample. Surprisingly, the percentage of subjects who chose
this option in the list experiment is similar to those answering the question directly. This option
turns out to be not too sensitive, at least for the sample in this study.
55
101
Table 3.2: Counting Motivations: Perspective of Chinese Officials
Motivation
To help develop business
To build connections with local elites
To protect business from local predation
Total
N
2,141
1,530
963
2,372
Percentage
90%
65%
41%
Data Source: The China Youth Survey 2013. Individuals sometimes discussed
multiple motivations to run for office, therefore the total percentage adds up to
more than 100 percent.
Policy Proposals for Property Security
If property security is a main concern for private entrepreneurs, do they make use
of formal channels to address their concerns once they are inducted into formal institutions? Do entrepreneur-legislators try to change local legislation or policy to ensure stronger property protection? This section focuses on entrepreneur-legislators'
formal legislative behavior by surveying legislative and policy proposals submitted
by entrepreneur-legislators. I show that entrepreneur-legislators do not usually discuss issues regarding property security because it is politically sensitive. In very rare
cases when they do discuss this topic, they use mild language to avoid any potential
political backlash.
Legislative and Policy Proposals
Local legislators are invited to submit legislative and policy proposals to local
governments. Legislative proposals have a strict format to follow; the process for
policy proposals is much simpler: Once they receive a response from local government, the case can be closed. Therefore, many legislators are encouraged to submit
102
policy proposals rather than legislative proposals, and many legislative proposals
are converted into policy proposals (Interview G136).
Similar to the National People's Congress proposal process, the local legislative
proposal process has three stages: submission, classification and response (Truex
2013). Deputies are required to conduct research before drafting their proposals to
ensure that their proposals represent local interests and convey local public opinion.
Legislative proposals have to be collective ones, but policy proposals can be individual or collective. In some cases, local people's congress offices screen deputies'
proposals before submission. For example, prefecture deputies sometimes are required to give their proposals to the people's congress office of their county for a
"check" to make sure the proposals represent local interests (Interview G122; G123).
The majority of proposals are submitted at the annual plenum, but proposals can
be submitted anytime of the year.
After proposals are submitted, the local people's congress office classifies them into
legislative proposals (motions) and policy proposals (opinions). Policy proposals are
then sent to the corresponding government bureaus. Local bureaus are required to
respond to legislators within six months, and legislators will rate the "quality" of the
response (Interview G136). If a legislator is not "satisfied" with the response, the
proposal will be sent back to the corresponding bureau for another round.
A large number of proposals are submitted to the NPC and local people's congress
each year. At the national level, deputies propose more than 9,000 opinions and
motions each year (Truex 2013, 76). Many more are submitted to the provincial,
prefectural, county and township level people's congresses. In the following analysis, I focus on county/district level legislatures, given data limitation. I sampled
legislative and policy proposals from six local people's congresses in three provinces
in China: two (I will call them "County A" and "County B") from a southeast-
103
11
ern province, two (C, D) from a central province, and two (E, F) from a western
province.
Most of these proposals are not public, and the strategy I adopted was
to collect as many proposals as I can. Among the six cases, deputies are more active
in some than others. For instance, deputies in County D submit 218 proposals on
average in the years studied, whereas deputies in County F only submit 21 proposals per year. The total number of deputies range between 200 to 400 in these local
legislatures, and private entrepreneurs are more represented in some locations than
others. In the southeastern province, private entrepreneur deputies take more seats
in the local legislatures, compared to entrepreneur deputies in the inland provinces.
Table 3.3: Summary: Legislative and Policy Proposals from 6 cases
County
A
B
C
D
E
F
Year
Proposals
2007-2013(7)
2008-2012(5)
2008-2012(5)
2008-2012(5)
2011-2013(3)
2014(1)
743
799
310
1091
279
21
PE
Proposal
301(40.5%)
141(17.6%)
46(14.8%)
50(4.6%)
1(0.4%)
8(38.1%)
Annual
106
160
62
218
93
21
#
Total
Deputies
257
388
301
379
240
207
PE
Deputies
92(35.8%)
80(20.6%)
51(16.9%)
20(5.3%)
5(2.1%)
39(18.8%)
#
Note: The column Year denotes the years that I have collected proposals. The
column Proposals counts the number of total proposals by all deputies in all years
I have collected proposals. The column PE proposals counts numbers of proposals
from private entrepreneur deputies, and the number in the parentheses calculates
the percentage of proposals from private entrepreneurs. The column Annual
calculates proposals from all deputies per year in the years studied. The column
PE Deputies counts the number of private entrepreneur deputies and calculates
the percentage of private entrepreneurs in each county.
What Do Entrepreneur Deputies Make Proposals about?
Chinese private entrepreneurs are concerned about a wide variety of issue areas.
5
1In 5 of the 6 cases, proposals are not public, and I acquired them through personal connections.
Therefore, I do not disclose the name of the county/district.
104
M,-
,
. .
.
, ....................
Across the six counties, the top issue areas private entrepreneurs care about include:
business environment, regional economic development, public transportation, and
other public goods. Entrepreneurs in the coastal province seem to have submitted
a wider range of proposals, compared to their inland counterparts.
Nevertheless,
entrepreneurs in inland provinces are as active as those in coastal provinces: In
county F, 38.1% of all proposals come from private entrepreneurs, which is close to
the highest rate, 40.5% in County A. Table 3.4 provides a summary of all proposals
from private entrepreneurs collected from all six counties.
Even though property
rights and property security are a primary concern for these entrepreneurs, they do
not frequently make proposals for greater property rights.
Table 3.4: Proposals from Private Entrepreneurs: Issue Areas
D
14.0%
26.0%
0
0
0
6.0%
2.0%
0
2.0%
0
0 4.0 %
0
36.0%
14.0%
0
E
100.0%
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
F
12.5%
0
0
12.5%
12.5%
0
0
0
0
0
25.0%
12.5%
0
25.0%
0
0
4.2%
0
0
0
46
50
1
8
A
14.3%
7.6%
2.7%
4.7%
4.0%
5.6%
2.7%
0.7%
0
5.3%
4.0%
4.7%
0.3%
27.9%
0.3%
12.3%
B
15.6%
2.8%
2.1%
2.8%
7.8%
2.1%
5.7%
2.1%
4.3%
0
0
2.1%
4.3%
21.3%
7.8%
0.7%
C
16.7%
14.6%
2.1%
2.1%
8.3%
2.1%
0
0
0
0
8.3%
4.2 %
0
18.8%
8.3%
10.4%
Other
1.3%
20.6%
Total
301
141
Issue Areas
Business Environment
Regional Economic Development
Social Insurance/Unemployment
Education
Environment
Crime, Order and Stability
Healthcare
Food Safety
Cultural Protection
Housing
Political Openness, Gov't Performance
Property Rights
Disaster Prevention, Public Safety
Public Transportation
Agriculture and Irrigation
Other Public Goods
Note: The table displays percentage of proposals in each issue area in the six
counties. Hand coded by author. Issue area category follows Truex (2013).
105
Proposals Regarding Property Security
Now I turn my focus to entrepreneurs' legislative and policy proposals that either
directly mention property security or touch upon the issue indirectly. As Table 3.5
shows, a small percentage of private entrepreneurs' proposals deal with property
security issues, despite the fact that property insecurity remains a main threat to
their business.
Table 3.5: Proposals on Property Security
Property Security
Percentage
A
14
4.7%
B
3
2.1%
C
2
4.2%
D
2
4.0%
E
0
0
F
1
12.5%
Note: The table shows numbers and percentage of proposals related to property
security from private entrepreneurs in my database.
Among the 22 proposals regarding property security or violation, nine proposals
discuss problems of "arbitrary or excessive fees or taxes" that were or are imposed
either in their industry or in the local economy. Six proposals are about a specific
land dispute which might or might not be related to their own businesses.
proposals are about the city patrol team(
Two
IM), either suggesting that the staff
should "get more professional training," or carefully complaining (in their language,
"suggesting") that the team sometimes oversteps in areas they do not have power
to control.
The other proposals are general business environment proposals that
touched upon property security and expropriation.
I further randomly sampled seven proposals from these 22 proposals related to
property security, two from A, two from B, and one each from C, D, and E to have
a better understanding of their contents. Table 3.6 provides brief summaries of the
seven proposals.
106
Table 3.6: Content - Property Security Related Proposals
Proposal
Industry
Property Security
Content
Proposal
Title
Electronics
On the development of
high-tech SMEs
Points out the costliness of applying for tax break
Tax standard being "too strict"
Suggests reduction of "unreasonable" fee
Convert fees into tax; Be transparent about what to collect
A39
Electronics
On the need to develop official
standard of house
demolition compensation
Points out the lack of official standard and gov't misconduct
Proposes a new compensation standard
B4067
Machinery
On helping SMEs to
respond to the financial crisis
Proposes reduction of other fees and "tanpai"
B6061
Bamboo Art
On restoring the order
in the bamboo art industry
Points out some business owes money to farmers/factories
Suggests government standardize industry-wide practice
Col
Manufacturing
On reducing the business-related
bus fee Area S
Points out that the road fee is too high in the area
Proposes to reduce fee for business-related bus
D24
Coal Mining
On suggesting
not to collect "older" tax
Suggests that previously owed tax/fee presents a burden
Suggests tax bureau not to collect old tax/fee
E16
Retail
On stopping residents dumping
trash In a property
Points out residents dumping trash at a property (his firm)
Suggests relevant government office takes action
-
A625
Note: Industry denotes the industry a private entrepreneur is in. Property Security Content summarizes the
proposal's main points on property security. The alphabet in front of the proposal number denotes where the
proposal comes from. For instance, A625 is proposal #625 from County A. The number is greater than 301
(number of proposals from private entrepreneurs) because there are also proposals from other, non-entrepreneur
deputies.
Most proposals use a polite tone and implicit language when describing local
predation exercised by bureaucrats.
Policy Proposal A625, submitted by Deputy
Huang, the vice president of an electronic company, is one such example.
The
proposal, entitled "on the development of high-tech small and medium enterprises
(SME)," is a well-crafted and well-argued six-pager listing major problems in the
high-tech industry, and systematic suggestions on how to promote growth in this
industry.
The proposal's summary of six main problems he thinks need to be
addressed, including product structure too simplified; Chinese yuan appreciation
hurting export; lack of focus in research and development; and their difficulty in
fundraising. Two remaining points are related to property insecurity:
107
#4. Tax. More than 90% of firms believe that the tax rate is too high,
that tax reduction policies are "empty" and hard to extend to individual
firms. The main reason is that there are only few tax reduction policies,
and the procedure to apply for those is too complicated. It results in
high costs in applying for those policy benefits.
Also, we need to be
more informed about tax policy. There are not enough pre-tax reduction
items, and I believe the current tax and fee standard is too strict.
#6.
Low levels of coordination in policy implementation.
Different
government bureaus do not work together at all, and they only care
about the interest of their own bureau. It hurts us businessmen in the
sense that procedures to get anything done are too complicated. We need
to get "certified," and "approved" by too many bureaus. Such inefficiency
costs us business opportunities.
The second half of the proposal provides five policy ideas on how to change the
status quo, corresponding to the above-mentioned six problems. When asking for
stronger control on local predation, Huang is very careful and polite in his language:
#3(3)
I suggest that relevant taxation officials provide lectures, dis-
tribute documents and set up banners in taxation bureaus to inform entrepreneurs on tax reduction policies and to illustrate for entrepreneurs
how to apply for benefits. They should inform us about this information
as timely as possible.
#3(4) The government should clean up unreasonable fees. Some fees
should be converted to taxes. We want transparency in tax and fee rates.
108
#5(2)
The government should simplify regulatory and certification
processes, and implement "one-step" service. Business registration, tax
payment registration and other business-related service should all be
done at one centralized location.
Similar to Proposal A625, Proposal A39, Proposal C01 and Proposal D24 all use
relatively neutral language to describe property infringement.
On the other hand, there also exists a proposal that directly calls for a stop in "tanpai" - which has a negative connotation that suggests illicit behavior of government
officials. Proposal B4067, entitled "On helping SMEs to respond to the financial crisis," is one such rare example. Proposed by Deputy Lin, a private entrepreneur in
the machinery industry, Policy Proposal B4067 is a relatively straightforward proposal that makes four suggestions on how local governments could help small and
medium size companies to cope with the 2009 financial crisis. One of the suggestions
is specifically about local expropriation:
#3
The government should help local companies to ease their bur-
den -
to reduce fees, to reduce tanpai, and to eliminate unreasonable
charges. In doing so, local enterprises can come out of these senseless
fees and get out of trouble.
58
This proposal has already received a reply from the district government office.
Directly in response to the request to reduce local expropriation, the reply reads:
58
See the proposal aid response at http://jyta.jiangien.gov.cn/ShowNews.aspx?gid=1160
Chinese).
109
(In
We have carefully implemented national and provincial policies regarding the elimination and reduction of fees, including the elimination
of individual business management fee (getihu guanli fei, 'i 4
T
farmer's market management fee (jimaoshichangguanli fei,
M r _T4
),
MO), and 100 different administrative and institutional fees (xingzheng
shiyeXing shoufei, '
TA $ RIII fW). We have implemented tax and
fee reform in the refined oil industry and eliminated 6 fees. ...
In sum,
enterprises and society at large saved 0.67 billion yuan per year.
To make sure tax and fee reduction policies are implemented at each
level of offices, we will start a new campaign that investigates the implementation of fee reduction programs. Between March and July, we will
explicitly and implicitly monitor the fee collection procedure of the following local bureaus: environment protection, quality inspection, housing and urban-rural development, commerce, work safety and coal mine
safety, and quality supervision, inspection and quarantine. We will pay
particular attention to and stop any incidence of excessive fee collection
and repetitive fee collection. We stand firmly against illegal fee collection.
At the end of this response, there is a name of the corresponding government official, his telephone number as well as his e-mail address. This response received a
"satisfactory" rating from Deputy Lin.
A final category of relevant proposals is about property infringement imposed by
non-government parties. Proposal B6061, for instance, is a policy proposal submitted by an entrepreneur in the bamboo art industry, who reports to governments that
110
some businesses are engaging in illegal activities and owe money to local farmers and
other suppliers. The proposal suggests that the relevant government bureau take
actions to "standardize practice." Similarly, Proposal E16, submitted by a shopping
mall owner, reports that local residents have been dumping trash in his property
and asks local government to take action to stop them. These proposals are more
about personal business interests, rather than property security more generally.
Responses to Proposals
Government responses to proposals are even harder to collect by researchers like
me. I was only able to collect a small subset of responses to the proposals regarding
property security. Therefore, I rely on both these limited data of responses as well
as interview evidence with bureaucrats to get a sense of how bureaucrats react to
proposals from entrepreneur-deputies.
My understanding is that bureaucrats in
general do not treat proposals from private entrepreneurs seriously, although the
seriousness of consideration varies.
The primary goal for lower-level bureaucrats
who handle these proposals is to make sure that they do not make mistakes, and
they take the most minimal action possible to respond to proposals. Entrepreneurs,
not expecting to receive wholehearted responses, easily give out "satisfactory" ratings
to bureaucrats, and such attitudes further eliminate any incentive for bureaucrats
to put in more effort in responding to proposals.
The response to Proposal B4067, for example, was sincere, comprehensive, and
hopefully effective in addressing the issue presented. Nevertheless, this kind of response might simply represent an exception as government officials usually do not
take proposals from entrepreneur-legislators too seriously. Mr. Zhang, a bureaucrat
who works at a district-level people's congress office in Guangdong Province, dis-
111
misses many entrepreneur deputies as "zombie deputies," because they usually "sit at
plenum meetings and do nothing at all." His office sometimes engages in a screening
process and makes sure that "not everybody writes about the same thing" (Interview
G136). Mr. Yang, a bureaucrat who is in charge of replying to policy proposals at
his bureau in Hunan, commented that "the average quality of policy proposals is
quite low," and "many deputies write proposals simply for the reason of fulfilling
their duties." When I asked Yang how he makes sure that his response is rated as
satisfactory by the deputies, he confessed that getting satisfactory ratings by legislators is not a priority. "I usually use empty language: If the proposal requires a
solution that is not feasible, I would usually reply that 'our bureau is under-staffed
to fulfill the request.' " The utmost goal, for lower-level bureaucrats like him, is to
make sure that his superior sees his responses as appropriate for the institution (Interview G1217). Yang, of course, does not represent all bureaucrats that deal with
policy proposals submitted by entrepreneurs. Mr. Hu, a bureaucrat in Beijing, also
responds to policy proposals from legislators in his district. Quite opposite to Yang,
Hu thinks that entrepreneur-legislators are more serious in writing policy proposals
compared to deputies coming from the governments, and thus the quality of their
proposals is higher. Yang therefore enjoys reading those proposals and takes them
seriously. He also believes that these proposals represent real interests and demand
from the business class (Interview G1210).
Discussion
Formally, legal development to ensure greater property security for firms has progressed significantly in the past few decades in China and private sector has thrived.
But expropriation on private firms is still prevalent and property security remains
112
a fundamental challenge for private entrepreneurs. Interview evidence suggests that
entrepreneurs who run small businesses are much more vulnerable to local expropriation, compared with those with bigger businesses and better connections with
governments. Bureaucrats, when engaging in exploitative behaviors, try to avoid
entrepreneurs with legislator status to avoid negative consequences.
Among those entrepreneur-legislators, writing about property security or property
rights is uncommon, but a few deputies have carefully raised the issue in politically
correct language such as "easing burden on business," and "helping enterprises to
grow." Rarely do we see entrepreneurs use the word "extraction" in these formal
proposals even though more than half of them have experienced some level of extraction in their district of operation. Pessimistic entrepreneurs suggest that local
governments never take their proposals seriously in any case, and some local bureaucrats have openly confirmed that it is actually the case.
Why, then, do some entrepreneur deputies still spend time researching and writing
proposals that are not likely to matter? "I don't know. It became a habit, " says
Mr. Qian, whose company now operates in Beijing, but who still flies back to his
home district at least twice a year to attend meetings and to fulfill other deputy
duties.
There also exist believers in the current legislative system, and remain
positive that their suggestions are increasingly likely to be taken into account by
local governments, as the system develops. Mr. Gao is one of these believers: he
submitted a policy proposal asking for a new road in his county. Already aware of
the fact the road will be built regardless of the proposal, he trusts that his proposal
has "pushed the project" to get started earlier. He adds, "more frequent interaction
with local entrepreneurs will make government officials more sympathetic toward
our problems and our needs" (Interview P139).
Why legislators sometimes legislate in an authoritarian system is a question be-
113
yond the scope of this project, but hopeful entrepreneurs like Gao and outspoken
entrepreneurs like Lin have proved themselves to be participating in authoritarian
politics in a meaningful way. We will return to this topic in the concluding chapter.
This chapter establishes that entrepreneurs think they pay less "expropriation" to
local governments, if elected as a legislator, and the next chapter shows that, in fact
they do pay less.
114
Appendix A: List of Interviews
Interview Number
Location
Industry/Bureau/Profession
Date
1
G1210
Beijing
Finance and Banking
6/12
2
01210
Beijing
Economics Professor
6/12
3
0122
Beijing
Banking and Finance
6/12
4
0123
Beijing
Economist
6/12
5
01214
Beijing
Economist
6/12
6
0125
Beijing
Political Science Professor
6/12
7
0126
Beijing
Business Researcher
6/12
8
0121
Beijing
Political Science Scholar
6/12
9
G121
Hunani
Provincial People's Congress Office
6/12
10
G1212
Hunani
Provincial People's Congress Office
6/12
11
G1213
Hunani
Provincial People's Congress Office
6/12
12
G122
Hunan1
County People's Congress Office
6/12
13
G123
Hunani
County People's Congress Office
6/12
14
G124
Hunani
Finance and Banking
6/12
15
G126
Hunan2
County CPPCC Office
6/12
16
G1262
Hunan2
Banking and Finance
6/12
17
G127
Guangdongl
Banking and Finance
6/12
18
G128
Guangdongl
Banking and Finance
6/12
19
G129
Guangdongl
District CPPCC Office
6/12
20
P122
Guangdongl
Manufacturing
6/12
21
P123
Guangdongl
Manufacturing
6/12
22
P1218
Hunani
Dairy Production
7/12
23
P1219
Hunani
Architecture
7/12
115
24
P1220
Hunan1
Online Commerce
7/12
25
P12202
Hunan1
IT
7/12
26
P124
Hunan 1
Interior Design
7/12
27
M121
Guangdongl
CPPCC Off-season Meeting
7/12
28
01211
Guangdongl
CPPCC Deputy
7/12
29
0124
Hangzhou
Public Policy Professor
7/12
30
G1211
Wenzhou
Business Association
7/12
31
G12112
Wenzhou
Business Association
7/12
32
G12113
Wenzhou
Business Association
7/12
33
P125
Zhejiangl
Garment Manufacturing
7/12
34
01212
Zhejiangl
Political Commentator
7/12
35
P1221
Zhejiangl
Electronics
7/12
36
P1222
Zhejiangl
Trading
7/12
37
P126
Guizhoul
Pharmaceutical
7/12
38
P128
Guizhoul
Entertainment
7/12
39
01210
Guizhoul
Banking and Finance
7/12
40
P1215
Guizhoul
IT
7/12
41
P127
Guizhoul
Bookstore Owner
7/12
42
P129
Guizhoul
Real Estate
7/12
43
P1210
Guizhoul
Automobile Retail
7/12
44
P1211
Guizhoul
Real Estate
7/12
45
G1212
Hunan1
Federation of Industry and Commerce
7/12
46
G1213
Hunani
Federation of Industry and Commerce
7/12
47
P1217
Hunan1
Manufacturing
7/12
48
G1214
Hunan1
Taxation
8/12
49
G1215
Hunan1
Taxation
8/12
116
.
... ....
50
G12152
Hunani
Taxation
8/12
51
P1212
Hunani
Food
8/12
52
P12122
Hunani
Communication
8/12
53
01213
Hunani
Law Scholar
8/12
54
G1216
Hunani
Finance and Banking
8/12
55
0127
Hunani
Finance and Banking
8/12
56
G1218
Hunani
Taxation
8/12
57
G1219
Hunani
Taxation
8/12
58
G1220
Hunani
Taxation
8/12
59
P1213
Hunani
Jewelry
8/12
60
P1216
Hunani
Real Estate and Construction
8/12
61
P1214
Hunani
Online Commerce
8/12
62
G1217
Hunani
Finance and Banking
8/12
63
G132
Hunani
Work Safety
1/13
64
0131
Beijing
Political Science Professor
1/13
65
G131
Hunani
Taxation
1/13
66
P132
Hunani
Manufacturing
1/13
67
P133
Hunani
Online Travel Agency
1/13
68
P134
Hunani
Online Commerce
1/13
69
P1342
Hunani
Online Commerce
1/13
70
G133
HunanI
Taxation
1/13
71
G134
Hunan2
Taxation
1/13
72
P135
Hunan2
Manufacturing
1/13
73
G137
Hunan2
Taxation
1/13
74
P137
Hunan2
Firecracker
1/13
75
P1372
Hunan2
Transportation
1/13
117
M"RMW
76
P1373
Hunan2
Electronics
1/13
77
P1374
Hunan2
Retail
1/13
78
P1375
Hunan2
Pharmaceutical
1/13
79
P1376
Hunan2
Retail
1/13
80
P1377
Hunan2
Pharmaceutical
1/13
81
P1378
Hunan2
Clothing Retail
1/13
82
M131
Hunan2
Federation of Industry and Commerce
1/13
83
P136
Hunan1
Manufacturing
1/13
84
P1311
Zhengzhou
Real Estate
1/13
85
P138
Hunan1
IT
1/13
86
P139
Hunani
IT Retail
1/13
87
P131
Hunani
Interior Design Company
1/13
88
P131f
Hunan1
Yoga Studio Owner
1/13
89
G135
Hunan1
Finance and Banking
2/13
90
P1310
Hunanil
Real Estate
2/13
91
G136
Guangdongl
District People's Congress Office
7/13
92
0141
Shanghai
Political Science Professor
5/14
93
P1312
Hunan1
Manufacturing
8/13
94
P151
Hunani
Manufacturing
1/15
95
P152
Hunan1
Tourism
1/15
96
0151
Hunan1
Private Bank Manager
1/15
97
P153
Hunan1
Interior Design (repeat)
1/15
98
0154
Hunan1
Interior Design
1/15
99
G151
Hunani
Provincial PC Standing Commitee Official
1/15
100
G152
Hunan3
County PC Standing Commitee Official
1/15
101
G153
Hunan4
County PC Standing Commitee Official
1/15
118
102
G153
Hunan4
County PC Standing Commitee Official
1/15
103
P154
HunanI
International Trade
1/15
104
P155
Guizhou2
Agriculture
1/15
105
P156
Beijing
Online Commerce
1/15
106
P157
Shanghai
Construction
1/15
Note: P denotes Private Entrepreneur; G denotes Government Official; 0 denotes
Other; and M denotes Meeting. Location shows the location of the interview, either
the name of the city or name of the province.
119
Appendix B: The China Youth Survey
The China Youth Survey was conducted in August 2013. The sampling method
divided China into an eastern region and a west-central region, and three province
or provincial-level municipalities were selected from each region. Beijing, Shandong,
and Zhejiang were selected to represent the eastern region, and Henan, Sichuan, and
Guangxi were selected to represent the west-central region. Within each provincial
unit, two or three prefectures were sampled. The sampled prefectures are representative of Chinese cities in terms of population size and level of economic development.
The surveys were distributed to officials in all prefectures based on a quota sampling method aimed at reaching a certain number of respondents by the type of state
unit and the rank of the respondent. The local collaborators sampled officials and
bureaucrats from the following categories, using the ratio of 6:2:2, respectively.
1. Government administrative units: Office of the local government; development
and reform commission; finance; education; human resources and social security;
public security; health; taxation; state-owned asset supervision and administration;
2. CCP units: office of the party committee; organization department; propaganda department;
3. Other units: people's congress standing committee; people's political consultative conference standing committee; People's Court; People's Procuratorate; Communist Youth League; Federation of Trade Unions; Women's Federation; Federation
of Industry and Commerce.
The surveys were printed out in Beijing and were distributed at the respondents'
place of work.
Randomization was achieved through the randomized ordering of
the printed surveys.
No personal identifiers were collected, and the surveys were
supposed to be completed by respondents in private.
120
Appendix C
59
Below is an example of a legislator's policy proposal and the government's reply:
Proposal Number: Bi Zi (2007) #29
Category: Urban Development
Title: On Reconstructing Shuzijie Road
Deputy: Wu Zhihong
Content:
In recent years, the city government has exerted good effort in road reconstruction
near Shuinanshi District. Residents no longer have to paddle through flooded or
bumpy streets. Now local businesses have thrived and residents have benefitted.
All these deserve praises. Jiangmen is a nationally-renowned tourism city, and
Gangkou Road is located in the CDB district, and Shunanshi District is a district
where local business vendors convene. Shuizijie Road connects Gangkou Road and
Shuinanshi District, which is a crucial connection and should be at least orderly.
Quite the opposite, at the entrance to this road, there is a huge wall sticking out of
the road, which is about 100 meters long and very ugly. It hurts the name of our
city. Moreover, the wall has been in existence for a while and is old and poses safety
concerns for passers-by. We do not know when it might collapse. Across the wall
there is the Shuinan Kindergarden, Eryou School and Shuinan Market. The trafficis heavy during off-school and rush hours. Traffic accidents happen quite often.
Thus, in order to eliminate accidents, to make sure roads are safe, and to make our
city more beautiful, I suggest the city government and other relevant government
offices conduct a field investigation and include the Shuizijie Road reconstruction
project in official city planning. I suggest the government tears down the wall and
widen the road, so that Shuzijie becomes a wide, orderly road with few traffic jams.
This project improves traffic conditions, beautifies the city, benefits local residents,
improves local businesses, and helps the city develop in a holistic way.
See the original document at http://jyta.jiagmen.gov.cn/ShowNews.aspx?guid=1852
nese)
(In Chi-
121
__
l
--
,
59
This proposal was forwarded to the district government office and received the
following response within three months:
Pengjiang Government Response #53(B)
Deputy Wu Zhihong,
We have received your proposal entitled "On Re-constructing Shuzijie Road." Below
is our reply:
In December 2007, relevant bureaus in our district conducted field research in Shuzijie Road. This road is a standard urban road with the length of 462 meters, and the
width of 14 meters (driving lane is 7-meter wide and 3.5-meter wide on each side).
It is an important road connecting Gangkou Road and Qian Road. The parking lot
(facing Jiuzhaigou Restaurant) takes too much space from the driving lane and one
side of the pedestrian lane (about 100 meters), resulting in the narrowing of the end
of the road and affecting traffic. According to the transportation bureau and bureau
of land and resources, this area has 11 acres and was originally the office space for
the transportation bureau. Jiangmen Infrastructure Company is allowed to use this
space. After the transportation bureau was relocated in 1994, this space has been
vacant and was lent to Jiangmengang Yinghang Station and four other government
departments. In April 2007, Jianguien Infrastructure Company used this piece of
land as collateral to get a loan with the amount of 19,500,000 yuan, from the China
Construction Bank Jiangmen Branch.
In March 5th, 2008, the municipal public utility administration bureau, transportation bureau, urban planning bureau and the bureau of land and resources had a
joint meeting on Shuizijie Road reconstruction, and we have decided on the following three options:
122
#
One. To include the road reconstruction in the city planning plan. The prefectural
government takes back the land use right and redevelops the district. This plan will
avoid repetition in investment. But the implementation of this plan will take a long
period of time, since there are many problems involved regarding reconstructing an
old district.
#
Two. According to urban planning standards, we widen the road, and tear down
the wall. But this "temporary" plan would not benefit the subsequent reconstruction
of the old district and will result in repetitive investment and reconstruction. At
the same time, according to the planning map, this plan requires additional care for
two buildings close to the edge of the road. The costs are high.
#Three.
As a most temporary solution, we tear down the 30-meter slope in Area
A and 60-meter Slope in Area B (shown in the graph). Then according to Road
A16-17, we reconstruct slope A and B and rebuild the surface of the road as well as
the sewerage system. The total cost is 300,000 yuan (not including costs of house
demolition). We suggest that we adopt Plan #3.
No matter which plan is finally implemented, we need to have the permission of the
Jiangmen Infrastructure Company and China Construction Bank Jiangmen Branch.
In the end, thank you for your valuable proposal.
Jiangmen District Government
March 19, 2008
(Contact: Xu Chunhong, 8222370)
123
.............
Chapter 4
Protection from Predation
There can be few, if any, parallels for this intense desire of the middleclass Frenchman to cut an official figure; no sooner did he find himself
in possession of a small capital sum than he expended it on buying an
official post ... (Tocqueville 11858]1955:91)
"I became a deputy in the local people's congress because I wanted to
help the local economy grow (by giving my input). But looking around,
I think 80-90% of entrepreneur deputies participate because they are
seeking protection from local governmental predation."
An entrepreneur-legislator in Prefecture L (Interview P123)
Liang Guangzheng, a private entrepreneur and the CEO of billion-dollar conglomerate Guanglong, had been a three-term Yunfu prefectural people's congress deputy
in Guangdong province and a Baise prefectural people's congress deputy in Guangxi
province in 2007. Earlier that year, it was discovered that Liang was involved in
a public fund embezzlement case in Yunfu Prefecture ten years before, and other
accomplices were recently convicted. Because Liang was a people's congress deputy,
he enjoyed immunity from prosecution, unless the corresponding people's congress
124
-77-m-
1
1.
- JI
1:
''
" I
. .....
;17 -_
-11
-7
0 The Yunfu people's procuratorate applied
standing committee grants a waiver.
for a waiver regarding Liang's immunity, the local people's congress standing committee immediately granted it, and the investigation was about to move forward
in Yunfu. However, the people's congress standing committee in Baise Prefecture,
where Liang also served as a local legislator, put a stop to it. The Baise people's
congress standing committee insisted that it would be "a serious violation of law"
to prosecute Liang without its permission, and the prosecution had to be (and was
indeed) delayed. One month later, when a few journalists went to Liang's company
attempting to interview him, they were told that Liang was "already on his way to
the United States for a month-long business trip."
1
Clearly, Liang got away and no
one knows his whereabouts since.
Figure 4.1: One Entrepreneur, Two "People's Congress Deputy" Titles
/
-7
Note.
city
Source:
dilemma"
Procuratorial
the
behind
2008.
Daily June 2,
Guangzheng
"Liang
The "twophenomenon."
URL:http://www.jcrb.com/nl/jcrbl657/ca715890.htm.
60
See Chapter 2 on local legislators' prerogatives.
61
"The two-city dilemma" behind the "Liang Guangzheng phenomenon". Procuratorial Daily. June
2, 2008. http://www.jcrb.com/n1/jcrb1657/ca715890.htm.
125
Accessed April 8, 2015.
A legislator status protects one from being immediately investigated and prosecuted
by the procuratorate, unless the corresponding people's congress standing committee
waives the immunity. In Egypt, Parliamentary immunity protects legislators from
arrest, detention, or charge of criminal activity, and Blaydes (2011) argues that the
immunity essentially excuses businessmen from charges of corruption.
In China,
while legislators also enjoy immunity from prosecution, it is only one of the many
ways legislators seek protection. This chapter discusses how legislator status protects
property without evoking immunity.
Recall that the second observable implication of the theory is that legislator status indeed brings about protection. Entrepreneurs who are members of the people's
congresses should experience less severe expropriation by local bureaucrats, compared with those without this political status. This chapter assesses this theoretical
prediction using original survey and interview evidence, complemented by secondary
materials. The first section situates this chapter in a broad body of literature on
political connections and returns to office. Using the ACFIC data and a variety of
matching and reweighing techniques, I then evaluate the observable implication that
legislator status protects a private entrepreneur from government expropriation. The
analysis shows that entrepreneurs who serve in the local legislature spend 25% less
on informal payments to local governments, on average. The next section explores
variations among industries and probes two industry-level hypotheses derived from
the main argument. Both interview and survey evidence suggest that entrepreneurs
from industries with heavy government intervention or whose companies are geographically immobile have more incentive to run for office, and enjoy greater protection from expropriation when they have a seat in a local legislature. The concluding
section responds to a "cost and benefit calculation" critique, which finds that the
returns to office (i.e., savings from government expropriation) calculated in my anal-
126
ysis do not offset the cost of running for office for private entrepreneur candidates.
I show that such a calculation is a fruitless exercise: First, I argue that legislative
membership serves like an insurance policy against full-fledged expropriations, and
many entrepreneurs are willing to pay substantially more in "insurance premiums"
than they can expect in "returns to office"; second, I reiterate that "property protection" is one of many forms of rents that entrepreneur-legislators can enjoy, and
a complete cost and benefit analysis should take other forms of rents into account.
These arguments render the challenge ineffective.
Political Connections and Returns to Office
The analysis of this chapter situates the work in another important body of literature: political connections, firm performance, and returns to office. Recent studies
in political science have provided causal estimates on returns to political office in
democratic contexts. For example, Eggers and Hainmueller (2009) find that serving
in office almost doubled the wealth of Conservative Members of Parliament in postwar Britain. Querubin and Snyder (2008) find significant returns to office among
members of the U.S. House of Representatives during the Civil War years. It is
much more challenging to estimate returns to office in an authoritarian context with
the absence of elections, but some laudable attempts, including Truex (2014), show
that a seat in the National People's Congress is worth an additional 1.5 percentage
points in returns and a 3-4 percentage point boost in operating profit margin in a
given year.
These new findings inform our answer to the old question of how political connections affect firm performance. In developing economies where institutions are weak
and politicians have much policy discretion, explicit corrupt exchange can take place
127
between politicians and firms, especially politically connected ones. Fisman's 2001
seminal study suggests that a large percentage of well-connected firms' value may
be derived from their political connections in Indonesia; Khwaja and Mian (2005)
find that lenders in Pakistan favor politically connected firms, who on average get
45 percent more loans, but have 50 percent higher default rates. In places where
institutions are strong and explicit corruption is less likely, connections could still
matter. In Faccio's 2006 study of 20,202 firms across 47 countries, many of which
are developed economies, she finds that stock prices of related firms increase when
a businessperson enters politics.
This book makes an important contribution to the political connection literature
by providing a new estimate of "returns to office" in an authoritarian context. It also
sheds light on the mechanisms that link political connection to firm performance.
The next section lays out the estimation.
How Much Less Tanpai do Legislators Experience?
Recall that 42% of entrepreneurs in my interview sample believe that legislator
status helps "protect business from local predation" (Chapter 3), and the words of
the entrepreneur who stated that "80% to 90% of entrepreneur deputies participate
because they are seeking protection." Now, I use a nationally representative survey
dataset to assess this proposition.
Data and Variables
The primary data source of this section is a national survey of private entrepreneurs
in China. The survey was conducted every other year jointly by the All China Fed-
128
eration of Industry and Commerce (ACFIC), the China Society of Private Economy
at the Chinese Academy of Social Science and the United Front Work Department
of the Central Committee, the Communist Party of China (The survey is referred
to as the ACFIC survey throughout the dissertation). The questions on the survey
change from year to year, and I am using the survey years that share similar questions and coding schemes, namely, surveys from 2002, 2004 and 2006. The dataset
does not have a panel structure: In each survey year, more than 3,000 enterprises
were drawn into the sample from 31 provinces. Between 2002 and 2006, a total of
10,107 entrepreneurs were sampled. The sampling method was multi-stage stratified
random sampling, with geographic location (province and prefecture) and industry
as strata. Direct interviews were conducted using a questionnaire.
The outcome variable of interests is Extraction, which is defined as forced payments to local governments as a percentage of total expenditures in a given year. The
treatment variable PC Membership is a binary variable on whether an entrepreneur
is a people's congress deputy at any level in the survey year.
A group of firm-level and individual-level variables is used either as covariates
or are matched depending on the specification. Firm-level variables include: the
size of a firm measured as the logarithm of sales volume (Size), how long the firm
has operated (FirmAge), whether the firm makes above industry average profit
(Profit), whether the firm was a State-Owned Enterprise (SOE), industry (IND),
and province (PROV). Characteristics of firm owners include: age (Age), gender
(Male), education level (Edu), whether the owner is a CCP member (CCP), whether
the owner worked in the government in the past (ExGovt), and whether the owner
was a village cadre (ViCadre).
A few caveats need to be made regarding the quality of this survey. First, the
survey responses were all self-reported and the data could suffer from non-negligible
129
measurement errors.
For instance, entrepreneurs who are PC deputies might ei-
ther be more honest about reporting their informal payments, since they are more
protected by the government, or be more cautious not to report their profits being expropriated by local bureaucrats in order to remain politically correct. Also,
since it is a self-reported survey, many entrepreneurs choose not to answer some of
the questions for reasons we cannot identify, thus this dataset suffers from a missing
data problem. I approach the missing data problem by testing results using datasets
generated from multiple imputation. Second, the organizations conducting the survey did not report a response rate, and the entrepreneurs responding to the surveys
could be qualitatively different from those who chose not to respond.
Empirical Strategies and Results
With these caveats in mind, I explore the effect of having a PC Membership on
firms' likelihood of being expropriated as well as the amount of expropriation. The
biggest threat to the inference is that PC Membership is not randomly assigned.
My interviewees suggested that "only big fish can make it to the local legislatures"
(Interview P1220).
A brief look at the data shows that entrepreneurs who are
members of the people's congresses are different from those who are not. Consistent
with interview evidence, entrepreneurs who are PC deputies have bigger, older and
more profitable firms. A greater number of PC deputies are CCP party members
and male, and they are more likely to have worked as village cadres or worked in the
government in the past. They are slightly older and more educated than non-PC
entrepreneurs (see Table 4.1). This selection problem poses a serious concern for
the analysis.
130
Table 4.1: Summary Statistics: Comparing PC Entrepreneurs and Others
Extraction
Sales
Profit
SOE
FirmAge
ExGovt
ViCadre
CCP
Age
Education
Male
Obs.
PC Entrepreneurs
Non-PC Entrepreneurs
P-value
1.65%
(2.89)
7.37
(1.94)
0.31
(0.46)
0.08
(0.27)
8.57
(4.30)
0.18
(0.39)
0.17
(0.38)
0.55
(0.50)
46.11
(7.40)
3.50
(1.07)
0.91
2.43%
(5.17)
6.07
(1.88)
0.17
(0.38)
0.06
(0.24)
7.61
(4.12)
0.14
(0.35)
0.08
(0.27)
0.30
(0.46)
43.71
(8.05)
3.42
(1.00)
0.88
0.0002
(0.29)
(0.32)
645
2572
0.0000
0.0000
0.1216
0.0000
0.0174
0.0000
0.0000
0.0000
0.1204
0.1056
Note. Summary statistics from ACFIC survey 2002, 2004, and 2006. Standard deviation in
parentheses. For descriptive statistics of all variables, see Appendix Table Al. Right-hand
column reports p-values for two-sided t-test.
'I
Identification Assumptions
To identify the effect of PC Membership (Treatment) on entrepreneurs, the most crucial assumption is that conditional on observed covariates, whether an entrepreneur
gets a seat in legislatures must be independent of the outcome y (Extraction) an entrepreneur would have if secured a legislative seat, or the outcome they would have
if not secured a seat. Let yl denote entrepreneur i's (possibly unobserved) outcome
had he had a seat in legislatures; let yi be the same entrepreneur's (possibly unobserved) outcome when he does not have a PC Membership. The causal effect for unit
131
is defined as y' - yj , and the average treatment effect (ATE) over the population
is E[y' - yj]. Let Di be an indicator of PC Membership for entrepreneur i, while
X, denotes other covariates ViCadre -
Size, FirmAge, Profit, SOE, Age, Male, CCP, Edu,
of entrepreneur i.
Here, the identification assumption is (y , yo )
JJ
Di IXi. That is, conditional on
observed covariates, neither the non-PC outcome yi nor the PC outcome y' relate
to whether they have a PC Membership or not. In other words, PC membership is
unrelated to y 0 or y', conditional on Xi.
Main Results
I first estimate a simple linear model controlling for firm- and individual-level covariates including FirmAge, Profit, SOE, Age, Male, CCP, Edu, ViCadre, provincial and
year fixed effects. I then employ an entropy weighted linear model, a method that
ensures perfect balance on covariate moments, to create a more comparable control
group. To further ensure that the finding does not rely on a linear and additive parametric model, I use matching methods to test the robustness of the findings. In the
matching specifications, entrepreneurs with a PC A'embership in the same province
and industry are matched to other entrepreneurs based either on their Mahalanobis
distance of the above covariates or on a propensity score which predicts receiving
the "treatment" of PC Membership. I try four different numbers of matched pairs
for each PC Member: M=1, 2, 4, and matching on propensity score. When M=1,
for example, each PC Member is matched with an entrepreneur who does not have
a PC Membership and who is "closest" to him in the value of the covariates. The
propensity score method first estimates a propensity score for each observation, and
then matches each entrepreneur with a PC Membership with an entrepreneur who
132
has the most similar propensity score but without a PC Membership.
Table 4.2: Main Results
PC
Membership
Obs.
OLS
OLS
(no weights)
(Ebal Weights)
-0.005
(0.0018)
2517
-0.006
(0.0018)
2517
Propensity Score
Matches=1
M=2
M=4
-- 009
(0.0033)
2590
-0.005
(0.003)
2590
-0.006
(0.003)
2590
-0.005
(0.002)
2590
Note. The table only presents treatment effects under each specification. SE are in
the parenthesis. Variables that I matched on include: Size, FirmAge, Profit, SOE,
Age, Male, Edu, CCP, ViCadre. Year, Province and Industry fixed effects are also
included in the regressions. See Appendix Table A3 for results with all covariates.
Figure 4.2: Effects of PC Membership on Extraction under Different Specifications
Average Treatment Effects: PC Membership on Extraction
--- 95% confod
lrdwvd
IQ
C0
I
0.
OLS
eb
PS
m=l
m=2
m=4
Note. Summary of effect estimates of PC Membership on Extraction under six models: OLS with covariates (OLS), entropy balancing followed by weighted OLS with
covariates (ebal), propensity score matching (PS), and nearest neighbor matching:
1-to-1(m=1), 2-to-1(m=2), and 4-to-1 matching without replacement (m=4). All
models find that having a "PC Membership" reduces an entrepreneur's spending on
extraction by 0.5 to 0.6 percentage points. Thus, regardless of the model used, being
a legislator saves an entrepreneur about 24% on total expenditure.
OLS Without Weights
133
i.
I first examine the OLS model without weights. Coefficient estimate from the OLS
model is given in Table 4.2 and sumnimarized in Figure 4.2. The OLS model estimates
a negative correlation between PC Membership and Extraction: Compared with an
entrepreneur who is not a PC deputy, an entrepreneur who is a PC deputy spends
0.55% less on extractive payments to local governments.
On average, a Chinese
entrepreneur spends 2.28% of his total expenditure on involuntary payments. Thus,
(
the OLS model estimates that as a PC member, an entrepreneur saves 24.1%
0.55%/2.28%) of his expenditure on extraction. The effect is substantively large and
statistically significant.
Entropy Balancing
To ensure better balance on covariate moments and to reduce possible model
dependency, I employ entropy balancing (Hainmueller 2009).
This method gives
weights to control units such that, after weighting, the marginal distribution of covariates is the same for the treated and control groups to satisfy a set of moment
conditions, while keeping the weights close to equality. Covariates included are the
same as those in the OLS model. In this analysis, entropy balancing is successful
in achieving full balance on the covariate distribution between those who are PC
deputies and those who are not (entropy balancing results are shown in the Appendix). I then employ these weights in OLS regressions with year-fixed effects and
industry-fixed effects to complete the required conditioning.
Similar to the estimate from the OLS model, this model suggests that entrepreneurs
with a PC Membership are less likely to be extracted by local governments. Being a
PC delegate saves an entrepreneur 0.58% of his total expenditure on forced unofficial payments to local governments. Thus, an entrepreneur with a PC Membership
would save himself 25.4% (0.58%/2.29%) of his expenditure on extraction.
Matching
134
An alternative estimation approach is matching. Matching allows for conditioning
on covariates in a way that is less model-dependent than linear modeling. I used Mahalanobis matching with 1-to-1, 2-to-1, and 4-to-1 matching without replacement.
The variables matched are the same as those in the multivariate models above.
Propensity score matching is another method which achieves the semiparametric efficiency bound for the estimation of average treatment effect (Rosenbaum and Rubin
1983). This method first estimates a propensity score, and then each observation in
the treated group is matched with one observation that has the closest propensity
score in the control group. In this analysis, data with extreme values of propensity
scores (i.e., observations with propensity score < 0.05) are trimmed. Post-matching
balance tests show no statistically significant imbalances on any covariates.
Consistent with the regression estimates, entrepreneurs with PC Membership experience less severe extraction compared with those without a political status. Having a legislator status saves an entrepreneur 0.50% to 0.60% on forced payments to
local governments. These point estimates and standard errors are quite similar to
the estimate from OLS without weights and with entropy balancing weights.
Summary
Using the ACFIC survey data and a combination of reweighting and matching
techniques, I show that as a legislator, a private entrepreneur experiences 23% to
27% less expropriation, compared with his peers without such a political title. In
terms of monetary value, being a Chinese PC deputy saves a private entrepreneur
approximately $3,000 per year.
135
Saving on Tanpai but Spending More on Donations?
Besides informal payments to local governments, entrepreneurs make many other
types of payments to local governments. One may argue that perhaps legislators'
savings on expropriation are insignificant compared with their extra spending on
other forms of payments imposed by local governments, such as additional tax, fees,
and involuntary donations. Several scholars have argued exactly this point. Using a
1995 survey of private firms, Ma and Parish (2006) find that political representation
(measured by people's congress membership at various levels) is positively associated
with charitable contribution. Sun, Zhu and Wu (2014) discover a similar correlation
between entrepreneurs' political positions and amount of donations. On the other
hand, Zhang (2013) argue that forced donation should be negatively correlated with
political connection.
Anecdotes from my interviews also provide evidence about the relations between
donations and political status Mr. Zhao, a prefectural legislator, did not hide his
complaints that government-affiliated organizations come to his office excessively
to seek donations and he found them "deeply annoying."
He believes that, as a
legislator, he (and his company) bears heavier "involuntary social responsibility"
compared to other, lower-profile companies (Interview P126).
A problem with using surveys to systematically understand the relationship between legislator status and donation amount is that in these surveys (and with
the ACFIC survey) the "donation" category usually does not distinguish between
voluntary and involuntary donations. Therefore, it is difficult to move beyond anecdotes and to systematically assess whether entrepreneur-legislators are more likely
to be forced by local governments to make involuntary donations to local public goods projects, or whether entrepreneur-legislators are simply more altruistic
and voluntarily donate more to government and social organizations compared to
136
their peers without political status. Bruce Dickson's 1999 survey of Chinese private entrepreneurs did ask whether a company's donation is "voluntary or pressed
(by governments)," but the survey did not ask the specific amount of the donation.
With this distinction in mind, Dickson does not find a correlation between charitable
giving and people's congress membership (Dickson 2008, 234).6
Another important and related question to ask is: Do entrepreneurs with legislator
status pay the same amount of tax and fees as other entrepreneurs (suggested by
entrepreneurs in the study of Zhang 2014)? Does the political status benefit them
even more in terms of formal tax and fee relief, since there is almost always leniency
in tax and fee collections? The ACFIC data allow me to answer these questions, and
the results do not suggest that entrepreneur-legislators enjoy any tax or fee relief
(see Table 4.3). There is no statistically significant difference between entrepreneurs
with people's congress deputy status and the ones without such status, in terms of
taxes and fees paid to local governments as a percentage of their total expenditure.
Table 4.3: Dependent Variables: Tax and Fee Payments
PC Membership
Fee (%)
Obs.
Entropy
Balancing
Propensity Score
Matches=1
Matches=2
Matches-4
0.013
(0.013)
-0.006
(0.006)
2,530
0.031
(0.021)
-0.001
(0.008)
-0.003
(0.018)
-0.018
(0.008)
0.001
(0.015)
-0.013
(0.007)
0.006
(0.014)
-0.008
(0.006)
Note. Tax (%) is defined as total tax spending as a percentage of total
expenditure. Fee (%) is defined as total fee spending as a percentage of total
expenditure. The specifications are identical to the ones in Table 4.2.
These analyses provide some insights into the question of whether entrepreneurlegislators have saved in tanpai but spent more in other categories of payments to
local governments. Based on the evidence available, the answer is no.
62
Dickson does not exclude the possibility that such a correlation might exist (2008, 234).
137
Robustness
Missingness
Missing data is an unavoidable problem when using self-reported surveys, and the
ACFIC survey suffers from a notable level of missingness. Independent variables
that are missing include: ViCadre, FirmAge, Size, Age and Educ. The proportion
of missingness is relatively small.
Table 4.4: Summary: Missing Values of Other Covariates
FirmAge
ViCadre
Age
Educ
Observations Missing
% Missing
77
606
12
10
2.4
18.8
0.3
0.3
Note. All the covariates included in the model are checked. Only the above five variables have
missing values.
There are several ways to deal with missingness besides listwise deletion, which
results in loss of valuable information and selection bias. One could substitute the
mean values into the missingness (Schafer and Graham 2002). A more commonly
used method is multiple imputation (Rubin 1977; King et al. 2001; Schafer and Graham 2002). Under the assumption of missinguess at random (MAR), the method of
multiple imputation imputes m values for each missing item and creates m complete
data sets.6 3 Assumptions also need to be made on the distribution of the variables,
and a jointly multivariate normal model usually works well in a wide variety of cases
(King et al. 2001).
Using both methods of mean substitutions and multiple imputation, results re63
MAR is a strong assumption, and the ACFIC missing data is not likely to meet the assumption
strictly. Therefore, results from multiple imputation should be taken with a large grain of salt.
138
main.
Table 4.5: Missing Values: Multiple Imputation and Mean Substitution
Other Covars
Year Dummy
Province Dummy
Industry Dummy
N
Multiple Imputation
Mean Substitution
-0.0065
(0.0015)
-0.0065
(0.0015)
/
PC Membership
V'
3217
3217
Note. The table presents results from OLS using weights generated from entropy balancing.
Using multiple imputation and mean substitution, I also re-ran all the other models presented in
the main results section. Results remain largely the same.
Sensitivity Analysis
To test how sensitive the results are to possible unobserved confounders, I conduct
sensitivity analysis according to Imbens (2003).
Suppose the true model is y
=
X3 + Z-y + c, where y is the outcome of interest (here, Extraction), X includes the
treatment (PC Membership), intercept and covariates, and
#3 is
the true (causal)
effect of each variable in X on y. Z is an unobserved confounder, and -y is the effect
of the confounder on y. If we estimate 3 using OLS without knowing Z, then we get
a biased estimator of 3.
139
Figure 4.3: Sensitivity Analysis
W 0
ag
A
0.0
0.1
0.2
0.3
0.4
0.5
Effect of Confounder on Extraction
-
Note. The "height" shown by contour lines gives the expected true size of the effect
of PC Membership on Extraction, given a hypothetical confounder. The bias is
parameterized by how strongly this confounder relates to the treatment - PC
membership (vertical axis) and how strongly it relates to the outcome
extraction (horizontal axis). In order to make the true effect of PC Membership on
Extraction be statistically indistinguishable from zero, an unobserved confounder
would have to be substantively more confounding than any of the included
covariates. The code to produce the sensitivity plot is from Chad Hazlett.
To illustrate, Figure 4.3 shows the confounding effects of each covariate included
in the model, had it not been observed. The plot shows that in order for an omitted
confounder to reduce the true effect so far that it cannot be differentiated from zero
(the red dash line), it would need to be a considerably stronger confounder than
any observed covariate. For instance, to imply a true treatment effect statistically
insignificant from zero, a confounder would have to be as strongly correlated with
PC Membership as FirmAge, but would need to have an effect on Extraction more
than 10 times larger than that of FirmAge, in order to reduce the implied treatment
effect to the critical value. Such a strong confounder is difficult to imagine.
140
Substantively, it is not surprising to see such a strong correlation between FirmAge
and PC Membership. Firms that have operated their business long enough in the
locality must have endured competition, sustained at least a non-confrontational
relationship with local governments, and are more likely to be known by the local
population. All these attributes would make the firm's owner or managers likely
candidates for the local legislatures.
This effect is likely to be self-reinforcing: A
seat in the local legislature almost definitely boosts the longevity of a firm.
Exploring Variations among Industries
In this chapter, I first establish the empirical correlation between legislator status
and property protection. Next I explore the heterogeneous effect of legislator status
in different industries.
I do not wish to argue that a legislator's seat has equal
importance to all candidates interested in the position. Instead, candidates who
exert greater effort in competing for a seat probably attach a higher value to it.
In my theory, a higher value of a seat is translated into higher protection from
expropriation.
Every company wants protection from expropriation. What types of companies
need greater protection from expropriation? First, companies that are part of an
industry where governments intervene heavily are more likely to be expropriated
-
these industries usually have more strenuous regulations, many of which can be
interpreted in different ways; and officials and bureaucrats have more opportunities
to seek rents given frequent interactions between business and state.
Therefore,
my argument predicts that entrepreneurs located in these industries have stronger
incentive to compete for office, and a seat brings a higher return (e.g., savings from
expropriation) compared with entrepreneurs in a low-intervention industry. Second,
141
companies that are difficult to move are more likely to be expropriated -- because of
their geographic immobility and lack of an exit option, local governments are likely
to be more expropriative. Changdong Zhang makes a similar observation, arguing
that as companies becoming more mobile, they acquire more de facto power over
local governments and force them to become more investment-friendly (Zhang 2010,
chapter2).
Thus, my argument predicts that entrepreneurs whose companies are
immobile have stronger incentive to get a legislative seat.
Two observable implications are derived from the industry analysis. First, entrepreneurs in different industries exert different levels of effort in competing for
seats. Entrepreneurs in industries that experience higher levels of expropriation and
in immobile industries are more likely to exert higher effort, ceteris paribus; second, returns to office are different for entrepreneurs located in different industries.
Entrepreneurs located in high-intervention industries or immobile industries experience greater reduction in government expropriation, ceteris paribus. I assess both
implications using interview evidence, and I test the second implication using the
ACFIC data.
Interview evidence suggests that entrepreneurs in different industries indeed experience varying types and levels of interaction with local governments. Local bureaucrats have more opportunities to expropriate when they have more frequent
interactions with local businesses.
During our conversations, many entrepreneurs
mentioned that "the frequency of interaction with government" is a strong predictor
of competition to join the legislatures.
Me: Why was the Hengyang people's congress deputy willing to pay
3 million yuan to secure a seat? Does a seat worth that much?
Lang: It really depends on the industry. Businesses in the real estate
142
industry, for example, have to interact with the government every step of
their way when they develop a new property. Starting from purchasing
land, to getting permission to sell their property. ... They really need to
know people and have good connections (Interview P154).
Entrepreneurs from other industries express less concern about expropriation. Gao,
a private entrepreneur in the IT industry, has been content that his industry "is
highly marketized and experiences very little government intervention," and therefore he does not worry much about expropriation (Interview P139).
Some other
entrepreneurs, although agreeing that some industries experience more expropriation than others, there are universal problems plaguing all industries.
I spend a quarter of my time socializing (with the government) and it
is exhausting. But I know other industries such as real estate, alcohol
production have much more frequent interaction with the government.
We all hope that government gives us less trouble and we know that it
is very easy for them to "finish" (shou shi) us. (Interview P127).
Whether a company is geographically mobile or not also seems to matter.
If a
company belongs to an industry that makes it difficult to relocate, local governments
might expropriate the company more often, knowing that there is no exit strategy.
In this situation, an entrepreneur might have even more incentives to secure a seat
in the local legislature to protect his property, and a seat matters much more to this
entrepreneur. Let us take a look again at Mr. Zhao, an entrepreneur-legislator who
runs a pharmaceutical firm in Guizhou. Although he is not always bothered by local
143
governments and remains on "good terms" with local governments, he still thinks
that private entrepreneurs are located at the bottom of the "social ladder." Because
the materials used in the drugs are sourced locally, lie is hesitant to move to other
areas where "governments might be friendlier to private businesses," yet he concluded
that companies have taken on "too much social responsibility," forced upon them
by other government actors (Interview P126). On the other hand, entrepreneurs
like Mr.Tan who owns companies that are easily movable do not worry much at all
about expropriation. In fact, when rumor had it that Mr. Tan's company planned to
relocate to another province, the local government tried very hard to entice Tan to
stay by offering beneficial policies such as a major tax reduction (Interview P1217).
These interviews further motivate two hypotheses regarding industry variations
in terms of "return to office":
HI (Intervention Hypothesis): The protective effect of people's congress
membership is stronger when the entrepreneur-legislator is in an industry
with heavy government intervention.
H2 (Immobility Hypothesis): The protective effect of people's congress
membership is stronger when the company of an entrepreneur-legislator
is immobile.
Testing the Intervention and Immobility Hypotheses
The ACFIC data allows me to test both hypotheses. I created two binary variables: Intervention and Immobile. Intervention takes the value of 1 if the subject
comes from a company in an industry heavily intervened in by governments, namely
the real estate, mining, and construction industries, and 0 otherwise.
Immobile
takes the value of 1 if the subject comes from a company in an immobile industry,
namely the agriculture and mining industries. Among all subjects, 7.09% are in an
144
immobile industry, and 12.38% are in industries with heavy government intervention. To test the two hypotheses, I look at the following specifications with weights
from entropy balacing:
OX * Xt + 7t +
*
PCu * Interventionit
+
Extractionit = a + 1 * PCit + /32 * Interventont + /3
cit
Extractiont = a+ 13* PCOt+2* Im
In these two specifications,
obilet+33*PCt*Inmobileit+3x*XY +?t+Eit
i indexes each individual and t indexes each year;
Extractonit is defined as extraction paid as a percentage of total expenditure by
individual i in year t; PC.t denotes whether an individual i was a PC deputy in
year t; Interventioni and Immobileit are dummy variables which take the value of
1 if the company of i's was in a high intervention or an immobile industry in year t;
Xt is a vector of company- and individual-level covariates; rt are year fixed effects;
and Eit is the error term. Results are presented in Table 4.6.
The analysis supports the immobility hypothesis but not the intervention hypothesis. If the company of an entrepreneur-legislator is in an immobile industry,
he would save 1.11% of his total expenditure on expropriation compared with an
entrepreneur in the same industry but without legislator status.
The protective
effect among those in low-intervention industries are statistically indistinguishable
from those in high-intervention industries, although the direction of the effect is as
expected and those in high-intervention industries are expropriated more heavily by
local governments despite the treatment.
145
Table 4.6: Heterogeneous Effects among Different Industries
PC Membership
Mobility
Intervention
-0.43509
(0.18596)
-0.44951
(0.1902)
PC*Immobile
-1.41212
Immobile
(0.58923)
0.73844
(0.51877)
PC*Intervention
-0.80824
(0.5206)
Intervention
0.86531
/
/
/
(0.38445)
Other Covars
Year Dummy
Province Dummy
N
2,534
2,534
Note. Immobile is a dummy variable which takes the value of 1 if the subject comes
from a company in an immobile industry, and 0 otherwise. The variable Intervention
is a dummy variable which takes the value of 1 if the subject comes from a company
in an industry heavily intervened by governments. The models are OLS regression
using weights generated by entropy balancing. Data: ACFIC 2002-2006.
Clearly, this industry-level analysis is far from nuanced. The industry category
in the ACFIC survey is very broad: More than 60% of the surveyed entrepreneurs
come from the "manufacturing industry." A company in this industry could range
from a large heavy machinery manufacturer to a small electronics manufacturer.
These two manufacturing firms certainly have different levels of mobility and types
of interactions with local governments, yet the ACFIC data does not allow me to
analyze any of these differences. More fine-grained data is needed to further analyze
the effect of legislative membership on different types of industries. Nevertheless,
the above industry-level analysis is consistent with my theoretical prediction: the
protective effect of local legislatures is highly industry specific. Where expropriation
is higher, the return to office also appears higher.
146
Discussion
The previous chapter shows that entrepreneur-legislators think they pay less "expropriation" to local governments and, in this chapter, I show that they in fact do
pay significantly less. The analysis suggests entrepreneurs who serve in the local
legislature spend 25% less on informal payments to local governments.
This dif-
ference between legislator and non-legislator entrepreneurs holds after controlling
for individual- and firm-level covariates using a variety of reweighting and matching techniques. Moreover, the protective effect of holding office is highly industry
specific.
Is 25 percent a significant amount? According to the ACFIC survey, the 25 percent
savings or 0.5 percentage point of total expenditure, translates to a monetary value
of 20,000 - 30,000 yuan per year. Many would think that such a figure is negligible,
especially considering the cost of competing for a legislative seat, which, as some
anecdotes suggest, could be as high as millions of yuan.
There are two reasons why this type of cost-benefit analysis is an oversimplification. First, as shown in the chapter, there exists heterogeneity of the "protective
effect" of a people's congress seat, and the 25% only presents an average value. In
industries where expropriation is less prevalent, entrepreneurs with or without political title run their businesses in a relatively harassment-free environment. Also, in
localities where government agents are less predatory, entrepreneurs with or without a legislator status are likely to experience similar levels of expropriation.
If
we only study regions with very predatory governments, we might observe a much
stronger effect.
More research is needed to further understand industry and re-
gional heterogeneity, and whether and how such heterogeneity might be related to
other formal legislative behavior. We also need to remember that subjects appear-
147
ing in the ACFIC surveys are entrepreneurs with operating firms, but entrepreneurs
shaken down by local governments to the extent that their enterprises no longer
function are automatically dropped from the dataset. It is unlikely that many of
those entrepreneurs were people's congress deputies, but they might have constituted a comparable counterfactual to some of the entrepreneur-legislators in the
dataset. If these owners of closed businesses had been included in the survey, the
treatment effect of PC Membership would have been much larger. Instead of seeing
informal payment saved as a return on the investment in getting a legislative membership, it might be more accurate to see a legislative membership as an insurance
policy against full-fledged expropriation, and different individuals are willing to pay
different premiums to get that insurance.
Second, I do not wish to argue that "property protection" is the only form of rent
that entrepreneur-legislators enjoy. It is true that for a big group of entrepreneurs,
the main expected return to legislative office is property security.
However, for
established entrepreneurs who do not worry about expropriation, joining the legislature is about understanding the business environment and macro-economic policies
(Interview P121'7).- For entrepreneurs who think tanpai is tolerable, having a seat in
the legislature might provide important connections for their family members (Interview P1222); and for some others, a seat does not mean much at all (Interview
P1216).
The analysis thus far has only touched upon whether a seat protects an entrepreneur from government expropriation, but we still do not know how exactly
entrepreneur-legislators gain such protection. Do entrepreneur-legislators have any
formal policy influence that grants greater property security to them as a class? Are
there any positive external perceptions (as proposed by Truex (2013) in his explanations of returns to office at the NPC)? Or is it the signaling mechanism, proposed
148
in the introduction chapter, that is really at work? The next chapter answers these
questions by probing potential mechanisms systematically.
149
Appendix
Table A4.1: Summary Statistics
Variable
Firm-Level
PC Membership
Extraction
Sales
Profit
SOE
FirmAge
Individual-Level
ExGovt
ViCadre
CCP
Age
Education
2
3
4
5
6
Male
Obs.
Mean
Std. Dev.
Min
Max
3217
3217
3193
3217
3217
3140
0.2004
0.0228
6.3318
0.2023
0.0646
7.807
0.4004
0.0481
1.9597
0.4018
0.2459
4.1757
0
0
0
0
0
1
1
0.5714
12.8997
1
1
25
3217
2611
3217
3205
0.1510
0.0942
0.3521
44.1947
0.3581
0.2921
0.4777
7.9835
0
0
0
15
1
1
1
83
3207
3207
3207
3207
3207
3217
0. 1437
0.3813
0.3261
0.1000
0.0311
0.88
0.3508
0.4857
0.4688
0.3001
0.1738
0.31
0
0
0
0
0
0
1
1
1
1
1
1
Note. ACFIC Survey 2002, 2004, and 2006. The unit for total expenditure, extraction
expenditure, public relation expenditure, sales volume is 10,000 yuan (1 U.S. Dollar = 8.11
Chinese yuan, average exchange rate in 2002-2006). PC Membership is a dummy variable that
indicates whether the subject serves as a PC deputy, either at the national level or local levels.
Extraction is calculated as forced unofficial payment to governments as a percentage of a firm's
total expenditure. Sales is the logarithm of sales volume. Profit indicates whether an
entrepreneur's firm's profit exceeds industry average. It is coded 1 if the firm makes above
industry average profit. SOE takes the value of 1 if the firm was a state-owned enterprise, and 0
otherwise. FirmAge calculates how long the firm has been in operation. At the individual level,
past government experience (ExGovt), past village cadre( Viadre) and CCP member dummies
indicate whether the subject has prior experience working in the government, whether he was a
village cadre, and whether he is a CCP member. Age calculates the age of the respondent at the
year he answered the survey. Education is a categorical variable: 1 denotes primary school
education, 2 denotes middle school education, 3 denotes high school education, 4 denotes
vocational education, 5 denotes college education and 6 denotes more than college education.
Male takes the value of 1 if the respondent is a male.
150
.....................................
INS .. !,!"
,
-
__
-
--
-
I
Table A4.2: Entropy Balancing: Covariates Balance
Mean
0.29
Profit
0.08
SOE
FirmAge
8.29
0.16
ExGovt
0.17
ViCadre
0.53
CCP
45.98
Age
Education 3.39
Male
0.91
Treatment
Variance
0.21
0.07
17.96
0.14
0.14
0.25
55.51
1.11
0.08
Control (before)
Mean Variance
0.14
0.17
0.05
0.05
17.59
7.65
0.11
0.13
0.07
0.08
0.21
0.29
64.21
43.36
0.94
3.35
0.1
0.88
Control (after)
Mean Variance
0.29
0.21
0.07
0.08
17.96
8.29
0.14
0.16
0.17
0.14
0.25
0.53
55.52
45.98
1.11
3.39
0.09
0.91
Note. Results of entropy balancing across the treatment group (entrepreneurs with a PC status)
and the control (other entrepreneurs). N-167 in the treatment group, N-1,364 in the control
group.
151
Table A4.3: Main Results with Covariates
PC Membership
Profit
SOE
FirmAge
ExGovt
ViCadre
CCP
Age
Male
Immobile
Education
Province
Year
Constant
OLS
OLS with ebal weights
-0.00545***
(0.00179)
-0.00362*
(0.00200)
0.00130
(0.00499)
-0.00572***
(0.00179)
-0.00215
(0.00201)
-0.00252
(0.00301)
-0.000120
-4.09e-05
(0.000272)
0.00731**
(0.00323)
0.00280
(0.00319)
-0.00286
(0.00197)
(0.000211)
0.00583**
(0.00287)
0.00266
(0.00239)
-0.00128
(0.00191)
-0.000211*
-7.97e-05
(0.000128)
(0.000120)
-0.00924**
-0.0162***
(0.00432)
0.00492
(0.00481)
(0.00511)
0.000548
(0.00320)
/
V/
V/
//
0.0337***
0.0358***
(0.00851)
(0.00822)
2,534
2,534
Observations
R-squared
0.048
0.060
Note. Main results with all covariates. Data: ACFIC 2002-2006.
152
Table A4.4: DV: Extraction as a Binary Variable
PC Membership
Model 1
-0.028
Model 2
-0.041
(0.027)
(0.028)
PC * Immobile
0.132
(0.094)
Immobile
0.042
-0.023
(0.048)
(0.056)
2517
2517
Other Covars
Year
Province
N
Note. Dependent variable here is a bivariate variable whether a firm is
expropriated by local governments in a given year.
153
Table A4.5: Robustness Check: Results from Multiple Imputation: Full Dataset
OLS
(no weights)
PC
MAembership
Obs.
-0.004
(0.001)
13917
OLS
(entropy bal weights)
-0.004
(0.001)
13917
Matches-1
Matches-2
Matches--4
PS Matching
-0.003
(0.001)
13917
-0.004
(0.001)
13917
-0.003
(0.001)
13917
-0.003
(0.001)
13917
Note. Five multiply imputed datasets generated using Amelia II package. Table shows results
using the same specifications as those in the main results section. Standard errors are adjusted
following King et al. (2001).
Table A4.6: Robustness Check: Results from Multiple Imputation: Dataset with
Only IV Missingness
PC
Membership
Obs.
OLS
(no weights)
Entropy
(entropy bal weights)
Matches=i
Matches=2
Matches-4
PS Matching
-0.006
(0.002)
3217
-0.006
(0.002)
3217
-0.007
(0.003)
3217
-0.007
(0.002)
3217
-0.007
(0.002)
3217
-0.004
(0.003)
3217
Note. Five multiply imputed datasets generated using Amelia II package. Table shows results
using the same specifications as those in the main results section. Standard errors are adjusted
following King et al. (2001).
154
_-
-
M
I -
-,
11.
., 1, -
1,
-
I
Chapter 5
Legislator Status as a Political Capital Signal
In March 2015, right before the annual sessions of the National People's Congress
and the Chinese People's Political Consultation Conferences took place, Wu Hai,
the CEO of national hotel chain Crystal Orange and a district-level CPPCC deputy
in Beijing, published an open letter addressed to Premier Li Keqiang entitled "I am
too frustrated after doing business for many years!"" The letter blatantly criticizes
governments' preferential treatment towards SOEs and companies with good connections and explicitly discusses how government agencies selectively enforce laws
and regulations, which are in essence forms of expropriation. The letter was well
received by many private entrepreneurs who face similar problems, but was controversial from the perspective of the governments and especially the agencies he
criticizes. He understands that his letter might bring trouble to his own firm and
he states in the abstract that, "I really cannot bear it anymore, although I am
aware that this letter might bring my company down." Many of his frustrations are
regarding arbitrary expropriation:
65
[Clan you (Premier Li) believe that whenever the "Three Festivals"
64
http://www.forbeschina.com/news/news.php?id=41541&page=2&lan=zh.
cessed April 22, 2015.
65
The "Three Festivals" are the Duan Wu, Mid-Autumn, and Spring festivals.
155
(In Chinese) Ac-
A61
are happening, all relevant government agencies in City A start to become active and most of their bureaucrats are coming out to every single
company to conduct so called inspections. These agencies would even
rank companies by size and make some kind of demands (i.e., to ask for
money). Of course, companies with good connections can bargain (to
pay less to these government agencies), and sometimes "special tax" can
be waived.
But maybe you would wonder why among the thousands of entrepreneurs
in City A, nobody dared to voice our discontent. Because we all know
very well that once we do, our company will be finished. I remember four
or five years ago, one company in the hotel industry filed a complaint
against one government agency's misconduct, but since then this company no longer received support from City A and it could not operate
its businesses until the CEO of the company came from the head office
to City A to offer an official apology ....
He goes on to describe expropriation and random enforcement of rules from the
police bureaus, the taxation bureaus, and the commission of housing and urbanrural development. Lastly, he proposes five solutions to eliminate expropriation and
ensure property and personal security. After the letter was made public, not only
did he admit that he worries about possible consequences, but his family members
were so irritated that his brother called and asked him whether this letter might
66
amount to something "big."
66The CEO of Orange Crystal hotel Wu Hai: the multi-faceted and rational patriot who dares
to write an open letter to the premier. Chinese Entrepreneur Magazine. April 20, 2015.
156
Wu's account on selective enforcement of rules and regulations is consistent with
the many conversations I have had with private entrepreneurs. He also believes that
entrepreneurs with political titles and better connections are more likely to avoid
these selective inspections and charges, a statement consistent with the findings in
Chapter 4. This chapter elucidates the mechanisms at work. I first explore the mechanisms of "legislative supervision" and "company quality" and argue that they are
unlikely to be the mechanisms that explain the property-protective effect of legislator
status. I then propose the mechanism of "political connection" signaling, a mechanism motivated and supported by interview evidence and a case study, followed
by a brief overview of other strategies a company could use to flex its muscle and
signal political capital. The next section introduces two national field experiments
on Chinese local government officials that test the signaling mechanism. These experiments involve directly contacting prefectural tax officials to examine how they
respond to requests for policy information from local entrepreneurs. Using an experimental manipulation, I demonstrate that Chinese bureaucrats are 35 percent
more likely to respond to a constituent with connections to the local legislatures,
while being a CCP member does not trigger any preferential behavior. Further, I
argue that the "provision of information" outcome offers valuable insights for us to
understand bureaucrats' decision to predate.
Supervision Power and Company Quality
How exactly do entrepreneur-legislators use their legislator status to protect prophttp://news.pedaily.c/201504/20150420381532.shtnl (In Chinese). Accessed April 22, 2015.
Wu also states that he was not too worried because he is a Beijing district CPPCC deputy, and
he has "many resources and know so many people" so that he should be fine, compared with
other people with little or no political connection.
15'7
erty from expropriation? I first discuss the most obvious mechanism: formal power
associated with the seat.
Appointment, Dismissal, and Supervision
Chinese legislatures perform four main functions: legislation, supervision, representation, and regime-maintenance or support (Cho 2009, 4). Systematic rule of
law and enforcement of property rights can only be pushed forward through legislation, and I will return to legislation later. But in terms of individualistic property
protection, the most relevant function is supervision.
Chinese people's congresses were invited to oversee policy implementation in the
1980s (O'Brien 1994b). As alternatives to agents of the state and the CCP, people's congress deputies slowly gained a reputation as "remonstrators" in the 1990s
(O'Brien 1994a). Over time, the Party came to consider legislative supervision as "a
useful means of checking and preventing corruption in governments" (Cho 2009, 47).
Legislative supervision has since been playing an increasingly important role in local politics (Cho 2009, 44). Deputies supervise governments through two methods:
examination of law enforcement and appraisal of government officials.
While the
former examines the enforcement of specific laws and policies, the latter appraises
specific government agencies and officials.
There are two types of appraisal: self-reporting of performance appraisal and
deputies' appraisal (see Chapter 2 for more description). On paper, these formal
powers make entrepreneur-legislators quite influential -
they decide who gets pro-
moted and who gets demoted. But Wu Hai, the entrepreneur I cited in the beginning
of this chapter, gives an interesting analogy when he talks about relative statuses of
private entrepreneurs:
158
In terms of social status, government officials are like the children of
the wife in a big family, state-owned enterprises are the children of the
concubines, but private entrepreneurs like us, we are the children of
prostitutes. We all share one father, but we (the private entrepreneurs)
are constantly bullied by children of the wife and the concubines.6 7
Why is this the case? Don't entrepreneur-legislators (such as Wu Hai himself) have
the power to remove government officials? Do people's congress deputies actually
exercise their power to dismiss? How much say do they have in appointing a new
official? Legislators admit that they are usually not influential in appointing new
officials. Usually nominations are made in advance, and deputies only get to read
the files of each candidate right before the voting process. They usually vote yes,
since they believe that the nomination is already "set in stone" (Interview M131).
On the bright side, we also have recently witnessed more people's congress deputies
stepping up, using their dismissal power to make sure that officials and bureaucrats
do their jobs. Deputy Huang Ye from Yulin Prefecture, having received complaints
from his constituents regarding garbage pick-up in his district, informed the prefectural health commission head about the situation. Huang pointed out that a
"people's congress deputy (like myself) can impeach you if you do not perform your
duty as a public servant and a government official," and as a result the street was
cleaned in three days.68 The fact that "a legislator reprimanded a government official" was significant local news suggests that it is still a rare event. And according
to a 2004 entrepreneur survey conducted by Bruce Dickson and Peking University in
67
(In Chinese) Achttp://www.forbeschina.co/news/ews.php?id=41541&page=2&lan-zh.
cessed April 22, 2015.
68
Newspaper article. "People's Congress can dismiss you" - does it threaten anyone? HuaShang
Newpaper. August, 25, 2014. http://focus.cnhubei.com/original/201408/t3027081.shtml. (In
Chinese) Accessed April 23, 2015.
159
four provinces, 20.8% of the surveyed entrepreneurs believe that "it would be difficult for governments to get their jobs done, if people's congress (deputies) frequently
supervise governments" (Dickson 2005).
The second type of appraisal is deputies' appraisal. People's congress deputies are
sometimes assigned into "appraisal or supervision groups," and one group usually
corresponds to one specific government agency. In theory, the group should conduct
investigations for several months by visiting relevant officials and interviewing residents (Cho 2009, 59); in fact, these supervision groups usually visit the assigned
agency once a year, when the agency hosts a focus-group meeting (zuo tan hui 3-A
i)
and discusses their work. The supervision group then evaluates the work quality
of the agency and writes up an appraisal report to the people's congress standing
committee. The report is then delivered to the Party committee and, if a majority of appraisal members in the supervision group do not approve the officials or
agencies supervised, an official faces punishment including dismissal. In theory, this
supervision system gives people's congress deputies another "check" on local government agencies, but in reality, government agencies and people's congress deputies
usually operate under the implicit agreement that this type of supervision does not
and should not mean much. Mr. Liang, a prefectural legislator, commented on this
point:
Lang: I was once chairing a supervision group to the prefectural bureau of land and resources. When we (the supervision group) visited
their office, the bureaucrats and leaders were very polite to us, because
they know that we need to sign forms (to let them pass the supervision/examination).
Me: How worried did you think they were that you might not give
160
them a good rating?
Lang: We were being very understanding. We told them up front that
we would not do what we should not do (to fail the appraisal). And they
understood.
Me: What is the point of going there then, if you know that you are
not going to give them a hard time?
Lang: It is still a good opportunity to get to know people from the
agency and make some friends.
(Interview P154)
Even officials in local CPPCC office admit that supervision is "at most giving suggestions" and usually cannot change much of anything (Interview G127).
Further, there is limited evidence that deputies have much agency in appointing and dismissing government officials after the appraisal process. It also seems
to be the case that supervision groups that conduct deputies' appraisals are just a
formality and provide network opportunities between government officials and entrepreneurs and other deputies. It is unlikely that this supervisory power directly
causes officials to treat legislator-entrepreneurs with preference, although many entrepreneurs and bureaucrats point out that "knowing that the supervision power
exists" would affect how bureaucrats treat entrepreneurs (Interview P154). An official working at a county people's congress standing committee office comments that
"a people's congress deputy cannot do good (e.g., to help promote an official), but
s/he can do really bad things (e.g., to bring down an official)" (Interview G153).
161
Company Quality
A second possible explanation for the protective effect of legislator status regards
"company quality." There is a line of academic inquiry into Chinese politics that
focuses on deputy quality (e.g., O'Brien and Li 1993; Manion 2014). A "company
quality" hypothesis is that bureaucrats are less likely to investigate and expropriate
the property of entrepreneur-legislators because potential predators know that these
firms are better in some way (e.g., their books have fewer holes, their labor standards
are higher, or their labor practices are safer). Since expropriation is in part fining
for infractions, the "company quality" theory would suggest that bureaucrats would
gain more from expropriation of companies not held by legislators (i.e., the "lowerquality" companies).
Both entrepreneurs and bureaucrats are likely to disagree
with this explanation. Most surveys show that private entrepreneurs believe that
the existing tax rate is excessive and unbearable -
a situation that affects "high
quality" and "low quality" companies alike. According to a 2010 survey conducted
by the China Entrepreneurs Forum and the Horizon Survey company, 79.6% of the
surveyed entrepreneurs believe that the existing tax burden is "heavy" or "too heavy"
(China Entrepreneur Survey, 2010). In Kellee Tsai's 2002 survey of Chinese private
entrepreneurs, 83.9% of the respondents identified "tax policy" as an area in need of
further improvement (Tsai 2007, 81). Most of the entrepreneurs I interviewed listed
"Lexcessive tax rate" as their biggest challenge of doing business in China, and many
mentioned "reasonable evasion of tax" as a common practice:
Everyone (business person) walks in a grey area. It just depends on
how daring you are. The more risk you are willing to take, the more
profit you can make. (Interview P156)
Nobody pays enough tax as required. If we do (pay the full amount),
no company can survive. (Interview P1218)
162
My company cannot pay tax according to the rules. I have so many
employees I am responsible for! (Interview P136)
Most bureaucrats, on the other hand, believe that no company cannot survive close
scrutiny.
Most companies are in the status of "suboptimal health" (meaning
their books are "unhealthy"), but I agree the current tax system is unreasonable. (Interview G1215)
I never worry about not being able to fulfill the (taxation) quota set by
my superiors. There are always enough companies that have problematic
books I can investigate. (Interview G133)
Therefore, it is unlikely that bureaucrats avoid investigating or expropriating upon
legislator-entrepreneurs simply because the legislator status signals "better quality"
and fewer expropriation opportunities. The opportunities are prevalent.
Signaling Political Capital
The second mechanism that might explain why legislator status protects property
is the mechanism of signaling political capital and connection.
This mechanism
is the third observable implication derived from my theory. Both qualitative and
experimental evidence suggests that this mechanism is a more plausible one.
Party Membership as a Signal
The "signaling effect" of political connection is nothing new, yet previous literature
mostly focuses on the "signaling effect" of CCP membership and the benefit it brings
to Chinese business elites. The concept of "making money and getting rich" seems
to be at odds with the concept of "communism," yet many entrepreneurs have been
eager to pursue a CCP membership.
163
Many scholars argue that "wearing a red hat" has been a successful strategy for
Chinese entrepreneurs to signal their political loyalty and political connection. For
example, Victor Nee and Sonja Opper argue that "party membership signals to
government officials and bureaucrats commitment to the established political order"
(Nee and Opper 2012, 237).
Bruce Dickson (2008) discusses the many benefits
associated with entrepreneurs with a CCP membership, and their strong desire to be
seen as being "within the system" (95). More recently, established entrepreneurs have
begun trying to get into the prestigious National Party Congress. Liang Wengen,
the founder and chairman of a heavy machinery company, Sany Heavy Industry, and
the richest man in mainland China in 2011, became the first private entrepreneur
in the Central Party Congress as an alternate member (Mo 2011).69
Similarly, in Vietnam, an increasing number of entrepreneurs have joined the
Vietnamese Communist Party (VCP), and they welcome the new VCP policy to
formally allow private business owners to join the Party (Rupasingha 2011). Obviously, "wearing a red hat" has also become a business strategy.
The Revolving Door: Hiring Retired High-level Officials
The phenomenon of the "revolving door" is common in many political economies:
Politicians and bureaucrats come into government from an industry job and go back
out to an industry job all the time, and such shuffling has profound consequences to
business and politics (Gormley 1979; Makkai and Braithwaite 1992). In the United
States, almost half of former senators and governors serve on at least one board
after leaving office, and the average compensation may reach a lucrative $251,000
per year for "relatively little work" (Palmer and Schneer 2015). In Britain, Members
of Parliament have the right to take on work as consultants and directors while
in office, and many MPs take directorships after they retire from politics (Eggers
69
There were speculations that Liang is interested in entering politics, so the move to the Party
Congress might have political motives rather than simply business motives.
164
and Hainmueller 2009).
The revolving door phenomenon is also widely observed
in many other economies, ranging from Japan (the phenomenon of amakudari, see
Colignon and Usui 2003), to Thailand (Laothamatas 1988) and Libya (Confessore
and Schmidt 2015).
In China, countless individuals quit their government or Party jobs to enter the
business world,70 and they bring their resources (e.g., knowledge and network) and
connections with them.
There are also many cases where retired high-level gov-
ernment officials are hired as "independent directors" by big companies, including
the former governors of Guizhou Province and Shandong Province, and the former
deputy commissioner of the State Taxation Bureau (Wu 2013). A recent regulation
issued by the Organization Department of the Central Committee made it more
difficult for retiring government and Party officials to enter business immediately after retirement (Central Committee 2013), but there exists leniency in interpretation
and enforcement.
What makes former government officials an attractive addition to a company?
The answer of a firm who hired Reginald Maudling, a retired British MP was that
"it was very useful indeed to have on tap the knowledge and contacts made by a
former Cabinet Minister who had been Chancellor of the Exchequer and President
of the Board of Trade" (Eggers and Hainmueller 2009).
Former officeholders can provide specialized knowledge of policymaking and lawmaking; 71 they can provide access to the connections and networks they made while
in office; they also serve a public relations purpose, signaling status and reputation
-
by getting a high-profile former government official on board, a company sends
Min Chinese, there is a specific term to describe this phenomenon 71
ria hai T4.
0n the other hand, James Wilson argues that professional civil servants do not necessarily
desire private sector employment, because "the kind of work that will impress a potential private
employer is not necessarily that which favors industry but that which conveys evidence of talent
and energy" (Wilson 1989, 86).
165
a strong signal about its resources and power. 72
Relatives in Politics
Relatives in politics is another powerful type of political connection.
In Mara
Faccio's seminal work on "politically connected firms," in which she surveys firms in
47 countries, about a quarter of the countries have firms with political connections
"through close relationships" (Faccio 2006).
In China, it is often said that the best business partner one can have is a spouse
in politics. Another new term -
ping die
TA *
-
which literally translates to
"daddy competition," also points to the importance of having a powerful parent (or
other close relative), usually in politics or in business. Having a close relative in
politics not only brings about tangible connections and resources, it also serves as a
visible signal that warns potential predators not to cause trouble. Clearly, the more
powerful, the higher up, and the more relevant the relative is, the better the signal
will work. The high-profile "Sons and Daughters" programs of JP Morgan Chase,
under which many candidates with elite pedigrees were hired on a separate track, is
a vivid illustration of the lucrative effect of "relatives in politics" (Silver-Greenberg
and Protess 2013). Many more lower-profile cases exist in business all over China.
Information on relatives in politics travels quickly within the local business-politics
circle. Mr. Sun, one of my interviewees, was a very modest but successful private
entrepreneur serving in the local prefectural legislature (see Interview P136). Coincidentally, during a conversation with an entrepreneur Mr. Qian, Qian mentioned
Sun and told me that Sun is the son of a deputy governor in the same province.
When I asked how Qian knew about this, he said "everyone knows about it" and
added "it is probably very easy for him (Sun) to do business here (in this province)"
72
During one interview, an entrepreneur told me that he heard one company recently hired the
son of a state-level bureau head. "The kid got paid 200,000 yuan per year and he does not need
to do shit," suggesting that it was not the person himself but rather the resources he brings to
the company that matter (Interview 0132).
166
(Interview P124).
Corporate PoliticalExpenditures
Firms can also "flex their muscles" through corporate political expenditures. In
the United States, a firm "may never need to fight an agency politically if it can
credibly signal its willingness to do so," and political expenditures serve as such a
visible means (Gordon and Hafer 2005). Gordon and Hafer (2005) find that firms
that make more donations are less monitored by the bureaucracy.
In China, business lobbying generally happen collectively through business associations. Membership in business associations usually does not cost much, but
entrepreneurs can contribute to business associations by "upgrading" their membership with a larger donation. Scott Kennedy shows that in certain industries and
regions, business associations might influence policy (Dong 2005; Kennedy 2005;
2009), but they remain a weak player in Chinese political economy. And especially
since membership in business associations is not competitive, I argue that by being
in a business association, a company can only "flex its muscle" to a limited extent.
Can Chinese business people contribute to legislators? It is an interesting case,
because the supermajority of legislators are either government, CCP, and military officials, or business elites. Government, Party, or military affiliated legislators cannot
accept business money, and it makes little sense to contribute to another company.
Therefore, entrepreneurs run for legislative seats instead.
People's Congress Membership
In Truex's (2013) study of National People's Congress deputies, he suggested that
"positive external perceptions" might be at work in explaining why businesses of
national legislator-entrepreneurs enjoy a systematically higher profit. I see the "perceptions" mechanism as a variation of the "signaling" mechanism I discuss next. Li,
Meng and Zhang (2006) make a similar point that "PC/CPPCC members can ef-
167
fectively shield themselves against state encroachment when local governments act
as a "grabbing hand," but they have not explored the mechanism in depth. I argue that PC Membership signals one's connection with local political elites, and its
effect is much stronger than a CCP membership in China.
3
Through attending
required plenums, collaborating in working groups, and participating in PC-related
events, an entrepreneur deputy expands his personal network to incorporate political elites who are also PC deputies. Friendship is not guaranteed, but connections
are made and enhanced through these activities. A low-level bureaucrat, well aware
that entrepreneurs who are PC deputies have access to this extensive network of
political elites, potentially including the bureaucrat's own superior, will be particularly careful when making a decision to extract or not. If he decides to extract an
entrepreneur who is also a legislator, it is likely that the entrepreneur will contact
relevant higher-level officials in his network to report the extractive behavior. Such
a report could be detrimental to a local bureaucrat's career.
Interview evidence suggests that the "political capital signal" is a real concern
among local officials.
When I asked a prefecture-level tax collector whether he
would collect extra tax from a firm where the head of the firm is a local people's
congress deputy, he gave a quick and certain no, because "membership in the people's
congresses signals good connection with superiors," and he does not want to "receive
a call from his superior" and "get in trouble" (Interview G133).
Among entrepreneurs with legislator status, signaling their status is an obvious
and natural practice. They will include the title of "people's congress deputy" in
an obvious place on their name cards, sometimes even before titles of "CEO" or
"General Manager" (Figure 5.1). In China, websites such as LinkedIn, which host
resumes and individual profiles are not yet prevalent, and the traditional name card
73
Nevertheless, many people's congress deputies are also CCP members. In the ACFIC survey,
slightly more than half of the PC deputies are also CCP members.
168
exchanges remain an important way to make connections. At a provincial ACFIC
banquet following a regular meeting, I observed that entrepreneurs were so busy
exchanging name cards with each other and with government officials, drinking and
socializing, they hardly had time to eat (Interview/Observation 0132).
Figure 5.1: Name Cards with Political Titles
Note. Two name cards I collected from my entrepreneur interviewees who show
their political title(s) on their cards. The first name card has the entrepreneur's
company information, her job title, and her contact information on the front side,
and on the back side (shown in the picture), the name card lists many titles that
the entrepreneur holds: the 11th Congress NPC deputy, the 11th Hunan provincial
people's congress deputy, and other business association positions. The second name
card also has the entrepreneur's contact information on one side and his political
positions on the other side (in English, too!): He is a vice president of the provincial
Federation of Industry and Commerce and a deputy in the local CPPCC.
169
Entrepreneurs who are legislators believe that this status deters informal expro-
priations, because the connections they form in the legislatures are indeed useful
when they are in trouble, they can call up friends. If predatory bureaucrats do not
take this signal of "political connection" seriously, there are potential consequences.
Mr. Xu, a fourth-term prefectural people's congress deputy, recalled that things
like "investigations, requests to join government-affiliated organizations" happened
in the past to his company but not anymore.
Me: So a prefectural people's congress seat has a lot of power?
Xu: It is pretty useful. There was this one time when a bureaucrat
from the Commerce Bureau came to my firm and fined us for something
unreasonable. I became angry and wrote down her name. At that time
I already had been in the people's congress for a few years and knew my
people. I called the head of the Commerce Bureau and filed a complaint
against the bureaucrats for conducting an informal/illegal investigation.
The bureaucrat came to my firm to apologize in the same week. And it
never happened again to me (Interview P134).
Some other entrepreneurs are not as efficacious as Mr. Xu, however.
Mr. Deng,
a one-term legislator, still encountered informal and ad hoc investigation from the
taxation investigation bureau, even after he became a legislator. Unlike Mr. Xu,
although Deng considers the investigation illegal, he did not fight back and just paid
whatever amount the bureau asked him to pay (Interview P1218).
Does term matter here? Is Deng, a single-term legislator, much less powerful
than Xu, a fourth-term legislator, and that explains the differences in their political
efficacy?
That explanation seems likely, mostly because, by serving in the local
170
legislature longer, Xu has accumulated more political capital and friends, and he
might have felt safer than Deng to voice discontent. It could also be that, having
been in the legislature for longer, Xu has more insider information regarding which
government leader is more likely to be responsive. But personality difference might
have also contributed to the different levels of efficacy between Xu and Deng.
During my conversations with entrepreneurs, the term "selective enforcement of
rules and laws" (xuanzexing zhifa it~fAM) came up quite often.74 Entrepreneurlegislators such as provincial legislator Mr. Luo, admit that their firms are usually
beneficiaries of the "selective enforcement" (Interview P1312). On the other hand,
smaller entrepreneurs who do not have either the political title or political connections believe they are the targets of selective enforcement (Interview P135).
For obvious reasons, bureaucrats would not say that they enforce laws selectively.
Nonetheless, it is not difficult to figure out why they frequently "avoid" entrepreneurs
who have signaled their political capital. To illustrate the causal mechanism translating legislator status into secure property, the next section presents a case study.
Signaling at Work -
Example of a District Tax Collector
District 51 is one of the four main districts in Prefecture C located in a CentralSouth Province. The district covers a large portion of the prefecture's commercial
areas and the district local-taxation bureau usually has a sustainable stream of
tax revenue. Besides retail business, the district local-taxation bureau also collects
taxes from businesses such as jewelry importers, textile, paper manufacturing, and
so forth. A few business owners in this district are district-level or prefectural-level
PC deputies. When I asked a tax collector, Mr. L, whether it is possible to collect
74The term also appeared in Wu Hai's open letter to Premier Li Keqiang, referred to in the
beginning of this chapter.
171
one million yuan in extra tax for the current fiscal year, lie answered, "One million
is too easy! We could easily collect 10 million extra." I then presented him with
a hypothetical scenario where he has the opportunity to extract additional revenue
from one of two companies in the district.75 The two hypothetical companies are
identical in all dimensions, and the only difference is that the owner of one company
is a district PC deputy. Without hesitation, the tax collector chose to extract rent
from the company without the PC affiliation. He explained that he "would definitely
avoid PC deputies to avoid trouble" since they could "easily phone my bosses." He
further referred to PC deputies as "the privileged class" (tequan jieji ", VHI 9A)
and those who are "difficult to deal with." When I asked him to explain what the
privileges are, he brought up a recent encounter with Company X in his jurisdiction.
One common method local tax collectors use to collect additional revenue is to
look at "public relations spending" and to check whether the company's receipts
match the numbers in the book. Company X was one of those companies where the
numbers did not match up and it should in theory owe the district taxation bureau
a significant amount of back taxes. L thus notified Company X to pay back the
amount of "missing" tax. A few days later, L received a call from his boss, asking
him not to collect these taxes anymore but just to make sure that in the future
Company X does not owe tax. L immediately realized that the owner of Company
X is a district PC and knew L's boss personally. Collecting additional tax might
be important, but obviously listening to his superior is more important for L and
other lower-level civil servants. After this incident, L decided to avoid all companies
whose owners are PC deputies -
not that his boss phones him every time he goes
to check their account books, but the PC status signals the likelihood that these
75
See appendix for the design of the survey. In total, 16 tax collectors filled out the survey. Seven
of them believed they should avoid the PC entrepreneurs while four answered they would treat
both firms equally. The remaining five answered that they would go to the company with the
PC deputy first.
172
business owners have good political connections (Interview G133).
In Zhang Changdong's study of private entrepreneur, one of his entrepreneur
interviewees told a similar story:
A political title is very helpful (for entrepreneurs).
A CPPCC title
is useful already, and a PC title has even higher value. For instance, a
private entrepreneur who was a CPPCC member was in trouble -
the
local taxation bureau found serious tax evasion problem. The business
owner sought help from the local CPPCC chair, and the chair made a
call to the local taxation bureau head, blaming the bureau for collecting
excessive tax and driving enterprises away.
As a result, the taxation
bureau head stopped the investigation (Zhang 2014).
Summary
Signaling is a low-effort mechanism:
When facing potential expropriation, an
entrepreneur who has already obtained a PC Membership only needs to reveal his PC
delegacy to a potential expropriator. He does not yet have to mobilize his political
network to prevent negative consequences unless the signal does not work. The lowcost nature of the signaling mechanism is a main characteristic that distinguishes
the PC Membership strategy from other strategies that involve repeated interactions
with other parties to maintain political connections.
So what does a potential predator look for in those signals? Why does a signal
work in some cases but not others?
The fact that entrepreneur-legislators still
experience some expropriation means that the signal does not work all the time.
Since low-level bureaucrats usually do not fear that local legislators would use their
formal power to punish their illicit behavior, what they really worry is that an
entrepreneur is friendly with their superior(s).
173
By expropriating a boss's friend,
a low-level bureaucrat risks being on the wrong side of the superior. A potential
predator does not fear an entrepreneur-legislator if he believes that there is little
chance that the legislator knows his boss. For example, if entrepreneur A serves as
a local legislator in District X, and a local tax officer knows that his superior, B,
holds a seat in Prefecture Y that includes District X, he might assume that there
is little opportunity for entrepreneur-legislator A to get to know official-legislator
B. Therefore, the tax officer might still choose to expropriate A. Even if A serves
in the same legislature as superior B, the potential predator might still choose to
expropriate. In this unlikely case, the entrepreneur-legislator A might exert more
effort, such as complaining to B, or even exercising examination or appraisal power.
To clearly identify the signaling mechanism, I conducted two national field experiments on local officials in China. In these two experiments, I requested businessrelated policy information from local mayors' offices and randomly manipulated the
identity of the requesters - a local private entrepreneur (control), a local private
entrepreneur who signals his political connections in the local legislature (the PC
Experiment), or an entrepreneur who signals his CCP membership (the CCP Experiment). I then compare whether entrepreneurs with a PC connection or a CCP
membership receive preferential treatment (the treatment group), compared to those
without such an affiliation (the control group).
It is important to point out that the purpose of these two experiments was not
to assess the effect of having a connection in the local legislatures, or the effect of
having a CCP membership on the likelihood of experiencing expropriation. Rather, I
use the experiments to show that signaling a connection in local legislatures triggers
local officials' preferential treatment towards entrepreneurs, while signaling a CCP
membership does not achieve a similar outcome. I further establish that my choice
of the experimental outcome, which is provision of information, provides important
174
insights for us to understand bureaucrats' decision to predate.
The Experiments
Most Chinese local governments have by now established websites to facilitate interactions between citizens and public officials. Among many services these websites
provide, one called "Mayor's Mailbox"7 6 provides a channel for citizens to directly
address the mayor (shizhang
iY-) in their queries, and the mayor's office replies
via the website, email or phone call (Figure 5.2). Previous studies have shown that
contacting government agencies is a common form of citizen political participation
in China (Michelson 2007; Shi 1997), and online mailboxes have been responsive to
Chinese citizens' requests (Distelhorst and Hou 2014).
Private entrepreneurs have a variety of channels to address their problems, and
directly contacting government agencies is one of them. According to Kellee Tsai's
2002 survey, 67.7% of private entrepreneurs reported that they have written letters
to relevant government agencies (Tsai 2007, 120).
Such a number increases my
confidence in the realism of these letters.
76Other variations include "Leader's Mailbox," "Citizens' Mailbox," etc.
175
Figure 5.2: Mayor's Mailbox
- the City of Nanjing
Note. A prefectural mayor's mailbox website.
I conducted two experiments to identify the effect of signaling and to compare
the effects of different signals. In the first experiment (the PC Experiment), the
entrepreneur, who is an established firm-owner in the IT service industry, requested
information on a new tax policy.
In the treatment condition, the entrepreneur
signaled his connection in the local people's congress. In the control condition, the
entrepreneur did not signal anything.
Informed by prior literature on the effect of Chinese Communist Party membership
on firm profits (Li et al. 2007; Morduch and Sicular 2000; Walder 1995), I designed
1
a second experiment (the CCP Experiment) to test the effect of a C CP signal. The
CCP Experiment helps me answer the following questions: Do bureaucrats treat
entrepreneurs with CCP membership with preference? If so, what is the magnitude
and how does the effect compare to the effect of having signaled a PC connection?
176
The CCP Experiment has the same setting as the PC Experiment, and the only
difference is that in the treatment condition, the entrepreneur signaled his Chinese
Communist Party membership instead of a connection in the local legislature.
The PC Experiment was implemented in the summer of 2013, and the CCP Experiment was implemented in the spring of 2014. The context of each experiment
is described below. The PC Experiment requested information on a new tax policy
converting business tax to value-added tax ("ying gai zeng" Vikt).
The new
tax policy was first announced by the State Administration of Taxation at the end
of 2011 and started to be implemented in selected prefectures and industries at the
beginning of 2012. The policy rolled out nationally in August 2013. I submitted
the requests at the end of July, right before the policy started to be implemented
nationwide.7 7 Although this tax reform affects different industries differently, most
firms would experience a tax cut under the new tax regime, since the pre-existing
method of calculating business tax had already included value-added tax and thus
sometimes resulted in double counting.78 I chose to have the requester come from
the IT service industry, because this industry was among the selected industries that
qualify for the tax reform.
It is important to note that, although most entrepreneurs had heard about the tax
reform, many were not sure when it would be implemented and what procedure they
would need to follow in order to be qualified. Thus, this tax reform requires sufficient
and non-public knowledge about the conditions of eligibility (e.g., whether a certain
industry or certain locale is covered; when it will roll out) and which bureaus to
contact. The information demands on individual entrepreneurs are relatively high.
Local mayors' offices received the following electronic message:
77
The official policy documents are available in Chinese at http://www.chinatax.gov.cn.
http:///money.163.com/13/0529/10/901MCVNJ0253BOH.html for media coverage (in Chinese).
73See
177
Dear Leader:
I am a local private entrepreneur in the industry of IT service. I heard that the business tax to value-added tax reform is
going to roll out in selected cities nationwide. My firm will be
directly affected by this policy.
{I contacted a local people's congress deputy, and he suggested I
write to you.}
[I am a Communist Party member, and I am loyal to the Party.]
When will my firm be affected by this policy?
Thank you,
Name
The one line in the curly brackets only appears in the treatment letter in the PC
Experiment, indicating that the requester either had a personal connection with a
local PC deputy or contacted one directly. A personal relationship is much more
likely, since contact information of PC deputies, especially at the local level, is
usually non-public information.79 The one line in the square brackets only appears
in the treatment letter in the CCP Experiment, indicating that the requester is a
loyal communist party member.
Sample and Treatment Assignment
In both experiments, I attempted to submit information requests to 336 prefectural governments in China, among which 265 localities did not require an identification card number and had a valid website. I then randomized treatment assignment
within each province and attempted to submit the requests. Of these 265 prefectures, 24 did not accept the requests in the PC experiment and 28 did not accept
79
When local legislators' contact information is made public, such information is usually not credible. For instance, two Chinese political scientists have sent survey questionnaires to all prefectural legislators in Xiamen, where legislators' personal email addresses were posted online. They
received zero response (Interview 0141).
178
the requests in the CCP experiment. In these failed-to-submit cases, either email
servers bounced the messages right away, or online forums did not allow me to
submit the message. I successfully submitted requests to 242 localities in the PC
Experiment and 238 in the CCP Experiment. In both experiments, prefectures that
did not accept my requests are not statistically different from those that accepted
my requests, thus the internal validity of the experiment is not threatened by this
attrition (see Table A5.1 for a comparison between prefectures that did and did not
accept the requests).
179
Figure 5.3: Chinese Prefectures Contacted in the Experiment
Note. 265 Chinese prefectures I tried to contact in the PC Experiment and the CCP
Experiment. Satellite imagery @ 2014 NASA, Terrametrics, accessed using Google
Maps API.
Pre-treatment covariates across treatment and control groups are well balanced
in both experiments (see Table A5.2). Although there are differences between the
two groups in each experiment, these differences are not statistically significant.
Results
The key outcome of interest is whether the contacted government agency disclosed
180
any information regarding the requested policy. In the PC Experiment, 40.91% of
all prefecture governments replied to the request for tax reform information.
In
80
the CCP Experiment, 43.28% of all prefecture governments replied to the request.
The response rates are comparable to other studies on government responsiveness in
China, which again gives support that local governments treat these letters as real
letters from citizens (Table 5.1).
Table 5.1: Government Responsiveness to Citizens' Inquiries in China
Issue Area
New Tax Reform Policy (The PC Experiment)
New Tax Reform Policy (The CCP Experiment)
Low-Income Cash Transfer Program
Low-Income Cash Transfer Program Study 2
Policy for Starting New Business
Response Rate
40.91%
41.60%
43.02%
32%-42%
45.21%
Note. The results on inquiries regarding the low-income cash transfer program are
from Distelhorst and Hou (2014), from a study conducted in summer 2012. All of
these experiments use the same sample - Chinese prefecture cities' local government
websites except for the "Low-Income Cash Transfer Program Study 2" (Chen, Pan
and Xu 2015), which was a national experiment conducted at the county level.
Treatment Effects
The PC Experiment detects a large magnitude of official preference toward entrepreneurs with a political connection in the local legislature. Officials' response
81
rate increases by 12.09 percentage points when the requester is signaling that he
has contacted a local people's congress deputy prior to writing to the office. As the
disclosure rate for entrepreneurs with no connection was 34.96 percent, this effect
represents an increase in the probability of disclosure of 35 percent (12.09%/34.96%
35%).
On the other hand, signaling one's membership in the Chinese Communist Party
80
The difference in these two response rates is not statistically significant.
81
AII the Chinese names used in the experiments are considered male names.
181
does not elicit any preference in official behavior.
In the CCP Experiment, en-
trepreneurs without any party affiliation are equally likely to receive a response by
local government, compared with those who are CCP members: The response rate
was 40.00% for entrepreneurs with no connection and 43.22% among entrepreneurs
with a CCP membership. The difference is indistinguishable from 0.
Table 5.2: Outcome - Whether the Government Replies
Disclosure
Rate (%)
Obs.
Treated
47.05
(4.59)
The PC Experiment
Control
34.96
(4.32)
119
123
Difference
12.09*
(6.30)
Treated
44.07
(4.59)
The CCP Experiment
Control
42.50
(4.53)
118
120
Difference
1.57
(6.45)
Note. Disclosure was measured 30 days after requesting information from China's prefecture
governments. *P=0.028 (one-tailed) P-0.056 (two-tailed)
Provision of Information versus Expropriation
The topic of this book is the effect of legislative membership on expropriation, but
the outcome in these experiments is provision of information. Clearly, governments'
preference in provision of information and preference in not expropriating are not the
same. Given the constraints of field experiments, it is impossible to assess preference
in expropriation in this context. Nevertheless, the information provision outcome is
meaningful for us to understand local governments' decision to expropriate.
First, the bureaucrat subjects in the experiments are likely candidates who conduct certain types of expropriation in the local political economy. In the experiments
I asked for tax-related information, and those queries were usually directed to local taxation bureaus, which then decided to either answer or ignore my requests;
if they decided to answer, then they provided relevant information regarding, the
ymng gai zeng tax reform. Importantly, local tax officers have frequent interactions
with local firms and they are the usual suspects of "predators" seeking opportunities
for expropriations. Therefore, studying tax bureaus' preference towards different
182
entrepreneurs in these experiments is helpful in understanding how and who they
choose to expropriate.
Second, even though there is more to gain from expropriation than from failing to
provide information to an entrepreneur, I argue that the costs of "not expropriating"
and "providing information" are similar. Information provision is a low-cost activity,
taking at most ten minutes of a bureaucrat's time if he decides to respond. "Not
expropriating" is also a low-cost activity -
although one might lose the opportunity
to expropriate one specific company, there remain thousands of other companies one
can expropriate. Hence, by studying bureaucrats' decision to provide information
to entrepreneurs I gain better understandings of their decision making process.
Heterogeneity in the Treatment Effect
The average response rates differ between prefectures in inland provinces and
coastal ones. The average response rate among the prefectures located in inland
provinces is 35.9%, while it is 47.5% for those in the coastal areas. Interestingly,
treatment effect is much stronger in inland provinces and disappears in coastal
provinces (see Table 5.3).
Empirically, coastal provinces in China are generally
richer, and these richer provinces usually have better local governance. In this case,
better governance is translated into higher response rate to citizens' requests in
general and less discrimination towards entrepreneurs with no political connection.
The mediating effect of governance or institutional quality on the effectiveness of
political connection is an important topic, but it is beyond the reach of this chapter.
183
Table 5.3: Treatment Effect: Sub-group Analysis and Interaction Effect
Response Rate
All
Inland
Coastal
Treatment
22.41*
22.05**
5.80
18.28**
15.40
(8.66)
(8.95)
(10.26)
(8.47)
(13.79)
/
I/
V,
/
101
156
Treatment * Coastal
GDP pc
GDP pc
< average
> average
-14.65
General Covariates
Replies Covariates
-24.20
(28.30)
/
/
Obs.
232
Coastal
131
/
(13.03)
76
Note. The first column presents results from the OLS model with the
full sample and the interaction term between treatment and coastal
dummy. The other 4 columns show results from 4 subsamples: Inland
prefectures, coastal prefectures, prefectures with GDP below average,
and prefectures with GDP above average.
Alternative Interpretations of the Treatment
Before concluding that signaling connections in the local legislature does cause bureaucrats to behave differently, it is imperative to discuss alternative readings into
the treatment. Could the treatment of contacting a local legislator signal something
different from signaling political connections? This section discusses two possible
alternative explanations.
Effort
One alternative explanation is that having contacted a legislator is a treatment
signaling "effort." The treatment letters are longer than the control letters, and having contacted a people's congress deputy could be read by government officials who
received this letter as a request from someone who exerts great effort to demand
information. A citizen's willingness to exert nore effort could indicate a citizen's
likelihood to be a troublemaker.
And local governments could be more likely to
184
. ..
..........
respond to potential troublemakers to maintain regime stability.
This is a plau-
sible alternative explanation. However, as discussed, contact information of local
82
legislators is usually private information.
To rule out the effort hypothesis, I conducted a very similar experiment (the
college student experiment), where I sent out information request letters to local
governments, in which the treatment group also indicated the effort of having contacted a local legislator. In this experiment, however, the entrepreneur is a young
college graduate who has not started his business. Thus, the signal of having contacted a local legislator is mostly a treatment of effort but a much less credible
treatment of political connection to the local legislature. Below is the content of the
letter:
Dear Leader:
I am a college graduate who graduated last year. Now I am
thinking about starting my own business. I am wondering whether
our local government has any policies that support new business
started by university graduates?
{I contacted a local people's congress deputy,
gested I write to you.}
and he sug-
Thank you,
Name
Since the PC experiment and the college student experiment have the same treatment, additional effort should have elicited higher response rates in both experiments.
However, in this experiment the treatment has no effect in triggering a
higher response rate from local governments. The null effect in the college student
experiment suggests that Chinese local governments do not simply respond more to
82
For a recent news report on the "difficulty" Chinese citizens face in trying to locate their deputies,
4 3 5
see http://video.sina.com.cn/p/news/c/v/ 2 01 -0 -0 /163963585239.html (in Chinese).
185
those who exert greater efforts in making demands.
Social Economic Status
A second possibility is that the treatment indicates not merely political connections, but more generally, a high social economic status. The alternative hypothesis
then is that local officials are more likely to share information with individuals with
higher social economic status.
This hypothesis can be tested by comparing the
experiments in this paper with a similar experiment in the same context, where putative citizens requested assistance on a low-income cash transfer program via the
government websites (Distelhorst and Hou 2014). In the cash transfer experiment,
the nature of the cash transfer program indicates the low social economic status
of requesters. The response rate for the cash transfer experiment is 43.02%, which
is highly comparable to the average response rates of the two experiments in this
study (see Table 5.1). If the "social economic status" alternative explanation is true,
the cash transfer requests would have elicited a lower response rate compared to the
experiments in this study, where requesters are signaling relatively higher social and
economic status. Thus, it is unlikely that social economic status, instead of political
connection, triggers a difference in response rate in the PC Experiment.
Limitations of the Experiments
There are, nevertheless, limitations to this experimental research design in understanding the mechanisms of the effect of legislator status. One major concern is that
the political connection treatment is fabricated and might not represent real-world
business-state connection. I did show that private entrepreneurs consider directly
contacting government officials as an option when they have questions or concerns,
but the connected ones would probably do so by directly phoning their friends in the
186
government instead of writing to the Mayor's Mailbox. This is a valid concern, but
I argue that the estimate obtained in the experiment can at least serve as a lower
bound of the "true" treatment effect of legislative seat on preferential treatment. If
a letter mentioning an anonymous connection already triggers a significant difference in response rate by local governments, an actual connection could only cause
a bigger treatment effect.
A second concern is that the treatment of the people's congress connection could
have indicated other characteristics of the firms, which might affect the outcome.
For instance, having a political connection might suggest that the firm is a large
firm and is a major taxpayer in the local economy, and local officials are more likely
to share information with important tax contributors. Or, entrepreneurs with CCP
memberships are more likely to have political connections and local officials are
more responsive towards CCP members. Theoretically, experiments should be able
to solve problems of confounders and give researchers a clean causal estimate. But in
this case, the nature of the treatment "contacting a people's congress deputy" could
still suggest a bundle of other characteristics that might have affected the outcome.
We need to keep them in mind when reading into these experimental results.
Discussion
This chapter assesses possible mechanisms underlying legislative memberships and
property protection in China. Qualitative and experimental evidence rules out mechanisms of "supervision power" and "company quality" and supports the "political
connection signal" mechanism: Legislative membership signals political connection,
which triggers preferential treatment and might deter expropriations.
If the mechanism is indeed "signaling," it means that legislator status itself is
187
not what matters.
Instead, we are studying the things that are signaled by the
political title. They are political connection, socio-political networks, friendship,
and so forth.
These are possible confounders that might bias the estimation of
the effect of legislator status on expropriation in Chapter 4, and experiments still
cannot isolate the effect of the legislator status from other things associated with the
legislator status. If what I study in this project is in fact just political connection, a
question may arise: Why do we need another project studying the topic of political
connection in China?
Immediately after President Xi Jinping took power at the 18th Party's Congress in
late 2012, China launched a far-reaching anti-corruption campaign.8 3 The campaign
is welcomed by China's citizens, yet from the perspective of more than eleven million government officials, this campaign means fewer opportunities to access "grey
income" (e.g., bribes and perks), which some estimated to have accounted for 12
percent of China's GDP.84 By the end of 2014, some 180,000 officials had already
been "disciplined," and the campaign has been successful in forcing many officials
to pull back from "past practices of collecting bribes," according to Li Yongzhong,
vice-director of a government institute that trains anti-graft investigators in Beijing. 85 However, since the campaign has taken huge profit out of the public service
sector, Li observes that "ftjhere are also many problematic and corrupt officials who
are passively or actively resisting."
86
83
"Anti-corruption campaign - Xi Jinping's plan for this year" (In Chinese). People's Daily,
Jan 2015. http://politics.people.com.cn/i/2015/0114/cI001-26381980.html. Accessed April 27,
2015; Also see an op-ed "Anti-corruption is a war we cannot lose" by Wang Qishan, the secretary of the central commission for discipline inspection on People's Daily on November 3, 2014.
http://news.xinhuanet.com/politics/2014-11/03/c_127169976.htn. Accessed April 27, 2015
8
'4"The Anti-Corruption Drive and Risk of Policy Paralysis in China" The Diplomat. April 25,
2015.
http://thediplonat.com/2015/04/the-ati-corruption-drive-ad-risk-of-policy-paalysisin-china. Accessed April 27, 2015.
85
China's
Fierce
ber 24, 2014.
Anti-Corruption
Crackdown:
An
insider's
View.
NPR.
Decem-
http://www.npr.org/blogs/parallels/2014/12/24/372903025/chias-fierce-anti-
corruption-crackdown-an-insiders-view.
86i
Accessed April 27, 2015.
188
The campaign has impacted many of the entrepreneurs and officials I interviewed.
Many bureaucrats believe their gross income has gone down and their jobs as civil
servants become less appealing (Interview G1214; G1218; G153).
A tax collector
told me that it used to be the case that the period before the Chinese new year was
the busiest time, but now it has become the least busy time of the year because
they. are "no longer allowed to conduct end-of-year visits at companies and stay
for dinner" (Interview G133). An entrepreneur told me that now is an extremely
"dangerous" time and government officials are particularly careful when interacting
with entrepreneurs.
Now, the people's congress deputy title matters a lot more,
because interactions between government officials and people's congress deputies
can be justified as purely related to legislative business and are less susceptible to
investigation (Interview P154).
The Chinese government is heavily involved in the economy, and the anti-corruption
campaign cannot transform the political economy into a rent-free one overnight.
Businesses and governments still interact frequently and informal transactions are
made on a daily basis. In sensitive times, people's congress deputy status brings legitimacy and convenience to business-government interactions and transactions, and
less harassment from lower-level bureaucrats is among one of the many conveniences
legislators enjoy.
189
Appendix A
Table A5.1: Contacted and Unreachable Prefectures
Area (sq km)
Population(million)
GDP (Billion RMB)
GDP Per capita
Primary GDP(%)
Secondary GDP(%)
Tertiary GDP(%)
Govt Revenue (billion)
Govt Spending (billion)
Trade Volume (% GDP)
Posted Replies 2012
No replies Posted
1-10 Replies Posted
>10 replies posted
Obs.
Contacted
24818
391.7
1137.8
30455
0.1525
0.4863
0.3613
81.3419
145.109
The PC Experiment
Unreachable
29371
528.4
1307.2
25455
0.1408
0.4608
0.3983
99.1068
189.853
0.2669
0.2207
56
23
163
242
7
1
16
24
T stats
0.4664
2.0621
0.5215
-0.7088
-0.5876
-1.0241
2.0997
0.4835
1.049
-0.4799
Contacted
24731
2197
1049.7
27966.9
0.1506
0.4606
0.3713
68.06
141.1
The CCP Experiment
Unreachable
15583
1111
1253.1
28340.3
0.1411
0.4738
0.3735
93.92
164.4
55
25
149
228
9
3
23
34
T stats
-1.134
0.4594
0.8272
0.0613
-0.5787
0.5106
0.1303
1.16
0.6784
Note. Covariate means for prefectures contacted compared with uncontacted prefectures in both experiments.
Posted replies in the Mayor's Mailbox were from Distelhorst and Hou (2014).
Table A5.2: Balance Table for Submitted Requests
Area (sq km)
Population(million)
GDP (Billion RMB)
GDP Per capita
Primary GDP(%)
Secondary GDP(%)
Tertiary GDP(%)
Gov't Revenue (billion)
Gov't Spending (billion)
Trade Volume (% GDP)
Posted Replies 2012
No Replies Posted
1-10 Replies Posted
>10 replies posted
Obs.
Treatment
20620.8
2760.9
1741.8
27136
14.71
45.3
37.6
64.11
139.8
48.87
The PC Experiment
Comtrol
24955.2
1563.4
1103.0
29717
15.19
47.6
36.0
75.25
139.2
35.81
35
10
88
119
27
14
91
123
T stats
0.75
-0.69
-0.89
0.58
0.41
1.26
-1.40
-0.72
-0.02
-0.5
Treatment
27042.8
1149.4
1099.0
27974
14.99
46.16
37.62
75.21
141.38
57.63
The CCP Experiment
Control
22517.6
1563.8
1020.2
26232
14.90
46.22
36.72
64.06
141.60
28.57
31
15
87
118
34
13
85
120
Note. Means of pretreatment covariates for prefectures in the treatment (entrepreneurs who has contacted a PC deputy) and control (entrepreneurs) group.
This includes only prefectures where requests were successfully submitted. T stats
column reports t-statistics for two-sided t-test. All the economic and demographic
data come from 2010 statistical yearbook. Trade data is missing for four prefectures:
Haibei, Hainan and Yushu Prefectures in Qinghai Province and Shannan Prefecture
in Tibet Province. Trade volumes in these prefectures are coded as 0.
190
T stats
-0.72
0.79
-0.46
-0.48
-0.07
0.03
-0.79
-0.74
0.01
-1.05
Table A5.3: OLS Estimates: Treatment Effects in the PC and CCP Experiments
The CCP Experiment
3.11
1.46
3.22
(6.41) (6.62) (6.16)
-
General Covars
Province FE
Obs.
The PC Experment
12.10
14.20 14.96
(6.30) (6.21) (6.19)
/
/
/
Treatment
243
243
243
220
220
220
Note. OLS estimates for the treatment effects on government disclosure in the PC
experiment and the CCP experiment. Robust standard errors are in parentheses. The
dependent variable is government disclosure. General covariates are listed in Table B2.
191
Response Speed and Quality
I also compare how fast local governments respond as well as the quality of
responses between different groups. In the PC Experiment, officials reply to entrepreneurs with a people's congress connection in a more timely fashion: On average it takes a local official 8.7 days to reply to an entrepreneur with no political
connection, and 7 days to reply to an entrepreneur with a connection. The difference
is, however, imprecisely estimated. Similarly, in the CCP Experiment, it takes local
officials on average a week to reply to the requests.
The differences in terms of the quality of replies between the groups are also
small. In the PC Experiment, I analyze the quality of replies using the following
five criteria: whether the reply indicates (i) if the IT service industry qualifies for
the tax reform; (ii) when the tax reform policy becomes effective; (iii) the name
of the bureau to contact; (iv) the contact information of the relevant bureau; (v)
whether relevant governmental documents are cited.
A possible explanation for these null effects is that officials who handle these
requests have pre-processed replies to frequently asked questions, and all they need
to do is to copy and paste these replies. Thus, preferential effect is only identified
in terms of the response rates, but not in terms of response quality.
Table A5.4: Outcome: How Long Does It Take to Reply
Days to Reply
Obs.
Treated
7.0
(1.1)
52
The PC Experiment
Control
8.7
(2.0)
39
Difference
1.7
(2.3)
Treated
7.4
(0.8)
46
The CCP Experiment
Control
6.1
(0.7)
44
Difference
-1.3
(1.1)
Note. The dependent variable: number of days the government takes to reply. It is
measured by calculating the number of days between the date when the letter was
replied to and the date when the letter was submitted. This sample only includes
those who replied to the letters. Letters that do not indicate a reply date are dropped
from the analysis. Robust standard error is in the parentheses. In both experiments,
the difference is insignificant.
192
Table A5.5: The PC Experiment: Qualities of Replies - Do they give similar information?
Entrepreneurs
with PC Connection
Entrepreneurs
No Connection
Difference
80.4%
(5.4)
75.0%
(5.8)
76.7%
(6.5)
83.7%
(5.7)
3.6%
(8.4)
-8.7%
(8.2)
Bureau Name
73.2%
72.1%
-1.1%
Contact Info
(6.0)
42.9%
(6.7)
(6.9)
32.6%
(7.2)
(9.1)
10.3%
(9.9)
Documents
48.8%
42.9%
-5.9%
(7.7)
56
(6.7)
43
(10.2)
Obs.
Qualify
Starting Date
Note. The dependent variables are five dummy variables and they are explained as
follows. The variable Qualify denotes whether the reply indicates if the requester's
industry qualifies for the new tax policy. The variable Starting Date is coded as
1 if the reply indicates when the tax policy becomes effective in the locale. The
variable Bureau Name is coded as 1 if the reply discloses the relevant bureau to
contact. The variable Contact Info is coded as 1 if the specific contact information
of the relevant bureau is given. The variable Documents is coded as 1 if the reply
discloses a specific document number or context. This sample only includes those
who replied to the letters. Robust standard error is in the parentheses. None of the
differences reach 0.05 significance level.
193
Appendix B Ethical Consideration
I took careful consideration in seeking institutional waivers of informed consent for
the experimental subjects (local officials) and the use of deception when designing
this experiment. The request for information came from fictitious citizens, and officials were not notified that they were participating in a study. The manipulation
of connection with people's congress while holding all other characteristics constant
is only possible through the use of fictitious aliases or a similar form of deception.
The use of deception has been crucial to the study of discrimination in politics
(Butler and Broockman 2011; McClendon Forthcoming), in employment (Bertrand
and Mullainaithan 2004) and the housing market (Yinger 1995). Since discriminatory behavior is generally socially undesirable and officially forbidden, informing
officials of their participation in my study would cause results to suffer from social
desirability bias.
I also designed the requests to be as simple and minimally burdensome to the
officials as possible. Each office received at most three messages, and the requested
policy information was straightforward. Since the new tax reform and policy regarding starting up new businesses will affect business across industries in the majority
of provinces, disclosing relevant policy information might help other entrepreneurs
who are also looking for this information.
194
Chapter 6
Conclusion
In 1973, political scientist Jean Blondel wrote that "[liegislatures (or assemblies, or
parliaments) pose perhaps the most fascinating problem of all structures of government, for they have been and continue to be both the most decried and the most
revered, the most hoped for and often the least successful institution in contemporary governments" (Blondel 1973, 2). More than four decades have passed, and
scholars still find legislatures to be playing a key part in the "development of political
societies" (Blondel 1973, 142) around the world. A question unaddressed by Blondel,
however, or his contemporaries interested in the development of Western politics,
was how and why these institutions might function in authoritarian contexts where
they are created not through bargaining with a national class of wealth-holders, but
out of whole cloth by governing parties or bodies. In such a context, where it seems
that there is little to be gained by individuals who participate in such formalistic,
meaningless institutions, why do individuals choose to participate?
This dissertation starts with this simple puzzle: Why do individuals participate in
legislative institutions in authoritarian systems? I have provided some preliminary
answers through a detailed analysis of the Chinese case with a focus on Chinese
private entrepreneurs. I argue that individuals seek office mainly to protect their
property from government expropriation in China. In contrast to prior work, I stress
195
the "unintentional functionalities" of institutions and I contend that instead of being
passive takers of existing institutional arrangements, private entrepreneurs in China
actively seek opportunities within formal institutions to advance their interests. By
holding seats in local legislatures, entrepreneurs signal to local bureaucrats that they
have access to higher-level government officials to report illicit predatory behavior.
This signal, in turn, deters local officials from demanding bribes, ad hoc taxes, and
other forms of informal payments.
Findings
As in other developing economies in Latin America, the former Soviet Union, Africa
and many parts of Asia, in China, property protection remains weak, rule of law
is poorly enforced or nonexistent, and government expropriation poses an endemic
problem to the private sector as a whole. As Stanislav Markus puts it:
Predation in modern developing states is often conducted by highpowered mini-beasts: policemen, party functionalities, local administrators, directors of state-owned enterprises, tax collectors, or the agents
at any of the myriad of departments with the power to halt productive
activity ... (Markus 2015, 11)
Entrepreneurs in China have struggled to make their property secure, especially for
private entrepreneurs with few or no political connections. From the Mao era to the
reform period, private entrepreneurs have relied on an innovative set of strategies
to protect their property from expropriations when formal rule of law was or is
lacking. This dissertation has argued that joining local legislatures constitutes one
196
of these strategies, and this strategy has become more effective than other traditional
strategies such as obtaining a Party membership.
Interview evidence presented in Chapter 3 indicates that one of the main motivations for private entrepreneurs to seek seats in local legislatures is to secure property. Findings from original surveys and interviews presented in Chapter 4 show
that legislator-entrepreneurs enjoy protected status from local expropriations. Entrepreneurs who have seats in the local legislatures on average spend 25 percent less
on informal payments (i.e., expropriation) to local officials than entrepreneurs without such a political status. The "protection effect" is stronger when the entrepreneurlegislator is in an industry with heavy government intervention, or when the company of an entrepreneur-legislator is relatively immobile. In those cases of heavy
regulation or fixed assets, there are more opportunities for local bureaucrats to predate on businesses, and thus legislative seats become even more valuable. On the
other hand, being a member of the local Chinese People's Political Consultative
Conferences (CPPCC) does not bring about similar levels of protection for private
entrepreneurs, although this political institution still provides a formal platform for
business elite to interact with local political and social elites.
Legislative membership signals political connection, which triggers preferential
treatment and deters expropriation. Both qualitative and experimental data rule out
alternative mechanisms: legislative membership might indicate "supervision power"
or "company quality," which results in or might be correlated with lower expropriation. Original field experiments, which involved directly contacting officials to
examine how they respond to realistic messages from citizens, show how local government bureaucracies respond to constituents with connections to formal institutions.
Using an experimental manipulation, I demonstrate that Chinese bureaucrats are 35
percent more likely to respond to a constituent with connections to local legislatures.
197
In short, if we only looked at the formal functions of institutions and legislative
outcomes, it would be impossible to explain why individuals participate in Chinese
local legislatures at all: Local legislatures still do not make laws; legislators still have
little influence over local policies; getting a seat is becoming more and more competitive and costly; and serving in a legislature costs time. Only by paying attention to
unintended consequences of these political institutions, in this case property protection, can we make sense of private entrepreneurs' choice to participate in seemingly
weak and ineffective authoritarian political institutions.
Understanding Authoritarian Legislatures
Over twenty years ago, Kevin O'Brien commented on the two main approaches to
studying legislatures:
Functionalists look across the political system for agencies and occasions on which law making is performed.
Structuralists focus on the
legislature itself and enumerate the many functions legislatures actually
account for. Functionalists discuss legislatures incidentally, albeit in a
rich and complex mesh of institutional interrelationships.
Structural-
ists investigate legislatures systematically, but with scant reference to
other organizations engaged in similar work. Both approaches are functionalist in an important sense - they look for functions performed by
institutions ...
(O'Brien 1990, 8).
He further suggested:
198
Only by combining features of structural and functional approaches,
and adding an oft-lacking longitudinal dimension to both, can we uncover
the contradictions inherent in Chinese legislative theory and practice and
the possibilities for changes stirring within (O'Brien 1990, 9).
Similarly, Tom Pepinsky also provides a critique regarding contemporary authoritarianism research which shares elements of historical institutionalism:
In contemporary authoritarianism - research, though, institutions do
exactly what their creators want them to do, and leaders adjust institutional forms when doing so is in their interest. Because the new literature
holds that institutions are created to solve concrete political problems,
and that successfully do this, scholars have not sought evidence that history has 'locked in' the crafters of institutions- to a trajectory that they
would not have otherwise chosen. This leaves their analyses vulnerable
to the institutional critiques outlined here (Pepinsky 2014).
Following O'Brien and Pepinsky's suggestion to combine structural, functional and
historical approaches to study authoritarian institutions, I seek to move beyond
state-centric accounts of authoritarian legislatures as a source of legitimacy, a channel of rent distribution, a tool of elite co-optation and power sharing, a method of
information collection, or a combination of the above (for example, among others,
Blaydes 2011; Brownlee 2007; Gandhi 2008; Magaloni 2006; Malesky and Schuler
2010; Noble 2015; Svolik 2012; Truex 2014). Instead of focusing on the designed
functions the Chinese legislature accounts for, this project highlights the unintentional functions that- authoritarian institutions could serve.
This focus accords with the account of historical institutionalism. For instance,
Peter Hall and Kathleen Thelen, who see "institutions as resources," argue that it is
199
"dangerous to assume that the institutions of the political economy were originally
created to serve the interests they advance at much later periods of time" (Hall and
Thelen 2009).
Instead of showing that "institutions do exactly what their creators want them to
do," my research shows that institutions serve functions that their creators cannot
foresee. Specifically, instead of being passive rule takers, individuals actively seek
legislature memberships to ensure property security. Such a function of the legislature was not envisioned by the ruling elites, yet it has been incentive-compatible
with the CCP. The legitimacy of the CCP is largely based on delivering growth,
and I argue that this partial property rights system, to some extent, has encouraged
competition and private sector development.
Another important issue is the cognitive limits of rule makers, as pointed out by
Streeck and Thelen in their conceptualization of institutions as regimes. They argue
that "regimes capable of survival in a complex environment are likely to have built-in
feedbacks that inform rule makers how their rules are working out in practice," and
rule takers can influence rules and rule makers through such feedbacks (Streeck and
Thelen 2005).
Even in strong states like China, individuals might not just be passive rule takers
of existing institutions designed by the powerful actors of the CCP and authoritarian
leaders. I show that the CCP has not explicitly used the people's congress system to
co-opt the business elites: the formal functions of the legislatures are still weak and
legislators are relatively powerless in terms of influencing law and policy. Nevertheless, private entrepreneurs work within institutional arrangements and have created
new opportunities to advance their own interests. Such strategies are unintended
consequences of the institutional design.
Comparative Relevance
200
. .........
My argument thus far is developed from observations about private entrepreneurs
and local legislatures in China, yet the comparative question arises of whether the
phenomenon of informal appropriation of formal institutions can be observed in
other contexts. A sampling of secondary literature suggests so, and in this section I
briefly discuss two contrasting examples, one that represents a "most similar" case
to China and the other a "least likely" comparison.
First, we might expect the logic of informal appropriation of formal institutions
to be relevant in authoritarian or transitional contexts where formal institutions
and their rules are still developing.
However, few studies of transitional regimes
have focused on how actors create incentives within formal institutions and make
use of developing institutions. For instance, the dominant view in the transitional
economy literature is that informal institutions are more relevant than formal ones in
shaping political and economic outcomes, and those studies only hint at the feedback
between informal and formal institutional development (Tsai 2007, 217).
One exceptional case is Onoma's 2009 study on Kenya's land documentation during the authoritarian period right after its independence. I consider this situation a
"most similar" case to China, since Kenya after its independence in 1963, especially
during the 1978-2002 Moi regime, was governed in an authoritarian manner, and
its legislature was a new and developing institution. In his analysis, the national
land documentation process first provided opportunities for marginal con men to
sell fake land documents for money. Well-connected politicians quickly picked up on
this trend and started to issue fake documents to raise money for various purposes
such as campaigning and buying support. Because these politicians were close to the
state, the state did not have an incentive to stop the fraudulent exploitation. Such
expropriation of the land documentation system eventually resulted in the demise
of land documentation in 2004.
201
These Kenyan politicians are similar to Chinese entrepreneur legislators in the
sense that they both take advantage of formal institutional arrangements to advance their personal interests. There is, however, a difference in terms of who bears
the costs. The implications for institutional changes might also differ. The costs
of expropriating the land documentation system were borne by the Kenyan population and finally resulted in the collapse of the system.
In the Chinese case,
entrepreneurs are seeking basic protection of personal property, the consequence of
which could be a more general public good. Here, the subsequent cost might be
borne by less-connected entrepreneurs who could not reach the local legislatures, or
by local bureaucrats who end up stopping their expropriation of local businesses.
As Hall and Thelen (2009) point out, the dynamic of innovative appropriation of
formal institutions is not confined to authoritarian or transitional regimes. I consider cases in liberal democratic contexts as "least likely" cases compared to China.
In Adam Sheingate's analysis of the development of the U.S. House of Representatives, he discusses three well-known vignettes during the institution's development.
The three cases are: (1) the emergence of the Rules Committee as an instrument
of majority party agenda control under Thomas Brackett Reed in the early 1880s;
(2) the elimination of the "disappearing quorum," another innovation by Reed, and
the creation of a powerful partisan Speaker through "Reed's Rules" in 1890; (3) the
introduction by George Norris of a resolution stripping the Speaker's power over
the Rules Committee during the "Cannon Revolt" in 1910 which transformed the
rules of the House, where Representatives Reed and Norris "exploited the ambiguity
of the rules and the complex institutional features of the House either to create
new rules or to put forward creative interpretation of existing rules that would allow them to pursue their goals of institutional change" (Sheingate 2009, 171). In
these cases', Reed and Norris initiated changes within formal institutions to achieve
202
not only individual goals, but also collective ones. The U.S. legislature in the 19th
century was substantively distinct from the contemporary Chinese legislature; nevertheless, how they overcome obstacles of formidable opposition by appropriating
existing institutions to advance other goals is quite similar to the case of Chinese
entrepreneur-legislators.
Economic Growth
Results of this dissertation have implications for long-term growth. My research
suggests that the current institutional arrangement in China seems to have been
selecting and rewarding successful businesses (i.e., the ones in the legislatures), and
allowing predation to happen on the smaller and less connected businesses. Such a
system has been working so far for two reasons: first, it selects winners and discards
losers in a Darwinian sense -
the less competitive and competent companies are
more likely to be weeded out; second, it allows petty corruption to keep bureaucrats
motivated but only to a level that does not hurt the private sector growth too
much.
But an important question remains:
Can this system remain sustainable
and conducive to growth in the long run? Next, I briefly discuss three topics that
are usually associated with studying economic growth in a developing economy:
innovation, corruption, and property security.
First, let us focus on innovation. Development scholars have argued that innovation might be less important (or in other words, generates fewer opportunities) for
late developers because they first take shortcuts by emulation (Gerschenkron 1962;
Hirschman 1968). But in the long term, everyone agrees that innovation is important
for growth. As Acemoglu et al. (2013) show, subsidizing incumbent firms reduces
growth and welfare, because such a policy deters entry of new firms which might
203
have higher innovative capacity in the long run. I find that newer and smaller firms
are less likely to get a seat in local legislatures and more likely to be expropriated in
China. It will be even more concerning if, instead of investing in innovation, firms
invest in cultivating political connections because they see a higher return from the
latter. Such a system, one might worry, will indeed hurt firm-level innovation and
productivity growth in the long run.
Second, despite the fact that tournament-like regional competition provides incentives to sub-national officials to curb corruption, China remains one of the most
corrupt countries in the world (Xu 2011). Earlier scholarly works have shown that
a certain level of corruption could "grease the wheels." remove government-imposed
rigidities, and allocate capital to the most efficient sectors (see Tanzi 1998 for a
review), yet Paolo Mauro's seminal work shows that corruption lowers private investment and therefore reduces growth even in places where bureaucratic regulations
are cumbersome (Mauro 1995; also see Tanzi and Davoodi 2001).
The ongoing anti-corruption campaign embarked on by the Xi administration
sends a costly signal to national and sub-national officials and bureaucrats that
corruption is less likely to be tolerated, and the campaign has already had profound
effect on reducing bribes and extravagant consumption by government officials (Qian
and Wen 2015). As a result, many public servants have started to complain that
their salaries are way too low in the absence of this "gray-area income,"87 and the
number of graduating students who choose to enter public service already started
to drop.88 If the anti-corruption campaign is successful in the long term, it should
-A 1367Y". April 26,
For instance, see newspaper article: "A
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http://politics.gnw.cn/2015-05/24/content_15761944.htm.
And "a
&
ilI 1
:
4" http://news.hexun.com/2015-01-18/172490463.htm. Accessed July
15, 2015.
88
People's
Daily.
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2014.http://politics.people.coi.cn/n/2014/0426/c1001-24945133.ht ml.
Accessed July 16,
2015.
204
& IM
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"
87
be good news for the millions of private entrepreneurs who can use their money
to develop their businesses instead of giving to the grabbing hands. If that were
to happen, entrepreneurs' motivation to participate in the legislatures and other
avenues of politics might also change -
legislators might really legislate.
Finally, we return to the topic of property rights and growth.
Douglas North
and Robert Thomas famously argue that efficient organization, which entails "the
establishment of institutional arrangements and property rights," is the key to economic growth (North and Thomas 1973, 1).
This view has been supported by
numerous scholars in economics and political science (e.g., Acemoglu and Robinson
2001; De Soto 2003; Hall and Jones 1999). Moreover, at the political level, property rights security constitutes a "key ingredient in the elusive ideal of rule of law;"
and it provides "a primary check on governmental discretion by granting dissidents
independent bases for existence (and resistance)" (Markus 2015, 3).
However, developmental economists such as Dani Rodrik argue against the simplistic "best-practice" approach to development and propose that developing countries might instead need "second-best" institutions that take into account "context
specific market and government failures that cannot be removed in short order" (Rodrik 2008). To cope with the absence of property rights, entrepreneurs in Russia and
Ukraine make alliances with various stakeholders around their firms (Markus 2015)
and/or have frequent contacts with private protection rackets (Frye and Zhuravskaya
2000). In Peru, property is "protected by all sorts of extralegal arrangements firmly
rooted in informal consensus dispersed through large areas" (De Soto 2003).
In
countries like Ghana and Vietnam where legal recourse is lacking, firms rely on relational contracting to build long-term and personalized relationships and sustain
cooperation through repeated interaction (Rodrik 2008).
89
In China, despite the underdevelopment of secure property rights and rule of law,
89
Yuhua Wang (2015), on the other hand, argues that China has "partial form of the rule of law,"
205
the economy has still managed to grow. Yingyi Qian reasons that China's "transitional institutions" have been able to "improve economic efficiency by unleashing
the standard force of incentives" (Qian 2002).90 Complementing Qian's analysis of
transitionalinstitutions or second-best institutions, in this dissertation, I show that
second-best institutions can also be generated through a bottom-up process: Chinese
private entrepreneurs create individualized property security by seeking legislative
office. A similar bottom-up solution to insecure property rights, one that involves
firm-level strategies rather than macro-institutional design, is described in Markus
(2015): In Russia and Ukraine, firms make alliances with non-state stakeholders
such as labor, adjacent communities and foreign investors to secure property rights.
Competition in China for legislative seat is difficult, and those who succeed in
the competition have individualized property security. This process is not initiated
by the state, yet this partial property security system proves conducive to growth
in the short run. This individualized property protection system is also incentivecompatible with the CCP, whose legitimacy is largely based upon delivering growth.
Nevertheless, we still need to think about growth in the long term. Although transitional institutions such as a partial property rights system "doles] not necessarily
lead to a partial reform trap" (Qian 2002), there is a good possibility that at some
point transitional institutions will run into problems. Hence, many scholars advocate that the transitional institutions should "eventually be replaced by the more
conventional, best practice institutions when the underlying environment improves"
(Qian 2002; Xu 2015), in this case, a full-fledged system of property rights. And
this leads to a discussion about systematic institutional change.
90
and it is better enforced in some regions than others.
0n the other hand, Yasheng Huang argues that China's growth experience is more conventional
than others have argued. In the 1980s, even if there was little protection of property security,
there was "security of the proprietor" (Huang 2008, especially Chapter 2).
206
Entrepreneurial Source of Democratization?
Douglas North and Barry Weingast's (1989) seminal work on the institutional development of 17th-century England documents how the wealth-holders gradually
gained their decision-making power through their representatives in the parliament,
which established the government's commitment to honoring its agreement and the
promise not to expropriate wealth. The super-wealthy private actors also played a
crucial role in the popular movement for "universal arrangements" and the rule of
law (Markus 2015, 216).
Are China's wealth-holders likely to follow a similar path? Scholars of democracy
and democratization enjoy the exercise of predicting China's trajectory.
By ana-
lyzing GDP per capita and the Freedom House rankings, Henry Rowen put a time
stamp on China's democratization -
2015 -
and later revised his own prediction
to the year 2025 (Rowen 2007). Larry Diamond predicts that China's middle class
would be behind such process: 'To the extent that the CCP succeeds, however,
it generates the very forces -
an educated, demanding middle class and a stub-
bornly independent civil society - that will one day decisively mobilize to raise up
a democracy and end CCP rule for good" (Diamond 2012).
China scholars, on the other hand, do not think that Chinese business elite will
be a driving force behind any political change. Kellee Tsai contends that "... even
if China eventually were to develop a capitalist class (a class for itself), there is no
reason to expect that it would lead or ally with other classes in pushing for political
change" (Tsai 2007, 220). In the same vein, Bruce Dickson concludes that, instead
of becoming potential agents of change, Chinese private entrepreneurs have become
"partners with the ruling Chinese Communist Party to promote economic growth
while maintaining the political status quo" (Dickson 2008).
207
Similarly, Margaret
Pearson argues that the state initiated its strategy for organizing the business class
and pre-empted any independent societal pressure (Pearson 1997). Speaking in more
general terms, Andrew Nathan argues that China's particular authoritarian system
"has proven resilient" (Nathan 2003) against challenges the CCP's rule.
Chinese private entrepreneurs in the new century are arguably different from what
Dickson, Pearson, and Tsai observed one decade ago. They still do not yet pose an
immediate threat to the CCP, but it is arguable that they still are "among the party's
most important bases of support" (Dickson 2008, 3). In my research, I have shown
that the Chinese legislature does not serve the function of co-opting the business
class. These business owners might still appear "diverse" and do not "fall into the
(same) income and lifestyle strata" (Tsai 2007, 4), yet I argue that the common
interest of property security is strong enough to form a unified class and to initiate
institutional change.
Institutions are sticky, but even relatively powerless players within authoritarian
institutions might have started to use whatever little power they have to reshape
institutions from within. In China, fewer than one percent of private entrepreneurs
are included in the people's congress system, and the rest are still exposed to the
grabbing hand. It is highly possible that there will exist a benevolent cycle where
private entrepreneurs start to use formal means to secure property by pushing for
deeper legal and policy reform, and formal institutions eventually start to change
to reflect and respond to these demands.
As Michael McFaul puts it, "invisible
structures do not make democracies or dictatorships. People do" (McFaul 2002).
Yasheng Huang believed that private entrepreneurs like Nian Guangjiu and Sun
Dawu "created the true China miracle" (Huang 2008). There is no reason to believe
they cannot create another.
208
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