Chinas_Trapped_Transition_-_Minxin_Pei

China's Trapped Transition -- 1 of 306 -- -- 2 of 306 -- China's Trapped Transition THE LIMITS OF DEVELOPMENTAL AUTOCRACY Min x in Pe i H AR V ARD UNI VERS I TY PRESS Cambr idge, Massac hu setts London, Eng land -- 3 of 306 -- Copyr ight © 2006 by th e Presi dent a nd Fellows ofH arvard College All rights reserved Printed in the U nited States of Ame ri ca First Harvard University Press paperhack e ditio n, 2008 Li/nnry of Congress Calaloging-in-Pu/Jlicalion D ala Pei, Minxin. China 's trapp ed tr ans ition : the Ii mits of developrne nta l autoc racy I Minxin Pei. p . crn. Includ es bib li ographical referen ces and i ndex. ISBN 978-0-674-02195-2 (cloth: alk. pa p er ) ISBN 978-0-674-02754-I ( pbk .) I. De mo cra cy-China. 2. China -Politics and government-I 976-2002. 3. C hin a- Econ ornic policy-1976-200 0. 4. China-Economi c policy-2000- I. Title JQ l.S 16.P44 2006 320.95 I- dc22 2005052762 -- 4 of 306 -- Ta Samuel P. Huntington -- 5 of 306 -- -- 6 of 306 -- Contents Abbreviations zx Introduction 1 0 NE vVhy Transitions Get Trapped: A Theoretical Fr am ewor k 17 TW O Democratizing C hin a? 45 THREE Rent Protection and Dissipation: The Dark Side of Gradualism 96 FOUR Transforming th e State: From Deve lopm e n tal to Predatory 132 FIVE China's Mounting Governance Deficits 1 67 Concl u sion 2 06 Appe ndi x: R epor ted Cases ofLocal Mafia States 219 Notes 223 Ac kn owl edgments 279 In d ex 281 -- 7 of 306 -- -- 8 of 306 -- ABC ADB AMC BOC BSSPIN BYTNB CASS CCB CCP CDIC COD COE CPPCC CPS DRC FCC FDI GDP GGBRS ICBC IMF IPO ISP LPC MEI Abbreviations Agricultural Ba nk of China Agri cu l tural Development Bank Asset Management Company Bank of China Bureau for Supervisin g the Security of Public Information Networks Banyuetan (neibuban) (Sem i-Monthl y Forum, irrtem al e diti on) C hin ese Academy of Social Seiences China Construction Bank C hin ese Commu ni st Party Ce ntral Discipline In spection Commission Central Organization Department Co ll ectively O wn ed E nte rpris es C hin ese People 's Political Consu ltative Conference Ce n tral Party Schoo l Development Research Center of the State Council Federal Communications Commission (U.S.) Foreign Direct In vestment Gross Domestic Prod u ct Governors' Gra in-Bag Responsibility Sys tem lndustrial and Commercial Bank of Ch ina Int e rn ational Monetary Fund Initial Public Offerin g Internet Service Pr ovider Local People's Congr e ss Ministry of El ectro ni c Industry -- 9 of 306 -- X MEP MII MOF MPS MPT MR NFZM NIC NGO NPC NPL OECD PBOC POD RCC SARS SCB SHLPS SOE SPC TVE UNDP WHO WTO ZGFLNJ ZGTJNJ ZGTJZY ZGYW Abbreviations Ministry of Electric Power Ministry of Information Industr y Ministry of Finance Ministry of Public Security Ministry of Post and Telecommunication s Ministry of Railways Nanfa ng zhoumo (Southern Weekend ) Newly Industrializin g Countries No ngovernmental Organization National People 's Congress Nonperforming Loans Organisation for Economic Co-operation and Development People's Bank of China Provincial Organization Department Rural Credit Cooperative Severe Ac ut e Respiratory Syndrome State Commercial Banks Shehui lanpishu (Social Bluebook) State-owned Enterprises Supreme People 's Court Township-and-Village Enterprise UN Development Programme World Health Organization World Trad e Organization Zhongguo falü nianjian (Law Yearbook of China) Zhongguo tongji nianjian (Statistical Yearbook of China) Zhongguo tongji zhaiyao (Statistical Abstract of China) Zuzhi gongzuo yanjiu wenxuan (Selected Essays on Organizational Work) -- 10 of 306 -- China's Trapped Transition -- 11 of 306 -- -- 12 of 306 -- In troduction THE ECONOMIC MODERNIZATION DRIVE that China launched a t the en d of the 1970s ranks as one of the most dramatic episodes of social and eco nomic transformation in histo ry. This process o cc urred in a unique political and economic context: a simultaneaus transition from a state-socialist economic system a nd a quasi-totalitarian political sys tem. De spite te mporary setbacks , brief p e riods of high political tension, ep isod es of economic instability, and num e rou s conservative co unter- attacks, th e two-d ecade-o ld , and ongoing, transition h as dr amatica lly altered the Chinese economic, social, a nd politica ll andscapes. In measurable terms of economic development and social c hange, China's ac hi eveme nt h as b een unpreced e n ted in speed, sca le, a nd scope . 1 Rapid econom ic growth has not on ly vastly improved the eco- nomic we ll-being of the country's 1.3 billion people , but al so h as f un- d ame nta lly altered the s truc ture of Chinese society. Additiona lly, as market-oriented reforms have m a de the C hin ese economy less sta te- centered and more decentralized , economic development has turned Chinese society from one that was once ti ghtly controlled by the sta te, into one th at is increas ingly a utonomous, plur alistic, a nd co mpl ex . During this period, China's integration with th e inte rn a tion al c ommu- nity pro cee d ed al ong seve ral fronts. Trad e and investme nt spe ar- h eaded thi s in te gration as Ch in a as ce nd ed fro m a neg li gib le player in the world eco nomy prior to re form, to a lead in g tra ding state a nd one of th e most favored destinati ons for for eign dir ec t in vestment (FDI). China's integration with th e outside world h as al so taken pl ace in other 1 -- 13 of 306 -- 2 Introduction important areas, such as membership and participation in various in- ternational institutions, advancement in ke y bilateral ties, and educa- tional and cultural exchanges w ith the West. M ost of these mom e ntaus changes have been captured by st atistics m easu ring var ious aspects of Chinese society a nd economy. The aggre- gate size of the Chinese economy in 2002 was more than eight times the size it was in 1978.2 In twenty-five years per capita income rose more than 600 percent, from $151 in 1978 to $1,097 in 2003 . '~ R ap id eco n om ic growth acce l erated social chang e as well. The rate of urban- ization , 18 percent in 1978, had r eached 39 p ercen t by 2002. 4 A differ- ent measure, used by the United N ations , put China's u rbanizatio n in 1998 at 50 percent.'' Rapid economic growth has greatly expanded Chinese citize ns' access to informati on and increased their physical mobility. About two th ou- san d Ch in ese people shared a telephone line in 1978; in 2002, a fixed telephone line was availa bl e f or roughly every six people and, in add i- tion, about on e mobil e te lep hon e was available for every six people. In 1978, three out of one thousand households owned a black-and-white television set . In 2002, there were 126 color television sets in every 100 urban hou se holds a nd 60 co l or sets in every 100 rural h ouse h o ld s. In 1978, on ave rag e, on ly 180 million domestic l ong-di stance calls we re made ( abo ut one for every five people) ; in 2001 , 22 billion s uch ca lls were m ad e -17 calls per capita. From 1978 to 2002, th e number of newspaper copies printed tripled, and the number of titles of books publish ed h ad risen eleve n-fo ld . Intern e t us e rs, barely 160,000 in 1997, numbered 79 million in 2003. 6 Such data suggest that access to in- formation for average Chinese citizens has risen by severa l orders of magnitude on a per capita basis within a quarter century. The r is e in physical mobility is equally impress ive . Passengers trans- ported by various means ro se 533 pe rcent in this period, from 2.54 bil- lion in 1978 to 16 billion in 2002. Measured in per capita terms , increase in physical mobility was close to 500 p erce nt. Si gnifican tl y, an incr eas- in gly !arge numb er of Chinese citizens gain ed the freedom to travel overseas. In 1978, few ord in ary citize ns were allowed this privilege. In 2002, 16.6 million Chinese tr avel ed abroad .7 An imp o r ta nt-if not in evitab le -by-produ ct of eco nomi c re form was th e significant decline of the state's role in the economy. In terms of industr ial output, the sh are of state-owned en t erpr ises fell from -- 14 of 306 -- In troduction 3 nearly 78 to 41 percent from 1978 to 2002, while the share of the private sector (including foreign-invested firms) rose from 0.2 to 41 percent. 8 This dramatic relative decline of the state is also reflected in the em- ployment data . In 1978, the state employed nearly 80 p erce nt of work- ers in urban areas; in 2002, it e mployed only 29 percent.9 These figures indicate that the state's control over the economic and social activities of its citizens has greatly eroded as a direct result of its declining pres- ence in the economy. One of the defi ning f eatur es of Chin a's eco nomi c re form is its inte- gra tion with the world ec onomy. 10 Adopted by Chinese Ieade r Deng Xiaoping as the centerpiece of his reform strategy, the polic y of open- ing the Chinese economy to international trade and investment has produced enormous benefits . During the past twenty-five years, China has become one of the leadin g trading nation s in the world , as well as one of the most popul ar destinations for FDI. In 1978, C hin a was a closed eco nomy that, re lat ive to th e size of its eco nomic system, con- ducted a sm all amount of for e ign trad e and had token FDI. After a quarter century of reform , Chinese foreign trade increased, unadjusted for inflation , forty-one-fold-from $20.6 billion in 1978 to $840 billion in 2003-making China the f ou rth la rgest trading nation in the world. 11 In relative terms, China 's foreign trade grew a lmost six times faster th an its eco nomi c outpu t (as gross domestic product , or GDP, rose 700 percent in the sam e period). The stock FDI, slightly more than $1 billion in 1982, reached $ 446 billion in twenty years. In 1980, about half a million foreigners, excl uding peopl e from Hong Kong a nd Tai- wa n , visited China. In 2002, 13.5 million did. 12 China's integration into th e international commun ity h as not been limi ted to trade and in vestm e nt. Almost e qually si gn ifi ca nt a re t he exte nsive educational, social, a nd c ultu ra l links with th e West estab- lished during the reform period through the training of hundred s of thous a nds of Chinese students an d visiting sc hol ars in We s tern in stitu- tions of hi gh l earn in g, the appo intm en t of t ens of thous an d s of West- ern experts in Chinese universiti e s, an d through tourism a nd popular cultur e. Although it is difficult to qu a nti fY precisely the imp ac t of su ch a multifaceted pro cess of integration on C hine se so cie ty and politics, it is highly likely that the effects of this transformation h ave contributed to c han ges in valu es, tastes, a nd Iifestyl es that h ave occur red s in ce th e late 1970s. -- 15 of 306 -- 4 Introduction China's Lagging Political Development Juxtaposed against such massive, and largely po sitive, economic and social c hang es , however, is China's politi ca l syste m. Despite more than two decades of rapid socioeconomic c hanges, the core features of a Leninist party-state remain essentially unchanged. 13 By most conven- tional standards, the pace of political change has significantly lagged behind that of economic pro gre ss. This gap appeared to be expanding toward the e nd of the 19 90s, as th e Chines e l eade rship co ntinu ed its gradualist economic reform while taking no substantive steps toward political opening. To some extent, the discrepancy between economic progress and political change is captured, however crudely, by polling data in China and several widely followed international indicators of democrac y a nd governance. For example, a s urvey of 2,723 people across Ch in a in 2002 showe d th at they believed thei r political rig hts and abi lity to influ ence gove rnm en t decisions, the like lih ood of get- ting equal tr ea tm e nt from th e government, and judicial ind ep e nd e nc e had improved only marginally as compared with the prereform era. 14 In his speech at a small group meeting of the 16th Congress of the Chinese Communist Pa rty (CCP) in No ve mb er 2002, Li Rui , an out- spoken lib eral party member a nd former secre ta ry to M ao Zedong, of- fered an apt assessment of C hina 's political progress: Since China began its transition to a market economy, our national strength ha s b ee n rising steadily, a nd we have ga ined undisputed great progress. But these problems rema in: excessively slow pace in the re- form of the politi cal system, the lagging development of democracy, the weakness of th e ru le oflaw, and th e resu lta nt pervasive corruptionY Lagging political development will endanger the CCP 's own survival, Li warned: C hin ese and foreign histories prove that autocracy is the source of political turmoil. As the co llapse of the Sovi et U nion shows, the root cause is autocracy. Moder ni zation is possible only throu gh de mo crati- zation. This is the tr en d in th e world in the twenti eth century, especially since the Second World War. Those who follow this trend will thrive; those who fi g ht against this trend will perish. This rule applies to every country- a nd every party. 16 -- 16 of 306 -- In troduction 5 China's lagging political openness is reflected in the low scores the country receives from several widely used international indexe s. The Polity IV Project consistently rates China as one of the most authori- tarian political systems in the worldP Similarly, the Fr eedom House's survey rates China as almost completely "unfree." In fact, China's rat- ings for the 1990s were slightly worse than tho se for the 1980s. 18 Data compiled by Transparenc y International, a nongovernmental organi- zation (NGO) that surve ys perceptions of corruption worldwide , sug- gest that China is perceived as one of the more corrupt countries.19 Th e International Risk Guide, which assesses risks stemmin g from corrup- tion, weak rule of law, bureaucracy, repudiation, and expropriation, has also portrayed China in a mixed light. Its ratings for the period from 1984 to 1997 show that corruption had worsened in China and that the Ievel of bureaucracy remained essentially unch anged . On the positive side, the g uide suggests that the legal system may have improved mod- e rately from a very low base, and that the risks of debt repudiation and asset expropriation were considered negligible. 20 Various measures of governance confirm the underdevelopment of key public institutions in China. In a "quality of governance ranking" compiled by Jeff Huther and Anwar Shah of th e World Bank in 1998, China was placed in the bottarn third of the e ighty countries ranked. China received a score of 39, s imilar to that given to poorly governed countries such as Egypt, Kenya, Cameroon, Honduras, Indone sia, Pakistan, and Nigeria. 21 Judged by another set of measurements u sed by the World Bank's Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi to track governance in 199 co untri es from 1996 to 2002, China was grouped among the countries commonly associated with weak states.22 On "voice an d accountabi lity, " China was ranked 186, ahead only of failed states and the most repressive countries; it was comparab le to Angola, Belarus , Vietnam, Saudi Arabia, and Afghanistan. China was behind most former Soviet-bloc states and major developing countries , including Russia, Ukraine, India, and Mexico. In terms of " regulatory quality," China was placed at 116 , in the company of Nicaragua , Cam- bodi a, Papua New Gu in ea, Egypt, and Mali. C hin a's ranking was below India, Mexico, and Russia, three countries normally known for weak regulatory regimes. On "control of cor ruption ," C hin a was rank ed 111 , along with Colomb ia, Ethiopia , Iran, and Romania . Although China fared better than Russia, it was judged to be less capable of contro lling -- 17 of 306 -- 6 Introduction corruption than India, Brazil, and Mexico. China did better on the other three governance indicators. In terms of " government effective- ness," China was placed at 71, in the company of Namibia, Croatia, Kuwait, and Mexico; it was slightly ahead of Russia and India. On "po- litical stability," China was ranked 87, comparable to Belarus, Mexico, Tunisia, and Cuba. China scored higher than India, Russia, the Philip- pines, and Indonesia. In terms of "rule of law," China was ranked at 94, comparable to Mexico , Madagascar, and Lebanon, and better than Russia but worse than India .23 Such ratings, however, should not completely negate the substantial- and in many aspects, positive-changes that h ave taken place in the Chinese political system since the late 1970s, particularly in the areas of elite politics, institutional development, and state-society relations . Some of these changes have been forced on the ruling regime by the neces sity of economic reform, while others were the products of regime-initia ted policies or societal pressures. As a resu lt, politics in China following two decades of economic reform exhibits tentative signs of institutional pluralism , tolerance of limited public space , and emergence of demo- cratic grassroots participation. On the positive side, the post-Mao r egim e h as put an e nd to mass terror and significantly curtai led the reach of the state into soci ety. Per- sonal freedom and social mobility h ave both expanded substantially; limited alternative channels of political p ar ticipation have been opened; and autonomaus civic organizations are allowed to exist and function outside the political sphere. 24 At the elite level, the post-Mao leadership has also restored the most basic institutional norms a nd procedures required of a stable government, thus contributing to relative elite co- hesiveness a nd politi c al stability during the reform era. 25 The need to promote economic reform and social stability has motiva ted the regime to implement a limited program of legal reform that has begun to have some impact on political , economic, and social behavior in China. 26 Another tr e nd in the development of incipi e nt institutional plural- ism is the growing role ofthe National People 's Congress (the national legis lature) a nd lo call egislatures in policy-m aki n g. Originally conce ived as a necessary step to res tore the cons titution al order devas tated by the Cultural R evo lution, the strengthening of th e l eg islative branch of th e government has acquired a political momentum of its own . Conse- qu e ntly, China's legisla ture h as b ec ome in creas ingly assert ive of its -- 18 of 306 -- In tro du ction 7 constitutional prerogatives and gained consid era ble political s tature.27 Modest progress has been made even in the are a of democratic partic- ip a tion. A lthough th e po st-Mao regim e h as suppr essed the de m a nd s of system a tic de m oc ratic re form s, it was fo r ce d, by th e p o liti ca l n e ce ss ity of maintaining ord er in rur al ar eas, to p e rmit th e el ec tio n of vill age committe es as de facto governments ofth e bas icadministrati ve units in the countr yside. As a ne w political institution that began as a limited experiment in the late 1980s, village elections h ad become an estab- lish ed pr ac ti ce by th e e nd of th e 1 99 0s a nd r ece ived fu ll official san c- tion . A lth o u gh vill age e lec tion s h ave n o t pro du ced effective loca l d em oc ratic govern an ce in m any area s wh e re th ey have b een h e ld , th ey represent the first step, h owever small and tentative , toward exp a nded political participation in an authoritarian re g ime. 2H Th ese sig ns of limited p olitical op e nin g, unfor tun a tel y, h ave ye t to a lt er th e d efin in g ch aracteris tics of th e p ost-Mao regi me as a one- party au tocracy. In ma ny ways, th ese ch ange s h ave bee n to ler ated la rge ly b ecaus e th ey do no t re pr ese nt a dir ec t ch allen ge to th e mo- nopoly of power of the CCP. Indeed, the se changes are c omp atible with the short-term objectives of the party. Thu s, politic al reform un- der th e rul e of th e CC P can occ ur o nl y wi t hin th e strict Iimits imp osed by th e pa rty. In pract i ca l term s, th ese Iim its h ave st un ted th e de velo p- me nt of a n effective le gal syste m, cons tr ain ed th e constitution al ro le of th e leg isla tive br an c h, o bs tru cted th e grow th of ru ra l self-gove rnm e n t, and restricted the emergence of a civil so ciety. Thus , to mo st outs ide ob se rve rs, p os t-Mao politi cal refo rm i s, at wa rst, an oxym o ron a nd , at best, a ser ies of ten ta tive, p art ial, a nd sup erfic ial meas u re s most likely to fa il b ecause th ey in n o way ch alle n ge , Iimit, or und e rmin e th e Com munis t Party 's po liti ca l m on opo ly. A d e mo cra tic tran s ition u n d er th e ru le of th e CCP t hus seem s a d ista nt , or even un realistic, prosp ect. 29 Transition Trapped? Th e com bin atio n of mark et re forms a nd pr es ervation of a on e-party state crea t es co n tr ad iction s a nd parad oxes, th e impli cations of whi ch th e rulin g elites h ave e ith e r ch osen to igno re or are re lu c tan t to f ace di rec tly. For examp le, th e m arke t-o rie nted econom ic po licies , purs u ed in a conte xt of exclusion ary po litics and pr ed at ory practices, m a ke th e -- 19 of 306 -- 8 Introdu ction CCP increasingly resemble a self-serving ruling elite, and not a prole- tarian party se rving the interests of the working people. Commenting on the CCP's transformation , the deposed former gen- eral secretary of the CCP, Zhao Ziyang, perceptively observed: The problern is, the CCP is a party built on the basis ofLeninism. It con- trols all the resources of the country ... under a market economy, after property becomes Iegitimare a nd legal, the CCP inevitably becomes corrupt. Those with power will certainly use their control of the re- sources to turn society's wealth into th e ir private wealth. These p eo ple h ave become a huge entrenched interest group . .. What China has now is the wo rst form of capitalism. Western capitalism in its early phase was also bad , but it could gradually become more progressive. But the worst form of capitalism in China today is incap able ofbecoming more progressive. 30 Of co urse, ther e are other irr econcilable co nflicts betwee n the self- int eres t of th e CCP and its declared goals of reform, such as building a socialist market economy and ruling the country according to law. To the extent that a market economy require s a minimum degree of th e rul e of law, which in turn de mands in st itutionaliz ed curbs on the powe r of th e government, these two goals run counter to the CCP's professed determination to m a int a in politi ca l supre m acy. The CCP's ambition to modernize Chin e se society al so leaves unan swere d the question of how the new autonomy of society is to be respe c ted by the state a nd proteered from the caprice of th e govern m e nt. Th e CCP's perennial fear of independently organized soc ial interests doe s not prepare it well for the likely emergence of s uch forces, which a more industri a li zed society inevita bl y creates. Th e se unresolved c ontradictions, fundamenta l to Chin a's transition away from communism, are the source of rising tensions in the Chi- nese polity, economy, and society. At the intellectual level, the intensi- fication of these contrad ic tions raises doubts a bout wh e th er China could, as m a ny of its East Asian n e ighbors, evolve along a ne o a uthori- tarian de velopm e nt p a th , eve ntu ally p erhaps towa rd a mor e op en soc i- ety. 31 In term s of policy, the se tensions m ake the political a nd economic strategies adopted by post-Mao rulers appear in c re as ingly un su stain- ab l e. China's transition to a m ar ket economy and, perhaps pot e ntiall y, to so me form of d emoc rati c polity, risks getting trapped in a "p art ial -- 20 of 306 -- In troduction 9 reform equilibrium," where partially reformed economic and political institutions support a hybrid neoauthoritarian order that caters mostly to the needs of a small ruling elite. 32 U nder this order, the power of the state is used to defend the privileges of the ruling elite and to supp ress societal challenges to those privileges, instead of advanc ing broad de- velopmental goals. Notabl y, opinion polls conducted in China since the late 1990s reveal that the Chinese public, including both the intel- ligentsia and the masses, increasingly believe that members of the rul- ing elit es hav e gained the most from eco nomi c reform while ordinary people, such as workers and peasants , have benefited the least. Such a perception of a self-serving elite supports the hypothesis of a partial reform equilibrium trap. 33 Indeed , symptoms of a trapped transition have become highly visible or even pervasive. Some keen observers ofChinese politics have warned of the "death of reform" because the political and ideological forces that initially energized China's reform have dissipated. 34 On the eco- nomic front, important reform measures have enco untered s trong re- sistance. 35 Thesensethat economic reform has stalled is widely s hared by Chinese corporate executives, many of whom are members of the CCP. A pol! of 3,539 senior corporate executives across the country conducted by the State Council's Development Research Center in late 2002 found that only a minority was satisfied with the progress of key reforms. For examp le, about a third ratedas "satisfactory" the progress in establishing a modern corporate system, in reforming the foreign trade system, a nd in he a lthcar e reform. Between 25 and 28 percent of the executives were satisfied with the results of the reforms of the finan- cial system, the fiscal system, and state-owned enterprises (SO Es). Nine - teen percent were satisfied with the reform of the investment system .36 In the financial sector, reforms that would have transformed China's dominant state-owned banks into commercial banks have made little progress. Despite the legacy of huge nonperforming loans in these banks, the government continues to use them to support unprofitable and even bankrupt SOEs and fund !arge fixed-asset investments that can inflate growth .37 As a result, mounting bad lo ans in state-owned banks, equival ent to more than 40 percent of GDP, threaten the coun- try's entire financial sector.3 H The government's reform of SOEs has also entered a difficult period.39 The rising Ievel of unemployment, a direct result of SOE reforms , has forced the government to slow down -- 21 of 306 -- 10 Introduction the restru c turing of SOEs out of fear of exacerbating incipient social unrest. 40 Although many small and medium-sized SOEs were priva tized in the late 1990s, the state m a intained its owners hip stakes in a lmo st all lar ge SOEs and is obliged to mainta in their life s upport , thus caus in g further deterioration in China's fis cal health. 41 Genuine privati za tion of these large SOEs has yet to occur. In addition, a quarter centu ry of reform has not succeeded in breaking down state-owned monapolie s in most ke y indu stries, such as banking, telecommunications, civil aviation, en ergy, rail tra nsp o rtation , tobacco, and wholesale tr ade on agric ultur al inputs and p rod u cts. Th ese markets remain distorted and inefficient. Barriers to market entry continue tobe high because of political interference from local governments, w hich rely on the obstacles to protect their vested intere sts in local indu stries that constitute sources of local fiscal revenue and political patronage . Toward the end of the 1990s, despi te the p ro reform rhe to ric a nd publicly announced amb itiou s goals of th e C hin ese governme nt , th e costs of th e la gging institution al and structural reforms b ega n tob e re- flected in the performance of the Chinese economy. In a wide-ran g ing study of the Chinese economy conducted in 2002, the Or g ani sa tion for Economi c Co-operation a nd Development (OEC D) warned th at "the impor ta n t engin es that have driven C hin a 's gr owth in the p ast are los in g the ir dyn am ism" becau se "China's eco nomy h as become badly fragme nt ed and segmented, and this h as led to increasing und er a nd inefficient utilisation of resources." 42 Among the critical weaknesses cited by th e OECD stud y were an e mic growth in the rural sector, in ef- ficiency in SOEs, a nd weakn ess in the financial system. Such st ru ctur al weakn esses c ont ributed to th e considerable s lowdown of th e Chinese eco no my in th e l ate 19 90s.4 ' An In ternatio nal Mo n etary Fu nd (I MF ) study of th e economy in 2 00 3 found simil ar structural weaknesses and warned that, bec a use the one-off productivity gains from earlier reforms h ad a lre ad y been realized, China's c ontinual growth would dep e nd on new an d mor e difficult structural reform s. 44 Even official Chinese statistics, which tend to b e infl ate d , show that the double-digit growt h in the early 19 90s feil to th e 7- to 8-pe r ce nt range in the late 1990s. The rea l ra te of growt h is likely to h ave be en e ven lowe r. 45 Although China's growth acc el e rat ed in 2002-2004, it was driven prim ar ily by state-led fixed-ass et in vestment. 46 Such growth, occurri n g in a context of a l ack of structural r efo rms , would likely -- 22 of 306 -- In troduction 11 exacerbate the distortions in the economy. Wu Jinglian, China's most respected economist, repeatedlywarned in 2004 that, because economic growth was driven by excessively high investment rates (more than 40 per- cent of GDP), this type of growth was low quality and unsustain ab le and would create new problems. 47 The Lack of Political Reform Signs of a trapped transition al so perm eate Chinese politi cs. It is worth noting that all the important institutional reforms in the political system- such as mandatory retirement of government offlcials, the st rengthen- ing of the National People 's Congress, legal reform, experiments in rural self-government, and loosening control of civil society groups- were all conceived and implemented in the 1980s-before China 's ec o- nomic ta ke-off. In the 1990s, although incremental reforms continued in these areas, albeit at a slower pace in most in stances, th e CCP l eader- ship und er Jiang Zemin did not launch any n ew or signifl ca nt in stitu- tional reform initiatives. In addition, whereas internal and, sometimes, public discussion and debate on political reform was tolerated and even sanctioned during the D eng e ra, similar discourse was practically bann ed duringJiang's tenure in offlce. Among lead in g Chinese aca d emics was a widely shared co n se nsus that th e political system had lagge d behind the economic system and th at the failure of political reformwas the most serious constraint on China's developm e nt. In their judgm e nt, however, th e imbalance b etwee n an increas ingly open eco nomic system and China 's current political system was unlikel y to imp rove . Half of th e acad emics inte rviewed by the re- searchers from the Chinese Academy of Social Seiences in 2003 t hou gh t the imbalan ce would p ers ist, a nd a third said it would worsen.4H Even many offleials shared the view that such an imbalance existed and was likely to grow worse. 49 Four polls of offleials bein g tr a ined a t the Central Party School (CPS) between 2000 and 2003 s how consistentl y th at the issue they were most concer n ed with was political reform, an implici t ad mi ss ion of their recognition of the political sys te m' s relative stagna- tion. 50 Like le ad ing acade mi cs, 80 percent of the 1 33 cadres polled in the CPS survey in 2002 said that Ia ck of pro gress in political r efo rm wo uld be the most important factor in constrainin g China's develop- ment- even more important th an econom ic reform .51 -- 23 of 306 -- 12 Introduction The lack of progress in political reform in the 1990s not only high- lighted the stagnation of China's autocratic polity vis-a-vis its fast- changing economy and society, but undermined the regime 's ability to ma inta in effective go verna nc e and to add ress three criti ca l ch a llen ges. Rampant Official Corruption Partially reformed economic and political institutions provide a fertile e nvironm e nt for official co rruption b ecause institutional rul es are e i- ther unclear or politi cally un en forc eab le in su ch environments. Th e ruling elite are unaccountable and immune f rom punishment for wrongdoing. Consequently, it is unconstrained from adoptin g preda- tory policie s and practices. In the Chinese case , corruption by the rul- ing elite r eac hed endemic proportians in the late 1990s. 52 Public opinion surveys in this period consistently ranked official cor rupti on as one of th e top political issues f ac in g China.53 Hi g h-profile scandals in- volving se nior government officials, from m e mb ers of the Politburo to provincial governors, to chief executives of !arge SOEs, have become a staple of the Chinese media. Invariably, these ruling elite members were found to have engage d in ill ega l r ea l esta te deals, acce pt ed hu ge bribes, san ct ion ed l arge -s cale smu ggling operatio ns , participated in fi- nancial fra ud, provided protection for organ ized crime, and s old gov- ernment a ppointme nts for p ers on al gains. The costs of uncontrolled corruption are enormous, both economi- cally and politically. Rough es timates of th e total costs of corruption range from 4 to 17 p ercent of GD P-a sub sta nti al amo unt of resources diverted from public coffers int o private pockets. 54 The political effects of corruption perpetrated by th e ruling e lite are difficult to estim ate, but are likely tobe even more h armfu l th an pure econom ic lasses. Cor- ruption by government offleials undermines the integrity of many key institution s th at enforce laws, maintain rule an d order in the market- place, an d d eliv er crucial publi c services. Corrupt practices adopted by governme nt offleia ls-su ch as taking bribes , rigging bids , insid er deal- in g, se llin g gove rnm en t offices, fraudulent acco untin g, an d l arge- scale theft-inevitably reduce the effectiveness of the a ffec t ed sta te age n- cies, incr ease the costs of market tra nsaction s, a nd raise th e Ievel of systemic risks, espec ially in th e financial sector. T hu s, state capac ity of countries govern ed by corru p t regi mes is always fou nd tobe weak. More -- 24 of 306 -- In troduction 13 important, official corruption in a transition economy, as one Chinese social critic observed, allows the ruling elite to use their political power to amass !arge private wealth through theft and market manipulation, thus directly contributing to rising socioeconomic in equa li ty and result- ing in Ievels of social discontent:"'' Erosion of State Capacity The eros ion of state capacity in China is ep itomiz ed by the Chinese government's deteriorating performance in maintaining several critical functions th at are generally considered central to the effectiveness of a state: the extraction of revenues, the provision of key public goods, the collection of information, and the enforcement of laws and rules:"6 To some extent, the decline of state capacity in China is captured by the paradox of power and ineffectiveness. A lthou gh the Chinese state ap- pears to be instituti onally unconstrained , centralized, and omnipres- e nt, its ability to implemen t policy and enforce rules is severely limited by its incoherence, internal tensions, and weaknesses. The phenomenon of zhengling buchanrsor ineffectual government directives-is widely reported in the Chinese press. It includ es the defiance of central gov- ernment laws and policies by lo cal authorit ies , the willful violation of laws and regulations by government officials, and the practice of lo ca l protectionism that has plagued the enforcement of contracts, court judgments , and nationallaws. '' 7 This unique characteristic of Chinese politics is appro priatel y label ed fragmented authoritarianism ." H To be sure, market and regime transitions unl eash forces that con - tribute to the erosion of state capacity, as experiences from other coun- tries in transition show. Since a reversion to the status quo ante is not feasible, the rejuvenation ofthe state is likely only through in st itutional reforms designed to adapt the organizational structure and functions of the state to meet the new economic and political challenges. Thus , the erosio n of state capacity most likely results from a failure to reform th e political syste m. China 's runaway official corruption is an apt ex- amp le. The ruling elite's unwillingness toreform flawed state in stitutions creates conditions for systemic corruption, which in turn further und er- mine th e effectiveness of the state. Factars other than corruption are also at work in explain in g the ero- sion, however. The most import ant is the distortion, uncertainty, and -- 25 of 306 -- 14 Introduction instability built into three sets of relationships that define the nature and boundary of the authority of the state: party-state, central-local, and state-market. The indeterminacy of these critical relationships directly compromises the effectiveness of the state. The supremacy of the ruling party over the state, for example, weakens the authority of the state ap- paratus at alllevels and Iimits its capacity for performing routine admin- istrative functions. The fluidity in central-local relations creates enormaus commitment, information, and coordination problemswirhin the sta te as the ce ntral and lo ca l state agencies co nsta ntly e ngage in o pportu- nistic behavior b ecause no credible institutions ex ist to reward coop- eration and punish cheating. The net effect is the concurrent exce ss ive provision of private goods that benefit favored jurisdictions and se ctors and the inadequate provision of public goods , such as public health, education, and research and development. Similarly, the poorly de- fined boundaries between the s tate and the market crea te an environ- m e nt in which the sta te is incapable of effectively performing its basic functions-such as enforcing contracts, protee ring property rights, and policing the marketplace-while simultaneously overreaching into areas it does not belang, such as investing in and operaring busine ss es , and selling its administrative servi ces under differe nt guises. Growing Imb al ances in So ci ety and Polity The idea that severe structural imbalances have accumulated in China's society and political system h as gained cu r re n cy within China. 59 Specifically, suc h imb al ances refer to the rising in eq u ality (socio- economic , regional, and u rb an-ru ral), the growin g t ensions between the ru li ng elite and the masses, the e rosion of values, an d th e simu l- taneaus consolidation of an elite-based exclus ivi st ruling coa lition and the increas in g marginalization of weak groups , such as workers, peas- ants, an d migrant l aborers. 60 Because of these imb al anc es, some Chi- nese social scien tists warn that e normaus risks h ave built up in Ch in ese society. Citing rising public dissatisfaction, growing unemployment, a nd in creas in g in equa li ty, Wang Sh a oguang, Hu Anga ng , a nd Ding Yuanzhu argue that Ch in a h as entered a new period of soc ial in sta- bility.61 Sun Liping, a sociologist, h as identifi ed such imbalan ces as contributing to destabilizing soc ial divisions in Ch in ese society. 62 Un - avoidably, such imb al ances are reflecte d in rising tensions in state- soc i ety relations . Both aggregate -l evel d ata a nd press reports indicate -- 26 of 306 -- In tro du ction 15 a sharp ri se in the number of incidents of collective prote sts, vio lent confrontations, and vario u s forms of defiance a nd resistanc e ag ainst state authorities. 63 Obviously, as e xpr essio n s of so cial di sco n te nt , su ch acts of p ro t es t are likely th e produ ct of th e hardship s su ffe red by group s hurt by e co - nomic transition, such as peasants and urban SOE workers. ( lndeed, protests from these two social g roups account for the majority of collec- tive riots.) The rising frequ e n cy, scale, and inten sity of collective protest a nd individual resi stan ce also r evea l th e flaws in th e C hin ese p olitical institution s th at give rise to th e buildu p of such s tr ess du ri ng tran sitio n. The bre a kdown of the sys tem of political ac countab ility governin g agents of the state is likely one of the key causes of ris in g state-soc iety tensions in the Chin e se context. State a gents who routinely abuse th eir power and p e rpetrat e acts of pe tty d es potism cre ate vic tim s every d ay, p e r so n- ify sta te p r ed ation , an d bri ng ordin ar y citi ze n s int o di rect co n t act wi th sta te op pression . Priva te gr ieva n ces accumu late d in suc h a system are m ore like ly to fi nd viol e nt ex pr essions whe n institution al mec h a ni s ms for resol vin g them-such as the courts, the press , and government bureaucracie s-are unrespon sive, inadequate , or dysfunctional. Additi o n a lly, th e CCP 's r es istan ce to d e m ocra tic re fo rm s r esu l ts in th e l ac k of e ffec tive ch a nn els f or po litica l particip atio n a nd i nte r est representa tio n, crea ti ng an envi ro n ment in w hi ch groups un a bl e to d efe nd th e ir intere sts are fo r ced to take hi g h-risk option s of co llective protest to voice their demands and hope for c ompensatory policies. Th e to tality of such in s tituti on al fla ws co ntributes to a sys te mi c pr o- p e n s ity t owa rd viole nt co ll ec tive pro tests eve n in th e ab se n ce of orga- nized socia l interests. 64 Th e accu m ul ati on an d i ncrease of state-soc iety tensions bo d e ill for po litica l stability in C hin a, esp ecially becau se th e d ynam ics th at gen era te su ch te nsio ns t ra p th e ruling C CP in an a lm ost hopeles s dilemma. As the CC P's initial re sis tan ce to political r eform has aggrava ted state-soc ie ty t ens i ons, ri sin g te ns i ons i ncre ase th e risks t ha t any suc h reform co uld ge t o ut of co ntro l, thu s d e t errin g th e CCP from und e r taki ng it. T hi s pol iti cal para lys is fu rth er fue ls sta te-soci ety te n sion s as individua l a nd co ll ec tive gr i eva n ces co ntinu e to accumu- l ate , compo u n d ing risks of f uture refo rm. Th ese d ifficult ch alle n ges a nd deep ly e mb ed d ed st ru ctu ral pr obl ems in Ch in a's closed po litical system and par tia lly reformed eco n omy fur- th er cast int o doubt wh e th er Ch ina can su st ain its dyn amic econom ic -- 27 of 306 -- 16 Introduction modernization. To address this question in thi s book, I will first ex- plore, at the theoretical le vel , the causes and dynamics of a trapped transition. The theoretical framework developed will then guid e the four e mpirical chapte rs that e xamin e th e p a thol ogies cr ea ted by par- tial political and e conomic reforms in China. In developing this framework in Chapter 1, I will draw on the theories on the relationship between economic development and democratiza- tion, economic transitions from state-socialism, and the predatory state. Ch a pter 2 analyzes th e rulin g e lite's con ce ption of a nd a ppro ac h to po- litical re form, and a ss e ss es th e effects of th e va riou s in s titution al re forms that have occurred since the late 1970s. Chapter 3 critically evaluates the economic legacy of gradualism and seeks to demoostrate the hidden costs of piecemeal reforms in the Chinese context and the political logic be hind them. Chapte r 4 traces the de c entralization of s tat e pre- d a tion in post-Mao Chin a a nd pr obes the underlying in s titution al cau ses re sponsibl e f or th e run away co r rupt ion sympto ma tic of a d e- centralized pre datory state . Chapter 5 focus es on th e cons e quenc es of a trapped transition and highlights the three difficult challenge s facing China's one-party regime that epitomize a trapped transition: declining stat e cap ac ity, e roding mobili za tion cap a city of th e ruling p a rty, a nd ris- in g s tate-socie ty te nsi o ns . In th e c oncluding ch a pter, I d iscus s th e th e- ore ti cal a nd poli cy impli ca tion s of th e C hin ese tr ansition ex p e ri en ce. -- 28 of 306 -- ONE Why Transitions Get Trapped: A Theoretical Framework IN PROBING the underlying causes and dynamics th a t have contr ib- uted to the emergence of a partial reform equ ilibrium th at ex hibits , m etaphorically speaking, the distinct characteristics of a trapped tran- sition, we now turn to three sets of theoreticalliterature: democratiza- tion, economic reform, and the state. By applying the theoretical in sights from the lite ratur e, we can better understand the logic of trapped transitions and the political and institutional mechanisms through which market and political transitions under autocratic rule l ose mo- mentum and direction. Economic Development and Political Change Most studies of the impact of economic development on political change suggest a robust link between rising levels of economic well- being and th e openness of the political system, a nd between chan g ing social structures and the emergence of politi ca l competition. 1 Histori- cal examples of democratization and more recent cases of democratic transition in several fast-growing East Asian societies (South Korea, Taiwan, and Thailand) further bolster the hope that China cou ld follow a simil ar evo lution ary path toward political openness. The absence of sub- stantive movement toward suc h openness in China-even after twenty- five years of eco nomic reform that h ave pr oduced one of th e eco n o mi c miracles in history-does not necessarily negate the key theoretical as- sumptions of the re l ations hip between economic development and 17 -- 29 of 306 -- 18 C hin a's Trapped Transition democracy. For one, China 's rapid economic growth started on a rela- tively low base . The per capita GDP was US $ 151 in 1978 and US $7 69 in 1999, based on the exchange rate. It is likely that despite more than two d ecades of susta in ed high growth , Ch in a's eco no mi c d evelop m e nt may not have reached a level sufficiently high eno ugh for democratic transition to occur. This makes China lie outside the "democratic tran- sition zone" hypothesized by Samuel Huntington , who found that non- democratic countries with p er c apita GDP ofUS $1,000 to $3, 000 wer e mor e like ly to lib eralize or de mocratize. 2 Judgin g by p e r cap i ta GDP on a purchas in g power p ar ity basis, however, C hin a may h ave e ntere d the trans ition zone in the la te 19 80s.3 In addition, several factor s unique to China may also explain why a movement toward democrati c transition has fail ed to materialize. China's hug e size and e normaus r eg ion al disparitie s in eco nomic developm e nt constitu te an extra hurdle be c ause the growth of social forces, co nsid- ere d esse nti al for th e emerge nc e of democracy, is uneven across regions . The costs of organizing and coordinating coun trywid e co ll ec tive actio n can be prohibitive, especially in the context of authoritarian repre s sion and underdeveloped communications infras tructure. The in s titutions , practices, and co ll ec tive m e n tality of China 's qu asi-tota lit aria n r egim e pose another, and definitely tough er, obstacle to progress toward democ- racy. In all form er comm unist countries, trans ition toward democracy h as occurre d only after a sudden breakdown of the old regime . Hi stor- ically, no communist regime has ever completed an evolutionary pro- cess of dem oc rati c transition. This suggests that transition s from communist regimes to demo cracy gradually managed by the old regime it- selfmay be infeasible because the overwhelming advantages possess ed by t he reg im e over potential opposition grou p s wou ld give the rulin g e lites no in ce ntives to ex it power, even thro ugh a negoti a ted pro ces s. The growth of au tonomous , organized social forces is more difficult in such a system even when economic development may have created a l arge number of individu als with middle-class soc io eco nomi c attri- but es. De mocratic transition can occur most likely as a resu lt of regime co ll apse because when th e ruling elit es are eve ntu ally f orce d to und er- take even limit ed politi cal reforms, th e regime may h ave b eco me so e n- feeb l ed by misrule a nd politic ally del e gitimi zed th at it n o Ionge r posse ss es th e ca pacity to ma nage a gradua l opening . -- 30 of 306 -- Wh y Transitions Get Trapped 19 The slow progress in democratic reform in China may thus be better explained by theories of democratic transition that focus on the politi- cal choices made by the ruling elites as the immediate and direct causes of regime change. Mter all, theories based on eco nomi c development and social s tructures may best explain the social and eco nomic contexts in which democratic institutions may emerge and function , but are not helpful in identifYing the timing and exigencies of the tran sition. Proponents of the crucial role of the de c ision s made by th e ruling elites in the authoritarian r egi m e maint a in that d em oc r atic transitions p er se have little to do with the social structure or Ievels of econo mic development. 4 Ra the r, such transitions take place onlywhen the ruling elites make the crucial de c ision to withdraw from power, e ve n though the politica l contexts in which such deci s ion s are made vary from regime to r eg ime. 5 From the perspective of c hoi ce-based theories, we may even posit a perverse s hort-run negative re lati onship between ris- ing Ievels of economic development and democratic transition: every- thing else being e qu a l, th e ruling elites m ay h ave less inc e ntive to withdraw from power because rising prosperity makes their political mo- nopoly mor e valuable. More imp o rta nt, the auth or it arian ruling elites ca n reap political ga in s from increasing eco n omic growth because such growth h e lp s le- gitimize th e ir rul e and vin dicate their poli cies. Contrary to the ass ump- tion th a t hi gh eco nomic growth can create more favorable co nditions for political opening, rising prosperity can actually remo ve the pres- sure for d e m oc ratiza tion, a nd frustrations w ith the slow sp eed of eco- nomi c reform may force Ieaders to see k political r efor m. 6 Ind eed, suc h appears to be the case with the Chinese experience, as the fo llowing chapter o n political reformwill show. D ur in g th e reform era, th e CCP 's senior l eaders hip was most co n cerned abo ut po liti ca l reform o nl y when economic refo rm appeared to have stalled and growth performa nce was dete r ior ating. This was the case with Deng 's promotion of an agenda of political reform in 1986 whe n his economic reform initiatives were sty- mi ed by bur eaucracy and growth began to fa lter. 7 A sh ort-te rm imp ac t of ris in g econom ic prosper ity on d e m oc r ati- za tio n also gran ts th e ru ling elites more ma terial resou rces to st rength en th e ir repress ive capacity and co-opt potential opposition groups, especially co un terelites. For exa mpl e, the CCP's efforts to co-o pt the in te lli gents ia -- 31 of 306 -- 20 China's Trapped Transition and the private entrepreneurs-the former being the leading opposi- tion group in the 1980s and the latter a likely challenger to the party's power in the future-were highly successful in the 1990s mainly be- cause the rapid growth gave th e CCP the eco nomic m eans of political co-optation. Yet, however salutary to the autocratic regime's rule, rising economic prosperity can provide, at best, a short-time Iift to the prospects of such regimes because of the self-destructive political dynamics inherent in an autocracy caught up in rapid socioeconomic change. To an exte nt, most ruling elites are aware that economic development will result in the emergence of powerful challengers to power and probably the loss of the political monopoly. Such a realization would prompt the agents of the regime to increase their discount rate for future income from the monopoly and, consequently, intensifY their efforts to maximize current income while maintaining a high Ievel of repression to deter cha ll engers. In addition, the collapse of a foreign regime with simil ar characteristics may make fears of losing one's own power even more acute and real. The net effects of the combination of a growing sense of long-term insecurity and the demonstration effects of a fallen fellow autocracy m ay be those akin to a run on the bank, with age nts rushing to cash in their political investments in the regime , quickening the co l- lapse of the regime's authority. 8 Intriguingly, one can find some evidence of a rising discountrate in the behavior of China's ruling elites. In Chinese press stories of offl- eials punish ed for corruption, many offleials openly admit that they have lost faith in communism and in the CCP, and that their corrupt actions were prompted by their fear of the future. Some high-ranking offleials have even resorted to superstition to help them predict the future . Hu Changqing, a deputy governor ofJiangxi executed for cor- ruption, reportedly told his son (who had already immigrated to North America) that "one day China will be no more ... But with two nation- alities, we will have insurance. " (Hu got every member of his family false identity papers and passports.) HuJianxue, the party secretary of the c ity of Tai'an in Shandong, privately told his subordinates that "Socialism is a dead-end." 9 Li Zhen, the h ead of the provincial tax bureau in Hebei province who was executed in 2003 for accepting tens of millians of yuan m bribes, confessed to his interrogators : -- 32 of 306 -- Why Transitions Get Trapped After the collapse of the Soviet Union, many formersenior Soviet offl- eials had to work as secmity guards and peddle pancakes on the street. I wrongly thought that , rather than losing everything once the party's power is gone, I should start making economic preparations [accumu- lating wealth] when I still have power-just to be ready for the warst. 21 Li's worries were shared by another offlcial, a deputy county party sec- retary in an unnamed province, who said: The disintegration of the Soviet Union at the e nd of 1991 made me lose my faith. I thought it was hard to say whether th e CCP could survive and avoid the same fate! Two months later, Deng Xiaoping's speech on hi s southern tour was published , I wrongly thought that the market econ- omy China was going to build was the same as the free economy that fol- lowed the Soviet disintegrati on . Free eco nomy m eans f re ely grabh ing money. So I us ed my power to grab money aggress ively. 10 Empirically, the rising discount rate for future gains from m e mb er- ship in the ruling elite is reflected in the eorruption by younger offl- cials. If the discountrate remains constant, fewer younger offleials will run th e risk of getting eaught for eorruption beeause th ey ean afford to wait and, in r eturn, will probably reeeive greater total returns on their politieal investments . Prior to the 1990s, offleial eorruption was fre - quently assoeiated with the s o-ealled flfty-nine phenomenon (offleials approaehing the mandatory retirement age of sixty were more tempted to break th e law). But in r eee nt years, government statisties s how that iner easing ly younger offleials were eaught for eorruption. In 2002 , for example, 19.3 pereent of the offleials proseeuted for bribery were younger th an thirty-flve; 29 pereent of the offleials proseeuted for abuse of power were younger than thirty-flve. This pereentage is higher than that of the CCP offleials of the same age group. 11 Among the top loeal offleials and government ageney ehiefs ( the so-ealled yibashou, or number-one Ieaders) eaught for eorruption in Henan provinee in 2003, 1,77 3 (or 43 pereent) were ages forty to flfty, compared w ith 1,320 (or 32 percent) in the over-flfty age group. 12 These two hypoth eses- rising prosperity tends to blunt the pres- sures for politieal reform but also fuels offleial eorrup tion-ar e, in faet, eonsistent with the developments in China in the 1990s. Durin g that deeade, amid unpreeedented eeonomie prosperity, the rulin g CC P' s -- 33 of 306 -- 22 China's Trapped Transition resistance to democratic reform grew more determined just as official corruption became increasingly virulent. Theories of Economic Reform Economic reform in countries in the former Soviet bloc, China, and Vietnam has proceeded along two distinct routes . In the former Soviet bloc, the pace of economic tran sitionwas unusually fast, as was the scope of such transition. Thus, such transitions have often been characterized as "big bang."13 In contrast, economic reform in China and Vietnam has taken a more gradual and deliberate pace , and the scope of such reform was initially limited. In the Iiterature on economic and regime transitions in communist systems, whether one approach is superior to another remains a heated and unsettled controversy. Proponents of grad ua lism maintain that grad ual reform has three principal advantages. LOWER INITIAL COSTS AND GREATER SUSTAINABILITY: The big- bang approach may create too many Iosers at the same time. In addi- tion, a big-bang approach enta ils enormaus compe ns atio n costs, which the government may have no credib le means to pay. As a result , Iosers from big-bang reforms tend to oppose them fiercely, making them po- liti ca lly less sustainab le . By comparison, gradual reform, through im- proving efficiency in certain sectors first, can produce more overall social benefits. Since the numb er of Iosers from partial reform is lim- it ed and the costs of compensation are manageable, the government has greater credibility in its commitment to compensating the Iosers, which can enhance the political sustainability of reform. 14 GREATER FLEXIBILITY: As captured by Deng 's alleged axiom, "c ross- ing the river by feeling for the stones," the essence of gradualism is "learning by doing" and reform through experiments. Reformers may not find the best policy mix , but they may seek "second-best" solutions that yie ld imm ed iat e efficie n cy gains. 15 Gradualism allo ws d ec ision makers to target certain sectors for breakthrough reforms and acquire valuable knowl edge for applying reform to other secto rs. Most impor- tant, gradualism allows reformers to make-and correct-poli cy errors and avoid costly mistakes that can fatally undermine the support for -- 34 of 306 -- Why Transitions Get Trapped 23 reform. Over time, market forces can gain strength and become dom- inant in influencing decision making and the allocation of resources. 16 CONSTITUENCY OF REFORM : Gradualistreformers can use the dassie strategy of divide and rule by creating beneficiaries of reform first and using them as constituencies for further reform. 17 Gradualism has many risks, however. First, its record m reforming state-socialist eco nomi es is dismaL In Eastern Europe, the gradua list approach to reform in the 1970s and 1980s was generally considered a failure. Most scholars ofSoviet-style planned economies argue that only a comprehensive, not a piecemeal , approach co uld transform suc h econ- omies.18 Second, a gradualist approach suffers from the Iack of com- plementarity among various reform m eas ur es . Some reform measures that are implemented cannot be fully effective without other accompa- nying reforms. Janos Kornai argues, for example, that implementing some reforms over others in a piecemeal fashion could backfire and discredit the entire process of economic liberalization. Initial reforms that are carried out sluggishly a nd inconsisten tly would likely preclude the success offuture reforms. 19 The Iack of comp l ementarity can distort markets. 20 Gradual or par- tial reforms al so create new rent-seeking opportunities for the politi- cally connected groups to double-dip by taking advantage of both the new opportunities affered by the market and the rents prov ided by the old unreformed system. These gro ups typically rely on their admin is- trative power to create new monapolies and barriers to trade , re s ulting in lower output, efficiency lasses, and fragmented markets .21 Finally, the ultimate economic costs of transition can be very high if gradualism allows the ruling elites to make selective withdrawals, ini- tially from secto rs with lo w rents while holdin g on to sectors with high rents. Allocation of resources will remain inefficien t. By concealing the information from the public , rulers can often hide the costs of such gradualist reforms , especia lly through hidden public obligations and bad debts in state-controlled banking systems. (Such concealm ent is much easier if the country begins th e reform with practically no debt Io ad, as C hin a did in 1979 .) Ch in a's approach to reforming state- owned enterprises is an apt examp le . The CCP treated SOEs as its l ast bastion of rents and patronage, a nd maintained them on life-support -- 35 of 306 -- 24 C hin a's Trapped Transition through fiscal subsidies and bank credits during the reform era. As a result, th e allocation of China's scarcest resource-capital-was se- verely di s torted. Although SOEs contributed to only a third of China's GDP toward th e e nd of the 1990 s, th ey consu m ed two-thirds of th e do- m estic in ve stm ent capitaP 2 In addition, two d ecades of massive sub si- dies to loss-making SOEs saddled Chinese public finance with huge hidden obligations. 23 Graduali sm in economic re form may be mo re likely to fail wh en it is undertaken with out accom p a nying reforms that restructure the key po- litical institutions that defi n e power relations and enforce the rules es- sential to the functioning of markets, such as security of p roperty rights, transparency of government, and accountability ofleaders. An implicit, but vital, assumption of gradualism is that reformers are expe cte d to build political coalitions to pu sh for such in stitutional changes to safe- guard the fru it s of economic reform as well as to su stain its progress. In reality, however, th e feasibility of building such coaliti ons is rare ly as- sured. This as sumption is particularly problematic when gradu alism is undertaken by a regime that possesses overwhelming initial advantages vis-a-vis societal forces, such as private capital and organized civic inter- ests. In suc h a system, proreform coa liti ons are more like ly to e merge within the regime, rather than between the r egime and society, be cause either organized societal interests were practically non ex i stent after years of qu asi-totalitari an rule or th e neoauthoritari an reg im e does not allow the emergence of such g roups out of fear of their potential threat. The lo w feasibility of forming and sustaining a grand pr orefo rm coaliti on encompassing both progressive elements inside the regime and organized societ al interests not only increases t he uncertainty of gradual ist reforms, but also provides the entrenche d interests inside the reg im e an inh erent advantage . Such inte r es ts can always in voke the threat of further reform to the viability of the regime to block initi a- tives designed to institutionalize the rules and norms of the market, fur th er liber alize th e economy, and curb the pr e datory power of the state. Sin ce reformers with in the regime are unabl e to form alli ances with soc i eta l groups - wh i ch wo uld b en efit from suc h in sti tu tional re- forms -the y often experience great diffic ulty in overcoming su ch op - position to reform that is phrased by th e ir oppo n e nts in te rms of r eg im e survival, rather than econom ic or polic y rationality. Mor eover, antireform el ements w ithin the reg im e can us e privat e deals to co-opt -- 36 of 306 -- Why Tran sitions Get Trapped 25 members of newly influential social groups, such as private entrepre- neurs, thereby creating a government-business collusive network that makes participation in the antireform coalition far more attractive than an uncertain alliance with the proreform forces. 24 Due to such a balance of political power, which favors the ruling elites, gradual political opening under a postcommunist autocratic regime is likely to be highly uncertain and subject to frequent reversals. In sum, three unfavorable factors are set against a proce ss of gradual political opening that parallels gradual eco nomic r efo rm. First, the initial co ndi- tions provide the ruling e lites an overwhelming advantage in political organization, patronage, and coercive power. Second, the proce ss of selective withdrawal creates strong incentives for the ruling elites to de- fend their last strongholds of economic and political privileges. Third, gradualism allows the ruling elites to co-opt new social elites and form an exclusionary network that divides the opposition, while creating an in ce ntive structure th at rewards cooperation w ith the ant irefor m ele- ments and p e naliz es opposition to such e lements . Gradualism, Chinese Style Despite the potential pitfalls of gradualism, th e experience of C hina's ec onomic transition seems to suggest the opposite: gradualism h as been a re sounding success in China. In fact, the consensus view h as so over- whelmingl y endorsed China's gradualism that Thomas Rawski claimed in 1999 that "We are all gradualists now."25 Such an assessment is mainly based on the consistently high outpur growth the country has ac hi eved since it be gan economic reform in the la te 1970s. Compared with the l arge fall in output in the transition ec onomies in Eastern Europe and the former Soviet Union, China's rapid output growth seems to vindi- cate its gradual approach to economic reform. A leading textbook on economic transition, which cites the Chinese experience as the most robust examp le of th e gradu alist model, claims that such a model is "more complete an d adequate" than the big-b ang approac h , otherwise known as the "Was hin g ton co ns e nsu s."26 Sp ecifically, eco n omists who have given hi gh marks to China's gradu alist approach h ave s ingled out several k ey in cre mental institution al reforms as reasons for its success in introdu c in g market forces a nd in ce ntives w ith out caus in g disrup- tions in output.27 On e suc h reformwas the u se of dua l pric es for the -- 37 of 306 -- 26 C hin a's Trapped Transition same good s; one price was se t by the government and the other deter- mined by market forces. This measure of limited market liberalization was deemed, economically, " Pareto-improving " and, politically, palat- ab le to oppone nts of econo mi c r efo rm . It was " reform without losers."2H Another important example of gradualist institutional inn ovations cited was the township-and-village enterprises (TVEs). ByWeste rn Stan- dards, the property rights of the TVEs were poorly defined because they were owned by local governments. Politi cal constraints in China, includin g both id eo l ogi ca l pr ejudices aga in st private prop e rty and th e a bsenc e of the rul e of l aw, prevented the emergence of purely private firms at the initialstage of th e transition. Ruraltownship governments, rather than the central state , managed to overcome these politica l con- straints and established TVEs that performed more effic iently than state-owned fi rms because the int erests of the TVE manage rs and l ocal po liti cians were more closely aligned , an d bec a use TVEs contributed significantly to the budgets of township governments. 29 In addition, China's gradualist approach has had several uniqu e fea- tures. First, it has allowed Chinese Ieaders full y to exploit the s tructural advantages provided by fa vorab le initial conditions. These includ ed a relatively d ece ntr alized ec on o mic d ec isi on-making system; a po litical structure conducive to regional competition ; a relatively small pro - portion of th e Ia bo r force e mployed in the state secto r; a less di storte d industri al structure comp a red with th e former Soviet bloc; a nd a sig- nificant nonstate sector. 30 Second, C hines e refo rm e rs quickly r espo nd ed to p easa nt d e mands to dismantl e th e communes and impl e mented breakthrough reforms in the country's mos t critica l economic sector: agricu ltu re . The initial success of the rural reforms built a crucial proreform constituency. The surpluses generated by th e re form all owed rural gove rnm e nts to invest in new manufacturing bus in esses, which eventually became a cr itical source oflocal public finance. 31 Thus, while C hin a's overall pac e of re - form may be gradual, its rur al reform was d ec id edly big- bang . Third , p e rh aps the most important feature of China's a ppro ac h is the stra t egy of "growing out of the pl an ," th e m a in thrust of which was to grow a nonstate sector rapid ly a lo ng th e si de of th e sta te sec tor. 32 Unlike the form e r Soviet bloc countr i es th at e xp e ri e n ced sh arp falls of output after adopting the big-b ang approach , this strategy allowed China to in crease its output rapidly, thus increasing overall social -- 38 of 306 -- Why Tran sitions Get Trapp ed 27 benefits and generaring the financial means to compensate the Iosers of reform. More criticall y, the same strategy avoid ed making immedi- ate Iosers of those groups with entrenched int eres ts in the state sector (state bureaucracy and workers). This would have l ed to a pot entially debilitating political battle and undermined support for reform. Of course , China's gradualist approach has its critics. Some believe that the success of China 's reform has been overstated, especially given the hidden costs of deteriorating public finance , the slow pac e of stru c- tural reform, and th e in efficien t allocatio n of capital. 33 Oth e rs a rgue th a t China's superior economic performance during transition is l arg ely due to the country's structural factors or initial conditions-such as a less distorred industrial structure, smaller state subsidies, and a more restrictive st ate -socialist welfare system-and not to better policies or institution a l innovation. 34 In add ition, skeptics believe that econom ic distortions tend to incre ase in a partially reformed economy, c iting China's we ll-kn own p rob le rn of local protection ism an d the fragmenta- tion ofinte rnal markets as e xampl es ofmassive ec onomic distortions. 3 '' Implicit in the arguments presented by the skeptics of China's grad- ualist approach is their beliefthat gradualism will ultimatel y fail. They r eason that China will eve ntually e xh au st the advantagesge n e rared by its favorable initial conditions, and the market disto r tion s emb e dd ed in an in c rem e nt al approach will slow down ec onomi c growth . In the absence of constitutional transition ( or de mocratic transition) in C hin a, the same skeptics worry that the process of economic transition can be "hij acked by state opportunism" and be exp loited by the ruling elites to consolidate th e ir hold on pow er, at the expense of th e long-term int er- ests of society.36 The asse ssment of China's ec onomi c performance by its own eco no- mists shows a surprising d eg r ee of nu a nc e a nd demonstr a t es a de ep understandin g of the benefits and Iimits of gradualism. Two theme s dom- in at e the dis c ussion by Chinese eco nomists concerning the co untry 's reform strategy. First, like their West ern Co unt erpar ts, Chinese eco no- mists cl ea rly recognize the country's ac hi eveme nt in outpur growth during the reform era, a nd a m ajority of them sh are the beliefthat this gradualist strategy is a more a ppropri a te a ppro ac h for C hin a. They point to th e rapid improvement in the standard of living , th e p ace of industriali za tion , the growing links with the world eco nomy, a nd the increas ing influ en ce of market forces as ev id ence of th e su ccess of th e -- 39 of 306 -- 28 C hin a's Trapped Transition gradualist strategy. 37 Second, they also under s tand the Iimits of gradu- alism in transforming the deeply embedded institutions of a planned econo my. In particular, they are acutely aware of th e so-call ed sa li ent systems contrad ict i ons- or the constant frictions a nd in compatib iliti es between the ernerging market instituti o ns and the powerful influ ence of the old sys tem. To use the blunt language of an official assessment, "markets in cap- ital, land , technology, and Iabor" are underdevelo ped; the governme nt has on ly "inco mpl ete capab iliti es in macroeconomic managem e nt" and has failed to "form a system of public finance . . . and transform funda- mentally th e management mechanisms of state-owned enterprises." Reform is threatened by the "emergence of special interest g roups within certain government d epartments and the weakenin g of the state's capacity" and by "the influ ence of local protectionism." 38 Wu Jinglian argues that, judged by the changes in the all ocation of eco- nomic resources, China has not yet passed its reform t es t. He be lieves th at th e state-owned economy has not been fund amenta lly reformed or restructured and that capital is, to a very large extent, allocated by the government via administrative means. 39 Fan Gang, a well-known proponent of gradua li sm, adm its that gradua li sm ca rri es huge costs, especially in terms of efficiency lasses, conti nuing price distortions (due to the controls imposed by the government on key inputs) , soft budget constra in ts, and monopoly. 40 Even the CCP Centrat Committee's assessment of Chin a's progress in eco n o mi c reform in late 2003 painted a picture full of difficult ch a l- lenges a head. According to the comm uniqu e of the third plenum of the CCP's 1 6th Central Comm i ttee, "Chin a's eco nomic structure is not rational, th e red i str ibuti on al relationships have n ot b e en smoot he d, peasants' incom e growth remains slow, contradictions of emp l oyment are growing sa lie nt, resource and e nvironmental pressures a re increas- ing, and the aggregate competitiveness of the Chinese economy is not strong ." 41 The most serious threat to the viability of China 's graduali st ap- proach, howeve r, is the weakness of the institutions cri tical to the f un c- tion i ng of a m arket eco nomy. Suc h in stitutions in clude, a mong ot h er things, a m ode rn lega l system and a co nstitu tio n al order that can pro- tect private property rights and enforce co ntra cts, as weil as a po litical system that enforces acco unt abi lity and Iimits state opportunism . A -- 40 of 306 -- Why Tran sitions Get Trapped 29 quarter century after China began its transition to a market economy, these institutions remain relatively underdeveloped. It is worth noting that, starring in 2001, Wujinglian began to emphasize the rule oflaw, rather than market forces, as the key to China's future success. He pub- licly declared that, without completing the neces sary political reforms, which would be required to strengthen the institutional foundations of a market economy, China risked falling into the " trap of crony capital- ism."42 Reflecting on the evolution of his own thinking, vVu admitted that Chinese economists like him were naiv e at the b eg inning of re- form. They thought that "once th e practices of a pl anned eco nomy were jettisoned and a set of market-based relationships was established, everything would be smooth-sailing." But the problems that emerged twenty-five ye ars into China 's transition cannot be solved by " pure eco- nomics." "Although a market economy is gradually ernerging in China, problems such as social anomie, rising inequality, and rampant cor- ruption are getting worse." Wu concluded that a "good market eco n- omy should be built on the foundations of the rule of law. " 4 ~ Why No Autocracy Has Opted for the Big Bang The focus on output growth, incremental insti tutional change, and the merits an d flaws of the gradu alist approac h misses a key issue: th e con - n ec tion between an a uthoritari an regime and the type of economic strategy it is forced to adopt. To be sure, most researchers recognize the roJe played by political co nstraints on the co urse of economic re- form. Gerard Rol and, for example, id entified two such constraining factors. First, the uncertainty of outcomes , especially in terms of the dis tributio n of costs an d benefits of reform, cons train polic ymakers and hamper their ab ility to build proreform coalitions. Second, "com- plementarities and interactions among reforms " also matter because individu al reform measures rarely produce their intended effects with- out other comp lem entary measures . In political terms, implementing a reform package deemed, at l east econom i ca lly, as having a hi g her degree of complementarity (so th at various co mpon en ts of th e reform work better with each other) may actu ally undermine reformers. Such a package can hurt more e ntren ch ed interests and, at the same time, galvanize their opposition to change .44 lmplicit in the complementarity constraint is the assumption that this type of constraint forces reformers -- 41 of 306 -- 30 China's Trapped Transition to adopt a gradualist or incremental approach to divide and conquer the opposition. Proponents of gradualism seem to have overlooked the greatest po- litical constraint on econom ic reform: an authoritarian regime's fear of losing power during reform most likely far outweighs its worries about encountering opposition to such reform. The most important politicallogic that drives economic reform under autocracy is not one based on a Machiavellian calculation of coalition-building, but one that is centered on r egime survival. According to this perspective, authori- tarian regimes facing the choice between reform and a crisis-ridden status quo- as was the case in the immediate aftermath of the Cultural Revolution in China-must choose between two unpalatable options. Maintaining a deteriorating status quo will most likely threaten the regime's survival bothin the s hort term and for the long run . However, to the extent that complete market-oriented reforms will eventually deprive the regime of the resources it needs to buy suppor t from interest groups, an authoritarian regime's long-term survival will also be at risk-even though its short-term prosp ects may brighten as a result of economic reform. In addition to status-qua bias, which threat- e ns regime survival, a nd gradualist reform, which increases risks to the regime's long-term survival shou ld it truly succeed, there is a third threat: a big-bang reform. 45 A big-bang approach may not only mobilize oppo- sition from various qu arters simultaneously, but it could al so force the authoritarian regime to relinquish its control over vital economic re- sources so quickly that it would also lose its grip on political power. This is why all authoritarian reg im es in hi story, including the most promarket Pinochet regime in Chile, have shunned the big-bang ap - proach to economic reform .46 Instead, all authoritarian regimes that have been forced to undertake economic reform have opted for the gradualist strategy, with the state maintaining tight control in vital sec- tors (Vietnam in the 1990s, Indonesia under Suharto, Taiwan unde r the Kuomintang, South Korea in the 1960s, and Mexico under the PRI [revo luti onary party]). Revealingly, the big-bang approach was em- braced on ly in those countr ie s where the aut horitarian regimes h ad been overthrown, including the former communist regimes in Eastern Europe that h ad tried various forms of gradualism before. vVhat makes gradua lism a favored strategy for authoritarian regimes embarking on economic reform? The political lo gic of graduali sm is -- 42 of 306 -- Why Transitions Get Trapped 31 both campeHing and straightforward. Few authoritarian regimes can rely on coercion alone to maintain power. Most autocracies mix coercion with patronage to secure support from key constituencies, such as the bureaucracy, the military, and business groups. In the Chinese case, for example, the state controlled more than 260,000 enterprises, with total assets valued at 16.7 trillion yuan in 2001 (or 177 percent of GDP). 47 The patronage that the control of these assets can underwrite is the key to the CCP 's survival. The centerpiece of such a vast patronage system is the regime's ability to secure the loyalty of supporters and allocate rents to favored groups. The CCP a ppoints 81 percent of the managers of SOEs and 56 percentofall enterprise managers. The corporate gover- nance reforms implemented since the late 1990s did little to change this patronage system. In the restructured large and medium-sized SOEs- which were ostensibly transformed into share-holding companies-the party secretaries and the chairmen of the board were the same person in abo ut half the firms. In the 6,275 larg e and medium-si zed SOEs that had been classified as restructured as of2001, the party committee mem- bers of the prerestructured firms became the board of directors in 70 percent of the restructured firms. Altogether, the CCP had 5.3 mil- lion officials-about 8 pe rc e n t of its total m e mb e rship and 16 percent ofits urban m embers-who held exec utive positions in SOEs in 2003.4H To the extent that a big-bang strategy reduces econom ic di stortio n and henc e an a uthoritarian regime's ability to create a nd a llocate rents, that regime 's ability to retain political support will be undermined drastically. Under the logic ofpolitical survival, the advantages of grad- ualism appear self-evident to authoritarian regime s. Unlike the bi g bang, gradualism allows the ruling elites to proteer their rents in vital sectors and use retained rents to maintain political support among key co n stitu- encies. U nd er gradualism, the regime is ass ur ed of its ability to de ci de where it wants to surrender rents and to whom such rents will be given. Retaining this ability is of paramount political importance. If a regime can choose the sectors to lib eralize, the same politicallogic dictatesthat it should first lib era lize sectors where rents are relatively low and less co n ce ntrated. Giving up low-rent sectors m ea ns that the regime suffers, at most, minor loss of patron age . Libe rali zing sect ors in which rents are not highly concentrated is unlikely to e ncount er determin ed op- position. In th e Chinese case, reforms in agriculture, consumer retail, and light industry fit this lo gic very well. -- 43 of 306 -- 32 China's Trapped Transition It is a more tricky issue to decide to whom the regime should turn over the rents from these liberalized areas, ifwe assume partial reform and residual rents in these sectors, as is often the case. It is possible that, once liberalizing reforms are implem ented fully, rents may disappear completely. As a result, rent reallocation is no Ionger an is sue . But as residual rents are a common feature of transition economies, an au- thoritarian regime engaged in economic reform must decide w hich groups should have access to the residual rents . Again, based on the po- liticallogic of survival, a uthoritarian regimes tend to favor nonthreat- ening gro up s and groups that can be co-opted. Foreign investors, for example, can be a nonthreatening group because their primary motive is profit, not power. Domestic private entrepreneurs, howeve r, may pose more direct long-term threats. That is perhaps why, as of 2003, indige nou s private Chinese firms still faced high, if not impossible, barriers to entering abou t thirty sec- tors, such as banking, insurance, securities, telecommunication services, petro-<:hemicals, automobiles, and other industries deemed critical by the government. 49 In contrast , the Chinese government welcomed for- eign firms to enter many of the same indu s trial sectors. China has fa- vored foreign investors not solely because they can supply capita l and technology, but also because of the CCP's fear of domestic private cap - ital.50 Indeed, as Yasheng Huang's groundbreaking research shows, for- eign direct investment surged into China mainly thanks to the Chinese state's discrimination against domestic private firmsY The r eg im e's ability to protect and reallo cate rents under gradual- ism allows the ruling elites to retain the resources to co-opt new social elites and groups th at may threaten their authority. Under gradualism, market reforms tend to be incremental and create imp erfect competi- tion in the interim. Because of this, the government maintains signifi- cant residual control even in areas where liberalization has already taken place. The ruling elites can parcel out the residual rents in the se areas to new groups targeted for co-optation. Politically, such co-optations can help shore up the social base of support for the regime even as it ali enates its traditional alli es . In the Chinese case, gradualism has ap- parently generated political dividends not on ly in growth-enhanced legitim acy, but also in th e CCP's success in co-opting ernerg ing private entrepreneurs and a !arge segment of the new urban middle class, such as professionals and se lect members of the intelligentsia who have been recruited into the government. 52 -- 44 of 306 -- Why Tran sitions Get Trapped 33 However, gradualism ultimately becomes untenable because of rent dissipation by insiders. At the aggregate level, an authoritarian regime that is successful in protecting the major sources of its rent should be able to extend its longevity. It can use the rent to maintain its base of support, provided that it keeps rent dissipation by insiders at a man- ageable level. But both theory and experience show that rent protec- tion and dissipation go together. Few regimes are capable of protecting their rents for long, while preventing their insiders from dissipating the same re nts. In a transitional e nvironm e n t marked by high uncer- tainty for the members of the ruling elites, weak enforcement of rules , and low accountability, rent dissipa tion by insiders is likely to increase because insiders have both the means (monopolistic political power) to appropriate the rent to themselves and the motivations to do so (fear of an uncertain future). The combined effect ofrent protection an d dissipation is the coexis- tence of aggr egate inefficiency, financial deterioration, and in sid er corruption, as illustrated by th e thre e case s tudies in Chapter 3. In other words , a self-destructive logic is embedded in a gradualist reform strategy adopted by an authoritarian regime obsessed with survival. As proponents of gradualism have argued, such a stra tegy may m ake a lot of sense, es p ec ially gi ven the historical contexts marking th e transition to a market economy in former socialist co untri es . Such a strategy assumes, however, that agent opportunism will be held in check, al- though literature on gradualism has not specified how. In reality, agent opportunism-the main r easo n for rent di ss ipation by insid e rs-is a common problern in transition eco nomies. In the context of gradualism under a utocr atic ru le , state or regime opportunism f urthe r encourages agent opportunism as the policies of the authorit ari an regime provide its age nts with the chances to ap propri a te ren ts. Because the authori- tarian regime relies on the same agents to maintain its power, it becomes almost powerless in combating agen t opportunism an d containing rent dissipation. A Question of the State: Developmental or Predatory The sustained eco nomic development achieved under authoritarian rule in Singapore, Taiwan, Hong Kong, and South Korea from th e 1960s to 1980s h as provided the factual basis for the claim that a n eoaut h or- itarian mode of development-state-guided rapid economic growth -- 45 of 306 -- 34 China's Trapped Transition under authoritarian rule-is a superior and proven strategy. 5 ~ To be sure, in the Western academic community, the concept of an East Asian model is a subject of debate , especially because of the controversy over the efficacy and degree of state intervention in East Asian countries. For some scholars, the East Asian experience is proof of the centrality of state intervention in the rapid growth of late-developers. 54 For others, right public policies were the key to East Asian success. 55 U nfortunately, most leading scholars of East Asian political economy h ave skirted the issue of regime and development. Only Rob ert Wade, author of one of the most influ ential studies on the role of the state in East Asia's economic development, explicitly identified the develop- ment "of effective institution s of political authority before the sys tem is democratized" as a ke y to East Asia's success:"6 Within the Chinese politic a l a nd intellectu al elite , the East Asian model has be en essen - tially reduced to a simple formula: strong government authority +pro- market policies = superior eco nomi c performance. It h as further been argued that strong government authority would be difficult to obtain under democratic political systems. 57 In fact , when asked about his views on neoauthoritarianism by Zhao Ziyang in a private conversation in 1988, Deng admitted that suc h a strategy, "re lying on a political strangman to maintain stability and develop the economy," was exactly wh a t he was advocating even though "it is not necessary to use the term (n eoauthorit ar ianism) ."58 Such a preoccupation with the efficacy of the s tate in the context of economic development overlooks one crucial issue: the rela ti ons hip between economic growth and the predatory behavior of the state. In ot h er words, the real East Asian puzzle is no t how sustained rapid eco - nomic development occurred und er strong states, but wh y and how th e predatory practices of the state were held in ch eck . Based on the assumption of the state as a " helping hand ," much of the Iiter ature on the political economy of development in East As ia has all but ig- nored the possibility that a strong state can also be a "grabhin g hand. "·"9 Peter Evans's influential Embedded Autonomy: Stat es and Industri al Trans- formation may be the only exce ption. By id entirying the natur e of th e stat e as the critica l variable in exp la ining the variatio ns in th e success of industri alization in developin g countries, Evans sh ows that a predatory state is incapable of nurturing new e ngin es of growth (in his case, the information industry) .60 -- 46 of 306 -- Why Tran sitions Get Trapped 35 But Evans's explanation of why some states are nurturers while oth- ers are predators addresses only part of the puzzle. His formulation of the "embedded autonomy" of the state-the idea that developmental states gain autonomy and efficacy only when they are "immersed in a dense network of ties that bind them to societal allies with transforma- tional goals "-provides a useful answer, but appears to restate the well- known: states counterbalanced by strong soc ietal coalitions are less likely to be predatory. 61 Such explanations, built on the perspective of state-society relations, fail to probe the inte rn al organizational dynam- ics and norms of the state. While few would de ny th e desirability and benefits of having strong societal forces committed to economic devel- opment, the most important challenge in the real world is that, in the overwhelming majority of developing countries , such forces are ex- tremely weak or absent altogether. The tran sfor mative project has to begin inside the state. Yet, th e re is another co nundmm : as sorne sc holars have argued, no evid e nc e exists to show that institutions can be devised to rnake the state an effective protector of property rights , but at the same time pre- vent it frorn abusing its power. In other words, there is no guarantee th at the sarne h e lping hand will not b eco rne a g rabhing h a nd .62 Ind ee d , as the experien ce of rnost developing countries shows, states as helping h a nds are the exception . Sustained d eve loprn e ntal successes probabl y numb er fewer than ten, with most of them concentrated in the East Asian region. 63 At the s ame time, predatory states have caused disastraus failures in a majority of poor countries, the most eg r eg ious exarnp l es be ing th e Philippines unde r Marco s, Za ir e under Mobutu, and Haiti unde r the Duvaliers. As the collapse of the Indonesian econ- orny in 1997-1998 dernonstrates, without adequate institution al con - trols impos ed on predatory state s, even initial suc ce sses could e nd up as catastrophic failures. The Theory of the Predatory State In its sirnplest formul ati on , the th eory of th e predatory sta te is based on a concep tion of th e state as a grabhing hand. It envisions th e cen t ra l role of the state as the expropri a tion of wealth frorn society through taxes fo r the preservation ofth e state's own power. 64 The recent growing appeal of the theory is du e, in la rge part, to th e a pplication of the institutionalist -- 47 of 306 -- 36 China's Trapped Transition approach to the research on the relationship between political in stitu- tions and economic performance. 65 The revival of institutionalism has again elevated the role of the state in economic development. 66 To be sure, the institutionali st perspective on the state differs from that of the developmental state, which, as popularized by scholars of East Asia, has a direct role in correcting market failures. lnstitutional- ists see the state as the provider and enforcer of rules and norms that underpin market transactions . This distinction is significant because the perspectives on the state behind it are fundamentally different. Un - like the helping h and envisioned in the developmental state perspec- tive, the state is seen by institutionalists as a force both for good and evil. As Douglass North puts it, "The existence of a state is essential for economic growth; the state, however, is the source of man-made eco- nomic decline."67 Although the state may be a helping hand that spec- ifies and protects efficient property rights, it can also be a grabhing hand that expropriates the wealth of its people. fiH The grabbing-hand perspective appeals to students of development because the theory of the predatory state provides a persuasive expla- nation for the weakness of the sta te and the overall poor performance of government. In applying this perspective, however, we need to make the distinction between centralized predation and decentralized preda- tion because such a distinction is crucial to understanding the differ- ent dynamics behind a state's institutional performance. In the earlier formulations of the theory of the predatory state, the focus is on the ag- gregate level of state predation and treats predation as the political im- perative of the ruler. Th ere is no distinction between the principal and the agent. As a result, predation is conceived as an act of the principal. This formulation assumes, first, that state predation is universal. Be- cause rulers are monopolists of both violence and public goods, state predation , in the form of taxes, is simply the price private producers of wealth pay for such monopolistic services. Second , the most important factor that limits the level of a ruler's predation is his self-interest. To use Mancur Olson's co lor fu l analogy, a self-interested ruler behaves like a "stationary bandit" who is unlikely to risk his future revenue streams by looting the current stock ofwealth of his subjects . He will raise tax- atio n only up to the level that m ax imizes hi s tax revenues. 69 Third, rulers are supposed to have an encompass ing in terest that is akin to the national interest . -- 48 of 306 -- Why Tran sitions Get Trapped 37 In both theory and practice, centralized predation can spiral out of control. The ruler's encompassing interest may diverge fundamentally from that of the state. For example, the ruler 's personal greed may be- come insatiable. He and his close cronies may loot wealth, not to provide public goods, but to line their own pockets, thus creating a kleptoc- racy.70 The ruler's encompassing interest may also become too ambi- tious for his nation's good. Desire to acquire a !arger territory (hence tax base) or international prestige may motivate the ruler to extract ex- cessively from society to build a strong military. 71 In addition , the ruler's monopolistic position is always insecure because a dom es tic or foreign rival can seize his monopoly by force. 72 This structural in sec u- rity affects the ruler's time horizon and the rate of discount on future revenues, incentivizing behaviors that result in short-term gains but long-term revenue losses.73 Finally, the absence of a third-party en- forcer makes the ruler's commitment to self-restrained predation not credib le. T emptations for th e ruler to break hi s promis e and increase pr e dation always exist, and mo st rulers have honor ed their promi ses in the breach. 74 In the theoreticalliterature on decentralized predation, the emphasis is on predation by agents ofth e state. Although age ncy costs h ave b ee n id entified as a constraint on the ruler's ability to maintain a d es ired Ievel of ex traction, the effects of such costs on state pred a tion h ave not been explored until recently. 75 Schalars w ho focus on the role of age nts in state predation see decentralized predation as more harmful to the interest of the state. Andre i Shleifer and Rob e rt Vishny d e mon s trate that centralized corruption, which is a form of monopalist predation, genera t es higher aggregate revenue for the state-becau se the state ke eps its rate of extraction at the optimal le ve l-th an de centra li zed corruption (a form ofpredation by state agents acting as ind e pendent monopolists) , which not only raises the overalllevel of theft (that is, making corruption more widespread), but also reduces the aggregate amount of in come for the state . Since predato ry agen ts simultan eously compete with one anoth er for th e sam e re ven u e, they have th e inc entive to stea l e verything, behaving essenti ally like Olson's "roving bandits." 76 The welfare loss from decentralized predation is much gre at er than that from centralized predation. 77 Decentralized pred a tion, moreover, h as emerge d as a more prevalent problern today, as regime transition in ma ny countries has restructured some of th e key instituti ons governing -- 49 of 306 -- 38 China's Trapped Transition principal-agent relations (more on the effects of transition on decen- tralized predation below). To be sure, the relationship between centralization and corruption is a subject of scholarly dispute . Some scholars believe that decentral- ization may actually reduce the Ievel of corruption. For example, de- centralization can make local offleials more accountable to the public because they can no Ionger hide behind the actions taken by higher authorities. Greater political accountability would help control corrup- tion.7H Decentralization may also contribute to lower Ievels of corrup - tion because loc al offleials are deterred from corrupt activities by a higher likelihood ofbeing caught. Moreover, decentralization deprives the central government of the flnancial resources that otherwise are routinely squandered on grand corruption schemes (such as white ele- phant projects), thus reducin g the aggregate costs of corruption. Even though decentralization can Iead to a short-term inc rease of petty cor- ruption by lo cal offlcials, the total costs of petty corruption are likely to be much lower. 79 Many scholars believe, however, that decentralization can increase corruption for several reason s. Given the low wages paid to local offi- cials, in creased political discretion as a result of decentralization is likely to Iead to more corruption. 80 If decentralization should Iead to the breaking of arm's -l ength relationships between clients and government agents, it can cause corruption to rise, especially in cultures where inter- personal connections play an important role . Newly empowered local bureaucrats are thus more likely to reward family friends with various forms of rents.81 Decentralization may exacerbate corruption if it oc - curs in the context of weak government. vVhen the political authority of the government is weak across the board, decentralization can cre - ate indep endent monopolists who have every in centive to maximize the collection of bribery at the locallevel. 82 On balance, the argument that decentralization can Iead to more corruption is more persuasive because its proponents adequately account for the agency problem, while the same problern is simp ly assumed away by those who believe that decentralization can reduce corruption .83 The distinction between centrali zed and decentralized predation not- withstanding, the ce ntral point of the predatory state perspective is self- ev id ent: without effective political institutions or structural constraints that curb the predatory appetite of the state , a state that is sufflciently -- 50 of 306 -- Why Tran sitions Get Trapped 39 strong to promote economic development unhindered by parochial interests is also strong enough to prey upon society without much re- straint. The consequences of unrestrained state predation are dire. In such a state, the ruling elites distort markets, create rent-seek ing op- portunities for self-enrichment, and loot the wealth of society. Sus- tained economic development under such a state is impossible. The hope that economic development would eventually lead to democratic transition is only wishful thinking because the predatory state and eco- nomic development are, logically, mutuall y excl usive. vvby Decentralized Predation May Emerge during Transition Research on transitions in the former socialist states indicates a signifi- cant increase in decentralized predation immediately following regime changes. Joel Hellman's study of reform in t he former Soviet bloc coun tri es suggested th a t the ruling elites were able to cap ture the sta te and reap all the benefits of partial economic reforms. H4 Michael McFaul and Federico Varese found that the communist ruling elites in the former Soviet Union were able to use their institutional privileges and exploit the loophol es in property rights laws to steal public assets in the privatization process. H-" In an insightful analysis of the co llap se of the form er Soviet Union, Steven Solnick showed that transitions t hat de- centralize a uthority te nd to le ad to an increase in the number of thefts of state assets.H 6 Theoretic a lly, the type of po s t-transition state predation observed by country specialists and journ alists is qualitatively different from that which occurred during the pre-transition era. In pre-transition com- munist countries, state predation was ce ntralized. Two charac teristics defined centralized predation under comm uni st rule. First, the aggre- gate amount of revenues generared was large , reflected in the govern- ment revenue as a share of GDP. Second, a significant amount of the revenues was used to provide public goods, mainly national defe nse , health , and e du cation sp e nding. Consequ e ntly, countries rul ed by c ommunist regim es e njo yed a high er Ievel ofhum an d eve lopm e nt rel- ative to their economic development, especially in t erms of their liter- acy rate, infant mortality rate, a nd life expectan cy.H 7 By contrast, posttransition st ate predation is decentralized and mani- fests itse lf in various forms of official corruption. D ece ntraliz ed sta te -- 51 of 306 -- 40 C hin a's Trapped Transition predation reduces the aggre ga te amount of sta te revenue , as agents divert public money into private pockets. It also causes a fall in the pro- vision of public goods, as state agents convert public resources into pri- vate consu mpti on or offshore investments. Although th e phenomenon of decentralized st ate predation in post-transition cou n tries h as received enormaus attention, the causes of decentralized predation arenot weil understood . Centralized predation becomes decentrali zed when the state, as the principal, loses effective con tro l over its age n ts. Of course, differe nt types of regime transitions generate different dynam ics that affect principal- agen t relations. In communist states that saw a quick collapse of the an - cien n,;gime, state agents were afforded great advantages by even the temporary decline of the principal's authority. In those societies, the agents' th eft of state assets was co mpl ete d within a relatively sh ort period of time. However, the pattems of post-transition agent predation di- verged dramat ically in those post-communist states th a t exper ie nced dual transition. As Hellman's work shows, n ew re gimes with a hi gh er degree of democracy and more complete market reforms te nd to re- strain such predation, while new regimes with le ss democrac y and par- tial econom ic re forms are b eset by increased Ievels of agent-pr edation .HH By comparison, agent-predation followed a different dynamic in post- communist systems that have seen market li beralization but no po litical trans ition , such as in China and Vietnam. In th ese societies, the political authority of the state rem a ins unchallenged . However, the decentral- izatio n of d ec ision m a kin g, n eeded to re inc e ntivize state agents, led to a rest ru cturing of the contracts between the state an d its agents, w hi ch proved tobe extremely advantageaus to the l att er. Therefore, the key to understand in g the rise of decentralized pr e dation is to exa mine bo th the preexisting and the transition-re lated insti tutiona l changes that have structur ed and re structured princip al-age nt re lation s. Specif- ically, changes in the con trol of property ri ghts, mechanisms of moni- tor i ng, exit options, and institutional norms are the critical variables respons ib le for the decentraliz a tion of state pr e dation in postcommu- nist soc ieties. Decentralization of property rights In theory, the degree of centralization of property rights is negativ e ly corre la ted with decentrali zed predation. In countri es with a high Ievel of centrali zation of property rights, the loss of state mone y through -- 52 of 306 -- Wh y Transitions Get Trapped 41 agent theft or misappropriation tends to be small. Under the prere- form communist system, despite the lack of clarity of property rights, the high degree of centraliza tion of such rights was the deci sive in stitu- tion a l fac tor t hat limited agent-predation. In practic e, the ce ntr ali za- tion of property rights prevented la rge-scale theft of state prop e rty. Of course, the mono-property rights regime and the high degree of cen- tralization of property rights caused low efficiency because this sys tem provided f ew incentives for agents to improve the financial performance of state assets.H9 The d ece n traliza tion of pr ope rty rights durin g the transition ph ase in most state-soc iali st systems was originally designed to increase agent incentives so that state assets could be c ome mo re productive. In some countries , such as China, the decentralization of property rights also involved the transfer of formal ownership of state assets fr om the ce ntral government to local gove rnments. Su ch de- cen tr a li zat ion granted the sta te' s managerial age nt s more di scretio n in operating SOEs, espec ially r egard in g in ves tment and compe n sation . Although no evide nc e shows that d ecen traliza tion of prop e rty ri g hts alone contributes to efficiency gains, the combination of Za ck of clari ty of property rights and decen tralizati on of such righ ts has led to wid es pread asset-su·ipping and other f or m s of theft by state age n ts.9 ° Ineffective monitaring Given the in s titution al changes e nt ail ed in regi m e transition, the old sys- tem of monitaring state agents is likely to break down. Rule changes are fr e qu e nt and confusing durin g transition, res ul t in g in po or coord in a- tion among various state agencies mon ita rin g agent behavior, su ch as the secret police , tax au tho r ities, auditors, and financia l con t ro ll ers . The bre a kdown of monitaring becomes even mor e likely if th ose state agents in ch arge of monitaring other state age n ts detect the l atter's th eft but de- cide to divide the spoils with the thieving agents , instead of reporting their ma lfeasance to the principal. (U nsurpri singly, one of the most cor- rupt gove rnme nt bureaucracies in China a nd Ru ss ia is th e anticorrup- tion age ncy.) Transition frequently entails ch anges in political valu es and ero d es the auth ority of the prin cipal. Agents face n eglig ible risks in def)ring th e au th ority of the principal. Erosion of the principal's a uth or- ity makes effective monita rin g of age nts in effective. Th e monitari ng of age n ts has also become more difficult under r efonn becaus e of an in- crease in transaction channels . As X. L. Ding observed , interfirm trans- actions a lmo st did not exist under the o ld system, in whi ch m inistries -- 53 of 306 -- 42 C hin a's Trapped Transition directly controlled SOEs' sales and purchase processes. As a res ult , the monitaring of agents' business deals was easier under the old syste m. In the tran si tion era, the advent of marketi zation replaced the firm- ministry-firm transactions cha in with the more efficient firm-to-fi rm transactions chain. Consequen tly, the nurnber of transactions exploded, making effective governrnent monitaring nearly impossible. 9 1 New exit options Large-scale theft of state assets was rnade less likely under the o ld corn- munist systern by th e absence of ex it options from the state sector for nearly all agents. Regime transition has opened nurnerous exits for these agents , including owners hip stakes and managerial position s in the new priva te or semipri vate firms, and overseas investment oppor- tunities.92 Th ese e xits effec tively allowed "stationary ba ndit s" und er the old system to become "roving bandits" because t hey can stea l and the n store the ir loot safely elsewhere. The time horizon of st ate agents with luc rative exit options is likely to be short, resulting in rnore intense theft of s tate assets. Erosion of institulianal norms Institution alists have long recogn i zed the rol e of in stitutional norrns in constra ining agent opportun isrn and the free -r id er problem. 93 As a concept, institution al norms are vague and difficult to define. In practice, institutional norrn s rnay derive rnu ch of their legitirnacy, ap- p ea l, a nd binding powe r frorn th e prevailing ideology of th e political systern. In the case of comrnunist systerns, it m ay be controversial to claim th a t the cornrnunist ideology had any appea l. One can point to the widespread cynicisrn arnong the ru lin g elites of the ancien regime . It is nevert h eless conce iva ble that even res idu al ideo l ogi cal appeals of cornrnunism , socialisrn, or nation alisrn rnight have pl ayed a rol e in con- straining the predatory in stincts of the agents under the old regime . During tran s ition , t he total b a nkruptcy of the cornrnunist id eo logy meant th at state agents were und er no constraints impos ed by in stitu- tiona l norrns . The above th eoretica l analysis suggests that a ternporary partial reforrn equi lib riurn , or a trans iti on trapped in sernireforrned econorn ic and po litical in sti tutions, is a product of a confluence of factors . The most -- 54 of 306 -- Why Tran sitions Get Trapped 43 important among them includes the initial conditions of the transi- tion process in post-totalitarian regimessuch as the CCP, which retains unchallenged political supremacy over society and maintains its rule through a mixture of coercion, co-optation, and adaptation. Addi- tional factors contributing to the emergence of such a trap are embed- ded in the political and economic logic of market transitions and authoritarian politics. lndeed , the Chinese experience provides an in- triguing example that demon s trates why gradualist economic reform pursued under a n eoauthoritarian regim e, even after achieving im- pressive initial results, may lose mom entum. Inste ad of moving toward an even more open economy a nd society, such a system may be head- ing toward long-term stagnation amid widespread symptoms of state incapacitation and deterioration of governance. At the theoreticallevel , one can construct an argument th at in co r- porates the insights fr om the theories of democratization , economic reform, and pr eda to ry state to exp la in th e phenomenon of trapped transitions. Gradual democratic transitions in post-totalitarian regimes face higher hurdles than those in authoritarian regimes. The connection between eco nomi c d eve lopm e nt and politicalliberalization is like ly to be weak in these regimes because the initial cond ition s are far more adverse . Th e institutionaliz ed curbs on the power of the ruling el ites in a post- totalitarian regime are negligible. The ruling elites thus have far greater ability to defeat societal challenges. The presence of the post-totalitarian ruling par ty in state bureaucrac ies, economic entities, the milit ary, a nd the judiciary provides it with the instant abili ty to convert political monopoly into economic rents during economic t ransition. Con- sequently, ec onomi c growth , rather than creati ng exits for p e aceful withdrawal from power a nd lowering the costs of political transition , may perversely increase the stakes of exiting power because the ruling elites risk lo sing not only political power, but also economic rents. In addition , such ren ts b ecome more valu ab le in an open and fast- growing eco nomy, and, mor e imp ortant, th e material wealth acc umu- l ated by the ruling elites ca n be consume d openly, extravagantly, and without fear wh en the prereform codes of austerity are no Ion ger op- erative. Th erefo re, even thou gh eco nomic growth may h ave a lon g-run positive imp act on democratization, its short-run impact can be d ec idedly neg ative. -- 55 of 306 -- 44 China's Trapped Transition Gradualisttransitions can further help entrench the post-totalitarian party-state and thwart efforts to both deepen rnarket reforrns and initi- ate dernocratic transition. Gradualisrn allows the ruling elites to rnake selective withdrawals and rnaintain th eir contro l in th e rnost lucrative high-rent sectors; this developrnent tends to rnake the ruling elites even less inclined to give up political power during transition. The control over sectors with rich rents also facilitates the ernergence of -political alliances with stakes in a sernireforrned systern but with no int erest in political reforrn , as the ruling elites u se such control to co- opt ernerging social elites individually, include thern in a co llusive net- work of rent-sharing, and preernpt potential political challengers. To the extent that initial reforrn efforts rnay be successful, gradualist reforrns buy the regirne a new, albeit ternporary, lease on life, rernoving the pressures for political reform. Gradualism becornes eventually unsus- tainable because of the problern of dissipation of rents. The regirne's strategy of protecting rents in key sectors ultirnately fails whe n such rents are distributed and consurned by the agents of the regirne, criti- cally weakening the health of the econorny. However appealing the concept of a developrnental state, s ucce ssful econorn ic developrnent under neoauthoritarianisrn rn ay be the exce p- tion. A self-restrained developrnental state can rnaterialize on ly under rare circurnstances that force the ruling elites to choose b etwee n c urb- ing their predatory appetite or risking their own survival, a choice that is not always correctly rnade. In post-totalitarian political systerns where th e ruling elites possess overwhelrning advantages vis-a-vis soc i- etal oppositions, operate under ineffective institutional restraints on their power, and face no credib le external threat , the state is rnost likely a grabhing hand, not a helping hand. Thus, despite its prornarket rhetoric and policies, a post-totalitarian regirne rnay likely degenerate into a predatory autocracy, rather than evolve into a developrnental neoautocracy. Econornic developrnent under a predatory a utocr acy is ultirnately unsustainable. lronically, a dernocratic opening rnay ernerge in the en d , not as a regirne-initi ated strategy und ertaken at its own choosi n g, but rnor e likely as the result of a sudden crisis broug ht on by years of corruption, rnisrnanagernent, and institutional dec ay. -- 56 of 306 -- TWO Democratizing China? PERHAPS THE MOST intriguing question regarding political development in the post-Mao era is why China has not taken signific ant steps toward democratiz a tion despite more than two decades ofunprecedented eco- nomic modernization. lndeed , during the mid-1980s, with economic reform barely off the ground and encountering strong resistance from conservatives insid e the regime, senior CCP Ieaders appeared more tol- erant and permitred more public discussion on sensitive issues such as political reform. In contrast, since the mid-1990s, when economic reform became irreversible and its impact had raised the standard of living sev- eral fold, the regime has adopted an even more conservative political stance toward democratization, permitring no public discussion on po- litical reform and maintaining a policy ofzero-tolerance toward dissent. On the surface, the CCP's experience with the Tiananmen debacle and the impact of the co ll apse of the communist regimes in the former Soviet bloc seemed to have h ardened the leadership's stance against po- litical reform. 1 But there were deeper causes behind the CCP's renewed resistance to political liberali zation . The short-te rm imp act of rapid economic growth on democratization may be negative because such growth increases the va lu e of political power (hence making it harder for the rulers to relinquish it) , reduces the pressure for political open- ing, and provides ru l ers with more resources to co-opt new social groups and repress the opposition. In this chapter, this analytical framework will be applied to an examination of the history of political reform during the Mao era. The chapter will 45 -- 57 of 306 -- 46 C hin a's Trapped Transition first addres s the question of how the ruling elites viewed the issue of political reform; it then will review and evaluate the three most impor- tant institutional reforms-the strengthening of the National People's Congress (NPC), l ega l reform, and village electio ns-that have been viewed as essential steps toward democratization. I will finally examine the CCP's strategy of illiberal adaptation, which relies both on the s tate's repressive capacity and the regime's growing economic resources in containing societal challenge s and maintaining its political monopoly in a r ap idl y modernizing society. Political Reform: The Ruling Elites' Views Many senior Chinese Ieaders recognized the need for political reform during the initial phase of economic reform for two reasons . First, as survivors of the Cultural Revolution, they were determined to prevent a similar event from happening . Second, the y recognized that r es truc- turing th e political system would be needed to ens ur e the success of economic reform and modernization.2 Tobe sure, there was a sub- tle difference, even among those who viewed political reform as an instrum ent of advancing eco n om ic reform. De ng Xiaoping, for exam- ple, understood the benefits of political reform mainly in terms of re- ducing bureaucracy and increasing efficiency. Zhao Ziyang, however, believed that as Chinese economic reform deepened, the redistribu- tion of power and interests would inevitably trigger conflicts. If such conflicts were not resolved timely, they would accumu late and produce serious consequ ences . Therefore, Zhao's plan was to use political re- form to resolve such conflicts and pave the way for deepening eco- nomic reform . Neither Deng nor Zhao sufficiently appreciated that political reform its elf would initiat e new conflict because the power to block economic reform s was entrenched within the political system itself.3 Political Reform According toDeng Xiaoping Deng articulated the most consistent-and restrictive-views on politi- cal reform . H e was the first to raise the issue of politic al reform in a fa- maus speech on August 18 , 1980; six years later, Deng 's call for political reform as a means to speed up ec onomic reform led to the most seri- -- 58 of 306 -- Democratizin g Chin a? 47 ous and sys tematic examina t ion of political refor m as a strategy by the top Chine se leadership. 4 In Deng's diagno sis, China's politi ca l sys tem had fou r major fla ws: bure au c rati cism , over ce ntrali za tion of p ower in th e CCP 's Iead er s, life tim e te nur e of cadres , an d (officia l) pr ivileges. To d eal with bur eau cra ti cism , official privil ege s, a nd life tim e te nu re, Den g called for s ome of the par ty's routine admini s tr ative power to be di- vested , a yo unger and m o re professional g en er ation of offleials to be cultivated , a nd a discipline i nspection committee to be es t ab lish ed within the p ar ty. Appare ntly, D eng was m os t co n cerned ab o ut th e dangers of over- c en tra li za tion of power wi thin t he p arty, as thi s c ould Iead to a no th er Cultural R evolution. His solution was to introduce constitu ti on al re- forms, w hi ch he did not sp ec ifY, and stren gth en collective le ad ers hip within th e p arty, a pr esc riptio n he hirn self fa ile d to foll ow later.5 But Deng left n o d ou bt abou t th e ulti ma te o bj ec tive of po l itica l re form . In the same sp eec h , he declare d , The pu rpose of reforming the system of th e Par ty a nd state l eaders hip is precisely to maintain and further strengthen Pa rty lea der ship a nd dis- cipline, a nd not to wea ken or relax th em. In a bi g co untr y like ours, it is in conceivable th at un i ty of thin kin g cou ld be achieved amo ng several hundre d mill ion people . . . In the absence of a Party whose members have a spirit of sacrifice and a hi gh Ievel of po litical awareness and dis- cipline .. . Without such a Party, our country wo uld split up a nd ac- complish nothing. 6 D eng's fea r of po liti ca l ch aos th at may ar ise as a res ul t of democ racy and his reso lve to maintain th e party's supremacy have since then re - maine d the two constant refr ains in his- an d th e CCP's- views o n p oliti cal reform . After th e su ccess of agric ul t ural decoll ec tivi zation provid e d De ng with the momen tu m he nee d ed to l aunc h further econ o mic reform, he stopped talki ng about th e need for po l itica l reform. Deng p ut po- litical refor m on th e age nd a on ly in m id-1 986 wh en econom ic reform in th e ur ban areas, espec ially in th e state-ow n ed sector, en cou ntere d resistance . D eng's numero u s speec h es on po liti cal reform from Ju ne to Novem be r 1986 r evea led hi s in creas in g app r ec iation of th e co mp le- mentary ro le of po liti ca l reform in th e i mp l ementat ion of h is eco- nomic reform strategy. H is views, however, were remarkab ly cons i stent -- 59 of 306 -- 48 C hin a's Trapped Transition m that his concept of political reform was restricted to efficiency- boosting administrative streamlining because h e believed that " China's fundamental flaw is bureaucraticism." 7 Thi s perspective led Deng to maintain his firm opposition to insti tutiona l ch ecks a nd balances an d to the dilution of the CCP's power. This is clear in his speech injun e 1986-the first time Deng mentioned political reform in almost six years. vVhile being briefed on the economic situa tion, he said: As it stands, our political structure is not ad apted to the curre nt situa- tion. Political r estructuring should be included in the reform-inde ed, it shou ld be regarded as the h allmark of progr ess in the reform as a whole. We must streamline the administration, delegate real powers to lower levels a nd broaden th e sco pe of socialist democracy, so as to bring into play the initiative of the masses and the grass-roots organizations. 8 Deng followed up his call for political reform with similar pub lic pro- nouncements during the September-N ovember 1986 period . In his re- marks, Deng expressed his frustrations with the re sistan ce to eco nomic reform coming from within the party and war ned that economic re- form would fail without accompanying political reform. Our reform of the economic structure is going smoo thly on the whole. Neverthe less, as it proceeds wes h all in evitably e ncounter obstacles. It is true th at there are peop le, both inside a nd outside our Party, who are not in fa vou r of the reform , but there are no t m any who strongly op- pose it. The important thin g is t hat our political struc ture d oes not m eet the needs of the economic reform. Wh en we first raised the question of re form we h ad in mind , among other things, r eform of th e political structure . Whenever we move a step forward in economic re form , we are made keenly aware of the need to chan ge the politi ca l structur e. If we fail to do th at, weshall be unabl e to preserve, a nd build , the gains we have ma de in the economic reform. Th e growth of the productive forces will be stunted and our drive for modernization will be i mpededY Deng was a lso aware of the risks posed by politic al reform . He cautioned: The content of the politi cal reform is still und er discussion, because this is a very difficult question. Since every reform measure wi ll involve -- 60 of 306 -- De mo cra tizin g C hin a? a wide range of people, have profound repercuss ions in many areas a nd affect the interests of countless individuals, we a re bound to run into obstacles, so it is import a nt for us to proc ee d with caution. First of all we have to dete rmin e the sco pe of the politi ca l restructuring a nd d ec ide where to begin. We shall start with one or two r efor ms and tr y no t to do everything at once, because we don't want to make a mess of thin gs. In a country as vast and complex as ours, reform is no easy task. We mu st be very cautious about setting policies and make no decision until we are qu ite sure it is th e right on e. 10 49 However, D eng l eft no doubt that political reform would be n arrowly defined and not be allowed to weaken the dominance of the p a rty. The first objective is to ensur e the continuin g vitality of the Par ty a nd th e state . . . Th e secon d objectiv e of political struc tur al ref or m is to eliminate bureaucr atism an d in crease effici enc y . .. Th e third objective of po liti ca l reform is to stimulate the initiative of grass-roots units and ofworkers , peasants and intellectuals ... We must uphold leaders hip by the Par ty and never abandon it, but the Par ty should exercise its lead- ership effective ly. 11 To be sure , Deng hirnself also talked about democracy, but hi s views were co la re d by hi s tra um a ti c experience during the Cu ltu ral R evo lu- tion and by his beli ef that demo cracy was an instrument to promot e economic development. For example, in December 1978, shortly after he consolidated his powe r, h e sa id, "During the cu rrent p er io d , we es- p ec ia lly need to stress democracy because for quite a lan g p eriod of time in the p ast, the system of de mocratic central ism was not rea lly im- plemented .. . There was too little democracy" with in the party. He put sp ec ial e mph asis on "eco nomi c demo cracy," w hi ch he d e fined as de- centraliza tion to promote inc e ntives . Politically, d e mocrac y h as to be institution ali zed and written into la w, so as to make sure that in stitu- tions a nd laws do not c han ge wh enever the l eade rs hip ch a ng es , or when ever the l eaders chan ge th eir views or s hift the focus of th e ir at- tention . Moreover, in promoti n g d e mo cracy a nd a l egal syste m , we must concen t rate on enacting crimina l and civil codes, pro ce durallaws and oth e r n ecessa ry laws co n ce rning fact o ri es, people's communes , forests, grass l an ds a nd env iro nmental protection , as well as labour laws and a l aw on investment by for e ign e rs . 12 -- 61 of 306 -- 50 C hin a's Trapped Transition Political Reform: A Liberal Alternative In retrospect, the most comprehensive and sust ained examination of politic a l reform was cond u cted by a task force set up by Zhao und er D eng 's direct orders. Led by Z hao's trusted a id e, Bao Tong, th e task force, called " zhongyang zhengzhi tizhi gaige ya ntao xiaozu bangong- shi" (the office of the central small group for studying and di scu ss ing the reform of the political syst em), consi s ted of mostl y yo un g a nd middl e-age d lib e ral intelle ctuals and officials. It co nve n ed mor e tha n th irty sem inars on various aspects of po li tica l reform from October 1986 to August 1987, i ncludin g seven attended by Zhao, Hu Qili , Bo Yibo, Tian Jiyun, and Peng Chong, the five members of the small group. 13 At that time , Deng was committed to implementing some form of po- litical r efo rm to overcome th e syste mic obstacles to his eco n omic re- form . H e to ld the party's central secretariat to "s pend about a year to investigate and study [politi cal reform], think through the issues, make up our mind, and th e n implement" th e pl an. 14 The sense that China's economic reform could not move for ward without complementary politi ca l reform was widely shared by th e rul- ing elites, especia lly among those associated with the lib era l wing. Hu Qili, a member of th e Politburo Stauding Commit t ee who was l ater purged during the Tiananmen crisis in 1989 al ong with Zhao, sa id in April1986 th at "economic reform cannot make pro gress withou t polit- ical and cultural reforms ... We should not cede the ideas of freedom, democracy, a nd human ri g hts to cap italism." Wang Zhaoguo, a protege of Deng, declared, "vVhen we implement the r efor m of the econo mi c system, we mu st adopt acco mpanying reforms targeti n g some aspects of th e po liti ca l system." Wa n Li, a vice premier known for spearhe ading the agricu ltura l reform in A nhui in 1979, ec h oed the sam e view. Zhao hirnself was even more blunt in his criticism of the e xisting syste m. "Fundamen tally speaking," he sa id, "we do not have a tradition of the rule of law . .. We want discretion but no constrain t s; China overem- phasizes th e role of the core leadership; th is type of system cannot guarantee stability." 15 M any provincial-level l ead ers invited by the task force to partic ip ate in these discussions expr essed similar views on the flaws of th e Ch i nese political system and th e nec essity of reform . Wen Shizh en, deputy gov- ernor of Liaoning , pointed out that the main flaw of the political -- 62 of 306 -- De mo cra tizin g C hin a? 51 system was " feudalism and the lack of democrac y and rule by law ... Democratization should be the principal direction of reform . The fo- cus of the reform should be on the redistribution of the power of the state." He called for e nd ing th e party 's con trol of all dec ision making, strengtherring the NP C, and m a kin g the state administration more efficient. Wang Jiangong, a deputy party s ecretary of Shan xi, con- curred: "The flaws of the current system are the overcentralization of power, the duplication of fun c tions between th e party and the sta te, the l ac k of rul e by law a nd d em ocracy, a nd th e unscientific m a nag e- ment of cadr es ." Some al so considered political r efo rm as ab so lutely necessar y to push forward ec onomic r eform. Xu Shijie, party chief of Guangzhou, said, "Political reform must work in concert with eco- nomic reform and promote economic de velopment." Shen g Shuren, de puty commissioner of th e State Economi c Co mmission , believed that the time was ri pe for political reform . In hi s view, wi thout political reform, eco nomi c reform cou ld not procee d . 16 On th e issue of democracy, a consensus e merged among th e more liberal offleials as well. Wan g jiangong propos ed to redistribute power between the party and the state; strengthen the Starrding Committee of th e NP C; c han ge how the deputies are elected; and institute ch ec ks and balances among the leg islative, judicial , a nd executive br a nches. Xu arg ued that the key to pol itical reform was " the gradual improve- m e nt in democracy an d th e lega l syst e m " and that "the greatest democ- racy is election." Liao Bokang, party secretary of Chongqin g, agreed: "Th e m ec h a nism for p eo pl e to participate in politics is the key m ea- sure of a co untry 's democratization." H e su ggeste d intr od u c in g direct popular nominations of candi dates for th e People's Congress as one step to democratize politica l participation. We n Shizh en thought that d emocra ti zat ion should be the principal dir ection of political reform and that its focus should be on the redistribution of th e power of the st ate .17 The t ask force id entifie d six major aspects of po liti cal reform: the separation of the party from th e state ( dangzheng fenkai); inner-party democracy (d angnei minzhu); d ece nt ralization and admin is tr ative re- forms; personnel system reform; socialist democracy; an d l egal refor m. 18 Of thes e, th e task force focused on three: separating th e party fro m the state, estab lis hing inn e r-p arty d emocracy, and th e d eve lopment of sociali st d e mocracy. -- 63 of 306 -- 52 C hin a's Trapped Transition Political Reform: Content, Goals, and Dilemmas The deliberations on politi ca l reform by th e Chinese elit es of all id eo- lo gical stripes showed that they all recognized the fu nd amenta l so urc e of the ineffici ency of the ex isting political system: the party-state in general, and the overcentralization of administrative power in the party in particular. In Zhao's vision, the first and most crucial step of politi- cal reform was the separation of the party from the state. This would be followed by inn er-party democracy, which sh ou ld be impl emented at the very top ofthe party's leadersh ip (the Politburo Standing Co mmit- tee and th e Politburo). For the task force, dominared by th e lib era ls, dangzhengJenkai, the separation of the party from the state , me a nt di- vesting some of the party's powe r to the state, thus strengthenin g the state while improving the aut h o rity and lead e rs hip of the p arty. 19 Z hao believed dangzheng Jenkai would solve the problern of yidang daizheng, or "rep lacing th e government with the party." In practical terms, Zhao thought dangzheng Jenkai meant that the party wo uld cease to issue orders or h an dle administrative affairs directl y. 2 0 Implicitly, the se para- tion would m ost likely create in stitutional checks a nd balances because the divestiture of the party's power would Iead to a limited form of sep- aration of pow ers in a one-p arty regime- a view shared by Zhao him- self, who affirmed dangzhengJenkai as "division of power b etwee n the party and the government." Ind eed, institutionally, dangzheng Jenkai would consist, according to Zhao, of three aspects: separating th e party from the govern me nt, separating the party from the NPC, a nd se pa- rating the NP C from the government .21 Despite th e lofty expectatio n s the lib era ls h ad for dangzheng Jenkai and the impo rtance they attributed to it , on ly a sma ll number of spe- cific institutional reforms were propos e d. Wen Jiabao, the dir ector of the Central Committee's General Office wh o became the pr e mi er in 2003, was asked to head a separate gro up to work on the i ssue of dang- zheng Jenkai. But the report he produced was described by Zhao as "empty" and l acking specific measur es. Even for Bao, th e most lib eral m e mber of the group , the only sp ec ific measures of dangzheng Jenkai were a bolishing the positions of the deputy p arty secretaries r es ponsible for specific policy areas, reforming the party's organization departments and propaganda departments , and separating th e party's dis c iplin ary committee from the pro c ur atorate and courts . Another measure of dangzheng Jenkai was the strengthening of th e NPC. Bao thought that -- 64 of 306 -- De mo cra tizin g C hin a? 53 the key was to strengthen the NPC Standing Committee by raising the number of committee members to more than 250 and by establishing specialized committees within the Standin g Committee.22 Promoting inn er-pa rty democracy was co nsid e red a cruc ial step of political reform. Zhao believed that instituting inner-party democracy would be the key to establishing social democracy. He called for more inner-party democracy at the central level, perhaps reflecting hi s own difficult political position as a result of the concentration of de cisio n- ma king p owe r in the h a nds of De ng. Zhao wou ld h ave liked to give the full Central Committee more p ower.23 Other m easures prop osed by the task force to democrati ze the party included instituting a m ajority rule in decision making; increasing the tran sparency of the party's activities; strengthening collective leadership ; holding competitive elec- tions within the party; and protecting th e freedom of speechwirhin the party. In s titutio na lly, the task force recommended reforming the party congress by estab li shing a system ofpe rmane nt party d e puties a nd co n- vening th e p arty congress annually, instea d of once every fi ve years. 24 Another sensitive issue discussed by the task forcewas how to under- take democratic reforms under the slogan of " building socialist democ- racy." Zh ao beli eved th at d e m oc ratization was in evitable, a lth oug h h e thought that Mikhail Gorbac h ev's glasnost and perestroika were "very risky" stra t eg ie s. In impleme ntin g democra tic reforms, Zh ao said , C hin a should " talk le ss but do mor e. Do no t m a ke that many promis es. But in practice give people more freedom. Democracy is not something so- cialism can avoid." He warned t hat "th e p eop l e's demand for democ- racy is a trend. We must meet their demand to the fu ll est extent." Fo r Zhao, socia list democr acy consis t ed of grassro ots d emocracy, di al ogue among va rious social groups (including th e CCP and la bor unions) , and protection of civil lib erties, the key of whi ch is th e freedom of speech. Specifica lly, Zhao emp hasized th e n ee d to hold elections as a means of expanding demo cracy. H e arg ued that "to build a highly d emocra tic soc ialist society, we mus t put on the age nd a th e issues of grassroots democracy, peop l e's p ar ticipa tion in administratio n , a nd p eop l e's self-a dmini stration, espec ially in th e cities." And " th e el ectora l syst em must also be improved."25 Althou gh Zh ao thought it was premature to hold direct elections for the NP C, h e suggested that co mpetitive el ec tion s for the deputie s to the provin cial P eop le 's Congress shou ld be h eld . H e saw no reas on why "we cannot op en up th e el ections for th e ch a irm an , vice c hairm e n, -- 65 of 306 -- 54 C hin a's Trapped Transition provincial governor, and vice governors." Bao shared the same view and insisted that elections could increase political accountability for cadres, and that the demo cra tic elections of government offleials would be the pr e r equ isite for institutin g "de mo cracy in other areas." 26 Even among the lib era l-leaning senior official s, there were dive rg ent views about the ultimate goal of political reform . Zhao, for example, believed that such reform would strengthen the party and enable it to maintain power. He pointed o ut, "we must so lve not the probl ern of whether the CCP will rule, but how it will rule ." Hu Qili expr essed th e same thinking even more explicitly. "The goa l for us is to have it both ways. We want both a high Ievel of demo c racy and a hi gh Ievel of effi- ciency. The first and foremo st principle is to maintain the par ty's lead- ership and improve it. Politi ca l reform must stre ngthen the authority of the party, not undermine it. "27 Other participants in the discussions thought differently, however. Liao Gailong, an em in ent party historian, envisioned a set of goals that were more radical. He said that political reform should Iead to judicial ind e- pendence and equality under law; a more powerful role of the NPC; an autonomau s civil society; the separation of the party from the state; and inn er-party democracy.28 Bao presented perhaps the most articulate ar- gument on th e objectives ofpol itical reform and a strategy to accomp li sh them . The sho rt-term goa l of political reform was in stitutionalization (zhiduhua). The long-term goalwas d emocratization . lnstitution alization, mainly through restructuring the party's leadership system and the ad- ministrative system of the gove rnm e nt , would create a m ore pluralist, though not necessarily democratic, system of interest representation un- der the current political order. Introducing inner-party democracy would create favorable conditions for political democracy. Additionally, with le- gal reforms, Ch in a cou ld build "anormal political order." 29 It was also clear from the debate among the C hines e elites in the lat e 1980s that th ey were ac utely aware of the risks and dilemmas of exper- imenting with political re form . First, they were worri ed about both an unsustainable status quo and the possibility that the existing syst e mwas too frag ile to withsta nd reform, espec ially at the initi al stage . Zh ao cau - tioned, "lf th e status quo is not changed, it won't do; but if the st eps are too big, that won't do e ith e r. To e nsur e the sm ooth and h ea lth y process of democratization, no problern must occur at the beginning . If there is a problem, we must step back." 30 -- 66 of 306 -- Democratizing Ch in a? 55 The second practical dilemma for the liberals was how to deal with the difficulties created by institutional checks and balances that wou ld inevitab ly result from the reforms. Zhao openly worried about how strengthening the NPC wou ld reduce the party's control and the gov- ernment's ability to make policy. "If the NPC grows more powerful and really becomes the supreme organ of power, it will be very difficult for the government to run things, " Zhao mused . "The re ought tobe checks and balances, but how to Iet the NPC play its role" without tying up the governing process? Zhao did not have an answer to the qu est ion he raised. 31 Citing examples of Western democracies, he said, "In cap it a l- ist countries, the government must spend a Iot of energy dealing with the parliament. We cannot go down this path and spend a lot of energy and time internally."32 Political Reform : A Stillborn Plan After almost a year of deliberations, the t ask force submitred its final re- port, titled " Zhengzhi tizhi gaige zongti shexiang" (A General Outline on the Reform of the Political System), to the Politburo and laid out its case for political reform. Th e report includ ed a discussion on the ne- cessity and urg ency of political reform and set the goals and prin ciples for such reform. It recommended th e separation of th e p arty from the state; reform ofthe People's Congress; a dministrative reform; reform of the legal system; the establishment of a civil service system; the develop- ment of socia list democracy; and reform of th e CCP. However, th e re- port failed to provide a detailed action plan . Zhao complained that "there is not enough of a s ense of action" in the report. For different reasons, Deng was not entire ly satisfied with the re port, even though he endorsed it at the end of Septe mber 1987. He thought th e proposals of reform copied "some elements of checks and balances" and he reiter- ated his mantrathat "the main g oal [of political reform] is to ensure that the administrative bran ch ca n work efficiently; th ere cannot be too much inter fer e nc e. We cannot abandon our dictatorship. We mu st not accommodate th e se ntim e nts of de mocra tization." In a m eetin g with Zhao toward the end of the task force's work, Deng emphasized, "You have a bit of ch ecks and balances [in your proposal]. The Western typ e of checks a nd balances must nev er be pr ac tice d. We must not be influ- e nc ed by th at kind of thinkin g. Effici ency mu st be gu arantee d ." 33 It was -- 67 of 306 -- 56 China's Trapped Transition very clear that Deng's notion ofpolitical reformwas fundamentally dif- ferent from that of the liberal vision. Nevertheless, the Central Committee approved the "outline" in Octo- ber 1987. Shortly afterward, the CCP's 13th Congress officially endorsed the essence of the task force's report and declared that the goal of politi- cal reform was to "build socialist democratic politics." But few spec ific measures were taken to follow up on the party 's declarations. Zhao im- plemented one symbolic reform-announcing the convening of each Politburo meeting in the m ed ia. The party's contro l on the mediawas re- laxed as weil, making 1988 a year oflively debate about Chinese culture. But as the economic conditions deteriorated in the summer of 1988, mainly as a result of surging inflation caused by Deng' s premature plan to Iift price controls, the regime 's focus shifted to economic stabilization. Political reformwas put on hold. Mter the outbreak and suppression of the prodemocracy Tiananmen Square movement from April to June 1989, the regime imposed a ban on political reform discussions. Al- though the official pronouncements kept mentioning "socialist democ- racy," "reforming the political system," and "ruling the country according to law," none of the reforms proposed in principle by the task force was adopted. Bao, the h ead of the task force, was imprison ed for seven years following the Tiananmen crac kdown-a tragic, but perhaps fitting metaphor for the political reform attempted by the party's liberal wing. To the extent that the aftermath ofthe Tiananmen crisis determined the course of political evolution in Chinaafter 1989, as Joseph Fewsmith shows in his study of the policies of the Chinese leadership in the decade following the crackdown, one is tempted to ask: What if the 1989 political crisis had not happened or had been resolved in a dif- ferent way? 34 Few would dispute that the near-death experience of the CCP during the crisis and its bloody aftermath had turned the Chinese leadership toward a more conservative direction . In the context of the collapse of the communist regimes in Eastern Europe in 1989 and the disintegration of the Soviet Union in 1991, it would be hard to envis ion the CCP leadership-b esieged, insecure , and isolated- to have favored a strategy of politicalliberali zatio n for survival. In add ition , the Tianan- men crisis gravely weakened the lib era l wing inside the CCP, as top Ieaders such as Zhao Ziyang and Hu Qili were purged. Needle ss to say, the limited political reformprogram they had planned to implement never came to fruition. Had the crisis been resolved peacefully and the lib era l Ieaders triumphed , China's post-1989 history would have -- 68 of 306 -- Democratizing Ch in a? 57 been different, and it most probably would have made more progress in politicalliberalization. Even then, howe ver, the strong conservative forces within the CCP, Deng's own hostility toward democracy (if he hirnself h ad retained power under this scenario), and the CCP's in sti- tutional interest in maintaining its political monopoly would have made a dramatic democratic breakthrough unlikely, if not impossible. This also appears to be the assessment of Zhao Ziyang. vVhen a friend asked Zhao in 2004 whether he "could have pushed political re- form hadJune 4 no t occurred," Zhao reportedly paused and then said he could not because he "did not have enough power." Because " there was such a !arge government, there was such a huge number of cadres, and so man y people's interests were involved, I did not have the power," Zhao repeated. The only person who had the power and ability to do so, said Zhao, was Deng him se lf. But while D eng would give free reign to economic reforms, he was "very vigilant against the reform of the politic al system," Zhao commented . When pr essed to elaboratefurther what he would have clone had June 4 not happened, Zhao said that he "would have practiced enlightened politics. I h ad thought about allow- ing democratic parties to grow ... If I were to have started political re- form, I would have pushed d e mocratic politics slowly." 3 ·' Even without Tiananmen, China would have been much moreliberal than it is to day, but not necessarily as fully democratic as one might hop e . lnstitutional Reforms: Promise and Disappointment The emergence of the NPC and, to a lesser extent , Local People 's Gon- gresses (LPCs), as major ac tors in decision making in China in the re - form era have be en hailed by many sc holars as a sign of political institutionalization or even pluralization. 36 Based on V\Testern experi- ence, a stronger legislature can constrain the power of the executive branch and create institutional checks and balances conducive to democracy and th e rule of law. Yet, in a politi ca l system dominated by the CCP, Ch in a's legislative branch has lan g been r egard ed as no mor e th an a rubber stamp, whose so le fun c tion is to provid e pro forma l eg it- im acy for the decisions a lready made by the ru l ing party. 37 Therefore, the ex t ent to which th e NPC a nd LPCs assert their constituti onal au- thority and influ ence in deci s ion making should be a key measur e me nt of politica l reform. This section will assess the institution al de vel op- ment and po liti ca l e mpowerment of the NPC and LPCs. -- 69 of 306 -- 58 China's Trapped Transition The growth of the NPC as one of the most important political insti- tutions in China has been extensively documented. But major studi es of the growth of the NPC reached different conclusions regarding the insti tut ion 's influ en ce duri ng the r eform era. In hi s study ofth e in stitu- tional development of the NPC during the 1980s, Kevin O'Brien argues that NPC reforms during the decade did little to increase competition or institutionalize responsivenes s. Through procedural rationalization, the legislators of the NPC sought to improve one-party rule, in stead of pursuing genuine political lib e rali zation. As a r esu lt , NP C reforms were limited to the organizational changes in the NPC that stre n gth - ened the Standing Committee, increased specialization and proce- dural regularity, and improved internal organization.3H In a major study of the p assage of administrative laws, several leading Chinese le gal scholars also found that the executive branch dominated the legislative process. Because the executive branch does not want to have legal constraints, "the legislation on admin istrative law in China, es- pecially since the 1980s, is marked by a strong pro-ad minis tra tion bias." The administrative branch is the biggest beneficiary of the passage of ad- ministrative laws in the last twenty years. The administrative bran ch ceaselessly uses the legisla tive process to expand i ts power and, throu gh this process, legalizes certain illegitimate powers. This has resulted in im- balances between the rights of citizens a nd the power of the administra- tive branch ... This problern also stems from the Iack of democracy in the legislative process; th ere is not e nough participation by the people. 39 Such criticism is shared by Stanley Lubman , who be li eves that the l an - guage of Chinese legisla tion an d rules is inten tionally designed to max- imize flexibility and discretion. As a resu lt , arbitrarin ess is embedded in Ch in ese laws and rules. 40 In Th e Politics of Lawmaking in Post-Mao China, Murray Scot Tanner tries to provide a more positive assessment of the NPC 's institutional developm e nt. In his case study of the passag e of several laws, Tann er suggests that the political monopoly of the CCP in policy-m aking was waning a nd that the NPC was ga inin g influence as a playe r in C hin a's decision-making process. However, Tanner doe s not belie ve that the NPC's emergence as a key in sti tu tional actor necessarily signals th e arrival of democratic po litics or pluralism . Instead , the NPC shou ld b e vi ewed as a politi ca l are na where bur eaucratic and factional po litics are played -- 70 of 306 -- Democratizing China? 59 out as different bureaucratic and interest groups within the CCP seize the political forum provided by the NPC to express policy preferences. Tann er identifies several positive trends indicative of the NPC's grow- ing influence. Using the data on dissenting votes and the number of motions put forth by delegates during NPC plenary sessions, he argues that NPC delegates have continued to shed their rubber-stamp reputa- tion and become more assertive. The NPC has increased in power and authority through the leadership of powerful individual politicians, such as Peng Zhen. In many cases, nominall y retired CCP eld ers were able to assert their influence through the NPC Standing Committee or the body's plenary sessions. Tanner believes that, with the expansion of the NPC's professional staff and committee system, the legislative branch has become more capable of forcing the executive bureaucracy to share policy-making power. Tanner concedes, however, that the CCP continues to wield enor- maus authority in the la wmaking process. For example , th e CCP Polit- buro must approve the candidate Iist for the NPC Standing Committee. Through appointments to the chairmen's group, the party controls agenda-setting privileges. Additionally, party groups within the NPC, including the Standing Committee CCP group, communicate legisla- tive activities to th e party Secre tariat. CCP Politburo and Se creta riat ap- proval is required for a lmost all dra ft laws promulgated by th e NPC. Consequently, Tanner remains uncertain whether reforms in the law- making process will affect China's democratic prospects. 41 Despite such divergent assessments of NPC reforms, it is po ss ible to apply several critical tests to me asure whether the NPC a nd LPC s have g ained real institution al autonomy since the la te 1970s. Legislative Output The most important achievement of the NPC was its enormau s legisla- tive output (Table 2. 1) . Th e seve ral hundr ed la ws and r es olutions passed by the NPC since 1978 have provided the l ega l fr a me work for e conomic re form a nd ra tionalized a dministrative pro ce dur es. For ex- ampl e, of all the laws a nd re s olutions th a t were enacted by the NPC from 1978 to 2002, ninety-five, or about a third , we re e conomic laws.42 Of the 216 n ew laws passed fromJune 1979 to August 2000, 126 were classified as a dministr a tive laws.43 -- 71 of 306 -- 60 C hin a's Trapped Transition But these numbers should not be taken at fa ce value. In the passage of most laws, the NPC has large ly played a secondary role, endors in g the bills drafted by the executive bran c h. On a few rare occasions, the N PC Standing Co mmittee showed its au t onomy by rejec tin g the bills pro- posed by the governme nt, such as the Law on Res iden ts' Comm ittees in 1989 and the Highway Law in April 1999, which was later approved. In 1987, the Draft Law on the Bankruptcy of State-Owned Enterpri ses al- most failed to pass due to strong opposition within the NPC. Like the NPC , LPCs rarely reject bills p ro p osed by local gove rnm ents. vVhen th ey do , it becomes national news, as in the case of the People 's Congress of Shenzhen, which voted down, in 2 00 4, a l aw on a uditing and supe r- vising the lo ca l government's investment, an unprecedented act of po- litical independence. 44 Official figures also indicate that individual l egislators play an insignifi cant role in lawm akin g. Not as ingl e bill pro- posed by NPC delegates has been enacted into l aw. For examp le , from 1983 to 1995, more than 5,000 bills wer e proposed by de legates , but only 933 (18 p erce nt) of th em were referred to committees. T h ere is no record that any of the proposed bills ever b ecame law. 45 Constitutio nal Oversight P ower On paper, the constitutional oversight power of th e NP C has expanded significantly. Th e NP C supervises the courts and appoints an d removes officials. It also investigates and oversees the wo rk of the executive bran c h; approves th e work r epo rts of the State Counc il, the Supre m e Peop l e's Court, and the S up reme Peop l e's Procuratorate; reviews and approves budgets ; an d provides legislative in t erpretations . The NPC Table 2.1. Le gislative Output of the NPC, 1978-200 3 Years Laws Passed Resolution s Passed 5th NPC (1978-198 3) 41 19 6th NPC (1983-1988) 47 16 7th NPC (1988-199 3) 60 27 8th NPC (1993-1 998) 85 33 9th NP C (1998-2003) 74 N/ A Sources: Zhonggtw falü nianjian (Law Yearbook of Ch ina) , various years; www.c hi nanews .com .cn, February 20, 2003. -- 72 of 306 -- Democratizing China? 61 can review the constitutionality of laws; inspect the implementation of specific laws by supervising individual court cases; hold hearings; con- duct special investigations; and impeach and dismiss government offi- cials.46 But in reality, the NPC has seldom asserted its formal oversight power. For example, the NPC has never declared a law unconstitutional or rejected a work report by the State Council , the Supreme People's Court, or the Supreme People's Procuratorate . It has never refused to approve a budget, and has never launched its own special investiga- tions or initiated proceedings of dismissal against a single government official. The NPC's inspection tours or he ar ings do not appear to have had any impact on policy, either. The most visible expression of the NPC's oversight power is rather symbolic: each year, about 20 percent of the NPC delegates vote against the work reports of the Supreme People's Court and the Supreme People's Procuratorate. 47 By comparison, in some provinces, cities, and counties, the LPCs oc- casionally have tried tobe more assertive.48 Playing what O'Brien called the roJe of remonstrators, LPC members sometimes take local bureau- cracies to task for poor performance and corruption. 49 In 2000, in a well-publicized case, the Guangdong Provincial People's Congress held a hearing on the work of the provincial environmental prot ectio n agency. Unhappy with the agency's work, the deputies voted, 23 to 5, on a resolution to express di ssatisfaction with the agency's response given at the hearing and dem a nded a second h ear ing. Even after agency offleials gave an improved performance at the second hearing, the deputies r e mained unsati sfied, although such expressions of dis- satisfaction did not appear to h ave any substantive political effects. 50 LPC deputies have dem anded audits of the expenditures of loc al governments and criticized lo cal governments' commercial deals and corrupt activitiesY In 2002 , members of the Guangdong Provincial People's Congress aggressively questioned the provincial government about its 22 billion yuan budget and demanded explanations for many line-it em expen ditures . Mterward, the Guangdong provincial govern- ment became more forthcoming in providing more detailed budg etary information to the congress. 52 In wielding one of its most co ntrover sial overs ight powers, LPCs also began to monitor judicial proceedings, mainly as a response to rampant corruption in the judicial system. LPCs' oversight of judicial proceedings in both civil and cr iminal cases can force courts to conduct trials with greater transparency and int egrity. -- 73 of 306 -- 62 China's Trapped Transition Typically, LPC delegates would review files, interview witnesses, and sit in on trial proceedings. In one instance, such intervention helped free a peasant wrongly convicted of drug trafficking. 53 For many NPC delegates, the passage of a "supervis ion law" (jiandu Ja), which would explicitly grant the legislative branch broad-ranged over- sight power, attracted a great deal of interest even though legislative in- tervention in judicial proceedings is considered harmful to judicial independence. From 1993 to 1999, more than 1,600 NPC delegates pro- posed 51 pi eces of l eg islation to legalize judi cial oversigh t. M vVhile the NPC insists that such overs ight, in cases involving major violations of law, does not constitute interference in legal proceedings, however, it has yet to enact a law formall y granting itself and LPCs the power of judicial and executive oversight. Power of Appointment and Removal Another noteworthy development is that LPCs have become an arena in which bureaucratic and factional politics begin to influence , in a very limited way, the appointment of local officials. Because Chinese law mandates "comp etit ive e lections" (cha'e xuanju) for senior lo ca l of- ficials, LPC delegates have an opportunity to use such indirect "e l ec - tions" to foil the appointment of official candidates and el ect their own choices. Under Chinese law, an official candidate cannot be appointed if he or she fails to gain half the votes of the delegates. LPC delegates can also write in their nomin ees . In Liaoning in the late 1990s, for ex- ample, the CCP's provincial organization department (POD) reported that an increasing number of official candidates could not be con- firmed by LPCs due to factionalism, poor lobbying by the party, and unattractive nominees. Locallegislators occas ion ally were successful in nominating and electing their own candidates to local offices. In five cities in Liaoning, twelve independent candidates were elected to local offices:o;,; Similar incidents occurred in Hangzhou's twelve counties in the 1990s. Each time the county LPC appointed offleials nominated by the party, an average of six to nin e official nominees would fail to be appoin ted , while the same number ofunofficial candidates nominated by the delegates themselves would get elected. In the counties where the LPC delegates were the most assertive, about 10 to 15 percent of the official nominees would fail to get elected .% In practice, however, such revolts by LPC delegates are rare , and nearly -- 74 of 306 -- De mo cra tizin g C hin a? 63 all the candidates nominated by the CCP are appointed. Accordin g to a senior NPC official, Qiao Xiaoyang, from the mid-1980s to the mid- 1990s, only 2 percent of the candidates nominated by the provin cial CCP Committee failed to win elect ion s at th e provincial P eop le's Co n gress:' 7 Nevertheless, the CCP has taken numerous measu res to preve nt such procedural setbacks. For example, the CCP's POD in Liaoning proposed a set of measures to ensure the appointment of the party's candidates. They include making local party chiefs the chairmen of the LPC Stand- ing Committee, a ppointing th e loca l CCP organi zation d epartme n t ch iefs to be the h eads of the personnel comm ittee of the LPCs, packing the presidium of the LPCs with loyalists, and a ppointing lo yalists to be the heads oflocal delegations to the LPCs:' 8 In Hangzhou, the provincial party committee took similar steps prior to the convening of the munic- ipal People 's Congress in 1996 . Thes e tactics we re so effective that 98 percent of th e official nominees won.''9 Na tion ally, similar measures, some ill egal or qu estionable, contri buted to the domin ance of the CCP over the LPCs. In 1997 and 1998, the el ec tion of the chairmen of th e provincial People's Congress Standing Committee was not competitive, contrary to law. 60 By 2003, in twenty-three of the thirty-one province s, the party c hi efwas also the ch ai rman of th e provincial People's Congress Standin g Co mmi ttee . This shows that the CCP has maintained a lmo st comp l ete contro l over the legislative branch in the provinc es . Organizational Growth Organizationally, the NPC h as gro wn consider ably as weil. Th e body had only fifty-four fu ll-tim e staffers in 1979. By the mid-1990s, the num- ber h ad r isen to abou t two thous and. 6 1 The NPC's committee system grew as weiL From 19 83 to 2003, t he number of spec iali zed com mi ttees in the NPC Sta nding Committee ros e from six to nin e . Nationwide, the number of staffers in the People's Congress sys tem at an d above the county-leve l reac h ed 70 , 000 by 1997. 62 As a who le, h owever, th e me m- b ers hi p of the NP C a nd LP Cs does not mirrar C hin ese soc iety. Rather, it appears to better represent th e bure au cra tic int erests of th e C hin ese state and the ruling CCP. For exam pl e, nearly all of the 1 34 members of the 9th NPC Standing Committee (ave rage age 63.4) were re tired governme nt an d par ty offic i a l s . 6~ CCP members make up about two-t hi rds of the delegates to th e N PC and LP Cs. In the NP C, th e percentage of d elegates who were CCP -- 75 of 306 -- 64 C hin a's Trapped Transition members was 73 in 1981 and 72 in 1998. The si tuation is similar in LPCs. In 1998, 72 percent of the delegates to provincial people's congresses and 75 percent of the deleg a te s to municip al people's congresses were CCP members. In fact, the party' s presence in th e NP C and LPCs was less domineering during the early years of the P eop l e's R ep ubli c. In 1954, for example, 55 perce nt of the NPC d elegates were CCP mem- bers, and 58 percent of the delegates to the provincial people 's con- gresses were CCP members. 64 As a group , m embe rs of the NPC a nd LPCs are among C hin a's po- liti ca l and social elites, based on their educationa l atta i nment a nd oc - cupations. Seventy-three pe rcent of the NPC dele ga tes and 62 per ce nt of the delegates to municipal people's congre sses in 1998 had college degrees or college-equivalent education, compared to the average of the nation al p o pulation of a bout 3 perc e nt. T wenty-one pe rc ent of the NPC delegates were "intellectuals" and professionals. In addition , wh ile the percen t age of peasants and workers d e clined steadily from th e 1980s, th e share of offleials ros e signiflcantly. In 1983, wor k ers and peasants made up 27 percent of NPC delegate s. By 1999, their com- bined sh a re had fallen to 19 percent. By compari so n, the share of offl- eia ls amo ng NPC delegates in creased from 21 pe r ce nt in 1983 to 33 p ercent in 1999 . Tagether with the mi litary (9 percent), repr ese nta- tives of the C hi nese party-state acco unted for 42 percent of NP C dele- gate s. Th e sh are of offleials in the delegates to provincial people's congresses was even higher. From 1983 to 1999 , it rose from 24 percent to 43 p erce nt, while the combined share of work ers and p easan ts feil from 33 percent to 24 percent. 65 In retrospect, the failure of the Chinese NP C an d LPCs to grow in to genuine autonomaus legislative institutions capab le of checking the power of th e CCP and the Chinese state is fully predictabl e . It is clear, both from elite-level discu ss ion s a nd the CCP's actu al polic y, tha t the party has never int ended for the legislative br anch to acquire its own i nstitutiona l id entity or pow er because the CCP recognizes the hug e risks that an autonomaus legislative bran ch wo uld entail. As Barrett M cCormick argues, ge nuin e institutional pluralism e mbodi ed in an autonomaus legislative branch such as the NP C wou ld fundamenta lly e ndan ger th e survivability of Le ninist states. The fea r of such a danger l ed Ch in ese Iea ders to restriet the power of the NPC , even as they tried to mak e the institution an instrum e nt of popular l eg itimization. 66 -- 76 of 306 -- De mo cratizin g Chin a? 65 Consequently, the NPC and LPCs, which are not directly elected through competitive elections, Iack their own power base and popular legiti- macy and must depend on the support of the executive branc h-th e Chinese party-state -for their institutional ex iste nc e a nd relevance.67 Legal Reform The efforts by the Chinese government to de velop a modern le gal sys- tem in the post-Mao e ra are viewed as c ru cial ste ps towar d poli tica l re- form.68 To the extent that a modern l egal system will fo ster the rul e of law and constrain the power of the ruling CCP, such r eforms con stitute one of the most basic requirements of the commitments of the post- Mao regime to genuine political reform. Yet, the record in legal reform since the late 1970s has been mixed. While the Chinese government has made unprecedented progress in many areas of le ga l reform, the Chinese legal system rema in s structurally flawed and i neffec tive be- cause th e CCP is fundamentally unwilling to allow r ea l judicial con- straints on the exercise of its power. In his survey of China 's legal reform, Randall Peerenboom observes: There is consider ab le direct a nd indirect evidence that China is in the midst of a transition toward some version of rule of law that measures up favorably to the requirements of a thin theory . .. but the reach of the law is still clearly limited. The party 's actual roJe in goveming the country is at odds with or not reflected in the Constitution or other legal docum ents. As a r es ult , one can see "little ev id ence of a s hift toward a rule of law understood to entai l demo cracy an d a liberal version of human rights th at gives priority to civil a nd political rights. "69 Anoth er compre h e nsive review of China's legal reform reached a similar conclusion. "In general , the reform of the judicial system has not kept p ace with the rapid economic reforms and social changes in C hin a" because the C hin ese governmen t adop t ed a p i ecemea l a pp roac h to law r ef orm and l acke d full co mmi tment to re al refo rm . 70 T hi s sec tion will brie fl y review th e major achieve ments in C hina 's l egal r efor m a nd analyze the political fact ors th at lie behind th e Iimits of such reform . The moti va tions to und e rt ake even limite d l egal r efo rm were co m- pelling for the CCP in the po st-M ao era. To r estore political order and create a new l egal framework for eco nomi c reforms, reforming a nd -- 77 of 306 -- 66 China's Trapped Transition strengthening the legal sys tem was a top prio rity for the Deng regime. In the speech that marked his return to power in December 1978, Deng called for the strengthening of the leg al system and identified , as the new leaders hip' s t op priority, the passage of a crimin al code, a civil code, procedure laws, as well as laws on enterprises, foreign investment, Iabor, and environmental protection. 71 As William Alford observed: The [Chinese] leadership's principal objecti ve in initiating a nd sup- portin g law reform h as n ot been to foster a rul e of law. Rather it has been to leg itimate the leadership 's own power while erecting the edi- fice of technical guidelines believed necessary to facilitate economic re- form and reassure anxious prospective foreign transferrers of sorely needed capital and technolo gy. 7~ Ind eed, Ch ina's leg al system, developed under a pl a nn ed economy and wrec ked by a decade of political turmoil during th e Cu ltu ral Revo- lution , was in ade quate, outdated, and ill-suited for a transition eco nomy. Economic reform wo uld h ave been in co nc eivable wit hout reform- ing the legal system.73 Thus , the CCP's need for survival throu gh eco- nomic reform overlapped with the practical nece ss ities of le ga l reform. L ega l reform, howeve r, as in the case of oth e r major political and eco - nomi c reforms, can also produ ce spillover e ffects and uninte nded co n- se qu e nc es . Such reforms, in Alford's words, can be a "double-ed ge d sword"-it may bolster the regime's legitimacy and help ga in inves tor confidence, but it can also spark the politicalliberalization feared by the r egime .74 This political dile mm a provides the overall co ntext for C hin a's l egal reform a nd Iimits th e exten t to which such reform can be ac hi eve d. Nevertheless, the progress in le gal reform s ince th e end of the Mao era h as be e n unp rece dented in Chinese history, as re fl ec te d in the p assage of a !arge number of new laws; the in creas ing us e of the c ourts to resol ve economic dispute s; soc ial a nd state-soc iety conflicts; the de- velopment of a profession al le gal community; an d improvements in judicial pro ce dur es. Stanle y Lubman captures both th e achievements an d limitat ions of China's legal reform in his asses sment: "T he acco m- p lishm e nts of C hin a 's l egal reformers h ave been impr essive d es pite th e li mitations se t by poli cy on the ro le of law itself, th e flu x of C hina' s on- go ing social a nd e conomic transformations s in ce 1979, a nd th e con- tinuing strength of traditionall egal c ulture ."75 Specificall y, the most importa nt p rogress th at C hin a has m ad e in l egal reform is thre efold: "law h as been m ad e a major in str um e nt of -- 78 of 306 -- De mo cratizin g Chin a? 67 governan ce, a legal framework for a marketizing econom y ha s been created, and ajudicial system has been constructed." 76 As a re s ult , legal reform has greatly increased the role of courts in adjudicating civil, commerc ial, and administrative disputes. As indi cated by the data o n the rapid growth of co mmercial, civil, and administrative Iitigation , Chinese courts have assumed an indispensable role in resol vin g eco- nomic, social, and, to a limited extent, politic al conflicts (Table 2.2). A number of empirical studies on commercial a nd administrative Iiti- gation show that, despite its fl aws, China's legal system is capab le of pr oviding limited protection of pr operty and personal rights.77 In ad- dition, China's legal professi on, including judge s a nd lawyers, h as ex- panded rapidly during the reform era. The number of lawyers rose from a few thousand in the ea rly 1980s to more than 100,000 in 2002. The number of judges n early doubled from the late 1980s to the late 1990s. As measured by educational a tt ainment , th e qu alifi cations of the l ega l profession have risen dramatic ally as weil. Th e p erce n tage of judges with a college or associate d egree rose from seve ntee n in 1987 to forty in 2003. 78 Ofthe 100, 000 lawyers in 2002, 70 percent had under- graduate de g rees and higher and 30 percent had only da zhuan ( equiv- ale nt to an associate degr ee) or lower. Th e ov e ralllevel of profess ional l ega l qu a lifi cations re mains relatively l ow, however, espec ially wh en measured by West ern sta ndar d s. 79 But behind thes e numbers lies a differe nt political real i ty. For all the progress in reform, China 's legal system remains politically hobbled by th e rulin g party's restriction s. Legal r efo rm was apparently lo sing momentum in the l ate 1990s. For examp l e, the gro wth of civil a nd Tabl e 2.2. Growth ofLi tigation, 19 86-2002 (cases accepted by courts of first instance) Year Commercial Civil 1986 308,393 989,409 1990 598,314 1,851,897 1996 1,519,793 3,093,995 1999 1,535,613 3,519,244 2000 1,297,843 3,412,259 2002 4,420,123" Sources : Zhongguo falü nianjian, various years. "lncludin g bo th co mm ercial and civil cases. Administrative 632 13,006 79 ,966 97,569 85,760 80 ,728 -- 79 of 306 -- 68 C hin a's Trapped Transition administrative Iitigation slowed in the late 1990 s, peaked by 1999, and began to decrease afterward (Table 2.2). The total number of civil and commercial cases fell from more than 5 million in 1999 to abo ut 4.4 million in 2002, a 12 percent decline in three years. Administrative Iitigation cases registered even more dramatic declines. Mter peaking in 2001, with 100,921 cases filed , the number of a dministrative laws uits fell to about 80,000 in 2002 , back to the Ievel of 1996. Such bro ad and !arge declin es in Iitigation may be indicative of the poor perform ance of the court system and th e co nsequent eros i on of th e public 's co nfi- dence in the cou rt s' abi lity to adjud icate justly. Although there are no data available about the trial outcomes of civil cases, the trend of administrati ve Iitigation suggests that the decline in the number oflawsuits filed against the governme nt may be di rec tly re- lated to the incr eas ing difficulty with which plaintiffs were winning these cases in courts, which in turn reflects the co urts' progovernment bias. For examp le, p laintiffs suing the government had an effective winning rate of 38.3 percent in 1993 (including favorable court judg- ments and Settlements). This rate rose to 41 percent in 1996 , bu t fell to 32 percent in 1999. By 2002, the rate plummeted to 20.6 percent, h a lf the level reached in 1996. 80 It is likely that the d ec reasing probability of receiving judicial relief through the administrative Iitigation process has discouraged many citizens from taking their cases to the co urts. The rapid growth ofthelegal profession has not led to the emergence of a genuinely independent bar or a well-trained judiciary. Th e gove rn- m e nt main tains tight restrictions on lawyers in the ir r eprese n tation of their clients. The Lawyers' Law (1996) provides for in adequate protec- tion of lawyers' rights, leaving lawyers vulnerab le to h arassmen t and per- secution by lo cal officials. s1 According to the presi d ent of the Chinese Lawyers Association, the number of in cidents in which lawyers were mistreat ed was !arge. Law e nforc e ment officers frequently assaulted, detained, and verbally abused lawyers. Many lawyers were wrongfully convicted and sentenced to jail. Lawyers' rights to defend their clients in court were restricted. Some lawyers were ej ec ted from courts without jus- tification. But l ocal governments, in most cases, refus ed to co operate with lawyers' associations in investigating such cases of abuse. 82 Despite a m ass ive effort to raise the qualifications of jud ges, the overa lll evel of professiona lism of the judiciary is very low. For example , 60 percent of the judges in 2003 had not received a co ll ege or -- 80 of 306 -- De mo cra tizin g C hin a? 69 college-equivalent education . 8 ~ A large number of sittingjudges , many of whom are former officers in the People 's Liberation Army (PLA), have dubious legal qualifications. For example , in one midsi zed city in 1998, ofthe 1,354judges in the city's courts , 5 00 (37 percent) we re for- mer PLA officers, and 733 (more than half) were transferr ed from other government agencies and presumabl y had received little formal legal education. Only 87 had college degrees and 96 had associate de- grees, and 364judges had a hi gh school education or less. 84 Perhaps the most r evea ling eviden ce that the rule of law is fund ame n- tally in co mp ati bl e with a one-party regime is the CC P 's steadfast r efusa l to und e rtake the n ece ssary reforms to correct the two following well- known institutional and structural flaws in the Chinese legal sys tem- even though they have long been identified and numerous remedies have been proposed. For example, in a study co mmission ed by the Supreme People's Court to am e nd the "People's Court Organic Law," He Weifang and Zhang Ziming, two l ead in g academ ics, detail ed a lon g list of th e symptoms that manifest ed th ese fl aws. vvbat is re markable about the proposal by He and Zhang is that similar proposals had been floated before but were ne ver acted upon by the CCP. 85 To th e exte nt th at r eform s are adopted to add ress the critical weaknesses in the lega l system, the m easures impl eme nt ed by the governmen t tend to be pi ece me al and techni cal. They try to remedy the less controversial pro- cedural fl aws while avoiding t he mosts ens itive political is sues .86 Politicizati on of t he Courtsand Lack o fjudi cial Independence As a judicial in sti tu tion , C hin ese courts are h eavily politicized a nd d e- pr ived of th e ind epe nd e n ce crucial to th e ir role as gu ard i ans of ju stice a nd adjudicators of disputes. 87 The politicization of th e courts is re- flected in the control exercised by the CCP over the various aspects of th e courts' operations . F or examp le, eac h level of the CCP o r gan ization, down to the county level, has a spec ial political and l egal comm ittee (zhengfa weiyuanhui) head ed by a se nior party official. Th e committee dir ec tly makes d ec i sions on imp ortant poli cies and issues rel ate d to th e courts a nd law enforce m ent. In m any cases, this co mmittee even determines t he ou tcomes of m ajor court cases. In terms of judi cial appointments , the CCP's orga niz at ion d e part- ment wo uld nominate candidates for the pres id ents a nd vice pre sid ents -- 81 of 306 -- 70 China's Trapped Transition of courts, often regardless of their judicial training or the Iack thereof. A former vice president of the Supreme People 's Court (SPC), Wang Huai'an, admitted that the CCP's nomenclatural system (dang guan ganbu) controls the appointment of k ey personnel in the court syste m. In the case of the SPC, the members of the SPC party committee, who are the most senior judge-officials of the court, are appointed and su- pervised by the CCP Central Committee, and members of the party com- mittee of provincial high courts are jointly supervised by the SPC party committee and the provincial party committee s. The member s of the party com mittees of intermediate courts are under the direct supervi- sion of the party committees of the provincial high courts. The CCP's control of the most senior judicial appointments profoundl y affects how judgments are determined by the courts because, as Wang said, "in the last fifty years, the system of giving the ultimate trial authority to the presidents of the courts has remained basically unchanged." 88 Additionally, judicial independence is compromised by lo cal gov- ernments that wield enormaus influenc e over the courts through their control of judicial appointments and court finances. 89 Dependent on the local governments for funding, services, and political support, Chi- nese courts find it hard to try cases fairly where the economic and po- liti ca l interests of the local governments and offleials are at stake. In the most crucial respects, C hin ese courts are run like other govern - ment bureaucracies and follow a similar modus operandi. Administra- tive ranking or seniority, not judicial qualifications and experience, determine the hierarchical structure in the courts . For example, trial committees, which have the ultim ate authority in determining judg- ments, are composed of individuals with the mostsenior administrative ranks, rather than the bestjudicial qualifications .90 Trials in courts are conducted like planned production drives. Typi- cally, during the first half of the year, the pace of trials falls below aver- age, leading to a backlog of untried cases. Backlogs force courts to try cases in a typical "campaign style," contributing to higher error rates. In 1998, for examp le, 13 percent of the cases were tried in th e first quarter (which includ es th e Spring Festival) , 26 percent in the seco nd , 25 percent in the third, and 30 percent in the fourth quarter. Mistakes abound in the cases hastily tried at the end of the year. Of the eco - nomic cases tried in December 1997, a third ofthejudgments were re- vised or ord ere d to be retried on appea l, a much higher percentage th an the cases tried in other quarters. 91 Similarly, the courts' e nforcement -- 82 of 306 -- De mo cra tizin g C hin a? 71 of judgments is performed through campaign-style drives. Under the direction of the SPC, Chinese courts often de s ignate a certain period for such campaigns to cle a r up backlogs ofun e nforcedjud gm ents. 92 In ev itably, the p o liticizat ion and adm inistrat ive co n tro l of the courts corrupts judicial integr i ty. 9 ~ In publi c perception, the Chinese judiciary is one of the most corrupt government institutions. A surve y of 12, 000 people in ten provinces commissioned by the CCP's Centrat Disc ipline Inspection Commission in late 2003 found that the courts , along wi th the police and the pro c urato rate, were co n s id ered a mon g th e five most corrupt publi c institutions; 39 percent of the r espondents sa id corruption in these three institutions was " quite seriou s." 94 The Chi- nese press frequently reports corruption scandals involving judge s. In Hubei province, from 2002 to mid-2003, nine ty-one judges were charged with corruption. The accused included one vice presid e nt of the provincial high court, two presidents of the intermediate court, fo ur vice pres id e nts of the inte rmediate court, and two p residents of th e basic-l evel court. In 2 003 alone , 794 judges in th e country were investi- gated and punished ( chachu) .95 Corruption by senior provincial judges was reported in many other jurisdictions. The pr es id e nts of the pro vin cial high courts in Guang- dong and Hunan provinces we re convicted of co rrupti on in 200 3 a nd 2004. In Heilongjiang, the pr es id ent, a vice pre s ident of th e provincial high court , a nd the h ead of the provinc ial judicial d ep ar tme nt were removed from office in late 2004 for corruption . In Hainan , a vice pres- ident of the provincial hi gh cour t, a long with th e h ea d of th e e nforce - ment department of th e co urt , a vice president of an intermed ia te court, an d a president of a di strict court, were s entenced in 2004 to lo ngjai l terms for corruption .96 Fragm e ntation ofjudicial Authority The contro l by the party and l ocal governments of th e judiciary has contribu ted to the fragmentat ion ofj udi cial au t hori ty and und erm in ed its effec tiven ess. In a ddition to the weak en in g of the judici ary as a re- sult of th e CCP's con t ro l of judicial a ppointments, the enormaus power wielded by loc al gove rnm ents over th e judiciary undercuts the courts' auth or ity. Because judici al jurisdiction s a nd adm inistrative ju- risd i ctions comp le te ly overlap one ano th er, the dominanc e of th e ad- min istrative authorities in effec t crea tes wh a t C hin ese observers call -- 83 of 306 -- 72 C hin a's Trapped Transition judicial "independent kingdoms ," in which lo ca l political intere sts, in- stead of nationallaw, hold swa y. Under these conditions, laws made by the central government cannot be implemented or enforced, l ead in g to the widespread problern of "l ocal protectionism"-the phenome- non of lo ca l authorities providing political p rotectio n to loca l intere sts in violation of nationallaws. Consequently, enforcement of court judg- ments is extremely difficult w hen judicial authority is fragmented. 97 One stud y finds that, despite official rhetori c abo ut strength e nin g the l egal system, cou rtjudgm e n ts b ecame even mor e difficult to enforce in the late 1990s. In some cases, co urtjud gments co uld not be exec ut ed without the explicit political backing from CCP officials. 98 To remedy the structural weaknesses caused by such a fragm e ntation of judicial authority, Chinese sc holars have affered several propo sa ls for instituti o nal re form. Th ese proposals includ e the es t ablis hm ent of two separate judicial systems: a centra t system an d a loca l system (simi- l ar to the American federa l system); the formation of cross-reg i ona l courts; and th e us e ofthe central government 's appropriations to fund courts. 99 The government has adopted none of them, howe ver. Such a failure to implement crucial reforms led to a g rowing sense among C hin a's legal co mmuni ty th at th e cou rt syste m h ad become so dysfunc- tiona l that mor e radica l m eas ures-or "major su rgery," to use a co l or- fu l phrase-wou ld be requ ir ed . 100 In summary, the dom ina nce of th e party-state over th e judi ci ary is the fundamental cause of the Iimitation of le ga l reform in China . The CCP's goals in allowing l egal reform are tactical in nature: su ch r efor m must serve th e party's overa ll strategy of maintaining its politic al mo- nopoly through economic reform. Measures of l egal reform must not threaten its authority or the institution al str u cture upon which its po- liti cal supremacy is bas e d. As l ong as the CCP places its own political in- terests a bove China's need for the rule of law, le galreformwill remain confined to the tactical rea lm . Viilage Elections The emergence of vill age elections in rural Ch ina since the late 1980s marks a n imp ortant step toward democratization. Even though these el ections produce, techn ica lly, a se lf-govern in g civic organ ization , not a l ocal government, the advent ofvillage elections has led some a nalys ts -- 84 of 306 -- De mo cra tizin g C hin a? 73 to praise them as an example of political liberalization m China. 101 Basedonhis field research in 1999, Lianjiang Li argued that such elec- tions politically empowered p easants and incr eased local political accou ntability. 102 Ac cord ing to Kevin O'Brien, the intr oduction of e le c- tions into th e villages would eventually Iead to full citizenship status to rural residents, who have been denied man y of the rights enjoyed by ur- ban residentsY13 Allen Choate, who overs aw the Asia Foundation's democracy-as sistance program in China, believes that village elections in creased transparency in village gove rnan ce a nd affered rural resi- dents more c hoi ces of representation an d aven u es of appea l. 104 Some Chin ese social scientists hold similarly positive views of this de mocratic experiment , arguing that such elections have contributed to rising po- litical con scio usness among the peasantry and broken the balance of power in villages in favor of the villag ers . 105 Other sc hol ars, however, were skeptical abo ut th e democratizing im- pact ofvi llag e el ections. J ean Oi and Scott R oze lle found in their study of el ec tion s in thirty-two villages that th e e lectio ns did little to change the power balance and decision-making authority in these villages be- cause the villa ge communist p arty secretary retained political domi- nan ce .106 Basedonhis fieldwork in Hebei in 1997, Bjorn Alpermann concluded th at t ownsh ip government a nd p arty organizations main- tained dominant advantages whil e el ecte d co mmitte es exe rcised on ly limit ed "self-administration." 107 In alllikelihood, the diversity of socioeconomic conditions in China, the unevenness with which local offleials impl e m e nt village elections, and the dearth of re li ab le d a ta make it a lmo st impo ssible to assess the roJe a nd imp act of vill age elec ti ons in the exp an sion of de m ocratiza- tion in rural China. In thi s sec tion , we will review the evo luti o n of vill age elec tions and focus on th e mo st co nte ntiou s, and unr esolve d , political issues surrounding this limited democratic ex p e rim e nt. Villagers' committees, averaging five to seven m e mb ers who serve three- year terms , first emerged as an adm ini strative r ep lacement of th e pro- duction br igade al most as soon as th e agricu l tural decoll ectivization b egan . W ith the dismantling ofth e p e op le's c ommun e s, al ternative insti- tutions of grassroots governan ce in rural ar eas were n ee ded . Similar to agricultural decollectivization, the movement toward self-government in the villages began as a spontan ea u s response by the peasantry to th e d e- teriora tion of lo cal governance following the disappearance of the -- 85 of 306 -- 74 China's Trapped Transition communes. The Chinese government tentatively endorsed this de- mocratic experiment because the authorities believed that such self- governing civic organizations would help maintain rural stability. The strongest proponent for leg aliz ing vill age elec tions was Pe n g Zhen, chairman of the NPC 's Standing Committee and a political hardliner. Peng was credited with the passage of the draft Organic Law on Viilage Committees in 1987 and its initial implementation, despite the con- servative backlash in the aftermath of the Tiananmen tragedy in Jun e 1989.108 Jud gi ng by the sp ee d of implementa tion , village elections a pp eare d to be a considerable success. Although only h a lf the pro vin c es h ad in- stituted village elections by 1990, the experiment quickly gathered mo- mentum. In the early 1990s, the Chinese government promoted the use of "demonstration sites"-villages to which local officials were dis- patched to develop an d enforce proper ele c tion pro c edures. By the late 1990s, mor e th an th ree hundred count ies (or 15 p ercent ofthe to- tal in th e country) w ere d es ignated as "demonstration countie s," and the number ofvillages as "demonstration sites" reached 164, 000 , about 18 percent of the total number ofvillages. 109 The effect ofusin g "dem- onstration sites" to improve village elections appea r ed to be limited, however. In Wang Zhenyao's vie w, th e proce du res for vill age el ectio ns improved mostly as a result of pressures and initi atives from the peas- a nt ry. The popul ar iz atio n of competitive pr im a rie s (h aixuan ) was cred- ited to village residents rather than to local officials. Indeed, when the Organic Law was revised in 199 8, many of th e e l ecto ral proc e dures in- vented and u sed by village residents were formally ado pted and codified. By the end of the 1990s, vill age elections had spread to nearly all C hin ese provinces. In several provinces th at led the nation in th e im- plementation of village ele ctio ns, four rounds of such el ec tion s h ad been held between 1988 and 2000. In eighteen provinces, three rounds h ad occurred. A survey conducted by Ti anjian Shi in 2002 s howed th a t 83 percent of the vill agers p olled reported el ections in their villages in 2002, comp are d with 76 p e rcent in 1993. T h e voter t urnout rate h ad in creased as we iL In 1 993 , 63 percent of th e respondents of a similar poll said that th ey h ad vo ted in th e village elections. In th e 2 002 poll, 69 perc e nt h ad voted.U 0 In so m e parts of China , vill age e lection s see m to h ave b ecome more organ ized, and cand idates are e ng age d in vari- ous campa ign activiti es to seek voters' support. In Fujian, for examp le, -- 86 of 306 -- De mo cra tizin g C hin a? 75 one study finds that 43 percent of the villagers reported that candidates visited their homes; 37 percent said that candidates asked their relatives for help with the campaign; 30 percent said th at candidates ca lled on th eir clan Iea ders to rally support; and 24 percent re ported that candi- dat es provided free meals to earn goodwill from th e villagers. In ad- dition, village elections affered opportunities for voters to pick the candidates affering attractive policy choices. In Fujian, 25 percent of the voters recalled that candidates pledged to improve village infra- structure; 24 percent re por ted that ca ndid ates promised b etter eco- nomic performance; 10 percent said th at candidates vowed to investigate corruption by their predeces sors; an d 7 perc e nt reported that candi- dates campaigned on cuttingor even abolishing taxes. 111 In evaluating the impact of village election s on rural democratiza- tion , one of the most disputed issues is how competitive such elections are . Gi ven the politica l dominance of the CCP, the like lihood th a t the party wou ld permit ge nuinely competi tive e lec tions may be sma ll. The findings from var ious sur veys and field research, howeve r, s how a mixed picture. One indicator of competitive ne ss-whether elections have a single candidate or multiple candidates for the chairmans hip of th e village r s' committee-appears to h ave improved. Shi rep orts th at, in 1993, 53 p ercent of the villa gers surveyed said that had multi candi- date el ec tio ns. In 2002, 70 percent reporte d multic a ndidate election s.112 But this m eas ur e m ay misr e prese nt th e political reality in Chinese vil- lages because the competiti veness of village elections depend s not on how m an y formal candidates a ppear on th e ballot, but on h ow such candidates are nomin a ted. Local party an d t ownship offleials c an manipul a te the nomin a tion process to ensure that their preferr ed cand id ates win positions on the vill ager s' committees. Such m a nipul a tion is re latively easy to c arry out because , like primaries, only a small percentage of the village voters normally a tte nd nomination meetings. One study of forty villages in Fujian in 2001 found th a t on ly 12 p erce nt ofv ill agers atte nd e d nomi- na tion m eet in gs. m Ind ee d, Shi's survey show ed th at in about a qu a rter of th e vill age s, th e party, th e township govern m en t, and th e previous villagers' comm itt ees pi ck ed th e memb ers of th e "village el ec tion lead- ing group ," which organizes vill age e lection s a nd e xerts deci sive influ- ence on th e nomination process. Only about 43 p e rcent of the villages formed th eir vill age el ec tio n l ead ing groups through an el ection by the -- 87 of 306 -- 76 China's Trapped Transition village assembly or villagers' small groups, as required by the revised Organic Law. Partly as a result of the influence of the party and local governments, only 43 percent of the villages used haixuan, the most democratic method of nomination, and 35 percent of villages u sed methods deemed illegal under the Organic Law.11 4 Applying the most stringent standard of competitiveness, Shi finds that only 11 percent of village elections held in China could meet all four requirements.m If the legal requirements stipulated by the Or- ganic Law are applied, Shi argues that only 31 percent of the villages in China are in compliance with the law.116 Case studies conducted by other researchers offer additional confirmation that elections in many, if not the majority, of villages do not follow proper procedures. A study of forty villages in Jiangxi in 1999 found that in one coun ty, only one in five villages complied with the law, while in another county, one in two complied. In the same study, 61 percent of the villagers reported that the county and township "election guidance group" played the most important role in the election process; 31 percent said that village party secretaries wielded significant influence. The legally mandated village election committees played only a negligible role, with 60 per- ce nt of the villagers reporting that such comm itt ees had n o influ- ence.ll7 The interference in the electoral process by the party and the government contributed to the peasants' disillusionme nt with vill age elections. According to Xiao Tangbiao, while 79 percent of rural resi- dents hoped to participate in real democratic elections, onl y 32 per- cent thought that such elections would be h eld. More important, in villages where elect ions were manipulated by lo ca l officials, elections had no visib le or significant impact on vi llage governance .118 A study of thirty-four villages in Shaa nxi province in 2000 by John Kennedy reached similar conclusions. Of all the formal ca ndidates, only 35 percent were nominated by villagers, 21 percent were chosen by the village party branches , and 26 percent were nominared by town- ship governments. Kennedy also found that if open nominations, or haixuan, were held , nonparty memb e rs wou ld more likely win. The nomination process is therefore the most cr itical link in vill age elections-the more open the nomination process, the more competi- tive the elections. Official interfe r ence in the election process invari- ably undermines the leg itim acy of village elections because rural residents are politically sophisticated enough to teil real elections from -- 88 of 306 -- De mocratizing China? 77 phony onesY 9 The results of Hu Rong's survey of 913 villagers in Fu- jian in 2001 reinforced the findings reported by Shi, Xiao, and Kennedy. Forty percent of the villagers reported that party and town- ship governments nominared the candidates. 120 A different study of elections in 231 villages in Fujian in 2000 showed that only about 53 percent of the sampled villages had complied with the electoral rules laid out in the Organic Law. 121 Provincial data provide additional evidence that local ruling elites have d ec isive influenc e in the nomination process. During th e elec- tions held in 1999 in Jilin, which is considered one of the pioneers in implementing village elections, 49 percent of the members of the vil- lage election committees were party members , and 13 percent were in- cumbents. Sixty-nine percent of the election committee directors were village party secretaries; 16 percent ofthe election committee dir ectors were incumbent chairmen of the vill agers' comm ittees. Only 15 p e r- cent of the election committee directors were ordinary villagers. 122 A study of the election results in 2000 in Fujian (another pione e r in vil- lage elections) shows similar patterns: 92 percent ofthe village election committees were headed by CCP village branch secretaries .123 In examining the election resul ts in forty counties in Hunan in 1999, one researc h er found that 55 percent of the members of vill age el ec - tion committees were party members and 92 percent of the heads of the election committees were village p ar ty chiefs.124 The ab ility of the party to control the election process is most likely the direct cause of the dominan ce of the elected villagers' committees by CCP memb ers (Table 2.3) . Another controversy s urroundin g village el ectio ns is whether they have any substantive effects on lo ca l gove rnance, especially on the redistribution of power. U nfor tunate ly, no system atic data are avai l- able to shed light on this question. Limited information appears to suggest that under the Organic Law, elected villagers' committees do not have the power lega lly granred to th em. 12'' Local au thoriti es, espe- cially uneleered township governmen ts and village party branch es, in- fringe on the power of vi ll agers' committees t hrou gh variou s means. For examp le , township governments take away the power of villagers' committees by assuming th e accounting responsibility of villages a nd by centra lizin g the budgeting and spending of all villages, thus making villagers' committees practically powerless in man ag ing fiscal affairs. 126 -- 89 of 306 -- 78 Chin a's Trapped Transition Table 2.3. Dominance of CCP Members in Villagers' Committees Elected VC Chairman Elected VC Members Year of is a CCP Member are CCP Members Province Elections (percent) (percent) Hunan 1999 76 N/A Fujian 2000 66 79 Guangdong 1999 N/A 77 Jilin 1999 70 50 Sources: Liu Xitan g, "Hun ansheng 1999 nia ndu 40 ge xian cu nweihui xuanju s huju fenx i baogao"; Wu Miao, "Cunweihui xu anju zhiliang de lianghua fenxi: Yi Fujiansheng 9 shi 2000 niandu cunweihui hua1~ie xua1~u tongji shuju wei jiju"; Cao Ying, ' Jilinsheng c unwei hui xuanju shuju fenxi baogao "; Liu Hong, "Tuijing cunmin zizhi yujiaqiangjiceng dan gzuzhi jianshe de guanxi" (The Rel ations hip be twee n Promoting Villagers' Self-government a nd Strengthening the Building ofthe P ar ty at the Grassroots Level), N eibu canyue (Internat Reference), 28 (2001) : 11-20. They can , albeit illegally, remove elected village officials. In Qiangjiang city in Hub e i, an investigation by Yao Lifa, a maverick depu ty to the municipal People's Congress , fo u nd that of the 329 vi ll agers' com- mittee chairmen elected in September 1999, 187 (57 perc e nt) h ad been ill ega lly dismissed by townsh ip governments in the subsequent years before they served out th e ir fu ll t erms . In add iti on, 432 vi ce chairmen and villagers' committee members had been ille ga lly re- moved from office in th e same period. All the r ep l ace m e nt s were ill egally appointed by the party and l oca l governme nts. Such ill egal removal of elected offleials was reported in 269 of the 329 vill ages within the city's jurisdi c tion , suggesting th at the practi ce was wide- spread .1 27 Similar in c id e nts were reported in Shandong. In March 2001, fifty- seven el ected villagers' committee offleials in four townships in Shan- dong collectively resigned bec a use the vill age party committees and township governments did not transfer any power to th e elected offi- cials. A yea r after they were elected, the offleia ls were not ab le to con - tro l the vill age budget or the official seals. T h ey were al so subject to arbitrary dismissals by the party a nd township officials. 128 El ected villagers' comm i ttees often find their power cu rtail ed by -- 90 of 306 -- Democratizing Ch in a? 79 the presence of the CCP branches in the same villages. The tense re la- tionship between the villagers' committees and the CCP branches has been widely reported in the Chinese press and stud ied by scholars. In a study of five hundred villages in Hunan, two researchers affi liated with the provincial CCP party school reported that in 40 percent of the villages surveyed, the elected villagers' committees were totally powerless, and the village party committees held all the power. The re- lationship between the party co mmittee and village rs' committee was cons ider ed cooperative in only 40 percent of the villages. 129 Anothe r survey in 1999 of 2,600 rural residents in four counties (two in Anhu i and two in Heilongjiang) indicated that local government offleials and party organizations were perceived as more powerful than the newly elected villagers' committees.no Despite the mixed impact of village elections on rural democrati- zation, the advent of grassroots democracy in the countryside h as en- couraged small-scale experiments in demo c ratization in urban areas. In 1999, the Ministry of Civil Affairs selected twenty-six cities for experi- ments in electing urban residents' committees , which are, like villagers' committee s, civic groups responsible for providing local services. Ex- perimental elections of urban residents ' committees be gan in June 1996 in Shenyang and were all owed in Beijing, Shanghai , NaiBing, Ha ngzhou, Wuhan, H efe i, Xi'an, a nd several other large citi es in 2000. 131 The CCP, however, appeared to h ave drawn the line on how far it would allow such grassroots democratic experiments to spread. As a r esu lt, it blocked elections above the village level. Except for th e atten - tion devoted to a few occas ion al minor experiments in township elec- tions, the government-controlled media did not have much dis cu ssi on or d e ba te on the desirability or feasibility of township, l et a lon e County- level, elect ions. It se e ms that nearly all the experiments in introducing township elections in various forms were initiatives of local officials. The most well-known experiment, a direct competitive election for the township mayor of Buyun in Sichuan, was pus hed by a local reformist county official injanuar y 1999. Although the el ec tion , considered fair by observers, installed th e official candidate, it caused a politica l furor araund the country because no Chinese law permitted di rec t el ections of township mayors. The election was subsequently declared illegal, even though th e elected mayorwas allowed to re main in office. Notably, -- 91 of 306 -- 80 China's Trapped Transition while the government used legal technicalities to prohibit the holding of township elections, it has made no attempt to pass a new law to ad- dress the legal hurdles to such elections. Consequently, a few politically sanctioned township ele ctions were confined to a mixture of open primaries and indirect elections so as to comply with the law. Reform-minded local offleials used such insti- tutional innovations to skirt the party's ban on direct elections of town- ship mayors. Technically, these innovations allow local residents to recommend nomin ees for township mayors through a relatively com- petitive vote. Th en the local party organization and People's Congress select the nominee who wins the l argest number of "recommendation votes."m Dapeng township, in Shenzhen, conducted such an experiment in 1999. First, township voters recommended candidates who met the criteria set by the local party organization. Then , the five top vote-getters gave campaign speeches at a voters' meeting. Mterward, voters elected one of the five as the formal candidate for the township mayor. These two ballots functioned as popular votes, but had no legal standing or bind- ing power. Finally, the town ship party organization reviewed the final candidate and nominared him to the township People's Congress for confirmatio n . m A similar method was used by Buyun township in 2002. 134 In 2004, seven towns hips in Shiping County, Yunnan province, also used a sim il ar method to elect their mayors. It is worth noting that none of these initiatives received the explicit endorsement of the CCP's central leadership. Local reformers took on considerable per- sonal political risks for pushing electoral reform s. For example, a town- ship CCP secretary in a township in Chongqing was suspended for trying to hold a competitive mayoral election . n ; There is doubt whether such hybrid procedures really advance democrac y in the rural areas. Melanie Manion argues that various elec- toral experiments at the town s hip Ievel were designed to align voter preferences with those of the l oca l party committees. On the one hand, since ordinary people's choices were limited by the party's own prefer- ences for p a rticular cand id ates, their ab ility to influence th e electoral outcome was limi ted . On the other hand , the adoption of such a device would en h ance the party's own l eg itimacy at the lo cal Ievel because its own candidates would appear to have received popular endorse - m e nt.l 36 -- 92 of 306 -- Democratizing China? 81 Illiberal Adaptation The survival of the CCP regime does not solely depend on its ability to deliver satisfactory economic growth. An authoritarian regime govern- ing a fast-changing society faces two choices. One is to adopt a strategy of liberal adaptation. This addresses the rising tensions between an authori- tarian regime and an increasingly pluralist society through political re- forms that may strengthen the rule of law; establish institutional checks and balances; gradually expand political participation; and permit more space for civil society. Theoretically, an authoritarian regime that has adopted a strategy of liberal adaptation should have less of a need for re- pression and co-optation because the ruling elites can rely on newly ac- quired democratic legitimacy to secure their social support. But for a regime that has opted for only the most restrictive forms of politicallib- eralization, illiberal adaptation is a far more attractive strategy for political survival. Instead offavoring far-reaching institutional reforms to restruc- ture regime-society relations, authoritarian regimes that choose illiberal adaptation maximize their control ofthe state's repressive apparatus and growing economic resource s to develop, refine, and implement more subtle and e ffec tive means of maintaining political control. Applied skill- fully, this strategy can help an authoritarian regime to divide, weaken , and contain the social forces that may threate n its political dominance. In the Chinese context, the CCP's strategy of illiberal adaptation consists of strictly limited political reform, selective repression, improved technical capacities for dealing with social unrest and ernerging tech- nological challenges, and co-optation of new soc ial elites. Selective Repr essio n A key feature of a developmental autocracy, as compared with a totali- tarian reg ime , is the selective use of repression. vVhereas totalitari an regimes are defined by the indiscriminate use of mass t error in their exercise ofpower, deve lopm e ntal autocracies tend tobe more se l ec tive and discriminating in the repression of their political opponents . ln- deed, the me as urabl e decline in politi cal repressio n usu ally marks th e transition from a totalitarian regime to an authoritarian one in general, and to a developmental autocracy in p art icul arY 7 In theory, th e re- placement of mass t error by se lective repression is not h ard to exp lain . -- 93 of 306 -- 82 C hin a's Trapped Transition Mass terror is politically and economically costly. Even the mo s tbrutal totalitarian regimes-such as the former Soviet Un ion under Stalin and China during Mao's Cultural Revolution- ca nnot sustain the rei gn of mass terror ind efinite ly. For developmental autocracies, a strategy of selective repression offers more advantages. It enables the rulers to focu s only on those political opponents wh o are determined to challenge their political monopoly, while allowing those tolerant of the regime 's rule a sufficient degr ee of personal and prop e rty security. Domesticall y, suc h a strategy alie na te s fewer peop le a nd may even help iso l ate a nd weaken th e r egim e's op- ponents. Selective repression is also less fr ig hten ing to foreign and do- mestic inves tors than mass terror. Although human rights concerns do not always dictate investment decisions, there appears to be a Iimit to private in vesto rs' tolerance of brutality. Hi storically, few totalitarian regimes h ave been successful in attracting foreign or domesti c private investment because suc h regimes cannot provide any cre dibl e co mmit- m e nt to the personaland prop erty security of th e in vestors. In the case of China, selective repression replaced mass terror as soon as Den g 's economic reforms began. The post-Mao regime imme- di ate ly e nd ed dass strugg le, greatly curtai led th e scope of re pr essio n, and politically rehabilitated millians who h ad suffe red bru ta lly und er M ao's ru le . Th e Ievel of repression fell dramatica lly, as m eas ured by the number of political prison ers. 138 Th e post-Mao re g im e' s us e of se lective repression grew increasin gly s ophisticated as weil, especially in the 1990s. Instea d of simply brutalizing its oppo n e n ts through in car cera- tion or worse, th e state security apparatus h as skill fu lly employed a wide range oftactics to intimidate, con t ro l, an d neutralize ke y political activists. Many l ead in g dissidents we re affered a sta rk choice: eit h er ex- ile or l ong prison terms . Many, such as vVe i J ingsheng, Wang Jun tao, and Wang Dan , were forc ed into ex ilein the Un ited States. This tactic h as successfully dec a pitated China's fledg lin g di ss ident movement an d even allowe d China 's gove rnm ent to deflect in tern a tional criticisms of its human rights practices by timing the release a nd ex ile of k ey di ss i- dents to im portant eve nt s, suc h as th e a nnual U .N . Hum an Rig ht s Garnmissionmeeting in Geneva a nd visits to China by West ern Ieaders . To preven t th e e mergenc e of organ i zed oppositi on, th e securi ty appa- ratus has also establish ed an extens ive n etwork of informants, esp ec ially on university campuses and r esearch institutes. These informers rec eive -- 94 of 306 -- De mo cra tizin g C hin a? 83 monthly stipends in exchange for reporting campus political activities to the secret police. In its annual report for 2001, the provincial public se- curity department of Jiangxi disclosed that it recruited sixty-five infor- mants (qingbao x in xi lianluoyuan) in fifty SOEs and no nprofit in stitutions, as weil as in fifteen institutions of high er education and "c ultural units." These informants collected 256 pieces of information and enabled the authoritie s effectively to deal with a dozen "unexpected incidents." 139 Containing Social Unr est The skillful application of selective re p ress ion can also be s een in the regime's handling of the growing social unre st in the count rys ide and urban areas. In the 1990s, as the number of collective prot ests in- creased rapidly as the result of layoffs at bankrupt SOEs and rural tax revolts, the public security ap p aratu s developed a nd employed effec- tive methods to conta in th ese protes t s, preve nting them from precipi- tating a political chain reaction and causing grea te r in stability. The most remarkable fact about the tens of thou s and s of large-sca le collec- tive protests that occurred in the 1990s was that none of them , includ- ing those th at attracted te ns oft hous a nds ofparticipants, mushr oomed i nto a susta in ed antiregime soc ial movement or Iasted for more tha n a few days. The security appara tus's sophisticate d m et h ods , wh ich ranged from c ro wd control to re movin g l ea d ers hip , were in l arge part respon- sible for containing the effects of growing soc ial unrest. 1 40 An official dir ec tive issu ed by the Minis try of Public Security (MPS) ex plicitly de- manded th at the sec uri ty forces sho uld em ph asize timely intervention th rough inte lli gence gathering, crowd control, an d containment as the main tac tics in de al ing with co llective protests. 14 1 An article published in the offi cial MPS magazine in 2 00 2 details the fo llowing methods used in containing social protest: 1. A clear division of Iabor: po li ce units are assi gned distinct tasks and func ti ons, suc h as intellig e nce co ll ection, traffic co ntrol , si te security, propaga nd a and vid eotap in g, arrest, interrogation, and backup. 2. Inte lli ge n ce co ll ectio n and a nalys is: th e police r ec ruit activists, estab lish an exte nsive network of in formers, and gath er inte lli gence. -- 95 of 306 -- 84 China's Trapped Transition 3. Preventive action: the police are placed on high alert during high-risk periods. Rural collective prote st takes place mo stly in the fall, when peasants are forced to pay taxes, or in the sum- mer rainy season, when peasants are recruited to fight floods. In the cities, social protest occurs during SOE restructuring, bankruptcy, or forcible removal of urban residents from their housing while political protest becomes morefrequent on "sensitive dates." 4. Id e ntification ofprotest Iea d ers : security offleials inves tigate the protest activities on site, through photos, videotaping, or voice recording, to identifY protest Ieaders an d key activists. 5. Ending strikes: the police should arrest the Ieaders and activists and remove them from the protest site. The timing of the arrest is critical-arrests must take place only after most protest p artic ipants are physically tired and when there are fewer onlookers. 6. Quick follow-up action: the polic e must make d ec is ion s on detainees within twenty-four hours of the arrests. Onl y a few Ieaders and activists will be punished, while ordinary protest parti c ipants should b e e ducated and rel ease d. 142 In a ddition to its prove n record in co ntaining social unr est , the Chinese government has managed to suppress other sources of chal- lenge to its rule. The best example was the crackdown on the quasi- religious group Falun Gong, fro m 1999 to 2000. Although shocked by Fa lun Gong 's surprise April 1999 siege of Zhongnanhai , the CCP's leadership compound in Beijing, the party resorted, for the first time sin ce 198 9 , to a m assive campaign of repression against this g roup, which was argu ab ly the most organized soc ial movement that had emerged during the reform era. Within two years, the government had effectively destroyed Falun Gong. 1 43 Respanding to the Information Revolution By far th e CCP's most successful effor t of adaptation was th e Contain- m e nt ofthe thr e at posed by the advent ofthe inform a tion revolution in the 1990s. With the emergenc e of th e Internet a nd its rapid spread in- sid e Ch in a, m a ny observers ass um ed th a t close d a uthorit a rian regimes -- 96 of 306 -- De mo cratizin g Chin a? 85 such as China would find it no Ionger possible to control the flow of in- formation.144 One study demonstrated that the arrival of the Internet had a positive impact on the emergence of civil society in C hin a. 145 By mobili z ing its security resources, imp os in g stringent re gu lation s ,j ailing dissidents, and harn ess ing n ew technologies, how ever, the Chinese gov- ernment succeeded in minimizing the political impact of the Internet while using the Internetto improve certain aspects of routine adminis- trative functions, such as e-government. 146 The CC P has received hi gh m a rks in a ddr essi ng the threat of the Interne t. "Through measures ranging from blunt punitive actio n s to the subtle m a nipulation of the priva te sector, the Chinese st ate has been largel y successful to date in guiding the broad political impact of Internet use ... the state is effectively controlling the averarehing political impact of the Intern e t." 147 Anoth e r study of th e C hin ese gov- ernment's campaign aga in st the u se of the Internet by Ch inese dissi- d en t groups reach ed a simi lar conclusion . The governmen t co mbin ed low-tech solutions-the us e ofinformers , human surve illan ce, a nd r eg- ulations-with high-tech ones-the use of so ftware to blockWeb sites and e-mail messages, the hackin g of foreign s ite s hosting di ss ident pub- li ca tion s, a nd web p at rol. As a r esu lt, "no cred ible ch a lle n ges to th e regime exi st d es pite th e in tro duction of mas sive amounts of mod e rn te l eco mmunic ati ons infr as tructure," even though th e regime's ability to subdue th e in for mation revolution re main s doubtf ul in the lon g term. 148 Re ports in th e Chinese m e di a, as weil as MPS pu blication s, also pr o- vid e useful reve lati ons of the extens ive efforts und e rt ake n by th e Chi- nese government to assert its control over the Inte rnet- a nd over the activities of mor e than 80 million Chinese Inte rn et us ers, as of 2003. 149 Th e Chinese government r ec ognized ea rl y on the serious political threat posed by the introduction of the Inte rnet. In an internal docu- ment iss ued in October 2 000 , the MPS bluntl y warned : Because the Intern et can hold )arge amounts of information, tran smit it quickly, a nd exte nd its cove rage b road l y, it has the ch aracteristics of a high de gr ee of op ennes s an d in terconn ecte dn ess. The West is usin g the Internetas a m eans ofpolitical expans ion , id eo logical pe netr ation, and cu l tura l aggression . .. Our ene mies inside and outside our borders have set up forums, Web sites, an d hom e pages on the Internet a nd -- 97 of 306 -- 86 China's Trapped Transition spread a !arge quantity ofreactionary articles. They conduct reactionary propaganda, instigation, and penetration activities ... The y use the Internet to establish illegal gro ups and partie s, recruit members , main- tain secret contacts, and instigate incidents ... Our struggle against hostile forces and elements on the Internet will be Iong term and complicated. Strengthening the secure management of information network s . .. and maintaining the political stability of our society have become im- portant and urgent tasks for th e public security apparatus. 150 The MPS established its Bureau for Supervising the Security ofPub- lic Information N etworks (BSSPIN) (gonggongxinxi wangluo anquanjian- cha ju) in 2000. The missions of this new division w ere to "monitor and control the net-based activities of hostile organizations and individuals in and outside Chinese borders ; timely report various information and trends regarding social and political stability; stre ngthen Int ernet pa- trol; [ and ] closely watch developments on the Internet." The directive instructed: [A]fter reactionary Web sites and harmful content are discove red , Internet m onitors must work with other relevant authorities and take effective measures to block, filter, and clean up [such conte n ts] ... In order to strengthen our c ontrol of the n et, [we] must establish se- cret forces a nd Int ernet Iiaison officers on some important Web sites and the networks of important institutions. They can supply the public security argans intelligen ce and technical support in the struggle on the Internet ... Any public or media reporting of the m eans of d etect- ing [subversive activities] and controlling the Internet is to be strictly prohibited. 151 According to the directive, the Intern et police must "step up the screening of domestic Web sites and home pages , conduct secure man- agement of personal home pages, electronic bulletin boards , and free e -mail accounts, and co ll ect information on important Web sites in and outside China." 152 The total size of the BSSPIN, or the "Internet Divi- sion," is not known, but one foreign pr es s story quoted a figure of 30,000. 153 The division's own reports indicate that it has t aken aggres - sive actions since it was estab li shed . Fromjuly to September 2000, the Internet Division of the Beijing Public Security Bureau conducted a sweep of the city's Internet cafes and closed down forty illeg al on es. In -- 98 of 306 -- Democratizing Ch in a? 87 2002, the division checked 740,000 individual home pages , shut down or censored a hundred of them, and blocked the Web sites run by Falun Gong. 154 The same office claimed that it conducted a census of Internet providers and users in 2002 and co lle cted extensive data on them. More important , the office disclosed that it organized seventeen " train- ing classes," which graduated 3,100 "Internet security personnel " (xinxi wangluo anquanyuan). Among the trainees, 189 came from Internet service providers, 410 we re from Internet content providers, and 2,129 were sent by Intern et cafe operators. The annual report of the Beijing Public Security Bureau also claimed that its Internet Division con- ducted a surprise spot-check of the nine largest newsWeb sites in Bei- jing on the sensitive date ofJune 4, 2002 (the Tiananmen anniversary). It found "harmfu llinks" and " loopholes" on s in a.com, Beijing-online, and netease.com and penalized the sites. Most intriguingl y, the sa me annual report said th at the Internet Division participated in a nation- wide exercise "to deal with emergencies involving the Inte rnet. " This exercise was organized by the MPS, in collaboration with the Propa- ganda Department, telecom service providers , and regulators of major Web sites. The objective of this exerc ise was to see how var iou s a uthor- ities could purge "harmful information" from majorWeb sites. Accord - ing to the report, during th e exerc is e, th e police were able to locate the majority of " harmful information" within one hour and deal with it within two hours. In less than nineteen hours, the Beijing police successfully comp l eted th e exerc is e, twenty-nine hours ah ead of the forty-eight-hour deadline. This disclosure indicates that the Chinese government has apparently developed an emergency pl an and o rga ni- zationa l capabilities to make sure th at th e Internet will not be used against the regime at tim es of national cr isis. 155 Besides using such labor-inte nsive methods , Chinese authorities adopted regulatory and technological tools as well. In 2000, the MPS ordered that all Chinese computing n e twork s co nn ec ted with the outside world must notify the ministry and file a record. 1!l6 Anoth er di- rective issued by th e MPS in 2000 showed that th e ministry was estab- lishing a nationwide Internet surveill ance system. It m a nd a ted that a network of contro l nod es at th e provinciallevels be built quickly so th at an MPS-centere d system ofinformation surveillan ce and control could soon cover all provinces a nd muni cip alities. 157 In 2002, a government -- 99 of 306 -- 88 China's Trapped Transition regulation required that all users of Internet cafes must register their government-issued IDs with cafe operators. In its attempt to control the Internet, the MPS enlisted Chinese Internet firms to enforce its rules. Ac cording to a manag er for sina .co m, one of the most popular Web sites in China, the firm would " report illegal and unhealthy information to relevant authorities." In 2002, more than 130 Web sites signed a code of conduct, pledging to work against the dissemination of " information harmful to state security and social stability." To gain a technological upper hand, the MPS al so is- sued detailed technical Standards for Web software. Internetfilter soft- ware developed in China must comply with these standards . In 2003 in Liaoning province, the local Internet police developed and in s talled surveillance software on the computers in all six hundred Internet cafes injingzh ou city. To access the Internet from the computers equipped with this specia l surveillance software , users must show their official ID card to purchase a prepaid card. The software has a filter function that blocks access to banned sites and automatically al erts police when the user visits banned sites. In the city's Internet police station, one com- puter monitors more than 20,000 terminals in the city's Internet cafes. Liaoning's provincial Internetpolice chiefrevealed that all 7,000 Inter- net cafes in the province had this survei llan ce software install ed . Since more than 40 percent of Int ernetusers in the province accessed the Web from Internet cafes, this technology allows the authorities to mon- itor many users. According to press reports , thi s system was to be in- stalled in the Internet cafes throughout China in 2004. 158 Co-optation The co -optation of social elites by the CCP, a lo gi cal comp lement to selective repression, has proved to be highl y successful in shoring up the CCP's base of support, particularly after the suppress ion of the pro- democracy movement in 1989 .1"9 Same observers even characterized th e CCP's strategy of co-optation as one of building a state-corporatist regime. 160 The impl ementatio n of this strategy was fac ilitated by the party's continua l contro l of critica l economic resources , as a result of partial eco nomic reforms, and instruments of patronage, such as ap - pointments, promotions, and profess ion al and financial rewards , and by the increas in g quantities of such resources available to the par ty as a result of econom ic growth. -- 100 of 306 -- De mo cra tizin g C hin a? 89 The Co-optation of the Intelligentsia The CCP had a contentiou s relationship with the intelligents ia in the 1980s. Dominated by the liberal s, th e Chinese intelli ge ntsia in the 1980s constantly c hall e ng ed the CCP's a uthority and demanded political re- forms. The CCP responded with periodic crackdowns, such as the antispiritual pollution campaign in 1983-1984 and the campaign against bourgeois liberalization following the student demon stratio ns at the e nd of 1986 a nd b eg inning of 1987. In th e afte rm ath of the Tiananme n crackdown, th e regime grad ually a dju st ed its policy toward the intelligentsia. Th is Strategie modification became more evident in the 1990s as the CCP accelerated economic liberalization. Fortuitously, the CCP's Strategie adjustment occurred at a time when the majori ty of Chin ese inte llectuals were moderating their demands. The trag ic set- back of Ti ana n men and the turmoil fo llowin g t he co lla pse of commu- nism in th e form er Sovie t blo c undermin e d the rationale for the continuation of a confrontational approach. Wi th th e pu rge of libe ral Ieaders such as Zhao Ziyang and Hu Qili at the top of the CCP hierar- chy, the incarceration of many s tudent Ieaders and activists, and the ex- ile of the Ieaders of th e Tiananmen move m e n t, the intelli ge n tsia h ad l ost their strong est advocates , allies, and Ieaders . At th e same time , th e dramatic eco nomi c libe ralization th e reg im e took after De ng 's s outh- ern t our in 1992 s eemed to kindi e th e hope that ec onomic reform would create more favorable conditions for political reform. Ta kin g advantage of th ese adverse circumstances for the Chine se in- telligentsia, the CCP la un che d a systematic campai gn of co-o ptation to recrui t loyalists from among the intellectuals a nd professiona ls. This campai gn mixed the t ra ditional (a nd most likely ine ffective) tools, such as id eo logical indo c trin ation, and th e more sophisticated ones , such as sa lary increases, r ecru itment, culti vation , promotion , and spe- cial rewards. Published official documents indi cate th a t the party be- gan a co n certed campaign to expand recru i tme nt an d give th e party mor e patronage power on co ll ege campuses in the ea rly 19 90s. A j oi nt directive issue d in August 19 93 by th e CCP's Ce n tral Organization De- p art ment (COD), th e Cen tral Propaga nda D epartment, an d the State Education Co mmission delin eated two specific tasks for p a rty organiz a- tions in universities. First, th ey were to r ec ruit a group of outstanding cadres u nder the age of 45 into co ll ege adm in istrations. Th e direc tive mandated tha t e ac h -- 101 of 306 -- 90 China's Trapped Transition college and university must have at least one to two such cadres. The implicit goal of this recruitment and promotion drive was to create av- enues of political advancement for the intellectuals on college cam- puses, which were a hotb ed of libe ral ferment in the 1980s. To give the party more patronage power, the directive instructed that the party committees in universities would have decision-making power on the university's annual work plan, appointment and dismissal of cadres in departments , the promotion of academics, bud ge ting, and major capi- tal projects. To make adm ini st rative and political appo intm ents more attractive, the directive granted new perks to these appointees. For ex- ample, party and administrative cadres on college campuses would get opportunities to study abroad, teach, and conduct research. Second, the directive urged that special efforts be made to recruit outstanding undergraduate s and graduate students for filling adminis- trative and political positions at the universities where they study after graduation. The students were tobe mentared to become full-time party and administrative officials and awarded full academic ranks. Their housing allocation, pay, subsidies, and other benefits were tobe kept in line with their academic peers. This call was repeated in 1995.161 Offi- cial reports from the Beijing Higher Education Bureau provided evi- dence that this campa i gn was fully implemented. For examp le, in 1994, Beijing's co ll eges and universities recruited six hundred "red and ex- pert " young "reserve cadres" who would be groomed for positions of responsibility. This was accompanied by a simultaneaus drive to recruit n ew CCP m embers from college students. In 1994, the CCP admitted 6,665 new members on Beijing's co ll ege campuses , abo ut 87 percent of them college students.162 The drive to expand the CCP's support among the intelligentsia was not restricted to college campuses . The CCP's innovative scheme of identifYing " reserve cadres " ( haubei ganbu) boosted the hopes of career advancemen t for tens of thou sands of aspiring young professionals and well-educated individuals. It tied their prospects with their support for the party-even though what the party did was merely to designate th em as the most promising candid ates for future promotions. The campaign to recrui t more reserve cadres intensified in the mid-1990s. In 1995, th e CCP Central Committee issued a special circular, "Zhonggong zhongyang guanyu zhuajin peiyang xuanba youxiu nianqing ganbu de tongzhi" (CCP Central Committee Announeerneut on IntensifYing the -- 102 of 306 -- De mo cra tizin g C hin a? 91 Training and Selection of Outstanding Young Cadres), to expand the program. As a result, a large number of individuals were de s ignated as reserve cadres. In Sichuan, fifty individuals were picked as re serve cad r es for provin cia l-l evel positions a nd a n additional five hundred were selected for the various provincial departm e nts. 163 In Hubei, the number of reserve cadres was set at twice the number of available offi- cial positions. For those selected as reser ve cadres for provincial-level positions , the age limitwas fifty. Those groomed for prefect-le vel posi- tions h ad to b e younger than forty-five . And th e age-limit for Co unty- level positions was forty. Without actually expandin g the size of the bu reaucracy, the CCP managed to doubl e the coverage of its patronage with this scheme. 164 Although it is impossible to assess the durability of the party 's success in e nticing the intelligen si a's younge r generation into its r an k s, the d rive appare ntly delivered som e short- te rm su ccess. Accord in g to a magazine survey of 1 ,532 co ll ege students in Beijing in May 2003, 62 p erce nt sa id that th ey wish ed to join th e CCP. But the sa m e su rvey also showed that about 60 percent said that the y would work for a pri- vate or foreign firm after g radu a tion, and only 20 percent wo uld wo rk for a gove rnm e nt age n cy or SOE. This mix ed evid en ce sugg ests t hat what motivates younger profess ion als and aspiring co ll ege graduates to join the party is not ideo log ica l devotion , but promises of good careers a nd materia l b en efits. 1 65 Jud ge d by offici al figures, n ever thel ess, it is hard to deny that the party's efforts to recruit highly educated mem- b ers a pp eare d to have had a sig nificant imp act on the composition of the party. By 1999, nearly 20 percent of the CCP m embers cl a imed to have receive d co lle ge or co ll ege -equivalent educa tio n, almost six times the natio n al average . 1 66 Anoth er successful in strum e nt of co-op tation was th e granting of professional honors, recognitions , a nd perks by the governm e nt to a select gro u p of senior scholars an d profession al s. Th e p arty contro lled the selec tion and d e t ermination of th e win n ers of th ese honor s and p erks. Th e criteria for the awa rde es were o ften exp licitly political. A typi cal exa mpl e was a program to pi ck outstan din g so cial scie nti sts. In Apri l 1997, th e S tate Ed uc ation Commission issu ed a c ircular on "tra inin g o utst a nding social sci ence ta lents for the n ew ce ntu ry." U n- der this pro g ram, the governm e nt wou ld awar d su ch titles to th irty aca- dem ics eac h year for five years. Among th e listed qu alifi cat i ons were -- 103 of 306 -- 92 C hin a's Trapped Transition "high political caliber, support for the CCP, love of the socialist mother- land, outstanding academic achievements, and under 45." Most awardees were scholars in higher education institution s. The heads of the govern- me nt's bureau of higher education would be the judges for th e s election process. The winners would receive 100,000 yuan each in research sup- port.167 There were other similar administratively granted awards and perks for the intelligentsia. For example, as of 2004, 5,206 individuals were recognized as "middle-aged and young experts who have mad e o ut- standing cont ributi ons" (an hon or that came with unspecified m ate rial benefits ). Nationwide, 145,000 e xperts , or about 8 pe r cent ofthe se nior professionals, were receiving special government s tipends in 2004.168 Besides recruiting and co-opting individual social elites, the party also tried to co-opt new social organizations. In 1998, the COD a nd the Ministry of Civil Affairs issu ed a joint document , "Guanyu za i sh e hui tuanti zhong jianli dang zuzhi yougu a n wenti de tongzhi" (A Circ ul ar on the Issue ofEstablishing Par ty Organ iza tions In side Civic Groups). To impl emen t this program, Shanghai 's party organization e stablish ed party cells in NGOs and increased the party 's penetration and influ- ence in NGOs. The party also set up Iiaison offices in nei g hborhood comm ittees. T h ese offices r ece ived mon ey from l ocal governmen ts a nd became the framework upon whi ch civic gro up s could be buil t. The p arty p l ace d 11,000 members in th e three nominally priva te bus in ess groups, Shangh ai Geti L aodongz he Xiehui (Individual Entre preneurs Association) a nd Shanghai Siying Qiye Xiehui (Assoc iation of Priva te Firms) .169 The Co-optation of Private En tre preneurs The emergence of priva te entrepreneurs was in itially viewed by the CCP with ambivalence, if not suspicion. In 1995, for exa mple , a deputy minister of the COD publicl y affirmed the p arty's official poli cy of not admitting private en t re pr e n eu rs into th e party, even thou gh so m e of them h ad b ee n recru ited by local officials. 170 U ntil Ji a ng Zemin pro- mul ga ted his th eory of the "Three R eprese nts " a nd mad e th e id eo lo g- ical case for recruiting priva te en t repreneurs into the p arty in 2001 , the political st atus of private e nt repre n eu rs remained in limb o.m But it would be a mistake to conclude, from an apparently inconsiste nt offi- cial policy, th at the party h ad don e nothing to turn th e ernerging pri- vate en t repren eurs into their supporters. Th e party tried to co ntrol -- 104 of 306 -- De mo cra tizin g C hin a? 93 this group of new social elites both through organizational penetration and individual recruitment. The party's efforts to establish CCP cells in private firms were largely unsuccessful. 172 But the p ar ty's o th er efforts yie ld ed, by c omparison, mo re results. For exampl e, Bru ce Di c kson' s research on the p arty's attempts to reach out to business groups formed by private entrepre- neurs showed that the CCP h ad established extensive links with busi- ness group s, such as Gongs hanglian (The Indu strial and Commerc ial Federation) to which n ea rly 80 p erce nt of th e owners of pri vate firms belonged in 2002. 173 A lthou gh the official ban again st adm ittin g pri- vate entrepreneurs into the partywas not formally lift ed until 2001 , the party not only made no attempt to expel tho se CCP member s who had become private entrepreneurs, but also appeared to hav e car ried out a systematic plan to recruit private entrepreneurs into th e P eop le 's Congress a nd the Chinese People's Political Co n sulta tive Conference (CPPCC). From 1997 to 2002, more th an 9,000 pri va te businessmen were se- lected to be delegates to lo ca l people's congre ss es at and above the county Ieve l. More than 32 ,000 were appointed to CPPCCs above the cou nty leve l.174 A survey of 3,635 private en treprene urs in 2002 s howed that 35 p erce n t were memb ers of the CPPCC at var i ous Ievels. Surp ris- ingly, 30 percent were party membe rs, abo u t six times the p erce ntage in th e ge n eral population. This represented mo re than a doubling of the percentage of private entrepreneurs who were CCP members in 1993. Th e rapid increase in the numb e r of privat e e ntre preneu rs who were also CCP members , h owever, was not the r esu lt of a m ass ive recrui t ment campaign . In d ee d , th e survey revea led that on ly a tin y minority- 5.6 percent- of private entre pr eneurs j oine d the CCP after t he y h ad set up th e ir businesse s .Jiang's farnau s speech onJuly 1, 2001, in which he implic- itly called for the recruitment of private entrepreneurs, a ppe ared to have had no immed i ate impact on admitting private businessm en into the party. Only 0.5 perc e nt of the private e ntr e preneurs in the sam pl e had joined th e CCP after th e sp eec h . T hi s s howed th a t ne a rly all the pr ivate en trep rene u rs were already CCP member s before th ey beca m e owners ofp rivate firms. The privatization ofSOEs appea red tob e m ore responsibl e for the growt h of pr iv ate entrepreneurs insid e th e CCP than th e party's organizational recruitment. Ind ee d , of the 3,635 firms surveyed, 837 were former SOEs a nd co ll ec tively own ed enterpr ises. -- 105 of 306 -- 94 China's Trapped Transition Of these privatized firms, about half ( 422) were now owned by CCP members who were either party offleials or well-connected CCP mem- bers who were able to gain control of these firms during the priva tiza- tion process. The result of the survey implies that roughl y half the privatized firms may have ended up in the control of CCP members. m Given the CCP's dominant influence over the economy, it is rational for China's private entrepreneurs to maintain friendly ties with the regime. Many private entrepreneurs continue to depend on th e gov- e rnm ent for favors, and close ties with the government can open up access to new business opportunities and capital. For examp l e, the richest private entrepreneur in Xinjiang, Sun Guangxin, the president of Guanghui Enterprises, has received government support in market- ing natural gas and developing real estate. Hi s firm hired local party officials, one ofwhom happened tobe the head of a government office that issued permits to demolish old buildings. Guanghui was exempted from paying loc al taxes on the l and it used. 176 Another private entrepre- neur in Henan, Zhou Wenchang, who gained control of a former state- owned bus assembly plant through insider privatization, had excellent connections with the local government. He used local police and courts to j ail a business rival a nd kidn ap debtors to e nforc e paymentY 7 To be sure, Chinese private entrepreneurs have not embraced the p arty wholeheartedly. Even though their policy preferences and politi- cal beliefs appear to be conservative and resemble those of the p arty elites, as Dickson's research shows, it may be premature to declare the party's strategy of co-opting China's new capitalists an unqualifi ed suc - cess.178 In a lllik e lihood , C hin a's new cap italists' support for the CCP is contingent upo n the party's abi lity to provide favors and protect their privileges and property. The limitations of private entrepreneurs ' sup - port for th e party are apparent in how they respond to the CCP 's ef- forts of individual co-optation and organizational penetration. As a group, Chinese private entrepreneurs were more willing tobe co-opted as individuals, as shown by their in creasing membership in the people 's congresses and the CPPCC. They apparently do not object to tight links between the party and the business groups they belang to. But they are more ambivalent on taking the initiative to join the party. Although party m e mb e rs who have become private entrepreneurs ch oose to maintain their party membership, on ly a small number of non-CCP private entrepreneurs appeared to have joined the party on their own . -- 106 of 306 -- Democratizing Ch in a? 95 Politicall y, such ambivalence makes sense. For those who were CCP members before they were private entrepreneurs, quitting the CCP would be unnecessarily risky because that step would signal disloyalty and cou ld have negative political repercussions. Private entrepreneurs who are not CCP members, however, may see no additional advantages in entering the party because membership would come with burdensome chores and responsibilities. But private entrepreneurs, CCP members or not, seem to have drawn a firm line on the issue of allowing the party to estab li sh its cells inside their private firms. T h e party's in abi lity to ex- tend its organizational presence int o private firms shows that private entrepreneurs remain wary about having such a presence because it may not only interfere with their business operations, but also threaten the security of their property rights. The history of post-Mao political reform can be better explained by a choice-based, and not structure-based, perspective on democratization. Documentary evid ence suggests that senior Chinese Ieaders such as Deng were irreconcilably opposed to the idea of withdrawing from power and allowing genuine political Contestation and participation . Their conception of political reformwas narrowly and instrumentally defined-the only political reform that will be permitted should serve th e needs of helping the CCP remain in power and further the party's goal of economic modernization. In contrast, political reform as un- derstood by the liberals within the CCP comes much closer to a plan of democratization and institu ti onal pluralism. However, the lib erals' fall from power after the tragedy inJune 1989 meant that such a plan would not be implemented. Consequently, the major institutional reforms of the political system that began in the 1980s stagnated in the 1990s. De- spite their promise and potential, the strengthening of the legislative branch, legal reform, and grassroots self-government have produced only negligible effects on democratizing the Chinese political system. Most important, this chapter demonstrates that an authoritarian ruling party like the CCP, if dete rmined to defend its political monopo ly, does have the means a nd adaptive skills to confront its new cha llenges and contain th e threats posed by rapid economic modernization and social change. Under these circumstances, democratic changes can occur on ly at a much slower pace than economic development and depend more on the initiatives of socie tal forces th a n on elite initiatives. -- 107 of 306 -- THREE Rent Protection and Dissipation: The Dark Side of Gradualism AS DISCUSSED in Chapter 1, gra du alist economic reform is dict ate d by its politicallogic, the essence ofwhich is th e political survival ofth e rul- ing elites. Constrain ed by this logic, econo mic reform cannot infring e upon the ruling elites' ability to protect and allocate rents in critical economic sec tors. This mean s that reform measures taken to improve th e efficie n cy of th ese sectors are bo u nd to b e partial, co mpr o mi se d, and ultimately ineffective. Another insi gh t from o ur theoretical di scus- sion on the pitfalls of grad uali sm is that th e rents protected t hrou gh p ar tial r eforms are li ab le to b e a ppropri ate d by the age n ts of the regime who, acting rationally, have the incentive to maximize their own gains at the expense of the economic health of th e r egime as a whole. This destructive dynamic of rent diss ipation implies that grad u ali sm is ulti- mate ly unsustainable. In th is cha pter, I first app ly th ese insights to case sturlies of three key sectors-the grain procurement system, telecom services, and banking- where the Chinese govemment has implemented gra dualist reforms. These case sturlies are designed to test the hypothesis advanced in Chapter 1 abou t the underlyin g connectio n b etwee n regime survival, gra du al refo rm , accumu lated hidd en costs, and pers is tent in efficien cy, a nd demo n s tr ate in greater detail why grad u ali st eco nomi c reform h as not succeede d in subjecting some of C hi na's most impo r ta nt sectors to m arke t competition. Th e lesso n s drawn from th esestu rlies are m eant to underscore the unsustainabili ty of gr adua list r eform due to rent protec- tion and re nt dissipation. In a ddition, to reach a more comprehensive 96 -- 108 of 306 -- Re nt Proreetion a nd Dissip atio n 97 assessment of the overall ac hievements of China's gradualist reform strategy, I will review variou s measures of the de g ree of marketiz a tion and compare China's prog ress against that of its peers among bo th tr ans itio n eco n o mi es and developing countr ies. The Grain Procurement System The decollectivization of agriculture betwee n 1979 and 1982 was the m ost radical eco n om ic reform impl e m e nted by the Communi st Party. It laid t he foundation for China's transition to a mark e t eco nomy. Fol- lowing decolle ctivi za tion, ind ivi dual rural hou se hold s regained their autonomy in agricultural production. But this reform did not end the government's use of admini strative power to intervene in the agrarian sector. Through its continued monopoly of th e procurement and s ale of the most critical agricultu ra l produ cts (grain and cotton) and inputs ( diesei fuel and chemica l fe rtilizers), the state has retained its ability to extrac t rents from the rural sector despite h avi ng relinquished direct control over the farmers ' day-to-day economic decision making. 1 The grain procurement system provides a clue to the interlockin g re- l atio nship amo n g re n t protec tion, r egim e survival, a nd eco n om ic in ef- ficiency. From an economic perspective, the unreformed procurement system ap p ears to have simu lt aneously ac hi eved the warst of all worl ds: high suppl y a nd pric e vol ati li ty, huge financiallosses (both through su b- sidies and operating Iosses of SOEs in the sys tem), and extraction of rural in co me (through purch ase of grain from p easants at below-market prices). 2 Betwe en 1990 and 1996, the total extraction of rural income throu gh an implicit tax on grain collected through th e procurement sys- tem totaled 259 .2 billion yua n , averaging 37 billion yuan a year (rough ly 18 percen t ofrural GDP) .3 Such a system, accord ing to a wide-ran g ing assessment by the OECD in 2002, "has had adverse co ns e quences for m ac- roe conomic performance in recent years: grain su rp luse s and fa lling market prices have depress ed agr icultura l in co m es and contributed to a marked slowd own in rural consumption growth." 4 A case study of gr a in production a nd trade in Fujian provin ce betwe en 1986 and 1996 also co ncluded th at th e procureme nt systemwas too unpre dictabl e to e nable farmers to have confidence in the governm ent 's p o lici es .'; Yet, from a reg im e survival perspective, the monopo ly of grain pro- cure m e nt is critical. The grain p rocureme nt sys tem h as intrinsic po litical -- 109 of 306 -- 98 China's Trapped Transition strategic importance. Like telecommunication services and banking, the monopoly of this system gives the government the control of a vital resource (food supplies). Allowing market forces to dictate the activities in such a strategic sector poses high risks for an autocracy because shocks to the sector can threaten the regime's hold on power. In addition, mo- nopoly and government intervention in these sectors create high rents and plenty of opportunities for offleials to profiteer, thus securing the loyalty of the regime's supporters. The Evolution of the Grain Procurement System Until1985, the Chinese government had maintained a unified procure- ment system (tonggou) of grain procurement that required peasants to sell all their grain to the government at fixed prices. This systemwas re- placed, in 1985, by the "contract procurement" sys tem (hetongdinggou). Like China's dual-track prices for everything from steel to chemical fer- tilizers, the new system also had two prices. Grain-growing farmers signed contracts with the state for delivering a fixed quantity at a fixed price (quota price) to government-run grain purchasing stations (liang- zhan).6 Prior to the increase in th e quota pric es in 1995, the govern- ment inte ntionally kept such prices at artificially low Ievels to extract an implicit tax from grain growers. This hidd en tax on grain dis a ppeared only after 1995 as marke t prices, caused by a glut, fell below the quota prices. 7 In addition, the government purchased grain from peasants at higher negotiated prices (or extra-quota prices) for the quantity th at ex - ceeded the quota. This dual-track system operated relatively smoo thly from 1985 to 1991 an d enabled the government to pro eure 73-88 per- cent of total m arketed grain. Between a third to a half of the grain pur- chased by the state was transacted using negotiated prices. 8 Research by Chinese scholars shows that peasants did not like the arrangement because ofits obvious economic disadvantag es .9 Grain procurement remained basically unchang ed until the early 1990s. 10 U nder the pressure of rising fiscal outlays in grain subsidies, however, the government decided, in April1992, to unify the purchase and sale prices for grain; prior to this change, th e purchase pric es were higher than sale prices, causing policy Iosses in the SOEs in the pro- curement sys tem . The unification of grain prices event uall y evolved -- 110 of 306 -- Re nt Proreetion a nd Dissip atio n 99 into a brief but abortive attempt to fully liberalize prices in October 1993. Price liberalization unexpectedly gave monopoly SOEs in the sys- tem an opportunity to engage in hoarding and pri ce gouging , whi ch precipitated an artificial s hortage of grain supp lies. Provincial gove rn- ments react ed by imp os ing restrictions on ex por ts of gra in, further ex- acerbating the shortage. 11 The ensuing panic buying in the cities forced the government to halt the reform abruptly. In the wake of the failed lib eralization of the grain procur e m ent sys- tem, the state restored the previous ad mini strative co n tro ls, re in state d the quota system, set price Iimits, and reimposed its monopoly. Th e government decided tha t it must contro l 70-80 pe r cent of the grai n on the market. In 1995, it set the target of 50 million tons to be purc hased at quota prices (contracts signed with farmers directly) and an a dditional 40 million tons at n ego tiated prices (county governments were re spon- sible for procuring this amo u nt) . The 1995 restoration of state cont rol was a lso known as the Gra in-B ag Policy, or the Governors' Grain -B ag Responsibility System (GGBRS), with provincial governors assuming primary responsibility over food production. The price for mandatory grain sales to the government was immediately increased by 40 percent at th e end of 1994 to e ncourage more grain production. 12 In esse nce, the pre -1 992 systemwas thus restored. The same o ld probl e ms- su ch as regiona l barriers to grain trade, closed markets, SOEs' monopoly, an d hi gh operaring costs-returned as wel l. Even t hou gh the gover n- ment controlled 70-80 p e rcent of the grain available on the market, th e government did not set th e sa le pric es, allowin g the SOEs in th e sys- tem to packet the rentat the expense of th e farmers . 13 But the large price increases at the end of 199 4 led to abundant har- vests in the following years an d caused a gl ut; Ch in a, a net importer of gra in in the mid-1990s, became a n e t exporter at the end of the 1990s. With purchase prices substa ntially hig her than sale pri ces, the state-contro ll ed grain procurement system ran up huge la sses. In 1998, lasses total ed 40 billion yuan. Surplus grain was fi lling up th e granaries as well. The costs of storage f ees and l oan interests on the grain reserves in 1998 were 50 billion yuan. Addition ally, 8 million tons , or 20 percent of th e grain in the granaries, was deemed unfi t for consump tion due to low quality a nd lon g storage. 14 Faced with ever-ris in g grain subsidies, the government was forced to cut its quot a and protect ion pri ces in 1998. Under the guise of a n ew -- 111 of 306 -- 100 China's Trapped Transition round of reforms, the government banned private firms from partici- pating in the market and deployed the police , tax authorities, and other regulatory agencies to crack down on private grain purchasers and ven- dors. The core feature ofthe 1998 reformwas the government's use of administrative measures, instead of market mechanisms, in managing supply and demand in the grain market. The government removed certain grains (classified as low quality) from price protection and thus forced peasants to reduce production. It also banned peasants from di- rectly selling their grains on the market. 15 The r eassertion of govern - ment contro l in the grain market marked a major reversal of reform in this sector as it allowed SOEs to monopolize the grain procurement market again. 16 In 2001, the government began to implement pilot re- forms to open the grain market , with renewed emphasis on price liber- alization, reduction of the quantities of grain purchased und er the quota system, and permission for more firms to enter the market. But these reforms were restricted to grain-consuming provinces, while grain - producing provinces remained under the old system. 17 Analysis In many ways, the experience of reforming the grain procurement sys - tem is a typical example of the gradualist approach to reform. The gov- ernment experimented with various forms of price liberali zation, only to reassert control when such experiments led to unsustainable increases in fiscal subsidies or market turmoil. Abortive reforms eventually made little dent on the in efficient old system. However, the costs of failure to reform continued to mount , as seen in the accumu lated huge la sses in the grain procurement sys tem (214 billion yuan from 1992 to 1998 a lon e) and high market volatility.1H Throughout the reform period, two different and sometimes conflicting impulses drove policy considera- tions. The government was determined to retain its ability to control the vital market for grain because of its political importance . Yet at the same time , the government was also averse to paying too high a price, in the form of mounting fiscal subsidies, for suc h control. As a result, whenever supply conditions improved or a glut emerged, the govern - ment behaved opportunistically by cutting the prices it set for gra in purchases and reduced the amount of grain it had comm itted to buy- ing from the growers at the preset prices. -- 112 of 306 -- Re nt Proreetion a nd Dissipation 101 Indeed, the primary motivations for changing the procurement pol- icy, mainly through reducing prices paid to grain growers, appeared to be the reduction ofrising grain subsidies, as in 1985, 1992, and 1998. 19 But farmers respond ed to the state's opportunistic behavior by with- holding grain. This quickly led to shortages, forcing the government to raise prices. In this game, the underlying market structure gave the growers a slight edge. Of all the grain produced in China, farmers themselves normally consume two-thirds and sell the remainin g one- third-about 150 million to ns in the mid-1990s-on the market. 20 To maximize their income , peasants sold the bulk of th eir surp lu s grain (about two-thirds and usually ofpoorer quality) to the state-owned grain hureaus and firms, which typically held down the prices. The y s old the remaining one-third (high er quality grain) to private purchasing agents who offered higher prices. 21 As peasants could r es pond to market con- ditions either by withholding sales when prices were too low or reduc- ing th eir own consumption when prices were attractive, the aggrega te impact of their response to the government 's behavior on th e supply side was considerable. This structural feature of the Chinese grain m arket, coupled with the flaws inh e r ent in the state-run gra in procurem e nt and res erve systems, made the market more sus ceptible to supply and demand shocks. A small fluctuation in supply, either a shortage or excess supp ly of 10 million to 15 million tons, or 8 to 10 p erce nt of the market a ble grain su pplies , could destabilize the market. 22 Also notable in the case of the failure to reform th e g rain procurem e n t system is th e striking fact that th e gov- ernment had never intended to alter th e und erlying organ ization al structure ofthe grain market. In 1985, 1992-1993, and 1998, the gov- ernment adjusted prices, but did not set out to abo lish the monopoly granted to the SOEs in the system. As the case of failed fu lllib er aliza- tion of prices in 1994 demonstrated, removing price controls without ending the SOEs' monopoly was bound to encourage price go u ging and market manipulation by these firms. An intriguing question is: who h as benefited from this inefficient and volati le markering arran ge m ent? The state, which has suffered hu ge fiscal lo sses, does not a ppear to be a winn er, nor do grain-producing farmers, who h ad to accep t below-market prices unti l th e late 1990s. The only beneficiary of the system seems tobe the SOEs. The in terests of these monopolistic firms are at od d s with those of the state an d the -- 113 of 306 -- 102 C hin a's Trapped Transition peasantry. Their overriding objective is to maximize monopol y rents, not to ensure market stabili ty (the state's goal) or increase income for the grain growers. Consequently, their beh av ior has been a lmo st counter- cyclical: when th ere is a g lu t, SOEs will do every thing to r educe purchas es; when there is a shortage , SOEs will h oard . 2 ~ In add iti on, gove rnm ent monapolies in charge of exports and imports of grain di s pl ayed the same rent-see king behavior, which worked at the expense of market stability. For e xample, durin g the 1994 shortage, s tate-owned grain ex- porting co mpani es exported , at l ow prices , 20 milli on tons of grain . Th e same firms import ed 10 million tons at high prices during the g lut in 1995. 24 The government's restrictions on private com petition in this sector have benefited monopoly SOEs as we iL Even though, in reality, private grain wholesale purchasers controlled a !a rge share of the mar- ket, mo st privat e participan ts in this m a rket were forced to work with SOEs in an opaque business envi ronment rife with opportunities for corruption and irr egu larities.2 '' The story of th e h a lting-and failing-reforms in China's grain pro- curement system is a cautionary tale of the Iimits of gradu alist reform. The politica l imperative of maintaining dire ct influence in a vital eco- nomic sector l ed th e governm e nt to r estri et the e ntry of mark e t forces and preserve its monopo ly in t hi s sector. When th e costs of maintain- in g its direct contro l became excessive, the government behaved oppor- tunistically by re n egin g on its comm i tments to th e grain growers, an act to which f ar mers responded wi th lower production and the withhold- ing of sales. This tit-for-tat gam e of opportunism a nd withh o ldin g of cooperation made the Chinese grain market unu sually volati le during the reform period. In the meantime, the underlying infras t ructure of an al ternative, market-oriented grain procurement system remains to be bui lt. 26 The Telecom Service Sector China's tel eco m service sector has b ee n one of the fastest-growing in- dustr i es in the reform era, measured both by the expansion of capac ity and growth in revenues . From 1980 to 2 002 , the number of fixed li ne subscribers grew from 4.1 million to 213 milli on . Revenues of C hin a's telecom service firms tota led 411.6 billion yuan in 2002. In 1980 the combined revenues of post and te lecomm unications were on ly 1.3 bil- li on yuan .27 At th e end of 2003, Chin a claimed to h ave 3 0.9 mi ll ion -- 114 of 306 -- Re nt Proreetion a nd Dissipation 103 computers connected to the Internet and almost 80 million people with access to the lnternet.28 Basedon capacity and revenues , China's telecom service sector is among the largest in the world. Yet, despite such impressive growth, the telecom service sector remains one of the most closed industries in China, with the state-owned firms dominaring the market through monapolies or duopolies . Private firms have been banned from providing fixed-line and mobile services. Before China joined the World Trade Organization (vVTO) and was forced to open up the telecom service sector under the pr essure of its trading part- ners, foreign telecom firms were kept out of this industry as weiL Monopoly and State Control Until1994 , the Ministry of Post and Te lecommunications (MPT) h ad maintained a national monopoly over the telecom sector, which in- cluded fixed-line lon g-distance, lo cal, and mobile services, data trans- mission, and satellite transmis s ion. MPT was also a dominant provider ofpaging services, with almost 70 percent ofthe market share .29 Under MPT's monopoly, telecom services were both expensive and low qual- ity. ~0 The lucrative rents in the tel eco m service secto r attracted other powerful players to the market. As early as in 1988, the Ministry ofE l ec - tronic lndustry (MEI) , the Ministry of El ectr ic Power (MEP), an d the Ministr y of Railways (MR) join ed forces in seeking the State Council's authorization to establish a ri val telecom concern to compete against MPT. However, the MPT's stro ng resistance del ayed the State Council's action for six years. In D ecember 1993, the State Council finally issu ed a directive allowing MEI , MEP, and MR to form China United Tele- commun i cations Corporation, or China Unicom, a lon g with thirteen other domestic partners. The State Council also authorized the form a- tion ofjitong Communications Corp., a new SOE, to provide Internet services. InJuly 1994, China Unicom was born. It s registered capital was 1 billion yuan, and it received a generaus allo cation of radio frequency for a wireless network. vVith its specia li zed n etworks owned by MEP a nd MR, China Unicom h ad ambitio us go als: it want ed to gain 10 perce nt of both domestic and long-distance service in C hin a, and 30 percent of the mobil e market . ~ 1 Despite the State Council's approva l, however, the ex isting monop- oly, MPT's Ch in a Telecom , tri ed everyth in g in its power to preve nt China Unicom from becoming a true competitor. Wu Jichuan , the -- 115 of 306 -- 104 China's Trapped Transition minister ofMPT, reportedl y said, "I wantnot only tostrangle U ni co m, but also to bury it deep. "32 Be cause MPT was both an operator of the existing telecom monopoly and the regulator of the telecom sec tor, it h ad a mple m eans to undermine its fledgling rival. Minister Wu insisted, "Un i com's entry into any market mus t be approved by MPT" because MPT had the power to interpret the State Council's De cember 1993 directive authorizing the formation of C hina Unicom. Co n se- quently, MPT ruled that Unicom did not have permission to operate l ong-d i sta n ce a nd l ocal fixe d-line services. MPT abused its r egu lato ry power to delay Unicom's entry into certain markets. In some cases, Unicom h ad to wait as long as two years before MP T approved its ap- plications. One was Unicom 's application for its own GSM ce ll phone network. Initially, MPT was not interested in building a GSM n etwork for itself. H owever, it c han ged its mind after Unicom h ad built its own GSM network . To prevent Un i com from gaining a competitive advan - tage, MPT effectively ren d e red use less Unicom's GSM by de n ying it ac - cess to th e MPT's vast fixed-line network. Only after MP T's own GSM became operational did the ministry grant access to Unicom's GSM network. In add ition , MPT' s China Telecom used predator y pricing a nd cross-subs idi zation to und e rcut Unicom a nd charged Unicom ex- cessive fees for access to its fixed-li ne networks. ~~ Such anticompetitive practices stunted Unicom's initial growth . Three years after Unicom was formed, it could not get into lon g-dista n ce or local markets , in spite of its existing networks. Even its busin ess in the ce ll phone marketwas severely curtail ed . Although it h ad buil t its own wireless networks in twenty cities, it was able to operate its networks in only four (Shanghai, Beijing, Tianjin, an d Gu angz hou) be cause MPT prevented Unicom from gaining access to its local networks. At the end of 1995, Unicom had fewer than 50,000 wireless customers, though its networks h ad a capacity to serve 700,000. Its market share ofthe mobile telephonemarketwas a paltry 1.38 percent.34 At the end of 1997 , Uni- com's wireless service still had on ly 200,000 subscribers, about 2 p er- cent ofCh in a Te l ecom's c ustomer base .3 '' Andin 1999, China Unicom's share in the wireless marketwas on ly 6 percent, compared wi th C hin a Mobile's 94 percent. In the paging market, China Te l ecom c ontrolled 67 percent of th e m arket sh are, and Ch in a Un icom had on ly 3 percent.~ 6 The experience of China Un i com epitom izes the Chinese govern - ment's halting efforts to open the telecom service sector. On th e surface, -- 116 of 306 -- Re nt Proreetion a nd Dissip atio n 105 it appears that the government tried to break up China Telecom 's mo- nopoly through a series of reorganizational reforms of the indu st ry. But in reality, the sector continued tobe dominated by th e monopoly firms for me rly affiliated with MPT, whi ch i tself became the Ministry of Informa tion Indu stry, or MII , in 1998. In 1999 , China Telecom, which nominally was separated from MII in 1998 and became an independent SOE, reorganized itself into four entities: China Telecom (fix ed-line service), China Mobile (wireless), China Paging, and China Sate llite- com . During the reorganization, some of C hin a Telecom's assets were transferred to Chin a Unicom. In 2000, the gove rnm ent a uthori zed a new tele com firm, China Network Communication Group, or China Netcom, to become an Internetservice provi der (ISP) and co mpete against China Telecom. China Netcom had four state-own ed share- holders th at managed to receive $325 millio n in equity inve stme nt from Goldman Sachs and News Corp. through a private placement. In 2001, a new fixed-line provid er, Ch in a Railcom , was founded. The largest restructuring of the sector occurred in 2002 wh en th e government broke up China Telecom into two entities. The part that controlled fixed-line networks in the more prosperaus twe nty-one provinces, incl ud in g th e coastal r eg i ons, r eta in ed th e China Telecom name . The n etworks in the other and less prosperaus ten provi nces were co mbined with C hin a Netcom a nd Jiton g Commun i catio ns to form China Networks Communications Group. This res tructur in g ef- fectively transformed a national monopoly in fixed-line services into a geographically based duopoly. In terms of m arket share, C hin a Tele- com rema in ed the dominant fixed-line service provider in 2002 , with 133 million use rs or 62.1 percent of the market; th e newly combined China Netcom had 77 mi lli on users or 36 percent ofth e market. China Railcom h ad on ly 1.4 percent of the m arke t. In th e jud gment of a gov- ernment think tank, access to the fixed-line m a rket was as closed as ever. Despite the breakup ofChina Te lecom into two entities, there was no competition in this sector. The situation was hardly b etter in the wirele ss ma rk et. China Mobile, which was split from China Te l eco m in 1999, h ad re venu es of 151 bi llion yuan in 20 02 , or 77.3 perce n t of the m arket; China Unicom, th e u pstart, claimed 22 .7 percent. 37 Throughout the reform e ra , th e state n ot o nly successfully k ept do- mestic pri va te firms out of the te l eco m service sec tor, but also managed to prevent foreign investors from p ene tr a ting th e sector. Des pite the ir -- 117 of 306 -- 106 China's Trapped Transition efforts, foreign telecom firms failed to crack the Chinese market. Even ingenious sehernes-such as the Chinese-Chinese-Foreign equity invest- ment model, under which a Chinese firm formed a telecom joint venture with a Chinese-foreign joint venture to bypass regulatory hurdles- eventually proved unsuccessful. Such a modelwas tried in the case of China Unicom, when twenty-one foreign investors-including the big- gest multinational telecom firms such as Sprint , Nippon Telephone and Telegraph, Cable and Wireless, and France Telecom-poured $1.3 billion into China Unicom through their joint ventures in China. But in late 1999, under government pressure, China Unicom unilater- ally forced these investors to withdraw their equities at a very low rate of return on their investments.3H During its vVTO accession negotia- tions, China 's major trading partners, the United States and the Euro- pean Union, forced Chinato make key concess ions on the opening of the telecom service sector. According to China's vVTO accession agreements, the cou ntry would open the telecom service sector to foreign competition in stages. For- eign companies can get up to 50 percent of ownership in value-added services in 2005, and 49 percent ownership in both mobile and fixed- line services by 2007. China's tough stance on r efus ing to cede foreign telecom operators majority control almost caused its WTO negotiations to collapse. But this position reflects the Chinese government's deter- mination to maintain its control of the te lecom sector despite interna- tional pressure. 39 Indeed, foreign telecom operators appeared to get the message and did not take advantage of China's vVTO concessions. In the two years following China's vVTO accession, only the U.S. firm AT&T acquired a 25 percentstake for $25 million in ajoint ISPventure with the Shanghai city government. vVhile strenuously trying to keep foreign competition from its tele- com service sector, the Chinese government was eager to attract foreign portfolio investment in its state-owned telecom firms through overseas stock listings. The initial publi c affering (IPO) of China Telecom (HK) in Hong Kong and N ew York in 1997 netted $4 .2 billion. 4 ° China Net- com was floated on the U.S. Nasdaq market in 2000. China Unicom re- ceived a staggering $5.7 billion at its IPO during the tech bubble of 2000. Following its reorganization in 2002, China Te lecom , the fixed- line operator, sold 20 percent of its sharesinan IPO in Hong Kong but raised only $1.66 billion due to a l ack of interest from investors.41 -- 118 of 306 -- Re nt Proreetion a nd Dissip atio n 107 China Network Communications Group, which was formed in 2002 after the breakup of China Telecom, planned to launch its own IPO in Hon g Kong and New York in 2004 to raise $2 billion. Thus, a lmost a decade after C hin a began to liberalize its teleco m ser- vice sector, the underlying domin an ce and excl u sive contro l by the state over the vital industry has hardly changed. In 2002, six telecom s ervice firms, all state-owned or controlled, divided the telecom service market among themselves. With revenues of 150.9 billi on yuan, China Mobile claimed 36.7 p er cent of the market; China Tel eco m h ad 136.3 billion yuan in revenues and took 33 .1 percent of the ma rke t; C hin a Netcom, with 67.6 bill ion yuan, had 16 .4 pe rcen t of the market. These three former entities of MPT still retained 86 percent of the mark et share. The two new telecom firm s, China Unicom and China Railcom , had 12.4 and 1.2 p e rc e nt of the market, respectively.42 Th e state's direct contro l over th e telecom firms contrib u ted to their p oor performance. In the judgment of a State Counci l think ta nk , state ownership a nd c ontrol e nc o ur aged th em to "expand inve stm e nt, seek market power, and incre ase insiders' income ... these firm s have distorted competi- tive behavior, such as excess de bt and price wars." 43 The mono poly of the state in the telecom sector was also r espo n sibl e for the fail ure of the National People's Co n gress to pass th e co mpeti- tion laws required to liberalize the s ec tor. Al thoug h r efor m ers in 1998 propos ed telecom l eg isl atio n that would h ave estab lish ed a regulatory commission modeled after the U.S. Federal Communications Com- mission (F CC) , the proposal was not e nacted by the n atio n al l eg isla- ture du e to strong oppos iti on from the telecom bureaucracy. As of 2003, the proposed legislation was still in limbo. Because MII, the suc- cessor to MPT a nd patron of the te l ecom monopolies, was put in charge of dr afting the te l ecom l egisl ation, prospects for real reform appear ed dim. Analysis Th e p ers istence ofthe state's m onopo ly a nd co ntrol in the tel eco m ser- vice sec t or has l ed to high inefficiency and poor servi ce a nd impeded further t ec hn ol og ical d evelop m e nt in th e sector. Official d ata sh ow that the government's massive in vestment in the secto r has yield ed low returns . In the la te 1990s, the net in come / exp ense ra tio in C hin a's -- 119 of 306 -- 108 C hina's Trapped Transition telecom sectorwas 1.14:1, compared with the international average of 3.3:1 and the U.S. average of 7.7:1. This comparison suggests that China's telecom sector is half as efficient as that of an average country and almost six tim es less efficie nt than the telecom sector in the U nited States. The transmission capacity utilization rate in China was below 40 percent, as opposed to the international average of 74 percent. 44 The management of the telecom industry was poor by international standards as weil, resulting in inefficient utilization of equipment and high prices for end-users. 4'; China Telecom's a nticomp etitive practices were also blamed for the poor interconnection that stunted the growth ofthe Internet in China. 46 Crossnational comparison ofthe performance and competition in the telecom service industry indicates that China lagged behind most transition economies and other !arge developing countries. A World Economic Forum survey of telecom industries in eighty-two countries conducted in 2002 placed Ch ina among the bottarn quarter or third of the group in terms of competition, infrastructure quality, and costs of service. 47 The troubled history of reform in the telecom service sector pro- vides another illustration of the Iimits of gradualism. State monopoly has persisted along side high growth, stifled competition , and under- mined efficiency. But this outcome becomes more understandable if we make the connection between rent protection a nd regime survival. The re are several compelling reasons for maintaining the telecom ser- vice sector as a state monopoly. First, like the grain procurement syste m, the telecom service sector has the characteristics of a prized command- ing height that a developmental autocracy cannot afford to cede. It is in a vital industry (information) th at directly affects the regime 's ca- pacity of social control. This strategic importance makes it more diffi- cu lt to open the telecom sector for competition because opponents of reform can easily justifY their opposition on grounds of national and regime security. Second, the telecom sector is itself a huge patronage machine and a source of rent generation because it employs a !arge number of emp loye es , invests massive capital, and collects monopoly rents . Direct control of this sector provides the regime the abi lity to re- ward and keep its supporters (the low returns of China's telec om SOEs should be an indication that their monopoly rents may have been dis- sipated among the insid ers) . Of course, the in troduction of new state- affiliated competitors may temporarily upset the balance , as the case of -- 120 of 306 -- Re nt Proreetion a nd Dissip atio n 109 China Unicom illustrates, principally because it threatens the bureau- cratic clout and rents of the existing monopoly (MPT's China Tel ecom ). The ostensible "corporati za tio n" of the state- owned telecom assets and th e transition fro m a monopoly (a s in gle SOE) to a duopoly (two SOEs) have not altered th e nature of th e s tate monopoly. Entrenched inter- ests have succeeded in proteering their rents. One intriguing question emerges from thi s examination of the tele- com sector. vVhy has the Chinese government locked out domestic private co mp eti tion f rom th e sector and even pr e vented domestic port- folio investment in its te l ecom SOEs (none are li sted on th e dome stic stock markets), but allowed minority fore ign ownership in these firms, both through overseas stock market listings and potential po st-vVTO direct inves tment? Several exp lanations are likely. Minority f ore ign ownership does not threa te n the re gim e politically e ven though it may force some changes in corporate governance on the margins . I nstea d , such ownersh ip can ac tually add a gloss to thes e state-owned assets. As a result of overseas listings, th e monopoly valu e of th e sta t e's tel ecom assets is instantly reflected in the share prices of the state-owned tele- com firm s lis ted in Hong Kon g and New York. Perversely, thi s explicit link betwe e n capi tal market valu atio n and state monopoly become s a n- other obstacle to reform . Under the pretense of proteering the state's investments, the government can justifY its monopoly becau se stock markets va lu e monopolies. lnd ee d, since th e listin g of Chi n ese tele- com firms overseas, MII and China Telecom have tried on at le ast two occasions to use their po wer to boost the stock prices of listed te l eco m firms.48 The Banking Sector Of China 's major economic sectors , the bankin g system is arguably the le ast reformed and most trou bl ed . In th is sector, as in other sectors crit- ical to th e CCP's ability to reta in rents, gradualist reforms have not on ly failed to re duce in efficien cy and promote competition , but also c on- tributed to the bu ild -u p of a m assive amount of non per f orm in g l oans (N PLs) th at has be come the most serious th reat to the sust ainab ility of China's eco n o mi c growth in the twenty-first cen tu ry.49 In m any ways, the l ack of progress with regard to financ ial reform in Ch in a is an anomal y. On the one h and, the country has ac hi eved unpr ecede nt ed -- 121 of 306 -- llO China's Trapped Transition financial deepening-a measure of progress in financialliberalization- during the reform era. The key indicator of financial deepening , the ratio of financial assets to GDP, rose from 0.94 in 1978 to 2.78 in 1998-a Ievel hi gh er than that reached in the ea rly 1990s by the m ost developed financial markets, such as the United States, Germany, and the United Kingdom. The Ievel ofChina's financial deepening also has exceeded th at of the newly industrializing countries (NICs) .50 On the other hand , China's financial sec tor, domin ated by the state-contro lled banking syste m, is the weakest am ong the wor ld 's m ajor economies, with a very hi gh Ievel of NPLs, pervasive corruption, and low efficiency. Judging by standard accounting criteria, all the major sta te banks be- came te c hnically insolvent in the mid-1990 sY The main fun c tion of the Chinese banking sys tem is to funnel credit to value-d estroying SOEs, not to the thriving pri vate sector. In thi s section , I will revi ew the hist ory of gradua li st reforms in the banking sector, assess the resu l ts of such refor ms, and analyze the factors that have contributed to their fa ilu re . Banking Reform since 1979 During the prereform era, China had a mono-bank system. The P eop le's Bank of Ch in a (PBOC) co mbined the functions of both central and commercial banking under state pl anning . The reform of th e banking sector be gan gradually and tentatively in 19 79, as China beg an its eco- nomi c transition. Th at year, the gove rnm e n t set up three specialized state-owned banks, the Agricultural Bank of China (ABC), the Bank of China (BOC), and the China Construction B ank (CCB). In 198 4, it es- tablished the Industrial an d Commercial Bank of China (ICBC) . These specia li zed state-owned banks then bec ame the prim ary in stitutions of financial intermediation, with the PBOC assuming its role as the central bank. In the 1980s and early 1990s, the government took additional steps in diversifying the banking system. State-affiliated joint-holding banks ( the Ba nk of Communications, Guang d ong Deve lo pment Bank, Shenzhen Developm e nt Bank, Shanghai Pudon g Devel opment Bank, China Merchants Bank, and Fujian Industrial Bank) entered the sec- to r. The owne rship of these banks was spread amon g loca l gove rn- ments, government ministries, and SOEs . In addition, the government allowed the estab lishment of a !arge number of nonbank financial -- 122 of 306 -- Re nt Proreetion a nd Dissip atio n 111 institutions, such as rural credit cooperative s (RCCs), urban credit co- operatives, and investment a nd trust companie s. Foreign banks we re permitred into the Chinese market to conduct limited banking o p era- ti ons as wel l. "2 These measures h ad a negligible imp act on the lib era l- ization and d eve lopment of the banking system, however. According to top Chinese economists who were drawing up plans for finan cial re- form in the early 1990s, China 's central bank was considered dysfunc- tional and failing in its manag ement of mon etary policy. Specialized state banks were similarly unable to perform th eir assi gned tasks of fi- nancial int ermediation efficie ntly. China 's financial markets were judged tobe chaotic. 53 By all accounts, serious banking reform did not begin until1994 and was probabl y precipitated by the overheatin g of the economy and credit ex plosion in 1992-1993 that alerted the C hin ese l eaders hip of the dangers of an unreformed banking sec to r. The reform package in- cluded most ofth e recomme nd ations provided by lib eral eco nomists.M On the whol e , th e reforms introduc ed in 1994 a nd 1995 crea ted a lega l framework for the financial sector through the promulgation of the People 's Bank Law and the Commercial Bankin g Law, strengthened the PBOC's roJe as the central ba nk , estab lis hed three poli cy banks, and transform ed the four sp ec iali zed state banks int o state co mm erc ial banks (SCBs). Additional reform steps included th e strengthening of banking regulations, th e consolidation of poorly regulated inv estm en t and trust companies, the establishment of one private bank ( China Minsh en g Bank in 1996) , a nd the transformation of urban cr ed it co - ope ratives into ci ty commerc ial banks. 55 Th e E ast As ian fi n anc ial crisis in 1997-1998 jolted the government into ta king ad dition al steps to strengthen its banks , as weak financial institutions were blamed for caus- ing the cr isis. It imp osed ti ghter prud e ntial supervision and pushed Chines e banks to adopt more stringent standards for classirying lo ans. The PBOC abo lished lo an quot a c ontrol over the four SCBs injanuary 1998. Th e Min istry of Finan ce (MOF) a lso issued 270 billion yuan in sp ecial treasury bonds in 1998 to shore up th e cap ital bas e of the fou r SCBs. Additionally, in 2000, the four SCBs set up four asset m an age - ment companies (AM Cs), wh ich took 1.4 t ri llion yuan in impaired assets off the balance sheets of the SCBs:"6 To s treamline operations , the four SCBs c ut their staff by 130, 000 and reduced the numb er of branches by 40,000 between 1997 and 2000 . -- 123 of 306 -- 112 China's Trapped Transition Although these steps prevented a full-blown banking crisis, they did not succeed in improving the financial performance of the SCBs. The asset quality in the banking se ctor continued to deteriorate. The lead- ers hip transition in 2002-2003 provided fresh mom e ntum for banking reform. A new regulatory agency, the Banking Regulatory Commission, was established in April 2003 to strengthen the prudential supervision of all deposit-taking institutions. In a shift of reform strategy, the new leadership in early 2003 decided to focus on turning the SCBs into joint-stock compa ni es and lis ting their shares on overseas and domes- tic stock markets in the h o pe ofimproving their corporate governance . This strategy was implemented in la te 2003, when the government se - lected BOC and CCB, two SCBs with lower NPL ratios, for new capital injection and corporatization. Aspart of the strategy, $45 billion from China' s foreign reserves was transferred as core capital to BOC and CCB . In addition, the MO F wrote off its equity in the two banks, worth 3 00 billion yu a n.'' 7 In return, the government intended to hold the revitalized banks to tough cor- porate governance and financial performance criteria. 58 Like other monopoly SOEs listed on overseas markets , BOC and CCB opened th e ir arms to foreign strategic investors. Two !arge Western banks , the Deutsche Bank and Citigroup, expressed inte rest in taking stakes in CCB.59 Altogether, the cumu lative costs in bailing out the SCBs alone were more than 2.3 trillion yuan, about 20 percent of GDP.60 But the eventual costs of writing off the NPLs in the banking sector would def- initely be much higher. In all likelihood , capital injection and stock market li sting , without substantial changes in the environment in which they operate , may not alter the nature of the SCBs as the conduit of governme nt-dir ected l ending. 6 1 The overall assessment of China's reform efforts in the banking sec- tor has been negative mainly because these reforms have failed to increase competition, improve efficiency, and reduce NPLs. 62 The Sta re- dominated ba nking sector has failed in its role of channeling savings to the most productive sec tors a nd areas. Loans extended by th e banking sector a t the national Ievel have been found to have a negative impact on provincial economic growth because such lo ans were used to sup- port SOEs.6' A study by the IMF has shown that the state bank- dominated financial intermediation is in efficient in converting financial resources into productive assets in China. The country's most efficient -- 124 of 306 -- Re nt Proreetion a nd Dissip atio n 11 3 and fastest-growing private sector, or the faster-growing provinces, has not used the financial system in any substantial way for financing its growth. For these firms and provin ces, nonstate financing has contributed to faster growth .64 In provinces with m ore d iversifi ed banking secto rs a nd where state banks have weaker influ ence , th e growth rate h as been higherY' Due to the government 's control of interest rate policy, loan rates still do not reflect risks. This has been re spo nsible for macroeco- nomic in stability, as subsidi zed credit encouraged excess in vestme nt during boom years while adm inistrative tighte nin g of l oans led to hard landings , especially in the 1980s.66 Fi nancia l secto r r eforms have failed to increase the integration of China's capital markets.'' 7 SCBs' Dominance and Performance To evaluate the reform measu res taken by the Chinese government in the banking sector, th ree tests need to be ap plied . The first is whether such reforms have reduced the state's control a nd intervent ion in this vital sector. The second is whether such reform s have increased com- petition in the sector. The final test is whether they have improved th e performance of th e sector. Unfortunately, C hin a's bankin g r efo rm h as failed a ll three. The reforms h ave failed to reduc e the state's control a nd interven- tion in the sec tor. This can be see n by lookin g at the own ers hip struc- ture of the banks. In addition to the four dominant SCBs, wh ich are wholly state -owned b a nks , vir tually all th e other m aj or joint-stock banks are owned by state-affilia ted entities and lo ca l gove rnments. Th e n ew ly formed c ity commercial b an ks are owned an d controlled by lo cal gov- ernments and SOEs.6H Even rural credit co -op s, nomin ally owned by farmers, are run by l ocal governments . T he effective state monopoly of the ba nkin g sector has r emain ed intact. 69 Th e only trul y private financ ial institution is Min s heng Bank. But with assets of $ 30 bi lli on in 2003, this bank is a relatively sma ll player. 70 In 2003, th ere were sig ns that th e government might b e ready for th e e ntry of additiona l privat e banks. On e poss ibility und er disc ussion is the es tablishment of priva te rural commercial banks in which l ocal government wou ld have no co ntr o t.71 Compared with indi genous private sector p layers, for e ign banks have fared on ly marginally b etter. Although they were all owed to op en -- 125 of 306 -- 114 C hin a's Trapped Transition branches and representative offices in 1990 , the restrictions imposed by the Chinese government have largely kept foreign banks out of the market beyond financing trade and servicing fore ign-invested firm s. In 1997, of the 173 foreign banks with fore ign curre n cy operatio n s in China, only 9 were allowed to co ndu ct lo cal c urren cy operat ion s. For- eign banks h ad $38 billion in assets (about 3 percent ofthe assets in the four SCBs) a nd $27 billion in loans. 72 The s ituation in 2002 remained basically unchanged. Foreign banks accounted for only 1 p ercent of total bank assets in C hin a. 73 Getting in to C hin a's banking sector via jointve ntureswas restricted as weil. Only a sma ll number offoreign fi- nancial institutions were allowed to make equity inves tments in several select small joint-stock banks ( including Minsheng Bank) .74 By the end of 2003, China had only seven Sino-forei gn joint-venture banks. 75 Whil e foreign banks will gain unimp ed ed acce ss to the dom estic mar- ket in 2007 as a res ult of China's WTO commitments, the prospects for domestic private entrants rema in cloudy. The mostimmediate and importa nt impact of th e state 's dominance in the banking sector is the government's tight control of the mo st crit- ical price in allocating credit-interest rates. Durin g most of the re form era, the gover nm ent imp osed st ri ct co ntrol on l oa n and depo sit rat e s. The pace of lib eralization was extreme ly slow. Startingin 2000, limited flexibility was all owed on ly in certain types of transactions that wou ld no t likely h ave a substantial imp a ct on the credit market. For exampl e, the government allowed the free floating ofborrowing rates on the in- terbank m arket. Rat es on for eign exc han ge deposits b eca m e fully lib- erali zed . RCCs were a bl e to float their lo an rates within a narrower band, as were city commercial banks , which cou ld raise their l oan rates, or l ower them, within a very narrow band. However, deposit rates for all banks were set by the PBOC. Loan rates in the SCBs and el even joint-stock commercial banks that controlled more than 80 percent of the lo an market were also determined by the PBOC.76 China's banking reform h as fa iled the competi ti on t es t b ecause the measures taken since 1979 have not brought about a fundamenta l structural ch ange in the cred it m a rket, l eav in g th e domin a nt positions of th e SCBs essentially un tou ched . In 1986, the four SCBs co ntrolled 83 p er ce nt of the d epos its and accou nted for 90 percent of th e ou t- standing loans. 77 By 2003, they had lost co n s id erable market share due to th e emergence of other financia l institutions . The four SCBs -- 126 of 306 -- Re nt Proreetion a nd Dissip atio n 11 5 accounted for 65 percent of the total deposi ts a nd 66 perc e nt of the outstanding loans. Neverthele ss, the dominan ce of the four SCBs re- mained unchallenged. 78 The SCBs were able to defend their market share mainly b ecause th eir owner-the state-used r egu latory t oo ls to stifle competition. For example, in the mark et for bank deposits, the SCBs had implicit state guarantees. SOEs could deposit fund s only in the banksthat lent them loans , which meant the SCBs. The PBOC pro- vided cheap funds to the SCBs because nearly all of the PBOC l endi ng wen t to the four SCBs. T h e ope rati o ns of the n ewly fo rm ed joint-stock banks were al so subj ect to geographic al restrictions. Fin ally, the fixed rates on loans and deposits prevented competitors from affering more attractive rates to challenge the SCBs. 79 The suppression of competition in the banking sector make s little economic se ns e b ecaus e all performance d ata showed th at n ew e n- trants-joint-stock banks , Minsheng Bank (the only private b ank) , a nd foreign banks-were more effi cient operators a nd delivere d far supe- rior fi nancial results. Joint-st ock ba nks wer e six times mor e profitable than the SCBs in terms ofreturns on assets and net profits. 8 ° From 1994 to 1998, their returns on ass ets and on equi ty were ten time s hi g her than the SCBs.H1 Th e ir asset quality was high e r as well. In Jun e 2003, the NPL ratio for th e e leven joint-stock banks was on ly 9.3 percent (based on the five-category classifi cation), co mpared with 21.4 percent for th e four SCBs.82 City commercial banks, th e successor to urban credit cooperatives, had fewer NPLs than the SCBs. Only RC Cs had a higher NPL ratio (30 percent) than th e SCBs.H3 Minsheng Ba nk 's NPL ratio in 2002 was only 1.74 percent. 84 Th e NPL ra tio for foreign ban ks ope ra ring in China was 4.3 percent. 85 The most importa nt reaso n for the higher profit abi lity and asset quality for Minsheng Bank, foreign banks, and, to a l esser exte nt, joint- stock banks is that these in s titutions, compared with the SCBs, m ade more lo ans to nons ta te borrowers th a t were less likely to default. In 1998, for examp le, 45 perce nt of the l oans issued by ICBC tosm all a nd medium-sized SOEs were nonperforming, compared wi th 29 p e rce nt f or Sin o-f ore i gn joint ve ntures and priva te firms .86 Although th e per- cen tage of lo ans issued by joint-sto ck banks to private firms was re la- tive ly low, it was on aver age about twice hi gh e r th an th at is sued by the SCBs.H 7 Sixty percent of the l oans made by Minsheng Bank went to pri- vate firms, as well as to m e dium an d small firm s. 88 By comparison , the -- 127 of 306 -- 116 China's Trapped Transition SCBs and, to a lesser extent,joint-stock banks gave nearly all their loans to SOEs. In the mid-1990s, about 95 percent of the SCBs' loan s and 92 percent of the loans from joint-stock banks went to SOEs. 89 This situation did not improve in 2000. For examp le, injiangsu and Zhejiang, the two provinces with the most dynamic private sector, only about 5 percent of the outstanding bankloans went to the private sector, in- cluding TVEs. 90 Among developing countries, China's Jendin g to the private secto r has been considered the most discriminatory. In 1999, of the seventy- eight co untries surveyed by the World Bank, China's Jendin g to the pri- vate sector-calculated as the ratio of credit by deposit money banks and other financial institutions to the private sector-was ranked the bottarn fifteenth, just ahead of countries such as Haiti, Ghana, Syria, Rwanda, Algeria, Niger, and Sudan. 91 Lack of access to credit forced China's private firms to turn to internal financing, hampering their growth. A study of small and medium-sized firms, mainly private enter- prises or TVEs, in Zhejiang a nd Jiangsu in 2000 found that only 24 per- cent of their capital was bank loans. These firms relied on the curb market SCBs and raised money from employees for expansion and op- eratio n.92 During most of the 1990s, about two-thirds of the lo ans made by the entire banking sector we nt to SOEs. Only about 10 percent were provided to TVEs, private firms, and foreign joint ventures; about 6 per- cent of the loans made by the SCBs went to private firms, TVEs, and for- eignjoint ventures. 9 'l Startingin 1998, however, with the rapid increase of residenti al mortgage loan s, consumer credit, a nd the transfer of 1.4 trillion yuan in NPLs from the SCBs to the four AMCs in 2000- 2001, the share of the outstanding loans made to SOEs began to decline. By 2001 -2002 , it was estimated that halfthe lo ans extended by the banking sector were for SOEs, and the other half for the nonstate sector. 94 Another consequence of maintaining the state's dominance in the banking sector and of defending the SCBs' privileged market po sitions has been an unba lan ced structure in China's capital markets. With the SCBs maintaining a near monopoly on financial intermediation dur- in g most of the reform era, bank lo ans-direct financing-have been the primary source of capital. Indirect financing, through the issuance of stocks and bonds on the capital markets, grew very slowly. Equity issuan ce started in China in 1987, but did not raise any significant amount of capital until1993 , when proceeds from IPOs reached 37 bil- -- 128 of 306 -- Re nt Proreetion a nd Dissipation 117 lion yuan , and peaked in 1997, with IPOs raising 129 billion yuan. 9 ' Between 1995 and 1998, bankloans contributed more than 80 percent of the increase in the capital stocks of firms, equity investment ac- counted for only 5 percent, and bonds less than 2 percent. The ratio of direct financing in China (less than 10 percent) was much lower than in Japan and other EastAsian countries (about 30 percent). 96 A finan- cial system dominated by bank lending has concentrated risks in the banking sector. But such a system has served the government well. As a study by the State Planning Commission stated, "Because of the gov- ernment's direct contro l ofthe financial system, the country's cap ital is concentrated in the state-owned banking system. Such capital, through implementation of the government's credit plans , flows to key projects and SOEs that fit with the government's plan ."97 Finall y, China's banking reform has failed the third test-finan cia l performance. Th e dominant SCBs, which are among the largest finan- cial institutions in the world, have also been the worst performers by in- ternational standards, with returns on assets in th e 1990s ranging from 0.3 to 0.9 percent. 98 Measured by capital and loan loss reserves, the SCBs had fragile balance sheets. During the 1990s, their capital ade- quacy ratio was significantly below the 8-percent level recomm e nded by the Basel guidelines. 99 In 2001, the average capital adequacy ratio of th e four SCBs was only 4.95 percent, about half the level recommended by the Basel guidelines for banks in ernerging m arkets .1 00 However, the most serious weakness of the SCBs-and of the Chi- nese bankin g system-is the huge amount of NPLs. Although the Chi- nese government spent more than $200 billion to recapita li ze the SCBs and reduce their NPLs from 1998 to 2001 , the imp a ired asset ratio in the banking system has remained stubbornly hi gh, m a inly b ecau se the recapitalization of b anks has not b een acco mp a ni ed by more systemic reforms, and new NPLs have been generated in large volumes. For ex- ample, the official NPL ra tio in 1999 was 25 percent. But in 2002, after the transfer of 1.4 trillion yuan of NPLs was comp leted and the asset base of the four SCBs increased considerab ly, their NPL ratio was still 25 percent, implyin g a rise of NPLs in abso lu te te rms. 101 lndeed, from 1998 to 2002, 1.7 trillion yuan in new bad l oa ns were created in the four SCBs. 102 Official data released in 2003 showed that , as of September 2003, the NPL ratio was 21.38 percent for the four SCBs and 18.74 percent for all major financia l in stitutions (based on the -- 129 of 306 -- 118 C hin a's Trapped Transition five-category classification). But Standard & Poor 's estimated in 20 03 that the real NPL ratio in China's banking sys tem was about 45 per- cent, more than double the official Chinese figure. The r ate of recov- ery on NPLs was estimated to be on ly 20 percent. The U .S. rating agenc y deemed the C hin ese banking sec tor technically insolven t. It would take at least fifteen yea rs to bring the NPL ratio in the banking sector to 5 percent. 103 Po o r Governa n ce and Corruption In addition to politically directed lending, poor governance and weak management have also contributed to the deteriorating performance of China's banks. By international standards, Chinese banks have woe- fully weak internal control. For e xample , in 2003, int e rnal aud iting staff in Chinese banks acc ounted for only 1 percent of the bank em- ployees, compared with 5 percent in W este rn banks .104 Accountabi lity h as rarely been e nfo rced . In a survey of bank em ployees in 2002, 20 percent reported that absolutely no action was taken even when mis- takes that resulted in bad loan s were discovere d ; 46 percent said " no efforts are m ade to uncover bad l oa ns , so peopl e [respo n s ibl e fo r mak- in g bad l oans] are not held accountable." 10'" Re searc hers hav e docu- mented syste matic looting and abuse by insid ers in th e banking secto r in th e 1980s a nd 1990s. 106 A large number of senior bank execu tives, in- cluding the presidents of BOC and CCB, have been jailed for corrup- tion. In 2003 a nd 2004, f our ofth e five most se ni or exe cutives ofBOC's H ong Kong sub sidiary, including its president, Liu Jinbao , were ar- rested on c orruption charges . Government investigators found that the funds Liu stole from th e bank , as well as th e bribes he had acce pted, exceeded 41 m illion yuan. 107 In the worst case of insid er l oot in g, man- agers at a BOC branch in Kaipin g, Guangdong , sto le $483 million from 1997 to 2002. 108 Th e amount ofmoney involved in uneaver ed corruption cases in th e b an king system h as often b ee n staggering. Audits conducted by the Na- tiona l Audit Adm ini stration in 1999 unea vere d 400 billion yuan in mi s- used funds at 4,600 branches of the ICBC an d 1,700 br anc he s of the CCB.109 Aseparate audit of th e Agricu ltural Development Bank (ADB) in 2001 reveal ed that between 199 5 and 2000, the h ead office ofthe ADB used illega l means to siphon off 57 million yuan to cover questionab le -- 130 of 306 -- Re nt Proreetion a nd Dissipation 119 administrative expenses. In addition, from 1996 to 1999, the ADB ille- gally appropriated 800 million yuan in stock speculation, with profits pocketed by the insiders. In its audit of the Guangzhou branch of the CCB in 2002, th e N at ional Audit Adminis trat ion found pervasive cor- rupt practices and irregularities, such as the concealment of income, fraudulent accounting, hidden slush funds, and fraudulent issuance of loans. 110 Poor governance, corruption, and irregularities appear to have contributed to the issuance of a large number of risky loan s, par- ticularly to real estate developers. In its insp ection of bank lo ans in 2002, PBOC found that, of the 146.8 billion yuan in real estate loan s is- sued by banks fromjune 2001 to September 200 2, two thousand loans worth 35 billion yuan (25 percent of the total amount reviewed) were made in violation of regulations. 1 ll A Iandmark study by two of China's leading financial economists in 2002-2003 documented the magnitude of corrup tion in China's bank- ing system. The director of research at the PBOC, Xie Ping, and his co l- l eague , Lu Lei, surveyed 3,561 bank employees, enterprise managers, farmers, and private entrepreneurs in twenty-nine cities in 2002. 112 In response to their question on whether "financial institutions use their power of credit/ capital allocation to e ng age in corrupt tran sactions," 37 percent of the respondents thought such a practice was "prevale nt" and an add ition al 45 .2 percent believe it was "quit e often." Forty-five p erce nt also said that they must "give some goodies" as "extra costs of obtaining credit."m On average, firms had to pay bribes equal to 3.9 percent of the loan a mount to obtain ba nk cred it and offer an ad- ditional 4.9 percent in maintaining relationships with the banks. F or individual farmers, they must pay 5. 9 percent of the loan amount to get credit and 2.9 percent to keep the relationship. It is worth noting that the extra costs of borrowing (bribery) for firms were exactly identical to those paid by individual farmer s- 8.8 percent of the loan amo unt to get credit and maintain access to bank lending. Levied on top of the nominal official rates, this "bribery premium " of 8.8 percent brought real inter est rates of loan s from banks close to th e rates on the private cred it market ( the curb market rate was about 10 percent above the official rate) . This implies that th e true cost of cr edit was high for Chinese firms a nd farmers, even though bank insiders captu r ed the difference-tens of billions of yuan every year.114 Indeed, the same survey of bank emp loyees showed that "t he -- 131 of 306 -- 120 C hin a's Trapped Transition authority to make loans" and the "relationship w ith clients ," not per- formance , determined the level of income of bank employees. As a result, top bank managers and loan officers had the hi g he st in co m e . Respondents to the survey estim ated that the hidd e n in come of bank managers like ly comprised 48 percent of th e ir aggregate indi vidu al in- come; for loan officers, the figure was perhaps 31 percent.115 Analysis In re trospect , th e Chinese government's be late d , costly, an d la r ge ly un- successful attempt to reform the ba nking sector s hould not be surpris - ing. Like grain procurement and telecom services, banking is one of the "commanding heights " that the governm ent cannot afford to aban- don. Ind eed, given the crucial importa nc e of the banking sector's ro le in a ll ocating capita l, which is one of the scarcest resources in develop- in g cou ntri es, this sector is eve n more important to m a inta in th e CCP's ab ility to protect its patronage system and base of support. vVith 1. 7 mil- lion employees, 150,000 branches nation wide , and, most critically, assets totalin g 13 trillion yuan , no other economic organization or net- work cou ld rival th e power of the four SCBs in all oca ting r eso ur ces a nd securing po liti ca l support. ll o Inde ed, it wou ld be politically risky, even unthinkabl e, for the CCP to willingly ce d e its contro l of thi s eco nomic artery at the early phase of th e econom ic transition through r ea ll iberal- ization and destatization. Constrain ed by the overr idin g l og ic of politi cal su rvival, the Chinese government's strategy for reforming the bankin g sector has b ee n fo- cuse d on ensuri ng the state's c ont r ol even in an overall environment of economic lib eralizatio n. Such c ontrol h as b ee n main tained by k ee ping out co mpetition from dome stic pr ivate ac tors and fore i gn banks a nd by, even amo n g state-affiliated financial in s titutions , giving the four SCBs a virtual monopol y over th e banking sector du r ing the reform era . There is in thi s regar d a str iking similarity be twee n th e govern - ment's effo rt to protect the virtu al monopo ly of th e SCBs and th e MPT's pers iste nt- a nd successfu l-ca mp aign to prevent o th er (new) state-affiliated c omp eti t ors fro m grabhing a significa nt sh are of the tel eco m services m a rke t. An obv ious exp lanat ion is bu reau c rati c politi cs: es tablished m o nop- olies such as the MPT ( an d its spin-o ffs su ch as C hina Te lecom and C hin a Mobil e ) and the four SCBs e njoy more bu reau cratic clout wit hin -- 132 of 306 -- Re nt Proreetion a nd Dissip atio n 121 the regime, and they are reluctant to see their privileged po sitions threatened by new entrants. But this explanation does not address another puzzle. The top leadership is the ultim ate arbiter in d ecid ing th e winners a nd Iosers in such bureau c ratic t urf wars. To th e exte nt th at the top rulin g elites are aware of the aggregate benefits of im- proved efficiency that would flow from liberaliz a tion and competition in these sectors, they should ri se above the fray and favor more liberal- ization and co mpetition. vVhy did the top l ead ership side with th e exist- ing m o nop oli es ? A plausible an swer is that the introductio n of n ew entrants, even state-affiliated, would likely p r oduce an orga n izati onal s ho ck to the ex- isting patronage system and threaten to disrupt the CCP's ability to al- locate critic al resources. It is worth notin g that the CCP itself has a highly ce ntralized structure of power. Ideally, a centralized political s tru c tu re is best served by a centralized economic decision-m a king structure. In the Chinese co n text, even creat in g competition withou t real destatization would Iead to more econ omic d ece ntra li zat ion . Even though two of the hallmarks of China's gradual reform were fi sca l and administrative decentrali za tion , it is worth noting that Beijin g co n- ceded its co ntrol over fiscal policy gradua lly a nd rel uc ta ntly, and, sta rt- i ng in 1994, b egan to recentralize the fiscal system. I ro nic a ll y, th e central a uthorities ' concess ions on fiscal d ece ntrali za- tion guarantee th at they will m a int a in ce ntr alized control over cre di t allocation as a vital means of regime survival. In the context of declining on-budget fiscal re venu es and rapidly incr eas in g h a usehold d e po sits in th e banking system, contra Hing th e banking sector makes much more sense for the central authorities . Decentrali zing the banking system fo l- lowing fiscal decentra lization , even among n ew state-affili ated actors, would definitely und er min e th e ce ntra l co ntrol of cred it a llo cation, with pot e ntially severe politi ca l rep e rcussion s. Ye t, the para dox of rent p rotection a t the sec to r Ievel an d rent di ss i- pation by insid ers means that it is al so very costly to m ai nta in an unre- formed ba nking sys tem. Eve ntu ally, the co mbined effects of sec toral in efficie ncy a nd ren t d i ssipation wou ld thr eate n th e st a bility of th e e n- tir e financia l system a nd demand governmen t action . In C hina' s case, the governm e nt was forced to introdu ce gr adua l r efo rms to sl ow th e deterioration in the banking secto r. In the ear ly 1990s, as the SOEs' financ ial p erformance wo r sened dr ama ti ca lly, actio nwas urg ent ly re - qu i red. In a ddition, th e overh eating in 1992-1 993, blamed m a inly on -- 133 of 306 -- 122 C hin a's Trapped Transition the government's loss of control over bank credit, and the effective takeover of economic polic y-making by areformist leader, Vice Premier Zhu Rongji, precipitated the reform measures adopte d in 1994-1995. But these incremental refor ms h ave made m argin al impr ovem e nts at best. With the exception of the streng thenin g of the centra l bank, these reforms have not improved competition or transformed the SCBs into real commercial banks. Indeed, none of th e reforms adopted were intended to e nd the state's monopoly of credit allocation, and indi- rectly threaten the r egim e's ab ility to distribute rents. The results of such partial reforms have been all too predictable: the banking system has remained under the control of the sta te and retains its vital func - tion as a conduit of politically directed credit, and the deterior atio n of assets has accelerated. Less than a decade aft er these partial reforms, the government was forced to dip into its l ast cash reserves-th e cou n- try's foreign exchange reserve-to shore up the frag ile banking system. Revealingly, the bank bail-out package unveiled in early 2004 gave no sign that th e government wou ld relinquish its control over the banking sector. Even after capital injection , corporatization, and stock market listing, the s tate will retain its majority owners hip in the re structure d former SCBs. Domestic private entra nts still face hi gh hurdles. Eve n China's entry into the vVTO wou ld have a mod e st im pact on re ducing ba rriers to the entry of foreign ba nks into th e C hin es e m a rket.117 In other words, despite the hu ge economic costs, the government see ms as determined as ever to defend the sector to w hich the CCP's own security h as been inextricably linked . The Economic Costs of Gradualism In evaluating gradualism, its proponents tend to overlook and down- play the accumulated costs of partial reforms and reversals and the im- pact of such reversals on the overall reform process. In the Chinese case, such partial reforms and reversals, two step s forward and on e step back, have been th e hallmark s of mosttop- down reforms. When l ooked at individually and within the political context at the time of a doption, these partial reforms migh t appear to be positive, a lb e it sma ll, steps fo rward. Although their costs, both in terms of residual rents a nd op- portunity costs, were recognized, they were judged tobe outweighed by potential gains from the a doption of reform . And in fact , on ba l- -- 134 of 306 -- Re nt Proreetion a nd Dissipation 123 ance, incremental reform has been better than no reform. However, economic reform is path-dependent: bad initial partial reforms lock decision makers into a certain path and constrain their future choices with the mounting costs ofreversing mistakes. Flawed reform measures have high reversa l costs not only in terms of opposition from vested in- terests, but also in terms of reputation loss for reformers. lndeed , re- formers cannot afford to suffersuch reputationlasses too often if they wish to sustain political support. In addition, the gains from such partial r eforms frequently turned out to be considerably smaller than expected or even nonexistent alto- gether, while costs were huge or exceeded expectations. It is easy to assume that an incremental reform step would be "Pareto positive" or efficiency-e nhancing. What is not sufficiently recognized, however, is that each incremental reform ste p is a carefully negotiated policy move and embodies compromises that permit continuation of economic in- efficiency. Under the right c ircumstances, partial reforms may produce more efficie ncy gains. But because residual ineffici enc ies are politically protected , it is equally likely that the costs of maintaining such residual inefficiencies may be high or even exceed any efficiency gains from partial reforms. The best example is perhaps China's introduction of the so-call ed contract system in the 1980s in reforming its SOEs. Basedon the model of the rural haus e hold responsibility system, this measure was initially thought tobe capable of giving SOE managers new incentive s to im- prove th e performance of their firms with spec ific targets and more managerial autonomy-without t auehing the sensitive ownership is- sue. But the net result of this measure was asset-st ripping and long- term deterioration. Insiders in SOEs improved short-term performance to maximize their pay a t the cost of deteriorating balance sheets and as- set quality. The reform was unceremoniousl y abandoned in the early 1990s. 118 How Marketized ls the Chinese Economy? The degree to which market forces determine econom ic activities in a transition eco nomy is an importa nt measure of the success of reform, regardless of the mode of transition. In assess in g the achievements of China's gradualist approach, a crucial yardstick is the degree of -- 135 of 306 -- 124 China's Trapped Transition marketization of the economy. U nfortunately, marketization is, at most, a subjective measurement. Estimates reached by Chinese scholars show that, at an aggregate level, the marketization of China's economy in the late 1990s was about 50 percent, implying that the transitionwas perhaps only half-complete. 11 9 There areenormaus variations across regions and sectors, however. According to an official report , the level of marketiza- tion is higher for commodities and lower for factor inputs. The financial sector is the least marketized. Coastal areas in the east are more market- ized than the weste rn regions. 120 In this section, we will use a variety of economic indicato rs to assess the degree of marketization in C hin a twenty-five years after the introduction of gradualist economic reform. SOEs' Share ofEconomic Output and Employment To the extent th at direct ownership of firms allows the state to control or influence economic activities, the share of economic output from SOEs should be an important measure of marketization. The high er this share, the lower the degree of marketization , and vice versa. By this measurement , the Chinese economy can be said to have been signifi- cantly marketized. Official figures indicate, for exampl e, that SOEs (including firms controlled by the state through majority holding) ac- counted for 44 percent of the gross industrial output in 2001, a decline of 20 percent from 1985. 121 Employment in SOEs has experienced a drop of similar magnitude. In 1985, employees in SOEs accounted for 68 percent of the industriallabor force; by 2001, the figure was down to 48 percent. 122 Tak en together, however, these aggregate data su ggest that, despite dramatic progress in marketization, the state retains an important presence in China's most important economic sectors . In particular, the state has maintained its monopoly or near-monopoly in several ke y sectors, such as telecom, banking , energy, power genera- tion, civil aviation, and rail transportation. The control over these im- portant sectors allows the government to have an abi lity to influence economic activities- and distort the market-that is perhaps far greater than its share of total econom ic output would indicat e. Th e State's Influence in Commodities and Factor Markets Most economists agree that China's commodities markets have been more fu lly lib eralized than its factor markets. The percentage of prices -- 136 of 306 -- Re nt Proreetion a nd Dissip atio n 125 for commodities set by the sta te has fallen significantly. At the begin- ning of reform, in terms of aggregate value , the s tate set the pri ces for 93 percent of agricultu ra l products, 100 perc en t of industrial p rod uc- ti on materials, a nd 97 percent of r etai l com m od iti es .123 In th e mid- 1990s, according to T hom as Rawski, market forces determined the prices of 93 percent of retail commodities , 79 percent of agricultural products , an d 81 percent of production materi a ls. 124 An official Chi- nese government research r ep ort claimed that in 2000, th e prices of 90 percent of agric ultur al pr oducts a nd 86 percent of production m a- teri als were set by the mark et .125 But these numb ers may h ave grea tly understated the government's effective contro l in setting prices . One Chinese economist argued that the government 's ability to set prices for coal, steel, railroad tran s portation, emde oil, electricity, and other goods and se rvices gave it enormaus influ e n ce . As a r es ult, only about 60 percent of th e prices in C hina in th e mid-1990s we re f ully set by th e marke t. 126 In th e factor markets, th e state has m aintai n ed considerable co n tr ol. By one estimate, the level of marketization in the labormarket was be- low 30 percent in the mid-1990s because of the g overnment-impo s ed re strictions o n the lab or m a rk et, espec ia lly on the flow of rural la bor i nto the cit ies. 127 But two other estimates suggested a higher level of marketization (in the range of 65 to 70 percent) . 128 Th e state co ntinues to dominate the real e state m a rke t, m a inl y through its owners hip of land and restrictions on land transfers. Similarly, the market for corpo- rate control h as not fully e m er ge d in China as a r es ult of govern me nt limits on transfers of ownership rig hts. C hi na's p rog ress in developing a market for technologies h as been very s low due to the weak protec- tion of inte ll ectual property rights. 1 29 Without d o ubt, th e financi al sector remain s the l east marketized. Even the State Pla nning Commission admitted in its own assessment in the mid-1990s that the le vel of marke tiz ation in the financ ial sectorwas on ly 28 percent. 130 Rawski's study al so confirms that China 's capital marke t is least lib era li zed. Such conclusi ons are not surprising , given the governm e nt 's direct owners hip of the l argest banking a nd oth er fi - nan ci al institutions and its tigh t c ontrol over access to capi tal. Th e dis- torting effects of low m arke ti za tion on eco n o mi c ac tivities seem to be very large . Rawski argues that the government 's co n tro l over in vest- ment is responsib le for a pattern of macroeconomic behavior indi ca- tive of a command econo m y, in stead of a market economy. His stu dy of -- 137 of 306 -- 126 China's Trapped Transition the seasonable fluctuations of the Chinese economy shows that its quarterly performance is erratic and volatile, with huge growth regis- tered in the fourth quarter and !arge declines occurring in the first. Be- cause growth in China is largely investmentdr iv en and the govern m e nt maintains control ofmost investment capital, Rawski believes that suc h fluctuation is evidence of the government's strong influence in the economy. 13 1 The degree of marketization also varies significantly across regions. Estimates by Chinese economists suggest, for example, that the most marketized regions scored three to four times higher than the l east marketized regions on a range of indexes approximating progress in moving toward a market economy. 132 A study led by Fan Gang shows that, in 2000, Guangdong was rankedas the mo st marketized province (scoring 8.41 on a 0-10 scale); it was followed by Zhejiang (8.32) , Fu- jian (8.10) , Jiangsu (7.90) , and Shandong (7.15). By comparison , the least marketized five regions were Xinjiang (3 . 15), Qinghai (3.40), Ningxia (4.02), Shaanxi (4.15), and Shanxi (4.53).m The results of this study reconfirm conclusions reached by previous, albeit le ss rigor- ous, analyses that demonstrated that coastal provinces were more mar- keti zed than central agrar ian provinces, which were, in turn, more marketized than the western region. 134 Fragmentation of Domestic Markets One of the most serious criticisms of China's progress in economic re- form concerns the persistent fragmentation and distortion ofthe coun - try's internal markets. Chinese and foreign observers a like attribute such fragmentation and distortion to so-called lo cal protectionism- administrative barriers to trade and in vestment that are erected by local authorities. Among the var ious factors blamed for the emergence of local protectionism in the postreform period (some scholars argue that this phenomenon did not ex ist in the prereform era) , analysts have singled out administrative decentralization and China's unique form of fiscal feder a lism , which allows l oc a l govern m ents to profit di- rectly from the earnings of the firms through t axation .135 In many ways, loc a l protectionism has been further exacerbated by a weak and balkanized l egal system that permits l oca l political aut horiti es to pres- sure courts in their jurisdictions to favor lo cal firms . Consequently, -- 138 of 306 -- Rent Proreetion a nd Dissipation 127 judgments against firms located in other juri s dictions can rarely be en- forced and collected because of obstruction by the local authorities. An investigation of Heilongjiang province courts conducted by the Chi- nese People's Political Consultative Conference showed, for instance, that local authorities issued specific instructions to the courts to pro- tect sixty-seven firms that appeared to be losing their cases. The au- thorities explicitly told the courts not to render or enforce unfavorable judgments against these firms. m Empirical analysis by Alwyn Young also demonstrates that th e devo- lution of economic power to local governments during Chin a 's eco- nomic transition is responsible for both the fragmentation of markets and the rising output growth. To the extent that localities are better suited to control the local economy than the central government , ag- gregate output will increase because of decentralization and not be- cause ofthe abandonment of control. The fragmentation ofmarkets in China is evident in massive industrial duplication, inefficie nt alloca- tion of factor inputs, local trade wars, and the emergenc e of regional autarky. 137 Research by other economists provides additional evidence of inefficiencies attributable to the fragmentation of markets . One study shows that economic in efficiency caus ed by irrational allo c ation of re sour ces on an inte rprovincial basis began to worsen in th e mid- 1980s a nd saw no impro ve ment in th e 1990s, largely as a r es ult of the fragmentation of markets. 1 38 Specifically, the fragmentation of markets affects both the product and factor markets. In the product mark e t, local governments e rect barriers to entry of products made in other loc alities and exports of raw mate ria ls. They typically employ a va riety of le gal a nd illegal methods, such as quantitative re strictions, regul a to ry hurdles (h ea lth a nd trade- m a rk inspections), and imposition of fees ( equivalent to local tariffs). For example , eighteen provinces have regulations that bar or Iimit the sale of alcohol produced in other provinces. 139 Another striking ex a mple of the us e of fees to protec t lo cal produ c ers is in th e automobile se ctor. Customers who purchas e a utomobil es m ade in other areas are re- quir ed to pay a dditional costs for ve hicl e registration a nd insp e ction. In 1998, the tot al amount of fees levied on vehicles was 160 billion yuan, about h a lf of which was judged unauthorized or illegal. In the meantime , th e automobil e industry mad e only 4 billion yuan in profits in th e sa m e yea r. 140 There is evid en ce th a t links m a rke t fr a gm e nta tion -- 139 of 306 -- 128 C hina's Trapped Transition with slow growth in interregional trade. From 1985 to 1992, China's exports and imports grew, respectively, 17 and 10 percent annually, but interprovincial trade grew only 4.8 percent a year in the same period- despite annual re t ai l sales growth of 9 percent per year in the same period. 141 Fragmentation also affects the factor markets . An IMF study suggests that China 's capital markets remain highly fragmented. Cross-regional capital mobility within China in the 1990s was comparable to the cross- national capital mobility in developed mark et economies. 142 In the Iabor market, loc al governments protect their local residents from competition posed by migrants by forcing firms to favor lo ca l residents in their hiring and by increasing the costs for migrants seeking em- ployment through the imposi tion of fees, the requirement of resi- dence permits, and the need for certifications of skills. China 's internal capital markets are fragmented as weil because local political interfer- ence has impeded the flow of domestic capita l and transfer of corpo - rate control. Local authorities habitually Iimit outflow of lo ca l capital and restriet investment by nonlocal firms and their acquisition of local firms.l43 Chinese enterpr ise managers report widespread practices of l ocal protectionism. A survey of 3,539 enterprise managers nationwid e con - duct ed by the official Development Research Center in 2002 showed that local protectionism was prevalent in all provinces. Respondents singled out Henan, Shanghai, and Beijing as jurisdictions with the most discriminatory policies against nonlo cal firms, followed by Hubei, Shandong, Hebei, and Hunan. Local protectionism was found to have no relationship with the Ievel of economic development-the poorer agrarian provinces in the centra l region were as guilty as the more industri a li zed coasta l provinces. The survey also found that local pro- tectionism was costly for Chinese firms. Thirty-four percent of the man- agers reported that such practices affected their operations "a great deal or quite significantly," and 35 percent reported a "fair impact." Only a third said such practices had small or negligible impact. Local protection ism appeared to hurt the firms in the poorer western and central provinces more than those in th e more prosperaus coasta l re- gions, except for firms in Shanghai, Beijing, and Shandong. Among various industrial sectors, the most seriousl y affected were tobacco, pharmaceuticals, petroleum refining , printing , food processing , plastics, -- 140 of 306 -- Re nt Proreetion a nd Dissip atio n 129 and ele ctrical machinery. The least affected we re textiles and gar- ments , synthetic fibers, and electronic communications equipment. Ironicall y, SOEs, which relied on other provin ces for marke ts and raw materials, were m ore n ega tively affected than private firms, whic h were small in size a nd did little business in o th er lo calities. The least affected were foreign-invested (including Hong Kong and Taiwan) firms, ap- parentl y because such firm s relied more on the international market for exports and imports. 144 The fr ag m e ntation of lo ca l m a rkets creates l arge distortions and in- efficiencies, es p ecia lly when lo ca l governments en gage in investme nt activities that duplic a te manufact uring capacities and generate nega- tive returns . An analysis of regional indu s trial s tructures shows that duplication of capacity remain s a core feature of the fragment atio n of int e rn a l markets in Chin a. For example, in 19 89, the indu strial struc- ture of twenty-two provinces was 90 percent identical to that of Ch in a as a whole . In 1994, th e industrial structure was 90 percent ide ntical in thirteen p rovinc es a nd 80 p e rc e nt id entica l in twenty-one. Such data suggest massive duplication of industrial capacities regardle ss of local comparative advantages. This characteristic persisted through the 1990s, as m ost provinces co ntinu ed to build up the ir own capac iti es to chase new deman d s. In 2001, twenty-th ree prov in ces manufactured wash in g machines, twenty-nine made te levisi on sets, twenty-three produced refrigerators, an d twenty-seven assembled a utomobil e s. W ithout chang- ing the underlying incentives for local governments, duplication of capacitywill remain a structural feature of the Chi n ese econom y. In e n- vision in g their l ong-term indu str ial goals, twenty-two province s li s ted automobile manufacturing as a pillar industry, twenty-four listed el ec- tronics as a pillar industry, sixteen listed machine-building a nd the chem i cal industry as a p ill ar indus try, and fourteen listed metallurgy as a pillar industry. 145 Duplication has led to low capac ity uti li zation. In 1996, te xti le and oil refini n g indus tr ies operated on ly at 70 p ercent of capacity. The uti- li zation rate was 60 percent in th e machine-too l, copper process in g, to- bacco, an d a lcohol spir its secto rs, a nd 30- 50 percent in th e hom e app l iances sector ( tel evisions, refrigerators, and washing machin es ). Of th e nin e ty-four major categori es of indu str ial products, there was excess capacity in sixty-on e, a nd the capac ity utiliza tion rate was be low 50 percent in thirty-five of th em . 146 -- 141 of 306 -- 130 C hin a's Trapped Transition Official data also show a close connection between duplication of ca- pacity and lo ss of economie s of scale. Take the most notoriou s example of full-assembly automobile plants: China had 116 such pl a n ts in 1996, with average a nnu al output of 12,600 per plant. Only 18 were making more than 10 ,0 00 per year. There were about 6,000 paper mills in the late 1990s, with an average capacity of 4,000 ton s per plant (less th an a tenth of the international average). Of the country's 800 beer breweries, only one-tenth reached th e minimum capacity of 50,000 ton s.1 47 Another indicator of l ow eco n o mi es of scale is C hin a's low concen- tration ratio, that is, the mark et sh are claimed by the l argest firms in a country. More fragmen ted markets typically have lower ratios, implyi ng a Iack of economies of scale. In the Chinese case, official fi g ur es indi- cate that this ratio has been unusually low, compared with both devel- oped and developing eco nomi es.1 48 In 19 85, th e concentration ratio for the largest one hundred industrial firms in various sectors averaged 14 percent; in 1990, the conce n tration ratiofe il to 12 p ercent; in 1995, it rose slightly to 16 percent. 149 Among the thirty- nin e major industrial sectors in th e mid-1990s, the largest eight firms in each sector accounted for less than 10 percen t of the market share ( m easu red by sales) in eigh- teen of them (these i nclud ed pape r, t imb e r, and beverages) . Econo - metric ana lys is performed by Chinese researchers showed t hat low concentration was responsib le for the sl ow tec hn ol ogi cal progress in Chinese firms. 150 In ternati onal Camparisans Although it was the first to la unch reform among st ate -socialist econ - omies, Ch in a's slow progress toward bui ldin g a market economy is evi- dent. A World Ba nk study published in 1996 showed that China's e conomic liberalization lagge d behind that of former state-socialist econ- omies in Eastern E urope that had adopted radical reforms (Po l and, Slovenia, Hungary, Croatia, the Czech Re public , and the Slovak Re- public). Forth is group, th e ave rage liberalization i ndexwas 6.9, com- p a red to China's 5.5. 15 1 Int ernationa l comparative data in 200 1 furt h er showed th at , if anything, th e gap in economic l ibera l ization between C hin a and the same Eastern European countries h ad remained vi rtu - a ll y unchang ed . According to an in dex of econom ic freedom com - piled by the Fraser Institute , China lags be hind Croatia, the Czech -- 142 of 306 -- Re nt Proreetion a nd Dissip atio n 131 Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and th e Slovak Republic , but is comparable to other laggard s in economic reform, such as Ru ssia, Ukra ine, A lbania, Bulgar ia, and Rom a nia. C hin a's eco- n om ic libe ralizatio n also falls b e hin d that of othe r l arge developing cou ntries, su ch as India, Mexico, South Mrica, the Philippines, a nd Brazil. 152 The above case studies and analysis of China's progress in m a rketizi ng its economy indi cate th at, despite the enor maus gains in output ach i eved und er graduali st r eforms s inc e 1979, the hid den costs of this approach are huge and und erstated . Of course , politic ally it h as been a brilliant success for the CCP because graduali sm has delivered all the expected political dividend s: it has given the party a new lease on life, he lped maintain its p a tronage system , and even provided it with more means to hold on to its power. But economica ll y, a quarter century of gradua list reform has only modestly ra is ed the effici ency in so me of China's most import an t eco nomic sectors. In st ea d, impo rta nt sectors such as grain procurement and banking have become weaker, not stronger. Consequently, two factors threaten the sustainability of grad- ualist reform. First, the massive b ui ld-up of financial deficits in these sectors (all r emain under state contro l) has greatly raised th e sys tem ic risks in the economy as a who le. Se cond, as dependent as ever on its control of the p atro n age provided by these critical sectors ( even as the financial conditions in the se sec tors progressively deteriorate ), the rul- ing e lites h ave likely bec o m e even mor e risk-averse, taking half-h earted short-term measures but shying away from deci sive reforms. As it hap- pened with other gradualist reform experiences in the former Soviet bloc countr ies, r eformwill ultimately lose mome n tum as it grows, both p oliti cally and econom i ca lly, more diffi cu lt and ri sky. -- 143 of 306 -- FOUR Transforming the State: From Developmental to Predatory IN THE THEORETICAL discussion on decentralized predatory states, I argued that the nature of the Chinese state has undergone a critical transformation during the reform era and, consequently, a decentral- ized predatory state has emerged. In this chapter, I apply the analytical framework developed in Chapter 1 to explain why such a state h as emerged in China during its eco nomi c transition.1 It concludes with a description of the r ise of the most extreme form of decentralized predatory state: the local mafia states. The lnstitutional Dynamics of Decentralized Predation The underlying causes of the decentralization of state predation can be traced to four institutional factors: the decentralization of property rights, the declining monitoring capabi lity, the avail abi lity of new exit options, and the erosion of id eologi cal norms. I now discuss in detail how changes in these institutional variables have transformed the Chi- nese state into a decentralized predatory state since the l ate 1970s. Corruption and Decentralization of Predation The decentralized predatory state perspective provides a u sefu l analyt- ical tool for understanding corruption. In the centraliz ed predatory state, corruption tends to be centra liz ed as weil, with the regime 's top Ieaders being the most corrupt figures and gaining a large share of the 132 -- 144 of 306 -- Transforming th e State 133 looted wealth. In a decentralized predatory state, however, corruption is also decentralized. Viewed from this perspe ctive, the emergen ce of a decent ra li ze d predato ry state in China should be examined in the con - text of th e decentraliz atio n of co rrupti on that h ave occurred in C hin a since 1978. The rising Ie vel and scope of corruption have been exten- sively studied and documented. Compared with the prereform era, post-1978 corruption is notable not only because of its rapid grow th, but also because of its dec entra lized characteristics, as corrupt activi- ties p e rm ea te n early all public s ecto rs a nd a lll evels of th e state .2 Re- sults from public opinion polls, which cons isten tly show th at official corruption h ad become one of the top three iss ues regarded as "of great concern" by the Chinese public in th e 1990s, appear to support this view. ~ There were few reli a ble estimate s of the Ievel and scope of corruption , howeve r. Out of fear of losing le gitimacy or revealing its ine ffectivenes s in flghting corruption, th e Ch in ese government do es not provide syste m- atic data on offlcial corruptio n. N everthe less, offlcial reports on th e growth of the number of corruption cases investi ga ted and prosecuted by antigraft age ncies and courts may provide some clues on th e exte nt of corruption . Th e numb e r of cases inves tiga ted by vario us anti co rrup- tion agencies gr ew at an a nnu al rate of9 percent from 1993 to 1999, and the number of individuals investigated by th ese agencies in th e sam e period grew at an annual rate of 12 p ercent. 4 In add ition , if the num- ber of people accused of corru ption is used as an indicator of the scope of corru pti on, and the a m ount of m on ey in volved in corru p t activities is re ga rd ed as a measurement of th e level of corruption, then offlcial data would i ndi ca te a consistent i ncr ease in both the scope an d the Ievel of corruption (Tab le 4.1 ). Th e share of co rruption cases ch arac- ter ized as " lar ge" (involving l arge sums of money) doubl ed from 1990 to 2002, sugg esti ng that the Ievel of corrupti on , as measur ed by th e amo u nt of money involved, ro se at le ast twofold in twelve years (after adjusting fo r inflation) . Tab le 4. 1 shows that the scope of corru ption (th e type of offl eia ls in- volved ) h as expanded grea tly. Compared w ith the early 1990s, wh en hi g h-rankin g offleials (a t county Ievel or a bove , accord i ng to the offi- cial deflnition) were impli ca t ed in abo ut 2 percen t of all cases, th e share of pr osec uted corrupt ion cases in volvin g hi g h-ranking offleials rose threefold in a twelve-year p eri od . The number of h igh -r a nkin g -- 145 of 306 -- 134 Chin a's Trapped Transition Table 4.1. Increase in Major Corruption Cases, 1990- 2002" Share of Cases Number of Share of Large-sum Involving High- High-ra nking Corruption Cases ranking Offleials Offleials Year (p ercent) (pe rcent ) Prosecuted 1990 22.7 1.7 1,386 1992 40.6 1.0 652 1994 47.5 2.6 1,768 1996 57.1 3.6 2,46 1 1997 68.3 3.8 2,222 1998 31.7 4.9 1,674 1999 34.0 5.7 2,200 2002 42.8 6.1 2,925 Sourc es : ZGFLN], various years. " Cases in vo lving !arge sums of mon ey, called da an, are deflned as those in which th e sums of embezzlement a nd bribes excee ded 10,000 yuan ; this sum was raised to 50,000 yuan in 1998. Cases involving hi gh -ranking offlcials, called yao an, are deflned as those in which government offleials at or above the county ( xian) or department (chu) Ievel are implicated. offleials pros ec uted annually more than doubl ed du r ing the sam e pe- r iod . The effects of corru ption perpetrated by hi g h-ran kin g offleials are far more insidious than th at by junior offlcials. Obviou sly, b ecause high-rankin g offleials serve as age nts monitarin g the behavior ofjunior agents, corrupt high-ra nkin g offleials can h a rdly be relied o n to p er- form thi s function effec tivel y. Worse sti ll , their ve nal ha bits are like ly to insp ir e thei r subordinates to e ngage in similar c orrupt ac tivities, thus multiplying the effects of co rruption. The phenomenon of a co rrupt top lo cal offlcial, or yibashou (number- one Iead e r) , merits special attention. According to the dec en tralized predatory sta te perspective , pred a tion becomes effectively decentrali zed when lo cal strongmen c hoo se to appropriate to themselves th e power of high er publi c authoriti es a nd mon opo lize th e extractio n of reve nu e s, even th o ugh such ac tion is illegal. To be sure, few Ch in ese yibashous cou ld forma lly a ppropri a te the s tat e 's flscal power, but their nearly un- c hall en ged po liti cal authori ty in sid e their juris di c tions-a nd th e ir abuse of such au th or ity-grant them probab ly most of the prerogati ves of an ind epe nd ent political monopolist . Durin g th e 1980s, dom in eerin g and -- 146 of 306 -- Transforming the State 135 corrupt yibashous were relatively rare. But since the early 1990s, the power of yibashous has expanded considerably, mainly because the CCP failed to implement reforms to make the party itself more democratic. In a survey of 11,586 party members in Sichuan province in 1999, one-third said that their local party bos ses monopolized decision making. '' The concentration of power in local strongmen has led to a rapid increase in the number of corrupt yibashous. From 1993 to 2003 in Henan province, for instance , the provincial procuratorate investi gated and punished 4,123 yibashous for corruption, accounting for 12 percentofall the embez- zlement and bribery cases prosecuted in the period. About 40 percent of these corrupt yibashous were chief executives of SOEs, and 30 per- cent were grassroots-level rural cadres. Such local and departmental in- dependent monopolists appeared to have grown more rapacious as well. In Henan province, yibashous were implicated in 52 percent of the daans (major corruption cases measured in terms ofmoney involved) in 1999; in 2003, they were involved in 75 percent of the daans.6 In the infamaus Shenyang case, 17 yibashous, including the mayor an d the heads of the city's intermediate court, procuratorate, construction commis s ion , fi- nance bureau, state asset bureau, tax bureau , and price bureau , were convicted of co rrupt activities, including protecting a local mafia boss. 7 The Growing Size of the Chinese State The size of the state is the primary determinant of the degree of state predation. Larger states require more revenu e for self-sustenance. As a rule, l arger states are expected to h ave high er leve ls of corruption because they employ more agents and thus have more serious agency problems (it is more difficult to monitor and police l arge numbers of agents) . Estimating the size of the Chinese state, however, presents a difficult challenge for two reasons. First, the official data regarding the number of state employees are hardly reliable and tend to underreport their numbers. Second, the true costs of maintaining the Chinese state arealmostimpossibl e to measure. One of the ways to measure the size of the state is to count the num- ber of agents employed by the state . By this standard, the Chinese sta te is large in absolute terms a nd has been growing r ap idly in the reform era despite the government's repeated downsizing efforts. 8 Official data show that the Chinese state, when measured by the number of -- 147 of 306 -- 136 China's Trapped Transition offleials and employees in government agencies (excluding teachers and those working in nonprofit government institutionssuch as ho sp i- tals), had an average annual growth rate of 1.8 percent from 1953 to 1978. But from 1979 to 1990, the rate was 6.7 percent-more than three tim es high er than the rate prior to reform. 9 Because of the lack of a uniform standard of classirying state agents and the routine underreporting of personnel employed by the sta te at various levels, however, there are few authoritative estimates. At the hi gh end of the estimated range, China appears to have had more t han 40 million cadres in 2000. 10 Official figures report that, excluding doc- tors and teachers, the number of employees in government agencies, CCP organizations, and other state-affiliated social organizations was 10.75 million in 2002, more than double the figurein 1978. 11 The offi- cial data probably underr eport the number of state agents. It is very likely that the true size of the Chinese state is much larger because lo- cal government offleials routinely underreport the number of their employees to conceal th e problern of overstaffing. In 1990 , for example, the data released by the most authoritative agency, the Office of the Central Government's Staffing Commission ( zhongyang bianzhi weiyuanhui), indicated that the number of excess personnel at various levels of the state was 55 percent larger than that authorized by the government (Table 4. 2) . 12 If anything, overstaffing may have become worse during the 1990s because the government has not been able to streamline its operations. It is worth noting that the pattern of overstaffing is illustrative of the ch aracte ristics of a decen- tralized predatory state. In the Chinese case, overstaffing is most seri- ous at the lowest level of the Chinese state-district and township governments . While the number of excess personnel at the higher Iev- els of government (except for prefecture government) was, on aver- age, 15 percenthigh er than the authorized Iimit, the number of excess personnel in district and township governments was 157 percent higher than the authorized Iimit in 1990. In fact , excess personnel in district and township governments accounted for about 80 percent of all the excess personnel in the Chinese state that year. The ac tual size of the Chinese state, especially at the lo cal level, may be even l arger than th e official figures indi cate . For exa mpl e , most local governments have used the practice of yigong daigan (substitute cadres) to keep excess personnel on the payro ll. In 1991, 6 million -- 148 of 306 -- Transform in g the State 137 Table 4.2. Exce ss Personnel in Pa rty and Gove rn me n t Agencies in 1990 (in 1,000)" Num berof Actual Excess Officials a nd Num ber of Numb er of Levels of Empl oyees O ffi cials a nd Offl eials and Excess Rate Government Authorized Employees Employees (%) Provincial 269 315 46 17.3 Pr efe ct 147 197 50 34.0 Mun ici pal 1,380 1,610 230 16.7 County 1,710 1,940 230 13.4 Towns hip an d District 1,362 3,500 2,140 157 .1 Total 4,868 7,562 2,694 55.3 So u rces: Zhongyang j igou bianz hi weiyua nh ui bangongshi (Office of the Central C'70vernmen t s Staffing Commission), Zhongguo xingzheng gaige da qushi (Major Trends in Chinas Administrative Reform) (Beijing: J ingji k exue eh ubans he, 1993), 24 7, 411 . Ren Xiao, Zhongguo xingzheng gaige (Administrative Reform in China) ( Hang zhou: Zheji ang renmin chub anshe , 1998), 242. a These fi gu res do not include police and judicial personnel. government offleials were em pl oyed under this class i fieation. 1 ~ Un like eadres emp l oyed in the official nomenclatura l system, substitute eadres work as governm ent offleia ls bu t d o n ot h ave f orm al officia l ran ks. They are not included in th e employment d ata f or government offi- eials. If th ese su b stitu te cadres are include d in th e es tim ate of th e size of the Ch i nese state in 1991, the n u mber of peop le em pl oyed in provin- eial an d loca l governme n ts was about 1 3.5 millio n ( exclud in g teae h ers, doctors, jud ges, and po li ce offi cers ). T h e actual size of th e Ch in ese stat e, b el ow th e leve l of th e cen t ral government, was t hu s ab ou t 180 p ercent !arger th a n th e a uthori zed limit. Wi th risi ng overstaffing , the costs of ma i nta in i ng the C hin ese state have been growi ng in bot h abso lute and re lat ive terms si nce th e l ate 1970s. As a share of t he nationa l budget, admin istrative costs jumped from 5.3 percent in 1978 to 18.6 percent in 20 02 .14 In abso l ute ter m s, admin i strat ive ou tlays grew seven ty-six times in twen ty-four years, or aver agin g 318 perc ent a year (u n adju sted fo r in flatio n). In th e sam e per iod, by compar i so n , budget reve n ues rose 65 percent each year (un - adjusted for inflation) . Administrative expenditures outpaced overall -- 149 of 306 -- 138 C hin a's Trapped Transition budget revenues by 11 percent annually. 1'' Durin g the same period , per- sonne! costs wirhin the administrative budgetalso rose in relative terms. In 1978, sa lary costs for personnel working in various government age n- cies (including the Communist Party) accounted for about 55 perce n t of the total administrative budgets in 19 78; they amoun t ed to 64 per- cent in 1998. 16 In the meantime , rising admini s tr ative costs seemed to have squeezed out public expenditures on social investments and poverty- relief programs. For example , g overnment spending on the agricultural se ctor in 1978 was 13.4 p e rc e n t ofth e budg et; in 2001, it fell to 7.7 p er- cent. Resea rch a nd development spending d ecrease d from 4. 7 to 3.7 per- cent of th e budget from 19 78 to 2002. 17 Given the underreporting ofthe number ofpeople employed in the various bure a ucracies of the state, the actu al costs of maintainin g the Chinese state could be much l arge r than th e official data would sug- gest. Basedon the da ta co ll ected from various so urc es , th e re al costs of th e Chinese state should includ e both the budg et 's administrat ive costs and th e off-budget administrative costs incurr ed by excess p e rsonn el. Anecdotal evidence gathered from official sourc es shows that it is very costly to maintain a government official (salary, benefits , and office expenses). A cco rdin g to a Ministry of Financ e analysis of admi ni stra- tive expe nditur es in 1990 , the staffing costs for eac h gove rnm ent offi- cial emp l oyed in the state' s a dminis trative a gencies were 5, 000 yuan a year, a bout 2,900 yuan more than th e salary for an avera ge government employee in the same year. 1H Another estimate, made in the mid-1990s, rais ed such cos ts to a mu ch hi gh er Ievel. An an alyst at the Mini stry of Fin ance wrote that by th e end of 1996, eac h additional empl oyee in the ad ministr a tive appa r atus of th e state wou ld in crease a nnu al adminis- tra tive ou tlays by 10,000 yuan to 20,000 yuan in compensation, a nd 10, 000 yuan in office exp e nses, housing , a nd be n efits. 19 Th ese out lays apparently did not includ e the costs of entertainment an d vario u s hid- den perks for gove rnme nt officials. At the agg r ega te Ievel, it is impo ss ible to ca lcul ate the costs of e nterta inment a nd official junkets. Becau se governme nt poli cy formall y prohibi ts lavish spe ndin g on such activitie s, l ocal gove rnm e nts norma lly p ay for such ex p en ses usin g funds allo- cated fo r oth er spend i ng ite ms (such as ca pital investm e nt , e ducation , he a lth , a nd even poverty reli ef) . In man y in sta nces , such expenses a re not even r eporte d wh e n lo ca l gove rnment offleials use the ir own s lu sh -- 150 of 306 -- Transforming the State 139 funds accumulated through the collection of various-often illegal- levies and fees. 20 Overstaffing drives local authorities to raise additional off-budget rev- enues through fees and hidden taxes, many of which are declared ille- gal by the central government. Disdosures by official Chinesesources indicate that local authorities control a significant amount of illegally collected revenues. One estimate showed such revenues totaled about 10 percent ofGDP in the 1990s. 21 Such an extractive capacity has helped the Chinese local state to support its bloated staff. Indeed, the annua l growth rate of administrat ive expenditures in the government's off- budget account was, on average, 122 percent per annum between 1982 and 1992 (a period during which a uniform accounting standardwas applied to off-budget revenues). This rate was more than 30 percent high er than the rate of growth of administrative expenditures in the of- ficial budget durin g the same period. This evidence establishes the link between the growth of the size of the state and the increase in off-budget revenues. 22 Besides aggregate data, local reports also confirm the prac- tice ofusing off-budget revenues to support excess state personnel. 23 Decentralization of Property Rights A salient feature of China's economic reform is the decentraliz a tion of control rights (over the cash flow from operations of state-owned as- sets) from the national authorities to provincial/ local authorities. In- tended as an incentive to improve the efficiency of these assets, the decentralization of control rights fundamentally changed the sys tem of property rights in China. To be sure , the process of the decentral- ization of control rights was gradua l. In 198 4, the central government decided that the control rights of SOEs were to be delegated from the ministries and provincial authorities to major industrial cities where SOEs were located. Such control rights included , most critically, the rights to determine wages, benefits, and bonuses , as well as the use of capita l, thus making l ocal governments and SOE manage rs effective owners of these assets. The central governme nt , however, re tained its c ontrol rights over l arge SOEs in criti ca l sectors, such as power gen- era tion, telecom, petrochemic al industries , mac hine tools, and coal production. -- 151 of 306 -- 140 China's Trapped Transition Within a decade, the central government exercised effective control rights over only 5.4 percent of all the SOEs in terms of number (a l- though these large SOEs generated 34.8 percent of China's indu str ial output).~ 4 Decentralization of control rights contributed to decentral- ized predation through several channels. It created more opportunities for local offleials and SOE managers to appropriate the rents created by local monopalies and other political interve ntion. lndirectly, the presence of these assets with decentralized control rights would attract loc al predators, such as various government regulators and tax co llec- tors, who used tobe kept away by the political power of the central gov- ernment. Because SOE managers now in control of these assets were politically less powerful than these local state agents, the latter could demand various illicit pay ments from SOEs wit hout fear of political retribution , thus joining the looting of public wealth ( the liabilities of SOEs were ultim ately assumed by Chinese taxpayers). The trend of decentralization of property rights accelerated in the 1990s as the Chinese state further delegated the power to manage the state's most important asset-land. In the short term, the power to sell long-term land leases allowed a large number of state agents, mostly at the locall eve l, to profit from sweetheart deals made with their friends. These deals resulted in the one-time loss of an incalcu labl e amount of revenues for the state because the in itiallease terms were significantly undervalued to allow the awardees to qui ckly make an eas y and l arge pro fit. Fiscal decentralization and predation During the reform era, the re lationsh ip between the central govern - ment and the local governments has been fundamentally reshape d by deliberate policies and socioeconomic changes that have transferred a substantial amount of decision-making power to local governments. Theoretically speaking, the decentralization of decision-making au - thority from higher to lower levels of the state can be cons id ered as part of the decentralization of property rights. Among such changes, fiscal decentralization-the transfer of revenue-raising power from Beijing to the provinces-is a near-perfect example of th e decentral- iza tion of the state's property rights, as it grants public aut horiti es at low er levels a greater share ofthe revenue flows from the central state 's income stre a ms .25 -- 152 of 306 -- Transforming the State 141 The dramatic shift in the relative revenue-collecting capacities of the central and local governments is an important piece of evidence of the decentralization of predation in post-Mao China. However, fiscal decentralization is only half the story. It may be a ne cessary, but not a sufficient, condition for decentralized predation. In all likelihood, administrative decentralizatio'Yb--the devolution of decision-making power concerning countless routine administrative matters-is more con- ducive to the emergence of a decentralized predatory state. In China's case, moreover, fiscal decentralization and admi nistrative decentraliza- tion have jointly created powerful incentives for loc al authorities to adopt predatory policies and practices. As reflected in the official data, fiscal decentralization has resulted in three profound shifts in the Chinese state's fiscal activities, and the effects of s uch shifts have remained only moderately changed even af- ter the recentralization of the fiscal system in 1994. 26 First, the overall Ievel of revenue -generation as a share of GDP has declined dramatically (Table 4.3). On paper, total government revenues, including off-budget revenues , fell from 41 percent of GDP in 1978 to about 18 percent of Table 4.3. Government Revenues, 1978-2002" Budget Off-Budget Total Revenue Revenue Revenue (billion Percent of (billion Percent of as Percent Year yuan) GDP yuan) GDP ofGDP 1978 113.2 31.2 34.7 9.6 40.8 1985 200.4 22.4 153 17.0 39.4 1990 293.7 15.8 270 14.5 30.3 1992 348 13.1 385 14.4 27.5 1994 521.8 11.2 186 4.0 15.2 1997 865 11.8 282 3.9 15.7 2000 1,339.5 15 382 2.9 17 .9 2002 1,890 18 N/ A N/A N/ A Sour-ce: ZGTJNJ 2003, 281, 288. a Since extra-budgetary revenues do not include the intra-budgetary government fund (fee), the figures are not comparable to previous years; figures were also adjusted for extra-budgetary revenue in 1993-95, not comparab le to previous years. Post-1993 figures understate the amount of extra-budgetary revenu es. -- 153 of 306 -- 142 C hin a's Trapped Transition GDP in 2000 (after bottoming out in 1994). E ven ifwe include the gov- ernment re ve nues not counted as budget or off-budget revenue s (such revenues were estimated tobe about 7.5 percent ofGDP in 1995) , total government revenues at the end of the 1990s would be about 25 per- cent of GDP, representing a 40 percent decline. 27 Second , there has also been a dramatic shift in the relative share of the total revenues collected by the Chinese state. Official data on ex- penditures are a more reliable measurement of the state's fiscal capac- ity because a !arge portion of the central government's revenu es was counted as loc al reven u es prior to 1994 when s uch revenues were first collected by local governments and turned over to Beijing. These data document a spectacular relative decline of the central government's fiscal capacity over the last two decades. The central government's share of total public outlays fell from 47.4 percent in 1978 to 34.7 per- cent in 2000, while local governments' share ro se from about 52 .6 per- cent to 65.3 percent in the same period. 2 s Third, Chinese public finance-from the center to the provinces- has been completely transformed by the rapid growth of off-budget revenues (Table 4.3). Historically, off-budget revenues accounted for a relatively sma ll portion of total governm e nt reve nues. In the 1950s, for examp le, they were about 10 percent of budgetary revenues. In the 1960s and 1970s, th ey varied between 20 to 30 percent of budgetary revenues. 29 Through the 1980s a nd before the central government re- classified off-budget revenues in 1993 (by counting off-budget reven ues as budget r evenues ), off-budget revenues exploded. At their peak in the early 1990s, they practically equaled budget revenues. 30 The explosive grow th of off-budget revenues per se should not be treated as th e defining characteristic of de ce ntralized pred a tion . Rather, it is a symptom of a dysfunctional fiscal system. vvbat makes the Chinese situation unique and more relevant to under sta nding decentralized predation, however, is the local governments' !arge share of off-budget revenues, as well as their growing dependence on and discretionary use of these revenu e s. Data on off-budget reve nue collection indicate th at more than half ofthe off-budget reve nu es (55-66 percent) we nt to lo cal governments prior to 1992, when reclassification of revenue cate- gories occurred. U nder the n ew classification scheme adopted in 1993, nearly all off-budget revenues (75-95 percent) went into the coffers of local governments during the p eriod of 1994-2002 . 31 According to the -- 154 of 306 -- Transforming the State 143 data released by the central government for 1996 and 1997 , almost all (85 percent ) off-budget re ve nues were "income collected by adminis- trative age ncie s." The share o flocal administrative agencies was 83 per- cent in this period. Thus, in the la te 1990s, off-budget revenues were primarily administrative fees a nd levi es co ll ected by local government agencies. 32 Off-budget revenues have become a preferred form of predation for two important reasons: discr etio n and opaci ty. Generally, off-bud get a nd off-off-budg et reve nu es were co ll ected and spe n t at the discretion oflocal authorities with no central sup ervision . The absen ce of political co n- straints contributed to the rapacity and ab usiveness with which local au- thorities collected these revenues , despite explicit prohibition s from the central government. In aggregate terms, su ch illicit off-off-bud get rev- e nues were co nside rabl e. One estimate provided by China's State Ad- ministration of Taxation clairned that they nearly equaled the budgetary revenues of the central government in th e late 1990s.33 The use of off- budget revenues was also opaque and subj ec t to abuse. Prior to 1998, half of the off-budget revenue s were spent without first being entered into specially designated fiscal accounts-accounts that would facilitate moni- toring.34 Many reports of egregious cases of corruption involved the use of off-off-budget revenue .35 Official data reveal that off-budget reve nues had become an important source of finance for the state's routine main- tenance, even though suc h funds are supposed tobe earmarked for social services and public projects. For example, about 20 percent of all off- budget expend itures were on administrative costs in the 1980s, co mp ared to about 10 percent ofb ud get expenditures in the same period. 36 The behavior of local revenue collectors c onfirms the observa tion, made by Shleifer and Vishny, that independent monopolists have in- centives to maximize their short-term revenues, even at the cost of lower aggregate government revenues. Indeed , decentralized preda- tion has squeezed predation by the centra l state, as shown by the steady decline of the revenues co ll ecte d by Beijing . It is likely responsible for a 25 perce nt decline of aggregate government revenue. 37 Ironically, co ntrary to popular beli ef, rising loca l reve nues at th e expe nse of ce n- tral revenues have not improved lo ca l pub lic finance. In fact, because a considerable ( though h ard to measure) portion of suc h reven ues h as been wasted or stol en, local pub li c finance has deteriorated markedly across China. A Ministry ofFi nance study oflocal public finance in seven -- 155 of 306 -- 144 C hin a's Trapped Transition provinces conducted in the mid-1990s indicated that between half to three-quarters of county governments sur veyed reported !arge fl sc al deflcits and had difflculty meeting government payrolls and perform- in g routine functions of ad mini s tra ti on.~ 8 Administrative Decentralization and Predation Ifflscal dec e ntralization has provided incentives for local governments to a dopt pr e datory policies, adm inistr at ive d ece ntrali zatio n h as sup- pli ed th e m with th e politi c al means to create , for all pr ac ti ca l purpo ses, loc al predatory states. In theory, admin istrative decent rali zation with- out political accountability creates conditions mo st conducive to a de- centralized predatory state. In such jurisdictions, local offleials who wie ld eno rmaus discretionary power are poorl y monitared by bureau- cratic superiors a nd immuni zed fr om popul ar sc rutiny an d sanc tions. In th e case of China, however, a dministrative d ece ntrali zation a nd its effects have not b ee n fully e xplored b ecause it is difflcult to link mea- sures of administrative de ce ntralization to observed changes in local government behavior. Unlik e China's well-documented fl scal decen- tr aliza tion th at can be ana lyzed thoroughl y w ith quantita tive r esearc h methods, a dministrative decentralization does not l end itself eas ily to simil ar an alys is. N ever th eless, the connec tion b etwee n a dmini strative decentralization and decentralization of p re dation may be estab lished by an examination of chan ges in the supervision of cadres and the de- volution of routine eco n o mi c d ec ision m a kin g . Supervision of cadres Few measures of administrative de centra lization aff ect the state's abil- ity to c ontrol its own age nts asth at of the supervision of cadres. In pr ac- tice, cadr e su pervision in th e Chinese context means the re cruitment , promotion , an d monitaring of governm ent offlcials. Since the late 1970s, the administrative power to recruit, promote , and monitor cadres h as both been dec e ntrali zed to lower-l evel offl eials and co nc e ntra te d in the h a nds of l oc al offleials to wh om suc h power h as b ee n d e l egate d . Th e de l egation of su ch power h as grea tly exacerbated the classi ca l problern of information asy mm e try in th e supervisi on of state agents by th e ir sup er iors , as the vertical links b etwee n sup er iors a nd sub ordi- nates in th e bureaucracy have become much n arrower. -- 156 of 306 -- Transforming the State 145 Key offlcials-usually municipal and county CCP secreta ries, or yibashous-have become critical nodes of information regarding the conduct of subordin a te agents. This situation e ffec tively creates lo ca l political monap o li es under the co ntro l of CCP offleials who are poorly supervised by their supe riors . Fu rth er co mpoundin g thi s principal- agent problern is the repre ss ion ofthe media and civil society and weak horizontal ac countability; the local judiciary and legislatures provide little counterbalancing power. As a result , loc al offleials face no resis- tance when they adopt pr edato ry policies wirhin the ir jurisdictio ns. H owever, given the diversity in l oca l conditions across China, the de- centralization of adm ini stratio n h as not produced unifo rm public poli- cies and government practice s at the localle ve l. In some areas , mo stly along the coast, this de ve lopment appears not to have led to unre- strained loc al pred at ion and may h ave contributed to more flexible and experimental reform policies that su ch decentralization was i nitially d esigne d to en courage . In many other, and mostly inland , areas, the d ecen trali zed supervision of cadres h as been responsible for a variety of misconduct by local offlcials, especially the illicit sale of government offlces, widespread nepoti sm, and collusion with criminal gangs. The practice of "se llin g offlcial appo in tments" (maiguan) d eserves special attention. It normally in volves an underl in g who gives a bribe to his superior in exchange for a promotion or an appo in tment to a more desirable government offlce. Such practice was rare in the 1980s, but became prevalent in the 1990s. The spread of maiguan flts the lo gic of a d ece ntr alized predatory state weiL In su ch a system , local stro n g- men become ind ependent monopolists wh o ca n subcontract the mo- nopoly to those who are willin g to pay for a share of the spoils. Press reports of corrupt offlcials, usually yibashous, co n flrm this observation. In early 2004, the CCP 's COD issu ed a p ubli c ci rcu l ar on four suc h cases. One involved Li Ti ec heng, a party secretary in a county inJilin province who took 1.43 million yuan in bribes from 110 individuals in exchange for appointments and promotions in the la te 1990s. The pri ce of each appo in tment averaged 13,000 yuan . Another case feat u red a cou nty party boss in Li ao ning provinc e who appo inted and promoted thirty offleials aft er receiving brib es totaling 600,0 00 yuan (averaging 20,000 yuan per position) in th e l ate 1990s. In th e third case, a county party boss in An hui so ld appointments to flfteen in d ividuals for an av- erage of 20 , 000 yuan each in the late 1990s. The l ast examp le was a -- 157 of 306 -- 146 China's Trapped Transition county party secretary in Hainan who sold appointments to thirteen people for an average of 49,000 yuan each. 39 vVhat is notable about these cases, as well as other examples of maiguan, is that local offleials seemed to have a sop histi cated under- standing of the economics of decentralized predation and apparently decided to take advantage of it. By making an upfront investment in the form of a bribe, which equals to about one-year salary for an aver- age county-level official, they can expect to recoup the in vestme nt quickly through their appoi ntm e nts to government positions that will allow them to extract bribes as well. In most cases, such an investment was, indeed, lucrative to these individuals, but enormously cos tly to the state and public. Everyday economic decision making Another important feature of China's economic reform is the decen- tralization of decision making in everyday economic activities. Such decision-making power includes that of granting business li censes, proj- ect approvals, government contracts, and land leases; allocating scarce resources ( especially capital) ; regulating commercial activities; as well as decision-making power over the discretionary use of public funds and price control. In truth, there is nothing routine about everyday economic decision making in an economy in which the state plays a dominant role. Such power determines the amounts of rents andre- cipients of such rents. In political systems where the determination and allocation of rents is centralized, the beneficiaries are likely tobe pow- erful int erest groups whose support the rulers must court, as was the case in the bureaucratic-authoritarian regimes in Latin America in the 1970s. In kleptocratic regimes, the beneficiaries are most likely family members or cron ies of the top ruler (as in Suharto's Indon es ia and Marcos's Philippines). But in decentralized systems in whi ch lo ca l political bosses control the power of rent-allocation , they tend to distribute rents to those who can offer bribes in return . In some instances, this may result in rent-diffusion, as l ocal political bosses select buyers ofrents only on the basis of th e amount ofbribes they are willing to offer. Yet, such "democ- ratization of rent-seeking" may be the exception in China because of the nepotistic nature of tight-knit l ocal ruling e lites . Consequently, the reality m ay resemble miniature kleptocrac ies. The devolution of -- 158 of 306 -- Transforming the State 147 everyday economic decision making and the subsequent formation of local kleptocracies have a direct bearing on the growth and operation of a decentralized predatory state. The ability to determine and allocate rents adds to the predatory capacity of lo cal offlcials, as they convert such ability into extra private income. The victims of such predation are consumers and local businesses excluded from the network of rent- seekers, as they are forced to pay higher prices, fees, and taxes for goods and services. Declining Monitaring Gapability The erosion ofthe state's capability to monitor and discipline its agents is a key institutional variable in the rise of decentralized predation. The Chinese case confirms this theoretical insight. Specifically, several fac- tors contributed to the decline of the state's monitaring capacity. First, as discussed above , a deliberate policy of administrative decen- tralization implemented in the early 1980s moved a signiflcant amount of appointive and monitaring power from the central government to local governments. One study showed that the central government di- rectly monitared only seven thousand offleials after this decentraliza- tion.40 The spillover effects of the decentralization of administrative monitar ing were profound. With new administrative powers by the central government but unchecked at th e locall evel, regional political bosses were able to establish flefdoms and gain monopolistic power. Published reports show that such power was routinely abused, ranging from the sale of government offices by local bos ses to their co llu sion with organized crime. Second, simultan e aus w ith the declining monitaring capacity of the state was th e end of mass revolutionary terror that was the ha llmark of the Maoist era. In prereform China, state agents were subject to monitar- ing and policing by ordinary citizens who could exercise extraordinary power through open or secret denunciations. In addition, enamored of the power of mass terror, Mao Ze dong launc h ed periodic mass po- litical campaigns during which citize ns were encourag ed to expose of- ficial corruption and meteout brutal treatment to corrupt officials. Mass monitaring of local offleials in the Maoist era was also m a de eas i er by the lack of means to consume or hide the spoi ls of corruption . With China closed to the outside world, few offleials could transfer ill-gotten -- 159 of 306 -- 148 China's Trapped Transition wealth abroad. The lack of consumer goods and the underdevelopment of the service industry in a planned economy meant that conspicuous consumption was practically difflcult and could attract unwanted at- tention. Consequently, offleials were discouraged from engaging in the more serious forms of corrupt activities because it was hard to store or enjoy their loot without taking excessive risks. In the post-Mao era, the end of mass terror and political campaigns meant the end of monitaring by the masses. With the opening to the outside world and the growing availability of consumer goods a nd ser- vices, it became much easier and less risky for corrupt offleials to hoard and consume their spoils. Had the post-Mao regime replaced the high- cost and violent form of monitaring by mass terror and by political campaigns with monitaring by the media and civic groups, the state would have acquired a more effective tool to control corruption by its agents. Despite its market-friendly economic policies, however, the CCP has focused its repress ive energy on the lib era l intellig e ntsia and the media, curbing the media's role of policing the behavior of gov- ernment agents. Similarly, fearful of the political challenge posed by the ernerging civil society forces, the government has limited the growth and political influ e nce of civic groups. Ind ee d , a study of China's civic groups in the early 1990s shows that few of them could be classifled as public interest groups. 4 1 Andin combati ng co rruption, the role of the civil society is practically nonexistent. Within the regime's bureaucratic hierarch y, the mechanisms ofmon- itoring government offleials are faulty and in effective. For example, the most important internal a nticorruption body of the CCP is the Central Discipline Inspection Commission (CDIC), which has a vertical organizational stru cture that parallels the party organization. But this agency is not independent, and the post of the secretary of th e CDIC is subordinate to the party secretary, who is the yi bashou. In many cases, other local offleials also outrank the party offlcial in charge of the CDIC. This institutional arrangement greatly undercuts th e e ffective- ness of th e CDIC. If monitaring and policing hundr e ds of thousand s of local offleials is an impossible task for the ce ntral authorities , it also ap- pe ars that Beijing do es not have a working institutional mechanism to monitor frontline provincial cadres. The CCP's CDIC and the COD rely only on ad hoc inspection teams dispatched to the provinc es to evalu ate the performance and conduct of provin cial-level offlcials. -- 160 of 306 -- Transforming the State 149 This practice, begun in 1996, has produced dubious results because these inspection teams are made up of retired senior Ieaders who have little local knowledge and operate in isolation. Their movements and inform a tion sources can be easily controlled by the same provincial Ieaders they are supposed to evaluate. Because it takes four to five months for a team to complete its inspection in one province, only a small number of provinces can be inspected each year. In 2003, only fi ve in- spection teams were sent toten provinces. 4 2 The head of one inspection team publicly complained that it was common practice for provincial Ie aders to feed the inspection teams with false information. 43 This makes it almost impossible for these central inspection teams to un- cover corruption by provincial officials. Of the sixteen to seve nteen provincialleaders (about 2 percent ofthe frontline provincial officials) who were punished each year for corruption, few were exposed by the inspection teams. 44 Even CCP insiders openly admit th at th e monitaring system functions poorly. A survey of party offleials conducted by the CCP's provincial or- ganization department in Shanxi province in 1999 reported that only about 10 percent of the respondents thought the effects of monitaring Ieaders were "good and quite good"; 64 p erce nt thought they we re "so-so"; a nd 23 percent said t hey were "poor." 4'' A similar survey in Sichuan in 1999 found that 42 percent identified "loose supervision and monitoring" as the most important cause oflocal corruption. 46 For state agents, who enjoy the advantages ofinformation asymmetry, inef- fective monitaring simply removes another d eterre nt against the abuse ofpower and corruption. As indicated by the results ofthe government audits of various bureaucracies, the misuse of public reso urce s was per- vasive among party and government officials. In 2003, for example, the N ational Audit Administration aud ited 36, 000 cadres and discovered that 67 billion yuan were misused. 47 In Hubei province alone, an audit of 1,151 offleials in 2003 found that they were responsible for the mis- use, waste, and loss of 4. 7 billion yuan in government funds .48 Crime and Punishment The breakdown of the monitaring system is accompanied by an in- creasingly dysfunctional system of punishing corrupt officials-despite the frequent use of the death penalty against high-profile offenders . -- 161 of 306 -- 150 C hin a's Trapped Transition The eombination of ineffeetive monitaring and punishment unavoid- ably ereates an institutional environment eondueive to deeentralized pred a tion . In China's ease , offleial data on the punishment of eorrupt offleials indic ate th at the reported in crease in offlcial eorruptio n may be attributed to the re lative lenien cy with which corrupt offleials are treated by Chinese antieorruption authorities . The low rate of eri minal investigations targeting individuals aeeused of eorrupt aetivities an d the negli g ible probability of criminal penalties make eorruption a lo w- risk and hi g h-r eturn activity that is extreme ly attractive to offlcials. More important, this evide n ee also points to co llu sion and mutual pro- tection among corrupt agents. Low rates of investigation Offleial flgures on the government's e nforeement efforts again st corrup- tion report that abo ut 80 percent of the eorruption eases ori g inated from tips provided by th e public. 49 But a publi c survey conducted by the CDIC in 1996 showed th at 58 pereent of th e respondents reported that the information on eorrupt aetivities the y provided to authorities resulted in no aetion. Two-thirds reported repri sals from aeeused offl- cials:"0 Publish ed data on th e pros ee ution of corrupt offleials r eco n- flrm these assessments. From 1993 to 1997, the pro c urators ' offlces received 1,637,302 tips from the pub lic on corrupt activities such as embezz lement, bribery, and abuse of power. About half these tips (841,233) received some attention from government proseeutors. The numb e r of eorrup tion l eads that e ventuall y resulted in for m al c rimin al investigations totaled only 387,353, or a bout 46 percent of the cases of- flcially aeeepted by the proeurato ra te. This means that about only one in four tips led to a formal flling, which doe s not necess ari ly result in a er imi na l in vestigation, let a lon e prosecution . Results of initi al disposition s of a llegation s of eor ruption simila rly point to a relatively lenient approaeh to offleials aceused of eorruption . Take, for exampl e, the data released by the Ministry of Supervision (one of th e anticorruption ageneies) for 1991. Forthat yea r, the min- istry aeeepted 168,124 eorrup tion eases. Of th ese eases, 32,236 (19.2 pere e nt) were closed after the aee used affered "clariflea tions "; 14,900 (8.8 percent) were closed after the aceused rec eived "eritici sm and ed- ucation"; 11,021 (6.6 percent) we re transferr ed to other government agencies; and 57,678 (32 .1 percent) were di s po sed of in un sp ec ifled -- 162 of 306 -- Transforming the State 151 manners. Only 31.2 percent (52,389 cases) were flled for formal inves- tigation. 51 A closer Iook at tho se who were mo st likely to receive a s lap on the wrist shows that more se nior offleials were among the be st pro- t ected . Whereas 21.4 per ce nt of the t ownsh ip offleials accused of co r- ruption were formally in vesti gated , o nly 4.5 percent of th e offleials at and above the rank of department or bure au (ting or ju) were. About half of the department or bureau-level offleials were able to see their cases clo se d afterafferin g "clariflcations," co mp a red to about 21 per- ce nt of township-level offlcial s.52 Moreover, th e overall enforcement efforts sl ac k ened over the 1990s. Offlcial d ata on corruption investigations in the decade revealed a marked decline in both the number of corruption cases "accepted" and the number of corruption cases " inve st i ga ted" by the procura- torate. From 1990 to 1999, the number of corruption cases "acce pte d" declined by 41 percent, an d the rate of investigation ( th a t is, the share of the accepted cases th a t re su lted in offlcial c riminal inves ti ga tions) fell from 50 to 37 p ercen t. Although the rate rose to 50 p e rc e nt in 2002, the number of corruption cases in vestiga ted in 2002 ( 43 ,258) was less than halfofthat in 1990 (88,595). 53 Given that the number of staff in the procuratorate in creased by 28.5 p er ce nt during the same p e- riod (from 176,028 in 1990 to 226,157 in 1999 ) , th e signiflcant d e clin e in the number of cases acce pted cannot be expl a ined as th e r es ult of Iack of capacity. Rather, it indic ates l aggin g e nforc e ment efforts. 54 Low probability ofpunishment Analysis of the d ata on corruption provid ed by the CDIC suggests that in the 1990s, the probability of criminal pen alties agains t co rru pt offl- eials was extreme ly low and, for all practical purpo se s, al most ne gli gib le. The commiss ion 's work report given in 1997 revealed the ex tent to which corrupt offleials were lightly punished by the c riminal justice sys- tem. 55 According to the report, the comm ission closed in vestigations on an ave rage of 141 , 000 alleged corrup tion cases every year, but the majo r ity of th e CCP members (about 82 p erce nt) found to h ave co m- mitt ed corrupt acts rece ived no more th an a sy mb olic repr im a nd ca r- rying no subs t an tive ad mini s trative or flnancia l pen alti es . On ly a small numb er of corrupt CCP m e m be rs-1 8 p ercent of those punish e d- were expe ll ed from the CCP in the six-year p er iod co ver ed by the re- p ort (1992 -1 99 7) . The exp ul sion rate h ad been steadi ly d e clining -- 163 of 306 -- 152 C hin a's Trapped Transition since the early 1980s. According to Yan Sun 's research, the rate wa s 23.4 percent during 1982-1986 and 21 percent during 1987-1992. 56 The likelihood of criminal prosecution is low. The overall prose cution rate is extre mely low-just 5.6 percent of all the CCP members found guilty of corruption (averaging about eight thousand a year in the late 1990s) were subject to prosecution. In 2004, the prosecution rate fell to 2.9 percent when only 4,915 out of 170,850 party offleials and mem- bers disciplined were transferred to judicial authorities for prosecu- tion. Offlcial figures show that China prosecuted, on average , 95,000 individuals for bribery, embezzlement, and illegal use of public funds in the same period. 57 This suggests th a t only one in ten individuals prosecuted on corruption c harges was a member of the CCP. Another set ofnumbers, released by the COD, also shows the lenient treatment corrupt offleials received at the hand s of Chinese authori- ties. Overall, only 6.6 percentofall officials found guilty of corrup tion received sentences, a rate indicative of the extremely low risk of partic- ipation in corrupt activities by Chinese offlcials, even though higher- level offleials face modestly higher risks of criminal penalties (Table 4.4). The lenient treatment of corrupt offleials remained unchanged de- spite the advent of a n ew leaders hip in l ate 2002 , which vowed to take tougher measur es against official corruption. From December 2002 to Novembe r 2003, th e CCP's own anticorruption age ncy concluded 172,5 71 corruption cases and punished 174,580 party offleials and members, including 6,043 county-level, 411 bureau-level , and 21 provincial-level cadres. But of the more than 170 ,000 cadres punished by the CCP, only 8,691 (5 percent) were expe ll ed from the party and transferred to ju- dicial authorities for prosecution. Among those criminally prosecuted w er e 418 cadres with county-le vel or higher rankings-6 .4 percent of all the similarly ranked offleials punished in the period:"8 New Exit Options The avail ab ility of new exit options is a key va riable in state agents ' cal- culations regarding self-dea lin g. Everything eise being e qual, the avail- ability of such options may likely reduce the time-horizon of agents, increas e their discount rates on future incom e streams, and motivate them to intensify the level ofpredation . Evidence from Chinasupports this hypoth es is. Whereas the closed system in Mao ist China left few ex it -- 164 of 306 -- Transform in g the State 153 Table 4.4. Punishment of Co r rupt Offlcials, 1993-1 998 Sentenced Disciplin ed Investigated Sentenced as Percent by the by by of Rank of Cadres CCP Proseen tors Courts Disciplin ed Provincial/ Ministerial 87 15 9 10.3 Pr efe ct/ Departm e nt 2,205 616 201 9 .1 Cou n ty/ Division 26 ,609 11,712 1705 6.4 Total 28,901 12,343 1915 6.6 Source : Calcula ted from th e CCP Centrat O rganizati on Depa rtm ent's data quoted in Zh ang Yan gsheng, "Lun dangqian zh ong qing ni an li ngdao ga nbu fu ba i de tezheng ji qi yuanyin" (Characteristics a nd Causes of Co r- ruption ofM iddle-Aged an d Young Cadres Today), Zhongguo dang zheng ganbu lu ntan ( Chin ese Party and Gov em ment Officials' Forum) 1 (2000): 33. option s availa ble for st a te age n ts, the po st-M ao eco nomic open in g h as mu l tip li ed ex it optio n s fo r th em . In th e C hi nese case, m oreover, the re are two institut ional features of the cadre management system that in- fluence th e time -horizon of government offlcia l s. The flrst is th e man - datory retirement of al most all govern me n t offleials ( except m inisters and provin cial g overnors) a t th e age of sixty. Orig inally impl eme n te d to inj ect fr es h bl ood in to th e Co mmu ni st Par ty an d th e state bur eaucracy, t hi s term-l imit system drastica lly red u ces the per i od d uri ng which offl- eials may hope to recoup t heir political investment (main ly because it takes many yea rs for an ind ivi dua l to work his way up the hierarchy ) . The second is the practice of rotation of cadres th at began in 1990 . As a m easu re to p revent th e e n tre n c hm e nt of l oca l p olitical b osses, th e r egime freq u en tly rotates cou nty, prefecture , and provincial officials. The unintended effect of t his institutiona l practice is to t urn these officials, l iterally, i nto roving bandits. As a resu lt, suc h invo l untary ex it motivates Ch i nese offleials to cash in th eir po l itical i nvest m en ts more qu ickly. China's economic reform and opening to th e ou t side world have al so made avail ab le to th e in sid ers of the CC P a nd th e gove rnm e n t n ew exit options . They can acquire cap i tal th r ough the spontaneaus privatiza- tion of state assets and the tak eover of formerl y s tate -owned bus i ne sse s, -- 165 of 306 -- 154 C hin a's Trapped Transition set up proxy businesses by channeling government contracts and bank credits to firms controlled by family members, se ek appointments to executive positions in government-controlled businesses, and transfer illic it wealth to offshore accounts a nd businesses. By all accounts, the pace of the exit accelerated in the 1990s. The accelerated liberali zation of the economy following Deng's southern tour in 1992 created new opportunities for the insiders to exercise the exit option. In addition, one of the lessons many Chinese elites learn ed from the fall of the Soviet Un ion was that they should h ave an ex it strategy a nd an insur- ance policy. 59 In practice , this meant a rush to privatize state assets and set up private businesses. A survey of owners of private firms showed that the majority (60 percent) of those who became entrepreneurs in the 1980s were peasants, workers, and ordinary people-in other words, ordinary risk takers. But a survey of private business owners in 2002 showed that almost two-thirds of the 6.2 million owners of private firms had been former officials a nd executives in the SOEs and governmen t agencies. This indicates that a very larg e numb er of officials-almost 4 million-had exited to the private sector in the 1990s.60 A somehow different exit optionwas double-dipping: offleials hold- ing adm inistrative government positions would s imulta neousl y acqu ir e executive appointments in commerc ial firms with close ties to the gov- ernment. Official press reports show that a l arge number of in siders have opted for this route. One representative example occurred in Wuhu, a city in impoverished Anhui province. Many of the city's party officials became the so-called red-cap busin essm en by holding s imulta- neously government appointments and corporate exec utive positions. The city's partychiefwas the chairman of the board of a lo cal auto - mobile company. The head of the lo cal tax bureauwas the deputy gen- eral manager of a lo ca l real estate investment firm in which the municipal government happened tobe a !arge investor. All the firm's senior executives were loc al officials, including the deputy director of the lo cal land management bureau, which had the power to allocate commercial land use. 61 Similar stories were reported in man y other jurisdictions. In Nanjing, a deputy mayor h e ld the chairm ans hip of the board of a loc al industrial park; a district party chief occupied the chairmanship of a real estate development firm; and the he ad of the city's urban development bureauwas the chairman of a loca l real es - tate investment firm. 62 In Beijing, nearly four hundred offleials at or -- 166 of 306 -- Transforming the State 155 above the division Ievel ( chu) were found tobe holding executive positions in business flrms in early 2004. 63 In Chongqing, 1,122 offleials were forced to resign from their executive positions in businesses in early 2004. 64 China's growing commercial ties with the outside world have opened new channels through which insiders can find easy exits. Liberalized investment laws and increased financial autonomy have allowed SOEs and local governments to make sizable investments in foreign coun- tries, thus giving them ostensibly legitimate foreign entities to conduct private business deals and hid e illicit funds. Re laxed travel and immi- gration restrictions have allowed spouses and children of offleials to study and emigrate abroad. In many cases, government officials' relatives and children who go overseas form offshore companies or manage nom- inally state-owned foreign subsidiaries that become the depositmies of their ill-gotten wealth. Typically, insiders employ a three-step process, according to an offlcial publication for government le aders . 65 Offleials use th eir power to obtain foreign residency permits or passports for their immediate family members, who later set up busin esses in foreign countries. The same offleials then transfer money or direct contracts to their foreign-based family businesses or offshore bank accounts. After such ex its are safely in place, the offleials themselves flee China, often on the eve of a pending arrest, to these foreign safe havens . This was the case of Lu Wanli, the former head of the provincial transporta- tion department in Guizhou. Lu amassed 60 million yuan through bribes and shady deals during his tenure. Before he was exposed, he had moved his wife and children abroad a nd then fled to Fiji using a false passport in 2002. 66 Yang Xiuzhu, a vice director of the construc- tion bureau of Zhejiang province and a former deputy mayor of Wenzhou city, amassed even more. Before the police cou ld arrest her, she fled China-along with her 253 million yuan and her family members. 67 The number of offleials who have sought this raute of exit is signifl- cant, as is the amount of ill-gotten wealth the y have absconded with. The MPS announced publicly in May 2004 that more than five hundred corrupt offleials h ad fled China, with more than 70 billion yuan in stolen assets (averaging 140 million yuan per person) .68 Ano the r report by an official n ews agency in December 2004 claim ed that four thousand "corrupt e lements" had escaped abroad with more than $50 billion in stolen funds. 69 The mostsenior official who had become a fugitive abroad -- 167 of 306 -- 156 China's Trapped Transition was Gao Yan, who had served as the CCP secretary ofYunnan province, the governor of Jilin pro vince , and the president of the State Electric Power Corporation. He allegedly escaped to Au strali a in September 2002, when h e was still pr es id en t of State Electr ic Power. A subsequent government aud it of the corporation showed th at the financiallos ses the company suffered during Gao's tenure amounted to 7.8 billion yuan. Nearly half the Iosses h ad resulted from illegal and arbitrary de- cisions Gao had made. An official investi ga tion concluded that Gao "had betrayed th e party a nd the cou ntry, e n gaged in a corrupt and decadent Iifes tyle, l ooted a huge amount of the wea lth of th e state, and must be held directly responsible for the massive loss of the state's assets." 70 The problern of corrupt officials and criminals fleeing China with their loot b ecam e such a se rio u s issue th a t the MPS singled out th e in- terception and repa tri ation of su ch individua ls as a top priority for the Chinese polic e. From 1998 to 2003, th e MPS repor t ed th a t it had suc- cessfully ex tr ad ited 23 0 officials an d indi vidu als who escape d abroad with looted wealth. 71 In aggregate terms , it is likely that the real magni- tude of the transfer of stolen money to offs hore safe haven s by in siders of the Ch in ese government is much !arger than th e publish e d figure . Studi es by C hin ese economists estimate that cap i tal flight-a proxy for th e transfer of illicit fu nds from China to offshore accounts - ave rage d $17.7 billion b etween 199 7 and 1999, according to China's Foreign Ex- change Administration. 72 The impli catio ns of this an alys is are troubling on two accounts . First, the run-for-the-exit dynamics have a self-acc elerating characteristic be- cause insiders tend to increasingly fear missing out on the opportunities to cash in on their investments. This means that the availability of new exit options will contribute to more voracio us decentralized predation. Second, in s id ers with secure exit options are le ss motivated to defend the regime because their future risks have been greatly reduced by the in sur- ance policy they have acquired through such exit options. As a result , th e regime b eco m es more brittle and le ss capab le of with stand in g crises. Declining Ideological a nd Instituti o n al Norms Many scholars have observed the declining appeal of the commun ist id eo logy in post-M ao Ch i na .73 The fact that the ru lin g Commun i st -- 168 of 306 -- Transforming the State 157 Party launched innumerable " rectification" campaigns to reinvigorate the CCP ideologically in the reform era is, in itself, telling evidence of the erosion of ideological values. The causes of the erosion of ideology are easy to identify. Post-Mao political demobilization an d promarket economic reforms necessitated replacing the communist ideology with economic incentives as the main source of motivation. Experience in other communist societies suggests that official ideologies need to be personalized by charismatic Ieaders to have real appeal to the masses. The death of such Iead ers also ends their personalized id eo logies. Ero- sion of ideological appeal then becomes inevitable in spite of the rul- ing parties ' efforts to resurrect or reinvent it. Results from opinion surveys indicate that the old-style communist ideology has lost its attractiveness to both the ruling elites and ordinary citizens. A survey of more than seven thousand mid-level Communist Party offleials conducted in the late 1990s revealed that half the respon- dents thought "communism is too far from reality." 74 A poll of 7,330 pr e fect and county offleials conducted in 1997 found that 11 percent were skeptical about the goal of communism , 23 percent thought com- munism was "too far from reality," and 26 percent thought that the ma- jority of lo cal offleials were skeptical about upholding the party's basic policy for one hundred years.n; In a 1999 surve y of 11,586 party mem- b ers cond uct ed by the provincial CCP committee of Sichuan province, 61 percent reported that their loc al offleials did not de vote time to "ideological studies" because "there was too much work," even though the same offleials would always find time to take overseas trips. About two-thirds thought that loc al offleials lacked "po litic al perception " and "political judgment." Only 16 percent said that local offleials wou ld place "national interest" first in their decision making; 44 percent thought " lo calle adersh ips lacked self discipline." 76 A survey of nearly 14,000 party members in Sichuan in 1997 re- ported that " the most striking character istic ofprefect and county-level offleials was their superficial theoretical ground ing in Marxism and Leninism." In a test ofpolitical and ideological knowledge administered to 439 division-level ( ch u) offleials under the age of forty-fiv e, 128 of them failed to answer a sin g le question correctly. Some of them did not e ven know what Deng's four cardinal principles were. About 30 per- cent of the re spondents comp la in ed that the yo ung offleials were "in- dif ferent to id ea ls and values"; 24 percent thought such offleials "lac ked -- 169 of 306 -- 158 C hin a's Trapped Transition the sense of discipline demanded by the party and the government"; and 34 percent believed that such offleials "were deficient in their sense of integrity and self-discipline." 77 The loss of faith in the official ideolo gy is expressed in both polling data and telling anecdotes. Press stories of official corru ption show that perpetrators of corruption had little faith in communism and had sought spiritual guidance in religion or superstition. Cong Fukui , the executive vice governor ofHebei who received a suspended death se n- tence for co rruption, had r egul arly consulted fortune-tellers about his political future and had become a patron of a Buddhist temple, to which he gave a l arge portion of the bribe money he had received. The head of the industrial and commercial administration in a county in Hainan set up a Buddhistaltar in his own residence. He allegedly never convened a party group meeting to discuss p erson nel issues. In stead, he would ask prospective appointees to perform religious rituals in front of the hous e altar before he publicly announced their appoint- ments. Jia Yongxiang, the pres ident of the Shenyang Intermediate Court who was sentenced for corruption, spent 30,000 yuan on a feng- shui master for picking the right date for the court to move into its new building. The ch ief of the public security bureau of Qingyuan county in Guang- dong, who h ad accepted more than 400,000 yuan in bribes , fretted that the fron t entrance of the bureau was not built in accordance with good fengshui. He suspected that bad fengshui was responsible for the downfall of his predecessor, who was in jail for corruption. So he consulted a fengshui master and ordered a new front entrance be built according to the master's specifications (although this intervention apparently fai led to proteer the police chieffrom the graft busters). 7H The practice of retaining fortune-tellers was widespread among ranking provincialleaders in Hunan. A deputy chief of the provincial government's secretaria t who was in charge of approving key infra- structure projects used his power to allocate 2 million yuan to a loc al Buddhist te mple because one of its monks was ab le to forecast hi s pro- motions correctly on several occasions. A deputy mayor of Ch an gde city paid 350,000 yuan to a fortune-teUer to predict his political future. Many locall eaders e ven d eveloped a h ab it of co n su lting fortune-tellers before they made majorpersonal decisions, su ch as assum in g new ap - pointments , building houses , a nd purchasing ve hicl es. 79 -- 170 of 306 -- Transforming th e State 159 Collusion and the Emergence of Local Mafia States The breakdown ofthe institutional mechani sms that police sta te agen ts and enforce p oliti ca l accountab ility h as also facilitated co ll us ion am on g government offleials in corru pt activities. In its m ost extre me form, a decentralized predatory state can spawn numerous local mafla states. 80 The glue holding such local mafla state s is c ollusion among state agents. Th e spreading of offlcial collusion within Chinese offlcialdom, thus, directly contributes to th e growt h of local mafla states. By most acco un ts, official collusion was uncommon in the 1980s. An examination ofpublished re ports o fmajor corruption cases uncovered in the dec a de shows that almost all corruption cases were com mitted by individuals acting alone. H1 In the 1990s, howeve r, offlcial collusion in corruption and other types of criminal ac tiviti es became incr eas in gly common . Accord in g to Liu Liying, a deputy secre t ary of the CDIC who oversaw many high-p rofl le corruption cases in the 1990s, th e most wor- risome aspec t of corruption in th e 1990s was co llusion amo n g offlcials. In Liu's view, offleials colluded in corrupt or even criminal activities be- cause the y h ad formed "alliances of interests." As a result , the num be r of wo an and chuan an ( corrupt io n cases involving multiple individu al s) h as increased dramatically. In an in terview, Liu disclosed that 104 se nior municipa l offleials in Shenyang were prosecuted in a m ajor corruption case th at led to th e downfall of its mayor and th e executio n of its exec- utive vice mayor in 200l. H2 In a nother notoriou s case, flve senior pro- vincial offleials in Heilongjiang (a deputy governor, a vice ch airm an of the provincial people's congress, the president of the provinci al high court, the chief of the provincial procuratorate , and the head of the provincial CCP committee's secretariat ) were remove d from offlce on the same day in Ocrober 2004 aft er they were impl icated in corruption. Prior to their downfall , a form er governor of Heilongji a ng , Tian Fen gs han , and the head of the provincial CCP's organization department , Han Gu izhi, had been arrested for selling party and govern ment appoint- m e nts for personal gains.H3 In H e be i provinc e, the investigation of Li Zhen , th e chief ofthe state tax bureau in Heb ei province, uncovered 160 other senior offleials who w ere in volved in the same co rruption case. In th e co rrupti on case of a vice pr es id en t of the provincial bran ch of th e Agri cu l tura l Bank in Heilongjiang, more than seventy were implicate d; the case of Ma D e, -- 171 of 306 -- 160 C hin a's Trapped Transition the party secretary of Suihua City in Heilongji a ng who had collected 5.2 million yuan in bribes for selling government positions , involved 260 offlcials, including 50 yibashous in the ten counties and vario us county-level departments in Suihua. 84 Anhui's disgraced vice gove rn o r, Wang Huaizhong, admitted to investigators that more t han 160 offleials were complicit in his corrupt ac tivities. 85 In the case ofLi Tiechen g, who served as party secretary for almost seven years in a poverty-s tri cken county inJilin, prosecutors fo und that 162 county offleials gave bribes to Li to secu re promotions . T h ey included the head of the county's Peop l e's Congress, a deputy party secretary in ch arge of law enforce - ment, the executive deputy county magistrate, two deputy party secre- taries, fl ve deputy county magistrates, and the chiefs of the county flnance bure a u, Iabor bureau , personnel bureau, a nd law enforcement agencies. Th e Li case, though extr e me , is a vivid illustration ofhow the machinery of the party-state can be captured by a network of collusive officials.H6 Although China's anticorruption a utho r iti es do not disclo se d ata on the share of wo an or chuan an in all corruption cases, the information released by Guangzhou, Hubei , Fujian, Shandong , andJiangsu suggests that co llusive corruptio n is widespread . In Guangzhou, 65 perc e nt of embezz le ment and bribe-taking cases prosecuted in 2001 were found to have involved co llusive officials. 87 Forty percent of cases classified as "us- in g public offlce to commit crimes" in Hubei , in 2001 , were those in- volving multiple individuals. 88 In Fujian, 30 percent of corruption cases investi gated in 2002 were classified as "group corrup tio n. "89 The pros e- cutor's office in Xintai City in Shandong disclosed that wo an acco unted for 30 percen t of the corruption cases it prosecuted between 1998 and 2000. 90 Data collected by the prose cutor's office in Nantong City, in Jiangsu, showed that the number of wo an cases stead ily in creased in the late 1990s. The number of wo an cases the offlce prosecuted was nine in 1999, flfteen in 2000, and twenty-flve in 2001. On average, each wo an involved four ind ividuals emp l oyed in the same "unit. " Two-thirds ofthe perpetrators were cadres . Cadres partic i pated in every wo anY 1 In the warst cases, offlcial co llu sion cr eates loca l m afla states- jurisdictions in which cr iminal el emen ts have formed a close alli ance with offleials in key government positions. The extent to which the Ch i- nese state has been penetrated by organ i zed c rim e is unknown . The head of the officeincharge of fighting organized cri me (dah eiban) at the MPS adm itt ed in July 2003 that this scourge was widespread: -- 172 of 306 -- Transforming the State 161 In some areas, local government organizations were weak andin di sar- ray, and society was out of control. This provided opportunities for evil forces to breed and spread in rural townships. The local governme nts in these townships were in a state of collapse. Some of them degenerated to such an exten t t hat th ey had allowed e vil forces to run amok within their jurisdictions, control the governments, illegally interfere in local administrative affairs, and take over law and order. These jurisdictions became lawless fortresses and uncontrollable villagesthat openl y defied th e gove rnment a nd law e nforcement agenci esY 2 Apparently, the collusion between organized crime and corrupt offl- eials has extended beyond rural areas. The Supreme People 's Procura- torate reported that, from 2001 to 2002, it prosecuted 557 government offleials for proteering organized crime. 93 One representative example of a loc a l mafla state is Shenyang, where in the late 1990s practica ll y all th e ke y local offlcials, including th e h e ads of seve nteen age n ci es (rang- ing from th e city's intermediate court, the procuratorate, the tax bu- reau, and the state asset bureau) took bribes from the city's mafia boss, Liu Yong, in return for proteering his criminal activities, which included e xtortion , murder, assault , and fraud. Th e provincial gove rnm e nt of H e ilongji a ng also app e ar ed to have degen e ra te d into a mafl a state. As desc ribed a bove, nin e se nior provin cia ll eade rs were found to have en- gag ed in coll e ctive corruption. A third example of a loc al mafia state was Fuzhou, where a criminal group headed by Chen Kai colluded with ninety-on e key local offlcials, including the city's d e puty party s ecre tary and police chi ef, in drug trafflcking , ga mblin g, prostitution , and other ille ga l a cti vities. Although violen ce and outright crimin al activities are a mong the deflning features of the hard local mafl a states in Chin a, many of th e lo- cal mafia states may be considered soft because of the absence of vio- lence and involvement of hardened criminal elements. The Yuanhu a smuggling case , which impli ca te d more th a n two hundre d offleials in Xiamen, belongs to this cate go ry.94Jilin'sjingyu c ounty and H e ilongjia ng 's Suihu a prefec ture , wh e re th e lo cal p ar ty chi e fs effectively sold hundreds of government posts f or pe rsonal gains , are two a ddition al ex ample s. In such cases, shady businessm en and local offleials we re primarily in teres ted in maximi z ing their private ga ins , not terrori z in g the loca l population . To be tter und e rstand th e wo r kings of th e lo ca l m a fl a states , th e App e ndix (pag e 219) offe rs a sa mpl e of fifty hi g h-profil e corruption -- 173 of 306 -- 162 C hin a's Trapped Transition cases in seventeen provinces that were publis hed in the official me- dia.95 All of them fit the two core characteristic s of local mafia state s: the involveme nt of organized criminal elements and the collusion of key loca l officials. Roughly h a lf of th e cases belang in the hard cate- gory-local offleials were found to have provided protection for orga- nized criminal groups in twenty-four cases. Hunan was th e province reporting the largest number oflocal mafia sta te s (seven), follo wed by Guangdon g (six) and Fujia n (six). Like th e ir We stern Counterparts, China's organi zed cr imin al gro ups contro lle d businesses, suc h as real estate, co n st ructi on firms, mines, transportation companies, the lo cal produce market, and department stores. The y u sed their political pro- tection to extract monopoly profits, terrorize co mpetitors and co nsumers , and fight off rival criminal groups. From 2001 to 2002, according to data provided by the Supreme Peopl e's P rocuratorate, the government prosecuted ninety-nine offleials for protectin g organ ized cr im e in e n- gaging in ill ega l economic activities. Of th e 265 major criminal cases involving "vio l atio n of th e eco nomic order of th e m arke t," crim in als re- ceived official protection in about a quarter of them. 96 In eighteen of the twenty-four cases of hard loc al mafia states, party secretaries , county magistrares or m ayors, police c hi efs, or the party sec retaries of th e po l- itics and law comm i ttees were in volved. There are two subtypes of s oft local mafia states. The first i ncludes jurisdictions staffed by vena l offleials who co llud e in committing eco- nomic crimes, such as smuggling and collective bribe-takin g. In the sample of fifty tainted jurisd i ctio ns, there were six cases of organized l arge -scale smu ggl in g sanctioned by loca l Ieaders and ten cases of co l- lective bribe-taking. Because of t he scope of co llu sion in such illegal activities (which usually encompasses most of the key government agenc i es), th ese l ocal governments have been practically subve rted into collective illegal ec onomic e nte rprises. The Xiamen s mugglin g scan- dal is the mostextreme case. It is worth noting that , based on this lim- ited samp le, this subtype of soft local mafia states appeared tobe mor e preva l en t in the more prosperaus areas . A possible exp l anation is that the profitstobe m ade from th ese ill egal eco nomic activities were much grea t er than those from a more risky all iance with organi zed crime. 97 The seco nd subtype consists of mafia states formed throu gh the sale and purchase of government officesYH Ther e were eight such cases, involving more than one thousand officials, in our sample of fifty cases. -- 174 of 306 -- Transforming th e State 163 The worst case was the provincial government of Heilongjian g . In 2004, the central government sacked eight senior provincial Ieaders in Hei- longjian g for purchasin g and selling government appointments. In these in sta nces, a soft mafla state e m e rg es when a !arge numb er of local offl- eials are tied to one ano th er through payments of bribes and other cor- rupt activities. Two factors are worth considering here. First, because offleials who have paid brib es to get government positions regard such bribes as in vestments, th ey are motivated to r eco up their in vestments, plus an above-m arket rate of return is generate d. Such a calcu lation Ieads these offleials to us e more aggress ive means to maximize th eir private gains, thus intensif)ring decentralized preda tion. Second, as a !arge num- ber ofthese offleials are tainted by the corrupt means through which they get their jobs, they also have an incentive to protec t one another in their corrupt activities and collude to cover up their ill egal activities. Governance deteriorates rap idly in jurisdictions where such incipi- en t l oca l mafla states contro l power. In many instances, offlcial protec- tion allowed organized criminal groups to penetrate lo ca l commerce and politics . Their control of real estat e, retail, mining , passenger transportation, produce markets, construction , a nd loan sharking en- a bl ed them to gain si gn ifl cant eco n o mi c and political privileges. Offl- cial press reports show, for exa mpl e, well-conn ecte d mafla bo sses were favored in re al estate deals. In one case, the Sh enyang munic ipal gov- ernment gave, for free, 24,000 square meters of prime real estate to crime boss Liu Yong after Liu paid a $ 100 ,000 bribe to the executive vice mayor Ma Xiangd on g. This was n ot the o nly sh ady d eal between a mafla boss and party officials. In 2000, the m uni c ip al governments of Shenyang and Dalian both s old leases on land of simil ar size, but the Dali an government was ab le to generate 1.7 billion yuan in reve nue , compared w ith on ly 70 million yuan rece ived by Shenyang. In oth e r words, assuming equal va lue of land in the two cities, 96 per- cent of the proceeds from sa le of l and leases in Shenyang appeared to have gone to l ocal party boss es a nd their frie nd s, including criminal e l- eme nts. 99 Similar !arge giveaways were reported in other juri sdictions. Wang Huaizhong , a disgraced vice governor of A nhui , whose case im- plicated more than 160 officials, repor t ed ly allowed his cronies to packet more th a n 1 billion yuan in proflts from sweeth ea rt la nd d eals. 100 In some cases, well-pl aced cr imi nal elements even gai ned access to Ch i na's fln anc ial institutions . For example, in Hunan 's Lia nyuan City, a local -- 175 of 306 -- 164 China's Tr a pp ed Transition crime boss, Tan Heping, was the deputy director of the city's rural credit cooperative . Among his supporters in the city government were the party secretary of the political and law committee, police chief, presi- dent of th e local court, and the chief pro c urator-all d ee ply in volved in his criminal activities. They were exposed in 2001. 101 The alliance between criminal elements and local elites in some ju- risdiction s facilitated the entrenchment of the power of the local mafla state in two ways. Through their commercial enterprises and in sider de als, organized crim e bosses gen e rated th e funds with which they could bribe loc al offleials a nd h e lp th e ir allies to purch ase promotions inside the government. Once these offleials accepted these bribes , they feil under the control of the local mafla. w2 Offleials beholden to orga- nized criminal groups often returned favors by helping the Ieaders of these group s to gain political r es pectability and power, typically through appointin g them as loca llegislators or even plac ing them in government age n cies. Liu Yong, Sh en yan g's noto rio us c rim e boss and ch airm an of a conglom e ra te in real estate a nd retail, was a deputy in th e Sh e nyang Municipal People's Congress. In Helong City, Jilin province, local crime boss Gu Decheng was also a deputy in the municipal People 's Con- gr ess. Sang Yu e chun, a noth e r c rim e boss in Ch an g chun,Jilin , own ed a private c onglom e rate with a n e t wo rth of 120 million yu a n. Relyin g on h is wealth to brib e l ocal p a rty Iead ers, Sa ng m an age d to b e elec ted a d e puty to th e NPC in 1998. 103 H e was exp e lled in 2002 afte r he was ar- rested for a criminal offense in October 2002. Zhang Wei, a mafla boss in Wenling, Zh ejiang, controlle d a large conglome ra te in th e provin ce ; be for e he was e xecut e d, he h ad held four offlcial titles, includin g vice c hairm an of the pol iti cal c on s ult a tive confe r en ce of Yidu city in Hubei provin ce . A m e mb er of th e c rime fa mily th a t c on trolled both th e lo cal coal mines a nd gove rnm e nt in Qiansh an c ounty in Ji an gx i was th e party secretary and mayor of a township. Writing in the offlcial publi c ation of the Mini st ry of Supervi s ion , a gover nm e nt pros ec uto r obse rved: Or ganized c rimin al gro up s in several pr ovin ces and cities h ave p en e- trated into th e gove rnm e nts of c ounti es a nd muni c ip aliti es . Th ey se- le c ted their re presentatives in s ide th e governm e nt and worked tog e th er to a rrang e th e appointm e nts of l ocal gove rnm e nt Iea d ers and h ead s of th e l ocal p eo pl e' s co n gress a nd p olitical co n sultative co nfer en ces .104 -- 176 of 306 -- Transforming the State 165 The extent of the entrenchment of this interwoven network of crimi- nals and party offleials is shown by how long it operared in these juris- dictions. In the flfty cases listed in the Appendix, a hard local mafla state lasted from four to twelve years before it was uprooted. 10'; To the extent that the central authorities retain the ability to destroy these local mafla states during periodic anticorruption and antimafla campaigns , the risks posed to the survival of the Communist Party by this collusive network of corrupt offleials and criminals are controllable. The top-down approach to the e radication of China's local m afla states provides, at best, a temporary so lution because it does not address the underlying conditions that foster the emergence of such local mafla states. Without empowering the public or giving the media more lee- way in monitaring and enfor c ing accountability on local offleials on an everyday basis, the central authorities will unlikely never acquire effec- tive capacities to police their local agents. If anything, the emergence of lo cal mafia states, a clear and dramatic indication of regime decay, reveals not only the deter ioration of governance in certain parts of China, but also demonstrates that the regime's institutional mecha- nisms of monitaring and policing its agents are breaking down . In par- ticular, the breakdown of these m ec hanisms , coupled with the absence of constraints imposed by public opinion and political participation, has allowed loc al Communist Party boss es to turn their jurisdictions into personal flefdoms. In the sample of 50 cases of local mafla states, party secretaries and/or mayors were implicated in half of them . The emergence of a decentralized predatory state in China raises sev- eral disturbing questions. In predatory states , economic development and market-oriented reform may create a unique situation whe re the authoritarian ruling el ites can enjoy, for a considerable l engt h of time , both the fruits of economic growth and the privileges of autocracy. This combination, instead of weakening the old regime's resolve to hold on to power, may onl y crea te conditions more conducive to pre- dation as well as strengthen such a reso lve. In practice, this cou ld l ead the regime to devote cons iderab le resources a nd efforts to the repres- sion of opponentsandpotential challen gers deemed most threat en ing to its power, while allowing various forms of decentralized pred ation to sap its energy and erode its political foundations . This exp lains why, as detail ed in Chapter 2, th e CCP has been relatively succe ss ful in -- 177 of 306 -- 166 China's Trapped Transition responding to societal challenges and co-opting new social elites but seems to be impotent in addressing its internal decay. The degeneration of the Chinese state during the reform era also calls into question th e main thesis of developmental neoauthoritaria ni sm: an autocratic regime pursuing market-friendly policies can promote sustained economic growth. The proponents of neoauthoritarianism discount-if not overlook altogether-the risks posed by a predatory state to sustainable growth. Without effective political constraints to check the power of rulers, it is impossible to guarantee that a state ca- pable of pursuing worthy development goalsw ill not be tempted to adopt predatory policies and practices. China's experience provides a sober- ing example of how an autocratic state can lose control of its agents even in an otherwise progressive process of decentralization and market- oriented reforms. Although there is no evidence to suggest that ac- companying democratic reforms would have restrained decentralized predation by such agents, the absence of institutional checks on the power of neoauthoritarian rulers, especially at the local level, greatly increases the risks of decentralization of state predation. The transformation of the Chinese state into a decentralized preda- tory state will hav e profound implications for China's political system, economic development, state-society relations , and prospects for de- mocratization. Doubtlessly, China's state capacitywill continue to erode, as state agents undermine the interests of the state with a fu ll range of predatory practices. Sustainable economic development will be put at risk, since a decentralized pr edato ry state tends to deliver insuffi cient public services and provide in adeq u ate protection for property rights. More important, thieving agents directly threaten the fiscal health of the state itself. State-society relations are likely to grow tense because the predatory behavior of state agents unavoidably impinges on the prop- erty and civil rights of ordinary Chinese citizens. Prospects for a peace- ful and gradual transition to democracy may also grow dim because these negative effects will hinder the development of the social, economic, and political in frastructures conducive to a peaceful democratic tran - sition. Regime transition may still be possib le, but such a transition, when it comes, is more likely to be tumultuous and disruptive. -- 178 of 306 -- F IVE China's Mounting Governance Deficits THE COMBINATION oflagging politic al reforms, entrenchment ofrent- seeking groups, and decentralization of state pr eda tion is a recipe for deteriorating governance. As lang as China's ruling elites refuse to con- front these deeply embedded structural and institutional problems, they are unlikely to sustain the momentum of economic development that has played a critical roJe in maintaining the p olitical monopoly of the Communist Party. In developmental autocracies that eventuall y degen- erated into predatory states ( the best example being Suharto 's lndon esia), high rates of growth can mask the weak political foundations of a uthor- itarian regimes. Rising prosperity and inflows of foreign capital , which serve as a measure ofinternational confidence in the regime, often give the ruling elites a sense of sec urity and reduce incentives for reforms th a t might shore up their political foundations. China is no exception. Its sustained high rates of growth since t he late 1970s have strengthened th e ruling elites' belief in the id ea that eco- nomic growth can be a panacea for most social and political ills. Thus, economi c growth has produced a perverse effe ct: instead of takin g ad- vantage ofthe economic boom to push throu gh difficult political reforms th at can help sustain long-term growth , Chinese Ieaders in the 1990s saw no need for such m eas ure s. Th e ruling Co mmunist Pa rty's in ability to implement meanin gfu l political reform is responsible , in retrospect, forarapid and substantial accumulation of governance deficits. Conceptually, governance deficits refer to a government 's deficien- cies in fulfilling the most import ant functio n s in ruling a society. Such 167 -- 179 of 306 -- 168 C hina's Trapped Transition deficits include both the erosion of state capacity and the rulin g re- gime's ability to mobilize political support. Accumulation of governance deficits constitutes a long-term threat to a regime's survival because these deficits will in evitably be reflec ted in declining performance of the state and the regime in executing the basic functions of government. But as with fiscal deficits, the immediate adverse impact of rising gov- ernance deficits may be more difficult to measure. A regime's ability to talerate rising governance deficits may be similar to anational treasury's ability to abso rb the effects of mounting budgetary deficits. In th eory, a political system's capacity to tolerate governance deficits should be much greater than a treasury's ability to talerate budgetary deficits. After all, any nation's ministry of finance must go to the market to issue bonds to cover the budgetary deficits, or risk high inflation through printing paper money. Given the discipline imposed by the market, there is a finite Iimit to a state's abi lity to finance budgetary deficits. In comparison, as poor, even dismal, governance is found in a !arge number of deve loping countries, a society's capacity to tal era te gover- nance deficits may be highl y elastic. In most cases, only the availability of a credible political alternative would Iimit a society's tolerance of bad governance. Nevertheless, governance deficits do matter. To the extent that accumulation of such deficits progr essively weakens the ca- p acities ofthe stat e and th e ruling regime , growing governance deficits can contribute to the increase in systemic risks in a politic al system. Such risks may ordinarily have little visible effect on the stability of a given politi cal regime. But the ex istence and constant increase of these risks will, in the lon g run, reduce the resilience of the regime and threaten its durability. In this chapter, I first describe and analyze the two principal manifes- tations of China's rising governance deficits-the state's erod in g capac- ity and the ruling party's declining capacity for political mobilization. Then I examine the political effects of ris ing governance deficits on state-society relations. Governance Deficits and State lncapacitation Among developing countries, China is thou ght to h ave a strong state . Compared with countries at comparable in come Ievels, the Ch in ese government has demonstra ted relatively good performa nce in providing -- 180 of 306 -- China's Mounting Governance Deficits 169 basic services such as health, education, public safety, and environmen- tal protection. Indeed, the reputed effectiveness of the Chinese state has made investment in China attractive for foreign investors. But compar- ing China with countries with very low state capacity does not address two key issues: has China's state capacity been declining or growing since it began the economic transition in the late 1970s, and how does it really compare with China's peers in the developing world? If evidence points to a trend of state incapacitation, it should raise concerns about the sustainability ofthe transition. Ind eed, a closer Iook at many spec ific indexes of government performance would show that the capacity of the Chinese state has been deteriorating during the last two decades. In several important areas, China's performance actually compares un- favorably with that of some of its peers in the developing world, those countries with large populations such as India and Mexico, or its East Asian neighbors. The incapacitation of th e state is shown in the erosion of the gove rn- ment's ability to provide essential public services, such as public safety, education , health, environmental protection, and enforcement oflaws and rules. In China, there are numerous telltale signs that these in- dexes of state capacity have been slipping. Such slippage should be es- pecially alarming because it has occurred in a period during which China experienced unprecedented econom ic prosperity. The key in- dex es of government performance ought to h ave impro ved , rather than declined. Public an d Workplace Safety Most of th e evidence for deteriorating performance is mundane but telling. Take, for example, the number of road fatalities, a key measure of a state's capacity to regulate a routine , but vital, social activity- transportation. A study of the change in traffic fatality rates (measu red at deaths per 10,000 vehicles) between 197 5 and 1998 shows that the growth rate in China-243 p e rcent during the period-was the seco nd hi gh est in the world. Although rising traffic fatality rates are closely as- sociated with a rising rate of motorization, weak states tend to have rel- atively high er death rates. 1 The incidence of traffic acc ident fatalities in China almost doubled between 1985 and 2000 (about fifty-ei ght road fatalities per 10,000 vehicles in 2000, compared to thirty-four in -- 181 of 306 -- 170 C hin a's Tr ap ped Tr a nsition 1985). 2 In 2002, China reported 109,381 road fatalities. '~ An inte rna- tional comparison using the 1995 data shows that traffic fatality ri sks were mu ch high e r in China th an in m an y of its n eig hbor s. R oa d fatali- ties p e r 10,000 vehicl es were twenty-six f or C hin a, tw e n ty fo r Indi a, a nd e ig ht f or Indon esia. C hina fared be tter o nly th an Ton ga (fifty- two) , Bangladesh (forty-four), M ya nmar (thirty-six) , a nd Mongolia ( thir ty) .4 Road hazards are not the only example of the s tate's poor ability to protect the public. Due to we ak regulatory enforcement, mor e than 100, 000 p eo pl e were m ade ill or killed by r at po ison alon e eac h year :' D ata o n workpl ace safety in C hin a revea l a similar sta te weakn ess. Th e Chin ese wor kpl ace m ay be a mong th e mo st h azardou s in d evelop- ing countrie s. A survey conducted by the official All-China Federation of Labor Unions in 199 7 found that 10 percen t of the worke rs p o lled rep o rted h av ing suffe red inju ries on th e j o b.6 O f fi cial fi gu res recor d 13,960 in du st rial an d min in g acc i de n ts in 2 00 2 th at r es ul ted in 14,924 fataliti es . 7 Fi gu r es compi l ed by th e In terna tio n al Labour Office for 1997 show th at mining d eaths in C hin a (3, 273 ) were mor e th an thir tee n times those in India (242) .8 The rate of fa talities in coal minin g acci- dents in C hin a is the highe st in the world , with seven death s p er 1 mil- lion m etri c to ns of coal produ ce d in 2001 ; Indi a's r ate was 0.9. 9 Most of the min i ng fatalities occurred in u nsafe sma ll m in es run by private e n- treprene urs, many of whom were either connected wi th local govern- m e nt of fl eials or had h e ld import an t of fi cial p ositions b efore . In th e first five months of 2002, for exa mple, private co al mines accounted for 54 p e rc en t of th e fatalities; coal min es o p e r ate d by to wnship gove rn- ments r eporte d 14 perce n t of th e fatalities. 10 Unsafe p rivate m i nes have powe r fu l alli es because m a ny loca l offleials are investors in th ese min es and u se th e ir power to pro t ec t th em . 11 In o ne case, a l oca l m afia g rou p took over several coal mi n es inJi an gxi a nd br ib ed n early all th e l ocal o f- ficials, includin g t he polic e c hi ef, in re turn for prote ction. 12 Education Th e Ch i nese government's ability to provi de access to educatio n d oes n ot co mp are we il, e ith er. C hin a' s e du catio n spe ndin g, aro und 2 pe r- ce nt of G DP in th e la te 1 99 0s, was con s id e r ab ly below the average of 3.4 perce n t of GDP for low-i ncome cou n tr ies . Accord in g to UNESCO's data on publi c expend itu res on education as a percentage of GDP, -- 182 of 306 -- China's Mounting Governance Deficits 171 China spent significantly le ss on education than did India, Mexico, Brazil, and the Philippines. During 1998-2000 , public expenditure on education in China was 2-2 .1 percent ofGDP, co mpared with 3.2- 4 per- cent in India, 4.2-4.4 percent in Mexico, 4.2 perc e nt in the Philippin es, and 4.2-5.2 percent in Brazil. China spent less on education than Bangladesh (2.4 percent of GDP), a much poorer country.13 As a result, access to primary and middle -sc hool education in 1998 was a va ilable to 85 percent of the school-age population nationwi de and to only 40 per- ce nt of the c hildre n in the poor weste rn r eg ion s. The middl e sc hool drop-out rate in rural areas was 42 percent in the la te 1990s. In so m e parts of the south, the rate was 30-50 pe rce nt. 14 According to a study by UNESCO in 2002 , China will not achieve UNESCO's literacy goal for 2015. Another study, conducted by the UN Development Programme (UNDP), showed that China's und erinves t- ment in education may have contri buted to hundreds of thousands of preventable deaths of chi ldr en . According to the UNDP, h ad China maintain ed th e same rate of e ducation as Vietn am, where p er capita income was a third of China 's, 264,500 fewer Chinese children would have died in 2002. 15 A study of China's inve s tmentinhuman capital by th e Nob e l lau r eate James H ec kman in 2002 co nclud es th at C hin ese governme nt policies during th e reform era favored physical invest- ment over schooling, resu ltin g in underinvestment in human capital. 16 Th e central gover nm e nt contributes only a small portion to China's educational expenditures; for example, it provided 13 percent of the 334.9 billio n yuan spent o n educa tion in 1999. Spending on co mpul- sory e du catio n , in particular, is borne a lmo st excl usive ly by su bn atio n al governments : township governments are responsible for 78 percent, county governments pay 9 percent; and provincial governments con- tribute 11 percent. The ce ntr al government p ays only 2 percent. This structure of fina ncing compulsory education m akes China an outlier in education spending. For example, in Me xico in 1994, 79 percent of ed- ucation spending came from the central governmen t; in South Korea, 96 percent came from Seoul. Among OECD co un tries, the average c on- tribution fro m the central gove rnm ent is 50 percent. 17 In add ition , ed- ucation spending by the centra l governme nt was bi ased t oward hi gh er e ducation : 94 percentofall the e du ca tion spending by the cen tra l gov- ern m ent in 1999 was for high er ed u ca ti on; its comb in ed contribu tion to secondary and primary education was 0.5 percent of its tota l education -- 183 of 306 -- 172 C hin a's Trapped Transition budget. In other words, lo cal governments are responsible for all sec- ondary and primary education spending. 18 As a whole, the state's contribution to education spending had been declining in the 1990s. From 1991 to 1997, the sh are ofthe state's co ntri- bution to total education spending feil from 62.8 percent to 53.6 percent. The shortfall was made up through increase d tuition and fee s, thus reducing access to education, especially in poorer areas. 19 One scholarly estimate suggests that government funding contributed to only 31 per- cent of the expen ditures in middl e-sch oo l e ducation, 24 per ce n t in primary-sc hool education, and 40 percent in kindergarten ed u catio n .20 Public Health China's public h ea lth deli very system has deteriorated considerably in recent years and compares poorly with that of its nei g hbors. 21 In the World Health Organi za tion 's (WHO) World H ealth Report 2000, China's overall h ea lth system perform a nce in 1997 ra nk ed 144, placing C hin a among the bottarn quartile of WHO member states, behind India (112) , Indonesia (92), and Bangladesh (88) , countries often thou g ht to have less effective governme n ts . On the score of "fairness in finan - cial contr ibution," a proxy m eas ure of equality in access to heal th ca re, China was ranked 188, ahead of only Brazil (189), Myanmar (190) , and Sierra L eone (191). In terms of "overall goal attai nm ent," accord in g to WHO, China was placed 132, again behind Indonesia (106 ), India (121), a nd Bangladesh (131 ). 22 The d e clin e in th e state's abili ty to pro- vide health se rvices has hi t especially hard China's rural population and people li ving in less de veloped areas .23 According to a study by the Devel opment Res earc h Center of the State Council, on ly 14 percent of the n et incr ease in the government's h ea lth care spending in th e 1990s was channeled to the countrys ide; abo ut 90 percent of this ne w spe nd- ing was used on personneland a dministration. 24 In th e 1970s, 90 percent of the rural areas were covered by a sys t em of basic coo perative health care. By th e e nd of the 1980s, th is sys tem survived in on ly 5 percent of the villages. Des pite a halfh ear t ed effo rt by the governmen t to rebui ld th e cooperative health system in the 1990s, n ea rly all th e 700,000 rural vill age and to wn sh ip clinics were privatized after local governments sold these faciliti es to pr iv ate entrepreneurs and ph ys icians in the 1980s.25 The co lla ps e of the rural cooperative -- 184 of 306 -- China's Mounting Governance Deficits 173 health system was further exacerbated by the antirural bias in the gov- ernment's health spending. Only 15 percent ofthe government 's health budget goes to rural areas, even though rural residents account for 70 percent of the Chinese population. On ape r capita basis, rural res- idents receive only a third of the healthcare enjoyed by their urb an counterparts. 26 Replacing the prereform cooperative healthcare system is a patchwork of fee-for-service private clinic s and hospitals, many of which provi de substandard care. A study of four hundred village clinics published in 2001 repo rted that two-thirds did not keep patients' medic al records and only half of the injection tubes and needles were sterilized. 27 Rural doc- tors and medics are poorly trained and man y of them have no licenses. A reporter found that about 40 percent of the scores of clinics he vis- ited did not have licenses. 28 Consequently, both the access to and quality of healthcare in rural China have declined dramatically. Whereas 85 percent of the rural res- idents had health insuranc e in 1970, less than 20 percent of th em were insured in 2003. 29 According to the 1998 National Health Service sur- vey conducted by the Ministry ofHealth, 37 percent offarmers who got sick could not afford to seek medical treatment, and 65 percent of sick peasants who should have been hospitalized were not admitted be- cause of inability to pay. Both figures were high er than in 1993 , when a similar survey was carried out. In 1993, nearly 77 percent of rural warnen gave birth at home and only a third of rural children had physical checkups. The overall access to healthc a re hardly improved ten years later. The 2003 Nation al Health Service survey revealed that 49 percent of the Chinese population do not go to the hospital after they get sick and 30 percent of the patients who ought tobe hospitalized are not , due to unaffordability of care .~ 0 For rural residents who cannot afford health care, the consequences are often dire. Poor health has become the chief cause of poverty in rural China. In Henan provin ce, 40 percent of the rural residents feil below th e poverty line again after they were struck by disease a nd lost their ability to work ; in Shaanxi province , the figure was 50 percent, and injilin province, the figure was 60 percent. 31 Even in urban areas, considered privileged relative to the countryside, access to healthcare has been declining as the costs of h ea lth care ri se rapid ly. Accord in g to the Ministry of Health , 27 percent of the urban -- 185 of 306 -- 174 China's Trapped Transition residents in 1993 were uninsured; by 2003, the percentage of unin- sured in the urban population had risen to more than 50 percent, and 44 percent of urban residents who got sick did not go to the hospital for treatment in 2003. 3 ~ Deterioration in the public health infrastructure and declining ac- cess to health services may be responsible for the persistently high Ievels of some communicable diseases. For example, at the end of the 1990s, 10 percent of the population had hepatitis A, and 5 million people were stricken with tuberculosis. 33 A Ministry of Health report disclosed that, in 2002, 810,000 people suffered from schistosomiasis, a debilitating disease. 34 China was also ill-prepared to deal with an ernerging HIV/ AIDS crisis. Estimates of the infected ranged from 850,000 to 2 million in 2002. The rate of infection was growing at 40 percent per annum in 2003-2004, according to the Ministry ofHealth. 35 At this rate , the num- ber of infected will most likely exceed 10 million by 2010. 36 Although the rate of infection was high, the government's spending on AIDS pre- vention and treatment averaged only 15 million yuan a year in the 1990s. Despite a modest increase in funding-when the amount was in- creased to 100 million yuan in 2001, in addition to a one-time appro- priation of 1.25 billion yuan-the total government resources available for AIDS prevention and treatment remained insufficient. 37 Alarmed by this trajectory and the Chinese government's inad equate efforts, the United Nations issued a report in 2002 titled "HIV/ AIDS: China's Titanic Peril." It warned that China was on the verge of a public health and humanitarian catastrophe , and singled out, as factors contributing to the spread of the epidemic , " insufficient political commitment and le aders hip at many levels of g overnment, insufficient openness when dealing with the epidemic, insufficient resources both human and fi- nancial, scarcity of effective policies, Iack of an enabling policy envi- ronment, and poor governance." 38 The insufficient supply of public goods may have contributed to a slowdown in poverty reduction s in ce the mid-1980s.39 One study shows that a lthough the poverty rate fell 22 percent from 1978 to 1984, progress since then was virtually stagn a nt; between 1985 a nd 1995, de- spit e strong economic growth, the poverty rate fell only 2.58 percent. 40 The pace ofpoverty reduction slowed even further during 2001-2002, with fewer than 2 million people lifted out of poverty each year. In 2003, for the first time since reform began , the number of people living in poverty actu ally rose by 800,000. 41 Base don the World Bank's -- 186 of 306 -- China's Mounting Governance Deficits 175 definition of "extreme poverty" (per capita income of $1.08 a day, com- pared to the official Chine se s tandard of $0.21 a day), a Chinese re- searcher concluded that in the late 1990s C hina h ad 120 million people in the rur al areas who liv ed below the poverty line; h a lf of th em were concentrated in the western region. In urb an areas, about 20 mil- lion people were classified as poor in 2002. 42 This implies that China's real poverty rate is about 10 percent, about fi ve times the official rate. Even this high figure may understate the pover ty rate. In the Wo rld Bank's World Development Indicators 2003, the numb er of people living in "extreme pove rty" was estimated t obe 222 million, or abo u t 18 p er- cent of the Chinese population. 43 Environmental Degradation State incapacitation in China is reflec ted in the wo rsening environ- menta l degradation th at threatens the susta in ab ility of econo mi c de- velopment.44 Official reports a dmit that a third of China's la nd suffers from severe s oil erosion. As a result, about 67, 000 hectares offarmland are lost each year. Major waterways have also become clogged with silt. About 1.5 billion tons of so il, sand, a nd gravel are wash ed into the up- per reaches of the Yangtze, fo r examp le . The auth or iti es blam ed th e buildup of such silt in the Yan gtze on the d evastating floods al ong th e river in 199 8. Soil eros ion h as e nd an gered China's reservoirs, wh ere more than 20 billion tons of silt have accumulated. Each year about 2,500 square kilometers of la nd ar e turn ed into d ese rt, r esu ltin g in 54 billion yua n in dir ect econom ic lasses. Th e expans ion of the de se rt has also led to a l arg e increase in t he frequency and magnitude of sandstorms that hit the north ern parts of the coun t ry. Acid rain has p o llu ted 30 p ercen t of the coun try. 4 '' With 80 percent of wastewater discharged untreate d, three quarters of the lakes and about half of the rivers (measured in length ) have been polluted. The head of China 's State Envi ronmen tal Protee rion Administration admitted in early 2 00 3 that ch ec ks con du cted in 740 sections of the country 's m ajor rivers foun d water to be of drinkable quality in only 29 percent of them. 46 Sixty percent of th e wa t er in th e Yangtze, C hin a's most important rive r, was found to be pollute d to vary- in g degre es in 2003. Each year, 20 billion tons of polluted water, or 40 percent of Ch in a's total , are discharged in to the Yangtze.47 In ad- dition , two-thirds of th e underground water in the 118 major c iti es -- 187 of 306 -- 176 China's Trapped Transition is rated as "severely polluted." Water pollution alone costs China 1.46--2.84 percent of GDP each year. By international standards, China's use ofwater is among the most inefficient. Foreach unit ofGDP, China's water usage is 15 times higher than the average of developed countries-35 times higher than Japan and 25 times higher than France. It is also higher than India and Pakistan .48 Environmental degradation incurs huge direct economic lasses. The World Bank estimated in the mid-1990s that major forms of pollution in China cost 7. 7 percent of GDP. 49 More than 20 million tons of S0 2 (a product ofburning coal) is released into the air each year (the largest in the world); this emission alone cost China about 2 percent ofGDP. 50 China's State Environmental Protection Administration reported that tests of air quality conducted in 1999 in 338 cities found that airwas con- sidered "good" only in one-third of them. Of the ten cities with the warst air pollution in the world in 1999, seven were located in China. 51 In addition, China's agricultural infrastructure built in the prere - form era steadily deteriorated due to a lack of funding. Spending on agricultural infrastructure fell from 18 percent of total government spending on infrastructure in the 1970s to less than 6 percent by the mid-1980s. Particularly hard hit has been the rural irrigation system. Ofthe nation's 84,300 reservoirs, one-third were classified as " unsound and dangerous" in the mid-1990s. Th e total capac ity of these reservoirs had been cut by 30 to 50 percent, dra matically reducing the country's ability to fight floods and drought:"2 The combined effects of environ- mental degradation and the severe deterioration of much of the agri- cultural infrastructure built before the 1980s may have exacerbated the devastation of natural disasters. Grainoutput la sses resulting from nat- ural disasters more than doubled from the 1950s to 1990s, from 2.1 per- cent to 5 percent of total grain output. Output lasses accelerated mostly in the 1990s. Whereas average annual lasses from natural disasters ranged 50 billion to 60 billion yuan (in constant prices) from the 1950s to the 1980s, they had doubled to 120 billion yuan by the mid-1990s. ';~ Crisis in Rural Publi c Finance The erosion in the fiscal capacity of the Chinese sta te in general, and the crisis in rural public finance in particular, have severely und e rcut the governm e nt's ability to fund public services. In ad dition , the conse - -- 188 of 306 -- China's Mounting Governance Deficits 177 quences of a dysfunctional fiscal system have been made much worse by a deeply flawed political incentive structure that motivates local of- ficials to devote limited resources to projects that promise to maximize their individual political gains but yield low social r eturns . Thus, proj- ects and services that can deliver high social returns, such as environ- mental protection, education , and public health , are neglected. China's fiscal problems have been extensively studied. 54 The deteri- oration in the state's extractive capacity, if measured by official data on the p erfor mance of China's fiscal system, seems dramatic , if not pre- cipitous, as the government's tax rec eipts feil from 31 percent of GDP in 1978 to 14 percent of GDP in 1999. 5 5 The truth, however, is quite dif- ferent. Aggregate government revenue during the last two decades has remained at the same Ievel of about 30 percent of GDP. Erosion of the state's fiscal capacity may be modest. As discussed extensively in Chapter 4, what has changed is the massive diversion of revenue from the government's official budget. The explo s ion of various forms of revenue coilected by the government but not entered into the budget has squeezed the on-budget tax revenue streams . At its peak, such off- budget revenue exceeded budgeted tax revenue by a two-to-one ratio. For exam ple, in 1995 and 1996, budgeted taxrevenuewas about 11 per- cent of GDP, but off-budget an d other types ofunrecorded government revenuewas about 20 percent of GDP.56 Provincial and municipal governments are the primary beneficiaries of this dysfunctional fiscal system because it ailows them to raise reve nue outside the normal tax streams. Even after the implementation of the 1994 fiscal reform, which is generally regarded as a measure to strengthen the central government's fiscal capacity, provincial and municipal gov- ernments were able to increase their share of the revenue. One study of the changes in the effec tive share of government funds claims th at the share of provincial governments rose 2 percent each year between 1994 and 2000, from 16.8 to 28.8 percent, while that of the central gov- ernment actuaily feil slightly in the same p eriod, from 55.7 to 52.2 per- cent. 'n The relative declin e in the ce ntr al government's revenue h as significa ntly reduced Beijing's ability to in vest in social services. As a result, the central government increasingly relied on unfunded mandat es-by ordering subnational governments to provide the social services Beijing no Ionger has the ability to finance. Local governments have few in centives to provide these services, however, because the -- 189 of 306 -- 178 C hin a's Trapped Transition political returns from doing so are lower than those derived from devoting the same resource s to more showy projects demon stra tive of their ab ility to maintain high rates of growth . A s tud y of budgetary a ll ocations in flve provinces-Jilin, Hebei , Xinjiang, Qinghai, an d Shandong-from 1980 to 1998 found that public expend itur es for agricultural production fell from 7.54 to 2.15 percent of the budgets of these provinces, and spendin g on agriculture , forestry, and wa t er man- agement d ecl ined from 7.58 to 4.21 percent. In co ntrast, expe nditu re s on urban maintenance, a catego ry of spend in g usually associated with burnishing the image of the major urb an centers, doubled. 58 B ecause lo cal offleials are more likely to ge t promoted for delivering s ho rt-term high gro wth rates or other forms of tangible results, off-bud get rev- enue tend s to be spent on building local indust rie s and other projects that contribute little to improvem e nts in ed u catio n , h ealth , or the environment . There is another reason for government offleials to favor off-budge t revenue . Since normal budget rules do not a pply to the co ll ec tion a nd use of su ch revenue, offleials enjoy near tot al discretion. Abuse and corruption is rife. A lar ge portion of the off-budget funds has been fou nd stashed away in secret sl us h funds co n tro ll ed by government of- flcials. A cco rding to the flnance minister, investiga tions found that theft and corruption was detected in every s lu sh fund .59 In a report re l eased in Jun e 1999, the Nationa l Audit Adm inistr ation claimed to have uneavere d slush fundsandillegal expenditures that amounted to 96 billion yuan, e qual to 10 percent ofth e 1998 tax revenue. 60 An important consequence of this dysfunctional fiscal system is the near-collapse of local public finance in many c ounties and townships, particu larly in th e interior agricultural provinces with l arge popu lations, such as Hen an, Anhui, Hunan, Hube i, Jiangxi, and He be i. Although China's 2, 400 counties and 46,000 townships provide most of the daily government servi ces, they rely on a slim tax base, collecting 20 percent oftotal government revenueY Nationally, co unti es could generate rev- enue equal to only two-thirds of their expenditures in 1999. About 40 per- cent of the counties can ge nerate revenue suffici ent to cover on ly half of th eir expenditures .62 The flscal co n d itions for rural towns hip governments are even more dire . Though sadd l ed wi th the mandate to pay for most local serv ices, the most costly ofwhich is public education , these townships h ave prac- tically no t ax base and must extract their revenue from farmers , mostly -- 190 of 306 -- China's Mounting Governance Deficits 179 through an inefficient and coercive collection sys tem. Most studies of the indebtedness of rural governments pinpoint the mid-1990s as the period when this problern began to emerge. In the 1980s and early 1990s, indebtedness was not a serious issue in rural public finance. Among the causes that contributed to the debt problem, the 1994 tax reformwas singled out as the most important . lntended to strengthen the fiscal capacity of the central government, this reform placed the heaviest burdens on the politically weakest township and village govern- ments. Unwilling to cede their share of the revenue, provincial and municipal governments increased th e pressures on township and vil- lage governments to meet ever-rising revenue goals and even threatened local offleials with dismissal should they fail to deliver. As a result, town- ship and village governments were forced to cut services and increase taxes and fees on rural residents. This, in turn, fueled rural disco ntent and sparked tax resistance as peasants saw their taxes rise while local services deteriorated. According to one study, tax resistance was a ma- jor factor in the decline of local fiscal capacity. Unpaid taxes and fees accounted for one-third ofvillage debts.63 The magnitude of the township and village fiscal crisis in the late 1990s was captured by a study of the Ministry of Agriculture. According to its findings, at the end of 1998, 90 percent of townships and 83 per- cent ofvillages were deeply in debt. The total amount of debts owed by these townships a nd villages totaled 325.9 billion yuan. Townships owed 177.6 billion yuan, averaging 4 million yuan per township; vil- lages owed 148.3 billion yuan, averaging 210,000 yuan per village. The amount of d ebts grew 17.5 percent in 1999 an d 11 percent in 2000. This means that township and village debts reached 423 billion yuan by 2000, equ ivalent to almost 30 percent of agricu ltur al GDP in 1999. 64 A senior researcher at the Ministry of Finance who led a t eam to study the issue of rural public indebtedness estimated that, by 2004, the total amount of public debts owed by townships and villages ranged be- tween 600 billion to 1 trillion yuan, or close to 10 percent of GDP. 6'; Agri cu ltural regions were most h eavily indebted. The debt-to-asset ratio was 26 percent in easter n coastal regions , 42 percent in central agri- c ultu ral regions, and 24 percent in th e poor western regions Y' Media reports on rural indebtedness in individual provinces provide further evidence of fiscal stress in !arge agra rian provin ces. A survey of town- ship governments in Hunan in 2000 found that 88 percent were in debt; they owed 8.5 billion yuan, about half the province's total fiscal -- 191 of 306 -- 180 C hin a's Trapped Transition revenue. In Henan, debts accumulated by township gove rnme nts reached 9 billion yuan, or 40 percent of the total provincial fi scal rev- enue. Nearly all the township governments owed their employees bac k payY In Anhui province, debts owed by towns hip a nd village gove rn- ments amounted to three times their annual revenue in 1998.6H Several factors were respon sible for the rapid accumulation of debts in rural China. A Ministry of Agriculture survey found that the most important cause of the indebtedness was fail ed investments in TVEs. Loans borrowed to flnanc e these e nterprises, many ofwh i ch eve ntually failed, accounted for 38 percent of the debts owed by township a nd vil- l age governments. Borrowing to provide basic services and flnance lo- cal roads, bridges, and other infrastructure accounted for 18 percent of the accumulated debts. Some Chinese re sea rchers criticized such spending as a wasteful use of resources th at benefited the political ca- reers of local officials. In particular, they singled out the building of imag e proj ects, especially paved highways and roads , as an exam ple . Al- most 8 percentofall debts were loans borrowed to build roads . Loans borrowed to finance everyd ay commercial and agricultural operations amounted to 8 percent of the debts; 4 percent of the debts was attrib- uted to the l oans us ed by township and vill age governme n ts to pay taxes; and 5 percent of the debts was used to pay the sa laries for local offlcials.69 The case of an unnamed county in Anhui was representati ve. In this county, bad loans borrowed to flnance village and township industries accounted for 37 percent ofthe debt. In villages, 15 percent oft h e debt was owed as a result of building l ocal public infrastructure such as schools an d roads. In townships, the flgure was 30 percent. The costs of the image projects launched by l ocal offleials to burnish their record accounted for 8 percent of the debts. The costs of supporting bloated local bureaucrac ies and their administrative expe ns es a dded an addi- tional20 percent to the debt lo a d. 70 One study reported that about half the loans borrowed from banks by township governments were u sed to pay the salaries of township offleials in 2001.71 Accord in g to Chen Xi wen, a l eading expe rt on rura l Ch in a, town- ship and vill age governments re li ed on three so urces for borrowing : l ocal agr icu l tural coope rative cred it associ atio n s ( nongye hez.uo jijin hui), which provided lo ans for commercial proje cts; local entrepreneurs; and state-owned banks a nd rural credit union s.72 A more detail ed -- 192 of 306 -- China's Mounting Governance Deficits 181 breakdown of these credits s howed that bank s and rural credit unians were the single largest source ofloans, pro viding 42 percent, or 1 36 bil- lion yuan , in loans. More than half of the se loans (53 percent ) we re overdue , with half of th ese unpaid loans three years over du e.n In addition to forcing rural governments to c ut services, the distressed local public finance is viewed by many in China as directly responsible for the rural political decay and rising tensions between the s tat e and the peasantry. 74 For example , village governments and party ce lls gr ow progressively weak as lo ca l eli te s b eco m e m ore re lu ctant to serve in these heavily ind ebted vi llag es.75 In t ownship gove rnm e nts , high d ebts and unpaid wages demoraliz e officials. 76 In early 2001, for exa mple , un- paid salaries for township officials and workers injilin totaled 46 million yuan, or about half the province's unpaid salaries. Similar situations we re reported in Anhui. The rural public finan ce crisis is also a major contrib uto r to rising tensions. In heavily indebted townships , t ens io ns b etwee n cadres and rura l residents are high . Loca l governme n t offi- cials often m eet strong resistance in impl e m e nting government policy and collecting revenue. 77 Erosion of the CCP's Mobilization Capacity In meas urin g a state's govern in g capac ity, a c rucial variabl e is the mobi- liz atio n ca pacity of its major political p ar ties. As institutions to aggre - gatedifferent social and political interests and build coalitions, political parti es pl ay a crucial role in ge n e rating support for th e le g itim acy a nd p o li ci es of the government. Th e political party's roJe in mass mobiliza- tion an d governance is perh a ps even more critical in authoritarian re - gimes than in demo cra tic polities. As Samuel Huntington observe d , "The one-party system is the principal modern form of a uthoritarian government ." And the strength of an authoritarian r eg ime depends on the strength of its party. 78 The key to the via bility and dur abi lity of the ruling party in an au th oritar i an regime is its capacity to mobiliz e mass political sup po rt and maintain l eg itim acy. D es pi te the conventio n al wis- dom th a t a uthorit arian r eg im es depend m a inly on repr ession for sur- vival, monopo listic ru li ng parties actua lly use a mixture of ide o lo gica l appeal, r ed istributive eco no mi c policies, o r ga ni za tion al pe n e tratio n , and repress i on in governing the ir soc ieties. In the M ao era, the CCP had an unusually stro ng capacity of mass -- 193 of 306 -- 182 China's Trapped Transition political mobilization. The combination of a charismatic Ieader, a sini- cized communist ideology, a youthful revolutionary party tested by decades ofwar, a development strategy that maximized the control of th e state , and the ruthl ess app li ca tion of mass re pr ession e nabl ed th e CCP to rally the Chinese nati on behind its cause s. Although weakened by the catastrophic failure of Mao's radical policies, the CCP retained a measure of mobilization capacity in the early years of the reform era thanks, in large part, to Den g's progressive poli cies. Post-Mao reforms l aunc hed by De ng m a naged , in the imm e di ate afterm a th of the Cu l- tur al R evo lution , t orepair the tarnish ed im age of the CCP a nd build a broad proreform coalition . More important, the CCP's extensive orga- nizational infrastructure in Chinese society and economy had yet to ex- perience the impact of market-o riented reforms . A quarte r century of econom ic r efo rm l ater, h owever, the extent of the a tr oph y of the CCP's mass mobiliz at ion capacity began tobe visible, even as it had grown more ad ep t in usin g selective repression a nd tar- geted co-opta tion to maintain its rule. Market-o ri ented reforms h ave undermined the economic infra structure upon which the CCP 's orga- nizational system was built, leading to the party 's decline , first in the cou n trys id e, and later in th e citie s. Within th e party itse lf, th e break- down of di scipli ne a nd in st itutional norms has caus ed widespread co r- ruption a nd d egrade d the p arty's organizat iona l int egrity. Th e p arty's mass appe al practically disapp e are d, as we ll, m ai nly becaus e of exclu - sivist and proelite policie s pursued by the party and its subsequent transform a tion fro m a m ass re volutionar y p arty into a group of self- serving elites. In practical terms, the erosion of the CCP 's mass mobiliz a tion ca- pacity means that the party no langer can build bro a d-b ase d social coa litions to pursue its policies a nd d efe nd itse lf. Inste a d, it has to rely more than ever on economic performance to maintain legitim acy a nd use the repressive power of the state to defend its powe r. The be st ex- am pl e to ill ustrate th e political co ns equ e n ces of th e CCP 's declining political mob ili zation capacity was the party 's suppression of the qu as i- spiritual movem e n t, Falun G ong, in 19 99. Durin g the Ma oist e ra, th e CCP co uld h ave easily mobi lized its loyal supporters, such as workers a nd peasants, to co nta in and even d es tro y a nationwid e soc ial n e two rk like Falu n Gong with out resorting to the use of po li ce . But in 1999, the only effec tive inst rument the CC P co uld mobili ze was the po lice. De- sp it e a m assive official prop agand a campai gn agai nst Fa lun Gong , th e -- 194 of 306 -- China's Mounting Governance Deficits 183 CCP could not mobilize a single social group to support its crackdown. In the end , it was the application of brute force , not the mobilization of the masses, that enabled the CCP to de st roy the movement inside China. Economic Reform and the CCP's Organizational Decline The organizational decline of the CCP, in retro spect, was almost pre- determined. Leninist parties like the CCP hav e maintained their dura- bility only in economies dominated by the state. Such economies provide the economic infrastructure (SOEs and collective farms) that form the organizational backhone for the ruling parties. By pursuing market reforms that gradually eliminated collective agriculture and privatized a !arge number of SOEs, the CCP may have become a victim of its own economic success. The new economic infrastructure , based on hausehold farming, private ownership of capital, and individual Ia- bor mobility, proves inhospitable to the organizational presence of the CCP. The sign that market reforms were undermining the party's orga- nizational health first emerged in the rural areas, which spearheaded China's economic reforms. Economic reform weakened the party's hold in the countrys id e through two mechanisms. First, the dismantling of the people 's com- munes and the return to hausehold far ming directly reduced the power ofthe CCP because the party's grassroots cells lost much oftheir relevance in the social and economic activities of rural residen ts. Eco- nomically, individual farmers, not loc al CCP officials, make most daily decisions. Competitive market forces have also compelled the majority of rural CCP members to devote their energy to the demands of their own hausehold farms, instead ofthe politi cal requirements ofthe party. To the extent that the CCP's rural cadres continue to inspire loyalty and support, it is mainly due to these cadres' ability to create economic opportunities and impro ve the standard of living of their viilag es-not to their political status as the representatives of the ruling party. 79 In ad- dition, the amount of social services provided by local governments h as steadily contracted. Pr ior to reform, the party had played an indis- pensable role in mobilizing rural r eso urces in supplying social services, such as maintaining public health and building rural infrastructure. After the reform, most lo ca l rural governments e ith er withdrew from providing these services or forced rural residents to pay for them.80 -- 195 of 306 -- 184 C hin a's Trapped Transition Second, the gradual opening of the Iabor markets to rural mi gra nts in the urban areas has allowed the younge r, more educated , and e n- trepreneurial rural peasants to move to the cities in search of better jobs, thus reducing the pool a nd the ca lib er of potential party re- cruits .81 These new oppo rtunities have also encouraged man y rural CCP memb e rs to move into the cities. 82 A survey of party offleials in five hundred poor township s in Sichuan in the late 1990s found that about 40 p erce nt of them were unwilling to stay in the villages. Of the 300,000 rural CCP memb e rs in four imp over ish ed prefects in Sichua n province, half of them had less than a primary school education as of 1998. 83 Consequ e ntl y, the CCP h as suffered severe organizational degra- dation in the rural areas. Areport by the Shanxi CCP POD in 2000 ad- mitted th at th e party 's rural ce lls h ad ne glected party-building an d seldom organized political ac tivities or recruited new members. A sur- vey of one prefect in Shanxi in 1998 found th at seven hundre d villages h ad not recruited a single member in three year s. Another survey of 620 villages in 2000, in the same prefect , showed that none of them had recruited a party member in the previou s three years.84 The CCP's village ce lls, the party's m ost important grassroots orga ni zat io n , have deteriorated as weiL From 1994 to 2000, the partywas forced to fix 356,000 of the rural CCP ce lls that were c haracte rized as weak or para- lyzed. Th ey represented h a lf th e CCP village ce lls. 85 A report by th e Zhejiang CCP POD disclo se d that about 56 percent of the party's vil- lage cells in the province were rated third-grad e ( in effective and para- lyzed). Th e party's rura l members appear to have grown disillusi oned and demoral ized as well. One survey of p arty members in Sichuan showed that 26 percent of them did not support or trust the party and would like to drop out of the party. 86 In u rba n areas, the CCP 's organizational int egrity h as also suffered from the effects of market reforms . The mass bankruptcy of SOEs s ince the mid-1 990s has led to tens ofthousands offactory closures-and the effective dismantling of th e CCP party organizations in these SOEs. In Liaoning, one of the provinces h ardes t hit by mass closures of SOEs in th e 1990s, 80,000 CCP members were among the 680,000 workers emp loyed in closed or semiclosed factories. A lm ost 50,000 CCP mem- bers were among the Iaicl-off and furloughed workers. Most Ia icl-off CCP members lost contact with their former CCP organization s; only -- 196 of 306 -- China's Mounting Governance Deficits 185 8 percent applied for activity passes that would allow them to maintain organizational contact with their former CCP cells. 87 In an internal as- sessment in 2000, the Shanxi CCP POD reported that "in nonoperat- in g SOEs, th e party organization is almost in a state of co ll apse . It does not conduct organizational activities or recruit n ew members. It can- not even collect party dues. "88 At the same time, the CCP has been stymied in penetrating the pri- vate sector. 89 In 2000, the CCP did not have a s in gle member in 86 per- ce nt of the 1.5 million private fi rms a nd was able to estab lish ce ll organ iza tion s in only 1 percent of the private firms.9° China's new ly es- ta blished professional service firms-such as law and accounting firms and private medical clinics-and professional associations also have not been receptive to the party's attempts to attract new members.91 The party's efforts to set up its organizational pre se n ce in foreign-investe d business have fared no better. 92 The reality of a " party-unfriendly" mar- ketp lace ha s l ed even the members of the ruling e lite to question the n eed for the CCP to h ave an organizational presence in nonstate firms. A surve y of s ix hundred offleials in 2000 found that almost 40 percent thought priva te flrms do not need party cells.93 The long-term political impli ca tio ns of the CCP 's failure to penetrate the private secto r spe ll trouble for th e party because foreign-invested firms and domestic private firms have become the main source of emp loyme n t while the payro lls in SOEs h ave b ee n sh r inking . The numb er of e mployees in private, for- eign, and collective firms in 2002 almost equaled that in SOEs. 94 Interna! Corruption In terna ll y, th e CCP has been weaken ed by pervasive corruptio n and loss of id eo l og i cal beliefs. 9 s Far from b e ing a monolithic Leninistparty with tight internal discipline , the CCP in reality suffers from a serious bre a kdown of organizational disc iplin e and norms due to patronage and institutionalized in ability to enforce its own rules . As described in Chapter 4, b ecause of th e co n centration of power in the hands of l ower-l evel party functionar i es in the reform era, these offleials h ave acqu i red th e abi lity to build mini-patronage machines in side th e party that serve th e ir individual n eeds, r ather than the CCP 's co llective in- terests. The widespread practi ce of se lling government appo in tments is a typical m a nifesta tion of such patronage. -- 197 of 306 -- 186 China's Trapped Transition Surveys of the party's offleials found that appointments and promo- tions within the party depend more on personal relations with superi- ors than on merits or qualiflcations. About two-thirds of offleials being trained at a municipal party school revealed in a survey that their pro- motion depended solely on the favors of their superiors; only 5 percent thought that their individual efforts could help gain career advance- ment.96 In a survey of 1,159 offleials in the northeastern city ofHa'erbin in 1997, 52 percent identifled " personal connections determine cadre appointments" as the main factor in the selection of cadres. 97 The re- sults of a survey of 1,230 offleials in Anhui in 1998 provided additional conflrmation. vVhen asked about the reasons for demotion of incum- bent offlcials, 59 percent thought such unlucky offleials "lacked patrons above," and 41 percent thought that they did not "entertain or give gifts." 98 Unavoidably, such patronage has generared widespread re sent- ment wirhin the party. Of the 13,821 party members in Sichuan surveyed in 1997, 40 perc en t com plained that the CCP's system of se lecti ng cadres "lacks democracy and popular support, " and 18 perc e nt thought that "it does not enable the emergence of outstanding talents."99 The CCP also suffers from a chronic inability to cleanse itself through the expulsion of unqualifled memb ers and removal of incom- petent or corrupt offlcials. According to the deputy minister of t he CCP's COD, the party's own sampling showed that a bout 5 percent of the party members-or 3 million-are unqualifled, but the party ex- pels only a small number of the members it considers unqualifled. 100 Another flgure, disclosed by the CCP's COD, indicated that the CCP removed 473,000 unqualified members from the party from 1989 to 2000, averaging almost 40,000 a year. Thus , only about 1 percent of the unqualified members are forced to quit the party each year. 101 Reveal- ingly, unqualified m e mbers have the characteristics normall y associ- ated with careerists and opportunists: most of them are younger than thirty-five, have a college or college-equivalent education, hold official appointments in the government and SOEs, and fail to participate in the party's activities or pay party du es. The party appears to be le ss able to remove such e lem e nts today than before , however. In 1950, for example, about 4 percent of CCP members "exited" the party through expulsions and forced resigna- tions. In 1999 , only 0.05 percent of the CCP members exited the party.H12 Th e mechanisms of removing incompetent CCP offleials are -- 198 of 306 -- China's Mounting Governance Deficits 187 equally dysfunctional. Offlcial data show few incompetent offleials are dismissed. From 1995 to 1997 in Ha' erbin , only 1.43 percent of the local ca dres were demoted, flred, or forced to re sign. 103 InJilin province, fro m 1994 to 1997, only 199 offleials ( at the county-level and above) were dernoted or flred, accounting for only 2 percent of th e offlcials. 104 Zeng Qinghong, head of the CCP COD, publicly disclosed that , frorn 1995 to 2000, only 366 cadres at the departrnent / bureau (tingandju) Ievel were "adjusted" (dernoted or removed ) and about 10 ,000 cadres at the Ievel of division (chu) h ad their jobs " adjuste d" due to in co rnpe- tence. They accounted for le ss th an 1 percent of the total nurnb er of offleials at those ranks. w. The CCP's organizational decay has led to widespread cynicism within the party's ranks. A survey of nearly 12 ,500 party memb ers in Sichuan in 1997 showed that 55 percent of thern had insufflcient or no confldence in the governmen t' s ability to irnp rove its systern of demot- ing an d rernoving cadres. 106 Another survey of 1,100 governrnent offl- eials in Changsha city in 1997 yielded sirnilar flndings: 31 percent lacked confldence in a good systern of promotion and demotion of offlcials; 14 percent thought man y of the offleials in power were incornpetent and their r ep lace me nts might be no b et t er; a nd 58 percent said that all the no i se about reforrn in g the cadre systern was just talk. 107 Even rnore disconeer ring than a dysfunction al system of promotion and d e rnotion of party offleia ls is the CCP's evident in abi lity to punish th e corrupt e l- ements inside the party. As shown in Chapter 4, the majori ty-rnore than 90 p e r ce nt-of offleials caught for corruption a re spared crimin al pr osec ution . Ind eed, se lf-cleans ing may be impossible for a ruling party accountab le to no one. Mass Disenchantment with the CCP No ruling party can mobilize the population if its policies serve the in- terests of a small e lite and if it is perceived as corrupt a ndindiffe rent to th e interests of the pu blic. Ind ee d, the CCP 's strategy-rn a in ta inin g an exte n sive patronage for its loyalists, co-op tin g n ew social e lites, an d ex- cluding a !arge segment of C hines e society (rnainly workers an d peas- ants) from equally sharing the beneflts of eco nornic growth-has l ed to rnass disenchantment with the party. Unavoidably, this strategy h as tarnish ed th e party's irnage. A survey of 818 rnigrant rurallaborer s in -- 199 of 306 -- 188 China's Trapped Transition Beijing in 1997-1998 found that 22 percent ofthe respondents thought the authority oflocal cadres in their homes was low and 41 percent said it was very low. About 60 percent also said that such authority had de- clined compared to a few years back. The prevailing image of the rul- ing party among the respondents was that of a self-serving elite. Only 5 percent of the interviewees thought their local cadres "work for the interests of the villagers and do not use their power for private gains," and 60 percent said that their local cadres "only use their power for pri- vate gains and do not work for the interests ofthe villagers." Eighty-five percent said that their village heads and CCP secretaries were cor- rupt.108 Another survey of almost 15,000 rural residents in Zhengzhou, Henan province, in 2000 found that 39 percent thought the cadres were corrupt and phony, and 7 percent complained that local cadres were arbitrary and abusive. 109 The party's own research also found an elite that is increasingly out of touch with the public. A survey of 11, 586 CCP members in Sichuan in 1999 showed that only 16 percent selected " ordinary people " as those they "contact the most often and closely in their daily work and lives," while 36 percent selected "superiors and close colleagues." 11 0 Some members of the ruling elite also admitted the deterioration of the party 's image . A poll conducted among 673 CCP offleials in nor th eas t- ern Jilin provinc e in 1998 found that 35 percent thought the status, role, and authority of party and government offleials h ad declined.111 Obviously, the mostpersuasive evidence of mass disenchantment with the CCP is the growing conflict between the regime and Chinese soc i- ety, as will be detailed in the following section. Of all the factors responsible for the declining political vigor of the CCP, the most crucial one is, ironically, th e ab se nce of competition that would have forced the ruling party to redefine its missions, recruit members with genuine public appeal, and maintain its competitive edge through constant challenges. In understanding the root cause of the CCP's d eclin ing mobilization capacity, it may be us efu l to draw an analogy with the be havior of corporate monopolies. Few monopolistic corporations have volunta rily given up their lucrative monopoli es. ln- stead, the y devote all their energy to pr eve nt the emergence of com- petition. The same behaviorallogic applies to political monopalie s like the CCP. And like corporate monapoli es that eventually succumb to the ills of in efficiency, political monapolies like the CCP, in the absence of -- 200 of 306 -- China's Mounting Governance Deficits 189 competitive pressures from rival parties, will inevitably develop a full range of pathologies such as cynicism, patronage, organization al dys- trophy, and unresponsivene ss. One-party re g ime s can rarely take on new compe titors wh en the political e nvironm e nt changes sudden ly. The fall of monopolistic parties in the former Sovi et bloc a nd in th e d evel- oping world (Mexico and Taiwan, for example) shows that declining political mobilization capacity imperils the CCP's long-term viability. Rising Tensions Between the State and Society An unavoidable consequence of declining state capacity and a ppe al of the ruling party is the rising tensions between the state and society. Both aggregate data and press reports indicate a sharp incre ase in in- cidents of collective protests, riots, and other forms of resistan ce against st ate au thorities.112 Such in creases we re e specia lly pronounced in the 1990s. Accord in g to a report released by a researc h in sti tu te affili ated with th e MPS, th e numb er of such incid en ts grew a lmost fourfold o ver seven years, from 8,700 in 1993 to 32,000 in 1999. Additionally, the size and the Ievel ofviolence of collective incidents have increase d as we iL In 1999, 12 5 in c id e nts invol ved more than a thousand protesters. T h e governme nt also admitted that protests w ith more than 10 , 000 partici- p an ts h ave become quite co mmon. In rural areas, many l ocalities h ave reported mob attac ks by pe asants on officials a nd g overnme nt build- ings. In 2000, the number of collective protests in rural areas exceeded half of a ll reported inst a nc es of co ll ective pr otest for the fir st time. m Th e C hi nese media occasionally carry stori es of such confro nt a- tions, many of which are dra matic an d violent . Some of the co llective protests in rural areas were in creasi ng ly well-or gan i zed, as res earc h by Yu Ji anrong in a county in Hunan province in th e l ate 1990s shows . 114 In an in-depth look at rural unrest published in J anuary 2000, the in- ternal edition of the official magazine Banyuetan described in graphic detail a series of rural riots th at occurred in the la te 1990s in Hunan province, whi ch, ironically, was wher e Mao fom e nted peasant upri sings in the 1920s. Around the NewYear's Day in 1999,46 peasantleaders in Daolin township in Hunan 's Ningxiang county met and decided to hold a rally of 10,000 peop le in front of the township governme nt to demand "reducing -- 201 of 306 -- 190 C hin a's Trapped Transition peasant burdens and fighting corruption." OnJ a nuary 8, 1999, the au- thorities mobilized a large police force and blocked the highway lead- ing to the township government complex. But rural resid e nts from all over the township kept coming. At one point, the crowd exceeded 5,000 people. A small number rushed the police line. The police were forced to fire tear gas canisters. This led to one of the mostviolent col- lective riots in Hunan's countryside ... In 1996, about one thou sand farmers from Shangjia towns hip surrounded the municipal govern- m ent building of Lianyuan c ity and called for re ducing taxes. Several farmers ransacked th e home of the party secretary of th e municipality. In 1998, peasants in the same township forcibly took over a lo cal public school, hired teachers, and stationed security guards in front of the school-in open defiance of the local government. In a neighboring township in the same year, rioring farmers took away the signs in front of the government building, assault ed the party secretary and str ipp ed him naked. Cadres dispatched from the city to mediat e the dispute were detain ed as weil ... In the wee hours on November 7, 1998, a team of more than 30 policemen, tax collectors, and township offleials conducted a raid on Guangyinyan village in Huatan township in Taoyuan county. Their objective was to arrest a local resident who h ad l ed a tax resistance movement. But before the team could leave the village, they were su rround ed by angry farmers. In a viol ent confrontation , fifteen police officers and cadres were injured, and ten were stripped naked. Only after the peasant leader was released did the farmers let the hun- gry and tir ed police officers a nd cadres go. Similar violent in cide nts were reported in practically all th e other large agrarian provinces, such as Hebei, Henan, and Sichuan. 115 To be sure, economic transitions in evi tably produce nsmg soc ial frustrations because of the socioeconomic dislocation created by the introduction of market forces. In urban areas, for example, rising un- employme nt has fueled r ising social dissatisfaction. Behind the specific social and economic factors closely assoc ia t ed with societal discontent, however, is a set of political vari ab l es that both contribute to and exac- erbate social frustrations during economic transition. These factors in- clude specific government policies, espec ially its policies on taxes, family planning, education, the social safety net, and SOE restructuring; the lack of effective institutiona l mechanisms for resolving soc ia l conflicts -- 202 of 306 -- China's Mounting Governance Deficits 191 and private grievances; and the breakdown of political accountability that makes local government authorities insensitive and unre spon sive to public needs. The combination of socioeconomic dislocation , harm- ful policies, and flawed political in s titution s turns social frust rati o n into political prot est, not merely because of economic d e pri vation, but because of a growing sense of political injustice . Rural Decay and Discontent As discussed in th e previous sec tion , the institutional decay of the rul- ing party is more advance d in rural ar eas than in the cities. Such polit- ical decay, coupled with the relative economic decline of the rural sector, is the main source of ri sing tensions in the countryside .u 6 Media reports and official disclos ures indicate that such tension s reached d angeraus Ievels in the 1990s. In a st ar tlin g internal report, the MPS admi tted that " in some (rural) areas, enforceme nt of famil y planning policy and collection of tax es would be impo ss ible without th e u se of police force. " 117 Of all the incidents officially class ified as "incidents of instability" in the rural are as, 70 percent was caused by "tensions be- twee n th e cadres and th e m asses."llHOn th e s ur face, eco nomi c factors, espec ially stagnant in come growth , appeared to be mainl y responsible for decl inin g governabi lity in the countryside . But a closer l ook sh ows that three political causes-high taxes on th e p easantry, the d ecay of the administrative institutions, and the forcible se izure of land by local authorities for comme rci al u se-have perhaps played a mor e impor- tan t role in fue ling discon tent. 119 Rural income, a gauge of the well-being of the peas an tr y, fluctuated durin g the reform era . At th e initial stage ( 1978-1985 ), per capita in- come in th e countrys id e rose sharply, ave ra g ing a n et in crease of 15.2 perc e nt per year. But per capita income growth began to st ag nate afterward, rising only 2.8 percent a year during 1986-1991. It recov- ered somewha t during th e ear ly 1990s, averag in g 5. 7 percent annually during 1 992-1 996 . 120 In th e l ate 1990s, rural in come growt h e ntered anoth er period of Stagn a tion. Official da ta s how that n e t in come per rural resident grew 9 percen t in 1996, 4.6 percent in 1997, 4.3 percent in 1998, 3.8 percent in 1999 , a nd 2.1 percent in 2000. Per capita n et in- come from agr ic ultura l activities, h owever, registered n egative growth from 1998 to 2000. In 1998, rural per capita in come from agricu lture -- 203 of 306 -- 192 C hin a's Trapped Transition feil 30.25 yuan from 1997; in 1999, it declined by an additional 57.42 yuan; in 2000, it registered a further decline of 43.94 yuan. The absolute three-year decline totaled 131 yuan, implying a 6.3 percent r educt ion in net incom e from 1997 to 2000. Because close to 80 per- cent of rural residents derived most of their income from agricultural production, this meant that a majority of rural residents experienced negative growth in net income .1 21 There were several reason s for declining income from agriculture, such as an oversupply of major agricultural products ( es p ec ially gra in), rising cos ts of inputs , l ow Iabor produ ctivity, hi gh taxes, and under- development of rural finance. 122 For example, the costs of agricultural inputs, such as seeds, fertilizers, and fuel , increased while prices for agricultural products feil steadily. During 1997-1998, for example, prices for agricultural products feil 22 percent , resulting in income Iosses estimated in the range of 300 billion to 400 billion yuan. 123 The combination of low prices , high production costs, and high tax es mad e agricultural production unprofitable. In 1999, the average costs of pro- ducing the three main grains-rice, wheat , and corn-reached 43 per- cent of their sale price. The agricultural taxes and other legallevies added an additional 16 percent. Thu s, after paying for inputs a nd tax es, the residual for peasants was on ly 40 percent of their crops. The costs and effective land rent m a de grain production unprofita ble . Ind ee d, the examp le ofQipan township, inJianli county in Hubei, was representa- tive. According to the township party secretary, farming was unprof- itable for 80 percent of the peasants in his jurisdiction in 1999.124 A le ad in g agricu ltural researcher at the State Counci l's Developme nt Research Center warned that, without the subsidies from nonagricultural cash income, grain production might be on the ve rge of co ll apse . 12'' Declining rural in come growth a lon e might not be sufficient to gen- erate mas s discontent. The most important source of tension s between the peasantry and the state is the onerous taxes and fees China's most underprivil eg ed social group is forced to pay.12" Officially, such taxes and fees, common ly known as "peasant burden s," should not exce ed 5 percent of the n et in come of farmers. In reality, loc al author iti es have levi ed numerous ill egal fees that greatly exce ed the 5 p ercen t Iimit im- posed by Beijing. Because of the imposition of these ill egallevi es, non e ofwhich was reported or record ed in official statistics, it was difficult to d ete rmine the exact magnitude of the pe asa nt burdens . At the l ow end of the es timates, accord in g to data from the three hundred villages -- 204 of 306 -- China's Mounting Governance Deficits 193 tracked by the Ministry of Agriculture in the 1990s, taxes and fees in- creased by 24 percent in the decade and amounted to 6.46 percent of per capita net income. 127 According to one study by the State Administra- tion ofTaxation, taxes and authorized levi es in 1996 were a bout 10 per- cent of rural GDP. If additional illegal fees and levies are added, the total effective tax rate, broadly defined, could be 20 percent of rural GDP that year, excluding the cash income from nonagricultural activi- ties.12H At the high end of the estimate, according to surveys conducted by the Ministry of Agriculture in one hundr ed counties in 1996, taxes and f ees paid by eac h peasant were three time s the official national Iimit, or 15 percent of their net income. 129 In addition, such taxes and fees were highly regressive, both for indi- viduals and regions, as poorer peasants and less developed region s paid a higher proportion of their incomes in such taxes and fees, mainly be- cause such taxes and fees were levied on a per cap ita basis and became, effectively, poll taxes. The poorest peasants, with annual income of 400-500 yuan a year, had to pay almost 17 percent of their income in 1996 in assorted taxes and fees .130 Those earning 1,500-1,700 yuan paid 6. 7 percent; those with incomes of 2,500-3 ,000 yuan paid 4.9 percent. The rate for thos e earning 4,500-5,000 yuanwas a mere 2.8 p e rc ent. In regional terms, peasants in the wealthy coastal areas in the east paid 3.94 percent; those in the agrarian centra l regions paid 8.01 percent; and the rate in the impoveris hed westernregionswas 5.64 percent. 131 Institutional changes and economic reform in rural areas have made taxes and fees extremely unpopular for several r easo ns. The replace- ment of collective agr icultural production by household farming has severed the economic links between loc al governments an d peasants, who have gained autonomy in their economic and social lives. On a daily basis, the government plays practica lly no visible role in the eco- nomic activities of peasants. Politically, the prospects of political ad- vancement through membership inside the Communist Partyare dim, and rural residents do not rely on the ruling party for their political welfare. In other words, th e government and the ruling party h ave be- come a lmo st irrel evan t to peasants engaged in hous e hold farming. Such irrelevan ce makes taxe s and fees, especially those levied for proj- ects outside local communities , ill egitimate. What has further irked the peasantry isthat their high taxes appear to have brought in return few government services, such as public health, e duc ation, and agricu ltural infrastructure . Th e combination of -- 205 of 306 -- 194 C hin a's Trapped Transition high and regressive taxes, he avy-handed collection efforts, and inade- quate pro vision of public goods has turned a large portion of the rural popul a tion against the state. In a survey of two thousand rural resi- dents in late 2001 , 65 percent of the respondents selected "excess ive tax burdens" as the principal cause of l ocal soc ial instability. m Such resentments have led to widespread t ax resistance. In a survey conducted in Xinjiang in 2001, tax resis tanc e was found preva lent among peasants in 40 percent of the villages surveyed. m In many ar- eas, peasants s imply abandoned l and as a form ofprotest. In one Hubei township, where this prob lern was considered ser iou s, 25 percent of the farm land was abandoned by peasants who could no l onger afford to till the land because of taxe s, high costs of see ds and fertilizer s, and low prices of grains.134 In another Hubei township, accordin g to its party secretary, p easants abandoned a lmo st two-thirds of th e township's arable farmland in 2000. 135 As a result, collecting taxes and fees has be come increasingl y difficult. In most areas, this h as become practically th e predom inant admini s- trative task performed by local offleials in rural areas, consuming 60-70 percent of their time.136 A report issued by the National Bure au of Statistics revealed that, in its survey of six counties in Xinjiang in 2001, about 70 percent ofthe vill age cadres thought collecting fees was the most difficult task.137 In respons e, local a uthorities, which depend on such taxes and fees to support themselves, adopted vari ous collec- tion method s.13H Officials in m a ny areas recruited thugs as their collec- tion age n ts. Such a practice has re sulted in ill egal impri so n me n t, torture, and the deaths ofpeasants who were unable to pay. In Guangxi province, local officials even forced midd le-s chool teachers to collect taxes from peasants who had refused to pay. Because teachers are highly respected among peasants, they usually were ab le to co ll ect back taxes. Such tactics we re used in many a re as where tax resistance was high.139 Th e persistent and rising tensions between local authori ties and the peasantry accelerated rural political decay, which in turn added to bad governance in the countryside and became another source of social discontent. In its most extreme form, rura l political dec ay has led to the e mergence of lo cal mafia states. In his study of forty Hunan villages that h ad been l abe l ed "out of co ntrol " (shikong), Yu Jianrong, a re- searcher at the Ch in ese Academy of Social Sciences, reported that rural township officials delib e rate ly allowed m afia-type criminal el e ments -- 206 of 306 -- China's Mounting Governance Deficits 195 to penetrate village governments. These offleials used such elements to Counterbalance other organized criminal groups or intimidate local peasantry and facilitate tax collection. In some cases, township offleials themselves had turned into criminals and effectively formed th e ir own mafla groups. Of the forty villages that were considered controlled by local mafla groups, the chairmen of the villagers committees in half of them were connected with organized crime and won their elections with the support of the mafla. 140 At the other end of the spectrum, p easant resistance had l ed to a virtual collapse of government a uthority in villages. Th e following two examples from Anhui province ar e illustrative. A party secretary in Wugou township in Anhui gave this description of the condition s in his jurisdiction in the late 1990s: The township was known for violaring the family planning poli cy and for sending p etitioners to higher authorities . Peasants there refused to pay th e agricu ltur al tax . When lo cal officials and police tried to e nforc e government orders, they were surrounded by villagers and forced to write self-criticisms before they were released. In 1998, the three inspec- tion t ea ms dispatched by the provincial family planning commission were attac ked by the villagers and forced to fl ee . Hoodlums ran amok. The township's party secretary and mayor were repeatedly assaulted ; th e attackers were n ever punished. In 1998, the township governme n t was reelected. All six candidates sent down by the higher authorities lost. The Ieaders of the city and county led 13 work teams to try to re- store order, but all failed. The townshipwas completely out of control. The government could not do a thing . The party cou ld not l ead . 141 Th e offlcial magazine Banyuetan (interna l edition ) provides anot h er vivid but disturbing account of conditions in Liuzhai village in Lingquan county, Anhui province. The tensions between the vi ll age residents a nd towns hip cadres were so high in the mid-1990s that for three years township and village offleials did not dare to e nter the village. As a result, no taxes or fees were co l- l ec ted . The family planning policy was not e nforc ed ... Who ever came forward to be the village official or coo perated with the government would have his crops destroyed and farm a nimal s poisoned . Even though th e authorities h ad sent six different work t eams to th e \ ri llage, -- 207 of 306 -- 196 China's Trapped Transition they could not form a village government. For fi ve years, the village b ad no party cell, no village committee, and no leaders. 142 Worried about growin g rural unrest, the Ch in ese government h as at- tempted several remedial measures, the most important of which was the substitution of fees with taxes (Jeigaishu i) . But the initial results from the areas where the reformwas tested we re mixed. In a pilot pro- gram injin gs han county in Hubei, this reform resulted in reduction of peasant burdens by 40 percent. 143 However, the feigaishui reform al one did not address th e most critical issue behind high peasant burd e ns- a bloated rur al bureaucracy. Without a drastic reduction in the size of the township government, feigaishui could provide only temporary re- lief. For example, in a to wn s hip in Jingshan county, after the reform was implemented, tax r evenue from ag ric ultu re totaled 4.7 million yuan a year, but the township government had 730 people on its pay- roll at a cost of 4.6 mi lli on yuan a year. This meant that the township government wo uld h ave to extract additional revenue from peasants if it wanted to perform the most basic administr ative function s a nd de- liver loc a l services. 144 lndeed , Ray Yep's study of the Jeigaishui reform co ncludes th at replacing fees with taxes alon e is u nlike ly to r e duce rural tensions. 14'' Yet, in 2003, the Chinese government decided to impl ement the feigaish ui reform nationwide, without any accompanying political re- forms designed to reduce the size of the rural gove rnment. But even if the reform is fully and successfu lly impl em e n ted, its imp act o n re duc- ing peasant burdens might be modest. It is estimated that 40 billion yuan, a bout a th ird of t he fees levied on peasants , would be reduced as a resu lt of the reform. This wou ld be an overa ll reduction of 20 perc ent of "overt" peasant burdens (legally imp osed taxes a nd fees). On aper capita basis, each rural resident would get to keep an e xtra 50 yuan a year, roughly abo ut 2 percent of per capita rural net income. 1 46 The Unemployment Challe ng e Urban residen ts are, by comparison, far more privileged than their rural Coun terparts . During th e reform er a, their sta n dard of li ving h as also in creased dramatica ll y. Generally, pollin g data indi cate that a l arge major ity of China's urb an residents are relatively satisfied with -- 208 of 306 -- China's Mounting Governance Deficits 197 their lives and think China is stable at the beginning of the twenty-first century. 147 Yet, behind the polls was a more complex, if not disquiet- ing, picture. A cco rding to trac king poll s conducted by H o rizon R esearc h, a re- spected private m a rket research firm based in Beijing, the proportion of urban residents expressing satisfaction with their lives has been steadily decreasing since the late 1990s, while that of those expressing di sc on- tent has been rising. A Horizon poll conducted in ten cities at the e nd of 1997 s how ed that 80 perc e n t were satisfied a nd only 19 p erce n t were dissatisfied. Ano th er Horizon poll of 5,673 residents in eleven cities in November 1998 found 70 percent were satisfied and 27 pe rce nt di ssa t- isfied.148 Horizon's poll of 3,5 02 people in 2000 reported that 55 per- cent of the urban residents expressed satisfaction with their lives, and about 27 p erce nt expressed dissatisfaction. Th e firm's poll of 4,7 28 urb an res idents in 2001 reported th at abo ut 63 percent were sa tisfied with th eir lives and 33 .6 percen t were dissatisfied.149 A diffe re nt poll, conducted by a research institute of th e State Plan- ning Commission in September 2001, confirmed a similar trend ofris- ing discontent. It concluded th at "optimism was not warranted with r espect to residents' level of sa tisfaction with th e country's social and eco nomic development. " Specifically, the in stitute's report cited a de- cli ne in the p ercentage of the responde n ts who viewed C hin a's soc ial situ ati on as stabl e. In the institute' s poll in 2 000 , 63 per ce nt thought the country's social situationwas stable; in 2001 , 56 percent did , while the perc e ntage that believed the situationwas un stable ros e from 10 to 13 p erce nt. 150 Unemployment, corr uption , deterioration of SOEs, environmental d egra da tion, and rising inequality appeared to be driving th e Ievel of dis con te nt at t he end of the 1990s.1'' 1 In the an nu al polls of urban resi- dents conducted by Horizon Research from 1997 to 2001, unemploy- ment was rated the top issue in three yea rs and the number two issue in two years. Corrup tion was mentioned as the t op i ssue in on e ye ar and identified as among the top three issues in another two years. Th e plight of SOEs was mentioned as th e top issu e in one year a nd the number th ree issue in one year. 152 A poll of 2,430 residents c onducted by th e State Economic System R efo rm Commission in fifty-three cities in 1998 showed i nfla ti on, cor ru pti on, and unemployment were the three top socia l probl ems the respondents were most concerned a bou t. 153 -- 209 of 306 -- 198 C hin a's Trapped Transition The results of a poll of 1999 people in September 2001 conducted by the State Planning Commission showed that urban residents identifled corruption, unemployment, and rising inequality as the three top issues threatening loc al social stability. In the countrys ide, the top three is- sues were excessive taxes and fees, corruption, and rising inequality. 1M Capturing a slice of the public mood in urban areas, a poll of 2,359 residents in flfty-flve cities conducted by a research group afflliated with the State Council in 2001 revealed the speciflc causes of disconte nt. The results of this poll confirmed that socioeconomic frustrations were generaring most of the urban discontent. More than 60 percent of re- spondents expressed dissatisfaction with unemployment, unaffordable healthcare , shrinking economic opportunities, and rising crime. Un- employment elicited the highest degree of disco ntent. Of all the major social groups, workers were the least satisfled, with 75 perc e nt ofworkers polled expressing discontent , even higher than among those witho ut long-term employment (71 percent). It is worth noting that a large proportion of workers (36 percent) blamed the loss of their jobs on lack of social justice and social connections. Almost 80 percent were dissatisfled with their incomes . Among the reasons cited for not earn- ing a satisfactory incom e, the most frequently li sted was bad lu ck, fol- lowed by lack of social connections and social justice. About 54 percent thought that the principal means of becoming wealthy was by u sing connections, power, and illegal methods. Offlcial corruption also appeared to galvanize public ire. An over- whelming majority expressed strong objection to the accumulation of wealth by government offleials and SOE managers through power and corrupt means. And 55 percent said they lacked confldence in the gov- ernment's anticorruption efforts; 54 percent thought half to a majority of government offleials were corrupt. Close to 80 percent of the resi- dents were dissatisfled with the work of government regulato ry and watchdo g agencies, such as stock market regulators. 155 The rising level of discontent could threaten political stability. Though the percentage of those expressing discontent was re l atively small, their abso lute number could be very l arge. Three l eading Chinese re- searchers estimated that, based on survey data, about 22- 45 percent of urban residents, or 100 million to 200 million people, were dissatisfled with their conditions . Among them were 32 million to 36 million who were "extremely dissatisfled." 1 56 -- 210 of 306 -- China's Mounting Governance Deficits 199 To the extent that the Chinese government delayed the painful re- structuring of SOEs until 1995, rising urban discontent, mainly fueled by increasing unemployment in the cities, was only tobe expected. Nev- ertheless, unemployment in the Chinese context was fraught with po- litical risks because of the huge number of Iaicl-off and unemployed workers who had lost their jobs in bankrupt SOEs, the flimsy social safety net provided by the Chinese state, the drastic fall in their stan- dard of living, and their low reemployment rate. Government figures show that during 1996-2000, urban SOEs shed 31.59 million workers while collectively owned enterprises (COEs) dismissed 16.48 million workers. 157 This massive wave of layoffs helped drive up unemployment rates in the cities. According to a CASS estimate, the real unemploy- ment rate in 2002 was 7 percent, twice the officially reported rate (offi- cial data on unemployment excludes laid-off workers and redundant workers in SOEs) .1 58 U nemployment hit workers in manufacturing par- ticularly hard . Manufactur ing workers accou nted for 83 percent of all laid-off workers. 15 9 A !arge proportion of the laid-off workers were middle-aged and had low skill and education levels.160 For SOE employees, a social group considered relatively privileged b ecause ofthe generaus be n efits and job security before the mid-1990s, the loss of social status resulting from unemployment was precipitous and widely recognized in the cities. A poll of more than two thousand residents in sixty cities conducted annually by a research group at CASS found that, starting in 1997, respondents began to identity work- ers in SOEs as the group that had benefited the least from reform ; they were followed by peasants and migrant laborers, two low-status socia l groups in China. Similar polls conducted in 1998 and 1999 yielde d the same results. 161 More importa nt, la id-offworkers experienced an instant and drastic decline in their standards of living. In 2000, per capita income in the families of laid-off workers was about 55 percent of the average per capita income in urban areas. 1 62 In some areas , the loss of in come was even more severe. In Changchun, a city in China 's rustbelt in the north- east, per capit a incom e in the hous e holds of the wor kers who h ad been laid offwas only 26 percent of their pre-lay-off level.163 Formo st of the Iaicl-off workers, the government provided very limited support. In 1998, for examp le , only half of the laid-off workers regularly received mini- mum unemployment benefits from the government. 164 Unemployment -- 211 of 306 -- 200 C hin a's Trapped Transition benefits were inadequate even when they were paid. When asked how they make ends meet, only 2.3 percent of the laid-offworkers in Tianjin surveyed said they relied on government su pp ort. In Changchun, only 5 percent would count on the gove rnm ent to so lve their econom ic dif- ficulties. In Liaoning, unemployment benefits accounted for less than 7 percent of the income for laid-offworkers in the late 1990s. 1 65 To sur- vive, most laid-off workers cut down their spen ding, depleted their meager savings, and borrowed from relatives and friends. 1 66 The government's efforts to reemploy laid-off workers we re largely unsuccessful. Most of the laid-off workers found government-run re- employment programs ineffective. In Tianjin, only 13 percent of the laid-off workers found work through these programs. 167 Nationwi de , reemployment steadily declined. In 1998, half of the laid-off worke rs were re ported ly r ee mplo yed. In 1999, the r eemp loym e nt r ate fell to 35 percent; it declined to 26 percent in 2000 and plunged to 11 per- cent by mid-2001. 16H The combination of an in ade qu ate socia l safety net and low reem- ployment rate directly contributed to the rising poverty rate a mong laid-off worke rs. A study of m ore t han two hundred incidents involving ind ustria l work ers ' co llective protests in late 2003 found that about 80 percent of such incidents were prompted by restructuring of SOEs, unpaid wages, arrears in unemp l oyment and health benefits , an d post- bankruptcy unemployment. 169 In Ti anjin , 54 p ercent of the urb an households below the minimum standard of livin g were tho se of laid- off workers; n ea rly 80 percent of them h ad troub le makin g e nd s meet. 170 A survey of 6,660 urb an fam ili es with laid-off workers in Liaon- ing in 1998 found th a t fami lies with two laid-offworkers accounted for a third of a ll households below the minimum standard of livin g. 171 As expected, surveys also found , among la id-off workers, rising frustration and prop en sity to participate in collective prot est . In 1999, 70 percent of the laid-off workers were dissatisfied with their Jives. In 2000, 50 per- cent expressed dissatisfaction with their lives. 172 In a survey of 1, 127 l aid-off workers in Changchun in l ate 1998, a third sai d that they wo uld "take to the streets" to protest against "ser ious corruption"; a nother third said th at they wou ld do so if th ey lacked food and cloth in g, and 18 percent said th at they wou ld resort to co llective protest if they cou ld not afford medica l care . Three-quar ters of them sympathized with work- ers staging co ll ec tive demonstrations, but on ly 14 percent expressed willingness to take part in them. 1 73 -- 212 of 306 -- China's Mounting Governance Deficits 201 Nevertheless, the incidence of worker prote sts increased rapidly. 174 For example , the number of officially reported labor disputes rose 30 per- cent eac h ye ar from 1997 to 2001. 175 Such prot es ts we re es p ec ially fre- quent a nd contentious in the rustbelt in the northeast. In March 2002, for e xampl e, more than 20,000 laid-offwor ker s from more than twenty factories participated in a week-long protest in the northern city of Liaoyang. 1 76 The In stitution al Bre a kd ow n In the context of a closed political system, rising social frustrations tend to be amplified by the absence of pre ss ure valves within the Chi- nese system. Even though several post-Mao political reforms- such as village e lectio ns, the strengthening of the leg islative branch , and legal reform-were steps in the rig ht direction, th ey have proved too lim it ed and inadequate as institutional mechanisms for m anaging, let a lon e re- solving, state-society te nsions . Under th e current Chinesesystem of re- dressing social grievances, individuals have access to four channels: offices in various government bureaucracies that handle "letters and visits" (xinfang) ; ad ministrative litigatio n; the lo cal a nd n ational P eo ple's Congress system; and the media. N one of thes e mechanisms works we ll in address in g social grievances. Although the Chines e media h ave become mor e aggressive in ex- posing corruption and covering abuse of power by local government officials, th ey remain und er th e co ntrol of th e CCP a nd fall far sh ort of becoming an effective resource that ordinary citizens can d epend on in a irin g their discontent or see kin g to rall y public support. Occasio n- ally, coverage by muckraking publications su ch as Nanfang zhoumo (Southern Weekend ), Zhonguo qingnianbao (Chin ese Youth Daily) , and Nan - fang dushibao (Southern Metropolitan News) could cause a publi c outcry and force the central government to take rem e di al actions. But su ch occurrences are in freque nt and rare. Of course , reporters and e ditors must wa lk a fine l ine b etwee n defending aggrieved individuals an d groups a nd risking retali ation by l ocal officials. The case of Nanfang dushibao is instructive. Mter exposing the beating de a th of a co ll ege graduate wro n gfu lly detain ed as a vagrant in Guangzhou a nd the cover-up of the ou tbr eak of severe acute respiratory syndrome (SARS) epidemic in the city in 2003 , the paper's two top ed itors were accused and l ater co n victed of tak in g bribes by l oca l a uthorities. -- 213 of 306 -- 202 China's Trapped Transition The role of the local and national People 's Congress in resolving so- cial grievances remains limited as weil. The deputies to these bodies are selected by the CCP and Iack independence and power. Their in- tervention on behalf of aggrieved citizens is often ineffe ctive. Chinese courts have not demonstrated their capacity to resolve state-social con- flict, either. The only legal recourse for citizens victimized by local authorities is administrative Iitigation, which allows ordinary citizens and economic entities to sue local government agencies for ille gal administrative actions. Although the impl ementation of the Adminis- trative Litigation Law fo llowing its passage in 1989 was considered an important breakthrough in China's legal reform, the institution of administrative Iitigation so far has produced no appreciable effects on reducing state-society conflicts. Chinesecourts adjudicate an average of only 100,000 administrative cases a year and only 20 percent of the plaintiffs ( or 20,000 individuals or corporat ions) get some judicial relief through such litigation. 177 In most cases, ther efore, ordinary citizens cannot count on the courts for solutions to their grievances. lndeed, a survey of 632 rural residents who went to Beijing in 2004 to petition the central government s howed that 401 of them had sued their local governmen ts in courts. But of the 401 peasant petitioners, 172 said that local courts refused to accept the ir lawsuits, and 220 said that local courts ruled against them. Nine said that even though they won their cases, the courts had failed to enforce the judgments. 178 Evidently, a legal system with such a limited capacity for adjudicating state-society confl ict is woefully inadequate for a !arge country with a huge population. The xinfang system, the principal channe l through which ordinary citizens can petition government authorities to redress their griev- ances, has comp le te ly broken down. Official data show that the gov- ernment's various xinfang offices received more than 10 million letters and visits in 2003, but few petitioners could expect results through such efforts . A study done by a research team headed by Yu Jianrong at CASS in 2004 found that only two in a thousand petitioners could have their problems resolved through xinfang. 179 Because the image of the central government was much better than th at of lo cal governments, most petitioners originally h ad high expectation s abou t th e ir success in seeking the centra l government 's intervention. But their hopes were soon dashed as they met indifferent and irresponsive offleials at the -- 214 of 306 -- China's Mounting Governance Deficits 203 centrat government Ievel. After visiting the State Letters and Com- plaints Bureau, the NPC Standing Committee , the SPC, the CDIC , the MPS, the Ministry ofLand Resources, and other state agencies (a peti- tion er visits an average of six government agencies), most rural p e ti- tioners concluded that the centrat government did not Iook upon their visits favorably. 18°For many petitioners, failed attempts to seek the in- tervention by the central government could Iead to dire consequences. Of the 632 petitioners interviewed by Yu's team , 55 percent reported that loc al authorities had r etaliated by rans ac king their hou ses and seizing valuables; 50 percent said th ey h ad be e n beaten by local offi- cials; 50 percent said that had been illegal incarcerated; 72 percent said that they had been falsely charged with crimes; and 54 percent said that local offleials used the mafia to retaliate against them.1H1 The CCP's failure to open up the political system and expand in sti- tutionalized channels of conflict resolution helped create an environ- ment in which groups, unable to defend their interes ts, were forced to take high-risk options of collective protes t to expres s frustrations and seek redress. However, it is difficult to gauge the imm ed iat e a nd direct impa ct of rapidly rising incidents of soc ial protest on political stability in general, and the survivability of the CCP in particular. Although some co llective protests have b ec ome more organized, most incidents remain isolated and poorly organized events. Except for Falun Gong, no protesting group has managed to organize social movem e nts across county boundaries or sustain their protests for more than a few days. In add i- tion, the causes of protests are specific-unpaid wages, illegal seiz ure of l and, high er taxes, and abuse of power by local officials. Few protest- ors have elevated their demands be yond redres s ing individual griev- ances or called for the overthrow of the CCP. Polling data suggest that local governments may have lost their legitimacy, but the central gov- ernment has maintained a surprisingly high Ievel of au thority in the eyes of ordinary citizens. This suggests a relatively low probability for social protest movements, however numerous, frequent, a nd violent, to explode into large -s cale, highly organized, and cross-re g ional groups intent upon the overthrow of the CCP. The CCP m ay also draw some comfort from survey findings that suggest that , on the whole , the ma- jority of C hin ese citizens were unlikely to participate in violent anti- -- 215 of 306 -- 204 C hin a's Trapped Transition regime activities. In two tracking polls conducted in 2000 and 2001, a large majority of the respondents were willing to allow the government, the news media, and the courts to resolve their problems. A large mi- nority (around 30 percent) wou ld on ly comp la in privately. Onl y a sma ll minority (although a sizable one in the cou ntrysid e) would re so rt to protest or even violence. In 2001, about 6 percent said that they would participate in collective petitions and demonstrations, and 1 per- cent would participate in strikes. In 2000 , m ore people were leani ng toward th e protest/ viole nc e options, with a lm ost 12 perce nt in th e cities a nd 20 perc e nt in the co untryside c hoosing th e co llective pe ti- tions and demonstrations option. About 3 percent would t ake part in strikes. Significantly, 4 percent ofthe urban respondents and 6 percent of the rural respondents would seek private revenge. 1H2 It would be wrong to dismi ss deteriora tin g go verna n ce a nd its effects on social unrest as inconsequential. L eft ig nor e d, de t erio ratin g gover- nance will lead to a vic iou s cycle. In the Chi n ese case, th e massive ac - cumulation of governance deficits-and systemic risks-threatens the sustainability of China's neo aut horitarian development s trate gy. As th e analysis of th is study shows, the build-up of gove rn an ce d e fi c its is an inevita bl e product of th e transition strategy a nd po licies adopted by the CCP. The party's resi stance to substan tive a nd m eanin gfu l d emocra tic re forms has led to the breakdown of accountabi l ity, dete rioration of in- ternal norms , and exclusion of large segments of Chinese society from politic a l parti c ipation. Unac co untable to th e public, the rulin g elites h ave pursued poli ci es that are more likely to ad va n ce th e ir persona l po- liti ca l c areers t han increase s oci al re tu rns . The s tr a t egy of gradualist economic r eform h as created !arge pockets of rents and l eft untouched th e party's extens ive patronage system within th e economy. T he costs of proteerin g the r ents and th e patronage network are even tuall y borne by the public at !arg e, in the form of the divers ion of resources , which co uld be used to deliver mor e public goods, to a re la tive ly small group of loya lists in th e party. The e m erge n ce of a d ece ntralized predatory stat e, with pervas ive cor ruption a nd co llus ion , h as caused l ocal gover- n ance to deterio rate even further. The accumu l atio n of governance deficits pl aces pote nti al r efor me rs in a difficult dile mma. As a rule, reg im es e nfeeb led by misrul e Iac k the po liti cal ca pi ta l and co nfid e n ce to undertake bold reforms tostop the -- 216 of 306 -- China's Mounting Governanc e Deficits 205 rot inside the system. Inaction and procrastination, not risk-taking, tend to prevail. Even for forward-looking reformers , opening up the politi- cal systems with a large buildup of governance deficits presents an in- surmountable challenge. Resista11ee from regime insiders who be nefit from bad governance willlikely be fierce while a mass popular political mobilization, similar to glasnost under Gorbachev in the former Soviet Union, will most probably precipitate a quick regime collapse because the political system is simply too brittle to pass the stress test of real po- litical reforms. -- 217 of 306 -- Conclusion BV F0 CU SI N G on the critical weaknesses of the Chinese political sys - tem in ge n eral, and on many of the hidden costs of China's transition from communism in particular, this book attempts to show the Iimits of a developmental autocracy. Despite its awe-ins piring economic growth and progress, a set of self-destructive dynamic s is weakening China's mostvital political institutions-the state and the ruling party. Lagging behind the country's rapid econom ic modernization , Ch in a's closed political system is increasingly becoming an anachron ism. At present, it is incapable of facilitating the representation of China's complex and diverse social interests or mediating the conflict between an authoritar- ian state and a liberalizing soc i ety. Th e breakdown of the mechanisms of political acco un tability has l ed to pervasive corruption and collusion among the ruling elites , while the loss of confidence in the regim e's own future has motivated its insid ers to engage in unrestrained predation. The inevitab le deterio- ration of governance that has resulted from these institutional failings has undermined the state's capacity, heightened social tensions , and cast into doubt the sustainability of the progress that China has achieved since the late 1970s. Even China's gradualist economic reform strategy, which has received almostuniversal endorsement for its flexibility and efficacy, is centered on the CCP's goal of political survival, and not the development of a true market eco nomy. The eco nomi c costs of ensur- ing the CCP 's political monopoly through policies of rent protection, though hidden, are real, substantial, and growing. 206 -- 218 of 306 -- Conclusion 207 By critically examining the understated social and political costs of China's neoauthoritarian deve lopment strate gy, this book also tries to question three ideas that h ave retained their allure despite mounting sk eptic ism about their validity. The first id ea is that economic progress is th e key determinant of po- litical liberalization. vVhile it is true that economic growth and mod- ernization c an create favorable conditions for the emergence of liberal political regimes, China 's slow movement toward political openness in spite of twenty-five years of rapid eco n om ic growth suggests th at the choices of its ruling e lites are the real determinants of democratiza- tion . In fact, if anyt hi ng , rapid short-term economic growth may h ave a perversely negative impact on democratization because it pr ovide s all the incentives for the rulin g elites not to seek politicalliberaliz atio n. Th e second id ea is th at the gradualist reform strategy works better than the so-called big-bang a pp roach . Of co ur se, the big-bang ap- proach has failed miserab ly in Russia and s everal oth er former Soviet bloc countries, but th e achievement of China 's gra dualist strategy h as been greatly overstated. More important, as Chapter 3 shows, the g rad- ualist strategy is ultimatel y un su stainable becau se of the dynamics of rent diss ip at ion and the m ou ntin g costs of in effici ency in curred by path-depe nd e n t partial reforms. The th ird ide a is that of the efficacious neoaut h or ita rian deve lop- mental state. D es pite the examples of successful n eoau th ori t aria n de- velopmental states in East Asia, the political logic and in sti tutional d ete rmin a n ts of autocracy-patronage di ctared by r eg im e survival, th e political monopo ly of the autho rit arian reg im e, a nd ineffective mon i- taring and policing of the state's ag ents in the absence of the ru le of l aw, civi llib erties, an d po litica l opposition- are more li ke ly to create a p redatory state than a developmental on e . This book also underscore s the centrality of politi cs in general, and the con t ro l ofpo liti cal power in particular, in setting the co u rse of eco- nomic and regime t ransitions. As the ana lys is of th e political consider- ations behind th e Chinese Iea d ers' policies on politic al an d econo mi c reforms shows , the most cr iti cal determina nt of th eir strategies is whether th ey will st reng then or endanger their political survival. To th e ex te nt th at the overall effects of the c ho se n strategies in cr ease the ch ances of the ir political sur vival, the ru lin g elites can be fl ex ible in tactical te rms, allowing partia l reforms to boost the short-term vigor of -- 219 of 306 -- 208 Conclusion the political and economic systems. But such tactical flexibility and ad- justment have strict Iimits and must not blind u s to the fundamental in- compatibility between a monopolistic ruling party's determination to perpetuate its power and a society's collective desire for a more auton- omaus and rule-based economic and political order. Having seized po- litical power through the barre! of a gun , a formerly revolutionary party, such as the CCP, will unlikely seek its own demise through vo lun- tary reform. However, a developmental autocracy's overriding goal of self- perpetuation is ultim ately imperiled by the self-destructive dynamics found in nearly all autocracies: low political accountability, unrespon- siveness, collusion, and corruption. In most cases, an autocratic regime's collective interests are grossly misaligned with the individual interests of its agents. Acting rationally, self-interested agents seek to maximize their own ga ins, especially during a transitional period when changes in the rules of the game create abundant opportun ities for self-enrichment. The econom ic and political costs incurr ed by these agents in th e ir self- dealing are inevitably borne by both the autocratic regime-which suf- fers, as a re su lt, from low legitimacy, weak authority, and organizational corruption-and society-which pays in the form of deteriorating gov- ernance and economic performance. Thus , it is in conceivab le that a d e velopmental autocracy can retain its vigor for lon g. On th e contrary, the self-destructive dynamics embedded in a developmental autocracy will most likely Iead to a gradual buildup of systemic risks within the au- tocratic regim e and progressively sap its strength. That is why, except in a very small number of cases, most self-styled developmental autocra- cies eventually fail. Given Ch in a's impressive growth performance, one may question the pessimistic logic behind the main thesis of this study. If the Chinese political system is so dysfunctional , why has the country maintained such rapid economic growth since the late 1970s? There are several ex- planations for this apparent paradox of bad governance and good growth. First , the pathologies of a trapped transition became more se- rious and visible in the 1990s , after the n eoauthoritarian development strategy had gained dominance within the CCP and the libe ral forces, both within the party and in society, were margin ali zed after Tiananmen. To the extent that deterioration in governance has a lagging effect on econom ic performance (for example, the deleterious effects ofund er- -- 220 of 306 -- Conclusion 209 investment in human capital and public health u sually do not become visible until one or two generations later) , it is possible that the path- ologies of a trapped tra ns ition will have a material impact on macro- econom ic performance in future years. Second, in the short term, the growth rate can be pumped up by high savings and, hence, inve st ment ratesandmassive shifts of popula- tion from agriculture to industry, the two major factors behind China's rapid growth in recent years. In the Chinese case , with anational sav- ings rate of 40 percent and an an nu al flow of $ 40 billion to $ 50 billion in foreig n direct investment since the late 1990s (about 3-4 percent of GDP), high investment rates can propel growth even though the eco- nomic system remains relatively inefficient. Third, it is important to look at the quality of growth because the fo- cus on growth rate alone tends to ignore the hidden costs and the low quality of growth. In other words, growth rates may in accuratel y reflect or, indeed, can seriously misrepresent a society's welfare gains. For ex- ample, if hi gh growth is achieved at the expe n se of rising inequality, underinve s tment in human capital, darnage to the environment, and pervasive official corruption , suc h growth mu st be considered low qual- ity. In Ch in a's case, high growth rates have be en accompanied by all these symptoms oflow-qu ality growth. The massive accumu lation ofbad loa ns in the Chinesebankingsystem due to government-dire cted credit must also be considered another symptom of low-qu ality growt h , or a cause of artificially high growth because such was ted investments have b een counted as eco nomi c output. Finally, the effects of bad governance on China's economic perfor- mance may already be visible. By international comparison , China is growing too slowly, as Martin Wolf argued. Given its size, its low starring base, and its high savings rate and high in vestments, China ought to have grown much faster than the 6.1 percent annual r ate recorded be- tween 1978 and 2003. 1 A most likely explanation for Ch in a's not living up to its economic potential is the institutional weakness of the po liti- cal system. Of course , id e ntifying weak institutions as causes of poor perform a nce gives one re asons for both optimism and pessim i sm . Should China manage to reform these institutions, its economic per- formance will undoubtedly imp rove. But if it fa ils to do so, then its growth rate will probably stagnate or even decline , espec ially when macroeco- nomic conditions become l es s favorable . In fact , China experienc ed -- 221 of 306 -- 210 Conclusi on such an episode of slow growth in 1998-2000. Research by Thomas Rawski shows that, contrar y to official Chinese data, the Chinese econ- omy barely grew durin g this period.2 Getting Out of a Trapped Transition This study raises another important question : how can a partial reform equilibrium e nd? Put metapho rically, how can a co untry such as China get o ut of the tra nsiti on trap? To the exte n t that a tra pp ed transitio n will eventu ally cre a te conditions that force the ruling e lites to make f undamental choices, there are three possible seenarios or ways out. By and large , these choices are s imilar to those faced by political Ieaders trapped in an unsatisfacto ry and unsustainabl e s tatus quo-as was the case following th e e nd of th e C ultural R evo luti on. First, given th e self-de structive dynamics of a trapped t ransition, a neoauthor i tar i an regime will s oon exhaust its econom ic a nd political vitality. W ith d eteriorating eco nomi c performance and in creasi ngly ris- ing social tensions, China 's ruling elites will be forced to c hoo se be- tween maintaining a deteriora ting status quo and taking the risks of more radical reforms to restor e po liti ca l accou n tability an d curb dece n- trali zed pre dation. If they opt for reform, they will most likely mobi li ze new political groups to overcome the res i stance of the beneficiaries of a trapp ed transition and h e lp bre ak the o ld partial reform equ ilibr ium . As the experience of the former Soviet Union demonstrates, h owever, m ob ilizin g soc i eta l forces to press ur e a discr ed it ed r egim e to ch ange can in adverte ntly unleash an antiregime revolution . Such "run-away re- form," or the "de Tocqueville paradox," poses great risks to potential reformers. 3 Once the previous ly excluded groups are fu lly mobi lized, reformerswilllose their ab ility to contro l the agenda a nd th e goa ls of these n ew ly e mpowered groups. Th e refore , a country ca n get out of a trapped transition without experiencing socia l convulsion only if re- formers can maintain full control of the renewed reform pro cess. As Guillermo O'Donn ell and Philipp e Schmitter showed, such an out- come is most likely on ly when reformers ga in th e coopera tion of th e moderate members of the societal opposition. 4 Second , one of the a lte rn atives to get tin g out of a trappe d tran sition through renewed reforms is a regime co llapse. Th e log ic of rent d iss ip a- tion and dec entralized predation means that the i nstitutional d ege n er- atio n of a d e velopmental a utocracy will progress ively spread , resulting -- 222 of 306 -- Conclusion 211 in deteriorating performance of the authoritarian regime, especially in terms of economic growth. Facing declining political legitimacy and prospects of social turmoil, ruling elites with avai lable exit options will most likely take th em, particularly during a cr is is when th e reg im e's own survival is imp er il ed . Under such c ircumstances, we can exp ect the political equivalent of a bank run-a panicked rush for the exit by the regime' s insiders who no Ionger have the will or the incentive to defend the regime. Unfortunately, the collap se of a devel opme ntal autoc racy under cr isis co ndi t ion s may break th e partial reform equilib- rium, but is no guarantee of areturn to a stab le lib era l political order, as shown by the difficulties experienced by Ru ssia after the Soviet co l- lapse and by Indonesia after the demise of the Suharto regime . Third, for a large and diverse country such as China, it is often diffi- cult to build a strong enough new r efo rm coalition at the nation a ll eve l. But regiona l and lo ca l reform coalitions can be formed with a combi- nation of th e initi atives of forward-looking l ocal elites a nd pr ess ure from societal forces. Although the d evo lution of power h as led to th e decentralization of predation , two development s can potentially ge n- erate more positive dynamic s for reform. Devo lution of po wer will, in some cases, result in grea te r political accountab ility for lo ca l e lites. Mo re important, devolution of power in China's co n te xt has e n co ur age d in- terregiona l competition for capita l, labor, an d m ark ets. L oca l acco unt- abi lity and interregional comp e tition may jointly motivate local elites and civil society groups to experiment with new in s titutional reform s that can add ress th e ills of a trapp ed tra nsition at the l ocall eve l. It is wo rth noting that, in th e 1990s, the mo stinnovative govemance reform attempts, su ch as the townsh ip-leve l e lections an d r efinin g village ele c tion s, were "middle-up " initi ative s-risk-ta king id eas impl e mented by pro g re ss ive l ocal offleials to remedy lo cal problems. If more jurisdicti ons take the middle-up route, at least so m e of the social and political ills caused by a trapped transition can be am eliorated at the lo ca l level. In the end, l ocal initi a tives will probab ly e ncourag e governance dive rge n ce across China, as some areas manage to get out of a trapped trans iti on through reform a nd oth ers continue to stagnate or eve n deteriora te furt h er. lmplications for the International Community On e mu st not rule out the possibility th at a country su ch as China can be stuck in a t ra pp ed transition for an exte nd ed p eriod. It is co n ce ivabl e -- 223 of 306 -- 212 Conclusion that a developmental autocracy can continue to use the same mix of re- pression, co-optation, and adaptation to mainta in an elite-based ruling coalition for decades. Deteriorating governance and economic p e rfor- mance may be the n ecessary-but n ot sufficie nt-co n ditio ns fo r the emergence of a fata l crisis. A comb inati o n of tactical adaptation, im- provisation , Juck, and mass apathy may allow the ruling elites to stay in power even as the country is mired in misrule. The likelihood that China' s transition to a market economy and ope n society has stalled h as ser ious implication s for poli cy. For C hin ese Ieaders, a tr a nsiti on process trapped in a partial reform equi librium endangers their ambitious goal of becoming a f ull-fledged global power. The combination of flaw ed economi c and political in sti tutions creates market distortions, inefficient uses of res ources, and opportu- niti es for m assive systemic co rruption. Th e rapid eco nomic develo p- ment China was able to ach ieve in the first twen ty-five years of its transition will u nlikely be sustained. Instead of becoming a global ec o- nomic po wer, China may e nter a prolonged p e riod of stagnation . In addition, the risks of domestic instability w illlikely increase , both as a result of the social fru s tra tions caused by poor economic perfor- m an ce a nd the political dissa tisfac tion again st an aut horitar ia n , ex clu- sionary, c orrupt, and ineffective r egim e. Given the difficulti es and costs associa ted with forming viable coherent opposition groups cap a ble of opposing and affering a credi bl e a lt ernative to th e CCP, it is difficult to imagine that the CCP behemoth can be dethroned by an organized coalition fr om below. Abse nt a deep and wide fr actu re that sh atters th e CCP from with in , the collap se of the CCP may be a l ow-p robab ility event. Thus, the unavai lability of a credib le alternative and the sl im pos - sibility of a regim e implo sion suggest that po li tica l Sta gn a tion would ac- company econom ic Stagnation , with further er osion of state capacity, the declin e of the CCP's legitim acy, and increases in lawless ne ss, cor- ruption, and socia l disorder. Ultimately, su ch Stagna tion will progres- sively incr ease th e risks of regime collapse or state fai lu re, as the s tr a in s accumu l ate in th e dysf unctional political and eco n omic sys te ms . For the int ernational co mmunity, a Chin a trapped in pro lon ged eco- nomic and political Stagnation poses a set of challenges few h ave contem- plated se ri ous ly. Since th e 1990 s, C hin a's r ap id eco n o mic ascendance h as ch anged the West's assessme nt of its capabiliti es and pro sp ects. Projecting China's f uture growth on the basis ofits stellar development -- 224 of 306 -- Conclusion 213 record in the recent past, the Westernbusiness communityviews China as an unprecedented commercial opportunity and a strategic market. Although China may be a difficult place to do business, Western busi- nesses have l earn ed how to manag e and live with th e risks inh e rent in that nation's political and economic enviro nments. But if the impli ca- tions of this s tudy are born e out, the lofty expectations ofWestern busi- nesses are most likely to be disappointed. China may be one of the biggest economies of the world, but the high rates of growth and ge n- eration of wealth projected by W este rn businesses will unlik ely materi- alize. At the very least, the conclusions drawn from thi s study shou ld make these businesses reassess their China strategy and adju st the risk premium they demand in return for their in ves tments. At the geopolitical level, the prospect of a risi ng China that co uld challenge the existing world order in general, and the pre em in ence of the United States in particular, has dominated the debate on the West's policy toward China since the mid-1990s :" Security analysts are preoc- cupied w ith China's potential military capabilities an d intentions. Even though the China debate has spawned two conflicting policy approaches, often labeled "containment" and "engagement," the fundamental prem- is e underlying th e se two opposing approaches is simil ar. Advocates of e ngagement and containment both assume China's rise as a given, and their differing policy prescriptions foc us on projected Chinese strength, rather than its weakness. To be sure, Ch ina 's weaknesses so m eti m es cause concerns in the V\Tes t. But on such occasions, relativelyrarei n the 1990s when th e Chinese eco n omy boomed, analys is of China's problems tends to be extreme ly pessimistic, often with predictions of an immi- nent collapse of the Chinese political order an d econom y.6 Should China's rise fizzle, as this book suggests is highly li ke ly if no fundamental political reforms are impl e mented, both the containers and engagers will be disappointed. For the hard-nosed reali sts ob- sessed with the potential threat from a China with peer-competitor ca- pabilities, a China stuck in its incomplete transition mean s a much weaker China incapable of mounting a real cha ll enge for global pre- em in ence . In prac tical terms, th e carefu l construction of a strateg ic bal- ance of power designed to coun t er Chin a's rising influence , as pursued by th e George W. Bush ad ministr a tion thr ough its efforts to recruit JapanandIndia into a potential anti -Ch in a security alli ance, may turn out to be unnecessary. Needless to say, the tens of bi lli ons of dollars in -- 225 of 306 -- 214 Conclusion military spending justified as a response to China's rising military threat will be wasted. Without China as a peer competitor, Washing- ton's strategic thinkers will have to look elsewhere for new threat s. But lib era l engagers will also h ave a harder time r eco n c iling the ir ex- pectations that economic progress will bring democratization with the hard reality that the Chinese experience has consistently defied such expectations . With progre ss toward a genuine open society frustrat- ingly slow in China, Western liberals may find it increasingly difficult to maintain their optimism about China's future as a cand id ate for de- mocratization. In policy terms, the intellectual case for engagement with China th at has been made will rest on even more shaky ground. The international communi ty should take another look at China and start preparing, at least intellectually, for the unpleasant prospect that China may not onlyfail to full y realize its potential , but also descend into long-term stagnation . Such a reassessment ofChina's future should pro- duce a new and more realistic framework in analyzing China's ongoing transformation and addressing the real challenges it brings. Instead of viewing China as the new superpower ofthe twenty-first century, the in- ternational community may want to see it as an underperforming g iant that has failed to seize a historic opportunity for making a fundamental break with its authoritarian past and paid a heavy price for it. In a lllikelihood, a China trapped in partial reforms would resemble, in several crucial respects, an incapacitated state . Unlike a completely failed state, an incapacitated state retains nominal national sovereignty, territorial integrity, and central government authority. Its rulin g e lites, through the monopoly of political power, remain unchallenged. How- ever, in an incapacitated state, the government's comprehensive capa- bility of governing is feeble, even though it may retain a limited abi lity to enforce its will and rule selectively, mostl y under c ir cumstances where such demonstration of state power affirms, at the symbolic level, the existence of a centralized political authority. Thus, over a wide range of issu es deemed of critical interest to th e international commu- nity-such as e nvironmental protection, nonproliferation, antinar- cotics, migration, contro l of the spread of HIV/ AIDS, a nd poverty alleviation- an incapacitated state would be unable to honor its com- mitments or perform its govern in g functions effective ly. The in terna- tional community would likely find threats and problems posed by incapacitated states ultimately more frustrating and difficult to a ddress -- 226 of 306 -- Conclusion 215 because traditional approaches to foreign policy contain few effective prescriptions to treat state inc ap acitation. Given China's huge size and its role in global security and the international economy, the challenge posed by an incapacitated state in China would simply overwhelm t he interna tional community's ability (even ifwe assume willingness) to pro- vide meaningful assistance. The spillover effects from China 's internal woes and weaknesses would not only affect the interests of many nations, but also would make China's problems tho se ofthe entire internation al commun i ty. Few may have viewed China's prospects through such dark l enses . But one ignores the self-destructive logic of predatory a uthoritarianism at his own peril. -- 227 of 306 -- -- 228 of 306 -- Appendix Notes Acknowledgmen ts Index -- 229 of 306 -- -- 230 of 306 -- Appendix: Reported Cases of Local Mafia States Hunan Province (seven cases r eported) -Th e c hi ef of tl1e par ty's politics and law committee in Zixin city and two o th er offleials were prosecuted in 2002 for pro teering a lo cal criminal gang. In Lianyuan ci ty, thirty-nine offi- cials-including the police chief, the president of the local court, the chief prosecutor, and the chief of the party's polirics and law committee-were prosecuted in 2002 for proteerin g an organized criminal group. In H en gdo ng county, twenty-five officials, including th e mayor and deputy chairman of the county People's Congress, were prosecuted in 2002 for proteering an orga- nized criminal group. In Dong 'an county, sixt een officials, indudin g the chief of the party's politics and law committee and deputy police chief, were prosecuted in 2002 for proteering an organized criminal group. In Changde city, an unsp ec ified number of Io cal offleials were prosecuted for co lluding in smuggling automobiles. In Shuining co unty, seven officials-including the police chief, the head of the People's Congress, and chief pro secutor- were arres ted in 2001 for proteering organized cr im e. In Chaoyang ci ty, forty- three officials, including the deputy polic e chief a nd other law e nforc e ment officials, were proseenred in 2002 for proteering organized crime. Guangdong Province (s eve n cases reported)-Seventeen offleials in Puning city, includin g the party secretary, were proseenred for selling government posts in 2002. In Zhanjiang ci ty, a )arge number of l ocal officials, includ- ing th e c ity's party c hi ef, we re co nvict ed of smuggling in 1998. In Yunfu city, twenty- three officials, including a deputy police chief, were proseenred for smuggling automobiles in 2002. In Lufeng, four officials, induding a prose- cutor, were proseenred in 2001 for producin g counterfe it currency. In Shenzhen , five sen i or officials-including the deputy mayor, a depu ty director of the land bureau, and the head of th e metro-were prosecuted in 2001 for 219 -- 231 of 306 -- 220 Appendix collectively taking bribes. In Qingyuan city, three se nior officials, including the police chief and the chief of the party's politic s and law committe e, were prosecuted in 2002 for smuggling. In Lianzhou c ity, five local officials, includ- ing th e police c hi ef an d the secr etary of the par ty's politics an d law co mmit- t ee, were pro sec uted in 2002 for s rnu gglin g. Fujian Province (six cas es reported)-Six officials in Minhe county, includ- ing the heads of the land and construction bureaus, were prosecuted for protecting a local rnafia group in 2002. Six offleials in Shunchang co un ty- includin g the chief of the party 's politics and law co rnmittee , a d ep u ty party secretar y, and a de puty chief of polic e -were pro secu ted in 2002 for protect- in g a l oca l mafi a group . An unspecified number of offleials in Zhangzhou city, including cadres in law enforcement agencie s, were prose c uted in 2001 for protecting a local mafia group. In Wuping coun ty, three officials, includ- ing a deputy county magistrate and a deputy chairman of the county' s People's Congress, were prose cuted in 2001 for collectively accep ting bribes . In Xiamen c ity, th e infa rnou s Yuanhua case led to t.h e arres t a nd co nviction s of 279 l ocal officials in 2001, i nclud i ng the city's p arty secretary and deputy rnayor. In Fuz hou, seve n teen city officials-including th e p arty sec retar y of t.he politics and law committee, a depu ty mayor, the party bo ss of a local city, a local chief prosecutor, and a vice president of a local court--provided protection to a loc al crime boss, Chen Kai, in exc hang e for larg e brib es . The case was un- covered in 2003. Guangxi Autonomous Re gion (four cases re por te d ) -Th e provinci al gov- e rnm e nt's ch a irm an, de puty ch a irm an , and a de pu ty ch a irm an of th e Pe o- ple's Congress were prosecuted in 2002 for takin g bribes. In Liu z hou ci ty, t he party secretar y, police chief, and deputy police c hief we re prosecuted for pro- teering ill ega l ga mblin g. In Nandan co un ty, seven offic ials-includin g the party secretary, the magi strate , and a deputy par ty secreta ry-we re co nvi cte d of protecting m afia-opera ted min es in 2002. In Ningming cou n ty, two of t he co un ty's party c hi efs a nd two co unty rn agistra t es we re a rr e sted for corr up tio n in th e l 990s. Heilongjiang Province (three cases reported)-The provincial gov ernrnent itse lf could qu alify as a rnafia state. In 2 00 4, the following were removed fro rn office or pro sec uted for co llective corr uption: a forrn er provincial gove rnor; a sitting de puty governor; th e h ead of the provin cial p eople's po liti cal consulta- tive confere n ce, who h ad ser ved as th e provin cial CCP organiza tio n c hi ef and was an a lternate member of the CCP's 1 5th Ce nn-al Comm ittee; th e pr esi dent a nd vi ce pr esiden t of th e provincial high co urt; th e chief of th e provin cial procuratorate; th e head of the provin cial pe r son n el d e partm e n t; a nd the head of the provincial CCP secretar iat. In Suihua ci ty, th e party secretary, Ma De, was co nvic te d of selli ng gover nm e nt p ositions to mor e th an 260 p e op le in -- 232 of 306 -- Appendix 221 2002. About half the division-level cadres in the ten counties in Suihua were implicated in the scandal. In Qitai city, a deputy party secretary, who was also the secretary of the politics and law committee , and an unspecifled number of offleials were convicted in 2002 for protecting organized crime. Shanxi Province ( thr ee cases reported)-The party secretat-y of Changzhi countywas prosecuted in 1999 for selling government offlces to 432 people. In Gaoping county, seven offlcials-including the deputy mayor, police chief, and the party's organization chief-were prosecuted in 2001 for protectin g a vi- olent criminal gang. In Fanci county, both the par ty secretary and the mayor we re prosecuted in 2002 for protecting criminals who owned local min es. Jilin Province (thr ee cases reported)-InJingyu county, th e party sec retary was prosecuted in 2003 for selling government positions to more than 160 people. In Helong city, an unspecifled number of offleials were prosecuted for protecting a local mafla group. In an unnamed city, thirty offleials were prosecuted for protecting a mafla group headed by Liang Xudong , an infa- maus local crime boss. Sichuan Province (three cases reported)-In Jianyang county, eleven se- nior officials-including the mayor, two deputy mayors, and a d eputy party secretary-were prosecuted in 1994 for collectively taking bribes. In Pi county, four offlcials, including the head of the agriculture bureau, were prosecuted in 1994 for protecting a local mafla group. In R ens hou county, the police c hi ef and his principal deputy were pros ecute d in 2002 for pro tecting a mafla group . Shaanxi Province (three cases reported) - In Fuping county, six offlcials, including the police chief and two of his deputies , were prosecuted in 2002 for protecting a mafla group . In Yang county, flve offlcials-including the party secretary, the magistrate , one deputy party secretary, and the party's or- ganization chief-were prosec ut ed for selling government positions in the mid-1990s. In Huanglin county, four local enforcement offlcials, including the police chief, wer e prosecuted in 2001 for protecting m afla-run min es. Jiangxi Province (two cases reported)-In Qianshan county, two succ es- sive party secretaries, the deputy police chief, and the party 's organization chief, along with twe nty-three other offlcials, were prosecuted in 2002 for protecting a loca l mafia group . In Geyang county, an unsp ec ifi ed number of offleials were prosecuted in 2001 for protecting organized crime. Hubei Province (two cases repo rted) - In Tianmen city, the party secre - tary, the executive vice mayor, and t he secretary general of the city governm ent wer e prosecuted for taking bribe s a nd embezzlement in 2002. In Xishui city, four offleials were prosecuted for protecting the Iocal mafia in 2002. Shandong Province (two cases reported)-In Tai ' an city, the p arty secre- tary, deputy secretary, secretat-y general of the municipal government , a nd -- 233 of 306 -- 222 Append ix police chief were prosecuted in 1996 for collective ly taking bribes. In Rizhao city, the party secretary and the police chief were prosecuted in 1996 for co l- lectively taking bribes and other crimes. Zhejiang Province (two c ases reporte d)-In We nling ci ty, sixty-s eve n of- fl cials, including the rn ayor and the chief of the party' s politics and law co rn- mittee, were prosecuted in 2001 for protecting a local rnafia group that de- frauded a lo cal credit union of 300 million y uan . In Rui'an city, the party secretar y and the rnayor, togeth er with rnore than thirty offlcials, were prose- cuted in 2001 for protecting a l ocal rnafla group, bribe-taking, and se llin g gov- ernment positions. Anhui Province ( one case reported)-Th e party secre t ary, mayor, polic e chief, and about 160 other offleials in Fuyan city were prosecuted in 2000 for taking bribes collectively. Henan Province (one case reported)-In Lu s hi cou nty, the party secre tary was prosecuted in 2002 for selling governrnent positions to eighty people and behaving lik e a "d irt emperor." Liaoning Province ( one case reported)-Nearly all the senior offleials in Sh e nyang, including th e mayor, presid en t of th e court, the chief prosecutor, and the executive vice rnayor, were prosecuted in 2001 for protecting the local mafla. -- 234 of 306 -- Notes lntroduction 1. One of th e best bri ef surveys of the eco n om ic transforma ti on of China since the late 1970s is the World Bank, China 2020: Development Ch allenges in the New Century (Washington, D.C.: World Bank , 1997). 2. ZGTJNJ 2003 (Beijing: Zh o n gguo tongji c hub ans h e, 2003), 58. 3. www.chinanews.com .cn , May 18, 2004. 4. ZGTJNJ 2003, 34. 5. http :www.un c hin a.org / htm l/ r epo rt.html. Accor ding to th e United Na- tions, China's urbanization rate for 1978 was 29 percent. 6. ZGTJZY 2000, 83, 131, 161; ZGTJNJ 1991, 269; ZGTJNJ 2002, 562; ZGTJNJ 2003, 30, 31, 342, 790; www.chinanews.com.cn, Ap ril1 , 2004. 7. ZGTJZY 2000 (B eijing: Zhon ggu o tongji c hub ansh e, 2000), 122; ZGFLNJ 2000 (Beijing: Zhongguo fa lü chubanshe, 2001), 1221; ZGFLNJ 1 99 1, 36 ; ZGTJNJ 2002, 573, 691. 8. ZGTJZY 2000, 105; ZGTJNJ 2003, 4 59 . 9. ZGTJNJ 2003, 123. 10. See Nicholas Lardy, Integrati ng China into the GlobalEco nomy (Washin gton , D.C.: Brookings Institution Pr ess, 2002). 11. www. c hinan ews.co m.cn , D ece mb er 28, 2003. 12. ZGTJZY 2000, 139, 144; ZGTJNJ 2003, 653, 671, 691. 13. See Mich el Okse nb erg , "C hin a's Po litical System: Ch alle ng es of th e Twenty-first Century," The China ]ou rnal 45 (2001): 21-35. 14. On a scale of 1-5 , with 3 den o ting no change compare d wi th th e pre- reform era a nd 5 de 11oti11g "sig11ifica11t improvem e11t, " respo11d e11ts gave a score of 3.21 011 po liti cal effic acy, 3.45 011 e qu al treatme11t, 3.46 011 223 -- 235 of 306 -- 224 Notes to Pages 4-6 judicial independence, and 3.67 on individual political rights . Xu Xinxin , "2002 nian Zhongguo chengxiang jumin shehui taidu zhiye pingjia yu zeye quxiang diaocha" (A Survey of the Social Sentiments, Evaluation of Occupations, and Employment Preferences of Chinese Ur- ban and Rural Residents in 2002), in Ru Xin et al., eds., SHLPS 2003 (Bei- jing: Zhongguo shehui kexue wenxian chubanshe, 2003), 122. A survey ofurban residents in 1999 found that the y feit their political efficacy had decreased significantly compared with the early 1990s. Wenfang Tang, "Political and Social Trends in the Post-Deng Urban China: Crisis or Sta- bility?" The China Quarterly 168 (2001): 890-909. 15. Li Rui, "Guanyu woguo zhe n gz hi tizhi gaige dejianyi," (Proposals for Re- forming China's Political System), www.sawin .com.cn / doc/FLY/ Free / politics.htm. 16. Ibid. 17. The Polity IV Project's data can be accessed from www.bsos.umd.cidcm/ polity. 18. See www.freedomhouse.org. 19. Transparency International's ratings assigned to China fluctuate within a relatively narrow range-from 4.73 to 2.16 for the 1990s on a 1-10 scale (10 being the least corrupt). 20. International Country Risk Guide-IRIS III Data Set, available from the PRS Group at www.prsgroup.com. 21.Jeff Huther and Anwar Shah, "Applying a Simple Me asure of Good Governance to th e Debate on Fiscal De centralization," World Bank Policy Resear-ch Warking Paper No. 1894 (Washington, D.C.: World Bank , 1998). 22. Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi, "Governance Mat- ters III: Governance Indicators for 1996-2002 ," Warld BankPolicy Research Warking Paper No. 3106 (Washington, D.C.: World Bank, 2003). 23. On "voice and accountability," China's score was -1. 38, compared with Angola ( - 1.39), Belarus ( - 1.45), Vietnam ( - 1.36), Saudi Arabia (-1.40) , Afghanistan ( -1. 31) , Russia (-0.52), Ukraine ( -0 .59), India (0.38) , and Mexico (0.33). In terms of " regulatory quality," China's score was ( -0.41). Scores for other countries were: Nicaragua ( -0.41 ) , Cam- bodia (-0.43) , Papua New Guinea (-0.44 ), Egypt (-0.45 ), Mali ( -0.49) , India ( - 0.34), Mexico (0.49) , and Russia ( - 0.30). On " contro l of corruption, " China got -0 .41, compared with Colombia ( -0.4 7), Ethiopia ( - 0.35) , Iran ( - 0.38) , Romania ( - 0.34) , Russia ( - 0.90), India ( - 0.25), Brazil ( - 0.05), and Mexico ( - 0.19). On "government ef- fectiveness," China received 0.18, co mpar ed with Namibia (0 .18) , Croa- tia (0.19), Kuwait (0.16) , Mexico (0.15) , Ru ssia ( -0.40) , and India ( -0.13). On "political stability," China got 0.22. On "rule of law," China -- 236 of 306 -- No tes to Pages 6-8 225 received -0.22, compar ed with Mexico (-0 .22) , Madagas c ar ( -0 . 19), Lebanon ( -0.27), Russia ( -0.78), and Indi a (0.07). Kaufmann , Kra ay, and Mastruzzi, "Governan ce Matters 111 ," 98 -11 4. 24. See Me rle Go ldm an a nd Rod erick M acF ar quh ar, eds., The Paradox of Chi na's Post-Mao Reforms ( Camb ri dge, Mass.: Harvard U ni versity Press, 1999); Elizabeth Perry and Mark Seiden , ed s. , Chinese Society: Change, Coriflict an d Resistance ( London: Routled ge , 2 000 ); Gordon W hi te , Jude Howell, a nd Xiaoyuan Sh an g, In Search of Civil Society: Market Reform an d S oc ial Change in Conternporary China (Oxford: Cl are ndon , 199 6). 25. See M inxin Pei, "Is C hi na Dem ocra tizing?" Foreign Affairs 77( 1) (1998) : 68- 82; Ri ch ar d Bau m, Burying Mao: Chinese Politics in the Age of Deng X iaoping ( Princeton, N J.: Princeton U nivers ity Press, 19 96) ; Melanie Manion , Retirernent of Revolu tionaries in China: Pub lic Policies, Social Norrn s, Private Interests (Princeton , N J : Princeton U niversi ty Press, 1993); Li C heng a nd Lynn White, "Elite Tran sfo rm ation a nd Mo de rn Ch an ge in Main- lan d C hin a an d Taiwan : E mpiric al D ata an d th e T h eory ofTec hn ocracy," The Ch ina Quarter.Zy 121 (1990) : 1-35 . 26. See S ta nl ey Lu bman, Bird in a Gage: Legal Reform in China After Mao (Stan- ford , Calif.: Stanford U niver sity Press, 1999 ); Pi t man Potter, ed ., D ornes tic Law Reforms in Post-Mao China (Armonk, N .Y: M. E. Sharpe , 1994); Stan- Iey Lubm an , ed., Ch ina 's Legal R eforms ( Oxfor d: O xford U niversi ty Press, 1996) . 27. See M ur ray Scot Tan n er, The Politics of Lawrnaking in Post-Mao China: I nstitutions, Pmcesses, and Dernocratic Pmspects (O xford : Oxford University Press, 1998); Michael Dowdle, "T he C on s titutional De ve lopment a nd Oper ation s o fthe Nation al People 's Congress," Co lurnbiaj oumal of Asian La w 1 (199 7): 1-125. 28. See Kevin O'B ri en, "Vill age rs, Elec tions, a nd Citizenship in Co nte mp orary Chi na," Modern China 27 ( 4) (2001 ) : 407-435 ; Tianjian Shi, "Vill age Com- m ittee El ectio ns in Chi n a: In stitutionalist Tactics for Democracy," World Politics 51 (3) (1 999) : 385-4 1 2; Robert Past or an d Q in gsh an Tan , "Th e Me a nin g of China's Viilage Elections," The China Quarterly 162 (2000): 490-512. 29. See David Zweig, "U nd em ocratic Cap i ta lism : C hin a and th e Limit s of Econom i sm ," National Interes t (Summer 1999): 63-7 2; Bruce Dickson, "C hin a's Dem oc ratizatio n a nd th e Taiwan Expe ri en ce," Asian Survey 38(4) (1 998 ): 349- 364 . 30. Zh ao re p ortedly said thi s in a co n versatio n with a la n g ti me f rie nd in July 2004 whil e still und er h ou se a rr est in Beijing. Mingpao, J a nu ary 30, 2005, A4. 31. Th e "n eo a uth oritarian deve l opment mode l" was distill ed from the -- 237 of 306 -- 226 Notes to Page 9 successful developmental experience of East Asia's newly industrializing countries , which grew rapidly after their authori tarian regimes adopted market-friendly policies without opening the political system. 32. Fora discussion of a partial reform e quilibrium , se ejo el H e llman , "Win- ners Take All: The Po litics of Parti al Refo rm in Postco mmunist Transi- tions," World Politics 50(2) (1998): 203-234. 33. According to the three polls conducted by the Chinese Academy of Social Seiences in 1998, 1999 , and 2003, party and government officials, taJ< collectors, law enforcement personnel , SOE executives, and employers in financial institutions we re viewed as having g ain ed the most from eco- n o mic reform , a nd SOE work ers, p easa nts , mi gr a nt labore rs , and work- ers in township and village enterprises were seen as having beneflted the least. In a poll of 15,000 in late 2002, 60 percent said that party and gov- ernment offleials had beneflted the most. Xu Xinxin, "Zhongguo cheng- shijumin de guanzhujiaodian yu weilai yuqi " (C hina Urban Res id e nts' Ma in C011eerns and Expectations of the Future) , in Ru Xin et al., eds., SHLPS 2000, 87; Liang Don g, "Zhon gg uo d an gz hen g ga nbu ji ganqun g uanxi de di a och a fe nxi" (An Inv esti ga tive Analysis of Chin ese Party and Government Offleials and Relations Between the Cadres and the Masses," in Ru Xin et al., eds. , SHLPS 2004, 35. In a poll of 109 leading academic s in 2003, 73 perce nt said that par ty a nd government offleials had ben eflted th e most from re forms a nd 67 perce nt said work ers h ad ben e flted th e least. Lu Ji a nhua, " Zhu anjia yanli de sh e hui x in gs hi jiqi qianjing" "Social Situation and Prosp ects in th e Eyes of Exp er ts) in Ru Xin et al., eds., SHLPS 2004, 18. 34. Wu Guoguang wrote a provocative essay, "Gaige de zhongjie yu Iishi de ji e xu " (Th e End of Reform and th e Continu a tion of History), Er shi yi shi}i ( Twenty-first Century) 71 (2002): 4-1 3. 35. For an an alysis of Zhu Ro ngji 's failed ref orm s in th e late 1990s, see David Zweig, "C hina's Stalled ' Fifth Wave': Zhu Rongji's Ref orm Pack age of 19 98-2000 ," Asian S urvry4 1(2 ) (2001): 23 1-24 7. 36. Of the respondents, 30 percent were SOE executives and 70 percent we re no n-SOE executives. De velopment Res earch Center of th e State Coun cil (DRC) , " Qiye jingy ingzhe duijingji tizhi gaige redi an we nti de pa ndu an " (Co rp or ate Ex ec u tives' Assessmen t ofth e Key Issu es in th e Re- f orm of th e E co n o mi c Syste m) , DRC diaocha y anjiu baogao (DR C l nv es- tigative and Research Report) 186 (2002): 4. 37. S ee Ni c hol as La rdy, China 's Unfinished Economic Revolution (Washington, D.C.: Broo kings Institution P re ss, 1998). 38. Nichola s Lardy, "Chin a' s Wor se ning Debts," The Financial Ti mes, ]un e 22, 2001. -- 238 of 306 -- Notes to Pages 9-11 227 39. Li Rongrong, head of the State Asset Management Administration, which oversees SOEs, admitted in late 2003 that SOE reforms remained in a difficult stage. He cited the failures to establish a modern co rporate system, improv e the corporat e governance structur e, reform internal management ofSOEs, and reduce th e ir mass ive bad de bts. www.chinanews. com.cn , October 3, 2003. 40. See Lin Yi-min and Tian Zhu , " Ownership Restructuring in Chinese State Industry: An Analysis of Evi dence on Initial Or g anizational Chan ges," Th e China Quarterly 166 (2001): 305-341; Edward Steinfeld, " Fr ee Lunch or Last Supp e r? China 's Debt-Equity Swa ps in Context," The China Busi- ness Review (July-Au gus t 2000 ) : 22-27. 41. Nicholas Lardy, "When Will China's Financial System Meet China's Needs ," Conference on Policy Reform in China, Stanford University (mimeo , November 1999 ) . 42. OECD , China in the World E co nomy: The Domestic Policy Challenges (Paris: OECD , 2002), 9. 43. Th e OECD study notes that real growth feil between 1996 a nd 2000 and argues that such det e riorating p erformance is no t cyclical. OECD , China in the World Economy, 22. 44. Wanda Ts eng and Markus Rodlauer, eds. , China: Competing in the Global Economy (Washington , D.C .: Intern a tion al Mo n etary Fund , 2003) . 45. A cco rdin g to the Wo rld Ba nk, China's official growth rate from 1978 to 1995 was infla ted by an average of 1.2 perce nt a year. World Bank , China 2020, 3. Alwyn Young argues that China 's GDP growth from 1986 to 1998 was overstated by 3 percent . Young, "Gold into Base Metals: Productivity Growth in the People's Republic of China during the Reform Period," NEER Warking Paper No. 7856 (Cambridge , Mass .: National Bureau of Economic R esearc h , 2000); Thom as Rawski argu ed in 2001 that C hin a's growth statistics for the l ate 1990s were so infl ate d that real growth was probabl y close to zero . See Rawski, "China's G DP Statistics-A Case of Cave at L ee tor?" www.pi tt.e du / ~tg rawsk i/ pap ers200 1/ cavea t. web. pdf. 46. Morris Goldstein and Nicholas Lardy, What Kind ofLanding for the Chinese Economy ? (Washington , D.C.: Institut e for Int e rn a tional Economics , 2004) . 4 7. www.chinanews.com.cn , Fe bru ary 18, 2004; NFZM, July 1, 20 04. 48. In 1999, forty-two of th e fifty l eading academics inte rviewed by a C hines e Aca dem y of Social Se ienc es research group said that th e politi cal sys- tem has lagge d behind th e eco nomic sys tem . LuJi a nhua, "Mia nlin xinshiji tiaozhan d e Zhongguo" (China: Facing Challen ges of the New Ce ntury) , in Ru X in et a l. , eds., SHLPS 2000, 112-123; for th e results of the 2003 study, see LuJi a nhu a, "Zhuanjia yanli de she hui x ingshijiqi qi anj ing ," 20. -- 239 of 306 -- 228 Notes to Pages 11-13 49. The que s tion posed to 116 se nior and midlevel offleials in 200 3 was how they viewed "adjustment in the major relation ships in recent years ." On "the relationship b et wee n economic r eform and politic al r efor m," 66.4 percent said "little chan ge"; 21.6 p ercent said this relationship "h as become m oreou t of sync" ; on ly 11.2 percent said th e rel ationsh ip h ad becom e " more in sync." Xie Zhiqiang, "Dangzheng ganbu dui 2003-2004 nian Zhongguo shehui xingshi de jiben panduan " (Party and Govern.ment Officials' Basic Assessment of China's Social Situation in 2003-2004), in Ru Xin et al., eds., SHLPS 2004, 27. 50. Each pol! surveyed about 120 officia ls. B etwee n 2000 a nd 2003 , abou t 30-36 percent of the res p ondents identified "po liti ca l reform" as the issue they we re "most conc e rn ed with." Qing Lia nbin and Xie Zhiqiang, "Dangzheng ganbu dui 2000-2001 nian shehui xingshi de jiben kanfa" (Party a nd Government Officials' Basic V ie ws of the Social Situation in 2000-2001) in Ru Xin et a l. , eds., SHLPS 2001, 47-48; Qing Lianb in , "Zhon gguo dangzheng lin gdao ga nbu dui 2002-2003 ni an sh e hui xingshi dejiben kanfa" (Chinese Party and Government Officials' Basic Views of the Social Situation in 2002-2003), in Ru Xin et a l. , eds., SHLPS 2003, 130; Xie Zhiqiang, "Dangzheng ganbu dui 20 03-2004 nian Zhongguo shehui xin g shi de jiben pandu a n, " 29. 51. Fifty-six percent ofthe officials sel ecte d eco n omic refo rm as th e m ost im- portant factor. Qing Lianbin , " Zhongguo dangzh e ng lin gdao ganbu dui 2002-2003 nian shehui xingshi d e jib en kanfa ," 136. 52. Yan Sun , Carruption andMarket in Contemporary China (Ithaca , N.Y.: Co rn ell University Press, 2004). 53. The most systematic pollin g data were c ited in the annual SHLPS co mpil ed by the CASS. 54 . Hu Angang includ ed the amount of rents in various monopolized industri es and provided a high er estimate of the costs of corruption (17 perce nt of GDP) . Hu Angang, e d. , Zhongguo: Tiaoz hanfubai (Chin a: Fighting Against Corrupti on) (Hangzhou : Zhejian g re nmin chubanshe, 2001 ), 61; Minxin Pei us ed a more conservative estimate that showed the cost of corruptio n in the l ate 1990s was abo u t 4-5 percent of GDP. See Minxin Pei, "Will China Become Another Indon esia?" Foreign Policy 116 (1999): 99 . 55. He Qinglian, Xiandaihua de xianjing: Dangdai Zhongguo de jingji shehui wenti ( Th e Trap of Modemiza tion: Economic and Social Problems in Contemporary China) (Beijing:Jinri Zhongguo chub ansh e, 1998) . 56 . Wang Shaoguang a nd Hu Angang sound ed the al arm that C hin a's state capac i ty, mainly its extractive ca pacity, was declining, in the ir influential Zhongguo guojia nengli ba<Jgao (A Report an the Capa ci ty of the Chinese State) -- 240 of 306 -- Notes to Pages 13-15 229 (Shen yang: Liaoning renmin chubanshe , 1993). Although government revenues rose steadily after the tax reforms were implemented in 1994, they r e main about 30 perc e nt lower than the level in the early 1980s. Also see Minxin Pei, "China's Governance Crisis," Foreign Affairs 81 (5) (2002): 96-109; Li Qiang analyzes the eros i on of state capac ity in hi s 'ji ngji zhuanxing yu jigou gaige " (Economic Transition and Institutional Reform) , ]ingji shehui tizhi bijiao ( Camparalive Econ omic and Social Systems) 4 (1998) : 30-34. 57. BYTNB 1 (1997): 24-27. 58. See Kenneth Lieberthal, " Introduction: The ' Fragmented Authoritarian- ism' Model and Its Limitations," in Kenneth Lieberthai and David Lamp- ton, eds., Bureaucracy, Politics, and Decision Making in Post-Mao China (Berkeley: University of California Press, 1992), 1-30. 59. In August 2002, the Hainan-based Institute for Reform and Develop- ment held a conference on "Transition and Imbalances," at which so me of C hina 's l ead ing academics voiced their concerns about grow in g struc- tural imbal ances in Chinese society, economy, and polity. The transcripts of the conference are at www.chinareform .org/ cn / cgi-bin / kxwk/ Library_Read.asp?type_id = 1&text_id = 500. 60. For example, income inequality and urban-rural inequality worsened dramatically in the 1990s. A study by the Ministry of Finan ce sh ows that the Gini index for income had risen from 0.282 in 1991 to 0.458 in 2000. Research by the CASS shows th at in 2002, the ratio ofper capita in c ome between urban and rural residents reach ed 3:1, the highest eve r. www. chinanews.com.cn, June 16, 2003; www.chinanews.com.cn, February 25, 2004. 61. Wang Shaoguang, Hu Angang, and Ding Yuanzhu, 'jingji fanrong beihou de shehui buwending" (The Social Instability Behind Economic Prosperi ty) , Zhanlüe yu gu.anli ( Strat egy and Management) 3 ( 2002) : 26- 33. 62. Sun Liping, "Women zai kaishi miandui yig e duanlie d e sh e hui? " (Are We Facing a Split Society?), Zhanlüe yu guanli 2 (2002): 9-15. 63. One press report cited an official figure of 30,000 collective protests in 2000, about 80 per day. The Washington Post, January 21, 2001 , Al. Also see Lianjiang Li and KevinJ. O ' Brien , "Vi llagers and Popular Resistance in Contemporary China, " Modern China 22(1 ) (1996) : 28- 61; Thomas Bernstein , "Farm er Discontent and R egim e Response, " in Go ldm an and Ma cFa rquhar, eds ., Th e Paradox of Chinas Po st-Mao Reforms, 196-219; Anita Chan and Roben Senser, "China's Troubled Workers," Foreign Affairs 76(2) (1997): 104-117. 64. See Xueguang Zhou, "U nor gan ized Interests and Collective Action m Communist China," American Sociological Review 58 ( 1) ( 1993): 54-7 3. -- 241 of 306 -- 230 Notes to Pages 17-21 1. Why Transitions Get Trapped 1. S ee Seymour Martin Lip set, "Some Social Requisites of D emocracy : Economic Develo pm ent a nd Political L egitimacy," American Political Science Review 53 ( 1) (March 1959): 69 -10 5; Barrington Moore, Social Ori- gins of Dictatorship and Democracy: Lord and Peasant in the Making of the Modern World (Boston: Beacon Press, 1966 ); Dietrich Ru esc hemeyer, Evelyne Huber Stephens , andjohn Stephens , Capitalist Develop ment and D emocracy (Chicago: U ni versity of Chicago Press, 1992); R obert Dahl, Polyarchy: Participation and Opposition (New H aven , Co nn .: Yale U niversity Press, 1971). 2. Samuel Huntington, The Third Wave: Democratization in the Late Twentieth Century (Norman, Okla.: U ni versityofOklahom a Press, 1991 ), 62-6 4. 3. According to the World Ba nk, Chinese per cap ita GDP in pur ch as ing power p ar ity terms r eac hed $ 1,150 in 1987 a nd $3,617 in 1999 . 4. Adam Przeworski et al. argue that the Ievel of eco no mi c developm e nt is a poor predictor of democratic transition. See Adam Przeworski, Michae l Alvarez, Jos e Antonio Ch e ibub, and Fern an do Limongi, Democracy an d Development: Political Institutions and Well-Being in the World, 1950-1 990 (New York: Garnbridge U niversity Press, 2000) . 5. Guillermo O'Donnell a nd Philippe Schmitter, Transitions fromAuthoritar- ian Rute: Tentative Conclusions about Uncertain D em ocracies (Baltimore , Md.: Johns Hopkins University Press, 1986). 6. Mikhail Gorbachev turned to glasnost in 1986 on ly after he en co untered s trong resistance for perestroika. 7. Economi c g rowth in 1986 fell by almost 5 percent from 1985, ZGTJNJ 2002,53 . 8. Steven So lni ck used this " bank run" metaphor to ana lyze the co ll apse of the po litical institutions in th e former Soviet U nion. See Solnick , Stealing the State: Control and Collapse in Soviet Institutions (Ca mbridge , Mass.: Hanrard University Press, 1999) . 9. Man y hi g h-ranking offleials caught for corruption were superstitious. They typically hired fortu ne-tellers to forecast th eir chances of promotion. In a news story on Hunan , the official news agency, X inhu a , reported that all the provincia l department heads pros ec uted for corruption betwe en 2001 a nd 2004 had retained fortune-tellers or "m asters." www.xi nhu anet .com, July 14, 2 00 4. Sh ao D aos h en g, "Gaoguan f ub ai yu xinyang weiji" (Corruption by Senior Officials and Crisis of Faith), www.cas.ac.cn/ html/Dir / 2003/ 11 / 11/ 4484 .h tm. 10. These confessi ons were quoted in www.c hi narefo rm. org / cn / c irdbbs / -- 242 of 306 -- N otes to Pages 21-23 231 dispbbs oas p?boardiD= 6& 0D = 2083; wwwo c hin anewsocomocn , November 14, 200 30 11. Ac co rdin g to th e d ata provid ed by th e CCP CO D in 2004 , 14 p erce nt of the coun ty-l evel offleials were abou t t hi rty-flve, 13 per ce n t of th e offl eials at th e ci ty/ pre fect Ieve l were a bou t fortyo wwwoc hin an ewsoco mo cn , May 19, 20040 120 newsoxinhuanetocom/ leg al/2 004-02/17, Feb ruary 17, 2004 0 130 The most comprehensive r eview ofthis Iitera tu re is Gerard Roland , Tran- sition and Economics : Politics, Market s, and Firms (Cambrid ge, Masso : M IT Press, 2000) 0 1 40 See Ma thi as Dewat ripont a nd Gerard Rol and, "Th e Vi rtues of Gradualism and L egitimacy in the Tran sition to a Market Economy," Th e Economic Journa l 10 2 (1992): 291- 3 00 ; Lawrence Lau , Yingyi Qian , and Ger a rd Roland , "Re form without L os ers: An Inte rpreta tion of C hin a's Du a l- Tr ack Ap pr oach to Tr ansition ," Jou rn al ofPoliticalEconomy 108(1) (2000): 12 0- 1430 150See Pe t er Mu rre ll, "What Is Sh oc k The rapy? Wh at Did It Do in Pola nd and Ru ss ia?" Post-Soviet Affairs 9 (2) (1993): 111- 140; Gerard Ro la nd , "Th e Political Economy of Trans ition " (Departm e nt of Economi cs, U niversity of Califo rnia, Berkeley, 2001 ) , 70 160William Byr d, "Th e Imp act of th e Two-Tier Plan / M ar k et System in C hi nese In d ustry," Journal ofComparativeEconomics 11 (3) (1987): 295- 3080 170 Shan gj in Wei, "Gradualism Versus BigBang : Sp ee d and Sustain ab ility of Reform s," Canadian Journal ofEconomics 30 ( 4) ( 1997): 1234-1 24 7; Mathi as Dewa tripont and Gerard Rola nd, "T he De sign of Reform P ac k ages un- der Uncert ainty," AmericanEconomic R eview85(5) (1995): 1207 -1 2230 180S ee T ho m as Wolf, "T he Lesson s of L imited Market-Ori en te d R eform ," Journa l ofEconomic Perspectives 5( 4) (199 1 ): 45 - 58 ; Ri ch ar d Erics on , "Th e Classical Soviet-type Economy : N ature of th e System and lm pli cations for Reform ," Journal ofEconomic Perspectives 5(4) (199 1) : 11-280 190Jinos Kornai, The Road to a Fr-ee Economy: Sh ifting from a Socialist System: the Example of Hun gary ( New York:Wo Wo N orto n , 199 0)0 200 See David L ip ton a nd J effrey Sac hs , "C r ea tin g a Mark et Economy in Easte rn E ur ope : Th e Gase of Pola nd ," Brookings Papers on Economic Activity 1 (1990): 99- 1030 21. See Kevin Murp h y, Andrei Shl eifer, an d R obert Vish ny, "The Transition to a Ma rk et E co n omy: Pitfalls of P ar tial Reform ," The Quarterly J ournal of Economics 5 7( 3) (1 992): 889-90 6; Alwy n Yo un g, "T he Ra zor 's Ed ge : Dist onion s a nd I ncre m e ntal R eform in th e P eop le's Re publi c of Ch i na, " The Quarterly J ournal ofEconomics 65 (4) ( 2000) : 109 1-11 35 0 -- 243 of 306 -- 232 Notes to Pages 24-26 22. Wu Jinglian , "Zhongguo gaige de huigu yu qianzhan" (A Review of and Forward Look at China's Reform),Jingji shehui tizhi bijiao 2 (2000): 2. 23. See Lardy, "When Will China's Financial System Meet China 's Needs?" 24. Bruce Dickson's study shows that the CCP has been successful in co- opting entrepreneurs. Bruce Dickson, Chinas Red Capitalists: The Party, Private Entrepreneurs, and the Prospects for Political Change (New York: Cambridge University Press, 2003). 25. Thomas Rawski, "Reforming China's Economy: What Have We Learned?" The ChinaJournal41 (1999) : 153. Among the mo st influential studies en- dorsing China's approach, see Barry Naughton, Growing Out of the Plan: Chinese Economic Reform, 1978-1993 (New York: Cambridge University Press, 1995); Nicholas Hope, Dennis Tao Yang, and Mu Yang Li, eds., How Far Across the River: Chinese Policy Refmm at the Millennium (Stanford, Calif.: Stanford University Press, 2003); Lau , Qian, and Roland , " Reform Without Losers," 120-143; Alan Gelb, Gary Jefferso n, and Inderjit Singh, "Can Communist Economies Transform Increm entally? The Exp e rience of China ," NBER Macro economics Annual 1993 (Cambridge , Mass.: MIT Pr ess, 1993), 86-133. Fora sample review of the Iit erature by Chi n ese economists, see Wu Jinglian , " Zhongguo gaige de huigu yu qianzhan"; Lin Yifu, Cai Fang, and Li Zhou, "Weishemme Zhongguo jingji gaige qudele chenggong?"(Why Is China's Economic Reform Succe ss ful?), Jingji shehui tizhi bijiao 4 (1995): 28-36; Zhao Renwei, "Dui woguo jingji gaige ersh inian d e ruogan sikao" (Seve ral Thoughts on Twe nty Years of Economic Re form in C hina) ,Jingji shehui tizhi bijiao 3 (1999) : 9- 16; Fan Gang,Jianjin gaige de zhengzhi ji ngjixue fenxi (A PoliticalEconomy Analysis of Gradual Reform) (Shanghai: Yuandong chubanshe , 1996). 26. Roland , Transition andEconomi cs. 27. Byrd, "Th e Impact of the Two-Ti er Plan/Market System," 295-308; Yingyi Qian, " How Refo rm Worked in China ," in Dani Rod rik, ed. , In Search of Prosp erity: Analytical Narrati ves on Economic C"Trowth (Princ e ton, N J.: Pr inc e- ton University Pr ess, 2003), 297-333; Rawski, " Reforming China's Econ- omy," 137-156. 28. Lau, Qian, and Roland , "Reform Without Losers." 29. William Byrd a nd Qingsong Lin, eds ., China's Rurallndustry: Stru cture, D eve loprnen t, and Reform (N ew York: Oxford University Press, 1990) ; Jianhua Che and Yingyi Qian, "Inse cure Property Rig hts and Govern- ment Ownership of Firms ," Quarterly Journa l of Economics 11 3 (2) (1998) : 46 7- 496 ; Jianhua Che and Yingyi Qian, " Institution al Environment, Community Government , and Corpm-ate Governance: Understanding China 's Township -Viil age Enterprises," Journal of Law, Economics and Org an ization 14(1) (1998) : 1-23;Jean Chun Oi , Rural China Takes Off -- 244 of 306 -- Notes to Pages 26-28 233 Institutional Foundations of Economic Reform (Berkeley: University of Cali- fornia Press, 1999) ;Jean Oi and Andrew Walder, eds., Property Rights an d Economic Reform in China (Stanford, Calif.: Stanford University Press, 1999). 30. Susan Shirk provid es an insightful analysis ofhow China's political struc- ture facilitates th e making of reform polices in The Political Logic of Eco- nomic Reform in China (Berkeley: University of California Press, 1993). For a discussion of industrial organizational structure and its effects on China's reform , see Yingyi Qian and Chenggang Xu, "Why China's Economic Re- forms Differ: The M-form Hierarchy and Entry/ Expansion of the No n- state Sector," Economics ofTmnsition 1(2) (1993): 135-170 ;Jeffrey Sachs and Wing Thye Woo, "Structural Factors in the Economi c Re forms of China, Eastern Europe, and the Former Soviet Union," Economic Policy 18 (1994): 102-145. 31. See John McMillan,John Whalley, and Lijing Zhu , "The Impact of China's Economic Reforms on Agricultural Productivity Growth," Journal of Politi- calEconomy 97 (1989): 781-807;Justin Yifu Lin , " Rural Reformsand Agri- c ultural Growth in Ch ina ," American Economic Review 82 (1) (1992): 3 4-51. Jean Oi argues that th e alignm e nt of the interests of l ocal govern - ments with new rural industries produced the political coalition critical to the rapid growth of the manufacturing indu stries in rural China. Oi , Rural China Takes Off 32. See Naughton, Growing Out of thePlan . 33. Lardy, Chinas Unfinished Economic Revolution; Christoph Duen wa ld and Jahangir Aziz, "The Growth-Financial Development Ne xus ," in Tseng and Rodlauer, eds., China: Competing in the Global Economy, 52 -67 ; J ames Daniel et al., "Medium-Term Fiscal Issues," in Tseng and Rodlauer eds., China: Competing in the Global Economy. 34 . Sachs and Woo, "Structural Factars in the Economic Reform s"; J effrey Sachs and Wing Thye Woo , " Und erstanding C hina's Economi c P erfor- manc e ," Warking Paper No. 1793 (Cambridge, Mass.: H arvard In stitu te for Inte rnational Deve lopment, 1997). 35. Young , "The Razor's Edge ." 36. J effre y Sachs, Wing Th ye Woo, and Xiaokai Yang, "Economic R eformsand Constitutio nal Transition," S oc ial Science Research Network Electronic Paper Coll ec tion , Social Sc ien ce El ec troni c Publishing In c., p apers. ssrn. co m / pap er.ta f?abstrac t_id +254110. 3 7. For a few repr e sentative works th at evaluate China's a ppro ac h , see Wu Jinglian , " Zhongguo gaige de huigu yu qianzhan "; Fan Gang,Jianjin gaige de zhengzhi jingjixue fenxi; Zhao Renwei, "Dui woguo jingji gaige ershin- ian de ruogan sikao," 9-16 ; Li Jingwen , "Z hon gguo jingji fazhan qianli fenxi yu yuce" (An An alysis a nd For ecast of C hin a Economic Devel op - -- 245 of 306 -- 234 Not es to Pages 28-34 ment Potential), Zhongguo sh eh ui kexue jikan (Chinese Social Science Quarc ter.Zy) 26 (1999): 32-44; DRC, " Zhongguo jingji fazhan de jieduan xin g bianhua, mianlin de wenti h e fazhan de qianjing" (Changes in th e State of the C hin ese Economy, Its Probl e ms and Prosp ec ts for Deve lopm e nt) , J ingji yaocan (Import an t Economic Referen ce ) 1303 (August 29, 2002) : 2- 24 . 38. DRC, "Zhongguo jingji fazhan de jieduan xing bianhua," 11. 39. Wu cites that the state-own ed sector, which in the late 1990s contributed one-third of China's GDP, and used about two-thirds of the capital. Wu Jinglian , " Zhongguo gaige de huigu yu qianzhan ," 2. 40. Fan Gan g,jianjin gaige de zhengzhi jingjixue fen xi, 165 -167. 41. Renmin ribao (People 's Daily), October 21 , 2003, 1. 42. Wu Jinglian 's views were summarized in a ne ws story, www.chinanews. com.cn , March 4, 2001. 43. The interviewwith Wu was printed on www.chinanews.com.cn, March 1, 2003. 44. Roland , Transition andEconomics, 12-1 3. 45. A big-bang approach is defined as in corporating not just stabilization, but also lib eraliz ation , privatization, and major institutional reforms. See the World Bank, The World Development Report 1 996: From Plan to Market (Washing ton , D.C.: World Bank , 1996). 46. Alvaro Martfnez a nd Javier Diaz, Chile: Th e Grea t Transformation (Wash- ington , D.C .: Brookings In stitutio n Press, 1996 ) . 4 7. Zhongguo caizheng nianjian 2002 (Fiscal Yearbook of China) (Beijing: Z hong- guo ca izh e ng zazhish e, 2002), 394. 48. www.chinanews.com.cn, October 20, 2003, andJune 3, 2004 . Dangzheng ganbu wenzhai (Digestfor-Par-ty and Govemrnent Officials) 6 (2002) : 48. 49. www.chinane ws.com.cn,Jun e 25, 2004. 50. Mary Gallagh er, "Reform a nd Openn ess: Why China 's Eco no mic Reforms Have Delayed De mocracy," World Politics 54 (3) (2002): 338- 372. 51. Yas h e ng Hu ang, Selling China: Foreign Direct Investment D uring the Refor-m Era (New York: Cambridge University Pr ess, 2003). 52. Dickson, China's Red Capitalists. 53. Th e argume nt for the section on th e predatory st ate was initi ally d eve l- oped in Minxin Pei, "Ro tten from Within: D ecentralized Pred atio n and Incapacitated State ," in T.V. Pa ul , J o hn Ike nb erry, and J o hn H all, eds., Th e Nation-Stale in Qu estion ( Prin ceto n, N J. : Princeton Un ivers ity Pr ess, 2003) , 321- 349. 54. S ee Ch a lm ers Johnson, MIT! and the J apanese Mirade (Stanford , Calif.: Stanfm-d University Pre ss, 1982 ); Step h an H aggard, Pathways from the Pe- riphery: Th e Politics of Growth in the N ew ly Industrialized Coun tries ( Ith aca, N.Y. : Corne ll University Press, 1990) ; R oben Wa d e, Governing the Ma r-ket: -- 246 of 306 -- Note s to Pages 3 4-36 235 Economic Theory and the Role of Government in East Asian Industrialization (Princeton, NJ.: Princeton University Press, 1990); Alice H. Amsde n, Asia 's Next Giant: South Kor -ea and Late Ind ustrialization (N ew York: Oxford University Press, 1989). 55. See the World Bank, Th e East Asian Miracle: Econ omic Growth and Public Policy (New York: Oxford U niversity Press, 1993 ). 56. Wade, Governing the Market, 372-373. 57. See Barry Sautman's "Siren s ofthe Strongman: Neo-Authoritarianism in Recent Chinese Political Th eory," The China Quarterly 129 ( 1992): 72-102. 58. Zhao Ziyang r ec alled this conversation whe n h e was interviewed by a respected veteran Chinesejoumalist, Yang Jish en g, on October 29, 1996, in his residence in Beijing . Although Zhao hirnse lfwas rum ore d tob e an advocate of neoauthoritari a nism in the late 1980s, Zhao told Yang that he did not know this concept or its main intell ectual propon ent at the time , a res e archer in th e CCP Ce ntr al Committee 's Sen-etariat ca lled Wu Jiaxi ang. Se e Yang Jish e ng, Zhongguo gaig-e nian dai de zhengzhi dou:z heng (Political Struggle During the Reform Era in China) (Hong Kong: Exce ll ent C ulture Pr ess, 2005) , 589 . 59. See Andrei Shleifer and Robert W. Vishny, Th e C'Habbing Hand : Go vernment Pathologiesa nd Their Cu res (Cambridge, Mass.: H arvard University P res s, 1998). 60. P ete r Evans, Embedded Autonomy: States and I ndustrial Transformat io n (Princeton, NJ. : Princeton University Press, 1995) . 6 1. lbid., 248. 62. Adam Przeworski and Femando Limon gi, "Political Regimes a nd Economic Growth," Jo urnal ofEconomic Perspectives 2(3) (1993) : 65 . 63. We may includ e South Kor ea, Singapore, Tai wan , Hong Kon g, Malays ia, and Thailand. Outside East Asia, on ly Ch ile may qu alify. 64. See Douglass N or th , Structure and Change in Economic History (N ew Yo rk: Norton, 1981), 2 0- 32. 65. See Dou glass No rth , Institutions, Inst itu lianal Change and Economic Performance (New York: Garnbridge U niversity Press, 1990 ); Thr ain n Eggertsson , Economic Behavior and Institutions (Cambridge: Garnbrid ge University Press, 1990). The in stitution alist approachspurred a flurr y of researc h on r egim e typ es a nd econo mi c growth . The re prese n tative works includ e M ar tin McGuire a nd M anc u r Ol so n, "The Economics of Au toc racy a nd Maj ori ty Rule: TheInvisible Hand a nd the Use ofForce ," Journal ofEconomic Literature 34 ( 1996): 72- 96 ; Robert B arro , "De mocracy a nd Growth ," Journal ofEcono mi c C'Howth 1(1 ) (1996) : 1-27; R oben Per- o tti, "G rowth, Incom e Distribution, an d Democracy: Wh at the D ata Say, " Journal of Economic C'ffowth 1 (1) (1996) : 1 49 -1 87; Chr istoph er Cl ague -- 247 of 306 -- 236 Notes to Pages 36 -38 et al., "Pro perty and Contract Rights in Autocracies and Democracies," JournalofEconomic Growth 1(1 ) (1996): 243-2 76 . 66. The best e xample is th e World Bank's World D eve lopment Repart 1 997: The State and Development (Washington , D. C.: World Bank , 1998). 67. North , Stru.cture and Change, 20. 68. See Shleifer and Vishn y, The Grabbing Hand. 69. Both North and Olson made this point. See Nort h , Structure and Ch an ge, 21-24; Mar1eur Olson , "D ict ato rship, Democ racy, and Development," American Political Science Review 87 (3) (1993) : 567-5 76. 70. Susan Rose-Ackerman, Corruption and Government: Caus es, Consequences, andReform (C ambridge : Cambridge University Pr ess, 1999) , 114-121. 71. Olson , " Dictatorship, Democracy, and Development." 72. Eggertsson , Economic Behavior and Institutions, 323. 73. Margaret Levi, Of Rule and Revenue (Berkeley: University of California Press, 1988 ). 74. Olson , " Dict a torship, De mocracy, a nd Developm ent." 75. North , for exampl e , saw age ncy costs as a serious constraint on the ruler 's ab ility to take full advantage of his m o nopali st position. Eggertsson, Economic Behavior and Inst itutions, 324. 76. Andrei Shleifer and Robert Vishny, "Corruption, " The Quarterly ]o urna l of Economics 58(3) (1993): 599-617. 77. Th e theoretical distin c tion b etw ee n pr e dation a nd corruption ca n be hop elessly blurr ed in reality b ecaus e of th e age ncy problem . A fu lly disciplinary pred a tor y state does n o t exist in practice . Divers ion of revenues co lle cted in the name of the state into t he pockets ofthe agents is a common form of corruption. In theo ry, the degree of corruption in a predatory state h eavily d epe nds on th e de gr ee of centralization. In more centra liz ed predatory sta te in which agents are tightly moni tore d , th e re shou ld be less corruption or loss of th e state 's revenue. 78. See Paul Seabright, "Accountability a nd D ece ntralis atio n in Govern- ment: An In co mpl ete Co ntr ac ts Mod el," European Econamic Review 40 (1996) : 61-75; Emanuel a Carbonara, "Corruption and Decentralization," Universita di Bologna Dipartim e nto di Scienze Econom ich e WP 342/ 83, www.s pbo .unibo.it/ gapher / DSEC/ vecchind ex. htm . 79. David Wi ld as in , "C om m e nts on 'Fiscal F ederalism a nd D ece ntralization: A Revi ew of Som e Efficiency and M acroeco nomi c Asp ects, "' in M. Bruno a nd B. Pl eskovic, eds., Annual World Conference on Development Economics, 1995 (Washington, D.C.: World Ba nk, 1996). 80. Van Rijck egh em and B eatri ce Weder, "Corrupti on a nd the Rate o fTe mp- tation: Do Low Wages in th e Civil Ser vice Cause Corrupt ion? " I MF Wark- ing Paper WP/97/73 (Washington , D.C.: IMF, 1997) . -- 248 of 306 -- Notes to Pages 38-42 237 81. Vito Tanzi, "Corruption, Arm's Length Relationships, and Markets," in Gianluca Fiorentini and Sam Peltzman, eds., Th e Economics of Organized Crime (Cambridge: Cambridge University Press, 1995), 161-180. 82. Shleifer and Vishny made this argument in " Corruption"; seealso Olivier Blanchard and Andrei Shleifer, "F edera lism with a nd without Political Centralization: China Versus Russia," NBER Warking Paper No. 7616, www.nber.org/papers/w7616. 83. Carbonara and Seabright assume that local offleials are constrained by the monitaring of civil society and an independent judiciary. In fact , Gur- gur a nd Shah acknowledged that decentralization without strongjudicial and political control mechanisms willlead to increased corruption . 84. Hellman, "Winners Take All," 203-234. 85. Michael McFaul, "State Power, Institutional Change, and the Politics of Privatization in Russia," World Politics 4 7 (2) ( 1995): 21 0-243; Federico Varese, "The Transition to the Market and Corruption in Po st-socialist Russia," Political Studies 45(3) (1997): 579-596. 86. Steven Solnick, "The Breakdown ofHierarchies in the Soviet Union and China: A Neoinstitutional Perspective," World Politics 48(2) (1996) : 209-238. 87. See United Nations, Human Development Report 1994 (New York: Oxford University Press, 1994). 88. Hellman , "Winn ers Take All." Also see Joel Hellman, Geraint Jones , Daniel Kaufmann , and Mark Schankerman , " Measuring Governance , Corruption, and State Capture," World Bank Policy Research Warhing Paper No. 2312 (Washington, D.C.: World Bank, 2000) ; Ase Brodeland , Ta tyana Koshechkina, and William Miller, "Foolish to Give and Yet More Foolish Not to Take-In-depth Interviews with Post-communist Citizens on Their Everyday Use of Bribes and Contacts," Europe-Asia Studies 50(4) (1998) : 651- 677 . 89. See Janos Kornai, The Political Economy of State Socialism (Princ eton, N J.: Princeton U niversity Press, 1990) . 90. For a study of asset-stripping by state agents in China, see X . L. Ding, "The Illicit Asset Stripping of Chinese State Firms," The China jou rna l43 (2000) : 1-28 . 91. lbid. 92. X. L. Ding's investigation shows that Chinese manag er s have diverted a significant amount of state weal th into privat e overseas holdings . See Ding, "Informal Privatization Through Internatio nalization : The Rise ofNomenklatura Capitalism in China's Offshore Businesses," Britishjour- nal of Political Science 30 ( 1) ( 2000) : 121-146. 93 . North , Stru cture and Change, 45- 58. -- 249 of 306 -- 238 Notes to Pages 45-50 2. Democratizing China? l. The most detailed and perc eptive analysis of the political aftermath of Tiananmen and th e CCP 's respons e to it is provided by Joseph Fewsmith, China Since Tiananmen: The Politics of Transition (New York: Garnbridge University Press, 2001). 2. According to Pang Xianzhi , a senior official in the party's history research department, Deng initially raised the issue of political reform after his return to power mainl y to avoid another C ultural Revolution . Wu Guoguang , Zhao Ziyang yu zhengzhi gaige (Political Ref~mn under Zhao Ziy ang) (Taipei: Yuanjing Publishing Co ., 1997), 61 . 3. lbid. 486 . 4. Deng Xiaoping, "Dang he guojia lingdao zhidu de gaige" (On the Re- form of the System of Party and the State Leadership), Deng Xiaop ing wenxuan, 1975-1982 (Selected Works of Deng Xiaoping) (Beijing: R enm in c hubanshe, 1983),280-302 . 5. Ibid. , 283-300 . 6. lbid., 301. 7. Wu Guoguang, Zhao Ziyangyu zhengzhi gaige, 438. 8. Deng Xiaoping, "Zai tingqu jingji qingkuang huibao shide tanhua " (Re- marks on the Domestic Economic Situation) , Deng Xiaoping wenxuan, vol. 3 (S elected Works of Deng Xiaoping) (Beijing: Renmin chuban she , 1993) , 160 . 9. De ng Xiaoping, "Guanyu zhengzhi tizhi ga ige wenti" (On Re form ofthe Political Structure), Deng Xiaoping wenxuan, vol. 3, 176-177. 10. lbid. 11. lbid. 12. Deng Xiaoping , 'Jiefang sixiang, shishi qiushi, tuanjie yizhi xiangqian kan " (Emancipate the Mind , S ee k Truth From Fac tsand Un ite AsOnein Looking to the Future) , Deng Xiaoping wenxuan, 1975-1982, 134-13 5. 13. Wu Guogu ang, a m e mb er ofthe task for ce , publi sh ed his recollections of the task force's work in Zhao Ziyang yu zhengzhi gaige, which remains the most authoritative account of how China's ruling elites debated political reform. According to Wu , th e Standing Committee of the Politburo decid ed in Se pt e mb er 1986 to set up the task force . Its mand at ewas to produ ce a do c ument on political reform be fore June-July 1987; it was to be discussed and approved at the 7th pl enu m in August- September 1987 and made public at the 13th Congress in October 1987. Wu Guoguang, Zhao Ziya ng yu zhengzhi gaige, 20-21. 14. lbid., 20. 15. lbid ., 20 , 158- 159. -- 250 of 306 -- Notes to Pages 51-58 239 16. lbid., 73, 86, 102-114. 17. lbid., 86. 18. lbid. , 210. In the Chinese original, dangzheng Jenkai can m ean the separation of the party from the go vernment. 19. Bao Tong argued that dangzheng Jenkai would en hanc e th e leadership and authority of the party, establish a normal political order, and in- crease administrative efficiency. Wu Guoguang , Zhao Ziyang yu zhengzhi gaige, 139. 20. lbid., 150. 21. lbid., 161-162. 22. lbid., 259, 304, 339. 23. lbid., 159, 274. 24. lbid., 263-265. 25.Ibid., 163,28 6-288,314 ,286,38 8-389. 26. lbid. , 297, 290. 27. lbid ., 161-162 , 214. 28. Ibid., 58. 29. lbid., 91-92. 30. lbid. , 385. 31. lbid. , 153. 32. lbid. , 386. Zhao was open-minded. He endorsed the assertiveness dis- played by the NPC in the passage of two laws. " It takes time to get a good deed done . This time , the NPC was not a rubber stamp on the passage of the Bankruptcy Law a nd the Mining Law. This ha s made the laws better." Wu Guoguang, Zhao Ziyang yu zhengzhi gaige, 275. 33. lbid., 384, 394, 443, 422. 34. Fewsmith, China Since Tiananmen. 35. Zhao's comments were revealed by his family friend, Wang Yangsheng, in an article in memory ofZhao, published in Mingpao,]anuary 30, 2005, A4. 36. See Tanner, The Politics of Lawmaking in Post-Mao China; Dowdle, "The Constitutional Development and Operations of the National People's Congress ," 1-123. 37. The docility of the NPC is fully described in Kevin O'Brien , Reform without Liberalization: Chinas National People s Congress and the Politics of In- stitutional Change (New York: Garnbridge University Press, 1990) . 38. lbid. 39. Ying Songnian and Yuan Shuhong, Zoux iang fazhi zhengfu ( Toward a Govemment of Rule of Law) (Beijing: Falü chuban she, 2001) , 410. 40. Stanley Lubman, "Bird in a Cage: Chinese Law Reform After Twenty Years," Northwestern Journal of International Law and Business 20 (2000): 383-423 . -- 251 of 306 -- 240 Notes to Pages 59-63 41. Tanner, The Politics of Lawmaking in Post-Mao China. 42. Falüyush enghuo (Law andLife) 10 (2003): 2. 43. Ying and Yuan, Zouxiangjazhi zhengfu, 394-395. 44. www.chinanews.com.cn, April 18, 2004. 45. Shidaizhuren (Masterofthe Times) 7 (1999): 23. 46. Dowdle, "The Constitutional Development and Operations of the National People's Congress," 2; Renmin zhiyou (P eop le's Friends) 9 (1999): 16-17. 47. At the second session ofthe 9 th Congress in 1999, 22 percent ofthe del- egates vote d against the reports of the two top judicial organs. The only instance in which a major work report was voted down by the legislative branch occurred in 2001 when Shenyang's People 's Congress refused to endorse the work report of the city's corruption-plagued intermediate court. The incident shocked the country but had no real political impact. 48. See Young-Nam Cho, "From ' Rubber Stamps' to 'Iron Stamps': The Emergence of Chinese Loc al People's Gongresses as Supervisory Power- hauses," The China Quarterly 171 (2002): 724-740. 49. Kevin O'Brien, "Agents and Remonstrators: RoJe Accumulation by Chinese People's Congress Deputies," The China Quarterly 138 (1994): 359-380. 50. Minzhu yu Jazhi (Demo cracy and Legal System) 20 (2000): 7-9. 51. Renmin zhiyou 11 (1999): 10-11. 52. NFZM, January 23, 2001 ; www.chinanewsweek.com .cn , September 20, 2004. 53. Renminzhiyou8 (1999): 10-11. 54. Renmin zhiyou 10 (1999): 42. 55. CCP Liaoning POD, "Gaijin difang re nda zhengfu lingdao banzi hu anjie xua1-üu gongzuo de ym'Uiu baogao" (A Research Report on lmproving th e Work of Electing Local People's Congress and Administrative Leaderships), in ZGYW 1999, 688-689 . 56. Hangzhou CCP Organization Department, "Shixian renda he zh engfu lingdao banzi hua1'Uie xuanju wenti yanjiu" (A Study on the Issue of the Elections of the Leaderships of [Municipal and Cou nty] People 's Co n- gress and Governments), in ZGYW 1997, 277. 57. Renda go ngzuo tongxun (NPC Work Newsletter) 15 (1997) : 8. 58. ZGYW 1999, 693. 59. ZGYW 1977, 277, 280-2 89, 299. 60. NFZM, February 20, 2003. 61. Dowdle, "The Constitutional Development a nd Operations of the National People's Congress," 2. 62. Rendagongzuo tongxun 24 (1998): 11. -- 252 of 306 -- Notes to Pages 63-67 241 63. NFZM, April 3, 2003. 64. Liu Zhi et al., Shuju xuanju: Renda daibiaa xuanju tangji yanjiu (ElectianData: A Study af the Electians afPeople 's Cangress Deputies) (Beijing: Zhongguo she- hui kexue chubanshe, 2001), 337. 65. Liu Zhi e t al., Shuju xuanju, 340, 350, 366 . 66. Barrett McCormick, "China's Leninist Parliament and Public Sphere: A Comparative Analysis," in Barrett McCormick and Jonathan Unger, eds., China After Leninism: In the Faatsteps afEastern Europe or East Asia? (Ar- monk , N.Y.: M. E. Sharpe, 1996), 29-53. 67. Kevin O'Brien, "Chinese People's Congress and Legislative Embeddedness: Understanding Early Organizational Development," Camparalive Palitical Studies 27 (1) (1994): 80-109. 68. Among the most important works on this subject are Potter, Damestic Law Reforms in Past-Maa China; Lubman, China 's Legal Reforms; Lubm an, Bird in a Gage; and Randall Peerenboom, China's Lang March taward Rule af L aw (NewYork: Garnbridge University Press, 2002);J ianfu Ch en , Yuwen Li, andJan Michiel Otto, eds. , Implementatian afLaw in the Peaple 's Republic af China (The Hague: Kluwer Law International , 2002). 69. Peerenboom, China 's Lang March, 6-8, 558. 70. Yuwen Li, "Court Reform in China: Problems , Progress and Pro spects ," in Chen , Li, and Otto, eds ., Implementatian af Law, 55-83. 71. Deng Xiaoping, ' Jiefang sixiang ," 136. 72. William Alford , "Seek Truth from Facts-Especially When Th ey Are Unpleasant: Am e rica 's Understand in g of China's Efforts at Law Reform ," PacificLawReview8(177) (1990): 181. 73. Cai Dingjian, "Development ofthe Chinese Legal System since 1979 and Its Current Crisis and Transformation," CulturalDynamics 11(2 ) (1999): 135-166 . 74. William Alford, "Doubl e-edged Swords Cut Both Ways: Law and L egitimacy in th e People 's Republic ofChina," Daedalus 122(2) (199 3): 45- 69. 75. Lubman , Bird in a Gage, 298. 76. Lubman , "Bird in a Cage ," 383- 423. 77. See Gong Xiangrui, ed ., Fazhi de lixiang yu xianshi ( The Ideal and Reality af the Rule af Law) (Beijing: Zhongguo zhengfa d axue chubanshe , 1993); also see Minxin Pei, "Citizens v. Ma ndarins: Administrative Litigation in China ," Th e China Quarterly 152 (1997): 832-862; Kevin O'Brien and Lianjiang Li, "Suing the Local State: Administrative Litigation in Rural China, " Th e China jaurn a/51 (2004) : 75-95; for a study of commercial dis- putes in China, see Minxin Pei, "Legal Reform and Secure Commercial Transactions: Evidence from China," in Pe ter Murrell, ed. , Assessing the -- 253 of 306 -- 242 Notes to Pages 67-71 Value of Law in Transition Economies (Ann Arbor: University of Michigan Press, 2001), 180-210. 78. Of the 220,000 judges in the country in 2003, 82,764 had college degrees and 3,774 had graduate degrees. www.chinanews.com.cn, April4, 2003. 79. Renmin sifa (Peop!e'sjudiciary) 9 (2001): 8; NFZM,July 11, 2002 ; Renmin sifa5 (1999): 19. 80. Calculated from data supplied by ZGFLNJ, various years. 81. Lawyers Committee for Human Rights, Lawy ers in China: Obstades to Independence and the Defense of Rights (New York: Lawyers Committee for Human Rights, 1998). 82. Minzhu yufazhi 2 (1999): 13. 83. www.chinanews.com.cn, April 4, 2003. 84. Renminsifa5 (1999): 16. 85. Among the institutional fla ws listed by He and Zhang were the appoint- ment ofnonjudges to head Io cal courts; the int erfe rence by pres ident s of courts and chiefs of tribunal s in cases the y do n ot preside over ; the strange pr actice ofrenderingjudgments without trying the cases by trial comm ittees ; the Iack of ind ependence between sup elior and subordinate courts; the courts' dependence on local budgets; the overlapping of courts ' jurisdictions with local governments' jurisdictions (a source of local protectionism); and th e court's weak enforce ment capacity. He and Zhang offered many reform proposals. www.chinanews.com.cn , December 4, 2004. 86. For exa mpl e , proposed court reforms , summarized in the Supreme Peo- ple's Court's Five-Year Program to Reform the System of People 's Courts issued in October 1999, did not deal with the fundamental institutional flaws in the l egal system. In stea d , these me as ur es focused on trial proce- dures , reorganization of the internal structures of courts, personnel management of the courts , and improved supervision. 87. Li, "Cour t R eform in Chi n a." 88. Renminsifa6 (1999): 31. 89. For an excellent discussion of how these in stitutional flaws weaken judicial ind epe nd e nce , see Cai Dingjian, "F ayuan zhidu ga ig e zh ouyi" (On Reforming the Court System), Zhanlüe y uguanli 1 (1999): 97-101. 90. In one basic-Ievel court in Jiangsu, of the fift ee n members of th e trial committee, two were high school graduates a nd two had only a middle- school education . Renminsifa2 (2001) : 21. 91. Renmin sifa 5 (1999): 20 . 92.Jianfu Chen, "Mission Impossible: Judi cial Efforts to Enforce Civil Judgments and Rulings in China," in Chen , Li, and Otto eds., Imp lemen ta- tion ofLaw, 85-111. -- 254 of 306 -- Notes to Pages 71-73 243 93. Cai Dingjian singled out corruption as one of the most serious problems in China's legal system. See Cai, "Development of the Chinese Legal System," 135-166. 94. www.chinanews.com.cn,January 26, 2004. 95. www.chinanewswee k.com.cn , April19, 200 4. 96. www.chinanews.com.cn, August 21, 2004; October 10, 2004; December 19,2004. 97. See Donald C. Clarke, "Power and Politics in the Chinese Court Syste m: The Enforcement of CivilJudgments," Columbiajoumal of Asian La w 10 (1996): 1-92. 98. Even th e inflat ed official e nforce m e nt rate (p e rcentage of judgme nts actuall y executed) feil from 75 percent in 1995 to 68 per ce nt in 1997. Chen, "Mission Impossible ," 85-111. 99. Cai Dingjian, "Fayuan zhidu gaige zhouyi." 100. This senti mentwas refle cted in an article written by the division c hi ef of the re search office of the Supreme P eop le's Court. H e as ked two im- portant questions : why did s ome "seriously unqualified" individuals be- co m e judges and even obtain se nior judicial appointments? and why have courts degenerated into a local bureaucracy solely intere sted in pursuing local interests ? He concluded that China's judicial system requires " major surgery." See Jiang Huilin g, " Zhongguo sifa zhidu xuyao dong d a shoushu" (China 's Judicial System Re quir es Major Surgery), www.caijing.com. cn , August 20, 2004 . 101. One of the most enthus iastic promoters of village el ections, Wang Zhen yao , expressed this view in his " Zhongguo de cunmin ziz hi yu minzhuhua fazhan daolu " (T he Road for Villagers' Self-government and De mocratization in C hin a), Zhanlüe yu guanli 2 (2000): 99-105; a ls o see Kevin O'Brien and Lianjiang Li, "Accommodating ' Democracy' in a On e-Party State: Introducing Viilage Electi ons in China," The China Quar terly 162 (2000): 465- 489; Pastor a nd Tan, "Th e Meani ng of China's Viil age Elections," 490- 512. 102. Lianjiang Li, "The Empowering Effect of Viilage Elections in China ," Asian Survry 43 ( 4) (2003) : 648 -662. 103. O'Bri en , "Villagers, Elections, and Citizenship in Contemporary China," 4 07-43 5. 104. Allen Choate , "Lo cal Governance in China: An Asse ssment ofVillagers Committees" (Th e Asia Foundation , Working Paper no. 1, 1997) . 105. Xiao Tangbiao et al., "Z hon gguo xiangcun shehui zhongde xuanju " (Elections in China's Rural Society) Zhanlüe yu guanli 5 (2001): 49-59 . 106. Je an Oi and Scott Rozell e, "Elect ions and Pow er : Th e Locus of D ec ision Making in Chinese Villages," The Chi na Quarterly 162 (2000) : 513- 539. -- 255 of 306 -- 244 Notes to Pages 73-77 107. Bjorn Alpermann, "The Post-Election Administration of C hinese Villages," The Chinajourna l46 (2001): 45-6 7. 108. Wang Zhenyao, "Zhongguo de cunmin zizhi yu minzhuhua fazhan daolu." 109. Renminzhiyou 1 (1999): 5. 110. Tianjian Shi, "Election Reform m China" ( mimeo, Department of Political Science, Duke U niversity, 2004) . 111. Hu Ron g, 'Jingji fazhan yu jingzhengxing de c unweihui xum~u " (Eco- nomic Development and Co mpetitive Elections of Villagers' Co m- mittees) , www.people.eom.cn/ GB/ 1 4576 . 112. Shi, "El ection Reform in C hin a." 11 3. Hu Rong, 'J ingji fazhan yujingzhengxing de cunweihui xuanju ." 114. Shi, "E lection Reform in China." 115. The most stringent stand ard means that the l eading group of the vil- l age e lection must be directly elected by the vill age rs, that ca ndid ates mu st be n om in ared by vill agers o nl y, th at cand id ates must be chose n by all vill agers in a popu lar vote (haixuan), and el ections must feature multicandidates for th e vill agers' committee . Shi, "Election Reform in China. " 116. Shi, "E lection Reform in C hin a." 117. Xi ao Tangbiao et al., "Zh ongguo xiangcun sh ehu i zhon gde xuanj u ." 118. lbid. , 54, 57. 119. John James Kennedy, "Th e Face of 'Grassroots D emocracy' in Rur al China," Asian Survey 42 (3) (2002): 456- 482. 120. Hu Rong , 'Jingji fazhan yujingzhe ngx ing de cunweihui xuanju ." 121. Xie Ziping, "Fujiansheng 2000 ni a ndu cunweihui xuanju diaoch a sh uju fenxi baogao" (A R eport on An alysis of the Data on the Election s ofVil- l agers' Committees in Fujian Province in 2000) , www.china rural.org. 122. Cao Ying, 'Jilinsheng cunweihui xuanju shuju fenxi baogao " (A R epor t on Analysis of th e D ata on the El ectio n s of Vill agers' Committees in Jilin Provinc e ), www.chinarural.org. 123. Wu Miao, "Cunweihui xua1~u zhiliang de lian g hua fenxi: Yi Fujian- sh eng 9 shi 2000 ni a ndu cunwe ihui hu anjie xuanj u t ongj i shuju wei jiju " (A Quantitative Analysis of the Qu ality of Viilage Elections Based on Data on the Vill agers' Committee El ection s in Nine Cities in Fujian Province in 2000), www.c hinarural.or g. 124. Liu Xitang, " Hunansh e ng 1999 ni andu 40 ge xian cunweihui xuanju shuj u fenxi baogao " (A Report on Anal ysis of the Data on the El ections in 40 Counties in Hunan Province in 1999), www.chi narural.org. 125. See Oi and Rozelle, "E lections and Power "; Al permann , "The Post- Election Administration of C hin ese Villages." -- 256 of 306 -- Notes to Pages 77-83 245 126. Such instances were reported in Minzhu yufazhi 23 (2000): 31-33. 127. NFZM, September 12, 2002. 128. ZhongfSUo gaige (nongcunb an) (China Reform, rural edition) 2 (2003): 18. 129. Zhong[5Uo gaige (nongcunban) 2 (2003): 15. 130. David Zweig, "D emoc ratic Values, Political Structures, and Alternative Politics in Greater China" (Washington , D.C.: U.S. Institute of Peace Peaceworks no. 44, 2002) , 45. 131. NFZM, August 22, 2002. 132. Ton y Saich and Xuedong Yang, "Innovation in China's Local Gover- nanc e: ' Open Recommendation a nd Selection,"' Pacific Affairs 76 (2) (2003): 185-208. 133. Yu Keping , Zhongguo difang zhengfu chuangxin (Innovations by Local Governments in China) (Beijing: Shehui kexue wenxian chubanshe, 2002) , 42. 134. ZhongfSUO gaige (nongcunban) 9 (2002): 6. 135. www.chinanewsweek.com.cn, Novemb er 22, 2004. 136. Melanie Manion , "Chinese Demo cratiza tion in Perspecti ve: Ei eetarates a nd Selectorates at the Township Level," Th e China Quarterly 163 (2000): 764-781. 137. Tanner argues that the Chinese state's repressive capacity has declined since reform. See Murray Scot Tanner, " Cracks in the Wall: C hina's Eroding Coercive State ," Current History (Se pte mber 2001): 243- 249. 138. Pei, "Is China De mo cratizing?" 78. 139. Th e Washington Post reported a chilling story of a political study group at Peking University that was penetrated by the secret police through its informants. The Washington Post, April 23, 2004, AOI. Another story in The Washington Post describ ed the experi en ce of a Chinese co ll ege student who published wi tty political satires on th e Web. She sus pe cted that the governm e nt sent a spy to befri e nd her and obtain all the information about her co ntacts. Sh e was later detain ed . Th e Washington Post, D ece mb er 18, 2 004 , AOI. Th e disclosure a bout r ec ruiting infor- mants in Jiangxi was made in Jiangxi Gong ' anting, ]iangxi gong'an nianjian 2001 (Public Security Almanac ofJiangxi) (Nanchang:Jiangxi gong 'an nia nji an chubansh e , 2002), 332. 140. For an e xampl e of th e sophistication of th ese m ethods , see th e Mini stry of Public S ecurity's di rec tive on April 5, 2000, "Gong ' anbu guanyu go ng ' anjiguan c huzhi quntixing zhi 'an s hijian guiding" (Th e Mini stry of Public Security's Regulations on De a ling with Collective Public Se cu- rity Incid e nts ). It details th e rul es of engage ment . Shanghai gong'an ni- anjian 2001 (Shanghai Public S ec urity Alm anac) (Sha nghai: Xuelin c hub ansh e, 2001), 346-3 5 1. -- 257 of 306 -- 246 No tes to Pages 83 -88 141. Ministry of Public Security, Zhongguo go ng'an nianjian 2000 (Beijing: Qunzhong chubanshe , 2001 ) , 211. 142. Pang Qigui, "Chuzhi quntixing zhi'an shiji an de jiben duic e" (Basic Co unter-m easures for Dealing with Co ll ectiv e Public Security Inci- d en t s), in Renmin gong'an (People 's Public Security) 2 (2002): 26-27. 143. See Jam es Tong, "Anatomy of Regime R epress ion in China: Timing, Enfor ce ment Institutions, a nd Target Selection in Bannin g the Falun go n g, July 1999," Asian Survey 42(6 ) (2002): 795-820. 144. Shanthi Kalathil and Tayl or Boas, Op en Networks, Closed Regimes (Wash- in gton , D.C.: Carnegie E ndowm e nt fo r Inte rn ation al Pe ace , 2003), 1-12. 145. Guobin Yang, "Th e Co-Evolution of th e Internet and Civil Soc iety in China ," Asian Survey 43(3) (2003): 405-422 . 146. Kalathil a nd Boas, Open Network s, 13-42 ; Eric Harwit and Dun can Clark, "Sh ap in g the Int e rn et in C hina: Evolution ofPo litical Control over Ne t- work Infr astructure and Conte nt ," Asian Surv ey 41 (3) (2003) : 377-4 08. 147. Kalathil and Boas, Open Networks, 40. 148. Michael Chase andjames Mulvenon, You 've Got Dissent! (Santa Monica, Calif.: Rand Corp., 2002 ), 89. 149. The number oflnternet u serswas reported in The Washington Po st, May 24 , 2004, AOl. 150. Mini stry ofPublic Security, " Guanyujiaqiang go n ggong xinxi wan g lu o anquan jiancha gongzuo de yijian" (Views on Strengthening the Securi ty and Mo nitoring o fPubli c Information Networks) , in Zhongguo gong'an nianjian 2000, 3 19 . 151. Ibid., 320-322. 152. Ibid. 153. The Washington Post, May 24, 2004, AOl. 154. Beijing Publi c Security Bureau , Beijing gong'an nianjian 2001 (Beij ing : Zhonggu o renmin go n g'an d axue c hubanshe , 2001) , 115, 116. 155. Be ijing Public S ecurity Bureau, Beijing gong'an nianjian 2003 (Beijin g: Zhon gguo renmin gong 'an daxue chubanshe, 2003) , 114-115. 156. Beijing Public Se curity Bureau , Beijing gong'an nianjian 2001, 11 6. 157. Ministry of Public Security, Zhongguo gong'an nianjian 2000, 21 3. 158. Xinwen Zhouk an 18 (May 24, 2004) , www.c hin anewsweek .com .cn; www.c hin an ews.com .cn, Apri l 28, 2004. 159. Kang Xi aoguan g pointed out th at the co-optatio n of th e intellige ntsia by the CCP critically weakened societal opposition after 1989 . Se e Kang Xi aoguan g, Zhongguo: Gaige shidai de zhengzhi Jazhan yu zhengzhi wending (China: Political D eve lop ment and Political Stability in the Era of Reform) (Beijing: Tsinghua U niversity, 2003). -- 258 of 306 -- Notes to Pages 88-92 247 160.Jonathan Unger and Anita Chan, "Corporatism in China: A Develop- mental State in an East Asian Context," in McCormick and Unger, eds., China After Leninism, 95-129 . 161. CCP COD, Propaganda De partment, a nd State Education Commission , "Guanyu xinxingshi jiaqian g he gaijin gaodeng xuexiao dangde jian she he sixiang zhengzhi gongzuo de ruogan yijian" (Some Suggestions on Strengtherring and Improving the Party-Building and Ideological Polit- ical Work in Higher-Education Institutions under the New Conditions), Zhonghua renmin gongheguo zhongyao jiaoyu wenxian, 1991-1997 (Imp or- tant PRC Documents on Education) (Hainan: Hainarr chubanshe , 1998), 3546-3547. 162. Beijing High er Education Bureau, Beijing gaodeng jiaoyu nianjian, 1995 (Beijing: Beijing gaodeng jiaoyu chubanshe , 1995), 7 4-76. 163. Sichuan CCP POD, "Sichuansheng dixian dangzheng lingdao banzi nianqinghua jincheng diaocha baogao" (An Investigation of th e Pro gress of Making Pr efect a nd Co unty L eade rship Younger in Sichuan ), in ZGYW 1997,8 . 164. Dangjian yanjiu (Party-Building Research) 2 (1995) : 32 . 165. BYTNB 6 (2003): 29-30 . 166. ZGYW 2000, 90. 167. State Education Commission, "Guanyu shishi kuaishiji youxiu re nc ai peiyang jihu a (renwen shehui kexue ) de tongzhi" (Announcem e nt on th e Training of Outstarrding Scholars in [Hum an iti es and Social Science s] for th e Next Century), Zhonghua renmin gongheguo zhongyao jiaoyu wenxian, 1991-1997, 4185-4186. 168. www.chinanews.com.cn, May 28, 2004. 169. Men g Jianzhu , "Xinxingshi xia jiaqian g mmJian zuzhi d an gj ian gongzuo d e sikao yu tansuo " (Some Thoughts a nd Experiments o n the Work to Stre ngtb en Party-Build ing Inside Civic Groups in th e New Situation), Zhonggong zhongyang dangxiao baogaoxuan (Selected Reports of the Chinese Communist Party Cen trat Party Schoo[) 16 (2000) : 17- 28. 170. Yu Yunya o, "Buneng xishou shiyin qiyezhu rudang" (Private Entrepre- n e urs Must Not Be Admitte d into the Party) , Dangjian yanjiu 9 (1995): 4. 171. One exam pl e of t he confusion over the political status of priva te e ntre- preneurs was an article publish ed in April 2000 by Zh ang Dejian g, th e par ty c hi ef of Zhejiang. In his article, published in th e CC P's m ajor journal on party-building , Zh a ng wrote, "T h e ban agairrst ad mi ttin g private e ntr e pr en e urs into th e p arty must be mad e expli cit. On this issue, the Centl-al Committee i ss u ed explicit rules a lo ng time ago, but there is quite a bit of confusion among some party l ea d ers in som e places over this issue." Zh ang Dejia ng , 'Ji a qi ang f eigo ngyou zh i qiye -- 259 of 306 -- 248 Notes to Pages 92-98 dangjian gongzuo xu yanjiu jiejue de jige wenti" (Several Issues on In- tensif}'ing the Work ofBuilding the Party in Non-S tate FirmsThat Nee d to Be Studied and Resolved), Dangjian yanjiu 4 (2000): 14. 172. See chapter 5. 173. Dickson, Red Capitalis ts in China; www.chinanews.com .cn , February 19, 2003. 174. BYTNB3 (2003): 20. 175. www.chinanews.com.cn, February 19, 2003. 176. "Chinese Capitalists Gain New Legitimacy," The Washington Post, Septem- ber 29, 2002, AOI. 177. "For China's Local Bigwigs, New Money Means Power," Th e Washington Post, July 7, 2002, AOl. 178. Dickson , Red Capitalists in China, 116-141. The Washington Post, July 7, 2002, AOl. 3. Rent Protection and Dissipation 1. The government's monopoly over cotton procure ment was partially ended in 1999. DRC, "Mianhua liutong tizhi yanjiu" (A Study of the Cotton Procurement System), DRC diaocha yanjiu baogao 17 (2000) : 1-27. 2. Betwee n 1992 a nd 1999, annual policy lo sses incurred by SOEs in the grain procurement system averaged 24 billion yuan . Li Hongmin , "Lia ngshi liuton g tizhi gaige haixu jinyibu sh e nhua " (Th e Re form of the Grain Procurement System Needs Deepening), jingji yanjiu cankao (Economic Research andReferen ce) 28 (2001): 27. SOEs pooled their oper- ating losses into policy lo sses. Enjiang Cheng, " Market Reform s and Pro- vision of Credit for Grain Purchases in C hin a ," The China Quarterly 151 (1997): 633-654. 3. OECD, China in the WorldEconomy. 4. lbid. 5. Thomas P. Lyons, "Feeding Fujian: Grain Production and Trade, 1986-1996," The China Quarterly 155 (1998): 5 12-545. 6. See Yuk-shing Cheng a nd Shu-ki Tsang , "The Changing Grain Market- ing System in China," Th e China Quarterly 140 (1994): 1080- 1104. 7. OECD , China in the WorldEconomy, 66. 8. Cheng a nd Tsan g, "The Ch anging Grain Marketing Syste m. " 9. A poll of 708 pe asants in Jiangxi in 1993 showed that onl y 22 percent preferred the government-mandated quota system. Chen Xin , Zhou Xianhua , a nd Deng Shengping, " Nongcun zhengce yao luoshi shichang -- 260 of 306 -- Notes from pages 98-101 249 jingji pan youxu" (Implement Agricultural Policy and Look Fo rwar d to an Orderly Market Econom y), Diaoyan shijie (Investigation and Research Fomm) , March 25, 1993 , 8. 10. Cheng and Tsang, "Th e Changing Grain Marketing System." 11. Zhou Zhangyao a nd Chen Liangbiao, "Cong ' baoliang fangjia' dao 'tijia dinggou," ' (From "Guarantee Quantity but Liberalize Prices" to "Raise Prices and Mandate Procurement"), Gaige (Reform) 5 (1995): 58; Ma Kai, "Ruhe renshi xianxing lian gs hi gouxiao zhengce" (How to Understand the Current Policies on Pur e hase and Sale of Grain), Gaige2 (1996): 11. 12. OECD , China in the World Economy, 63-64. 13. Zhou a nd Chen, "Cong ' baoli ang fangjia ' dao 'tijia dinggou ,"' 57 . 14. Wang Laibao and Fan Weili , "1999 nian liangshi liutong tizhi gaige zong- shu" (A Summary of the Reform of the Grain Procurement System in 1999), jingji yanjiu cankao 22 (2000): 4-5; DRC, "1999 nian Iiang mian liutong tizhi gaige" (The R efo rm of the Procurement Systems for Grain a nd Cotto n in 1999), DR C diaocha yanjiu baogao 11 (2000): 3. 15. DRC, " Mianhua liutong tiz hi ya1~iu," 5 -10 . 16. After 1998, the dual-trac k pricing system again became a on e -track single price system. The SOEs purchased grain directly from peas a nts at a government-set protected price and sold to consumers at a lo ss . The Ioss es were mad e up b y the budget. Li Hon g min , "Liangshi liutong tizhi ga ige haixu jinyibu shenhua ," 26-29. 17. In 200 1, the government fu lly liberalized the grain purchase system in th e e ight provinc es that were net consumers of grai n; in 2002, lib eraliza- tion was extended to the provinces in whi ch grain production and con- sumption werein balan ce (s uch as Yunnan , Chongqing, and Guangxi). But th e gove rnm e nt r e tain ed the same m onopo ly system in grain- producing pr ovinces. Ding Zhengjing, "Li angsh i liut ong gaige yu nongye zhengcex in g jinrong zhineng dingwei" (Reform of the Gra in Purehase System a nd th e Definition of th e Finan cial Function of Agricultural Pol- icy), Zhongguo nongye j ingji (China Agricultuml Eco nomics) 10 (2003): 72. 18. The figure on accumulated Iosses is from Nanfang zhoumo, August 28, 2003, www.nanfangdaily.eom.cn/ zm /20030828 / . In the reform era, th e average cycle of shortage and glut was about t hree to four years, as was the case in 1985- 1988, 1989- 1993, and 1994- 1998. For example , in the 199 4- 199 8 cycle, prices initially rocketed in 1994 but co ll apsed in 1996. Yuan Yongkang and Song Ze, 'Jianquan tiaokongjiage bin ggu ijingying fangka i" (Improve Macro-Control, Unify Prices, an d Lib era lize Markets), Gaige2 (199 7): 41. 19. In the early 1980s, for example, the government's commitment to -- 261 of 306 -- 250 Notes to Pages 101-104 purchase surplus grain from farmers at high er pr ic es caused a glut; bud- getar y sub sidies to grain almost tripled from 1978 to 1984. Cheng an d Ts an g, "The Changing Grain Marketing System ," 1090. 20. Yuan a nd Song, 'Jianquan tia okon gj i age bingguijingying fangk ai," 43. 21. Li H ong min , "Lian gshi liuto n g tizhi gaige haixujinyibu sh en hu a," 27. 22. Yuan and Song, 'Jianquan tiaokongjiage bingguijingying fangkai ," 46. 23. Li Hongmin , "Liangshi liutong tizhi gaige hai x ujinyibu shenhu a," 29. 24. Yuan and Song, 'Jianquan tiaokongjiage bin gguijingying fangkai ," 44. 25. One re searcher claimed th at private agents contro lled half the procure- m e nt mark et and they h ad developed cozy ties with SOEs. Li Hongmin, "Liangshi liutong tizhi gaige h ai xujinyibu sh e nhu a," 30. 26. In May 2004, the State Council approved in principle a draft regulation on grain procurement and marketing that wo uld liberalize th e market fully, but the details were n ot made public. www.chinanews.com. cn , May 19,2004. 27. Mike Peng a nd Bing Zhang , "Tel eco m Competit i on, P os t-WTO Style," The China Business Review 27(3) (2000): 14; DRC, " Zhongguo di a nxinye jingzheng fenxi" (An Analysis of Competiti on in China 's Te l ecom Sector) , DRC diaocha )'anjiu baogao 80 (2003): 11-12; ZGTJZY 2000, 130. 28. www.chinanews.com.cn,Janu ary 15, 2004. 29. Institute of Industrial Economics, Chinese Academy of Social Seiences (CASS), " Zhongguo zh engfu gua n zhi gaige c hu tan" (A Pr el iminary Study of Re formin g China's Regula tory Syste m) , Jingji )'anjiu cankao 76 (1998) : 26; Pe ng and Zhang , "Telecom Competitio n. " 3 0. Zhang Weiyi ng an d Sheng Hong, " Cong dianxinye kan Zhongguo de fan longduan wenti" (Antimonopoly in China: Th e Case of Telecom ) , Gaige 2 (1998) : 68. 31. Eric Ha rwit and J ac k Su , "A Telecom Newcomer Cha ll enges the MPT Monopoly," The China Business Review 23(3) (1996): 22; Zhang a nd Sh en g, "Cong dian xin ye kan Zhongg uo d e fan lon g du an wen ti ," 70. 32. In 1994, a reorgani zation of MPT separated its tel eco m busin ess from its postal service. As a result , C hina Telecom , the n a tional monopoly, was formed , howe ver China Tel eco m rem a in ed as part ofMP T. "C hin ese Tele- co ms: Into the Crucible," Economist 361 (8246) (N ovember 3, 2001 ), 67. 33. Zhan g and Sh en g, "Cong di a nxinye kan Zhon gguo de fan longduan wenti ," 71- 73; Lynn Crisanti, " Untangling China 's D ataco m Ne t wor ks ," The ChinaBusin ess Review 24(2) (1997) : 40. 34. Institute of Industri al Econom ics, CASS, "Zhongguo zhengfu guanzhi gai ge ch u tan ," 26. 35. Zhang and Sheng, "Cong dianxinye k an Zhongguo de fan longduan we nti ," 71. -- 262 of 306 -- Notes to Pages 104-108 251 36. China Mobile was separated from China Tel eco m in 1998 . The data presented for the paging market are for 1998. Peng and Zhan g, "Tele- com Competition," 12. 37. DRC, " Zhongguo dianxin ye jingzh eng fenx i," 12. 38. Peng and Zhang , "Tel ec om Co mpetiti o n, " 18. 39. Kenneth DeWoskin, "Th e WTO and the Telecommunication s Sector in China," The China Quarterly 167 (2001): 630-6 54. 40. In 1999 , China Telecom (HK) became China Mob ile (HK). 41. Tom Holland, "The Perils of Privatization," Far- Eastern Economic Review, June 22, 2002, 55. 42. DRC, " Zhonggu o di a nxinye ji n gzheng fenxi," 11. 43. lbid., 7-8. 44. Li Zhong (with the State Pla nning Commission ) , 'Woguo dianxin tizhi gaige de huigu yu zhanwan g" (A Review and P ros pective Look at Reform- ing C hin a's Tel eco m Sys tem ) ,]ingji yanjiu cankao 43 (2000): 5. 45. Crisa nti , "U nt angling C hin a 's D atacom Networks," 38. 46. Ted Dean , "Th e Data Co mmuni cations Market Opens Up ," Th e China Business Review 28(1) (2001): 22- 24. 47. For example, China ranked sixty-third (o ut of eighty-two countries rated) in terms of competition in the tele co m service industry. It s score was 3.41, out of a possible score of 7 (weil below th e m ean scor e of 4.53 ). This place d Chin a be hind India (4.65, rank ed 42) , Russia (3.56, 58), lnd on es ia (4.08, 51), Thailand (4.47, 44), Hungary (4.79, 38) , th e Czech R ep ublic (4.68, 40) , a nd th e Philippin es ( 4.83 , 37) . China was ah ead of Vietnam (2.74, 74), U kraine (3.14, 67), and R omania (3.22, 66). Chi na scored p oo rly on "overall infrastructure qu ality" as weil. With a sco re of 3.41 , C hin a was below the m ean of 4.2 a nd ranked 50 (out of eigh ty-two countries) . It was be hind Hun gary (4.27, 40), the Czech Republic (4.83, 29), and Th ailand (4.77, 30), a lth ough it was a bove Indi a (2.83 , 64) , Ru s- sia (3. 12, 5 9), In donesia (2 .75, 66), a nd th e P hilippin es (2.28, 76). Th e costs of servi ce were also hi gh er in C hina . The m ean cost of a t hr ee - minute local call was US $9.36 (weighted against each country's per capit a GDP) . On this sco r e, such a call cost US$12.31 in C hin a, giving it a ranking of 60. China ranked be hind the Philippines (fr ee , 1) , U kr a ine ($1.27, 8), Russia ($1.94, 9) , lnd on es ia ($6 .67 , 43), lndi a ( $7 .55 , 45), Hungary ($7.71 , 48), th e Czech Re public ($9.63, 54 ), an d Thai l and ($11.68, 58) . Chin a's ranking was above that ofVietnam ($ 12.73, 61) a nd Romani a ($17.36, 71). T h e costs of a th ree -minute off-pe ak l oca l ce llular call in C hin a were also hi g her than in mo st countries . The m ean cost , weighted against GDP, was $0.68 in the e igh ty-two cou ntri es . With such a ca ll cost in g $1.09, China was ranked 68, be hind Russia ($ 0.0 3, 1) , th e -- 263 of 306 -- 252 Notes to Pages 109-111 Czech Republic ($0.14, 19), Hungary ($0.25, 34 ), Indonesia ($0.48, 44), and the Philippines ($0.68, 54). Such a call was more expensive in Viet- nam ($1.21, 71), India ($1.71, 76), and Ukraine ($2.07, 78). Soumitra Dutta et al., eds., The Global Information Technology Report 2002-2003 (New York: Oxford U niversity Press, 2003), 285-304 . 48. One example was the MII's decision not to reform the rate structure in the mobile phone market out of fear that such reform would cause a plunge in the share prices of China Mobile (HK). China Telecom raised its monopoly long-distance rates before its IPO in 2002 to boost its business prospects. 49. Lardy's China's UnfinishedEconomic Revolution provides th e most com pre- hensive description and analys is of the weakness of China's banking sec- tor. OECD's survey of the Chinese econom y in 2002 paints a gloomy picture of its banking sector. See OECD , China in the World Economy, 233-268 . 50. State Planning Commission , " Zhongg uo ziben shichang de peiyu he fazhan zhengce yanjiu" (A Study of the Policy of Developing Capita l Mar- kets in China) ,]ingji yanjiu cankao 5 (2001): 3. Researchers at the IMF also agreed that the pace of financial deepening in China during the reform era was impressive. Seejahangir Aziz and Christoph Duenwald , "Growth- Financial Intermediation Nexus in China," IMF Working Paper No. 194, (Washington , D.C.: Interna tio nal Mon etary Fund , 2002) . 51. Lard y, China's UnfinishedEconomic Revolution, 95 . 52. Fora description of the e volution of th e banking system, see Minxin Pei, "The Political Economy of Banking Reforms in China: 1993-1997 ," Jourc nal ofContempomry China 7(18) (1998): 321-350 . 53. Wu Jinliang, "Guanyu jiakuai jinrong tizhi gaige d e shexiang" (Idea s on Aceeierating the Reform ofthe Financial System ), Gaige5 (1993): 93-97. 54. Ibid. 55. Th e governm e nt also allowed joint-sto ck b an ks a nd Minsh e n g to be listed on the dom estic stock markets. 56. The performance of the four AMCs was mixed . They used both debt-for- equity swaps (taking stakes in ind eb t ed SOEs) and sale ofimpaired assets to dispose of the 1.4 trillion yua n in NPLs. As of 2003, about 35 perce nt of the NPLs was disposed of, with a cas hr ecoveryrate of 17 perc e nt . The Wall Street Journal, January 15, 2004 , A12. But th e r ea lrecoveryrate was likely lower. In Orient Asset Management ( tied to BOC) , the real recoveryrate was only 12 percent, not the 19 percent it reported. The rate of disposing ofbad assets was too slow, and at the current r ate, could take fifteen years. Xinwen zhoukan, August 4, 2003. www.chinanewsweek.c om.cn. The debt- equity swap was also defe rring the real costs of th e ba ilout to the futur e be- -- 264 of 306 -- Notes to Pages 111-113 253 cause NPLs were transferred at par value and the valuation of equity in SOEs was unrealistic. In addition, debt-equity swaps had no impact on corporate restructuring. S ee Edward Steinfeld, " Market Visions, Ma rket Illusions: Debt-Equity Gonversion a nd th e Fu t ur e of Chin ese Sta te Se ctor Reform ," CLSA Ernerging Marhets (2000). 57. www.chinanews.com.cn,January 12, 2004. 58. The Financial Times,]anuary 16, 2004, 16. 59. Caijing (Business and Finan ce Review),]anuary 11 , 2004, www.caijing.com .cn. 60. The bail-out costs could ballo011. further if the NPLs in rural and urban credit cooperatives are writte n off. Th ese sm all financial institutions were in even weaker c ond i tions th an th e SCBs. In 2001 , accordin g to th e Min- istry of Agriculture, liabilities exceeded assets by 236 billion yuan for all the RCCs. The bailaut of RCCs would cost 200 billion yuan. Caiji n g, Au- gust 8, 2003, www.caijing.com.cn. 61. Hu Shuli , "Zaitan jinrong gaige burong ciyi" ( Once More , Fin ancial Re form Broods No Delay or Doubts) , Caijin g, ]ul y 3 1, 2003. www.ca ijing. c om .c n. 62. La rdy, Chi nas Unfinished Economic Revolution; Man-Kwong Le un g a nd Vincent Wak-Kwong Mok , " Commercialization of Banks in China: Institutional Changes and Effects on Listed Enterprises ," Journal of Contemporary China9 (23) (2000): 41-52. 63. Gen evieve Boyr eau-De bray, " Fin ancial Inte rm edia tion a nd Gr owth : Chi- n ese S tyle ," World B anh Policy Research Wor k ing Paper N o. 3 0 27 (Was hin g- ton , D.C.: World Ba nk , 2003). 64. Aziz and Duenwald, " Growth-Financial Intermediation Nexus in China." 65. Boyreu-Debray, "Financial Intermediation and Growth." 66. Justin Lin and Zhou H ao , "Gaige jinrong zhen gce he tizhi shi wogu o jingji zo uru liangxing x unhu a n" (Refo rming Fin ancial Policy a nd Sys tem to Make Chin a' s Eco nomy E nt er a Vi rtuou s Cycle ) , Ga ige 2 (1993): 9 7-10 5. 67. Ge n evieve Boyr eau-De bra y a nd Sh an g:Jin We i, " Can Chin a Gro w Faster? A Diagnosis on the Fragmentation of the Domestic Capital Market" (Washing ton , D.C.: IMF, 2004). 68. On e private c ongl o mera te, Delo ng G roup , su cce ssfully bough t stakes in fo ur ci ty co mm erc ial ba nks in thr ee p rovin ces in 2002. With 10 to 40 p er- ce nt of th e sh ares, De lon g was a bl e to c ontro l m a na ge m e nt in two city co mm ercial b an k s. Caijin g, March 20, 2003, 39- 54 . 69. Through th e SCBs a nd oth er nonprivate ba nks, the state c ontroll ed 90 percent of the banking mark et ( excluding RCCs) . Ding Ling an d C hen Ping , ''Yinha ng long du an , x inyong weiji he jinrong gaige" (Ba nkin g Mo - n op oly, Cr e dit Crisis, a nd Fin an cial Ref orm ), Ga ige 2 (2000) : 90. -- 265 of 306 -- 254 Notes to Pages 11 3-11 5 70. The WallStr-eetJournal,January 15,2004, C16 . 71. The Financial Times,Janua ry 10, 2004, www.ft.com. 72. Li Xinxin, "Cong don gya jinrong weiji kan woguo de jinron g yinhuan" (A Loo k at China's Fin ancial Risks from the Persp ec tive of the East Asian Financial Crisis), Gaige3 (1998): 32; M. K. Leung, D. Rigby, an d T. Young, "Entry of Foreign Banks in the People's Re public of China: A Survival Analys is," AppliedEconomics 35 (2003): 23. 73.James Ba rth, Rob Koepp , and Zhongfei Zh ou , "Disciplining China's Banks," The Milken Institute Rev iew 6(2) (2004 ): 88. 74. In 1999, th e Inte rn a tion al Finance Corporation of the World Bank (which invested in Minsheng Bank) paid U S$22 million for a 5 p erce nt stake in Bank of Shanghai (previously known as the Shanghai City Cooperative Bank); HSBC paid $65 million for an 8 percent stake in Bank of Shanghai. 75. The WallStreet Journal, D ecember 30, 2003, B5. 76. Zhou Xiaochuan, "Wenbu tuijin lilu shi ch an g hu a gaige" (Steadily Pro- moting th e R eform in the Marketization oflnterest Rates) , Caijing,Janu- ary 11, 2004. www. caiji ng.com .cn . 77. Pei, "The Political Economy ofBanking Reform s in China," 325-326. 78. www.chinanews.com.cn, Nove mber 17, 2003. The SCBs' share ofthe out- standing Ioans was calculated fro m the data released by the governme n t on J anuary 11, 2004; www.c hin anews.com .cn . In te rm s of assets in all fi- nancial institutions in 2001 , th e four SCBs accoun ted for 65 p ercent; the joint-stock banks accounted for 12 per cen t; urban credit cooperative a nd city commercial banks had 5 percent; and RCCs had 9 percent. Cem Kara cadag, "Financial System Soundness and Reform," in Ts eng a nd Rodl auer, eds ., China Competing in the Global Eco n omy, 153. Foreign ba nks had only 1 percent of the assets in the financial system in 2001. China Ba nking Outlook: 2003-2004 (New York: Stand a rd & Poor's, 2003 ), 15. 79. Y C. Richard Wong a nd M. L. Sonia Wo n g, " Co mp etitio n in C hin a's Dom es tic Ba nking Industry," Cato Journ al (Spring/ Summ er 200 1): 31. 80. Yu Lian gc hun and Ju Yuan , " Longduan yu jin gzheng: Zhon gguo yi n- h an gye d e gaige h e fazhan " (Mo nop oly a nd Competi tion: Th e R efor m and Deve lopment of China 's Bankin g Sector ), Jingji yanjiu (Economic Research) 8 (1999): 54 . 81. Wong and Won g, "Competition in China's Dom estic Banking Industry, " 28. 82. www.chinanews.com .cn , September 8, 2003; th e NPL ratio for the SCBs was for Se ptember 2 00 3, www.chi nan ews.co m. cn , D ecember 2, 2003. 83. The government reported that , u sin g C hin a's less str in gent three- category classification, the NPL ratio for the SCBs at the end of 2003 was 16.8 percent ; the ratio for city c ommercial bank s was 12.8 percent . www. c hin anews.com.cn,January 11, 2004. -- 266 of 306 -- Notes to Pages 115-118 255 84. Joel Baglole, "Opening Up Private Banks," Far Eastern Economic Review September 18, 2003, 49. 85. www.chinanews.com.cn, December 2, 2003. 86. Chen Zhiqiang, ''Woguo zhongxia qiye faz hanji guoyou shangye yi nh ang jinrong fuwu zhuangkuang de diaoc ha" (An Investigation of th e Develop- ment of Medium and Small-S ized Firms and the Status of Financial Ser- vices Provided by State Commercial Banks in China), Gaige 1 ( 1999): 54. 87. Wong and Wong, "Competition in China's Dome stic Banking Indu stry," 32. 88. DRC, "Minying qiye ron gzhi xianzhu a ng di aoyan baogao " (An Inves- ti ga tive and Resea rch Re port on th e Status ofFinancing Pri vate Firms), DRC diaocha yanjiu baogao, April18, 2001 , 15. 89. Pei, "The Political Economy of Banking Reforms in China," 327 . 90. DRC, "Minying qiye rongzhi xianzhuang diaoyan baogao," 8. 91. Boyreau-Debray, "Financial Intermediation a nd Growth," 30-31. 92. State Pla nning Commission, ' Jiang Zhe zhon gxi ao qiye rong zi yujinrong ji go u faz han diaocha baogao" (An Investi ga tive Re port on the Financing of Medium and Small Firms in Jiangsu and Zhejiang an d the Develop- ment of Finan cial Institutions) ,]ingfi yanjiu cankao 1662 (2002): 2-17 . 93. OECD , China in the World E co nomy, 242. 94. China Banking Outlook 2003-2004, 6. 95. At th e e nd of 2002, China had 1,215 listed co mpani es, with a market ca pitalization of 4.27 trillion yuan (almost 40 pe rcent of G DP) ; th e float was o nly on e-t hi rd of the tota l sha res, impl ying a significa ntly sma ll er m arket cap italizatio n. State Pla nnin g Co mmis sion , "Z hon gguo zib en shichan g de peiyu he fazhan zhengce yanjiu ," 8 -11. 96. Ibid., 5. 97. Ibid., 11. 98. Of the sixty-thr ee banks included in the Fortun e Global 500 in 1999, China's ICBC and BOC were considered th e least efficient and profitable . Feng Zongxian, Tan Yi , and Guo Ge n g lon g, ''Woguo yinh angye guoji jingzh en gli fenxi" (An Analysis of th e Inte rn atio nal Comp etitiveness of China 's Banking Sector), Gaige 4 (2000): 86 . On bank profitability, see Lardy, China 's Urifinished Economic Revolution, 100-115. 99. See Lardy, China's Unfinished Economic Revolution, 92-100 ; Pei, "The Political Economy of Banking Refo rms in Ch in a," 335. 100. China Banking Outlook 2 003- 2004, 32. 101. Xinwen zhoukan, August 4, 20 03, www.chinanewsweek.com.cn . 102. Caijing, ]uly 31, 2003, www.caijing. co m.c n. 103. "Recapitalization Still Necessary for China 's Banks Des pite Lower Im- paired Asset Ratio," China Banking Outlook 2003- 2004, 8. 104. David L ague, "The Gr eat Kaiping Bank Ro bbery," Far Eastern Economic Rev ier11, May 30, 2002, 26- 29. -- 267 of 306 -- 256 Notes to Pages 118-125 105. Xie Ping and Lu Lei, "Zhongguo jinrong fubai yanjiu: Cong dingxin g dao dingliang" (Studying Finan cial Corruption in China: From Qualitative to Quantitative Approach) , Bijiao ( Comparative Stwiies) 8 ( 2003): 15. 106. X. L. Ding, "Systemic Irregularity and Spontaneous Property Transfor- mation in th e Chi n ese Fin ancial Sys tem," The China Quarterly 163 (2000): 655-675. 107. Cao Haili , "Liu Jinbao beiqisu" (Liu Jinbao Was Indicted ) , Caijing, November 29, 2004, 107. 108. Lague , "The Great Kaiping Bank Robbet-y,'' 26-29. 109. The Financial Times, March 15, 2002, www.ft.com . llO. Nanfang dushibao (Southem Metropolitan News) , June 26, 2002 , www. nanfangdaily.com.cn / ds / 20020626/ . lll. Caijing,July 31, 2003, www.caijing.com.cn. 112. Xie and Lu, "Zhongguo jinrong fubai yanjiu," 1-45. 113. lbid., 15 . 114. Xie a nd Lu r eport wide vari atio ns between regions. Regions wi th m ore active pri vate sectors and higher Ievels of development had l ower bribet-y p remiums . For examp le, the premium for firms was lower in eastern China (1.5 percent ) and southern China, but higher in north- ern China (6.3 percent) . The premium for individualfarmerswas the hi gh est in north e rn China (8.7 perc e nt) and th e lowest in eastern China (2.8 per ce nt). lbid., 17-18. 115. lbid ., 17 and 26. ll 6. OECD , China in the Wodd Economy, 235; China Banking Outlook 2003- 2004, 28. ll7. OECD , China in the WmldEconomy, 247-263. 118. Paul Heytens, "State Enterprise Reforms ," in Tseng and Rodl auer, eds., China: Cmnpetingin the GlobalEconomy; OECD , Ch ina in the WorklEcon omy, 163-192. 119. DRC, " Guanyu Zhongguo s hi ch anghuaji n ch en g de yanjiu " (A Study of China's Marketization), DRC diaocha yanjiu baogao ll 2 (2002) : 3. 120. lbid. , 4. 121. ZGTJNJ2002, 423; ZGTJNJ 1 988,3 11. 122. ZGTJNJ 1988, 304; ZGTJNJ2002, 424 . 123. DRC, "G uanyu Zhongguo shic h anghuajinche n g de yanjiu ," 5. 124. Thomas Rawski, "Chin a 's Move to Market: How Far? What Next?" www.pitt.edu / ~tgr awski/ paper99. 125. Wai jingmaobu gongp in g maoyiju yu Beijing shifan daxue jingji yu ziyu an guan li yanjiusuo Zhongguo shichangjingji fazhan ya 1~iu k etizu , "Zhongguo sh ichang jingji fazhan baogao" ( Report on the Develop- ment of a Market Economy in China), Zhanlüe yu guanli 6 (2002): 12. -- 268 of 306 -- Notes to Pages 125-128 257 126. Gu Haibing, "Zhongguo jingji shichanghua de chengdu panduan" (An Estimate of the Level of Marketization in China ) , Gaige 1 (1995): 86-87. 127. lbid., 85. 128. DRC, "Guanyu Zhongguo shichanghuajincheng de yanjiu," 7. 129. Ibid., 7; Gu Haibin g, "Zhongguo jingji shichanghu a de chengdu pan- duan ," 85. 130. DRC, "Guanyu Zhongguo shichanghuajincheng de yanjiu," 7. 131. Rawski, "C hina's Move to Market." Alsosee Raws ki, "Will Investment Be- havior Constrain China's Growth?" (mimeo, University of Pittsburgh, September 2002). 132. DRC, "Guanyu Zhongguo shichanghuajincheng de yanjiu," 9. 133. Fan Gang et al., " Zhongguo ge diqu shichanghua xiangdui jincheng baogao " (A Report on the Relative Progress in China's Regions ),jingji yanjiu3 (2003): 16. 134. See Chen Zongsheng et al., Zhongguo jingji tiz hi shichanghua jincheng yan - jiu (A Study of the Progress of the Marketization of the Economic System in China) (Shanghai: shangh ai renmin chubans he , 1999) . 135. Yin Wenquan and Cai Wanru, "Woguo difang shichang fenge de chengyin he duice" (Fragmentation of Local Markets in China : Causes and Corrective Measures) ,]ingji yanjiu 6 (200 1): 3-12. State Planning Com- mission , "Dapo difang s hi ch a ng fenge jianli quanguo ton gyi shi chang" (End Market Fragmentation and Establish an Integrated Natio n al Mar- ket) , jingjiyanjiu cankao27 (2001): 9. 136. www.peopledaily.com.cn, February 22, 2003. Minxin Pei's analysis of 141 commercial disputes adjudicated in Chinese courts in the 1990s found that local firms had a 3 to 1 win ratio vis-a-vis nonlocal firms. See Minxin Pei, "Does Legal Reform Protect Economic Transactions? Commercial Disputes in China," in Peter Murre ll , ed ., Assessing the lillue ofLaw in Tran- sitionEconomies (AnnArbor: University ofMichigan Press, 2001) , 180-210. 137. Young, "T h e Razor's Edge : Distortions and Incr emental Reform in th e People's Republic of China. " 138. Zheng Yusheng and Li Chonggao, "Zhongguo difang fenge de xiaolu sunshi" (Efficiency Losses Caused by Fragm entatio n of Local Markets in China), Zhongguo shehui kexue ( Social Seiences in China) 1 (2003): 64-72. 139. BYTNB7 (2001) : 49. 140. State Planning Commiss ion , "Qiche shichang d e difang baohu zhuangkuang ji duice yanjiu " (A Study on Local Protectionism in the Automobile Market and Policy Prescriptions), jingji yanjiu cankao 27 (2001): 39 . 141. State Planning Commission , " Dapo difang shichang fenge jianli quan- guo tongyi shichang," 14. -- 269 of 306 -- 258 Notes to Pages 128-132 142. Boyreau-Debray and Wei, " Can China Grow Faster?" 143. State Planning Commission , "Dapo difang shichang fenge jianli quan- guo tongyi shichang," 5-7. 144. DRC, "Zhongguo difang baohu chengdu ya1'Uiu" (A Study of the Degree of Local Protectionism in China), DRC diaocha yanjiu baogao 46 (2003): 3-16. 145. State Planning Commission , "Dapo difang shichang fenge jianli quan- guo tongyi shichang," 7-8. Qi Lüdong, Zhongguo xiandai longdu an jingji yanjiu (A Study of the Economics of Contemporary Monopalies in China) (Be i- jing:Jingji ke xu e chubanshe, 1999), 150. 146. DRC, "Dangqian Zhongguo shichang fayu quexian dui qi ye jishujinbu de yingxiang" (Flaws in the Development of the Markets in China and Their Impact on the Technological Progress ofFirms), DRC diaocha yan- jiu baogao 103 (1999): 14. 147. DRC, " Dangqian Zhongguo shichang fayu qu exian dui qiyejishujinbu de yingxiang," 7. 148. For example, China's CR4 (the concentration ratio of the largest four producers) in 1984 was 17 percent for automobiles, 15 percent for cigarettes, 17 percent for plate glass, and 2 percent for cement . In the United States, the CR4 in 1982 was 97 percent for automobiles , 90 percent for cigarettes, 78 percent for plate glass, and 31 percent for cement. In India, the CR4 ratio in 1968 was 57 percent for automobil e s, 64 percent for plate glass, and 60 percent for cement. Qi Lüdong, Zhongguo xiandai longduan jingji yanjiu, 146- 148. 149. DRC, "Z hongguo shichang fayu de jiben tezhengjiqi cunzai wenti " (Ba- sie Characteristics and Existing Problems in the Development of Mar- kets in China), DRC diaocha yanjiu baogao 102 (1999): 7. 150. DRC, " Dangqian Zhongguo shichang fayu quexian dui qiyejishujinbu de yingxiang," 12-13. 151. World Bank, WorldDevelopment Report 1996: FromPlan to Marh et, 33 . 152. China scored 5.5, compare d with Croatia (6 . 2), the Czech R ep ublic (6.8) , Estonia (7.4), Hungary (6.9), Latvia (6.6), Lithuania (6.2), Poland (6.0), the Slovak R epub lic (6.0) , Russia (5.0) , Ukraine (4.6) , Al- bania (5.7), Bulgaria (5.2) , Romania (4.6) , India (6.1), Mexico (6.2), South Mrica (6.8), the Philippines (6.7) , and Brazil (5.7). Economic Freedo m Index, www.fraserinstitute.ca/ . 4. Transforming the State 1. Some of th e materials in this chapter are drawn from Pei, "Rotten from Within," 32 1-349. -- 270 of 306 -- Notes to Pages 133-136 259 2. See Sun, Corruption a nd Ma rhet in Contempomry China; Zengke He, "Corruption and Anti-Corruption in Reform China," Communist andPost- Communist Studies 33 (2000): 243-270; Tin g Gong , "Forms and Ch arac - teristics of C hin a's Corruption in the 1990s: Change with Continuity," Communist andPost-Communist Studies 30 (3) (1997): 277- 288 ; Xiaobo Lu, Cadres and Corruption: The Organizational Involution of the Chinese Commu- nist Party (S tanford, Calif.: Stanford University Press, 2000 ). 3. The surveys were conducted in urban areas from 199 5 to 199 9. Corruption was ranked as the third m ost imp ortant issue from 1995 to 1997; it rose tobe the second m ost important issue in 1998; it became the most important issue in 1999. Xu Xinxin, "1998-1999: Zh ongguo shim in de guanzhu jiaodian yu weilai yuqi" (Ch ines e U rban Residents ' Focus Issues and Future Expectatio ns in 1998-1999 ), in Ru Xin et al. , eds., SHLPS 1 999, 87; Yuan Yue, "1998-1999: Zh o ngguo chen gshi x intai zon gh e pingjia" (A Comprehensive Evaluation of the Sentiments of Ur- ban Re s id ents in C hin a in 1998-1 999), in RuXin et al., SHLPS 1999, 103. 4. Liaowang(Outlooh), August 7, 2000,27. 5. Sichuan CCP Organiz a tion Department , "Sic hu ansheng dangzh eng li ng- dao banzi chengyuan sixian g zhengzhi suzhi zhuangkuang diaocha bao- gao " (An Investigative Report on the Status of the Ideol ogi cal an d Political Calib er of Prefect and County Party and Govern m ent Offleials in Sic hu an Provin ce), in zcyw, 1999, 24. 6. news.xi nh uanet .com / l egal/2 004-02 /17, February 17, 2004 . 7. n ews .xinhuan n et.co m / l egal/2 004-01 / 05 ,J a nuary 5, 2004 . 8. Fora stud y of administrative downsizing in China during the reform era, see ~eld Erik Brodsgaard , " Institutional Reform a nd the Bianzhi Sys tem in C hin a," The China Quar"tedy 170 (2002): 36 1-386. 9. It is notable that in the official data the growth of government perso nne I was no Ionger reported after 1990. But press reports and internal Chi- nes e studies co ntinue to portray a bloated and growing state bur ea ucra cy into the 1990s. 10. A vice minister of the CCP Or ganiz a tion Department said in May 2001 that th e C hin ese govern m ent h as 41 million "cadres ." Zhongguo qingni- anbao ( China Youth Daily), May 19, 2001. 11. ZGTJ!'{J2003, 129. 12. The national data for 1990 show that the number of peop le e mployed by the state was more than 9 million. But Tab le 4.2 shows that the total number of personnel in various government agenc ies (excluding th ose in the central government) was a bout 7.5 million. It is like ly that the dis- crepancies are caused by different accounti ng methods used in arriving at these numb ers . Th e lower number, given by the Office of the Central -- 271 of 306 -- 260 Notes to Pages 137-140 Government's Staffing Commission, does n ot include personn el em- ployed in law enforcement agencies (the police, prosecutors , the j udi- ciary, a nd th e Peopl e's Armed Police) a nd th e armed forc es. 13. Th e practice of hiring s ubstitut e cadres is officially sanctioned. Wu Jie, Zhongguo zhengfu yu jigou gaige ( Government and Institutio na l Reform in China) (Beijing: Guojia xingzheng xueyuan chubanshe, 1999), 434. 14. ZGTJNJ 2003, 285. 15. lbid. , 281. 16. Calculated based on the salary costs data given in ZGTJNJ 1979, 1999. 17. ZGTJNJ 2003, 285-286. 18. Zhongyan gj i gou bianzhi weiyuan hu i bangongshi (Office of th e Central Government's Staffing Commission), Zhongguo xingzheng gaige da qushi (Major Trends in China's Administrative Reform) (Beijing: Jingji kexue chubanshe , 1993), 62. 19. Wa ng Ch engyao, "Shilun shuifei fenliu ga ige" (On th e R eform to SeparateTaxesfromFees) , Shuiwn (Taxation Resea rch) 10 (1998): 35. 20. At the lo cal level, anecdotes of lavish spending by govemment offleials abound . For example, an official study shows that, in 1998, in one of the poorest provinces, Anhui , each township government spent more than 100,000 yuan , and each village spent more than 10,000 yuan on e nt e rtainm ent-rel ate d exp enses . In the same year, eac h towns hip mayor ( or party secretary) spent mor e than 100,000 yuan on automobi le and ce ll phone e xp enses. Neibu canyue (Interna! Refer-ence) , Jun e 23, 2000, 16. 2 1. N ota ll off-budget revenues wer e ill egal. T h e a mount h ere ref erre d to tax and fee incomes levied by l ocal authorities in violation of the rules of t he central gove rnment. State General Administratio n of Taxation , "G uanyu w oguo feigaishui we nti d e yanjiu" (A Study on th e Issue of Conver tin g F ees in to Taxes in Ch in a) , jingji yanjiu cankao 86-87 (1998) : 8. 22. Calcu lation b ased on data in ZGTJNJ 1998, 283. 23. The ex p e ri en ce of Anhui provin ce is typic a l. According to an official study of fift ee n township governments co nduct ed by the provinci al government in 1998, fundin g of excess town shi p g overnment perso nnel was pr ovided by fees a nd fin es co lle cted by thes e gove rnm en ts. Township government offleials hired within the qu ota system had th eir sal aries fu ll y paid out of th e fiscal revenues of the county a nd township governme n ts. Staff hired outsid e the quota were supported by off-budget revenue . Of- fice of Rural Economy, An hu i Provincial Government, "Xian g (zheng) ji gou gai ge sizh ai bixing" (Reforming th e Admin istratio n of Township Gove rnm e nt s Is Inevitabl e), Dangjian yanjiu neican (Par-ty -Building I nterc nalReference) 1-2 (1999) : 13-16 . 24.Jing;Ji yanjiu cankao (July 24, 1998) : 9. -- 272 of 306 -- Notes to Pages 140-143 261 25. Fiscal decentralization in China has been exte nsively studied and sin g led out by m a ny scholars as th e p rincipal cau se of a wide rang e of po licies and b ehavioral pattern s ad o pted by loc al gove rnm ents. S ee Wo rld Bank, Chi na: Revenue Mobilization an d Tax Po licy (Was hin gto n , D.C .: Wo rld Ba nk , 19 90) ; C hri s tin e Wo n g, "Ce ntr al-L oca l Relatio ns in an Era o fFi scal Declin e -the Paradox ofFiscal Dece ntraliza tion in Post-Mao C hina ," The China Quarterly 128 (1991 ) : 69 1-714; Wang and Hu, Zhonguo guojia nengli baogao; Christine Wong et al., Fiscal Ma nagement and Economic Reform in the P eople's Republic of China (H o ng Kon g: O xfor d Univer sity Pr ess, 1995 ); Le-Yin Zhan g, "Chin ese Ce ntr al-Provin cial Fiscal Re la tions , Bud geta ry De clin e a nd th e I mpac t of th e 1994 Fiscal R eform: An Evaluatio n ," The China Quarterly 157 (1999): 115 -141; Yashe ng Huang, Inflation and Invest- ment Contro ls in China: Th e Political Economy of Central-Local Relations Du r- ing the ReformEra (New York: Cambridge U ni versity Press, 199 6). 26. In hi s asses sm e nt of Chin a's 1994 fiscal refo rm s, Pak L ee co nclud es th at th e 199 4 refo rm s did little to str en gth en th e fi scal capac ity oft he ce ntral state. Lee, "In to th e T ra p of Strengthenin g State Capacity: C hi na's Tax Assignm en t R eform ," The China Quarterly 164 (2000) : 1007- 1024. 27. The es tim a te for revenues not counted by th e Chinese official bud g et was obtained from Zhang , " Chin ese Central-Provin cial Fiscal Rela tion s," 124. 28. ZGTJNJ 2003, 288. 29. Zhongguo caizheng nianjian 1999, 476. 30. ZGTJNJ 2003, 281, 288. 3 1. Zhongguo caizheng nianjian 1999, 477; Zhongguo caizheng nianjian 2002, 388. 32. Zhongguo caizheng nianjian 1 99 9, 4 76. 33. State Ge n eral Admini s tration of Taxatio n , "Guan yu wog uo fei gaishui wen ti d e yanjiu." 34. Wen She n gt ang, "2000 n ian fan fubai douz h eng" (Anti-Conuption Figh t in 2 000) , in Ru Xin et a l. , eds., SHL PS 2001, 275. 35. Th e bes t exam pl e is th e largest conuption scand al in Beijing's history. Its exe c uti ve vice mayor, who alone controlled th e capital's off-off-budg et ac- co un ts, was accuse d of divertin g several billi on yuan of th e ci ty gove rn- m ent's fu n ds i nto vari ous i ll egal schem es a nd th e poc kets of n umerous mistresses. He committed suici de in th e sp ri n g of 1995 after h e was ti ppe d off of h is i mpendi n g arrest . 36. ZGTJNJ 1991, 223; ZGTJNJ 1995, 223; ZGTJNJ 1 998,27 7. 3 7. T his es tim ate is arrived at by co mp arin g th e official fig ure for total aggr ega te reve nu e in 1979, which was abo u t 40 p erce nt of G DP, with the esti mated to tal aggrega te reven ue in the l ate 1990s, which in clu de d bu d- get reve n ues, off-budget revenues, and off-off-budget reven ues , an d -- 273 of 306 -- 262 Notes to Pages 143-155 which was about 30 percent of GDP. See State General Administrati on of Taxation , " Guanyu woguo feigaishui wenti de yanjiu," 8. 38. Ministry of Finance , "Xianji caizheng weiji jiqi duice" (Th e Fiscal Crisis of County Govemments and Solutions), Caizheng yanjiu (Fiscal Research) 5 (1996): 55-59. 39. www.chinanews.com.cn, February 16, 2004. 40. Yasheng Huang, "Administrative Monitaring m China," The China Quarterly 143 ( 1995): 828. 41. Minxin Pei, "Civic Associatio ns in China: An Empirical Anal ys is," Modern China 2 (1998): 285-318. 42. www.chinan ews.co m.cn , June 25, 200 4. 43. www.people.com.cn, December 13, 2004. 44. news.xinhuanet.com / newsce nter/ 2003-08 / 26 , August 26, 2003 . 45. Shanxi Provincial CCP Organization Dep artment, "Guanyu jianli jianquan g anbu guanli jiandu jizhi we nti yanjiu baogao" (A R eport on Establis hing a nd lmpr oving th e M ec ha nism s for Supervising a nd Monitaring Cadres), Zhonggong zhongyang dangxiao baogaoxuan 16 (2000): 9, 523 . 46. Sichuan CCP Organization Department, "Sichuansheng dangzhen g ling- dao banzi chengyuan sixiang zhengzhi suzhi zhuangkuang diaocha bao- gao," 33. 47. www.chinan e ws .co m. cn,January 30, 2004. 48. n e ws.xinhuan et.com/ legal/2004-02 /24. 49. Faz hi ribao (L egalD aily), Ap ril 16, 1998, 1. 50. Zhongguo jijian jianchabao (Chinese Discipline Inspection Gazette) , January 28, 1997,3 . 51. ZGFLNJ 1992, 877. 52. lbid. 53. ZGFLNJ, various years. 54. ZGFLlYJ 1991, 939; ZGFLNJ20 00, 1212. 55. For th e full text of th e re port, see Zhongguo jijian jianchabao, September 25, 1997, 1, 4. 56. Sun, Corruption and Mar-h et, 47. 57 . ZGFLN], various years. Th e d a ta for 2004 cam e from www.chinanews. com .cn , Janu ary 21, 2005. 58. Wu Guanzheng, "Work Re port to the 3rd Plenum Meeting ofthe CDIC," www.c hin anews.com .cn , February 22, 2004 . 59. See note 10, ch a pt er 1. 60. Xuexishibao (Study Times) , November 11, 200 3. 61. Caijing, April 5, 2004, 16-17 . 62. www.c hin an ews.com.cn, May 18, 2004. 63. www.c hin anews.com .c n, May 22, 2004. -- 274 of 306 -- Notes to Pages 155-160 263 64. www.chinanews.com.cn, May 27, 2004. 65. Dangzheng ganbu wenzhai (Digest for Party and Govemment Officia ls ) 1 (2002): 27. 66. www.caijing.com.cn/mag / pr e vi ew.aspx?ArtlD =4 527 . Lu was later extra- dited back to C hin a and sentenced to death. 67. www.chinanews.com.cn, December 7, 2004. 68. news.xinhuanet.com / lega l/20 04-07 /23,July 23, 2004. 69. www.chinanews.com.cn, December 13, 2004 . 70. www.caijing.com.cn, September 30, 2004. 71. www.chinanews.com.cn, May 28, 2004. 72. www.chinan ews.com .cn , September 10, 2002. 73. See X. L. Ding, The Decline ofCommunism in China (New York: Ga rnbridge Univers ity Press, 1994); Yan Sun, The Chin ese Debate over So cialism (Prince- ton, N J.: Princeton University Press, 199 7); Andrew Nathan, Ch ina's Transition (NewYork: Co lumbia University Press, 1997), 174-197. 74. Zhonggu.o dangzheng ganbu luntan (Chinese Party and Government Official.s' Forum) 1 (2000) : 32. 75. Sichuan CCP POD, "Sichu ansheng dixian dangzheng lingdao banzi nianqinghuajincheng diaocha baogao," 24-25 . 76. lbid. , 2 1-39. 77. lbid. , 25. 78. www.chinanews.com .cn ,Ju ly 14, 2004. 79. www. xinhuan et.com , Jul y 14, 2004 . 80. Yujianrong's res earc h on th e crimin alization ofrural governments in the la te 1990s shows that the phenomenon of lo cal mafia states is probably wide spread in China. See Yu, " Nongcun hei' e shili he jiceng zhengquan tuihua" (Evil Forces in Rural Areas a nd the Degeneration of Rural Gov- emments), Zhanlüe yuguanli 5 (2003) : 1-1 4. 81. A represe n tative co ll ec tion of corruption cases is Dangqian jingji lingyu weifa weiji dianxing anli pingshi ( Comments an and Analysis of Current Representative Illegal and Rule-Breaking Gas es in the Economic Area) (Beijing: Zhon g hua gongshang lianhe chubanshe, 1996 ) . ZGFLN]a!so contains a sm all co ll ectio n of m aj o r corrupti on cases in its a nnu al i ss u e. 82. See an interview with Liu at wwwjcrb .co m / o urnews /as p / readNews. asp?id = 128509 on D ece mb er 9, 2002. 83. www.c hinan ews.com .cn, October 10, 2004; www. people.com.cn, August 25, 2004 . 84 . Awwwjcrb.com/ zyw, May 24, 2003. 85. ANFZM, August 22, 2002. 86. ANFZM, F eb ruary 20, 2003. 87. ANanfangwang (Southnet) , F ebruary 27, 2002, quoted on wwwjcrb.com.cn . 88. www.chinanews.com.cn , FebrUalJ' 25, 2002. -- 275 of 306 -- 264 Notes to Pages 161-170 89. www.chinanews.com/ cn , February 18, 2003. 90. wwwjcrb.com/ournews / asp, November 5, 200 2. 91. wwwjcrb.com/ournews / asp, November 26 ,2 002 . 92. www.chinanews.com.c n , July 4, 2003. 93 . www.ch in an ews.c om .cn,Ju ly 3, 2003. 94. Fora detailed account of this case, see Zhang Xianhua et al. , Fengba o: Chachu Xiamen teda zousi an jis hi ( The Storm: A True Account of the Investi- gation and Resolution of the Sup er-Large Xiamen Sm uggling Gas e) (Beijing: Zuojia c huban she, 2001). 95. Most of thes e cases were rep orted on th e Web sit es of www. j c rb.com a nd www.c hinan ews.co m.cn; o th ers were selected from official publi- cations specializing in the coverage of corruption and law enforce ment , such as Minz hu yu fazhi and NFZM. 96. www.chinanews.com.cn, July 3, 2003. 97. Thi s case involved Xiam en 's two deputy mayors, two depu ty party sec reta rie s, seven k ey law e nforcement official s, 13 percent of th e emp lo yees of the loc al c ustoms agency, an d th e h ea d s of the provincial branches of th e th ree largest state banks . 98. Yan Sun also documented numerous cases of selling government ap- pointments for personal gain. See Sun, Corruption and Market, 225- 226. 99. Renmin ribao, Jun e 19, 2001; www. c hin an ews.com.cn, November 29, 2001. 100 . .i\PZM, August 22, 2002. 101. www.chinanews .co m.cn , February 7, 2002. 102. Renmin gong'anbao (People 's Public Security News), April19, 2002. 103. www.chinanewsweek.com.cn , November 22, 2004. 104. Liu H aiqi, "Dah ei bixu fa nfu " (To Strike at Organ ized C rim e, We Mus t Combat Corruption) , Zhongguojiancha (Sup ervision in China) 6 (2001): 48- 49; www. c hinanews.com .cn,January 22, 2002. 105. The c rimin al gang in Do ng 'an co unty in Hun an opera ted from 1993 to 2000; the l ocal mafia s tate in Bangzhou , Hun a n, thrived during 1997-200 1; Liu Yong's group in Shen yang survived for ei ght years (1992-2000); the Zhou fam ily m afia in Qi an sh an co unty in Ji an gxi Iasted twelve years (1 99 0-2001) . 5. China's Mounting Governance Deficits 1. Elizabeth Kopits and Ma ur ee n Cropper, "Traffic Fatalities a nd E co nomic Growth ," WorldBankPolicy Research Working Paper No. 3035 (Washington, D.C .: World Ba nk , 2003) . 2. ZGTJNJ, various years. -- 276 of 306 -- Notes to Pages 170-172 265 3. www.chinanews.com.cn, February 24, 2003. 4. www.fa ctbo ok.net/EGRF_Regional_anal yses_AsiaPacific.htm. 5. BYTNB 10 (2002): 58. 6. Zhonggu.o gonghui tongji ziliao 1998 (Chinese Labor Union Statistics) (Beij in g: Zhongguo gonghui tongji zili ao c hub an she, 1998), 309. 7. www.chinanews.com.cn, Fe bruary 24, 2003. 8. www.laborsta.ilo.org. 9. Zhu Yichang, "Woguo anquan shengchan jiandu guanli tizhi ji dai gaige" (C hina's System of Managing a nd E nforc ing Workplace Safety Urgently Needs Reform) , jingji yaocan (Impor tant Economic Referen ce ) 55 (2002) : 20. 10. NFZM, August 1, 2002. Coal mine acciden ts claimed 5,798 lives in 2000, 6,399 in 1999, and 5,670 in 2001. Wu Xiaoli, " Guanyu meikuang anquan jiancha zhifa gongzuo de xianzhuan g yu jianyi" (On th e Status of In speerio n of E nfor cement of Safety Rul es in Coal Mines a nd Policy R ec- ommendations),jingJi yaocan 42 (2002): 34 . 11. NFZM, May 29, 2003. A government inspection ofi ll egal coal mining op - e rations in Guizhou in 2003 found that "a significant numb er oflocal of- ficials" were investors in th ese mines. www.chinanews.com.cn , June 16, 2003. In a mining disas ter in Nandan county in Guangxi in 200 1, the co unty's party secretary and oth er l oca l offleials accepted l arge bribes from the mi ne owner in exchange for permission to operate in violation of safety regulations . Eighty-on e miners di ed when the min e was flooded . wwwjcrb.com,Jun e 20, 2002. 12. NFZM,July 4, 2002. 13. World B an k, World Development Indicat(Yrs 2001 a nd World Developme nt Indicators 2002 (Washington , D.C.: World Bank); UNESCO Institute for Statistics, available at www.uis .un esco.org / ev. php ?URL_ID=5187&URL_ DO = DO _ TOPIC&URL_ SECTION = 201. 14. BYTNB 12 (2001): 11. 15. UNESCO , Educationfor All: ls the World on Track ? (Paris: U NESCO, 2002); Table 1.1 in the UNDP, Human Development Report 2005 at www.undp.org. np / publi cations/ hdr.200 5. 16. James H ec kma n , "China 's In vestment in Human Ca pita l ," NBER Wark ing Paper No. 9296 (Cambridg e , Mass.: National Bureau for Economi c Re - sea rch , October 2002) . 17. Su M in g, " Zhongguo nongcun jichu jia oyu de caizheng zhichi zh e ngce yanj iu " (A Study of the Policy of Fiscal Support for Basic Education in Rural China) , jingji yanjiu cankao 25 (2002): 3 4-42 . 18. Wang Guijuan, 'Jiaoyu jinfei nali chu le" (Where Did the Education Mone y Go?) , Ga ige neican (Reform Internat Referen ce ) 10 (2002): 21- 22. -- 277 of 306 -- 266 Notes to Pages 172-174 19. Lu Wangshi , "Caizhengjiaoyu touru youguan wenti yanjiu " (A Study of Fiscal Spending on Education and Other Issues) , Jingji yanjiu cank ao 94 (2000): 22 . 20. Quated in NFZM, August 29, 2002. 21. For a brief survey of the declin e of China's public h ealth system, see Yanzhong Huang, "Mortal Peril: Public Health in China and Its Security lmplications" (Washington , D.C.: Chemical and Biological Arms Control Institute, 2003). 22. World Health Organization , The World H ealth Report 2000 (Geneva, 2000), 152-155. For low-income countries , g ovemment spending on public health in 1997-1998 was 1.26 per ce nt ofth e bud ge t; in C hina , th e figure was 0.62 percent. NFZM , May 15, 2003. 23. An example of the inequality in the provision of healthcare is that 5 per- cent of the health expenditures are spent in the seven paarest provinces in the wes tem region, whereas Shanghai, Beijing,Jiangsu, and Zh ejiang account for 25 pe rc e nt of the h e alth spending. lbid. 24. CaiJing, www. caij in g.co m.cn , May 16, 2003. 25. Th e privatization of the rur al h e alth c ar e syst em oc curr ed in 1984 as a result of township fiscal reforms. Caijing, May 16, 2003, www.caijing. com.cn ; BYTNB 4 (2001): 10; Wang Yanzhong , "Shilun guojia zai nong- cun yiliao weisheng baozhan g zhongde zuoyong" ( On the Role of the Sta te in Safe guarding Rural H e alth c are ), Zh an lüe yu guanli 3 (2001): 18-19. 26. Overall, rur al areas acc ount for o nl y 30 p e rc e nt of all h ealth c ar e sp e nding . BYTNB4 (2001): 13. 27. Wang Yanzhong, "Shilun guojia zai nongcun yiliao weisheng baozhang zhongde zuoyong," 17. 28. BYTNB4 (2001): 8-11. 29. NFZM, May 15, 2003; www.chinan e ws. c om .cn , D ec emb er 3, 2004 . 3 0. Mini s try of H ealth , Guojia weisheng fu wu yanjiu (Na tional Hea lth Service Re- search) , www. moh. gov.cn/ statistics/ ro nh s98 / ind e x.htm; th e 2 00 3 data are from www. c hin an e ws .com .c n,J a nu ary 10 , 2005. 31. BYTNB 4 (2001): 8; Wang Yanzhong, "Shilun guojia zai nongcun yiliao we ishen g ba ozhang zhongd e zu oyong," 17. 32. www.c hin an e ws .com .cn , De ce mber 3, 200 4. 33. NFZM, May 15, 2003. 34. www. c hinanew s. co m .cn , May 17, 2003. 35. www. c hinanews .com .cn , N ovemb er 28, 2004 . 36. Th e Chinese govemment 's estimate pl ac ed th e number of HIV-c arri ers at 850,000 in 2002. But a U N AIDS report inJun e 2002 affe red a hi gh er e stimate of 1 millio n. And a CIA e stimate cont e nd ed th at the numb er of infec ted was betwee n 1 million a nd 2 million . See Nic hol as Eb erst ad t, -- 278 of 306 -- Notes to Pages 174-175 267 "The Future of AIDS," Foreign Affairs 81(6 ) (20 02): 22-45 ; Natio nal Intelligence Council, "The Ne xt Wave of HIVI AIDS: Nigeria, Ethiopia, Russia, India, and China" (Was hington, D .C., 2002); www.c hin anews. com .cn ,Jun e 27, 2002. 37. Only about two hundred people in Ch i na cou ld afford to pay for the an - tiviral treatment. The costs of treating half of China's AIDS patie nts and HIV-carriers were estimated to be 54.6 billion yuan. NFZM, Nove mber 28, 2002; Gaige neican 20 (2002) : 47. 38. U nit ed Nations, "HIVI AIDS: China's Tit a ni c Peril," Executive S umm ary of the Joint United Natio ns Program on HIVI AIDS (New York: U nited Nations, 2002). 39. Fo r an analysis of the rise in poverty in C hin a, see Azizur Rahman and Carl Ri skin , eds., Inequality and Poverty in China in the Age of Globalization (Oxford: Oxford Univers ity Press, 2001). 40. Wei Zho n g and B. Gustafs son, "Zh on gguo zh u a nxin shiqi de pinkun bi ando ng fenxi" (Analysis of Ch an ges in Pover ty in C hin a's Tran siti onal Period ) , Jingji yanjiu 11 (1998): 64-68. A government audit found that f rom 1997 to the first half of 1999, 20 pe rcent of the funds earmar ked for poverty relief in the country's 52 9 most impoveri shed counties h ad been misapp ropriated by local government officials. NFZM, May 30, 2002. 41. NFZM,July 29, 2004. 42. www.chinane ws.com.cn,January 27, 2003. In the firsthalf of2003, 21.68 million urban residents r ece ived poverty-relief payments . According to the government, 28.2 million rural residents were living in poverty in 2 00 3, d own from 49.6 million in 1998. www.chi n anews.com .cn, June 20, 2003; June 25, 2003. 43. Wang Yanzhong, "Shilun guoj ia zai non gcun yi li ao weisheng baozhang zhongde zuoyong," 17. The Chinesedefinition ofpoverty is less than 637 yuan in per capita income a year. www.chinanews.com.cn , Jul y 17, 2004 . World Bank data showed that th e number of p eop le livi ng in ex treme poverty was 376 million in 1990. The World Bank's estim ates suggest that the offi cial Chinese po ver ty rate may be to o low. See World Bank, World Development Indicators 2003, 5. Based on the Wo rld Bank in ternatio n al poverty line ($1 per day), China li fted 14 million pe op le out ofpoverty in the 1990s. But the overall poverty rate was 17.4 per cen t at the end of the decade . See Chen Shaohua and Wang Yan, " China's Growth and Poverty Reduction : Recent Trends betwe en 1990 a nd 1999" Wor.Zd Bank Policy Re- search Warking Paper No. 2651 (Washington, D.C .: World Bank In stitute, 2001 ). 44. See Elizab eth Economy, Th e Riv er Runs Black: Th e Environmental ChaUenge to China 's Future (Ithaca, N .Y. : Cornell University Press, 2004). -- 279 of 306 -- 268 Notes to Pages 175-178 45. Qu Geping , "Guanzhu Zhon g guo de shengtai a nquan" (Pay Attention to China 's Ecological Security), Zhonggong zhongyang dangxiao baogao xuan 1 (2002): 4-6. 46. www. c hin an ews.com.cn, Marc h 14, 2003. 47. www.chinanews.com.cn, Nove mb er 29, 200 4. 48. Qu Geping, " Guanzhu Zhongguo de shengtai anquan," 6-7. 49. World Bank, China 2020, 77 . 50. www.chinanews.com.cn, March 14, 2003. 5l.Ji e Zhenghua, "Dangqian d e huanjing xin gs hi he zhanlüe duice" (C ur- re nt E nvironm e ntal Conditions and Strategie Solutions) , Zhonggong zhongyang dangxiao baogao xuan 12 ( 2000) : 4. 52. ZhangJun and He Hanxu , " Zhongguo nongcun de gonggang chanpin gongji " (Provision ofPublic Goods in Rural China), Gaige5 (1996): 52. 53. Center for Chinese Studie s, Tsinghua University, "21 shiji: Zhon ggu o jinru huan bao shidai" (21st Ce ntury: China En ters the Era of Envi ro n- me ntal Prot ectio n) ,Jingji yanjiu cankao 97 (2000 ): 8. 54. Wang Shaoguang and Hu An gang, The Chinese Economy in Crisis: State Ca- pacity and Tax Reform (Armonk, N.Y.: M. E. Sharpe, 2001) ; Chri stine P. W. Wong , Christopher Heady, and Wing T. Woo , Fiscal Management and Ew- nomic Reform in the People's Republic ofChi na; Ram go pal Agarwala, "C hina: Reformin g Int ergove mm en tal Fiscal Relation s" World BankDiscvssion Pa- per No. 178 (Was hin gton , D .C.: Wo rld Bank , 1992) ; C hri stirre P. W. Wong, ed ., Financing Local Government in the People's Republic of China (N ew York: Oxford Univers ity Press, 1997) . 55. ZGTJZY 2000, 62. 56. Research Institute of the State Tax Administration, "Guanyu woguo shuishou fudan we nti zaiyanjiu" (A Second L oo k at the Issue of th e Tax Burden in C hin a) , Jingji yanjiu cankao 17 (1998): 3. 57. The municip al govemments' share offun ds increased as weil, bu t the au- thors of th e study did n ot disclose the precise m agni tude . Th ey simply suggested th at in 2001 municipal govemments d eclared a su rp lu s of more than 13 billion yuan. See Jia Kang and Bai Jingmin , ' Jiceng caizheng kunnan zai nali" (Wh at Are th e Difficulties in Local Public F in ance?), Gaige neican 15 (2002): 23. 58. Fan Liming and Wang Don gn i, "Woguo difang caizhe ng zhic hu jiegou sh izh eng fenxi " (An Empirica l An alys is of th e St ructur e of China's Local Fiscal Expenditures), Gaige 3 (2001 ): 72. 59. Xiang Huaicheng, "D angqian de caizh eng go n gzuo yu cai zhe n g gaige" (Current Fiscal Tasks a nd R eform), Zhonggo ng Zhongyang dangxiao bao- gaoxuan 4 ( 1999) : 8. 60. BYTNB 11 (1999) : 5. -- 280 of 306 -- Notes to Pages 178-181 269 61. Su Ming , "Woguo xianxiang caizheng wenti d e fenxi yu zhe ngc e jianyi" (The Problem of County and Township Finan ce: Analysis and Policy Rec- ommendations), N eibu cankao 39 (2002): 19. 62. Su M in g, "Zh ongguo nongcunji c huji aoyu d e caizhe ng zhic hi zh e ngce yanjiu ," 45. 63. He Xuefe ng and XiangJiquan , "Huaijie cunji zhaiwu de ganga" (Resolvi ng the Difficulties in Village Indebtedness), Gaige neican 11 (2002): 22- 23. 64. He Junwei, "Xiangcun zhaiwu wenti de xianzhuang chengyin ji duice" (Towns hip and Villa ge Debts: The Status, Causes , a nd Policies) ,] ingji yao- can45 (2002): 9. 65. www.chi nan ews.co m. c n, Nove mb er 29, 2004. 66. HeJunwei , "Xiangcun zhaiwu wenti de xianzhuang chengyinji duice ," 10. 67. BYTNB9 (2000): 14. 68. BYTNB5 (2001): 37. 69. H e Junwei, "Xia ngcun zhaiwu wenti d e x ian zhu an g chengyinji dui ce ," 9. 70. Qu an Junli an g, "Xiangcun yanzhong fuz h ai de ch engy in ji zhili" (Th e Cau ses of a nd Solution to the He avy Deb ts In c urre d by Towns hip s a nd Villages),]ingjiyanjiu cankao 114 (2000): 3 7-38. 71. Zhao Limin et al., 'Jiakuai tuijin nongcun s huifei gaige de nandian he duice " (O n the Difficulties and Palieies in Aceeierating the Implementa- tion ofTax and F ee Re form s in th e Countrys id e) , ] ingji yanjiu cankao 74 (2002): 34. 72. BYTNB9 (2000) : 23. 7 3. H e Junwei, "Xiangcun zhaiwu wen ti de xian z hu an g che n gyinji duic e," 10. 74. Zhao Shukai, a DRC researcher, argued that the co ll apse of public finance in rural areas is a principal cause of the increasin g co nflict between peasants a nd l oca l gove rnm e nts. S ee Zh ao Shukai , " Xi an gc un zhili: Zuzhi h e chongtu " (Rura l Gove rnanc e: Organization and Con- flict) , Zhan lü e yu guan li 6 (2003): 1- 8. 75. QuanJ unli an g, "Xiangcun yanzhon g fuz h ai d e ch e ngyinji zhili ," 3 9. 76. In Xiangtan city in Hun an , 25 p erce nt of towns hip offleials re ported th ey would like to seek other positions. Chu Guoliang , "Xia ngzhen zhen gfu de ca izhen g h e id on g" (Th e Black H ole in th e Fin an ce of Towns hip Gov- ern men ts), Gaige neican 5 (2002): 6. 77. R esearch In stitu te of th e Mini stry of Fin an ce, " Xiangzhen caizh en g chizi yu zhaiwu yanjiu bao gao" (Research Rep ort on t he Deficits a nd Debts of Townships), Jingji yan)iu cankao 78 (2002): 2- 8. 78. Samuel Huntington, "Social a nd Institutional Dynami es of One-Party Sys- tems ," in Huntington and Cl ement Moore, eds. , Authoritarian Politics in M odern So ciety : The Dynamics ofEstablished One-P arty Systems (New York: Ba- sie Books , 1970) , 4, 9. -- 281 of 306 -- 270 Notes to Pages 183-184 79. In village elections, individuals who have d emo nstrated economic suc- cess have a better chance of ge tting elected to villagers' committees. In Zhejiang province, 30 per ce nt of villagers' co mmittee memb ers were successful wealthy peasants and private entrepre n eurs. F an Ping, "2003 nian Zhongguo n ongmin fazhan de jib en z hu angku an g" ( Rura l Devel- opment in China in 2003: Basic Situation) , in Ru Xin et al., eds., SHLPS 2004, 306-307. 80. The withdrawal by the Chinese state from providing critical social services has been e xtensively documented. See Li Junpeng, C'70nggong fuwuxing zhengfu (Public Service Oriented Govem m ent) (Beij in g: Peking U niversity Press, 2004) . For the decl in e of govemment-provided social services in the countryside, see Ce nter for Economic Sturlies of the Ministry of Agri- culture , Zhongguo nongcun yanjiu baogao 2000 ( Re search Report on Rural China ) (Beijing: Zhongguo caizheng chub a nsh e, 2001). 81. See Zh ao Shukai , "Xian gcun zhili: Zuzhi h e chon gtu," 1-8. 82. Thi s is evid e nt in the co ll apse of the Co mmuni st Yo uth L eague in rural China . A survey conducted by the league 's organization in Xiangtan city in Hunan in 1999 foun d that 90 percent of the villages did not have a league cell. Since the CCP recruits from the leag ue, the collapse of the league does not bode weil for the party. See Hu a ng Ren , ' Ji ceng tuan zuzhi mi an lin de we nti bur ong hu shi " (The Problems F aced by the League's Grassroots Organi zati on Cannot Be Ignored) , Neibu canyue (Jn- temalReference) , October 27, 1999, 19-23 . 83. Sic hu an CCP POD, "Zh e ndui pinkun di qu t edian j inyibu jiaq i ang n on g- cun jiceng zuzhi jianshe " (Target the Special Char ac teri stics of P oor Areas and Further Stren gth en the Building of Rural Grassroots Organi- zations), Dangjian yanjiu neican (Party-Building Research Intemal Reference) 7 (1998) : 11. Although there are no official data on how many CCP mem- bers have left the countrys id e for the cities, sociologists estimate that 120 millionrural r eside nts migrat ed to urban areas between 1978 and 2002. The CCP m e mbers acco unt for 3.75 p ercen t ofth e generalrural popula- tion. Thu s, at least 4.5 million CCP members h ave left the countrys ide. Th e actual number of CCP m e mb er migrants is likely m uc h !arger be- cause brighter prospects in urban areas should attract more par ty mem- bers . The estimate of rural migrants is from Fan Ping , "2003 ni an Zhongguo nongmin fazhan d e jiben zhuangkuang ," 304. 84. Shanxi CCP POD, "Guanyu dangyuan duiwujiegou fenxiji shutong dan- gyuan duiwu c hukou wenti de diaoyan baogao" (An Investigative Re- sear ch Re port on the Structure of Party Memb ers and the I ssue of th e Exit of Party Members) , in ZGYVv, 53. 85. BYTNB7 (2001): 8. -- 282 of 306 -- Notes to Pages 184-186 271 86. The time of the survey was not identified. See Lu Xianfu , "Dan gxi an dangde jianshe de jige zhongda wenti" (Several Major Issues in P arty- Snilding Today), Lilun dongtai ( Theoretical Development) 153 1 (2001 ): 13. 87. Li Jing and Cheng Wei, "Tingchan bantingchan qiye d angyuan gua nli qingkuang diaocha" (An In vestigati on in to th e Management of Party Memb ers in Enterprises That Have Ceased or Partially Ceased Operation), Dangjian yanjiu (Party-B uilding Research) 2 (1998): 38. 88. Shanxi CCP POD, "Guanyu d a ngyuan duiwuji ego u fenxiji shuton g dan- gyuan duiwu chukou wenti de diaoyan baogao ," 53. 89. Other t han tr yin g to assert its co ntrol, the CCP's moti ves fo r trying to penetrate the private sector remain puzzling because Bruce Dickson 's re - search shows that C hinese private entrepreneurs do n o t constitute a threat to the party. See Dickso n , Red Capitalists in China. 90. Li Li' an , "Zai feigongyouzhi qiyezhong ka izh an dangjian gongzuo zhi woji an " (My Views on Impl eme nting Party-Building Efforts in Non- State- Owned En t erpr ises), Dangjian yanjiu neican (Internat Research Ref erence on Party-Building) 4 (2002): 1. 91. In Guangdong's 7,301 civic associations, the party had ce lls in only 1.3 percent of them in 2000 ; the party had only one cell in Beijin g's 1, 140 private clinics and hospitals. In Beijing's private service firm s, only 1.8 percent of the e mpl oyees were CCP members. Institute of Party- Bui ldin g Research ofthe CCP COD, ed ., "She hui zho n gj ie zuzhi dan gj ian gongzuo qingkuang di aoc ha " (Investigation of the Status of the Party- Snildin g Work in Intermediaring Social Organizations), Dangjian yanjiu neican 7 (2002): 8. 92. Shanghai CCP POD rep or ted that only 3 percent of the wholly-owned foreign firm s in the ci ty h ad party organizations. Shanghai Munic ip al CCP Sch oo l, "Xin jingji zuzhi dangjian gongzuo de xianzhuang yu qianzhan," Dangjian yanjiu neican 6 (2001): 11. In Shenzhen , only 4 p er- cent of th e foreign -invested firms h ad party ce ll s. Li 'an, "Zai feigongy- ouzhi qi yezhong kaizhan dangji an gongzuo zhi wojian," l. 93. Lu Xianfu, "Dangxian dangde jianshe de jige zhongda wenti, " 10. 94. ZGTJNJ 2003, 127. 95. For a d escr iption of the erosio n of the party 's ideologic al val ues , see chapter 4. 96 . The time of the survey was not disclosed. Lu Xianfu , "Dangxian dangde jia nsh e de jige zhongda wenti," 14. 97. Ha'erbin CCP Municipal Organization Department, "Guanyu tuijin dan- gzh eng lin gdao ganbu nen gs hang nengxia wenti de yar~ iu bao gao" (A Research R eport on Improvin g the System of Promotion and Dernotion of Party and Government Officials), in ZGYW 1998, part I, 365. -- 283 of 306 -- 272 Notes to Pages 186-188 98. Anhui CCP POD, "Tuijin dangzheng lingdao ganbu nen gs hang nengxia wenti yanjiu bao gao" (A Research R epo rt on Improvin g the System to Promote and De rnote Party and Government Offleials), in ZGYW 1998, part I, 335. 99. Sichuan CCP POD, "Sichuansheng dixian dangzheng lingdao banzi nianqinghuajingcheng diaocha baogao ," ZGYW 1997, 20. 100. Yu Yunyao , "Mianxiang xin shiji de Zhongguo gongchandang" ( The Chinese Communist Par ty Fac es the New Century) , Zhonggong zhongya ng dangxiao baogaoxuan 1 (1998): 15. 101. www. people.com.cn, May 31, 2001. 102. Beiji ng CCP Municipal Organization De partment, "Beij in gs hi dangyuan duiwu jiegou fenxi ji shutong dangyuan duiwu chukou wenti ya njiu " (A Stud y on the Structure of Party Members and the Issue of the Exit of Party Members in Beijing ), ZGYW 2000, 229-232. 103. Ha'erbin CCP Municip al Organization Departm e nt, "Guanyu tuijin dan- gzh eng lin gdao ganbu nen gsh ang nen gxia we nti de yanjiu baogao ," 365. 104. Jilin CCP POD , "Guanyu bu ch engzhi dangzh eng lin gdao ganbu xia de wen ti d e diaocha yu sik ao" (An lnv es tigation and Some Tho u ghts on Demoting Incompetent Par ty and Government Offlcials), ZGYW 1998, partl, 399. 105. Zeng Qinghong, "Wei shi xian 10/5 qijie d e fa zh an mubi ao ti go n g zuzhi baozheng he r encai zhic hi " (P rovide Organi zational a nd Tale nt Sup- port for th e Deve lopm ent Goals of th e 10 th 5-Year Plan) , Zhonggong zhongyang dangxiao baogaoxuan 16 ( 2000) : 9. 106. Sichuan CCP POD, "Sichuansheng tuijin d angzheng lingdao ganbu nengshan g nengxia wenti diaoyan baogao " (An Investigative Research Re port on the Issue of Pr omo tin g a nd Dem o tin g Pa rty and Gove rn- me nt Offleials in Sichuan Province) , ZGYW 1998, part 1, 298 . 107. Changsha CCP Municip al Organization Dep artment , "Ga nbu xia nan wenti yai~jiu" (A Study of th e Diffl culty in De moting Cadres), Da ngjian yanjiu neican 5 ( 1997): 7. 108. DRC, "C unji zuzhi de kunjin g" (The Plight ofVillage Institutions), DRC diaocha yanjiu baogao 169 ( 1999) : 1-19. 109. Zhongguo gaige, nongcun, 2 (2003): 47. 110. Sichuan CCP POD, "Sic huansh eng d angzhen g lin gdao banzi ch en gyuan six ian g zh engzhi suzhi zhuan gkuang diao cha baogao" (An ln vestigative R epo rt on th e Status of th e Ideological and Political Caliber of Prefect and Co unty Party and Gove rnment Offleials in Sichuan Province ), ZGYW 1999, 25-26. 111. Xu Xueh ai et a l. , "Shehui jingji guanxi xi nb i an hua yu d angz he ng jiguan ganbu duiwu jian sh e wenti tanwei" (New Changes in Socio- -- 284 of 306 -- Notes to Pages 188-192 273 economic Relations and Some Tentative Thoughts on the Building of the Ranks of Party and Government Officials), Shehui hexue z ha nxian (Social Seiences Gazette) 1 (2000): 230. 112. Murray Scot Tann er provides an extens ive analysis of the rising social unrest in China in "China Re thinks Unrest ," The Wa shington Quarterly 27 (3): 137-156. 113. The data cited here are from No. 4 Research In stitute of the Ministry of Public Secmity, "Woguo fusheng quntixing shijian de diaocha yu sikao" (A Study and Reflection on Collective Incidents in C hina) , Neibu canyue Au- gust 10, 2001 , 18. Lu Xueyi, "Nongcun yao jingxing di'erci gaige" (Rural Areas Need Anoth er R efo rm ) , in Ru Xin etal. , eds., SHLPS 2004, 190. 114. Yu Jianrong, "Nongmin youzuzhi kangzheng jiqi zhengzhi fengxian " ( Organized Resistance by Peasants and Its Political Risks) , Zhanlüe yu guanli3 (2003): 1-16. 115. BYTNB2 (2000): 8-12; BYTNB 1 (2001): 40-4 2. 116. The mo s tinformative description is Li Chan g ping 's Wo xiangzongli shuo shihua (I Told the Premier the Truth) (Beijing: Guangming ribao c hub an- sh e , 2002). Li was a party secretary in a Hubei township. In his bo ok, he described political decay and economic difficulties in rural China in the most stark terms. 117. No. 4 R esearch Institute of the MPS, ''Woguo fasheng quntixin g shijian d e di aoc ha yu sikao," 21. 118. Shen Zelin, "Yingxiang dangqian nongcun we ndin g fazhan de z huyao yinsu" (The Main Factors That Affect Rural Stability and Develo pm e nt) , Shehuixue (Sociology) 2 (2001): 52. 119. Peasant protests against local governments ' expropriation of land replac ed tax revolts as the f oc us of rural dis co nte nt in the first d ecad e of the new century. See Xiaolin Guo, "La nd Ex propri at ion and Rural Con flicts in China," Th e China Quarterly 166 (2001) : 422-439. Yu Jianrong's study found th at, of the 22, 304 viewers' calls to C hin a Ce ntral TV, co mplaints about la nd issues totaled 15,312, m a kin g the l and i ss u e th e most salient rural problem. See Yu Jianron g, "Tudi wenti yichengwei non g min we iquan kan gzh eng de jiaodian " (The Land Issue H as Become the Focus of the Peasants' Resistan ce an d Struggle in the Defense of Their Rights) (Beijing: Ins titute of Rur al Deve lopm en t, C hin ese Acad- emy of Social Sciences, 2004) . 120. Zhang Xuhong, "Woguo non gmin shouru de xi anzh u ang yu duice " (Peasant Income in China: The Current Status a nd Policy Options), ]ingji yanjiu canhao 62 (2001): 18. 121. NFZM, March 29, 2002; ZGTJZY 2000 (China Statisti ca l Abstract) , 84. Rural in come is augmented by income fr om n onagricu ltur al produc- -- 285 of 306 -- 274 Notes to Pages 192-194 tion , with about 30 percent of rural incom e in 1999 derived from wage income of migrant laborers . www.chinane ws .com .cn,January 19, 2003. 122. For an analysis of the co n s traints on inc reas in g rural in come, see Project on Peasant Income, "Zengjia nongmin shouru de shida zhiyue" (Ten Major Co n strai nt s on In creasin g Peasan t In come), Zhongguo nong- cunyanjiu (ChinaRuralResearch) 6 (2002): 1-1 2. 123. Wang , Hu , a nd Ding, ' Jingji fanrong be ihou de shehui buwe nd ing," 27. 124. Li Changping, Wo xiang zongli shuo shihua, 21. 125. Cui Xiaoli, "Woguo non gcun shuifei zhe ngsh ou c unz ai de we nti ji gai ge jian yi" (Collection of Taxes a nd Fees in C hin a's Rural Areas: Ex i sting Prob l ems a nd R eco mmendations for R eform ), DRC diaocha yanjiu bao- gao 54 (2002): 5. 126. See Thomas Bernstein and Xiaobo Lu, Taxation Without Represen tation ( NewYork : Garnbridge University Press, 2003). A nother notabl e source of tensions is the dispute between the peasantry a nd th e governme nt over land acqu isiti ons by the sta te . In Hun an , d i sputes over l and acqu i- sitions and compensation were among the top eight issues that trig- gered p easa nt petitions to government. BYTNB 1 (2002): 5- 7. 127. Li Tianzi and Li Haifeng , ' Jixu zhongshi jiejue nongmin fud an zhong de wenti" (Continue to Pay Attention to and Solve the P roble m of H eavy Peasant Burdens) , Dangjian yanjiu neican 6 (1999): 13-14. 128. Th e total amount in taxes and fees paid by the agra rian sectorwas abo ut 10 percent ofrural GDP, with 2.63 percent in taxes and 7.43 percent in au thoriz ed levies and f ees . Ill egal fees and levies amount to an addi- tiona l 10 percent of rural GDP. Research Institute of the State Tax Ad- mini st ration , "Guanyu woguo shuishou fudan wenti zai yanjiu ," 20; R esearc h Institute of the M ini stry of Financ e, " Xiangzheng caizheng chizi yu zha iwu ya njiu bao gao," 6. 129. Shen Ze lin , "Yingxiang dangqian nongcun wending faz han d e zhuyao yi nsu, " 51. 130. See Thomas Bernstein and Xiaobo Lu , "Taxation Without Re presen tation: Pe asa nts, the Central and the Local States in Reform China ," Th e China Quarterly 163 (2000): 742-7 63. 131. Li and Li, ' Jixu zhongshijiejue nongmin fudanzhong de wenti ," 13-1 4. 132. Institute of M acroeconom ic Research , State Planning Commission, "Zhongguo jumin shehui xi ntai genzong fenxi" (Tr acking Analysis of the Social Sentiments ofC hinese Citizens), in Ru Xin et al. , eds ., SHLPS 2002, 22. 133. Rural Survey Group , National Bureau of Statistics, "No ngcun jiceng gongzuo yu nongmin yiyu an diaocha" (A Sm-vey of Basic Level Admin - istration in Rural Ar eas a nd Sentiments of P easan ts) , Zhongguo guoqi ng guoli (China 's National Conditions and Power) 11-12 (2001) : 41. -- 286 of 306 -- Notes to Pages 194-197 275 134. Li Changping, Wo xiang zongli shuo shihua, 20. 135. BYTNB 10 (2002): 37. 136. Fan Ping, "Biandong zhong de Zhongguo nongcun yu non g min" (Changing Chin ese Villages and Pe asants), in Ru Xin e t al., eds ., SHLPS 2002, 257. A DRC r e port di sclosed that co llectin g t axe s and f ees consumed more than half the work time of offleials of township and vil- lage governments. Cui Xiaoli , "Woguo nongcun shuifei zhengshou cun- zai de wenti ji gaige jianyi," 8. 137. Rural Survey Group, National Bureau of Statistics, "Nongcun jic eng gongzuo yu nongmin yiyuan diaocha ," 41. 138. Asurvey ofnin e ty townships in fiftee n p ro vinces by th e Min istry ofCivilM- fairs in 1992 found that almost two-thirds funded their payrolls through collection of illegal fees. In some counties, income from such fees covered more than half the payroll costs. Liu Shuming , "Kao feigaishui jiejue nongmin fudan guan yong ma" (Will Tax-for-F ee Reform Solve th e Prob- lem ofP e asant Burdens?) , Zhongguo guoqingguoli 11-12 (2001): 43. 139. NFZM, Se ptember 19, 2002. 140. Yu Jianrong , 'J inru non gc un ji ce n g zh eng qu an d e h ei'e shili" (Evil F orces That Have Penetrated Local Governments in Rural Areas ), Ga ige neican 10 (2002): 39-42. 141. Zhang Zhiming and Zhao Wenhao , 'Jicen g d a ngde lin g dao fangs hi zhu a nbian yi ke bu ronghu a n" (Changes in th e Party's Gove rnin g Style at th e Lo cal Level Can No Lon ger Be Delayed) , L ilun dongtai 1577 (2002): 23- 24. 142. BYTNB 12 (2000): 39-40 . 143. BYTNB 10 (2002): 37. 144. Ibid. , 38. 145. Ray Yep , "Can 'Tax-for-Fee ' Re form Re du ce Rural Te nsion in Chin a? The Process, Pro gre ss an d Limi tations ," The Ch ina Quarterly 177 (200 4): 42 -70 . 146. Liu Shuming, "Kao fei ga ishuiji ejue n on g min fud an gu an yon g m a," 42. 147. In a po ll of 2,001 resid en ts in six cities in July 2000, 64 p erce n t thou g ht the country was very stable or quite stable , and only 9 percent thou g ht it was un sta bl e or quite un sta bl e . Yang Yi yon g a nd Zhan g Be nbo , " Zhonggu o chen gz hen j u min sh e hui x in tai d e dia o ch a b aogao " (A Re por t on th e Publi c Sen tim en ts of U rb an Resid e nts in Ch in a) , in Ru Xi n e t al. , eds., SHLPS 2001, 28- 29. 148. Yuan Yue, "1998 -1 999: Zhongguo ch en gs hi shimin x in tai zon gh e pingjia" (A Composite Evalua tion of th e Se ntim e nts of Chin ese U rban Reside nts in 1998-1999) , in Ru Xin et al., ed s., SHLPS 19 99, 101-102. 149. Yu an Yu e et a l. , "2001 ni an Zh on g guo s himin shen g huo m an yi du d e di aoc ha" (A Survey of Life Satisfaction of C hin ese Ur ban Resid e nts in 2001 ) , in Ru Xin e t al., ed s., SHLPS 2 002,40. -- 287 of 306 -- 276 Notes to Pages 197-199 150. Institute of Macroeconomic Research, State Planning Commis sion, "Zhongguo jumin shehui xintai genzong fenxi, " 19-20. 151. Tanner reached similar conclusions in his "C hina Rethinks Unre st ." 152. Also mention ed as among the top three issues in the five-year period were environmental prot ectio n, educa tion, h ealthc are reform, and social security (each issue was once mentioned the number three issue in the period); Yuan Yue et al., "2001 nian Zhongguo shimin shenghuo manyidu de diaocha," 45. 153. Sun Li and Zheng Weidong, "1998: Zhongguo shehui xingshi yu gaige de shehui xinli diaocha baogao" (A Report on the Social Psychology of the Conditions andReform in Chinese Society in 1998) , in Ru Xin et al., eds., SHLPS 1999, 56. 154. Institute of Macroeconomic Research, State Planning Commission, "Zhongguo jumin shehui xintai genzong fenxi," 22. 155. Guo Yan, "Laobaixing de xintai" (Public Sentiments), Gaige neican 3 (2002): 21-24. 156. Wang, Hu, and Ding, ' Jingji fanrong beihou de she hui buwending, " 29. 157. Ibid., 27. 158. NFZM, June 13, 2002: the number of registered unemployed urban workers in mid-2001 was 6.18 million, or 3.3 percent ofthe urban labor force. Lu Jianhua , "Shehui fazhan jincheng buru quanxin d e k aifang jieduan" (Th e Process of Social Development Has Entered a Brand- New Phase of Opening) , in Ru Xin et a l. , eds ., SHLPS 2002,9 . 159. Mo Rong, 'Jiuye: Xinshiji mianlin de tiaozhan yu xuanze" (Employment: Challenges and Choices for the New Century) , in Ru Xin et al., eds., SHLPS 2001, 219. 160. About 40 percent had a lower-middle school education or less. The average age was thirty-nine , with about half between thirty-five and forty-five and almost a quarter forty-five and older. Mo Rong , ' Jiuye xingshi yiran yanzh ong" (The Employment Situation Remains Severe), in Ru Xin et al., eds., SHLPS 2002, 165, 167. 161. Li Peilin and Zhang Yi , "Z hongguo shouru chaju kuoda de houguo ji zhili duice" (Rising Income Inequality in C hin a: Co ns e qu en ces a nd Pol- icy Options) , ]ingii yaocan 51 (2001): 3. 162. Mo Rong, 'Jiuye: Xinshiji mianlin de ti aozhan yu xuanze, " 220. 163. Song Bao'an and Wang Yushan, "Changchun shi x iagang zhigong zhuangkuang de wenjuan diaocha" (A Survey of the Conditions of Laid- offWorkers in Changchun), in Ru Xin et al., eds ., SHLPS 1999,274. 164. LuJianhua, "1998-1999: Zhongguo shehui xingshi fenxi yu yuce zong baogao" (A General Report on and Analysis of the Social Conditions in China in 1998-1999) , in Ru Xin et al., eds., SHLPS 1999,9. -- 288 of 306 -- Notes to Pages 200-203 277 165. Yan et al., "Tianjin shi xiagang zhigong zhuangkuang de wenj uan diaoch a" (A Survey of the Co nditions of Laid-off Workers in Tianjin); Song a nd Wang, "Chan gc hun shi xiagang zhigo n g zhuangkuang de wenjuan diaocha"; Jiang Shuge et al., "Xiagang yu zaijiuye wenti jiqi chu lu" (Lay-offs and Reemployment: Prob l ems and Solutions), in Ru Xin et al., eds., SHLPS 1999, 259-260, 281,314. 166. In a survey of 1,152laid-off w orkers in Tianjin in October 1998, 38 per- cent said they cutdown on t heir spending to make ends meet , 23 per- cent relied on help from family, 11 per cent used saving s, a nd 18 percent relied on friends a nd relatives. Yan et al., "Tianjin shi xiagang zhi gon g zhuangk uang de wenjuan diaocha," 259-260 . 167. Ibid., 262. 168. Mo Rong , "Zhongguojiuye x ingshi yiran yanz hong " 182, 168 ; Mo Rong, 'Jiuye: Xinshiji mianlin de ti ao zhan yu xuanze ," 218. 169. Yujianrong, "Zhua nxin g Zh ongguo de shehui chongtu " (Social Conflicts in a C hin a in Transiti on) (Beij in g: In stitut e of Rural Development, Chinese Academy of Social Sciences, 2004) . 170. Yan e t al., "Tianjin shi xiagang zhigo ng zhuangkuang de wenjuan diaocha ," 259. 171. Jiang Shuge, et al., "Xiagang yu zaijiuye we nti jiqi chulu," 315. 172. Wang , Hu, and Ding , 'J in gji fa nrang beihou de she hui buwend in g," 30. 173. Song and Wang, "Changc hun shi xiagang z hi gong z hu angkuang de wenjuan diaocha, " 282. 174. On worker unr est, see Mare Blecher, "Hegemony and Workers ' Politics in C hin a," The China Quarterly 170 (2002): 283 - 303; Yongshun Cai, "The Resistan ce of Chinese Laid-Off Workers in the Reform P eriod, " The China Quar-terly 170 (2002): 327- 344; Willi am Hurst and Kevin O'Brie n, "China's Contentious Pen sioners," Th e Ch ina Quarterly 170 (2002) : 345- 360. 175. Wang , Hu , and Din g, 'Jingji fanran g beihou de she hui buwending," 31. 176. Human Rights Watc h has a d etailed acco unt of this sp ecific incid e nt in its " Payin g the Price: Worker Unrest in Northe ast China" (New York: Human Rights Watch, 2002) . 177. ZGFLNJ 2003. 178. Yu Jianron g, "Xinfang de zhiduxin queshi jiqi zhengzhi houguo" (The Institutional Flaws of L etters and Visits and Their Political Consequences) (Beijing: In stitute of Rural Devel opment, CASS, 2004) . 179. NFZM, November 4, 2004. 180. According to Yujianrong's research, about 50 percent of the petition ers thought the centra l government's authority in rural areas was "very high and quite hi gh ." In comparison, on ly 2 percent said the coun ty -- 289 of 306 -- 278 Notes to Pages 203-213 government's authority was "very high or quite high." Yu Jianrong, "Xinfang de zhiduxin que s hijiqi zhengzhi hou g uo." 181. lbid. 182. Th e July 2000 poll surveyed 2,001 residents in urban areas in six cities. Yang and Zh ang, "Zho nggu o ch en gzhen jumin she hui xintai de diaocha baogao ," 31. The September 2001 poll included 1,999 residents in five provinc es. Institute of Macroeconomic Research , State Planning Com- mission, " Zhongguo jumin shehui xintai genzong fenxi," 20. Conclusion l. China's growth during this period lagg ed b e hind the growth rates for Japan, Taiwan, and South Korea during comparable periods of economic take-off. Martin Wolf, "Why Is China Growing So Slowly?" Foreign Policy (Januar y-February 2005): 50-51. 2. Thomas Rawski, "What's Happ e ning to C hina's GDP Statistics?" (Unive rsity ofPittsburgh , m e mo , 2001). 3. See Minxin Pei, From Reform to Revolution: The D em is e of Communism in China and the Soviet Union (Cambridge, Mass.: Harvard University Press, 1994). 4. O ' Donn ell and Schmitter, Transitions fromAuthoritarian Rule. 5. See Robert Ross, "Beijing as a Conservat ive Power," Foreign Affairs 76(2) (1997): 33-44 ; Ezra Vogel, ed., L ivingwith China: U.S.-ChinaRela tions in the Twenty-jint Century (N ew York: Norton, 1997); James Shinn , ed ., Weaving the Net: Conditional Engagement with China (N ew York: Council on Foreign Relations, 199 6). 6. See Jack Go ldston e, "The Coming Chinese Co ll apse ," Foreign Policy 99 (1995): 35-5 3; Gordo n Chan g, The Coming Collapse ofChina (N ew York: Random H ouse , 2001) . -- 290 of 306 -- Acknowledgments In the three years of res ea rch and writing, I have received generaus support and encouragement fro m man y individuals and organizations. Otherwise, Chinas Trapped Transition could not have b ee n finished. I want to th a nk th e Smith Richardson Foundation for a three-year grant that financed most of the research on the project. The Carnegie Endowment for International Peace has provided the most hospitabl e e nvironment for co nducting res ear c h. I am privil ege d to have a group of outstanding co ll eagues. In parti cu lar, I wish to th ank J essi ca Mathews, the pres ident of the endowment, for h er enthus ia stic support. Tom Caroth ers, Pa ul Palaran , a nd George Perkovich at the Endow- ment have also been very generous with their help. Much of the research was done at the Center for Chinese Studies at the Chinese University of Hong Kon g, formerly known as the Universities Ser- vice Centre. UnderJean Hung' s e nerg et ic an d se lfless lead ers hip , th e centre h as become the most valuable resource for C hin a specialists around the world. In th e co urs e of my r ese arch, J ean a nd h er colleagues m ad e m e truly welcomed at th e Cen tre and gave m e all th e logistical assistance esse nti al to successfully complete the project. I am very grateful to Bruce Dickson for his h e lpful comments on the manus cript. At th e Carnegie Endowment , I h ad the great fortun e of being assi sted by Seth Garz, Sar a Kasper, Merritt Lyon, a nd Victorie n Wu, four bri gh t a nd h ardworkingjunior fellows. Elizab eth Reit er, Savina Rup a ni , a ndJen nifer Yi also provided valuable administrative assistance during the pr e paration of the manu script. I want to thank t hem fo r their dedic a tion a nd contribution. Parts of Chapters 1 and 4 dr aw on materials publi sh ed in my " Rott en from W ithin : D ecentrali zed Pr ed a tion an d In capacitated State, " in T. V. P au l, -- 291 of 306 -- 280 Acknowledgments G.John Ikenberry, andJohn Hall, eds., The Nation-State in Question (Princeton, NJ.: Princeton University Press, 2003). I thank Princeton University Press for permission to use the materials. I also want to thank Kathleen McDermott of Harvard U niversity Press for her patience , underst and ing , and encouragement. My wife, Meizhou, and my two boys, Alexander and Philip, are owed spe- cial gratitude for tolerating my long research trips to Asia and frequent bouts ofworkaholic behavior that must have made their lives miserable. The greatest debt I owe is to Samuel P. Huntington , my teacher and friend. His seminal work on political development and democratization and bril- liant insights into th e centrality of politi ca l institutions have inspired me ever since I took my first seminar with him in 1986. Sam 's enduring influence is evident in the theoretical assumptions and analytical approache s of the book. And to Sam this book is dedicated. -- 292 of 306 -- Index Academics: CC P co-optation of in te ll ec- tuals and, 88-92 Acci dents: workplace, 170 Accountability: enforcement of, 28 Acid rain , 175 Administration , 47-48, 121, 138-1 39 Administr a tive decentralization and predation, 144-147 Admin ist r at ive laws, 59 Administrative Iiti gation, 202 Age nt-predation: in post-co mmunist system s, 40 Agents: exit options for, 42, 152-1 56; monitarin g a nd disciplining, 4 1-42, 147-149; roJe in state predation , 37; supervision of cadres and , 144-147 . See also Principal-agent relations Agricu l tural Bank ofC h ina (ABC), 110 Agriculture: decollectivization of, 47- 48, 97; infr as tructure deterioration in , 176; oversupply an d co sts of products, 1 92 ; r efo rms in , 26 AIDS: pub li c h ea lth services a nd , 174 Air pollution: from coal burning , 1 76 Alford , William , 66 A ll o ca tion ofresourc es: eco nomic costs of transition a nd, 23 Alpennann , Bjorn, 73 Anlwi province: authority in, 195 -1 96 App o intm e nt power: of LPCs, 62- 63 Appointments . See Official ap po intrnents Asset contr o l: exit optio ns and , 42; patronage through, 31; proper ty rights a nd , 41 Asset management companie s (AMCs), 111 AT&T:joint ISP verHure in Shanghai by, 106 Aud i ts: ofb an ks, 118-119 Autho ritarian r eg im es: eco no mic strategy of, 29 ; f ear ofb ig-bang approach, 3 0- 33 ; o ne-party system and , 181 Auto cracy: developmental, 8 1-83 ; after Mao , 7; soc ioeconomic change and, 20. See also Authori ta rian regim es Bad loans : village a nd towns hip fin ances a nd , 1 80 Ba nking : bai l-o ut pa ck age for, 122; crisis in , 111-11 2; g overnance and c ormp- tion in , 118 -1 20; gr a du alism in , 96 ; owners hip structure in, 11 3; refo nn in , 120-1 22; tests of r efor m m eas ures in , 113-11 5; transfonning state-own ed banks to co mm e rcial banks , 9 Banking R egulato ry Commiss ion , 11 2 Ban k loans: a udits of, 119 Ba nk ofC hin a (BOC) , 110, 118 Bao Tong, 49- 50, 52 , 54 BatTiers to e ntry, 10, 32 Beijing Public Secu ri ty Bureau: on In ter- net access, 87 Benefits : un em ployment , 200 281 -- 293 of 306 -- 282 Ind ex Big-bang app roac h, 22; in auto c ra cy, 29-33; gradualist approach compared with, 25-26 , 207; regime survival and , 30-33 ; su pe riority of gradua li sm , 207 Bo nds: for state co mm e rcial banks , 111 Borr owing: brib ery and, 119; rural, 180-181 Bosses. See Crime bosses; Politic al bo sses Bo Yibo, 50 Bribery, 38, 160; for bank loans , 11 9- 120 ; m afia states and , 162 Budgets : all ocations of, 178 B ur eaucracy : bankin g m onapo li es and , 1 20 - 121; co n uption an d, 5; cost of supportin g, 180; courts as, 70 ; employ- ment by, 138; monitaring of go ve rn- ment offleials a nd, 148 Bureaucratiz ation , 47 Bureau of Su pervi sing the Secu ri ty of Public Inform ation N etwor ks (BSSPIN), 86 Bu sh , George W.: cou ntering C hin a's in - fluence b y, 213- 214 Business g ro ups : CCP members placed in , 92; co-optation of private e ntr ep re- neurs and, 92 - 95 Cadres: in co mp e t ence in, 1 87 ; lifetim e tenure of, 47; m an ageme nt and Super- vision of, 144 -1 46, 153 ; tax and f ee co l- lec ti on b y, 194; tensions in, 181, 19 1. See also Offleials Candidates: in village e lection s, 74-75 Capac i ty utili za tion : duplic ation a nd , 129- 130 Cap ital: acq ui ring throu gh privatiza tion , 153-1 54; transfer to banks, 11 2 Cap i talists: CCP an d, 94 C ap i tal markets : un balan ce d s tructure in , 116-11 7 CASS (Chine se Academy of Soc ial Sci- e nc es) , 1 99 , 202 CCP. See C hin ese Commu ni st Party CDIC, SeeCentral Discipli ne a nd Inspec- tion Co mmi ttee Ce ll phon e n e twork: for Unicom , 104 Cells: CCP, 1 84 Ce nte t~l oca l authority, 14 Centra l ba nk , 1 22 Central Disc iplin e a nd In spectio n Ga rn- mittee (CDIC) , 148- 149 Central governm ent: authority of, 203; griev an ce petitioning of, 202 ; state gov- ernments a nd, 14; unfund ed mandates and , 1 77-1 78 Centrali zation: in CCP Leaders , 47; cor- mption and , 38 Centralized predation, 36-37 , 40 Central Organiz ation Department (COD ), 89 Central P arty Sc hool (CPS) : polls of offl- eials tra in ed at, 11 Centra l Pr opaganda Depa r tment , 89 Che n Xiwe n , 180 C hen Kai, 161 Children. S ee Educa tion China: as incapacitated state, 214-2 15 China Constmc tion Bank (CCB ), 110 China Mobi le, 105, 107 Ch in a Netcom, 105, 106; m arke t sh are of, 107 C hin a Network Communications G roup, 107 China Paging , 105 China Railc om , 105, 107 China Satellitecom, 105 C hina Te leco m , 103-104 , 105 -1 07, 109 Ch ina U ni com, 103- 105, 109; for eign in- vestm e n t a nd IPO in, 106; m arket share of, 107 Chin ese-C hine se-Fm·eign eq ui ty inv es t- m ent m o del , 106 Chinese Communist Party (CCP) : anti- corrupti o n body of, 148; assessm e nt of econo mic pr og ress, 28; Ce n tra l Orga- ni za tion De p ar tm ent, 89; co-o ptati on strategy of, 88, 92- 95; corr up tion in , 185- 187; decline of co mmuni st id eo l- ogy and, 1 56- 158; demo cra tiza tion a nd , 45; dise ncha ntm e nt with, 187-1 89; eco - nomi c refo nn and decline of, 183- 185; eros io n of m ob iliza tion capac i ty, 181-189; expulsion of corrupt offleials from , 15 1-1 52 ; Fa lun Go ng a nd , 84; grassroots d e mo cracy and , 79- 80; in- co mpetent memb ers in, 1 86; Inte rn et co ntro l by, 84-88;judicia l indepe n- d en ce a nd , 69-71 ; jurisdicti ons as Iief- dom s of, 165; Iack of co mpe titi on with, 188-189; lega l system a nd , 67-68 ; lib- eral and illi beral ada ptation str ateg ies a nd , 81; m a rk etizing of ec onom y and , -- 294 of 306 -- Ind ex 283 131; NPC delegates from, 63-64; pa- t:ronage cont:rol by, 31; provincial orga- nization department of, 62; reform era concerns about economy and political r efo rm, 19-20; resi stance to democratic reform b y, 15; separation from state , 51; 16th Congress of, 4; state and , 14, 52; supervision of cadres by, 144-146 ; vil- lagers' committees and, 78-79 Chinese People 's Political Consultati ve Confe rence (C PPCC) , 93 Cho a te, Alle n, 73 Cho ice-based d emocratization, 95 Citie s: u rban res idents' co mmittees in , 79. See also Urban areas Citigroup, 112 Citizens: grievan ce resolution for, 202 Citizenship: fo r rural residents , 73 Civil trials, 68 Close d econo m y, 3 Coal industry: emissions pollution from , 176; mining acc id en ts in , 170 Coalition: reform, 211 COD. SeeCentrat Organization Depart- ment Co e rcion: pa tro n age and, 31 COEs. See Coll ec tively own ed enterprises Co ll ective leadership : Deng a nd , 47 Collectively owned e nterprises (COEs) : layoffs in, 199; privatiza tion of, 93 - 94 Collective protests, 15, 189; by laid-off workers , 200-201 Collegesand univ ers ities: intellectual re- c ruitm e nt by CCP in, 89-92 Collusion: mafia states and, 1 59-16 6 Commerc ial Banking L aw, 111 Com m erc ial ba nk s, 9 Commercial opportuni ty: in C hina, 213 Committees : in NPC, 63; in villages, 77-78 Commoditie s markets: state influence in , 124-12 5 Communes: dism a ntlin g of, 26 Commu ni ca ble diseases: Ieve ls of, 174 Commun ism . See Chinese Communi st Party; Co mmuni st e ntri es Com muni st co untri es: t ran sition toward d emocr acy in form er, 18 Communist id eo lo gy: d e cline of, 15 6-158 Com muni st systems: ce ntrali zatio n of pr o perty righ ts in, 41; exit options un- der, 42 Competiti on : in banking sectm~ 11 4 -115; foreign , 106 ; interregional , 211; Iack of politi cal, 1 88-189; in telecom service sector, 108 -109; with U nicom , 103-104. See alsospecific indu strie s a nd co mpanie s Competitive primary e lec tions, 74 Complementarity: market di s to r tion and, 23 Complementarity restraint refonn and, 29-30 Computers: te l eco m service sec tor a nd, 102-10 3. S ee also Internet Concentrati on ratio : economies of scale and,l30 Cong Fukui , 158 Conservatism: political reform and , 57 Constitu e n cy: of refonn , 23-25 Constitutional o nler, 28 Contract pr oc urem e nt system, 98 Contr acts: e nfor cem ent of, 28 ; SOEs a nd , 123 Contra! rights : of SOEs, 139-140 Co-optation : CCP strategy of, 88 ; of intel- ligentsia, 89-92; of pri va te e ntr epre - n e urs, 92- 95 Corruption: age of cor rupt officials, 21; in ba nking sector, 118-120; in CCP, 185-187 ; centralization / decentralization a nd , 37, 38 ; e xposures of, 201; e xpulsion from CCP fm; 15 1-15 2; fifty-nine phe- nomenon and , 21; flightfrom China and , 1 55- 156; ofjudges , 7 1; mafia states and, 1 59- 166; after Mao, 147-1 48; moni- ta rin g of offleia ls and, 147-148; official, 12-1 3; official investigation of, 150-1 51; preda tion a nd, 132-1 35; pun is hm e nt of, 149- 1 52, 153; ra nking of co n tro l of, 5-6 ; scope of, 133-1 34; social discontent and, 197; urban discon ten t over, 198. See also Predatio n Costs: of e ns urin g CCP's monop o ly, 206; of mainta inin g sta t e, 1 37-1 39 ; po li tical sustainabili ty and, 22; ofwater pollu- ti o n, 1 76 Co untere lites, 19-20 Courts: cases in , 202; LP C monitaring of, 61-62; politiciza tion of, 69-71. Seealso Judi cia l system Crime : e lites a nd , 1 64 ; or ganize d , 1 59-1 66 ; punishm e n t a nd , 149-1 52 -- 295 of 306 -- 284 Ind ex Crime bosses, 163-164 Criminals: in village governments , 194-196 Cross-subsidization: by China Telecom, 104 Cultural Revolutio n: legislative branch after, 6-7 Dangzhengfenkai (separation of par ty from state), 52 Dapeng towns hip, Shenzhen, 80 Death pe nalty: for corrupt officials, 149 Debt: in rural C hin a, 179-180; in town- ships and villages, 179. See also Fiscal sys tem Decentralization: administrative, 144-147; economic, 1, 26; fiscal , 121 , 140-144; of property rights, 40-41 , 139-144; as task force recommenda- tion, 51 D ece n tralized pred a tion, 36, 37- 38, 40, 132-1 35; economic development, re- form, a nd, 165 -1 66; state co ntrol of agents and, 147; during transition , 39-44 Decision making: decentralization of, 40; eco nomi c in eve ryday activities, 146-1 47; LPC influ en ce in, 57; NPC in- flue n ce in , 5 7-59 D eco ll ectivization: agric ultur al, 47 , 97 Deficits. See Governance d eficits Democracy: CCP resistance to, 15; eco- nomic , 49 ; inner-party, 51, 52-53 ; lib- eral consensus on, 51 Den10cratic reform s, 7, 8-9 De mo cra rie transition, 18, 19 D emoc ra ti z ation: c hoi ce- vs. structure - based perspec ti ve on , 95; eco nomic ch an ge and, 17-22; im pact of eco- nomic growth on, 43; as lon g -term goal, 54; s tatus of, 45-95; in villages, 72-80; Western liberals and , 214; Zhao on , 53 D emo nstration courni es a nd sites: villages as, 74 Den g Xia oping, 3, 19 , 22;June, 1 986 , speech on politic al re fo rm , 48--49; le- gal reform und e r, 66 ; on political re- form, 46-49; task force on political re fonn und er, 49 -5 6 Desert: expansion of, 175 De uts ch Bank , 112 Developing coun tries: China 's status in lending to private sector, 116 ; protec- tion and power abuse in , 35 Developmental autocracies: in ternationa l impli cations of, 211-215 ; Iimits of, 206; as predatory states, 167; se lective re- pression in , 8 1-8 3; self-perpetuation in, 208 Developmental economy: transformation to predator y economy, 132-166 Dickson , Bruc e, 93 Ding , X. L., 4 1-42 DingYuanzhu , 14 Dis co ntent: urb an , 197- 1 98 Discount rate: for future gains from elite members hip , 20-21 Diseases: Ievels of, 174 Dissidents: Internet access for, 85 Domestic ma rk ets: fragmentation of, 126-130 Do ubl e-dippin g, 154-155 Draft Law on th e Ba nkruptcy of State- Owned Enterprises, 60 Drought: res ervoirs and, 176 Dual prices, 25-26 Duplication of capac ity, 129-130 East Asia: d e mo cratization in , 17; model of eco no mi c d evelopm e nt in , 33- 35 Eastern Europe: c ommunist c olla pse in , 56 Economic democracy: Deng on, 49 Economic development: East Asian mod e l of, 33- 35; environmental degra- dation and, 175; institutionali st ap- pro ach to , 35- 36; lo cal pro tec tio ni sm a nd , 128; under n eoa u th oritarian ap- proac h , 33- 35 ; politi ca l chan ge a nd, 17-44; political reform and , 46- 49 Economic growth, 1, 10-ll ; d e mo- cratization in China and, 17-1 8; e lite power su stain ed by, 20; politi cal dys- function and , 2 08-209; quality of, 209; r es ults of, 1 67-1 68 Econo mi c laws, 59 Eco nomi c liber aliza tion: inter na tion al ca mp arisa n s of, 13 0-1 31 Economic pro gre ss: as key d e te rminant ofpoliticalliberali za tion, 207 Economic refo rm: CCP's organizationa l decline a nd , 183 -185; gradualism in , 22-24 ; high output fro m , 25 ; in cre- -- 296 of 306 -- Ind ex 285 mental as cause of success, 25-26; poli t- ical reform needed for, 50-51 ; theo ries of, 22-25 Economic rents: political m on opo ly con - verted to, 43 E co n omic sec tors. See specific sector Economic tran s ition, 22, 23; public un- rest and , 190-196 Economies of scale: concentration ra tio and, 130; duplication of capa c ity a nd, 130 Economy: co rrupt offleials and , 12-1 3; decentra li zed decision-making in , 26; decis i on m a kin g in everyday activities, 146-147 ; democratization and change in, 17-22; environmental degradation and, 176; erosion of state capacity an d, 13-14 ; mark et forces in , 123-124; re - fo rm s in , 9, 10; season a bl e f lu ctuations of, 125-126 ; size in 2002, 2; state role in, 2- 3; statistics abo u t, 2. S ee also World eco n omy Education: expenditures on, 171-172 ; lit- eracy goals a nd, 1 7l; state incap ac ita- tion and , 170-172 Efficiency-enhancing r efo rm , 1 23 Elected officials: illegal removal in vil- lages, 78 El ec tions: for NPC , 53; official inte rfer- e nce in, 76-77; in vill ages , 7, 46, 72- 80 Elites, 6; co untere li tes and , 19-20; cri me and, 164; decentralized pred a tio n after regime ch an ges an d, 39-40 ; decision making and re gime change b y, 19-22 ; econo mi c and political reform a nd , 50; economic status of, 9; ex it options for, 154, 2 11 ; misrul e a nd man age m e n t capac ity of, 18; pa rti al r eforms and , 207- 208; o n political r eform, 46 ; power sustained by economic gro w th , 20; vii- t age nominations and, 77; work er per- cep tion of, 187-188. S ee also R egim e sur viv al Embedded Autonomy: States and I ndustrial Transfarmation (Evans) , 34- 35 Emb ezzlem e nt , 160 Emp l oyment: CCP in private sec t or and, 185; illicit sa le of government appo int- ments and , 145 -1 46; SOE share of, 124; by state , 3, 135-137; urban , 196- 20 1 Entrepr e n eurs: CCP and, 19- 20; co- optation of, 9 2-95 En viro nm ent: degradation of, 175 -1 76, 197 Equality. See In eq uality Evans , Peter, 34 Executi ve brauch: domination b y, 58 Exit option s, 42; for state agents , 152- 156 Expenditur e s. See Spending Exp e ns e. S ee Costs Exports : of g rain, 99, 102 F acto r markets: sta te infl uence in , 125-1 26 Falun Gong , 84 , 203; CCP and s uppres- sion of, 182-183; Web sites of, 87 Fa mili es : with lai d-offwork e rs, 200 Fan Gang , 28 , 126 FCC. S ee U .S. Fed eral Communi ca tions Comm ission FDI. See Fo re ign dir ect inves tm en t Fee-for-service health clini cs, 173 Fees: co llec tin g, 194; peasant discontent and, 193; Substitution of taxes fm; 196 Feigaishui re forms, 196 Fewsmith ,J osep h, 56 Fifty-nin e ph e n om enon, 21 Finance: crisis in rur al public fin ance, 1 76- 18 1 Financial institutio ns : sur vey of corr up- tion in , 11 9 Financialliberali zation , 110 Financia l p e rformance : in bankin g sec- tor, 117 Finan cia l sec tor : ref orms in , 9 -1 0 Fiscal d ece ntrali zati on, 121, 1 40-1 44 Fiscal syste m, 176-1 81 Flooding , 175, 176 Foreign banks, 111, 11 3 -11 4 Foreign d i rect investment (FDI ), 1 Fore ign investment: attraction of, 106-107; in telecom service sector, 105- 10 6. S ee a lsoForeign direct invest- ment; In ves tme n t Forei gn tra d e, 3; and grain imports and exports, 99, 102; and m arket fragm en- tation , 127- 128. S ee also Wo rld Tracle Organi zatio n (vVTO) Fore i gn vis itors, 3 Fortu n e- te ll ers, 158 -- 297 of 306 -- 286 Ind ex Fragmentali o n of markets, 126-1 28 Freedom House : China rated b y, 5 Free-rider problem , 42 Fujian p rovin ce , 75, 77, 97 Gao Yanzh en , 1 56 Gen e ral Taxation A dmini s tration , 193 Geopolitic s: C hin a' s rise and, 21 3 Goldman Sachs: investment in C hin a Ne t co m, 10 5 Gongs h ang lian (Th e I ndustr ial and Co m- mercia l Fe d e r ation ), 93 Gorbac h ev, Mik hail, 53 Governan ce: in banking secto r, 118 -1 20; CCP and , 18 1-189; deterioration in mafia sta t es , 1 63 ; economic perfor- manc e an d, 20 9-210; local villa ge e lec- tion s an d , 77 ; r an kings of, 5-6 Governance de fi cits: defined, 167-1 68; reformers an d, 204-205; state incapaci- ta tion a nd , 168 -1 83, 21 4-215 G overnment: ac countability in, 15; break- down of politi cal system and , 2 01- 205; control ri gh ts of, 139-140; by eli tes, 19- 22; eros io n of s ta te ca p aci ty an d , 13- 14; fear of power loss duri ng re- for m, 30; official corruption in , 12 -1 3; ra nking of effectiveness of, 6; redress of grievances by, 202- 203 Govern ment offices: sale an d p u rc h ase of, 162-1 63 Governors' Grain-Bag Responsibili ty Sys- tem (GGBRS), 99 " Grabbing-h and" persp ec tive, 35-36 Gradu a li sm , 22 -2 9; in bank ing sector, 109 -1 22 ; vs . big-bang a pproa ch , 25- 26, 20 7; critics of, 27; degre e of success in Chin a, 25-29; d ua l p rices and , 25-26 ; eco n om ic costs of, 1 22-1 30 ; fo r eco n o mi c r efo rm by auth o ritarian r eg im es, 30-31; evi de n ce of be nefits of, 28- 29 ; featur es of, 26 ; gra in p ro- cur em e nt system a nd , 102; mark et i ns ti tutions and , 28 - 29; und er ne oau- thoritar ia n r egim e, 43; pa rty-sta te en- tren ch m e n t an d, 44; regim e fea r of power loss a nd , 30 ; ren ts an d, 32, 96; te lecom se rvi ce sector refo rm and , 108 -1 09; townsh ip-an d-villa ge en te r- prises (TVEs) a nd , 26 Grain: natu ra l disaster Ioss es of, 176; pri- vate c om pe tition in marke t for, 102; sub sidi es for, 9 9-100 , 101; unifi cation of pri ces of, 98 - 99 Grain-Bag Poli cy, 99 Gr ain p r oc ur em en t system, 97-1 02 ; evo- lutio n of, 98-100; refo rm s of, 98-10 2 Grassro o ts d em ocracy: in villages, 79 Grievan ce re so lution, 202 Grass do m es tic product ( GDP ): re ve nu e and , 1 77 Group co r ruptio n , 160. See also Co llusi on GSM ce ll p hon e n etwor ks, 1 04 Guan gdo ng Provin cial Peop le 's Congress, 61 Guanghui En terprises, 94 Gu D ech en g, 1 64 Ha n G uizhi, 159 Hangz h ou : l ocall egisla tors and, 62 Ha rd mafia states, 161, 1 65 He althc are spe n d in g, 172 Heckman ,J a me s, 171 Heil ongjian g: soft mafia state in , 1 63 Hellman ,J oe l, 39 H e We ifa n g, 69 H ighwayL aw (1999), 60 HIVI AIDS crisi s, 174 Horn e pages: censoring a nd shutting down of, 87 H u Anga n g, 14 Hu Ch an g qin g, 20 HuJi an xu e, 20 H u man capita l: inv estment in , 171 Human rig h ts pr actices, 82 Hun an , 77; rura l r iots in (1990s), 189-1 90 ; vi ll age comm i tte es in , 79 Hunti n gto n , Samu el, 18, 181 H u Qi li , 50 , 54 Hu Ro ng, 77 H urh er,J eff, 5 Id eo logica l n orms: d ecline of, 156-158 Ill egal ex pe nditur e s, 178 Ill ib er al a daptati on, 46 , 81 Im age projects : fin a nc ial wa ste on , 180 I MF. See In te rnational M on e t ary F und Immi gra ti o n : r elaxed , 155 I mpo rts: of grain, 99 , 102 In capac i tated sta te: C hin a as, 168-1 81, 214- 215 -- 298 of 306 -- Ind ex 287 Income: Iosses among laid-off workers , 199-200 ; rural, 191-192; urban dis sa tis- faction with, 198 Index of economic freedom: China in , 130-131 Indonesia: eco nomic collapse in, 35 Industrial and Commercial Bank of China (ICBC), 110 Industrial sectors: local protectionism in , 128-129 Industry: state-owned monopali es in , 10; st:Jucture of, 26 Inequ a lity, 14, 197 Infl a ti on : social discontent a nd, 197 Infonnants: to prevent organized opposi- tion, 82-8 3 Information: access to, 2; responses to revolution in , 84-88 Information asymm etry: in supervi sion of state agents, 144 Initi al public afferings (!POs) , 106-107 Innetcpa rty d e mo cr acy, 51, 52- 53 Inputs: costs of agricultural, 192 Institutional changes: principal-agent re- lations before and during transition , 40 Institutional development, 6 Ins titutionalist a ppro ach: to state rol e in eco nomi c d evel opment, 35- 36 In stitutionali za tion : as goal, 54 In s titutional nonns: de clin e of, 1 56-1 58; ero sion du ring transition, 42-44 Institutional pluralism, 6--7, 64-65 Institutional reforms, 57-59 Insurance: h ea lt h, 173-174 In te lli ge ntsia: CCP and, 19-20; co- optation of, 89- 92 In tern a tional co mmunity: C hin ese de ve l- opmen tal autocra cy a nd , 2 11-215 Internatio nal com p a risons : of C hin a's economic liberalization, 130-131 Internation al Monetary Fund (IMF) : study of eco n omy b y, 10 International Risk Gnide: China r ated by, 5 Interna tional trad e. See Foreign trad e Intern et: ce nsus ofprovid ers , 87; gove rn- m e nt camp aign agains t u se of, 84-88 ; Jitong Co mmuni cations Corp. services and , 103; number o fusers, 2; s urveil- lance of, 8 7-88; te leco m sen ,ice sec tor a nd, 103 Internet cafes: sec urity sweep of, 86-87 Internet se rvice provieler ( ISP ) : China Netcom as, 105 Invest:Jnent: eco nomic growth and , 11 ; in for eign co untri es, 155; by government in tele c om se rvice sector, 107-10 8. See also Foreign inv est m e nt Investm e nt system: r e fonn s of, 9 IPOs. See Initial public afferings Irrigation system: deterioration of, 176 Jiang Zemin , 11, 92 Jia Yongxian g, 158 Ji tong Com muni cations Corpo r ation , 103 Joint I SP venture: by AT&T, 106 Joint-stock banks, 113, 115 Joint-venture banks: Sino-foreign , 114 Judges , 67, 68-69 Judicial system, 67; fragmentation of au- thority, 71- 72; ind epe nd ence of, 69- 71 ; LP C monitaring of, 61- 62. See a lso Co ur ts Kaufmann , Daniel, 5 Kenned y, John , 76 Kleptocrac ie s, 146--147 Kornai , Jän os, 23 Kraay, Aart , 5 L abor: m arginalizati on of, 14; p ropo rtion in st ate sector, 26 Land: desettification of, 175; in m afia states , 163 Land rent, 192 Law(s): adm ini stra tive, 59; ec onomic , 59; exec uti ve bra nch a nd , 58; gov e rn a nce a nd , 66--67; m arket eco n o m y b ased on, 29 Lawsuits , 202 Lawye rs , 67 Lawyers ' Law, 68 La yoffs: ofCCP m e mbers , 184-185 Leaders hip : Deng and, 47; stab le gove rn- m e nt a nd , 6 L egal professio n, 67- 68 Le ga l r efo rm , 46, 65-69, 202; as task f orce r ec om m e nd ation, 51 L egal syste m , 28, 202; CCP refu sal to re- form , 69 L egisl at ion : ou t put und e r NPC , 59- 60 Le gislative pro cess: executi ve branch d o min ation b y, 58 -- 299 of 306 -- 288 Ind ex Legislature: loca l, 6; national, 6--7 Leninism: ideological decline and , 1 57 Lianjijang Li, 73 Li ao Gailon g, 54 Li ao ning: l ocall eg isl ator s in , 62 Liberal adaptatio n strategy, 81 Liberals: fall from power by, 95; political reform undet~ 52-55 Lifestyle: satisfaction with urban , 197; Westernimp act and changes in , 3 LiRui ,4 Literacy: UN ESCO goal f01~ 171 Li Ti ec he ng , 145, 160 Litiga tion: growth of, 67- 68 LiuJingba o, 118 Liu Liying, 1 59 Liu Yong, 163, 164 Li Zhen , 20-21 , 159-160 Loans : brib e ry premium for, 119 -1 20; rural borrow in g a nd, 180-18L See also Bad l oans Lo ca l fin an ce, 26 Local gover nment: authority of, 203 ; banking and , 113; central go vernment and , 14; economic power of, 127; em - ploym e nt by, 1 36-137; off-bud ge t rev- enu es for, 1 42- 143 Local initiatives, 211 Lo cal Peo pl e's Congr ess (LPC) , 57, 61 ; ap pointm e nt a ndr e mo val pow e r of, 62- 63 Local protecti o nism, 126-130; courtjudg- ments and, 72 Local publi c fin an ce , 178 LPC, See Local P eo ple's Cong ress Lubman, Stan ley, 58, 66 Lu Lei, 119 Lu Wan li, 1 55 Macroec onom ic perfor mance: g rain tax and, 97 M aDe, 159-160 Mafia: states, 159, 16 1-165; in vi ll age gov- ernments, 194-195 Ma nion, Me la ni e, 80 Ma nu fact min g: un e mpl oym en t in , 199 M ao Zed ong: CCP m ass politi cal m obi- liz ation und er, 18 1-182; m ass terror a nd , 147; offi cial cor rupti on af te r, 148 Ma rket(s): b arri ers to entry in , 10 ; frag- mentation of domesti c, 126--130; gr a in , 101-10 2; Iac k of complementarity a nd distorti o n of, 23; state autho rity over, 14 M ar ke t economy : deco lle ctivization of agric ul ture and, 97; legal framework for, 67; rul e of law as ba sis, 29; wea k- n ess of ins titutions supp o rting , 28-29 Marketization , 123 -124 Market refonn s, 1, 7-8 Market s har e: for Unicom , 104 Ma rxi sm: id eo l ogical d e cline and , 1 57 Mass support: for po litical par ty, 181 Mass tenor: e nd of, 6, 147; se lective re- pressio n as r ep l ace ment f or, 81- 83 Mastruzzi, Massimo, 5 Ma Xia ngdong , 163 McCo r mi ck , Barrett, 64 McFaul, Mich ae l, 39 Media: co nfr o nta tions r epo rted in , 189; co rrupti on ex posed by, 2 01 Migra nt la borers: marg in a li zation of, 14 MIL See Ministry of Informat io n I ndu stry Mining death s, 170 Ministry of Ag riculture: fis ca l crisis a nd , 179 Ministry of Ele ctric Power ( MEP ): tele- co m se rvi ce sec tor and, 103 Minis tr y of Elec tronic Industry (MEI): tel eco m se rvice se cto r a nd , 103 Minis tr y of Fi n an ce (MO F) , 111 Ministr y o flnfo nnation Industry (MII) , 105, 107 Ministr y ofPost a nd Telecommunica tio ns (MPT) , 103, 104 Ministry of Publi c Se cu rity (MPS), 83; in - form a tion access and, 83-84, 85 - 86 Mini str y of Ra il ways (MR ): te le co m ser- vi ce sector and, 103 Minsh e n gBa nk , 11 3, 11 4 ,11 5- 116 Mobility: ofpopulation , 2 M on itorin g: of co rrup t officials, 1 47- 149 M ono poli es : CCP as, 188-189 ; und er con - tro l of CCP officia ls , 145; of gr a in pro c ure m en t, 97- 98 ; of SCBs, 1 20 ; state-own ed, 10; over telecom sec tor, 103 -1 09 Mon o polists: m aximiza tion of s hort-te rm re venues b y, 143 MPS. See Ministry of Public Security MPT. See Mini stry of P ost a nd Te l eco m- munication s -- 300 of 306 -- Ind ex 289 Muckraking publications, 201 Multinationaltelecom firms: investment in China Unicom by, 106 Municipal gove rnment: fiscal system and, 177 National Auditing Agency, 178 National Education Commission, 89 ; awards and honors to academics through , 91-92 National P eop le 's Congress (NPC) , 6, 11, 46, 52; cons tituti onal oversight pow er of, 60 -62; legislative o utput und e r, 59- 60 ; organizational growth of, 63-65; party groups within, 59; political reform and , 57-59 Neoauthoritarianism, 8-9, 33-35, 43, 204; predator y s tate and, 207 Newly indu strializing countries (NIC) : China financial crisis co mpared wid1, 110 News Corp.: inv estment in Chin a Net- co m, 105 Newspapers , 2 Nomenclatural system (CCP): court ap- pointments a nd, 70 Nomination: e lite influence in pro cess, 77; ofvillag e candid a tes, 75-76 Nonb a nk financial institu tions , 110-111 N on-democratic countries : d e mo c ratic tr a nsition z one and, 18 Nonperforming loans. See NPL ratios Nonstate sector, 26; growing alongside of state sector, 26-27 NPC. See Natio nal People's Congr ess NPL ratios, 11 5 Nurturin g state: economi c grow th in , 34-35 O'Brien, Kevin , 58 , 61 , 73 O'Donn ell, Guillermo, 210 Off-budget revenues, 142-143, 178; dis- c retion and opacity of collec tion , 143 Office of th e Central Government's Staffing Co mmi ss ion , 1 36 Official a ppointm ents: selling of, 145, 185 Official privil ege s, 47 Officials: c orruption a mon g, 1 33- 135; cost of supp orting, 180 ; c rim e and punishment am on g, 149-1 52; double- dipping by, 1 54-1 55; mafia Co nn ec- tions b y, 1 64; monitaring of, 4 1-42 , 14 7-1 49. See also Mafia Offshore acco unts: transfer ofillicit funds to, 1 55- 156 Oi , Jean , 73 Olson , Mancur, 36, 37 One-par ty system, 181; rule ofl aw and, 69 Open nomin atio ns , 76-77 Opposition: preventing, 82- 83 OrganicLaw ( 1998), 74, 76 , 77 Organization of Economic Cooperation and Deve lopment , 10 Organi ze d c rime, 159-166. See also Mafia Output, 26-27; SOE share of, 124 Ove rce ntralization of pow e r: in CC P, 47 Overseas travel, 2 Oversight: by NPC, 60-62 Pareto-impr oving market liberalization, 26 Pareto positive refonn, 123 Partialrefo rm e quilibrium , 8- 9 , 42- 44, 210-211 Party-b uildin g: in rur al areas , 184 Party Secretariat, 59 Party-state: authority of, 14; inefficiency of, 51-5 5 Path-dep e nd e nt r efo rm, 123 Patronage: fr om asset contro l, 31; in CCP, 185-1 86 Peasants : eco nomi c d eman ds of, 26 ; eco - n o mic sta tu s of, 9; m arg inaliz ation of, 14; refusal to pay taxes and fees, 194; state and , 191-196. See also Rural areas; Villages Peng Chong, 50 Pe ople 's Bank Law, 111 Peop le's Co n gress, 93; loca l and n ational, 202; p op ular nomin a ti o ns of candi- d a tes fo r, 51 People 's Court Organic La w, 69 People 's Liberation Ann y (PlA) : judges as former members of, 69 Per capita in co me , 2; rural unrest a nd , 191-192 P erson n el: costs of, 138- 1 39 ; excess state- emp loyed, 136-1 37 P ersonnel system re f orm: as task force r eco mm e ndation, 51 Pino c het regime: big-bang approach an d , 30 Pla nned eco n omi es : co mpreh e nsive eco- nomi c tran sformation and , 23 -- 301 of 306 -- 290 Ind ex Pluralism: in stitutional, 6-7, 64- 75 POD. See Provin ci al organization depart- ment Po lice : Internet, 86-87 Pol icymakers: constraints on, 29 Policy-making: instituti onal pluralism and, 6 Politburo, 59 Political bo sses: fiefdoms and mon opo lis- tic pow ers of, 147 Political cr isis (1989) : imp act on political r efo nn , 56-5 7 Po li tical d evelopmen t: erosio n of state ca- pacity and, I 3- 14; Iack of c han ge in , 4; positive change s in, 6-7; rankings of, 5-6; rural decay and disconte nt and , I91-196 Political m o n opo ly: conversion into eco- nomic r ents , 43 Po litical party. See Chin ese Communist Party Po liti ca l power: in economic and r egim e transition s, 207- 208 Political reform: content and goals of, 51-55 ; D eng Xiaoping on , 46-49; eco- no mi c r efonn depend e nton , 49-5I; goals of, 54; Iack of, 11 - 12; 1989 political crisis and , 5 6-57; r isks of, 54-55; m ling elites on , 46; task force recomme nda- tions fm; 51. See also Economic reform Po li tical stability: discontent and , 198 ; ranking of China by, 6 Political system: acade mic thou gh t about , 11; brea kd own in, 201- 205; eco nomi c development and, 17- 44; failure of economic gradualism and, 24; r egional co mpetiti on in , 26; struc tur al i mba l- an ces in, 14; weakness of, 28-29 Po litics: CCP mass mobiliza tion and , 181-1 89 ; market refonns and , 7- 8; s up- port for reform in , 24-25 Politics of Lawmaking in Post-Mao Ch in a, The (Tan ne r ), 58- 59 Po lity IV project: China rated by, 5 Po lluti on : env i ronm e ntal degrad a tion a nd, 175 -1 76 Population: living in pover ty, I7 5; mobi l- ity of, 2 Post- tota li tarian r egim es: gradua li sm and, 44 Post- transition state predation , 39-40 Poverty: h ea lthc a re and, 173; among Iai cl- off workers , 20 0; Ievels of, I 74-I75; p o pulati o n living in, 175 Power: r ed istribution of, 50-51 Predation : admini strative, 144-147; dece n tra li zed, 1 32-1 35, 211; fiscal decentralization and, 1 40-1 44; off- budg e t reve nues for, 143--144; resu lts of, 39 Predator y state s, 34-40 , 207; developmen- tal autocracies as, 167; deve lopmental econom y tran sfo nned to, 132-1 66; eco nomi c development andrefo rm in , I 65- 166 ; eco n omic grow th in , 34-35 ; pricing by C hina Tele com and, I 04; prin c ip a l/ age nt in , 36; the ory of, 35-39 Price (s) : ofgrain , 98-99,100 , 101 -1 02; set by state , 124-125 Principal: e ro sio n of autho ri ty of, 4 I- 42 Principal-age nt relations: before a nd dur- ing instituti on al ch ange, 40 ; in p re da- tion,36-3 8 Private e ntr epre neurs: co-optation of, 92-9 5 Private firm s: barr iers to e ntry for, 32; for - mer o ffl eia ls as owners of, 154; in g rain mark e t, 102; in h ea l th ca re, 173; in tel eco m service secto r, I 03 Private se cto r: CCP an d, 1 85 ; l oans to, 11 6 Privatizati on : capital acquisition through, 153-1 54; of SOEs, 10 Procuremen t syste m. See Gra in pr oc ur e- ment system Profit: agri cu l tura l, 192 Prop e rty rights: centra liza tion of, 40-41 ; decentra lization of, 40-41, I 39-I4 4; le- ga l protectio n for, 28 Prosecution : for official corruption, I 51-152 Prosperi ty: corr uption and, 21- 22 Protect io nism : loca l, 126-1 27 Protests, I 5, I 89 , 20 3- 20 4; co ll ec tive, I 5, 189, 200-201; conta inm e nt of social un- r es t a nd , 83- 84 Provin ce s: budge tary a lloc a ti ons in , I 78; m afia state s in , 162; m a rketi z ation of, 1 26 Provin cial gove rnm e n ts: fiscal system a nd , 1 77 -- 302 of 306 -- Ind ex 291 Provincial organization departrnent (POD): of Chinese Communist Party, 62 Provincial People's Congress: ele c tion of deputie s to , 53 Public finance, 142-1 44; lo cal, 26, 17 8; rural, 176-181 Public goods: insufficient suppl y of, 1 74 Public health: state incapacitation and, 172-175 Public opinion: on econornic status elites vs. work ers and peasants, 9 Public safety: state incapacita tion a nd, 169-170 Publi c services: rural a ttitudes and , 1 94 . See also Services Punishrnent: of corrupt officials, 149-152 , 15 3, 187 Qiao X iao yang, 63 Quotas: on grain production and prices, 98- 99 Rawski, Thomas, 25, 125-126, 210 Reemployment: oflaid-offworkers, 199, 200 R efo rm(s), 6-7 ; in banking sector, 120- 122; CCP resistance to, 15; constitu- e n cy of, 23 -2 5; cri sis of 1989 and , 56-57; eco nomi c, 9- 10, 22 - 25 ; e nd of p artial refonn equ ilibriurn, 210-211; governance deficits and, 204-20 5; of grain procurement system, 98-102; in- stitutional , 11-12; legal, 46, 65-69 ; market, 7-8; partial r eforrn equ ilib- rium a nd , 8-9; political, 11-12 ; stru c- tur al, 10-11, 14; suppo rt fo r, 24-2 5; of teleco m servi ce sector, 102-109 . See also specific types of re form R eform coalition, 211 Reform s trategy, 27-28 R egime coll apse : as alternative to re - n ewed reforms , 210-211 Regime su rviva l: d ecentra li zed pre da t ion after reg irne ch anges and, 39-40; post- tota litarian entrenchment a nd , 44; dur- in g reform, 30; rent prote ction a nd, 33 R egim e tran siti on: political powe r in , 207-208 Regulation: ofban king, 112; ofl nte rn et use, 87- 88; m ode le d after FCC, 107; te leco mjoint venture a nd , 106 Regulatory quality: ranking of China b y, 5 Rent dissipation: gradualism and , 96 Rent prote ction: gradualism and , 96 ; regirne survival, econornic ine fficien cy, a nd , 97 R en ts: creation , allo ca tion , and protec- tion by authoritarian regime, 3 1-33, 38, 146; protection and dissipation in banking sys tem, 121-122 ; in telecom sen,ice sector, 103 Re press ion: ranking of China by, 5; selec- tive , 8 1-83 Rese rve ca dre s: CCP and , 90-91 Reservoirs: decline of, 176 Residual rents : access to, 32 Resistance, 15, 189; by peasants , 195 . See also Prote sts Resour ces: alloc ation of, 23; di version to private use, 12 Re tirem e nt age : fifty-nin e ph e nom eno n a nd , 21 Reve nu e: GDP a nd , 177; to ta l state, 142. See also Finance and Financial entries; Fiscal en tri es Revenue collection: by central a nd local governm e nts , 141-143 Riots: rural , 1 89 Rola nd , Garard, 29 R oze ll e, Scott, 73 Rule of law: ranking of C hin a b y, 6 Rural areas : CCP decline in , 1 83 ; discon- tentin, 191-196; healthcare in , 173; in- corne in , 191-192; Iack ofgrowth in, 10; riots in , 189; tensions du e to fin an cial c risis, 181. S ee also Peas ants ; Villages Rura l coo p e rati ve h ea lth s ys te m : co llapse of, 1 72-1 73 Rur al c redit co-ops (RCCs ), 113 Rur a l governme nts: investrne nt in rna nu- facturin g, 26 Rur al in co m e: extrac tion through tax on gra in , 97 Rur a l publi c finance: cr isis in , 1 76-1 81 Ru ral township governments : fiscal condi- tions for, 17 8- 179 Safety: d e clin e of publi c and workp lace, 169-1 70 Salie nt systems co ntr a diction s, 28 SARS. See Se vere acute respirato ry sy n- drom e (SARS) -- 303 of 306 -- 292 Ind ex SCBs. See State commercial ban ks (SCBs) Schmitter, Philippe, 210 Security apparatus, 83-84 Selective repress i on, 8 1-83 Self-government: in villages, 73-74 Self-interest: predation from, 36 Services: d e cline ofpublic, 169, 19 3-194; public health , 173, 174 Severe acute respiratory syndrome (SARS), 201 Shaanxi Pr ov in ce , 76 Shah , An wa r, 5 Shandong: vill age committee officials in , 778 Shang Yuechun, 164 Shao Daosh en g, 20 Sheng Shur en , 51 Shi, Tianjian , 74, 75 Shleifer, Andre i, 37, 143 Sh ortages : of gra in , 98- 99 Sichuan : mayor ofBuy un in , 79- 80 Silt: in Yangtze, 175 Sixteenth Congress of Chinese Commu- nist Party: Li Rui speech at, 4 Slush f und s, 178 Smuggling, 1 62 Social chan ge , 2 So ciali st d e mo cracy, 56 ; d em ocra tic re- forms und e r, 53; as task fo r ce recom- menda tio n , 5 1 Social prote s t. See Protests Social services: subna tional gover nm ent provision of, 177-178 Social unres t: CO nta inm ent of, 83- 84 Society: a utono m y of, 8; disconte n t in , 14-1 5; ec onomic growt h a nd , 1; imb a l- an ces in, 14-16 ; p ercep tion of stab ility in , 197; vs. sta t e, 189-196; statistics about , 2 Socioecon o mi c issues: elite rule a nd , 20; urban d iscontent over, 1 98 SOEs. See State-owned enterprises Softmafi a states, 161, 162- 165 Soil er osi on , 175 Sovie t U nion: disin tegratio n of, 56 Spe nding: on e du ca tion , 170-171, 171-172; o n h ea lth car e, 172 Staffing. See Emp loyment; Per so nn e I Stagnation: interna tional im pli catio ns of, 2 11-215 Standard of livi ng: of laid-off wo rke rs, 199; SOE res tructuring and , 1 99 Standin g Committee CCP Group , 59 State: authori ty over market and, 14; banking secto r a nd , 112-11 8; co m- modities , factor marke ts , and , 124 -126; degen e ra ti on during refonn era , 166; employm ent by, 3, 135-13 7; eros ion of capacity of, 13 -14; everyday economic deci si on m a king and, 146-147; exce ss p ers onn e l em ployed b y, 137; peas ant dis con te n t an d, 191-19 6; r es istan ce to, 15; separation of CCP from , 52 ; social involvem e nt b y, 6; vs . soc iety, 1 89 - 196; telecom service sector competi tion a f- fili a ti ons with , 108-109; tran sfo nnation from devel op mental to pre datory, 132-1 66 State-affi li ated entities: bankin g an d , 113 State-affili ate d joi nt-h o ldin g bank s, 11 0 State age nts : classifi cation of, 136; em- ployment of, 135-137 State commercia l banks (SCBs) , 111; dominan ce by a nd performa n ce of, 113 -11 8 Sta te Counc il, 60, 61; on competitive be- havior in te leco m serv ice sector, 107; poll of cor p orate executives by Devel- op m e n t Research Ce nter; 9; te leco m ser vice indu stry monop o ly a nd, 103-104 Sta te in capacitatio n , 168-1 81; d e cline of publi c services a nd, 169; ed u cation and , 170-1 72 ; e nvironm e n t a nd , 175-1 76; pub li c and wor kpl ac e safety an d , 169 -1 70; pub lic h ealth a nd , 172 -1 75 ; rural publi c finan ce c ri sis a nd , 1 76- 181 State-market a uthority, 14 State-owned banks, 9, 110 State-own ed econo my: success of r eforms in , 28 State-owned e nterprises (SOEs) , 2- 3, 9 -1 0, 23; co ntract sys tem a nd , 1 23 ; c ontro l rig hts of, 1 39-1 40; de te riora- tion of, 197; grain pr odu ctio n an d , 99; in vestment in foreign co untries b y, 155; layoffs in , 199; m ass bankrup tcy of, 1 84- 185; privatization of, 93 - 94; re- structur in g o f, 199; sh are of ec on om ic -- 304 of 306 -- Ind ex 293 output and employment, 124; in tele- com ser vice s ector, 103 State-owned m o nopolies, 10 State Planning Comm ission: on market- ization, 125 State predation: in pre- and posttransi- tion communist cou ntri es, 39 State sector: growing alongsid e of non- state sectm ~ 26-27 State-society rel atio ns, 6 Status-quo bias, 30 Stmctural reforms . See R eform(s) Structure-based d em oc r at i zation , 95 Students : re c rui t:me nt by CCP, 90 Subnational governments: social services provided by, 177-178 Subsidiaries : official wealth depo s ited in , 155 Subsidi es : gra in , 99-100 , 101 Substitute cadr e s: in local e mploym en t, 136- 137 Sun Liping, 14 Supervision law: NPC and, 62 Supreme People 's Court, 60, 61, 69 Supreme Pe op le 's Procuratorate , 60, 61, 161, 162 Susta in ed deve lopment: success in , 35 Tan H e ping, 164 Tanner, Murray Scot, 58- 59 Task force on p o liti ca l refonn, 49- 57 Taxes: agricultural, 192, 193-194; co llect- in g, 194; on grain, 97, 98; subs tituting for fees, 196 Taxreform (1994), 179 Teleco mjoint ventur e, 106 Telecom mun ica tion s: information co n- trols a nd, 85 Teleco m services, 96 Telecomservice sector, 102-109; effi- ci ency in , 108; inte rn ational statu s of Ch in a in , 1 08; monopoly and state co n- trol in, 103- 109; performa n ce in , 107; reasons for main tainin g monopoly in, 108- 109; restru cturi ng in 2002, 105 Telep h on es, 2. S ee a lso Tel eco m se rvi ce sec tor Television se ts, 2 Terrorism . S ee Mass terror " Thr ee Represents" theory (Jing Ze min ) , 92 Tiananm en cris is: political r eform after, 56-57 Tian Fen gsh an , 159 TianJiyun, 50 Top-down r efo rm , 122 Towns hip-and-vi ll age e n te rpri ses (TVEs ), 26 Townships: debt in , 179-180 ; elections in , 79-80 Trade. See F oreign trade ; Wo rld Tracle Or- gan izatio n (WTO) Tr affic f ata lity r ates : public safety and, 169-1 70 Trans itio n: co nditions in posttotali tarian regimes , 43; decentralization of prop- erty rig h ts during, 41; decentrali z ed predation during, 39-44; economic costs of, 23- 24; ending partial ref or m equ ilibri um , 210-211; er os io n of in sti- tutional norms during, 42- 44; m o nita r- ing Str ategie age nts du rin g , 41-42 ; regim e , 166 T ransiti o n economy, 17-4 4; corruption in, 13; decentralized preda tion and, 39-44 Tr a nsmissio n ca pac ity utili za tio n rate: in te leco m se rvi ce sector, 108 Tran spa ren cy Intern atio n a l: C hin a rated by, 5 Transportatio n: p h ys i ca l m o bility a nd, 2 T rapped tran sition: endin g, 210-2 11 ; in- ternational implications of, 211-215 Travel, 155; d o mestic and overseas , 2 Tria ls, 70-71 TVEs. See Town ship-ancl-viil age en te r- pris es Underdeve l oped m a rke ts, 28 Unemp loyme nt: in m a nufac turin g, 199; margina li zed Iabor a nd , 14; SOE re- form s a nd , 9 -10 , 199; urban , 196- 2 01 Unemp loym e nt benefits : inad e qu acy of, 2 00 U nfunded mandates, 177- 178 Un i com . S ee Ch ina Uni co m U .N. D eve lop m e nt Pr ogram (UNDP ), 171 U .S. Federa l Co mmunication s Co mmi s- sion (FCC ) : r eg ula tion m o de led after, 107 Un iversities . See Co ll egesa nd uni vers ities -- 305 of 306 -- 294 Ind ex Unrest: containment of, 83-84 Urban areas: democratization in villages and , 79; healthcare in, 173-174 ; polls in , 197-1 98; unemployment in , 196 -201 Urb a nization , 2 Urban residents ' committees, 79 Values: Western impact and changes in , 3 Varese, Federico, 39 Ve hicl e fataliti es : public safety and, 169 -170 Villages: CC P cells in, 184; CCP d ec lin e in , 18 3; CCP influen ce in , 77-8 0; co l- lapse of government authority in , 195; committees in, 77-78; compliance with election procedures in, 76; debt in , 179; elections in, 7, 46, 72-80 ; multi- candidate e lec ti o ns in , 75; self-gove rn- me nt in , 73-74. See also P easa nts ; Rural areas Violen ce, 15; in m afia states, 161; pattici- pation in, 203-204; state vs. society, 189-190 Vishny, Robett , 37 , 143 W ang D an , 82 WangHu ai'an , 70 W ang Huaizho ng, 160, 163 Wan g jia ngong , 51 Wangjuntao, 82 Wang Shaoguang, 14 Wang Zhaoguo, 50 W ang Zhen yao, 74 Wan Li, 50 "Was hington co ns e nsu s" (big-bang ap- pro ach ) , 25 Wa ter po llution , 175-17 6 Waterways: d egrad ation of, 175 Weak states: China ranked as, 5 Wealth: absconding with, 155-1 56 . See also Po verty Web sites: Falun Gong and, 87; secu ri ty checks of, 87 WeiJin gsh eng, 82 Wen Ji a bao, 52 Wen Shizhen , 50, 51 West: China as commercial opportuni ty for, 212-213 ; links with, 3 Wirele ss se rvice: ofUnicom, 104 Wo an (chaun an), 160 Worke rs: eco nomic stat us of, 9; layoffs of, 199; margin a li zation of, 14; protests by, 200-201 ; reemployment of, 199, 200. See also P eas ants Workplace safety: state incapacitati on and , 170 Wo rld Ba nk: quality of governance rank- in g b y, 5 World D evelop rnen t Jndicatars (Wo rld Ba nk , 2003), 175 World econom y, 1-2, 3 World Health Organization (WHO ) : on China 's he a lth system, 17 2 World T rad e Organization (\\'TO ): d o- m es tic priva te ban ks and, 11 4; te l eco m serv ice secto r and, 103, 106 WuJi c hu an , 103-10 4 WuJinglian , 11, 2 8,29 Xiao Tan gbiao, 76 Xi e Ping, 119 Xinfangsystem , 202-20 3 Xu Shijie , 51 Xu We nli ,82 Yang Xiuzhu, 155 Yao Lifa, 78 Yep, Ra y, 196 Yibashous (lo ca l officials), 134 -1 35, 145, 160 Young, Alwyn , 127 YuJ ia nrong , 1 89 , 194- 195, 202 , 203 Zen g, Pe ter, 74 Zeng Qin g hong, 187 Zhan g Wei, 1 64 Zh ang Z imin g, 69 Zh ao Ziyang, 8; po li tical re form a nd , 49, 50 ,52 , 53, 54 , 55, 57 Zh ou Wenc hang, 94 Zhu Ro ngji, 122 -- 306 of 306 --