Title: Politicized Capitalism in China: Economic Effects of State Intervention in Post-Communist Firms
Reference Number: 1106
Publication Date: March 2004
JEL Classifcation:
Author(s):

Sonja Opper
University of Tübingen

Victor Nee
Cornell University

Sonia Wong
The University of Hong Kong

Abstract:

In this paper we have addressed the nature of China's politicized capitalism emerging from market transition. We have specifically sought to investigate whether the pattern of interventions by the communist party and government bureaus in the corporate governance of for-profit firms represents a stable equilibrium in the institutional evolution of China's mixed economy. We have yielded two major findings. First, we confirm the developmental state view that the quality of state actor interference is actually contingent on state structures, incentives and constraints. In this sense, we provided evidence that overall party intervention is inferior to government intervention and that the quality of state actor involvement in economic transactions at the firm level is determined by the functional aptitude of state actors. Second, our estimates do not support the widespread belief in the existence of a "helping hand" of state intervention at the firm level in China. In contrast to the common view that close state-firm relations have actually contributed to China's remarkable growth trajectory (Walder 1995, Frye and Shleifer 1997), our results suggest that politicized capitalism is not associated with significant beneficial input in China's listed firms and is therefore unlikely to represent a stable institutional equilibrium.

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Last modified: 07/23/2004