China's State Capitalist Turn: Political Economy of the Advancing State

The thesis explores puzzling change in Chinese state sector over the past two decades. China’s debt-ridden state-owned enterprises (SOEs) were long seen as the most thorny reform dilemma; however, in the past decade, the surging profitability of large SOEs in the so-called “monopoly sectors” (longduan hangye 垄断行业) have made them lynchpins of an emerging state capitalist system. The main argument is that the state sector’s apparent reversal of fortunes is, in large measure, a legacy of the brief period of neoconservative rule (1989-1992) following the Tiananmen uprising in spring 1989. The fleeting ascendance of Chen Yun’s neoconservative faction provided them the opportunity to redirect the reform course set by Deng Xiaoping and embed a market vision which saw SOEs as pillars of the economy. The neoconservative leadership laid the normative and institutional foundations of a robust SOE-directed industrial policy regime which has gained momentum through the 1990s and into the last decade. The study also sheds lights on the political and economic drivers of China’s unfolding market order through analysis of the industry foundations of China’s emerging state capitalist system. In recent years, state ownership has concentrated in some industries and largely retreated from others. What is driving this process of what Pei (2006) terms the “selective withdrawal” of the state from the economy? To address this question, the nature of ownership change across Chinese industry in recent years is first analyzed. Focus then shifts to comparative analysis of the reform pathway of two industries in which state ownership remains dominant: telecommunications and airlines. Combining insights from the partial reform equilibrium model and historical institutionalism, the study argues that both the particularist interests of “short-term winners” in industry and the neoconservative policy legacy have left an imprint on the process of selective withdrawal.Ph