Organizer: Lynette H. Ong, University of Toronto
Chair and Discussant: Dali Yang, University of Chicago
Finding new and improved ways to finance China’s
growth remains a central challenge to a post-socialist system dominated by
administrative allocation of credit. Two issues particularly stand out in recent
policy debates in Beijing: first, the indebtedness and inadequacy in fundraising
capacities of the subnational governments, with adverse implications for public
works and rural industrialization; and second, shortcomings in governance and
institutional design of the domestic stock markets, which increase the risks
of investors and instability in pricing state-owned and private assets.
Our panel addresses these issues through interdisciplinary
methodologies, original data, and context specific institutional analysis.
Lynette Ong and Kun-Chin Lin focus on mechanisms of local state and community
finance in the countryside. Ong goes beyond the conventional analysis on central-local
budgetary relations to examine inter-temporal pressures on the fundraising
capacity of local states, pointing to a widespread phenomenon of rural credit
system being utilized as a “quasi-fiscal” system. Lin investigates the interactions
between formal and informal political institutions that shape the regional distribution
of roads in China. Using data on highway distribution and funding, we test the
factionalist explanation against other accounts of unequal distribution of resources.
Mary Cooper and Joern-Carsten Gottwald provide comparative analysis of the political
economy of financial sector liberalization in China. Cooper compares China’s
authoritarian approach to the governance of the stock markets to Taiwan’s
earlier reforms in the political context of democratization. Gottwald maps China’s
deviations from Western principles of transparency, accountability, supervision,
and relationship between market participants to suggest the emergence of
a unique framework of financial services. Taken together, these four studies
provide insights into the inner logic of politically-driven capital accumulation
in China.
Lynette H. Ong, University of Toronto
The literature of political economy of finance in China has established
the motive for and the manner in which local governments mobilize financial
resources to fund local corporations under their ownership and management.
This study goes one step further to question the implications of this
pattern of financial resource allocation on local government fiscal health.
Based on detailed case studies, fiscal health of nearly two-thirds of the
townships examined have worsened because, on the one hand, local governments
can find no new revenue source after surpluses from local collective enterprises
have dried up; on the other hand, they are unable to amortize mounting
debts from financing the enterprises. Survival of these townships is largely
reliant on transfers from higher-level governments, and their government
functions in public service provision have largely “hollowed out”,
resulting in widespread negative implications for rural development and
governance.
This paper points to two important theoretical implications. First, the
credit system has become a quasi-fiscal system; financial savings are reallocated
to fund the growth of local government-run corporations, and these corporations,
in turn, contribute revenue to the local authorities in the form of profits
and taxes. Second, the study highlights the costs of local government-spearheaded
rural industrialization during the 1980s and early 1990s in the form of
local government liabilities to local credit institutions from financing
of collective enterprises.
Kun-Chin Lin, National University of Singapore
China has some of the densest networks of roads in developing countries
and accounts for the vast majority of paved roads among lower and middle
income countries. China’s high savings rate and repressed financial
system have both played a great role in financing this extensive infrastructure
network. Yet, how has China’s authoritarian regime, which arguably
made the repressed financial system possible in the first place, affected
the distribution of road infrastructure in China?
This paper postulates that, beyond basic economic and geographical factors,
a combination of formal and informal political institutions has shaped the
regional distribution of roads in China. The key formal institution is the
fiscal federalist arrangement for financing the vast majority of road projects,
through which central bureaucrats and provincial leaders bargain over cost-sharing
and revenue distribution over time. While factional politics provide some
provinces with more successful lobbying for infrastructure financing, all
provinces, due to the hierarchical nature of the Leninist party system,
focus much of the financial resources to building provincial-controlled
high grade roads such as highways and expressways instead of country roads
linking townships and counties in rural areas. However, central funding
often comes with the conditionality to build roads connecting backward and
poor areas to administrative or market centers. How, then, do provincial
leaders deploy political and institutional resources to offset central preferences?
Using a database of the regional distribution of roads of varying qualities
on the one hand and of infrastructure financing and regional factional affiliation
on the other hand, this paper will use panel corrected standard error estimations
and two-stage least squared estimations to test the effects of both formal
and informal institutions on the distribution of road networks in China.
Mary Comerford Cooper, Ohio State University
Although there is a fast-growing literature on the politics of financial
markets, relatively little of this research explicitly focuses on regime
type. My previous research provided evidence that China’s authoritarian political
system had significant effects on the design of its stock market institutions
introduced in 1990. This paper seeks to refine the argument by examining the
effect of socialist versus non-socialist authoritarianism on the nature of political
imperatives that shape stock market institutions. In both China and Taiwan,
stock markets were established under authoritarian regimes with developmental
emphases. This paper examines the effect of authoritarian politics on the creation
of market institutions on each side of the Taiwan Strait and also evaluates
the extent to which Taiwan’s democratization in the late 1980s is associated
with changes in governance of the stock markets. Finally, the paper examines
the politics of financial liberalization in these respective markets. Financial
liberalization is best conceived not as a binary measure, but as a potential
menu of policy choices. A country may open its financial markets to foreign
capital without restrictions, may selectively allow domestic companies to
issue shares overseas, or may allow foreign investors access (which could be
limited in a variety of ways) to domestic markets.
Joern-Carsten Gottwald, University College, Cork
The People’s Republic of China is a unique topic for modern comparative
government studies; still defining herself as a socialist state based on
a Leninist one-party system, the Chinese government has experimented widely
with various forms of modern governance, thus pairing traditional party rule
with elements of East Asian soft authoritarianism and state-of-the art regulation
in some sectors like financial markets. Now, China does not only contradict
the traditional notion that liberal markets need a democratic polity to blossom
but seems to combine various modes and institutions of government and governance.
Combing economic theories of regulation with new approaches on the rise of
the regulatory state and regulatory capitalism, this paper presents a thorough
analysis of core features of the Chinese regulatory regime for financial services
focusing on central issues of transparency, accountability, and the relationship
between market participants, supervisors, and the political principals within
the state and the party apparatus. Pinpointing major contradictions among the
Chinese reality and western market-based definitions, the paper sketches a new
pattern of governance with Chinese characteristics.
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