Wealth, Will & Woes in the Politics of Welfare

MAKING WELFARE WORK FOR AUTOCRACY:

WEALTH, WILL & WOES IN THE POLITICS OF WELFARE IN CHINA

Asif Bin Farooq

A thesis submitted in conformity with the requirements for the degree of Doctor of Philosophy Graduate Department of Political Science University of Toronto

Making Welfare Work for Autocracy: Wealth, Will & Woes in the Politics of Welfare in China

Asif Bin Farooq

Doctor of Philosophy

Graduate Department of Political Science University of Toronto

2021 Abstract China’s recent welfare expansion demonstrates a puzzling case. The welfare expansion has been broad-based, benefiting almost every sector of the society in one way or another, which is rare considering past authoritarian regimes often made welfare expansion exclusive to its loyal-support base. A wide degree of variation also exists in how welfare policies are prioritized in the short- term and how welfare provision is made in the long-term. To address these puzzles, the study examines welfare expansion at the city-level, covering 114 cities from 2006 to 2016. The main arguments are three-fold. First, local leaders prioritize different welfare policies with different motivations. They prioritize education spending strategically, ensuring human development for the local economy’s productive purpose while enhancing prospects for personal promotion. By contrast, annual social security and total welfare spending are determined by the local state sector’s size. Second, the state sector also plays a critical role in determining long-term welfare provision.

Cities with a large state sector tend to have a high level of welfare provision in the long-term.

Finally, the state sector gained more than any other sector from the expansion of social security even though the general population experienced a relative improvement in their welfare.

The findings underscore the importance of the state sector for regime survival. The expansion of the state sector is a culmination of past policies. While the state sector’s expansion had the goal of

ii establishing its commanding presence in the market economy, on the political level, it became a vehicle for advancing the Party’s socialist agenda and establishing social stability. Moreover, the mixed-welfare system made the fiscal burden of welfare expansion bearable through standardization of social security, creating a large pool for contribution by socializing risk.

Privileged benefit and coverage helped strengthen the Party’s patronage relation with the state sector, while the relative improvement in welfare provision for all helped gain broader legitimacy.

As a result, the Party-regime made the welfare expansion work for its own survival interest by instrumentalizing welfare for mass-cooptation while making it affordable. The study establishes a clear link between welfare expansion, mass cooptation, and authoritarian-regime survival.

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Acknowledgments

My experience in China was rich and rewarding because of its kind-hearted people and regional diversity. My journey began in Northeast China. Among many amazing Dongbei people, I am grateful to Xue Bing. You provided unexpected but critical support during my fieldwork. I am very thankful to Wang laoshi from Changchun for your valuable support. I am grateful to Mingyuan for introducing me to ayi and sushu in Shenyang, who were generous to me and extremely resourceful for my research. I am also very fortunate to know Kosta, a brother from a different mother from Russia. As a roommate, you helped me adapt to a new culture in my early days in China. I also have to admit that China gave me two new brothers, the other being Jiazi. You embraced me with open arms, took me to your village, introduced me to your family and exposed me to the beautiful sides of family culture in China. I won’t forget your hospitality during my fieldwork.

Moving to Hangzhou, I would like to express my sincere gratitude to Yu Xunda at Zhejiang University. You facilitated my research at the stroke of a pen and with affirmative nods to your colleagues many times. Special thanks go to Zhou Yunheng. Your friendship, time spent with you during our several visits to tea gardens, escapades to nature and fruitful discussions over a cup of longjin reflect everything beautiful Hangzhou has to offer. Also, I can’t thank enough to Shunji Cui. I am indebted to you for all your support during my entire time in Hangzhou. Your life experience and perseverance were a source of inspiration to me.

Among all my countless Chinese friends I was fortunate enough to know, and forgive me if I missed mentioning you here, I want to note my special thanks to Yu Bowen. You were the critical pillar that gave me relentless support and strength right from the beginning of my journey in China. I can’t thank you enough. I am so happy and fortunate to have met your lovely and kind-hearted family members, Long Fei, ayi and nainai . Sadly, we chose to live thousands of miles apart.

If China was a rewarding experience during my graduate life, Canada made it possible, created the scholar in me and introduced me to a whole host of truly amazing and warm-hearted people who made every day worth living. I am truly indebted to Canada, my adopted country, for facilitating my research with the Vanier Canada Graduate Scholarship. I was also fortunate to have the support of the Canada-China Scholars Exchange program, Mitacs fellowship, Ontario Graduate Scholarship and Munk Doctoral Fellowship.

I am also thankful to my committee members, Joseph Wong and Lucan Way, for your support and valuable feedback. Many thanks to Diana Fu and Mark Frazier for your thoughtful comments on my work. I am grateful to you both. Finally, to my supervisor Jacues Bertrand, I can’t thank you

enough. You were kind enough to rescue me at a critical juncture of thesis-writing and helped me significantly improved my work. I am very fortunate to have your supervision. Every minute spent with you was fruitful, and the care you have shown to me during my thesis completion reflects the kind of supervision that all doctoral students need and wish for.

Among countless fantastic colleagues who supported me during my Ph.D. journey in many different ways, Mike Gavin needs a special mention. You were there every time I encountered a roadblock in my analysis. The fine advisor and mentor in you will one day benefit legions of doctoral students. I want to express my gratitude to Lynette Ong. Even though we parted our way, your mentorship and support will be always remembered. I am also fortunate to have valuable advice from Robert Vipond, Victor Falkenheim, Louis Pauly, Greg Distlehorst, Kerry Ratigan, Samantha Vortherms, Yongshun Cai, Christopher Balding, Kellee Tsai, Sarah Eaton, Isabelle Cote and many others. Special gratitude goes to two amazing hearts, Andrew Cooper and David Welch. David made my higher academic journey possible in many ways and kept the faith in me. Andy gave me wings, catapulted my research experience and helped me see many countries. I won’t forget your hospitality, be it in Parma, Florence, Buenos Aires or in the backyard of your house.

Last but not least, I am indebted to my family. My sister and brother-in-law were always there to support me. You facilitated my study in Canada, and I wish I were more steadfast showing my gratitude to you. And the sacrifice my mother made for my ambition and academic pursuit is second to none. I won’t be able to return that favour to you, but I hope I can make the rest of your life full of happiness and comfort. You are the best mom that I could have ever wished for. I hope my dad were here to witness his son becoming a doctor with you. And finally, I am the luckiest guy on earth who moved from Bangladesh to Canada only to find his other half from France in China. My beloved wife, you brought a smile to my face, opened the door to a whole new world for me and helped me regain self-confidence. You are the light at the end of the tunnel and have made every day in my life brighter than before. Thank you.

Introduction ...... 1

1.1 Theoretical Puzzle & Research Questions ...... 1

1.2 Determining Subnational Welfare Variation ...... 5

1.2.1 Welfare Expansion at the Local Level: City as a Unit of Analysis ...... 6

1.2.2 Sample Selections: City Size & Administrative Jurisdiction ...... 10

1.2.3 Empirical Variation in Short-term Welfare Priorities ...... 15

1.2.4 Empirical Variation in Long-Term Welfare Provision ...... 18

1.2.5 The Winners from the Welfare Expansion ...... 21

1.3 Why China as a Focus of Analysis? ...... 22

1.4 Analytical Framework ...... 24

1.5 Research Design & Methods ...... 26

1.6 Limitations ...... 27

1.7 Chapter Outline ...... 28

Chapter 2 ...... 32

Strength & Shortcomings in the Explanations by China Scholars ...... 32

2.1 Introduction ...... 32

2.2 Legitimacy Crisis: State’s Withdrawal from Welfare Provision & Popular Contention ...32

2.3 Addressing Legitimacy Crisis through Welfare Expansion: What Explains its Variation? ...... 40

T T he he TT heories heories oofofo f f WW elfare elfare EE x x pansion pansion ...... 5...... 5 0500 0

3.1 Introduction ...... 50

S S h horth o o rtr rt t---T - TT erm erm WW elfare elfare PP rio rio rities rities oo f f LL o o cal cal LL ead ead ers: ers: CC o o o o p p tatio tatitatioon n && PP ersonalerso erso n n al al GG ain ain ...... 7...... 7 5755 5

4.1 Introduction ...... 75

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P P athathw athwath w w ays ays toto WW elfare elfare EE x x ppansion ppansion an an sio sio n n inin ththeththe e e AA uuthoritarian uuthoritarian th th o o ritarian ritarian CC hhina h in in a a ...... 1...... 1 2 2 8128 8

5.1 Introduction ...... 128

Im Im plications plications ofof WW elfare elfare EE x x pansion pansion onon RR egim egim e e SS tabili tabiltabiliitytyty:ty : : HH o o w w PP riv riv ileg ileg ed ed isis thth e e SS ta ta te te Sector? ...... 179 viii

Conclusion ...... 211

7.1 Judges, Lawyers, SOE Officials & a Puzzle ...... 211

7.2 Local Leaders’ Preferences: When Local Logic Meets Top-Down National Campaign 212

7.3 Long-Term Welfare Provision: How Broad-Based Welfare Expansion Takes Place? ...214

7.4 Authoritarian Survival: Why Broad-Based Welfare Expansion is Adopted? ...... 216

7.5 Fiscal Sustainability of China’s Welfare Expansion ...... 218

7.6 Limitations of the Findings ...... 220

7.7 Policy Implications ...... 222

7.8 Future Research Agenda ...... 223

Bibliography ...... 226

Appendices ...... 251

List of Tables

Table 1.2.2.1: City Selection...... 12

Table 1.3.1: China in Comparison ...... 23

Table 1.5.1: Research Design ...... 27

Table 1.7.1: Breakdown of Chapters ...... 29

Table 4.6.1.1: Summary of Dependent Variables (Per Capita Expenditure) ...... 98

Table 4.6.1.2: Summary of Dependent Variables (Share of Expenditure) ...... 99

Table 4.6.2.1: Summary of Independent Variables ...... 100

Table 4.6.3.1: Summary of 2 nd – 5th Control Variables ...... 103

Table 4.6.3.2: Summary of Hypothesized Effect on Dependent Variables ...... 104

Table 4.6.4.1: Short-term Effects on Total Welfare Spending ...... 106

Table 4.6.4.2: Short-term Effects on Total Welfare Spending ...... 106

Table 4.6.4.3: Short-term & Long-term Effects on Total Welfare Spending ...... 108

Table 4.6.4.4: Short-term Effects on Education Spending ...... 109

Table 4.6.4.5: Short-term Effects on Education Spending ...... 110

Table 4.6.4.6: Short-term Effects on Social Security Spending ...... 111

Table 4.6.4.7: Short-term Effects on Social Security Spending ...... 112

Table 4.6.4.8: Short-run & Long-run Effects on Social Security Spending ...... 113

Table 4.6.4.9: Short-term Effects on Healthcare Spending ...... 115

Table 4.6.4.10: Short-term Effects on Healthcare Spending ...... 115 x

Table 5.2.2.1: High Welfare Provision Cities, 2007-2016 (Descending Order) ...... 135

Table 5.2.2.2: Low Welfare Provision Cities, 2007-2016 ...... 135

Table 5.5.1: Description of Independent & Control Variables ...... 141

Table 5.5.2: Determinants of the Variation in Welfare Provision ...... 145

Table 5.5.3: Determinants of the Variation in Welfare Provision ...... 146

Table 5.6.1.1: High Welfare Provision as a Result of Fiscal Capacity ...... 150

Table 5.6.1.2: High Welfare Provision as a Result of the Local SOE Sector (Employee numbers, share of employees and weighted) ...... 152

Table 5.6.1.3: High Welfare Provision as a Result of Mass Unrest ...... 154

Table 5.6.2.1: QCA Truth Table ...... 157

Table 6.5.1: Description of DVs ...... 193

Table 6.6.1.1: The Effect of Employment Sectors on Pension Insurance Coverage ...... 196

Table 6.6.1.2: The Effect of Employment Sectors on Medical Insurance Coverage ...... 199

Table 6.6.2.1: Employment Sector’s Effect on Generosity of Pension & Medical Insurances .. 204

A.1.1: Short-term Effects on Total Welfare Spending (TWS) ...... 251

A.1.2: Short-term Effects on Total Welfare Spending (TWS) ...... 252

A.1.3: Short-term & Long-term Effects on Total Welfare Spending ...... 252

A.1.4: Short-term Effects on Social Security Spending (Soc. Sec.) ...... 254

A.1.5: Short-term Effects on Social Security Spending (Soc. Sec.) ...... 254

A.1.6: Short-term & Long-term Effects on Social Security Spending (Soc. Sec.) ...... 255

List of Figures

Figure 1.2.1.1: Education Spending (Billion RMB) ...... 6

Figure 1.2.1.2: Social Security Spending (Billion RMB) ...... 7

Figure 1.2.1.3: Healthcare Spending (Billion RMB) ...... 7

Figure 1.2.2.1: Distribution of Population in 114 City Cases ...... 13

Figure 1.2.2.2: Economic Development & Migration in 114 City Cases ...... 14

Figure 1.2.3.1: Intra-Provincial Variation in Annual Welfare Spending at the City-Level...... 17

Figure 1.2.3.2: Inter-Provincial Variation in Annual Welfare Spending at the City-Level...... 18

Figure 1.2.4.1: Variation in Teachers & Doctors at the City-Level ...... 19

Figure 1.2.4.2: Scope of Social Insurances ...... 21

Figure 4.2.1: Annual Budgetary Welfare Spending (114 Cities, 100 million Yuan) ...... 78

Figure 4.3.1: Annual Budgetary Spending ...... 83

Figure 4.4.2.1: Cluster Result (Ward’s Method) ...... 89

Figure 4.4.2.2: Cluster Result (Average Linkage Method) ...... 89

Figure 4.4.2.3: Budget Share of Welfare Spending ...... 91

Figure 4.4.2.4: Welfare Spending (Per Capita, RMB) ...... 91

Figure 4.4.2.5: Distribution of Welfare Policy Regimes (City Level) ...... 92

Figure 4.6.3.1: Mayors’ Tenure Year (1 st Control Variable) ...... 102

Figure 4.7.1.1: Cities with Annual Pattern of Change in Urban SOE Employees ...... 119

Figure 4.7.1.2: Regional Cities with Annual Pattern of Change in Urban SOE Employees ...... 120

Figure 4.7.2.1: Welfare Among Top Six Issues of Concern in Cities in China ...... 126 xii

Figure 5.2.2.1: Subnational Welfare Provision, 2007-2016 ...... 136

Figure 5.2.2.2: Students per Teacher ...... 137

Figure 5.2.2.3: Doctors per 10,000 ...... 138

Figure 5.6.1.1: Welfare Provision & Fiscal Revenue ...... 150

Figure 5.6.1.2: Welfare Provision & the Size of SOE Sector ...... 152

Figure 5.6.1.3: Welfare Provision & the Popular Contention...... 154

Figure 5.6.1.4: Tree Diagram of Conditional Causal Pathways ...... 155

Figure 5.6.2.1: Jinhua (Contradiction Case) ...... 159

Figure 5.6.2.2: Changchun (Contradiction Case) ...... 161

Figure 5.7.1: Hangzhou & Changchun Comparison ...... 164

Figure 5.7.1.1: GMP (Per Capita) ...... 167

Figure 5.7.1.2: General Budgetary Revenue (Per Capita) ...... 167

Figure 5.7.2.1: Per-capita Education Spending (RMB) in Hangzhou ...... 170

Figure 5.7.2.2: Per Capita Central/Provincial Subsidy ...... 171

Figure 5.7.2.3: Changes in the Size of SOE Sector in Changchun & Hangzhou ...... 174

Figure 6.4.1: Pension Status (2015) ...... 186

Figure 6.4.2: Pension Status (2013) ...... 186

Figure 6.4.3: Generosity of Pension (2015) ...... 187

Figure 6.4.4: Coverage of Medical & Unemployment Insurances (2015) ...... 189

Figure 6.4.5: Coverage of Medical & Unemployment Insurances (2013) ...... 189

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Figure 6.4.6: Generosity of Medical Insurance ...... 190

Figure 6.4.7: Coverage of Maternity & Work Injury Insurances (2015) ...... 191

Figure 6.4.8: Coverage of Maternity & Work Injury Insurances (2013) ...... 191

Figure 6.6.1.1: Adjusted Predictions for Pension Insurance Coverage ...... 198

Figure 6.6.1.2: Adjusted Predictions for Medical Insurance Coverage ...... 200

Figure 6.6.1.3: Adjusted Predictions for Unemployment Insurance Coverage ...... 202

Figure 6.7.1: Generosity of Medical Insurance Schemes (2015)...... 207

Figure 6.6.2.1: Level of Dependence on Transfer & Subsidy ...... 220

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List of Appendices

Appendix 1………………………………………………………………………………. 252

Appendix 2………………………………………………………………………………. 257

Appendix 3………………………………………………………………………………. 260

Appendix 4………………………………………………………………………………. 265

Appendix 5………………………………………………………………………………. 268

Chapter 1

In tro d u ctio n

1 . 1 Theoretical Puzzle & Research Q uestions

At the national level, the communist party leaders have made constructive efforts to expand welfare provision in China in the last two decades. A series of welfare policies since the early

2000s made nine-year compulsory education free. They introduced social insurances for healthcare, pension, unemployment and maternity, covering the labour force in the formal and 1 informal sectors and populations in urban and rural areas. The campaign for welfare expansion, which some referred to as the ‘third turning point’ in China’s contemporary history, shifted the narrative of ‘efficiency first, equity second’ to ‘inclusive growth’ (包包包包 bāoróng zēngzhǎng) and a people-oriented development ( 以以以以以以 yǐrénwéiběn fāzhǎn) (Croll, 1999; Shi, 2012;

Ngok and Huang 2014).

Despite the central leaders’ role in policy initiative, the responsibility of policy implementation and the recognition for accelerating welfare provision belong to the local leaders due to China's decentralized governance. The local implementation of welfare policy and its success or failure cannot be explained by performance evaluation system because the evaluation criteria are myriad and competing targets of economic development still supersede others (Edin, 2003a, b; Landry,

2008; Zhao, 2009; Michelson, 2012). So, we know little about how, when, and why local leaders implement welfare expansion policies, and what are the consequential effects on welfare provision and the Party-regime's survival interest in the long-term. Therefore, to understand local welfare priorities, welfare provision and the underlying political logic, I examine three sets of questions.

1 While maternity insurance covers urban employees, the New Rural Cooperative Medical Scheme includes a maternal benefit for the rural residents. In contrast, basic maternal and childcare services are provided to urban residents without formal sector employment.

1 2

The first set of questions address local leaders' welfare priorities at the city-level. Since local leaders, such as mayors, de facto have short tenure terms (around three years), what are the short- term policy preferences of local political leaders in welfare expansion? Is there any variation in their policy preferences, i.e., do leaders prioritize certain welfare policies over others? If variations in policy preference exist, then what explains the variations? These questions can underline the political incentives that drive expansion in welfare policies at the local level. The second set of questions addresses how welfare provision takes place over a long period of time and across the country. Here, the 'welfare provision' is construed as policy inputs and outcomes together . Is there any variation in welfare provision at the subnational level? What are the conditions, economic and political, that can explain the variation? Finally, the third set of questions examine the social stratification that variation in welfare development can create. I examine who benefits most from welfare policies. Are there any social groups that gain more from welfare expansion? If yes, what is the political implication of their privileged access to welfare in the context of a single-Party authoritarian regime?

The three sets of questions underline two puzzling developments of China's recent welfare expansion. First, variations in subnational welfare expansion and provision underline a contradiction of the social contract that guarantees the Chinese Party-state's performance legitimacy. As Perry (2008) argues, the conception of social citizenship from Mencius to Mao has always been a bedrock of the Chinese society, underpinning a social contract, now in modern times, between the state and its citizenship. Therefore, it is not surprising that we see the single- party state reoriented its development policies and prioritized welfare expansion after two decades of liberalization and privatization. However, it remains unclear why we observe variations in welfare policy implementation and welfare provision. Granted, Solinger and Hu (2012), Huang (2015), Dickson et al. (2015), Ratigan (2017) and Vortherms (2018), among others, provide several reasons behind regional and local variation in the development of different welfare policy. Nevertheless, their works either focus on the regional or provincial level or on a particular welfare policy or a particular year or a small case study, overlooking a nationwide city-level comparative study of variation among multiple welfare policies. As a result, municipal politics' logic in explaining the variation in welfare expansion under the 'mandate' of 'inclusive growth' and 'a people-oriented development' remains puzzling and understudied.

Second, the implication of broad-based welfare expansion in the context of authoritarian regimes suggests another puzzling question. If the welfare expansion is inclusive, and it aims to benefit broad groups of people, what stops the potential competitors to defect in the absence of credible promise for privileged benefits? As Mares and Carnes (2009) argues, most welfare policies initiated in authoritarian regimes in the past were limited to old age, sickness, and disability insurances and designed to benefit only exclusive groups, military and state sectors, for patronage purposes and political control. So, it is puzzling that China’s broad-based social policies and standardized social insurances serve the Party-state’s survival interest when the inclusive welfare expansion aims to dissolve the distinction between the selectorate and the disenfranchised.2 In other words, if we conceive of a broad-based welfare regime as a repertoire of state-led social policies aimed at improving the living standard of its diverse social groups by increasing the chances of social mobility, spending in human capital and protection of the citizens against various risks during their lifetime (Segura-Ubiergo, 2007:1), then such welfare regime in an authoritarian state becomes a puzzling fact.

In this dissertation, I contend that China's single-party regime is an exception to other authoritarian regimes, given how it expands and instrumentalizes broad-based welfare policies for regime survival. First, it strengthens its loyal patronage base by expanding privileged welfare benefits and social security coverage among the SOE employees, increasing dependence on the Party-state. As I show in the following chapters, employees in the SOE sector are more likely to be covered by pension and unemployment insurances. They are also more likely to have access to generous benefits in pension and medical insurances. Nevertheless, the general population who are not part of the state sector also gain from the welfare expansion, albeit relatively less than the SOE employees. Particularly, access to medical insurance coverage improved for the general population significantly in addition to the overall improvement in their access to free basic education. As a result, the population's satisfaction rate outside the non-state sector appears high despite their

2 According to Gallagher and Hanson (2009), the three scenarios of Bueno de Mesquita’s selectorate theory include one where selective few have privileged access at the expense of the broader public good when the winning coalition is small. In the second scenario, the public good is expanded when the winning coalition in the selectorate is large, but the disenfranchised are neglected. In the third scenario, since welfare expansion is commensurate to expanding public good, the mix of good is skewed towards private goods when the winning coalition is larger than the selectorate. However, broad-based and inclusive welfare expansion aims to expand welfare benefits to everybody.

4 comparative disadvantage. This demonstrates that the Party-state renewed its social contract with the state sector and established a new social contract with the non-state sector, which increased the Party-regime's stability. Second, I show in the following chapters that past policy legacies determine welfare expansion at the city-level through the SOE sector's expansion. The SOE sector determines the local leaders' short-term budget priorities on total welfare and social security spending on the micro-level. However, the short-term budget priority in education spending is determined by a leader’s personal interest in career promotion and the local economy's productive interest. By contrast, the long-term expansion of welfare is determined by a city's SOE sector and fiscal capacity on the macro-level. I argue that the SOE sector plays a critical role in determining China's welfare expansion due to past policy legacies. On the one hand, the Maoist era's policy legacies put immense pressure on local government to meet the popular expectation of a welfare state. On the other hand, the Deng era's policy legacies of favouring the private sector's growth put pressure on the Party-state to re-emphasize its socialist agenda and re-establish its authority in the market. The SOE sector's expansion provided a solution to the effects of past policy. The expansion of the welfare benefit and coverage to the SOE employees became instrumental to the Party- regime's survival interests. That said, the Party-state's broad-based policy focus through broader socialization of risk helps afford welfare expansion's financial cost. In short, policy legacies play a critical role in determining welfare expansion at the subnational level, and the Party-state has been successfully creating a condition where the state sector prefers the status quo instead of supporting political change.

The three questions addressed in the dissertation are important on theoretical, empirical and thematic grounds. Cook (1993) shows that an implicit social contract between ruling elites and citizens in the former Soviet Union endured where citizens submitted their loyalty to the regime in return for welfare benefit. Extending further on this thesis, Cook and Dimitrov (2017) develop a 'market social contract' theory where a social contract can endure an authoritarian regime under a market economy. However, we don't have a clear understanding of how such a market-social contract can develop where welfare policies can be used as a political tool by leaders in return for loyalty and policy implementation remains uneven across the country. My work's focus on subnational variation in welfare expansion aims to address this gap. On the empirical ground, the vast majority of welfare research mostly focuses on the industrialized democratic world. Many aspects of welfare development in the developing countries remain understudied (Segura-Ubiergo,

2007: 2-3; Rudra, 2008: 3; Mares and Carnes, 2009: 95). So, empirically, we need to enrich our understanding of authoritarian welfare states, which are 'late developers' (Gerschenkron, 1962). In my dissertation, China fitting this category can give us valuable insight. While it is important to look at the subnational development of welfare expansion, what is also critical and often overlooked is the political logic of city-level welfare expansion. Cities as an urban hotspot for large congregation, contentious politics and economic opportunities provide a critical window to the processes of change in transition economies. The key political imperatives in authoritarian states are often driven by the developments on the ground in major cities (Collier, 1975; Wallace, 2013). Additionally, municipal leaders have a high degree of discretion in setting budget priorities, i.e. setting priorities for the district and counties' local policies under their respective municipal regions. Therefore, the analytical perspective on cities taken in my dissertation can offer new insights into the politics of welfare expansion in authoritarian regimes. China's large sprawling cities can provide the key to that perspective. Last but not least, thematically, it is critical to revisit the topic of welfare in an authoritarian context and study its political implication as welfare expansion takes place with the simultaneous strengthening of authoritarian regimes across the world, eroding institutional channels for accountability and hollowing out individual rights through modern surveillance under the pretext of collective wellbeing (Levitsky & Way, 2002; Dimitrov, 2013; Magaloni and Kricheli, 2010; Forrat, 2018; Fewsmith and Nathan, 2018). In this dissertation, as I explore how welfare expansion can be an instrumental tool for regime survival, it emphasizes the thematic importance of welfare in an authoritarian regime.

1.2 Determining Subnational Welfare Variation

This section aims to provide an overview of the degree of variation in China’s subnational welfare expansion. In the following subsections, I first present the unit of analysis, sample selection and then descriptive statistics demonstrating empirical variation in welfare spending and outcomes as well as social security coverage. In other words, saving the details for Chapter 4 and 5, this section provides a brief presentation of the three dependent variables. The statistical data for the first two dependent variables is gathered from statistical yearbooks. The third dependent variable which is the scope and generosity of social security among different social groups will be further elaborated in Chapter 6.

1.2.1 Welfare Expansion at the Local Level: City as a Unit of Analysis

In this dissertation, I analyze local level welfare development while consciously examining its link to an authoritarian regime's top-down politics. Local-level analysis of welfare expansion is critical because China has a very decentralized governance structure. While major policies are initiated at the central level, the 'campaign-style' 3 (运运 yùndòng ) country-wide adoption and implementation of any policy ultimately depend on the local level (Kennedy and Chen, 2018; Ang, 2016; Oi, 1995, 1999). Moreover, local governments shoulder the major share of the total welfare spending (Fig 2.1.1 – 2.1.3). Since the 1994 tax reform, otherwise known as the Tax Sharing System, greater fiscal responsibility for welfare provision was imposed on local governments' shoulders while requiring them to share tax with the central government. It further constrained them from ad-hoc fees and levies (Wong, 2009). So, how local governments adopt national policies and make budget adjustments accordingly is crucial to understanding welfare expansion. In other words, local level welfare politics is essential to explaining China's welfare expansion.

Figure 1.2.1.1: Education Spending (Billion RMB)

Central Government Local Government

3 The CPC has been using campaign-style policy implementation for many policies, be it for the one-child policy (White 1990) during the immediate post-Mao period or the recent environmental protection campaign (Kostka and Zhang 2018) or ideological campaign under Xi Jinping (Zhao 2016).

Figure 1.2.1.2: Social Security Spending (Billion RMB)

Central Government Local Government

Figure 1.2.1.3: Healthcare Spending (Billion RMB)

5000 0

Central Government Local Government

Source: National Bureau of Statistics China

To examine the local level, I choose cities ( 全全全 quán chéng shì ) as the unit of analysis. 4 There are three rationales for choosing cities as cases. First, China has a high de facto decentralized governance system under a unitary Party-state's rule, making cities10000 an important unit of analysis of welfare expansion. Local governments, particularly at the municipal or below municipal level, can set local requirements in accessing welfare and social security services and benefits. The local

4 The entire city jurisdiction ( 全全全 quán chéng shì) allow us to examine policy development both in the rural and urban areas together under the respective city's jurisdiction.

15000 8 jurisdiction also allowed local government to initiate and spend on pilot projects based on local welfare needs. 5 More often than not, several municipal governments have been pioneering in coming up with new welfare policies, be it urban pension reform from Shenyang, social housing from Shanghai and urban and rural minimum livelihood social assistance from Yangquan (Shi, 2012). Municipal governments in China not only initiate guerrilla-style policy experimentations and diffusion of various policies, but they have also been responsible for policy defiance (Heilmann, 2008a,b; Heilmann and Perry, 2011; Teets and Hurst, 2014; Mei and Pearson, 2015). They defy competing policies imposed by the central government through informal means if that hurt local interests. In Frazier's words (2010:6), urban governments are "for better and worse, the catalysts that transformed the welfare regime in China." Understanding how and why authoritarian leaders at the city level prioritize different welfare policies can help explain the variation of welfare expansion at the city level.

Second, cities are the epicentres for economic, political and social challenges which not only keep the leaders in Beijing wary of instability, they also keep local governments steadfast in making bargaining by using concessionary welfare benefit and various tools of repression as means (Deng and O'Brien, 2017; Cai, 2008; Ong, 2018, 2019). Being the regional pillar of growth and economic opportunities, cities represent the disproportionate concentration of economic and human resources within a province. Cities' high population concentration makes urban centres the political turf of the working class, migrants, and discontents. Indeed, the vast majority of mass unrest and popular mobilization occur in major cities across China. 6 In addition to the high concentration of population and labour force activities, cities represent the political stage where political and economic elites congregate and bring life to intra-party competition and survival for leadership. So, cities posit unique threats to an autocrat's political survival, both from within, i.e. from the elites and the mass (Wallace, 2013). In other words, the key political imperatives in authoritarian states are often driven by the developments in major cities (Collier, 1975; Wallace, 2013). That is

5 Local policy innovation addresses governance challenges and could be more sustainable than top-down policy implementation (Wang, 2011). Granted, the central government often facilitates policy uptake and diffusion from one locality to another and helps set a comprehensive but flexible framework for policy implementation. Local governments have been at the forefront of taking advantage of that flexibility and have advanced welfare innovation to address the governance gap. 6 For example, this dissertation's selected city cases represent half of the reported incidents of the mass unrest in 2006 alone.

9 why it is important to examine cities to understand whether and how authoritarian leaders use welfare expansion policies as a means to their political ends.

Finally, the city-level study provides an important insight into the intra-province variation that is often overlooked. On the one hand, research on welfare politics in China has been dominated by regional level comparison relying on provincial variation (Frazier, 2010; Hurst, 2009; Ratigan, 2017, Huang, 2015, Gallagher, 2005). In Landry's (2003: 32) words, "the terms of the debate on the political impact of China's economic decentralization rely excessively on provincial aggregate data." On the other hand, several valuable works except few are a very focused, in-depth study of few localities which fall short of providing a comprehensive perspective (Ye and Kang, 2015). 7 While these studies have enriched our understanding of China's welfare politics, they fall short of addressing two limitations. First, regional focus on provincial level overlooks intra-province variation. Especially in China, as mentioned earlier, economic and human resources are disproportionately concentrated in a few municipal regions within a province due to rapid urbanization in recent decades. Second, focused studies on a handful of localities can provide critical insights into the 'Blackbox' of political processes. However, it restricts us from taking a comprehensive understanding from a comparative perspective. For example, the country-focused small case study can bring depth to our understanding of the local politics of welfare. Nevertheless, it fails to demonstrate how that is comparable across the country, particularly at the city level, because inter-city variation is higher than intra-city (i.e. the county level) (Vortherms, 2019). Thus, the existing works on China's welfare are dominated by two extremes, broad provincial variations without appreciating intra-region differences and narrow focus on a few county-level politics with little attention to its across-the-country implications. This chapter addresses this gap by examining 114 cities that have high economic and political importance to the single-party regime and span across China.

7 Among these exceptions that incorporate large city cases include Solinger (2012), Wallace (2014), Vortherms (2019).

1.2.2 Sample Selections: City Size & Administrative Jurisdiction

There are several challenges to the use of cities in China as a unit of analysis. They have various administrative statuses. They also lack comparable and disaggregated data, which has stymied comparative research of welfare at China's city level. Nonetheless, there is much to uncover by examining available data and identifying a sample of cities that can take advantage of various administrative divisions and increase leverage to study the intersection of welfare expansion and regime survival.

In terms of administrative divisions, China has four metropolitan cities under the central government ( 直直全 zhí xiá shì ) and 294 prefecture-level cities ( 地地全 dì jí shì ) (out of 334 prefecture-level divisions), including some provincial capital and sub-provincial level cities and 375 county-level cities ( 县地全 xiàn jí shì ). Most county-level cities are under prefecture division except few that are under the control of their respective province. County-level cities mostly comprise of small towns and rural areas and have a population smaller than a million. By contrast, prefecture-level cities, including the four metropolitans under central government, have large urban areas, constitute the epicenters of China's economic and political developments, and their mayoral post represents a critical seat for promotion to powerful provincial and central level offices. Additionally, disaggregated welfare data at the prefecture-level is already difficult to gather, let alone at the county level. Therefore, prefecture-level cities are an ideal choice for empirical analysis of local-level welfare expansion.

The 294 prefecture-level cities, however, have huge inter-city variation. It can have cities with a tiny population like Tumxuk city in Xinjiang province with around 140,000 people and a huge population like Beijing, with around 20 million (2010 estimate), although the latter is considered a province-level city. In fact, a cursory look at the 2010 census suggests that around one-third of the prefecture divisions have a population less than two million or around, which is small in China's standard. It can also have cities with a little over a thousand square kilometre area such as Jiayuguan city in Gansu and economic output as low as around 14 billion yuan like Lijiang city in Yunnan. By contrast, there are also large metropolitan regions at the province-level such as Chongqing with 82,403 square kilometre areas or cities with the large economy such as Hangzhou with a gross municipal product of around 600 billion yuan (2010 estimate). Likely, the political incentives and struggle for a local leader in a small city like Jiayuguan would be significantly

11 different from that in critically important cities for the Party leadership like Chongqing or Hangzhou. Moreover, many of the 294 cities' prefecture-level disaggregated public spending data are not publicly available beyond 2012.

To circumvent the challenges of using cities in China as a comparative unit of analysis, I select a sample of cities where political pressure on leaders for using 'carrots' and 'sticks' will be high because the macro focus of this research is to understand the relation between welfare expansion and authoritarian survival in the context of concession and repression. The sample is chosen based on two parameters: the size of the population and the city's political and economic status. The two parameters represent the conceptual definition of 'cities'; one is based on agglomeration, where a city is defined as a centre of large, densely populated settlements, and the second one is jurisdictional, where a city is defined by a local jurisdiction with distinct power, status and constraints (Post, 2018). The larger the number of populations in a city, the higher the potential threat to regime stability. A high population concentration can help solve collective action problems for mass protest or mobilization against the established power in a given geographic area. In a similar vein, the higher the political and economic importance a city has, the greater the pressure for a local leader to resolve local problems by using means of concession or repression or both. Cities that have metropolitan or provincial-capital or sub-provincial status or the cities that constitute a bigger share of economic output within a province than its provincial capital are politically sensitive cities for the central and provincial Party leaders. Based on these two criteria, I identify a sample of 114 cities (see Table 1.2.2.1). These cities have at least one of the two criteria: 1) they have at least five million population because of a five million threshold is used as a category of 'large cities' by UN urban studies, 8 Alternatively, 2) cities with special administrative importance. They are provincial capital and/or sub-provincial cities and/or cities with a bigger share of economic output than their respective provincial capital. Together, these cities constitute a disproportionate share of their respective provincial population, gross provincial production, and welfare spending.

8 Cities with more than 10 million population are categorized as megacities. See The World Cities 2016 report (United Nations, 2016).

Table 1.2.2.1: City Selection Population Agglomeration (City Size)

s (Jurisdictional)

& Economic Statu

Political

Figure 1.2.2.1: Distribution of Population in 114 City Cases

Source: Data collected from China 2010 Census

Figure 1.2.2.1 illustrates the distribution of the population in 2010. 9 It shows the sample consists of cities as big as Chongqing, with a residential population over 20 million and as small as Yinchuan, with a residential population of 1.99 million. These cities experience either within- or out-of-province massive inward migration for being the locus of economic centres or regional outward migration due to protracted underdevelopment phases. Together these cities constitute a disproportionate share of the provincial population, gross provincial production and social spending. For example, six cities selected from Hebei province represent 72 percent of the provincial population, 76 percent of the gross provincial product and over 70 percent of the provincial spending on education. Therefore, examining the selected 114 city cases can help us better understand subnational welfare development in China.

9 The data from 2010 is chosen because it represents the data from the last nationwide census. As a result, the 2010 residential population data is the most reliable and comparable across the country. Further, the residential population is chosen instead of the hukou population because it illustrates the number of people living in a city.

Figure 1.2.2.2: Economic Development & Migration in 114 City Cases

Source: Data collected from China City Statistical Yearbook (Publication Year 2011)

Furthermore, the 114 selected cities represent a diverse level of economic development. Figure 1.2.2.2 illustrates the distribution of the gross municipal product (GMP) of 2010. It maps cities with very high GMP like Shanghai and Guangzhou and low GMP like Guigang or Chenzhou. Map 2.2.2 also highlights cities that are less attractive to the local population. These cities experience outward migration mostly because local economic development is low, and even if the GMP is high, they appear to be low in terms of per capita. Moreover, both figures (1.2.2.1 and 1.2.2.2) demonstrate that the sample covers cities from different regions in China. It covers cities as far as Urumqi in the west, Qiqihar in the northeast, cities including but not limited to Xining and Chengdu in the central part and coastal cities in the east.

Admittedly, one can argue that other additional parameters could be ideal for sample selection. For example, all cities that possess special economic zones could be important to the Party. Although the cities in my sample cover most of them, it also misses Beihai in Guangxi and Kashgar

15 in Xinjiang, to name a few. In a similar vein, cities that have geopolitical importance could also be important to the Party. For example, Dandong bordering North Korea or Manzhouli is the biggest land port and a sub-prefecture level city in Inner Mongolia. One can also argue that historically important cities for the Party like Yan'an in Shaanxi province need to be included. Nevertheless, the selection criteria should be based on the sound logic of purposive case selection. First, the 'most different cases' approach would be the ideal sample selection process because the welfare policies initiated by the central government for local implementation are the same across the country, but the outcomes are different (Przeworski and Teune, 1970; Lijphart, 1975; Skocpol and Somers, 1980; Seawright and Gerring, 2008). Second, the differences along the two parameters, population agglomeration and economic and political status of a city can provide the ideal leverage to examine how authoritarian leaders use welfare expansion as a tool for regime survival. These cities pose potent challenges to the regime from elites and the mass because the selected cities are the epicentre of economic opportunities and mass unrest. Therefore, I contend that the parameters used for sampling cases are ideal for the purpose of the research questions. 10

In short, the selected 114 cities represent a unique set of winners and losers from two initial decades of China's economic development. Ensuring social stability in these large and important cities remains a political headache for local and central leaders because politically, these cities can either catapult leaders to the higher-up chain of command with promotions for solving local problems or wreck their political ambition for failure to do so. Therefore, examining the selected 114 city cases can help us better understand subnational welfare development in China.

1.2.3 Empirical Variation in Short-term Welfare Priorities

Among the three research questions presented in the introduction, the first one addresses short- term local welfare priorities. There are several ways to measure local welfare priorities and all

10 They also appear to be the 20 city-clusters' focus-cities identified in the recent campaign by the central government aiming for regional development. These regional clusters for development include (with confirmed year of initiatives in the parenthesis): 包长长长长长包长长全全长 (2016), 包长长长全全长 (2015), 成成全全长 (2016), 京京京全全长(2012), 珠长长长长全全长 (2008), 哈包全全长以以 (2016), 山山山山全全长, 辽长辽全全长, 关长关关全全长 (2018), 海海海海海海海(2011), 长关全全长 (2016), 长江全全长, 天山天天全全长, 天北北全全长, 呼包呼呼全全长 (2018), 兰海全全长 (2018), 滇长全全长 (2018), 黔长全全长, 晋长全全长, 宁宁宁宁全全长.

16 have their advantages and limitations. In this section, I use annual welfare spending as a measure of local welfare priorities and present an overview of its variation at the city level. I save the detailed explanation of choosing annual welfare spending as the first dependent variable and a systematic identification of its variation for chapter 4. There are two ways to look at the annual welfare spending: per capita welfare spending and the budget share of welfare spending. There is a wide degree of variation in welfare spending in both per capita and the budget share dimension at the provincial level as demonstrated by other scholars ( Dickson et al., 2015; Ratigan, 2017; Huang, 2015) . However, there is also substantial variation at the sub-provincial level across cities. For example, Zhejiang is one of the richest provinces in China. Yet, the major cities in the province demonstrate some important variation in their annual budget share of education, healthcare and social security spending. Figure 1.2.3.1(a) shows that Hangzhou and Ningbo have far lower share of education spending compared to Wenzhou and Jinhua and the gap is evident from 2006. However, as Figure 1.2.3.1 (b) illustrates, all four cities started with almost identical budget share of healthcare spending in 2006 and yet the cities diverged gradually with Wenzhou and Ningbo ended up spending more than Hangzhou and Ningbo by the end of 2016. By contrast, Figure 1.2.3.1 (c) shows that the budget share of social security spending for the four cities demonstrate less variation, albeit Hangzhou and Ningbo spending more than Wenzhou and Jinhua in this case. These spending patterns demonstrate that some cities prioritize more in one welfare policy than others compared to other cities within the same province.

Figure 1.2.3.1: Intra-Provincial Variation in Annual Welfare Spending at the City-Level

Furthermore, there is also inter-provincial variation at the city level. Figure 1.2.3.1 illustrates variation among four provincial capitals from four regions as an example, Chengdu in Western China, Changsha in Central China, Hangzhou in Coastal East China and Harbin in Northeast China. Figure 1.2.3.1 (a) shows that Hangzhou outperforms all other cities while Chengdu falls behind in annual budget share of education spending. However, Figure 1.2.3.1 (b) does not show substantial variation among the cities in the budget share of healthcare spending though Changsha underperforms compared to other four cities. Finally, Figure 1.2.3.1 (c) shows that Harbin has been spending more in annual budget share of social security spending than the rest of the four cities after 2010. In short, there is also substantial inter-provincial variation at the city level where different cities prioritize different welfare policy. Given local leaders play a critical role in the budget decision-making at the city-level what motivate them to prioritize one welfare policy over

18 others? In other words, what explains the variation in the short-term welfare priorities at the city- level?

Figure 1.2.3.2: Inter-Provincial Variation in Annual Welfare Spending at the City-Level

1.2.4 Empirical Variation in Long-Term Welfare Provision

The second issue this dissertation addresses is the variation in long-term welfare provision, which is the second dependent variable of this dissertation. I explain the concept and develop an index of long-term ‘welfare provision’ in Chapter 5. However, to briefly clarify, it includes outcomes and the scope of social security to overcome limitations from only looking at the spending level. In this section, we look at the average teacher-student ratio from primary, secondary and tertiary level and doctor-population ratio, all averaged for 10 years (2007-2016) as proxies for long-term

19 spending outcomes in education and healthcare, respectively. 11 In figure 1.2.4.1 apart from the two outliers, Beijing and Shanghai, the scatterplot demonstrates a wide degree of variation. For example, Weinan, a small underdeveloped city in the Northwest China, has one of the highest teacher-student ratios, 8 teachers per 100 students but has one of the lowest doctor-population ratios, less than one doctor per 1000 people. By contrast, Foshan, an economic centre in the Coastal South and adjacent to Guangzhou city, has high doctor-population ratio, more than three doctors per 1000 people but has one of the lowest teacher-student ratios, less than five teachers per 100 students.

Figure 1.2.4.1: Variation in Teachers & Doctors at the City-Level

11 Other measures such as literacy ratio and immunization and child mortality rates could have been useful to measure welfare outcomes but consistent and comparable data on these indicators at the city-level is unavailable. I elaborate on this later in Chapter 5.

Furthermore, examining the scope of social security coverage also demonstrate substantial variation. Figure 1.2.4.2 illustrates the five-year average rate of coverage 12 for pension, medical and unemployment insurances in all provincial capitals, not under central jurisdiction. The figure demonstrates that medical insurance has the widest scope while a very few populations are covered by unemployment insurance. Guangzhou and Hangzhou show very high level of social security coverage. 13 By contrast, large cities like Shijiazhuang in the Coastal China or smaller provincial capitals like Nanning and Xining in the Southern and Western China, respectively, have very low rate of social security coverage. In short, the scope of social security coverage and the teacher- student and doctor-population ratios demonstrate large variation in welfare provision across China at the city-level. What explains the variation in the long-term welfare provision at the city-level? It is critical to systematically determine the variation in the long-term welfare provision, as an outcome of local leaders’ short-term welfare priorities, and to identify the determinants of the variation to establish the link between welfare expansion and authoritarian survival.

12 The rate of coverage is calculated using the registered population share of the covered population in each city. 13 Urumqi also show high level of coverage, but it might be due to the fact that I used registered population to calculate the ratio which does not include migrant population. Urumqi has a large segment of the population migrating from other provinces.

Figure 1.2.4.2: Scope of Social Insurances

0 %

Pension Medical Unemployment

1.2.5 The Winners from the Welfare Expansion

Finally, the third dependent variable aims to examine who benefits most from China's recent welfare expansion at the city level. The underlying purpose is to analyze who has the highest stake in the Party-regime so much that they would prefer the status quo and regime stability in return for maintaining the gains from welfare expansion. The purpose of this analysis is grounded in logic and a puzzle. The logic is based on examples of50 historical similarities where authoritarian regimes often used welfare policies as a political tool for regime survival, creating dependency on state and preserving the productive interest of the economy, which ultimately strengthened the regime. Bradley et al. (2003: 195-196) writes that "governments do not spend money just to spend money but rather do so to effect an outcome…" and more often than not, there is a political logic behind that desired outcome. Several scholars also argue that the welfare state's growth often benefits the diminished [but powerful] class more (Tullock, 1983; Goodin and Le Grand, 1987; Pampel and Williamson, 1989). In a similar vein, Le Grand (1982:3) writes, "almost all public expenditure on the social services benefits the better off to a greater extent than the poor." So, China's recent welfare expansion could also be an effort to strengthen the Party's patronage base in disguise.

100

However, the puzzling factor is that the recent welfare expansion in China aimed to cover and benefit broad societal groups. Therefore, it is critical to examine if there is an exclusive social group with a political connection to the Party-state that benefits more from the otherwise broad- based welfare expansion in the recent years and how it helps the authoritarian Party's survival interest. In other words, examining who benefits most from the recent broad-based welfare expansion can demonstrate how welfare expansion can help the Party-state's survival. To this end, the third dependent variable I use is the scope and generosity of social security expansion, particularly the pension, medical and unemployment insurances. However, data on various social insurance coverage across employment sector, education level and urban-rural areas is not published consistently at the city-level. So, I use a household-finance survey data conducted in 2011, 2013 and 2015 to identify and analyze the variation. I present the variation in detail in Chapter 6. That said, the parameters of the analysis greatly depend on the findings from the other prior analyses in Chapter 4 and 5, where I examine the determinants of local leaders' short-term welfare priorities and the long-term welfare provision, respectively. Therefore, more details on the justification, data, methods and analysis of the third dependent variable are presented in Chapter 6.

1.3 Why China as a Focus of Analysis?

The objective is to understand the link between variation in welfare expansion and authoritarian political survival in late-developing country cases. China fits this category for theoretical and empirical importance. Theoretically, over two decades of economic development accompanied a growing middle class and the concomitant expansion of welfare provision. While welfare expansion led to improved living conditions with better access to education, healthcare and social security, an expanding middle class did not lead to demand for political reform (Truex, 2016; Ang, 2016; Carillo and Duckett, 2011; Chen and Goodman, 2013; Rocca, 2017). Meanwhile, the PRC has become one of the longest-serving single-party states under the increasingly centralized control of the Communist Party of China, contradicting a political change expected to come with economic development (Li, 2016; Mulvenon, 2018; Shirk, 2018; Zhao, 2016). In this context, the link between welfare expansion and authoritarian regime survival remains underexplored. The big- picture question that we need to address is how welfare expansion aids regime survival in China

23 could give us an insight compared to other countries analyzed by other scholars. This question is even more important when we take into account China’s performance in welfare outcomes. In some welfare indicators, China surpasses some democracies like India and outperforms many authoritarian regimes like Vietnam and Kazakhstan that, like China, share the legacy of a socialist past and the challenges of economic reform (See Table 1.3.1). China improved the adult literacy rate as it reached 99.64 percent in 2010 from 94.28 percent in 1990. 14 The number of people covered by health insurance increased tenfold from 2003 to 2013, whereas the pension coverage tripled from 2009 to 2012 (ILO, 2015). Nevertheless, at the same time, a high degree of regional variation exists in China’s subnational welfare provision. Despite some recent important comparative study that brought critical insight to the topic (Gallagher and Hanson, 2009; Ratigan, 2017; Huang, 2013; Vortherms, 2019), as I demonstrate in the next chapter, there remains an acute need for a more systematic comparative study that examines the linkage between authoritarian survival and variation in welfare expansion at the subnational level. This dissertation aims to contribute to this gap in the literature.

Table 1.2.5.1: China in Comparison

24 and Carnes, 2009). The study of the welfare state originally predominantly focused on the developed world or the Western democracies. Be it an argument based on economic development (Wilensky, 1975, Titmuss, 1974), state's role (Skocpole, 1995; Orloff, 1993; Pierson, 1996), political parties and the left (Esping-Anderson, 1990; Korpi, 1983) or globalization's effect (Cameron, 1978; Garrett, 1998); the empirical focus often has been the developed democracies. One of the main reasons is that the welfare state regime was conceptualized in a high standard, only observed in the developed countries. That said, some influential works also focused on non- democracies (Cook, 1993; Cook and Dimitrov, 2007) and developing countries (Segura-Ubiergo, 2009; Haggard and Kaufman, 2008; Rudra, 2008; Gough, 2004; Aidukaite, 2006). Nevertheless, China's welfare development until now remains an understudied case.

Finally, a comparative perspective on the link between welfare expansion and authoritarian resilience can address the two-directional bias in political science literature. Comparative politics is blamed for having a geographical bias, mostly dominated by Western Europe and Latin American country analysis. The China-study research has also remained in-ward focused with a few notable exceptions 15 (Munck and Snyder, 2007; Reny, 2011). The problem is not limited to China's study but also evident in the research about Asian countries, where analysis is a mostly single country focused on the national level and lacked an explicit comparative analysis (Abbot and Fahey, 2014). This created failure to transport single-country focused knowledge to a broader comparative understanding. The conclusion of this dissertation project hopes to introduce some ways to address this gap in light of my research findings.

1.4 Analytical Framework

This dissertation is informed by two analytical scopes, welfare development in states under an authoritarian regime and the local municipal level politics of welfare. These two analytical scopes can help generalize the politics of welfare expansion and regime survival in the context of subnational politics in an authoritarian regime.

15 One of the exceptions is Tsai’s work on the informal institution (2002)

First, the dissertation makes a conscious effort to focus on the expansion of welfare in an authoritarian regime. Mares and Carnes (2009: 96) rightly note that regime type with a binary distinction between democracy and non-democracy is a weakness in the welfare literature. The expansion of welfare took place in different regime types through different processes with different outcomes. For example, Argentina expanded welfare under a populist authoritarian state while undergoing industrialization, but Uruguay and Chile expanded welfare after democratic transition and significant industrialization (Huber and Bogliaccini, 2010). By contrast, authoritarian regimes with a socialist legacy such as Kazakhstan and Belarus show different types of welfare expansion, the former focusing more on privatization and the latter expanding welfare on the past policy framework (Cook, 2007). China and Vietnam under the Leninist one-party regime also show interesting variation in terms of the level of welfare spending and the outcomes as the latter has created lower regional inequality (London, 2014). Notwithstanding these nuances, Mares and Carnes (2009: 97-98) highlights that the predominant cases of welfare expansion in authoritarian regimes focused a narrow group of beneficiaries, often the military and the state sector, with a direct link to regime survival. The expansion of welfare policy in China demonstrates large variation under its single-party regime even though it aims to include and benefit broader social groups. In this unique context, a comparative subnational analysis of the clear linkage between the purpose of welfare expansion and the logic of authoritarian regime survival is warranted. Therefore, this dissertation focuses on the political purpose and priorities of welfare expansion under authoritarian regimes.

Secondly, I use a city-level ( 城市 ) analysis to understand the subnational development of welfare. Why disaggregating authoritarian states at the city level? The rationales are twofold. First, the cities in any country are the regional pillars of economic growth. Therefore, they represent not only a high concentration of population; they are also the centres where political and economic elites congregate. So, they posit a unique level of threat to an autocrat’s political survival, both from within, i.e. from the elites and the mass (Wallace, 2013). Additionally, cities enjoy a disproportionate level of welfare spending due to urban bias and shoulder huge welfare responsibilities compared to provincial and central governments in China (more on this in Chapter 4). Since the fiscal reform of 1994, local governments have been shouldering the majority share of local welfare responsibilities. At the local level, policy initiatives, budget allocation and collection of fiscal resources are responsible for municipal governments though county leaders are

26 also responsible for administering and implementing. As a result, examining cities can help understand the theoretical linkage between authoritarian political survival and welfare expansion. This is important because the vast majority of the comparative research on welfare development focuses on the national level comparison (Esping-Anderson, 1990; Rudra, 2008; Sergio-Ubergo, 2007). The cities are understudied due to a lack of availability of data. Particularly in the case of China, most subnational works on welfare development stops at the provincial level. Some works that examine county or village levels overlook the importance of municipal politics. While I acknowledge that provincial leaders have considerable power over the policy process, municipal leaders also have a high latitude in budget discretion, welfare distribution and stability maintenance. In sum, the analytical framework based on subnational variation at the city level in an authoritarian regime can provide a unique perspective on the link between welfare expansion and regime survival.

1.5 Research Design & Methods

First, I present the context under which China’s single-party authoritarian regime initiated policies of welfare expansion, followed by a critical review of the existing works by China scholars. Then, I develop general hypotheses after synthesizing influential theories of welfare development. I sharpen the hypothesis to test them to explain variation in local leaders’ preferences for welfare policies. It helps first to analyze the politics of policy uptake at the local level. The analysis is cross municipal and time-series. Then I further sharpen the hypotheses and test them to explain variation in welfare provision using multi-method analysis, which includes three methods: binary logit regression, Qualitative Comparative Analysis (QCA) and a brief paired case study. The quantitative analysis is cross-municipal but aggregated in a 10-year period. The QCA and a brief comparative case study help shed light on the causal mechanism. Finally, I examine who benefits most from the welfare expansion to find out who would lose most in the case of a regime change. It can help understand how the regime can survive. The research design is sketched in Table 1.5.1.

T able 1.2.5.1: R esearch Design

1 . 6 Lim itations

A ny systematic research on authoritarian regimes could be a daunting task. T here are limitations with using comparable and credible data from developing and authoritarian states, not to mention the challenges in accessing interview subjects during fieldwork (Reny, 2016; C arlson et al., 16 2010). T hese complications are no less extraordinary in C hina and perhaps more so under X i

Jinping’s administration. That said, taking inspirations from scholars like R udra (2008) and

Segura-Ubiergo (2009) who dealt with these challenges working with developing country cases and from scholars like T ruex (2014), Ong (2012), C ai (2008, 2010), V ortherms (2018), R atigan

(2017) and D istelhorst and Fu (2019) who came up with innovative ways to deal with inherent problems in data, I take the task of using available data, triangulating them to the best of my ability

16 More in the conclusion chapter.

28 and knowledge and clarifying the scope and conditions of my findings whenever necessary. More on the limitations, scope and conditions of empirical data is in the following empirical chapters of the dissertation.

1.7 Chapter Outline

Chapter 2 presents a critical review of the existing works on China’s welfare development by China scholars. It underlines the existing works’ shortcomings in explaining subnational welfare variation. The chapter presents the contentious circumstances where popular discontent was high in response to decades of privatization and liberalization, leading to the state’s withdrawal from welfare provision. In this context, China’s leaders at the central level took policy initiatives to expand welfare. The chapter shows that while the existing works thoroughly examine the catalyst of China’s welfare expansion at the central level, the variation in their policy implementation at the sub-national level, particularly at the city level, remains understudied. In short, the chapter provides theoretical and empirical rationales for the importance of this dissertation’s project.

The third chapter looks into the broader literature on welfare development, synthesizes the existing theories of welfare expansion and identifies three theoretical lenses that could be sharpened and tested in China’s context in the following chapters. While it could be a daunting task to systematically review the vast literature on welfare development due to their overlapping components, I organize the review in three parts taking inspiration from other scholars. The three parts are based on industrialization and globalization, struggles over politics, and finally, state centralization, bureaucracy and policy legacies. Reviewing their strength and weaknesses in explaining welfare expansion at the subnational level in an authoritarian context, I identify three theoretical lenses, namely state capacity, policy legacies and popular contention, that could be used to develop testable hypotheses in the following chapters.

Table 1.2.5.1: Breakdown of Chapters

Ch. Research Question

30 and total welfare spending. The chapter demonstrates that local leaders' short-term preferences in education spending are affected by their promotional interests. They increase spending in education for the productive purpose of the economy during the beginning and the end of their tenure, particularly in the cities belonging to the productive policy regimes. By contrast, local leaders' short-term budget priorities in social security and total welfare spending are affected by the local SOE sector's size. The findings suggest that the local state sector plays a critical role in determining budget priorities in welfare spending, particularly social security. The findings reflect the effect of policy legacies from the Deng era's emphasis on the private sector economy and the Maoist era social contract in different ways. On the one hand, the Deng era's legacies led to the Party-state reemphasizing the importance of the state sector and expanding and empowering SOEs for their commanding presence in the economy. That is why local leaders' short-term budget priorities in welfare spending are positively correlated with the local SOE sector's size controlling for other factors. The large labour force in the SOE sector ultimately creates a strong base for mass cooptation in the interest of the Party-state's stability. On the other hand, the Maoist era social contract puts pressure on local leaders to expand social security in the cities belonging to the protective policy regime for social stability purposes.

The fifth chapter examines whether the local SOE sector, which influences local leaders' short- term welfare priorities, also determines long-term welfare provision. First, I use Principal Component Analysis to systematically identify variation in long-term welfare provision. I develop a binary variation, high versus low welfare provision at the city-level. Then, I use mixed methods analysis, which includes binary logit regression, QCA and a comparative case study to explain welfare provision variation in the long run and the conditional causal pathways. I employ data based on a ten-year average for cross-municipal analysis of welfare provision in the long run. The regression result demonstrates that local fiscal capacity and the SOE sector are positively associated with the level of welfare provision across cities. This suggests that while local leaders' budget priorities are motivated by the size of local SOEs in the short-term, the long-term welfare provision is affected by the fiscal capacity in addition to the size of the local state sector. I also use QCA analysis with a tree diagram and crisp Boolean technique to refine and identify the conditional causal pathways to high/low welfare provision for the 114 cities. Finally, the brief comparative case study of Hangzhou and Changchun further shed light on the causal mechanism and explains why both cities with large local SOE sectors, but with different level of fiscal

31 capacity, end up with a high level of welfare provision in the long run. Hangzhou demonstrates a typical example of a case where Deng's policy legacies play a critical role in expanding and empowering the local SOE sector, where the strong fiscal capacity plays a complementary role. By contrast, Changchun demonstrates the policy legacies of the Maoist era social contract. The weak fiscal capacity makes the city rely on the central/provincial subsidy and transfer to maintain a high welfare provision. The case study adds contextual insights based on interview data and government reports.

The sixth chapter addresses the missing puzzle by examining who benefits more from China's welfare expansion and its link to regime survival. The findings in the two previous chapters demonstrate that welfare expansion helps the Party-state create a large loyal base in the SOE sector for mass cooptation but assumes until now, based on anecdotal evidences, that the SOE sector has privilege access to welfare benefits. Chapter 6 makes a systematic analysis based on three household-finance surveys conducted in 2011, 2013 and 2015 and uses probit regression to demonstrate that the SOE sector employees indeed benefit more from the social security expansion compared to other state and non-state sectors. In terms of the scope of social security, the SOE employees are more likely to be covered by a pension, medical and unemployment insurances. In terms of generosity, SOE employees are more likely to access the most generous medical insurance scheme. Their pension benefit is more likely to be more generous than others. The findings consolidate the fact that the SOE sector has a very high stake in the Party-state and has good reasons to prefer the status quo. This demonstrates an implicit social contract between the Party- state and the SOE sector in China's socialist market economy. Additionally, the chapter demonstrates that other social groups have benefited from the recent welfare expansion and harbour satisfaction in welfare expansion. However, they gain relatively less compared to the SOE sector. Thus, the Party-state not only has consolidated a social contract with the state sector, but it has also renewed a social contract with the broader non-state sectors through the expansion of welfare. Finally, the chapter underlines the importance of socialization of risk as an effective tool for the Party-state's ability to use welfare expansion as a mass cooptation tool.

C hapter 2

Strength & Shortcom ings in the Explanations by

C hina S cholars

2 . 1 Introduction

In this chapter, I review the works by various C hina scholars and examine whether the existing scholarship on C hina can explain C hina’s subnational variation in welfare expansion at the city level. The chapter consists of two sections. The first section sketches the socio-political circumstances leading to the policy initiatives for welfare expansion. It shows that a legitimacy crisis unfolded in the aftermath of two decades of unequal development, the state’s withdrawal from welfare provision and privatization and liberalization of social policy. Public discontent led to popular contention in various forms and intensity in response to costly education and healthcare and breakdown of the M aoist era social contract. T he second section then examines and categorizes the existing works by C hina scholars on welfare dev elopment in two state-centric explanations, institutional design and policy legacies. I demonstrate that while the existing scholarship provides valuable insights, it still falls short of explaining the variation in welfare expansion at the city lev el.

2 . 2 Legitim acy Crisis: State’s W ithdrawal from W elfare P rovision & Popular C ontention

Popular contention from the breakdown of the M aoist era welfare state created a legitimacy crisis for the Party. Two decades of economic growth in Deng's reform era was accompanied by the state's withdrawal from several welfare provisions followed by liberalization and privatization

(W ong, 1994). It led to increasing out-of-pocket household spending in education and healthcare and lack of social security, which demonstrates a sharp turn from the M aoist era's 'iron rice bowl' policy of the welfare state. A t the same time, the double-digit growth created uneven regional development with few winners, those who benefited from the market disproportionately and are concentrated in a handful of coastal cities while leaving the rest burdened with strenuous and

32 33 insecure employment and lack of access to welfare services and benefits (Shirk, 1993: 55-62). The socio-economic issues were various in nature, but the welfare issues dominated in the early 2000s. For example, Saich (2008: 188), based on a survey in 2005, illustrates that social welfare provision was one of the main areas of citizens' dissatisfaction besides employment. An urban household survey in 10 cities by the National Statistical Bureau in 2000 found that 87.01 percent were concerned with the healthcare system, 81.82 percent were concerned with social security, and 54.57 percent were worried about education (National Bureau of Statistics 2001). Healthcare was the top-most concern for the surveyed population, followed by social security while education was ranked the seventh in the list. The Party-state's withdrawal from welfare provision during the period of marketization led to widespread popular discontent in the form of contentious activities, such as protests, strikes, demonstrations, sit-ins and even riots, otherwise collectively referred to as 'mass incidents.' Admittedly, these collective actions were uncoordinated, cellular and sporadic (Hurst and O'Brien, 2002; Zhao, 2001; Lee, 2007). Collectively, nevertheless, they demonstrate two important developments. On the one hand, it shows people's pent-up frustration taking refuge in contentious claim-making in the absence of a democratic institutional channel. On the other hand, it created a legitimacy crisis, attacking the Party's core interest, which is maintaining social stability and its unconditional authority. In this context, local and central governments were compelled to initiate welfare reform and expand welfare provision. Therefore, it is important to provide a sketch of how public contention created a legitimacy crisis and became a social instability source threatening the Party-regime's authority. In the following sections, based on secondary sources, I first present how the Party's breaking away from Maoist socialism and simultaneous decentralization of welfare provision created a welfare provision crisis. Then I present a brief overview of popular contention in reaction to the rising cost, poor quality and inadequate education services, healthcare, and social security, which ultimately created a legitimacy crisis for the Party-regime's authority.

First, on the education front, the central government made significant changes early in 1985 by shifting fiscal responsibility of financing primary and middle school education to the local level. Part of the reason was that the central government wanted to extricate itself from the Maoist era welfare commitments and the over-centralized control over education to align education policy with its market reform efforts (Mok and Wong, 2011; Cheng, 1995). As a result, the central government’s share of spending on welfare declined, which the local government could barely

34 cover. At the same time, the 1985 education reform also allowed the local government and non- state actors to charge additional fees to improve basic education provision (Borevskaya, 2003; Ministry of Education, 1985). Another round of education reform in 1993 further allowed the local government to take advantage of alternative funding for schools and universities (Ministry of Education, 1993). These reforms, together effectively decentralized basic education provision, developed a mix of public and private education services and allowed financial diversification for funding at the local level (Ngok and Kwong, 2003). As a result, on the one hand, the local government cut down spending by laying off ( 清退 qīng tuì) teachers from public schools and rehiring them as private teachers with low salary. Irregular payments of pension benefit to the laid- off teachers were also widespread. 17 On the other hand, schools in rural and urban areas, including the universities, indiscriminately charged various types of arbitrary fees as a substitute to government spending. It widened inequality in access to education because only the rich could afford to pay high fees for good schools while further penalizing the schools struggling to attract high-performing students and teachers due to lack of resources. Even real-estate companies became ardent investors in ‘non-state school branches’ of high-achieving public schools because they could easily make money by taking advantage of schools' good reputation in rich communities, which increased the home prices in the area (Liu and Dunne, 2009: 465). 18 Thus, the commercialization of education (“ 教育商业化 ” jiàoyù shǎngyè huà ) made the education sector as the second-largest profitable industry after the real-estate sector in 2003, and arbitrary fees for access to schools became the crux of the problem for access to compulsory basic education (Xinjingbao , 2006).

Second, on the healthcare front, retrenchment led to a significant decline in the government’s budgetary spending 19 and erosion of healthcare protection between 1980 and 2002. As Duckett (2012) argues, part of the reason for healthcare retrenchment is the ideological shift towards

17 For example, hundreds of teachers protested Zhongxiang, Hubei and Jiangjin, Chongqing against low salary, irregular pay of pension and broken promise to increase their salary to public employee level (RFA, 2006; China Strikes, 2003) 18 Primary and secondary schools were declared non-profit institutions. Only few public schools were granted by local government to establish branched with outside investment at arm’s length, funded by private companies but managed by public school. 19 Falling from 36 percent in 1980 to 16 percent in 2002.

35 liberalization and privatization during Deng's era. Additionally, bureaucratic and non-bureaucratic stakeholders' vested interest further consolidated the retrenchment process. On the one hand, weak financial incentives to address the rural population's welfare needs led to the collapse of the collective rural medical system. On the other hand, the commercialization and privatization of healthcare offered a solution to the Ministry of Health's weak financing capacity in urban areas where the stake was high, and various private medical interest groups were strong. As a result, from 1993 to 1998, the proportion of urban populations with medical insurance declined rapidly from 52 percent to 39 percent. The population with no insurance increased from 28 percent to 44 percent (Duckett, 2004: 159-160). Privatization led to low and, in some cases, detrimental quality of medical services that affected almost everyone in the country apart from the rich because they could easily find alternatives (Liu, 2004; Gu and Zhang, 2006; Duckett, 2011). It also led to the high cost of healthcare, particularly for the poor and marginalized groups, such as migrant workers who could not afford to pay out of pocket (Tam 2010). In a survey conducted in 10 major cities by the National Bureau of Statistics in 2000, 95.5 percent of respondents suggested that the government pay more attention to reforming the unreasonable collection of medical fees, while 55.3 percent of respondents thought this problem should be the government's priority to solve (National Bureau of Statistics, 2001). In another survey conducted in Beijing, Shanghai and Guangzhou, around 70 percent of respondents said that the medical expenses were still too high for them to afford (National Bureau of Statistics, 2002). Thus, public healthcare became a hot- button topic for the majority of the population.

Finally, social security and protection experienced a drastic change in the aftermath of SOE restructuring. The Party started allowing privatization of smaller scale state firms in the 1990s as part of its ‘Grasp the big and let the small one go’ ( 抓大放小 zhuā dà fàng xiǎo ). Part of the reason is the central government, constrained by decentralization of fiscal revenue since the early 1980s, was becoming ever reluctant to provide subsidies to unprofitable state enterprises. Meanwhile, the SOEs were struggling to balance their budget and meet the promises of welfare made to its workers. This condition perhaps was more acute in Northeast China, dominated by heavy industries (Hurst ,2009). It put fiscal pressure on SOEs to meet pension commitment to its workers. Decentralization of welfare provision further deepened the crisis when the central government made an effort to reform pension. For example, urban local governments resisted the 1991 State Council regulations on a pension and did not transfer locally pooled pension funds to the provincial

36 government unless the latter is willing to take responsibility for pension provision (Frazier 2010: 54-55). The provincial government could do little to force local government, and the fragmented pension insurance did little to meet workers’ needs evenly across the country. In this context, the National Labour Law of 1994 allowed companies to terminate life-long employment for new hires. Later, the Fifteenth Congress of the CCP in September 1997 further sanctioned radical SOE restructuring ( 企业改制 qǐyè gǎizhì), leading to mass layoffs and unemployment. The actual number of the unemployment rate is difficult to determine (Solinger, 2001), but it is estimated to be anywhere from 6.1 percent in 1996 to 11.5 percent in 2002 (Giles et al., 2005; Xue and Zhong, 2006). An estimated 60 million workers lost their jobs between 1993 and 2006 in the SOE and urban collective sectors (Hurst, 2009:1). The ‘laid-off’ or unemployed workers and their family lost their welfare benefits tied to their work unit ( danwei ). The Party-state’s reemployment schemes failed, and effort to reform pension stalled. Pension disputes from SOE restructuring or privatization became endemic in China since the late 1990s (Hurst and O’Brien, 2002; Chen, 2009). 20 Thus, the SOE restructuring effectively broke the ‘iron-rice-bowl’ contract from the Maoist era leading to widespread popular contention (Chen, 2003).

The consequences of marketization and the Party-state’s breaking away from socialist ideology led to the high cost of education and healthcare, unequal access to basic welfare services and erosion of the social safety net. Chamon and Prasad (2008) find that the high cost of education, healthcare and housing, in addition to precautionary motives, were the main reasons why Chinese urban household average savings rate increased from 17 percent in 1995 to 24 percent relative to their disposable income by 2005. Those who benefited from the regime’s capitalist drive amassed wealth and savings and could afford the expenses of their welfare needs. However, like the vast majority of the working class in the urban and rural areas, those who fell behind were overburdened by rising out-of-pocket expenses. Some popular phrases captured the plight of the working and middle class such as “going to school/doctor is difficult and expensive” (“ 上学难、上学贵 ”/ “ 看病难、看病贵 ” shàngxué nán, shàngxué guì”/ “kànbìng nán, kànbìng guì ) and “poverty due to illness/education” (“ 因病致贫 ” yīn bìng zhì pín , “ 因病返贫 ” / “ 因教致贫 ” yīn bìng fǎnpín/ yīn

20 Government estimate of unemployment rate was 3 percent but it could be well above 7-8 percent if not more (Mufson, 1997, September 11).

37 jiào zhì pín , “ 因教返贫 ” yīn jiào fǎnpín ) (Nanfang ribao , 2006; Zhongguo ladong baozhong bao , 2006). Based on multiple surveys conducted between 1987 and 1992, survey data, Tang and Parish (2000) illustrate the widening class-cleavage between the working class and the elites in access to education and healthcare. In the absence of any democratic institutional channel, the poor had little alternative to protesting on the streets. Indeed, the number of protests kept increasing from the 1990s to early 2000 (Chen, 2009). The official statistics on ‘mass incidents’ published by the Chinese government put the number to 87,000 in 2005 compared to 5000-10,000 per year in the early 1990s (Wright, 2019). The increasing number of protests in the single-party regime led to many scholars characterizing the regime with ‘rocky stability’ or ‘stable unrest’ or as a ‘fragile superpower’ (Shark, 2007).

On the education front, due to rising cost and lack of public spending, student protest jumped around 2006 across the country in various cities due to expensive fees, price hikes and fraudulent promises of certification by private schools (Kahn, 2006, June). As Chen (2009) notes, large-scale boycotts against price hike in school canteens were reported in universities in Beijing, Guangzhou, Hangzhou, Nanjing and Changsha in 2007. Teachers from private and public schools and universities also protested against salary cuts, irregular pay, and pension loss. 21 Lack of public spending in education and ineffective implementation of the reform was so severe that even the Minister of the State Education Commission, Zhu Kaixuan, rebuked the government’s poor performance in 1997 (South China Morning Post, 1997, January). Even though the high cost of education affected families in the rural area severely, it affected the urban area's low and middle- income classes too. Relative cost and competition for access to good schools and universities were high in the urban area (Chen, 2009). 22 The National Bureau of Statistics was reported to find more than half of Beijing residents, Shanghai and Guangzhou experiencing an unaffordable rapid

21 In fact, teachers’ strike still remain an unresolved issue particularly among in the underfunded rural and urban schools (Chang and Hess, 2018). Jianyang, a county-level city in Sichuan saw hundreds of teachers from primary and middle schools protesting for low wage. While salaries were not that different the gap kept increasing between their bonus and benefits in the school and other public offices. Hundreds of teachers protest in China over poor pay (Yan, 2019, 22) 22 For an example, this article gives an anecdotal evidence where the reporter interviewed randomly chosen families based on income level in Jinan city, the provincial capital of Shandong and shows that out-of-pocket cost for education has been high for all income classes. The burden of education for Chinese farmers is heavy for a college student to earn 18 years of income (Xinlang caijing, 2005, December)

38 increase in their out-of-pocket education expenses. There were even reports of suicides due to failure to pay fees and parents selling their blood to avail their children middle school fees.

On the healthcare front too, high medical cost and poor quality of medical services due to the privatization of healthcare depleted trust between medical service providers and patients and led to country-wise ‘medical disturbances’ ( 医闹 yī nào ), i.e. protests, siege or violent responses. 23 For example, in Danzhou city in 2005, a family was too poor to transfer their pregnant relative to a city hospital because the local hospital declared her case to be too critical to deal in the township hospital. Consequently, the patient died (Hainan ribao, 2006, September). It prompted the mourning family to protest with hundreds of people besieging the health center. While an accurate number of such medical contention is impossible to present but a survey on 350 medical centers from some major cities including but not limited to Beijing, Dalian, Shenyang and Wuhan found that incidents of medical disturbances increasingly became widespread year by year. Around 97.92 percent of the medical centers had a medical disturbance in 2006, which increased from 89.58 percent in 2004 (Zhongguo weisheng chanya, 2007, February). In the first half of 2006, according to the deputy director of Guangdong Provincial Department of Health, the government reported around 200 cases of medical disturbance, which means 33 per month (Zhongguo zhonyiyaobao, 2006, September). In some hospitals like Shanxia Hospital in Shenzhen, doctors and nurses took the precaution to wear helmets at work (Huaxia Shibao, 2007, January). Such contentious, if not sometimes violent public response was a rationale move on behalf of the poor who were often the main victims and either did not have any access to dispute settlement procedure or could not afford any legal avenues. A remark by one poor villager in one of the poor cities called Zhaotong is quite apt: "We are peasants, do not understand high principles. Any lawsuit to claim your rights for medical disputes is a matter of several years. We can neither afford time nor money for high fees of a lawyer" (" 我们是农民，大道理听不懂。发生医疗纠纷维权打官司一打就是几年，我们耗不起，也付不起高额的律师费 " wǒmen shì nóngmín, dà dàolǐ tīng bù dǒng. Fāshēng yīliáo jiūfēn wéiquán dǎ guānsī yī dá jiùshì jǐ nián, wǒmen hào bù qǐ, yě fù bù qǐ gāo é de lǜshī fèi ) (Yunnan zhongxiebao, 2012, May). All major cities like Dalian, Wuhan, Shanghai, and Guangzhou

23 In fact, organized groups emerged to take advantage of such miserable conditions of the patient and in absence of any proper channel of dispute settlement (Weishang shenghuobao, 2006, November)

39 came up with directives to take public security measures against such 'medical disturbances' by 2005. Most importantly, it underlined that the government could not help avoid addressing healthcare insecurity for the poor and the middle-income class for too long.

Finally, in the midst of growing public discontent from poor education and healthcare provision, perhaps the most significant political apprehension for the regime emanated from widespread unrest due to loss of pension security, particularly in the Northeast and Central China, beginning in the late 1990s. Lee (2007) categorizes the former SOE workers' contention as 'protest of desperation' because they lost everything as the Communist Party broke the sacred social contract. The collective contentious actions, however, were framed differently in different regions (Hurst, 2009). Popular contention in the Northeast rustbelt was related to the collective consciousness of 'moral economy' connected to the Maoist legacy. The Central Coast, however, was dominated by 'market hegemony' frame in the context of relatively better market opportunity but individual mismanagement and petty corruption of pension and SOE reform. By contrast, the North-Central region and the Upper Changjiang saw a mixed framing depending on the impact of firms' size. Large firms' workers adopted the 'market hegemony' frame, and the small ones were closer to the 'moral economy' frame. The problems with pension and other social security benefits emerging in the context of privatization and liberalization concerned the laid-off workers and cut across different professional groups, including the education sector. For example, 20,000 teachers joined a demonstration for failure to receive their social insurance benefit in Harbin in 2014 (Zhongguo gongren yundong guancha ribao , 2014, April). Teachers at a vocational school went on strike as the school failed to make payments for their social insurances (Remin wang , 2014, January). On top of this, farmers' incomes stagnated and then fell in the late 90s with a simultaneous increase in protest in the rural areas (Bernstein and Lu 2003). In sum, the Party-state confronted widespread popular contention in the absence of adequate social security.

To conclude, these contentious actions created a concern for, if not a challenge to, the Party- regime's undisputed authority (Saich, 20177: 84-86). The gain for the working class and the lower- middle class, i.e. the 'losers,' from two decades of economic growth was small. The widening gap between them and the 'winners' accelerated due to unaffordable basic education, poor healthcare and lack of social security, which ultimately created a crisis in welfare provision and a crisis of legitimacy for the Party-state.

2.3 Addressing Legitimacy Crisis through Welfare Expansion: What Explains its Variation?

In this section, taking a deeper look at various scholars’ arguments behind the Party-regime’s welfare response and development, I underline how the existing research falls short of explaining the puzzling variation in welfare expansion. In the previous section, I demonstrated that the Party- state’s withdrawal from welfare provision created a legitimacy crisis and a source for social instability. In response to the popular discontent, the Party leaders tried to address the crisis with carrots and sticks. On the one hand, they dramatically expanded security apparatus for ‘stability maintenance’ ( 维维维维维维 or 维维 wéihù shèhuì wěndìng or wéiwěn ), which started earlier in the 90s (Wang and Minzner, 2015). On the other hand, the Party under Hu Jintao and Wen Jiabao’s leadership took decisive measures to expand welfare provision. Taking a much bolder turn, which Wong and Lai (2006) define as China’s ‘the third turning point’ 24 in welfare development, the Hu-

Wen administration presented the ‘Scientific Outlook on Development’ 25 (科科以以科 Kēxué fāzhǎn guān ) and set a firm and differentiated policy commitment to people-centred and sustainable development (Orlik, 2012; Howell and Duckett, 2018). It was followed by the concept of ‘harmonious society’ ( 和和维维 Héxié shèhuì ) in 2005. 26 Later, the 12th five-year plan (2011- 15) made the expansion of welfare a priority in the Party’s agenda. These efforts led to a country- wide expansion of free and compulsory education policy and five-social insurance policies for urban and rural residents and workers in formal and informal economies. The policy initiatives, no doubt, marked a turning point in China’s welfare development. Nevertheless, as I demonstrated in chapter 1, welfare expansion shows a clear variation in local leaders’ welfare priorities and the level of welfare provision across cities. How do existing works by scholars explain the variation?

I argue that although scholars brought critical depth and insight to our understanding of China’s welfare expansion, the arguments fall short of explaining variation in local leaders’ welfare

24 The first two turning points, as they defined, are the establishment of a socialist state in 1949 with the ‘iron rice bowl’ ( 铁铁铁) contract and the economic reform and opening up in 1978. 25 It defines the process of economic development while simultaneously meeting the welfare needs of citizens. 26 However, the Hu-Wen administration effort to recreate a ‘harmonious society’ not necessarily as successful as Frazier (2008) argues that the result was anything but ‘harmonious’ when considering how pension financing exacerbated inequality instead of reducing it.

41 priorities and the level of welfare provision at the city level. To demonstrate that, I organize the scholarship in two groups, one that takes an institutional approach and the other that examines the effect of policy legacies. Both groups of scholarship underline that the vast majority of China scholars take a state-centric approach in analyzing China’s welfare development, which is perhaps not surprising given China’s single-party authoritarian regime allows little rooms for grassroots mobilization. The current scholarship highlights three challenges of developing a coherent explanation of welfare variation: the fragmented topic of analysis, lack of attention to policy implementation, and the absence of a city-focused analysis.

2.3.1 Institutional Design

The vast majority of scholarship focusing on China’s welfare development relies on institutional arguments. These arguments rely on two factors, decentralization of welfare governance and fragmentation of bureaucracy. While it is difficult to disentangle the two factors, I present an overview of the arguments to highlight their shortcomings in explaining welfare expansion variation. The shortcomings include a narrow focus on single policy analysis and a lack of country- wide policy implementation analysis at the city level.

China has a decentralized governance system where the central government sets overarching guidelines, and local governments are responsible for setting policy details and implementation. It creates vertical veto-points that can slow down welfare expansion policies. For example, studying China’s rural healthcare expansion, Wang (2011) argues that the expansion of local welfare in policy diffusion depends on the central government. Despite experiments at the local level, the neoliberal faction at the central government favoured private insurance and the user-pay system over rebuilding a sustainable cooperative medical scheme to remedy the problems in accessing rural healthcare. Wang highlights that diffusion of a policy, experimented at the local level, leads to expansion across the country only when factional changes at the centre help adopt the lessons learned from policy experiments and facilitate its diffusion. 27 In other words, he shows when and

27 Wang further highlights the influence of the Mao era’s policy on the new rural cooperative medical scheme. He contends that the prototype of rural healthcare expansion emerged from the Maoist era cooperative medical system of

42 how local policy can be adopted and facilitated by the central government. However, we know little about what drives variation in policy implementation once the central government supports a policy’s diffusion.

In another critical work on China's pension reform, Frazier (2010) takes a historical institutional approach and highlights the effect of decentralization in China's fragmented urban old-age pension policy. He demonstrates that local urban governments have political and financial incentives to thwart centralization and standardization of pension insurance. Urban governments found a new revenue source through pension contributions at the local level in the aftermath of the 90s SOE restructuring and marketization. The rapidly growing pension insurance fund became a critical source for local leaders to misappropriate and divert capital to development projects without proper supervision. Frazier's microanalysis is based on his fieldwork in five cities, Shanghai, Beijing, Guangzhou, Changchun and Chengdu and develops a picture of variation along their respective region. According to him, the local government in the Northeast rustbelt colluded with remaining SOEs to have access to a growing pension fund. By contrast, local government in the developed Southeast relied on pension contributions from private and foreign firms for budgetary revenue. Meanwhile, local governments in Central China relied on large SOEs as well as central government transfers. Thus, according to Frazier, local governments' financial and political incentives expanded pension insurances rapidly but created a fragmented pension scheme regionally. Frazier's analysis provides a dynamic and complex snapshot of local governments' regional incentive structures in the variation of old-age pension expansion. The argument is insightful and informative but limited to pension policy. Moreover, while his focus group research is based on four cities, the regional arguments can benefit from a comprehensive city-level comparative picture.

The importance of local government and institutional incentives in expanding social protection in China's decentralized welfare provision is also highlighted by scholars (Guan and Xu, 2011; Solinger and Hu, 2012; Hammon, 2011). For example, Solinger and Hu (2012) argue that the dibao (minimum livelihood guarantee scheme) was selectively expanded in cities to pre-empt disturbance and prevent instability based on whether the city is wealthy or poor. Wealthier cities

1955 to 1978. However, he overlooks the differences between the Mao era cooperative medical system and the new cooperative medical insurance.

43 tend to expand dibao to disabled and registered unemployed persons to take them off the streets, which serves local leaders' interest in maintaining social stability and screening off the 'productive' labour force. By contrast, poorer cities tend to expand dibao to flexible, informal workers to facilitate their informal commerce for livelihood and maintain social stability in other means. Solinger and Hu's work is based on 63 'super large' and 'large' cities and further supported by qualitative data based on six cities. However, their insightful findings are limited to dibao policy, based on a snapshot of the policy based on a particular time, June 2009. The findings are suggestive as the data is partial; for example, it illustrates the share of dibao recipients who are registered as unemployed, but it does not consider the share of registered unemployed of the total city population receiving dibao due to unavailability of data. Another significant work on the institutional incentives behind dibao by Jennifer Pan (2020) presents a logic of 'repressive assistance,' an unwritten policy where local governments instrumentalize welfare benefit for surveillance and repression. Pan contends that 'targeted population' or individuals who could potentially be a threat to political order receive dibao , which allows the local government to monitor and 're-educate' the former, create dependence and obligations, and consequently, preempt disorder. Ironically, the same policy that aims to preempt disorder creates distrust in government and anger among eligible non-recipients of welfare benefit at the grass-root level. Pan’s work, albeit comprehensive in details and creative in utilizing mixed-method analysis, focuses on neighbourhoods from four cities in four provinces. In other words, these findings fall short of appreciating the comparative scope of the political logic behind dibao distribution in cities across China and thus leaves us with a partial understanding of the local government's welfare priorities.

In a similar vein, Huang (2015) contends that the local government's interests determine variation in healthcare insurance expansion. She uses provincial data, covering four years (2007-2010), to provide a regional variation using cluster analysis and healthcare insurance. According to her, high local fiscal capacity determines generosity, whereas high local social risk (labour mobility and dependency ratio as proxy indicators) determines coverage expansion. However, the rich and nuanced insights learned from her provincial-level analysis fall short of providing an accurate context of sub provincial level variation among cities. In contrast to these works, Vortherms (2019) takes a much broader approach and focuses on three welfare policies' spending (aggregated and disaggregated). Her analysis covers 333 prefecture level cities and 18 years of data (1994-2012). She contends that local leaders' promotion, particularly that of the local mayor, determines

44 spending in total social policy and education for the years from 2007 to 2012. The analysis of social security and healthcare spending, however, remains inconclusive. Despite the importance of her findings, she only focuses on spending and does not explain welfare provision variation, which incorporates welfare outcomes. Moreover, the data covers until 2012, and therefore, analysis using more recent data is warranted.

In contrast to the works based on the decentralization of governance, arguments based on the fragmentation of bureaucracy examine the effects of competing for bureaucratic interests on the policy process and welfare expansion. Oksenberg and Lieberthal (1988), in their seminal work on China’s policymaking process, argue that the fragmented bureaucratic structure of authority affects the decision-making process where efforts to create consensus among various veto players across bureaucracies ultimately makes policy processes “protracted, disjointed, and incremental.” In other words, if bureaucratic fragmentation is strong, welfare expansion can be slow and ineffective. For example, Paine (1992) contends that the fragmented bureaucracy was responsible for China’s slow and ineffective education reform and expansion. China’s education bureau was weak and fragmented despite the Party attaching importance on education since 1985. 28 Studying teachers’ reform policy, Paine argues that decentralized policy implementation and multiple bureaucracies’ involvement created vertical and horizontal fragmentation in the education sector, which ultimately weakened education reform and expansion. This was worsened by a lack of spending as bureaucrats could not demonstrate the gain in the short-term. Furthermore, her arguments also demonstrate the central governments’ limitations instead of Wang’s (2011) argument underlined earlier. Paine contends that the central government failed to swiftly eliminate arbitrary fees slapped by local government to finance local spending. 29 Paine’s argument, albeit insightful, has a narrow focus on education. Thus, fragmented institutional arguments can help us understand slow and

28 The landmark 1985 Education Reform Decision leading to 1986 Compulsory Education Law. 29 The government issued a joint directive for ‘one-fee system’ ( 一一一 Yī fèi zhì ) for primary and junior secondary schools nationwide in 2004. The directive was issued jointly by the National Development and Reform Commission, Ministry of Education and Ministry of Finance. It prohibited schools from charging textbook fees, exercise book fees, and other miscellaneous fees above government determined benchmark. However, by 2005, despite the government’s acknowledgement of the problem, reform intervention was ineffective and slow. It prompted the former Vice Minister of Education, Zhou Baoqing, portray the condition as full of “anger, anxiety, helplessness and complication” ( 既既既，，，，，，，，，，，， Jì fènnù, yòu yōulǜ, yòu wúnài, hěn fùzá ). He was dismissed from the post for being outspoken about the problems of high education cost. (Zhang, 2005, September)

45 ineffective policy implementation but do not provide a clear picture of its effect on variation in welfare expansion when bureaucracies can be fragmented but have the same organization across the country.

Tying the decentralized governance structure with fragmented bureaucracy, Teets and Hurst (2015) provide a nuanced argument. They study the expansion of in-home elderly care policy, taking an analytical focus on policy diffusion. According to them, initiatives by local government, the consensus among elites in the central government and fragmented bureaucracy play a different role in policy diffusion. Local governments, particularly the municipal government, are often the instigator of policy experiments in response to local problems. Although they are the drivers of diffusion, the process can be slow and limited in the absence of inter-governmental coordination. For example, the experimental in-home elderly care policy remained limited to Shanghai, Hangzhou and Ningbo before 2011. The diffusion process can be, however, significantly accelerated when the central government adopts local policy initiatives and incorporate it into a country-wide policy campaign as the in-home elderly care policy was expanded since late 2012. The Ministry of Civil Affairs, emboldened by Xi Jinping’s support, facilitated diffusion of the Shanghai model in the rest of the provinces. That said, Teets and Hurst (2015) underline that it is unclear whether elite consensus or a strong leader plays the most critical role at the central government. Compared to different government levels, China’s fragmented bureaucracy cannot halt policy diffusion. However, it can either slow down policy diffusion due to competition and turf war among bureaucratic agencies or accelerate it when greater coordination is achieved. What is missing in Teets and Hursts’ findings can provide an insight into what happens in the implementation phase after support from the central government and beyond bureaucratic politics. Their valuable account leaves us with some puzzles about the city-level government’s interest in welfare expansion still unresolved. Local governments can play a critical entrepreneurial role in policy in response to local problems at the city-level. However, not all local governments are risk- takers in the absence of clear support from the center. Simultaneously, not all local governments, in the presence of other competing priorities, are willing to prioritize a social policy adoption just because it has the central government’s support. What drives the local governments’ policy priorities, and eventually, the welfare provision across cities needs further careful examination.

2.3.2 Policy Legacies

Past policy legacies can create distinct pathways for welfare expansion in some locality. Given that China possesses a legacy of Maoist socialism and two decades of marketization since the 'opening and reform,' past policy legacies can affect the welfare expansion process, as argued by several scholars. Moreover, the effects of policy legacies are often closely intertwined with the political motif of authoritarian regime survival. The vast majority of the scholarship, nevertheless, suffers from two limitations. On the one hand, a direct link between policy legacies and their effect on welfare policy often receives a secondary focus in their analysis. On the other hand, a clear comparative picture of the effect of policy legacies on the subnational level across the country remains scarce.

Perhaps a good example of an indirect focus on the effect of policy legacies on welfare expansion in the works that examine the effect of the 90s SOE restructuring on pension benefit. The restructuring laid bare the losers of China's new market economy, i.e. the working-class (Shirk, 1993: 55-62). At the same time, it also highlighted the nostalgic attachment to the Maoist era social contract (Jacka, 1998; O'Brien and Li, 1999; Li, 2001; Perry, 2003; Tang and Parish, 2000). Indeed, Frazier (2010) demonstrates workers' popular attachment to the welfare state in his household survey. The 90s SOE reform received broad attention from scholars for good reasons. They enriched our understanding of the working-class plight during China's reform era and the success and limitation of contentious mobilization in the authoritarian regime. Nevertheless, the analytical focus often remains on the contentious mobilization and workers' plight with a narrow regional focus while its effect on pension reform receives secondary focus. For example, Hurst and O'Brien (2002) explain why workers protest for pension, but pension reform's effect remains underexplored. Their findings are crucial to our understanding of why discontent surrounding the 90s SOE reform was so widespread and politically significant to the Party-regime. They argue that pension promises by the SOEs were unsustainable. Workers were promised of 80-90 percent of their salary. However, the pension commitments were not state-guaranteed and heavily relied on the enterprises' poor financial health. Also, they were not adjusted for inflation, resulting in a significant devaluing of future payment. As a result, protests engulfed many regions in China when workers lost their job and pension benefits in the aftermath of SOE restructuring, but it also led to

47 pension reform. 30 That said, their work does not make a clear causal connection between the effect of popular contention and pension reform. Moreover, Hurst and O'Brien provide anecdotal evidence only from a handful of cities like Benxi, Datong and Tianjin.

Solinger (2002), by contrast, addresses the problem which Hurst and O'Brien (2002) stop short of analyzing. In fact, she makes a direct link between the 90s SOE restructuring and the Party leaders' realization of the urgency of pension reform and expansion. Nevertheless, Solinger's argument needs to be supplemented with further to understand how pension policies are prioritized and implemented as part of overall welfare expansion across the country. Solinger rightly points to the fact that many welfare programs had their beginning in the early 80s. However, their inadequacy, poor design, exclusivity, and weak state capacity made them incapable of meeting the deluge of popular demand for welfare expansion in the aftermath of SOE reform and marketization. For example, unemployment insurance was first established in 1986 but remained exclusive to urban workers in the SOEs and too generous to be sustainable, given the low participation rate by workers and weak collection rate. Similarly, pension reform began in 1984, with a new foundation being laid by 1998. The state enterprises were chosen as the basic unit, bearing most of the financial burden for pension funds, and effort was made to pool the cost across enterprises (Leung, 2005:58). 31 However, the declining number of state firms and their revenue and employees only made the solution woefully inadequate to address welfare demand in the aftermath of SOE reform. Although not explicitly mentioned, Solinger demonstrates that popular attachment from Mao's legacy of socialism intensified public demand for welfare benefits and services. She contends that it prompted party leaders to press for further welfare reform. Equally true, when we look at the state of medical insurance and the minimum livelihood allowance initiatives. More work is warranted to update Solinger's insightful work that go further in terms of the timeline of welfare expansion.

In another comprehensive study of the consequence of the 90s SOE restructuring, Hurst (2009) further examines the patterns of the former SOE workers' contention and resistance based on the

30 Hurst and Frazier note that the Ministry of Labour itself tallied thousands of public gatherings, protests, strikes and petition throughout the 1990s. Just in Henan province, 258 demonstrations were reported to occur in 1998 alone. 31 A unified pension fund was also formed with risk-pooling at the provincial level.

Maoist era's popular expectation and its effect on remaking China's urban welfare. According to him, on the one hand, the distinct regional structure of SOEs led to different types of workers' contentious mobilization. On the other hand, when the state tried to address the workers' contention through urban welfare expansion, weak state capacity created a regional variation. Analyzing state- based welfare initiatives in addition to failed enterprise-based and informal practices, Hurst contends that many new urban welfare policies such as a pension, unemployment, health, workplace injury insurances and social protection remained ineffective as of 2008.

Ratigan (2017) picks up research analyzing the period following Hurst's (2009) analysis. She makes a geographic link between the Maoist legacy's effect on social protection priorities in recent years at the provincial level. She uses five years of data (2008-2012) and provides a clearer picture of variation in the expansion of multiple welfare policies, albeit regionally, using cluster analysis. According to her, protective policy targeting labourers determines high spending on the Northeast and Central China's social safety net. She refers to the region as a 'social autocratic regime.' Based on interviews, she contends that legacies of Maoist socialism still play a critical role in this regime's protective welfare interests. By contrast, productive interest drives high education spending in the coastal Southeast, referred to as a developmental regime. She uses welfare spending disaggregated in education, healthcare, minimum livelihood support, housing and other social safety nets. However, Ratigan does not distinguish between spending and outcome and interchangeably refers to the budget share of spending as welfare priorities/commitment and welfare provision. Moreover, the analysis is based on provincial level variation, which masks variation within provinces along the city-level. By contrast, Dickson et al. (2016) examine spending in multiple welfare policies, namely education, healthcare and social welfare subsidies at the city level. According to them, local state capacity, level of prosperity of a city and subsidies and transfers from the upper level explain variation in expansion in education and healthcare. However, only subsidies and transfers from the upper level drive the expansion in spending on local social welfare subsidies. Their works, however, rely on data from 2007 only covering randomly selected 49 cities. A comprehensive analysis covering recent and a longer timeline are still warranted.

To conclude, many works by China scholars enriched our understanding of welfare development and expansion in China. However, new research is warranted to explain the variation of welfare expansion at the city level, which often gets overlooked. In addition to the two groups of explanations presented in this chapter, scholars also highlight other internal and external factors.

The proponents of factional politics argue that Hu Jintao relied on popular social policies to strengthen his authority over the population. Social policy expansion was a tool for gaining popular support for his ‘Youth League’ because the ‘Shanghai Clique,’ represented by the former president Jiang Zemin, dominated the party politics before the Hu-Wen administration came into power (Li, 2005). However, Duckett (2019) argues that evidence for factional politics driving social policy expansion remains unsatisfactory as gradual but incomplete steps for welfare expansion could be traced back to Jiang Zemin’s period (Saich, 2009). Indeed, the gradual but incomplete policy steps from the earlier Jiang Zemin and Zhu Rongji period on which Hu-Wen’s welfare initiatives were built is hard to overlook (Saich, 2008; Duckett and Howell, 2018). 32 Critical junctures such as the SARS outbreak and global/regional financial crisis are often argued to be the catalyst for the Party- state’s reorientation towards public healthcare (Tam, 2010). Demographic factors such as an ageing population cannot be ignored for the government’s renewed focus on healthcare provision (Guohui and Duckett, 2016). Looking further beyond the domestic factors, Duckett argues that international influences such as the power of ideas disseminated through the policy communities by international organizations like the WHO, the World Bank, the UNICEF etc. also played a critical role in welfare policymaking and expansion, particularly for the New Rural Cooperative Medical Insurance (2018). These factors were important, if not critical, for some policy development but cannot explain the variation in welfare expansion across the country. The distinct policy orientation and narratives based on social justice and equity under Hu-Wen offered a constructive vision for a ‘harmonious’ and inclusive Chinese society in response to widespread bottom-up contention and discontent. However, the existing works fall short of explaining the city- level variation in local welfare priorities and the consequential variation in the long-term welfare expansion. In the following chapter, I review the broader theoretical literature on welfare development that covers welfare policymaking and expansion in various regions and countries to identify the large theoretical debates and explanations that could help us select a set of most relevant theories testable in China’s context.

32 Some early policy campaigns such as Jiang Zemin and Zhu Rongji’s ‘Great Western Development’ ( 海北西以 Xībù kāifā ) and later ‘Rejuvenate Northeast’ ( 振振山天 Zhènxīng dōngběi ) also tried to bring attention to China’s underdeveloped regions, albeit produced ineffective outcomes (Lai, 2002, 2007).

C hapter 3

The Theories of W elfare E xpansion

3 . 1 Introduction

In this chapter, I review the major theories of welfare development in the broader literature to identify potential theoretical lenses that I could use for hypothesis building. This chapter's motivation comes from the previous chapter, where I demonstrated that the existing works by

C hina scholars fall short of explaining the subnational variation in welfare expansion and its connection to regime survival in China. So, revisiting the broader literature on welfare development is warranted to identify potential theoretical lenses that can help build testable hypotheses in C hina's case. A lthough the scope and subject matters of the existing literature on welfare development are numerous, I develop a critical review of the existing theories based on their relevance to welfare expansion in an authoritarian regime's subnational context. Particularly,

I focus on three aspects: political motivation in the absence of democratic accountability, welfare expansion in a developing economy and variation in welfare expansion at the subnational level under a single regime.

Organizing the critical review is a daunting task given the breadth and depth of theories and approaches explaining welfare development. T here could be myriads factors responsible for welfare expansion. K uhnle and Sander (2010: 68) argue, "Social policies were introduced with different motivations in different places, and the various factors have carried different weight in different periods." Moreover, many of these theories are not mutually exclusive in their framework. A s a result, developing a critical review without overlooking or undermining the interlinkages and complexities is quite challenging. V arious scholars take different approaches in their comprehensive review of the theories. Some organize them into economic and political dimensions (Segura-Ubiergo, 2009: 6-10; Pribble, 2013: 13-20); some categorize them into three dimensions based on industrialism, political struggle and state-centric approaches (B radley et al.,

2003: 193; H uber and Stephens, 2001: 14-17) while others classify them into several dimensions

(Pampel and W illiamson, 1989: 1-21; C ousins 2005: 19-40). A t the same time, as B onoli (1997:

352) argues, most of the works on welfare state aim to examine, on the one hand, the expansion or contraction of the welfare state and, on the other hand, convergence towards or divergence from an ideal type. I organize the critical review in three dimensions and their effect on welfare expansion. First, the economic dimension, such as industrialization or globalization, is relevant because it helps to identify factors of welfare expansion in a developing economy like China with unequal regional development. Second, the struggle over politics and class can help identify the socio-political forces behind welfare expansion at the subnational level given popular contention has been a recurrent theme in the background of welfare reform in China. Third, the state-centric approach can help explore the relevance of past policies, interest groups or the Party-state's role in welfare expansion. The critical review ends with identifying three potential theoretical lenses – state capacity, policy legacies and popular contention – that could be used to build testable hypotheses for welfare expansion in a single-party authoritarian regime like China.

3.2 Welfare Development Shaped by Industrialism & Globalization

The first theoretical stream, often referred to as the first generation of welfare state theories adopts functionalist and structural approaches based on modernization. According to this argument, the logic of industrialization and economic openness determines the development of welfare. I first present the logic of industrialism, followed by its critical assessment. Then I present the arguments based on economic openness and underlines its shortcomings.

First, Kerr et al. (1964), one of the early proponents of the logic of industrialization, argues that increasing dependence on wage labour and job insecurity put the labour force at the mercy of traditional safety net based on family. However, industrialization also erodes traditional safety nets because urbanization increasingly atomizes family. Although the functionalist logic of Karr et al. (1964) recognizes the role of workers' protest behind social security expansion, the emphasis is on the functional need of the industrial society that leads to the development of a welfare state. Similarly, Rimlinger (1971) also examines multiple factors and alternative approaches behind the policy development of social security in different regimes but ultimately demonstrates how changes in these factors are a function of industrial development, i.e. changes from the preindustrial period to industrializing and mature industrial societies. Rimlinger (1971:334)

52 concludes, "the need for a highly organized form of income protection increases as society becomes industrialized and urbanized and that this need is independent of the nature of the socioeconomic order." In other words, a welfare state emerges as a byproduct of industrialization (Wilensky, 1975; Pampel and Williamson, 1989). Second, the demographic change as a result of industrial growth is also considered an important factor. Economic growth can lead to an improvement in health and, consequently, an ageing population. However, the decline in fertility and atomized families resulting from industrialization create acute needs of welfare services for the elderly population (Entwisle and Winegarden, 1984). Thus, social security expansion becomes a pressing issue at an advanced industrialization stage both for the workers and the ageing population. Social security becomes a key instrument for maintaining a productive labour force for economic development, for putting it differently. Another argument based on an offshoot of Wagner's Law (1983) looks into the size of the public sector and contends that economic development expands state administrative capacity with fiscal and bureaucratic resources to address the welfare need in an increasingly complex society (Larkey, Stolp and Winer, 1981; Pampel and Stryker, 1989).33 In all of these three explanations, industrialization leads to the expansion of the welfare regime.

Meanwhile, the functionalist approach based on the Marxist tradition adopts a nuanced argument based on the stages of industrialization and argues that the welfare state emerges at a certain stage of industrialization. Expansionary welfare policy is the result of advanced capitalism, which, according to O'Connor (1973), serves the productive purpose of the economy and regime stability. Grappling with two mutually contradictory functions, accumulation and legitimization, O'Connor sheds light on different welfare policies' role. According to him, education spending and social insurance invest in and reproduces workforce, thus serving the economy's productive and profit motive. By contrast, social protection helps pacify and control surplus population, "maintain social harmony," and enhance regime legitimacy (O'Connor, 1973: 20-21). On a similar vein, Flora and Heidenheimer (1981) also provide a functionalist argument based on the stages of modernization.

33 Wagner's Law posits that the public sector's size relative to the private sector is directly a function of real per capita income.

Some of the major weaknesses in functionalist arguments are based on two criteria: their lack of focus on political forces, i.e. its logic is overly deterministic and poor generalizability. First, the functionalist logic contends that the welfare state is an automatic response to the processes or stages of industrialization. Thus, it leaves the agency of political actors underappreciated. In Gough’s words,

Functionalist theories of the welfare state objectify all processes within society and see policy developments as a passive response to these social or nonsocial “forces.” There is no room here for humans as active, initiating groups helping to shape their own history. [emphasis by original author]

The earlier proponents of industrial logic use quantitative analysis and heavily rely on the ‘how much’ dimension by operationalizing the welfare state only in terms of spending. They demonstrate the correlation between welfare expenditure and income per capita among developed countries (Cutright, 1965; Jackman, 1975; Aaron, 1967; Wilensky 1975). These works not only overlook other dimensions such as ‘how’ the spending is generated for welfare (Ferrera, 1993: 11) 34 ; Esping-Andersen, 1990: 19; Cochrane, 1993: 7), but also fail to appreciate that welfare expansion can take place even in relatively low economies such as Kerala in India (Sen, 1999). 35 Additionally, the assumption that is increasing welfare expenditure in the form of transfer from the affluent to the needy in the aftermath of economic development overemphasizes the egalitarian prospect of welfare development. Inequality can persist through social stratification due to the institutional design of welfare, or only a small group of people can benefit from welfare at the expense of others (Esping-Andersen and Myles, 2011).36 For example, Argentina was one of the wealthiest countries in Latin America when the Peronist populist authoritarian regime expanded welfare to gain working-class loyalty. However, it mostly benefited the labour force in the formal sector only (Mesa-Lago, 1978). Reducing welfare expansion as a deterministic outcome of industrialism, thus underappreciates the political factors and their consequences.

34 Cited by Bonoli 1997: 353. 35 Kerala’s case shows that a lack of economic development does not necessarily commensurate to low welfare provision. Its per capita GDP is significantly lower than that of India’s average, but welfare provision is up to the standard of a middle-income country like Argentina (Sen 1999). 36 Despite the welfare state’s role as a piggy bank and Robin Hood (Barr 2001).

Second, the exact relation between economic development and welfare development beyond the developed West remains disputed; as Cousins (2005:22) argues, the functionalist explanation “operated at a high level of generalization” and falls short of appreciating empirical variation. It also underappreciates the diversity in the type of welfare within the developed world (Pryor, 1968; Parkin, 1971; Connor, 1979), let alone appreciating variation in the subnational level, and indirectly assumes homogeneity among and within the Global South countries (Rudra, 2008). China, as part of the Global South, not only shows uniqueness in terms of its broad-based welfare expansion compared to that in other similar developing countries, it also shows a wide degree of variation within the subnational level. The logic of industrialism can only provide a limited explanation of these variations.

In short, failure to appreciate agency and sub-national/regional variation leads to failure to explain variation in the political will for welfare expansion among leaders. Without problematizing political incentives behind welfare expansion proponents, what motivates political preference for welfare expansion and when remains unexplored adequately. The proponents of functionalism assume the logic of industrialism should work uniformly in all regime types even though the empirical cases often used for analysis are from the developed democracies. Capital resources and welfare needs do not necessarily induce political will to respond to welfare demands ipso facto when regimes include little or no institutional mechanism for democratic accountability. As Pampel and Williamson (1989: 28) critique, "By emphasizing the automatic response of governments to the needs of the population, industrialism theory only vaguely identifies the causal linkages involved." As a result, the shortcoming in industrial logic's deterministic arguments provides little insight to understand the sources of political preferences for welfare expansion and its variation at the subnational level in China's case. To sum up in Skocpol's (1992: 14) words,

socioeconomic modernization not only is a poor predictor of the timing of enactment of social policies across nations and across states within the United States [or any other country like China]; it also says little about the content of specific national or state-level [subnational] policy profiles, ignoring the particularities of program constituencies and the public rhetoric used to legitimate them.

The second argument, which is a structural one, depends on globalization, defined as trade integration or openness to capital markets. The theories based on globalization provide contending

55 arguments of its effect on the development of the welfare state. First, the efficiency hypothesis advances an argument based on competition for global capital with minimal welfare measures as the outcome. Globalization creates downward pressure on welfare spending, particularly in the least developed countries, leading to a 'race to the bottom' (Kaufman and Segura-Ubiergo, 2001; Rudra, 2002). The logic behind 'race to the bottom' is that expansion in welfare spending can be linked to higher taxes on businesses and the cost of labour, on the one hand, and higher financial burden for the state. On the other hand, which can drive up the cost for business and undermine competitiveness to attract global capital. So, governments will be reluctant to expand welfare. However, Rudra and Haggard (2005) argue that the relationship between globalization and welfare spending is not always straightforward. According to them, what matters more is the political institution where "hard" authoritarian regimes in the Global South are less generous than democratic or intermediate regimes concerning welfare spending under globalization's pressure.

In contrast to the efficiency hypothesis, the compensation hypothesis of globalization argues a positive relationship between a country's openness to trade and its size of welfare. Increasing globalization in terms of trade exposure to the international market increases economic insecurity as jobs or labour rights could be compromised to keep the economy competitive. Pressure from organized labour can be crucial, but the focus is on the origin of this pressure, which is the openness to the international economy and dependence on the global capital market. States expand welfare to protect the working class from the risky, volatile market (Polanyi, 1944; Cameron, 1978; Katzenstein 1985; Rodrik 1998). The theory contends that although globalization creates fear for capital flight and mobility for a corporation to avoid welfare expenses, a balance could be achieved favouring both capital and labour. Eichengreen (1997) demonstrates that the post-war period of growth in Europe was possible because the states could mediate between labour forces and capitalists, where the workers agreed to moderate labour rights demands. The capitalists agreed to invest in the presence of some compliance mechanism, which includes long-term welfare provisions. Garrett's (1998) findings further support that a bargain can be achieved between the competing groups through policy compromises and redistribution in the era of globalization.

Thus, the contradictory theses from two different streams of the argument make globalization's effect on the welfare state inconclusive. Moreover, the empirical works with optimistic and pessimistic views of globalization pay little attention to the domestic political factors (Adsera and Boix, 2002; Huber and Stephens, 2001). As Rudra (2005:1021) criticizes, the 'striking' failure in

56 considering the domestic determinants in the literature is how the 'translation' of political demands into public policy happens in response to uncertainty from globalization remains underexplored. And not to mention, disagreements on how to measure globalization's effect undermine any effort for conclusive outcomes (Rudra, 2009: 20-35). In China's case, its economic integration to global trade and welfare spending increased since its WTO membership in 2001. The problem, however, is twofold. Not only the disagreements on how to measure globalization in China's case looms large but examining its effect on subnational welfare is also practically impossible given the lack of credible data on economic openness, trade or FDI at the city level.

3.3 Welfare Development Shaped by Struggle over Politics & Social Class

The second stream of theory highlights the political causes of welfare expansion. Among this stream of theories, the power resource theory is based on distributive conflict, and social class is the basis of this distributive strife. It examines the distribution of and the control over power resources 37 (Korpi, 1980, 1989; Esping-Andersen and Korpi, 1984; Stephens, 1979; Myles,

1984). 38 It situates power resources in the class structure in a capitalist democracy. It underlines the socio-economic cleavage in capitalist society between the owners of production and the working class. However, what is more important is how the power resources are mobilized . Labour organizations, political parties and the right to vote act as major factors behind the working-class mobilization. It can be the power of labour organization that plays a crucial role in mobilizing labour rights and demands, albeit disagreement exists on measuring it (Korpi, 1983; Stephens, 1979). It is often defined differently, including but not limited to the unionization rate 39 , unity and centralization of labour movement 40 , percentage of labour under collective contract (with or

37 which is defined as “capabilities of actors to reward or to punish other actors” (Korpi, 2003: 172). 38 In fact, some scholars such as Orloff (1993) argue that it is the dominant theory explaining welfare development. 39 Hicks and Swank, 1984; Wallerstein, 1989; Steinmo and Tolbert, 1998. 40 Garette, 1998; Alvarez, Garrett and Lange, 1991; Valenzuela, 1989; Murillo, 2000.

57 without union membership) 41 , the nature of the alliance with political party 42 and strike activity 43 of a labour union. The greater the power resources of the organized working class, the more powerful the left-wing political parties' influence in pushing for expansionary welfare (Korpi, 1983). The power resources can be mobilized in the form of voters' participation in favour of pro- welfare parties (Key, 1949; Dye, 1979; Pampel and Williamson, 1979).

It can also be the power of the left-wing party, which can help mobilize the working-class demands and determine the electoral outcomes leading to the expansion of welfare (Korpi, 1983; Castles, 1982, 1985; Korpi, 1989; Huber and Stephens, 2000a). As Esping-Anderson (1990) shows, a universalistic, generous, redistributive and rights-based welfare regime can develop if an alliance is made between strong labour unions and a social democratic party, as witnessed in the Scandinavian countries. An alliance between the union and political parties in religious societies, such as the Christian democratic parties in continental Europe, can create welfare expansion based on employment and traditional family values (Esping-Anderson, 1990; van Kersbergen, 1995). The absence of such alliances can create more market-oriented welfare policies that are conservative, means-tested and less distributive such as the liberal-market welfare state in the US.

On the one hand, the power-resource theory provides a lot more agency to the labour forces and political parties. Because the power to organize and mobilize the working class in forging an alliance with political parties, which can ensure favourable welfare policies, is crucial for welfare expansion. On the other hand, the theory contends that the state's role is contingent upon the alliance among other social and political groups and can take an expansive role for welfare provision only in social-democratic welfare regimes. Hicks and Swank (1992), however, show that the partisan effects of political parties are not necessarily always straightforward. According to them, interaction among left, center or right-leaning parties and governments ultimately shape welfare policies.

41 McGuire, 1997 42 Korpi, 1983; Esping-Anderson, 1985; Murillo, 2001. 43 However, it must be noted that Madrid (2003) measures the intensity of the labour movement not only by the number of strikes and protests but also by the position of labour unions during negotiation and voting patterns in legislation.

The power resource theory has produced a wealth of knowledge about the causal processes of welfare development. Simultaneously, the theory is not beyond debate, particularly because of its zero-sum class conflict approach (Pierson, 2000). Perhaps one of the earlier critics of the theory was advanced by Baldwin (1990), who contends that the working class's importance is but one factor in welfare expansion. He argues that the middle-class can be a critical factor for forging a broad class-based social solidarity leading to universal and egalitarian redistributive welfare, as seen in Europe.44 As Baldwin (1990: 12) remarks,

Risk incidence has affected some groups more than others at any given moment…. the working class has had no interest in a redistribution of costs that it did not share equally with the impoverish and precariously perched members of other social groups. Although it may have suffered more than its share of risks, the proletariat has had no monopoly on uncertainty or on an interest in measures to ameliorate such circumstances.

Baldwin's criticism only refined the class-based approach of the Social Democratic theory but retained the contingency role of the state, which is a major weakness of the power resource theory. Skocpol (1980: 9) counters that the state plays more than a 'reflective' role in response to class conflict or demands from interest groups. She demonstrates that both Sweden and the U.S. followed expansionary welfare policy in response to the Great Depression through the state's institutional mechanism of policymaking and the policy precedents set in the past.45

Moreover, the East Asian experience has shown that welfare expansion can occur even in the absence of any organized independent labour force. Wong (2004) shows that when Taiwan's KMT and South Korea's Park Chung-Hee regimes faced challenges to their authority in the 50s and 70s, respectively, 46 they launched only limited overtures to welfare policy expansion at the beginning.

44 However, Huber and Stephens (2001: 1999) partially disagree with Baldwin by arguing that cross-class alliances (such as between the social democrats and the farmers) were mostly reactive to the proposed expansionary policies. 45 Another example where the state can play a critical role is the retrenchment of welfare under Menem in Argentina. Labour power is a double-edged sword; it can influence the party in power, just like the party can influence it. Menem's administration pressured unions to concede to reforms that incurred huge costs on them (Murillo, 2000). 46 KMT faced two challenges, one during the period of consolidating its authority during the 1950s and later in the 1970s in response to non-KMT candidates challenging the legitimacy of its rule on the island. On the other hand, the Park Chung-Hee regime in South Korea faced a crisis during the unpopular Yushin Constitution in 1972. In both

However, the same leaders pre-emptively expanded health insurances to retain electoral support later during the democratic transition period without any concerted pressure from the labour force. In other words, welfare expansion can also take place without any organization's independent labour force.

Finally, according to the power resource theory, the working class's mobilization takes place in a capitalist democracy. As Bradley et al. (2003:197) succinctly write, this is a crucial point when enormous power can be concentrated within a small group of elites in a capitalist society, the subordinate working class's power to mobilize themselves depends on the democratic right of freedom of association. Authoritarian regimes, however, lack not only any effective electoral institution and freedom of association but also suppress independent labour organizations. One of the reasons that the labour-power has been weak in the East Asia's productivist economies is that the leaders deemed them a threat to economic stability. In Wong's (2004:14) words,

Redistributive social welfare was understood by these elites to be counterproductive to economic growth. Legislative bodies were in effect rubber stamps and civil society was suppressed, meaning that policymaking networks were small, exclusive, and politically insulated. Social policy reform was thus gradual, piecemeal, and directed from the top down.

However, autocratic leaders' willingness to expand welfare does not materialize out of a vacuum. In the absence of democratic rights to mobilize power-resources, political struggle in the form of popular contention through different channels can push regime leaders to address public welfare needs, particularly in a single-party regime. Single-party regimes can respond to popular demand through two equilibria beyond total repression, namely collusion and organizational proliferation (Mares and Carnes, 2009). Leaders in a single-party regime can claim a monopoly over mass support by using welfare as a concession and rent for collusion purpose and can create 'giant patronage systems' (Magaloni and Kricheli, 2010; Geddes, 2006, 2008; Pepinsky, 2007; Gallagher and Hanson, 2009). Additionally, single-party regimes allow organizational proliferation to be a vehicle for popular contention demanding welfare expansion (Haber, 2007). Autocratic leaders are

cases, the governments made only limited welfare policy initiatives, such as reforming the labour insurance law in 1979 in Taiwan and health insurance reform in 1976 in South Korea, though it failed. (Wong 2004: 57-60)

60 willing to tolerate popular contention because they help reduce information asymmetry and make concessions more effective, making credible power-sharing possible (Hess and Martin, 2006; Wisler and Giugni, 1999; Magaloni, 2008; Geddes, 2008). Simultaneously, organizational proliferation undermines collective action's effectiveness by the mass, minimizing the threat to an autocratic leader's authority (Haber, 2007; Mares and Carens, 2009). The 'tragic brilliance' of a single party to remain in power longer (Diaz-Cayero,s et al. 2001) while tolerating popular contention and simultaneously monopolizing mass support provides a ground for exploring the effect of political struggle form of popular contention on welfare expansion.

Thus, even though the power resource theory is ill-equipped to explain the source of political preferences behind welfare policy expansion in authoritarian regimes, the effect of popular contention requires scrutiny.

3.4 Welfare Development Shaped by State Centralization, Bureaucracy & Policy Legacies

The third stream of theories takes a state-centred approach and examines the influence of state structures, bureaucrats' policymaking role, and past policies on welfare expansion (Heclo, 1974; Weir, Orloff and Skocpol, 1988; Skocpol, 1988; Orloff, 1993). 47 First, the state institution can structure policy change both for expansion or retrenchment of welfare. The state's centralization in jurisdictional and administrative consolidation of policymaking and implementation can expand the state's ability to effectively implement welfare expansion policies (Wilensky, 1981). A state where decision making is concentrated in the central government can be better equipped to deflect opposition to welfare expansion from unorganized and fragmented factions (DeViney, 1983; 1984). On the contrary, a federalized state with weak executive or legislature can have many veto points, exploited by interest groups, and potential sources of opposition to a policy initiative. For example, France, Sweden and Switzerland ended up with three different regulatory policies for

47 State-centric theories are mostly supply-driven theory though some are overlapping with theories based on interest groups.

61 health insurance based on their different state structure (Immergut, 1990). 48 Centralization can also help the state coordinate better in bargaining for integrating welfare policies with the economy. As seen in Sweden and Austria, such corporatist characteristics of a state helped expand welfare spending (Mishra, 1984). Skocpol (1995) shows that a federal state structure can also help expand welfare policies. She argues that the 'fit' between the US's federal structure and the middle- class women's social organization explained the early adoption and expansion of maternalistic social policies.

Second, the strength of bureaucracy can help expand welfare spending. The size of civil servants, fiscal budgets, and autonomy can be crucial indicators defining the state administration's bureaucratic strength. Orloff and Skocpol (1984) and Orloff (1993) highlight the importance of state capacity. A fragmented bureaucracy with turf-war and competition for scarce resources can undermine the state's ability to implement expansionary welfare policy provided that is the policy goal. They argue that a strong bureaucracy was a crucial factor behind Britain's early adoption of modern social security by World War I. Britain reformed its poor law and replaced it with a modern social insurance program by 1908. The US, however, lacked an established civil bureaucracy and still marred in patronage politics of the nineteenth century. The US and Canada waited longer because their ability to administer modern social programs was slower to develop. Wilensky (1975) also argues the importance of revenue capacity for welfare development.

Finally, policy legacies can also affect welfare policies in the long run. Heclo (1974) contends that past policies have been the single most critical factor in developing old-age pension and unemployment insurances in Britain and Sweden. For example, the past policy created a 'process of social learning' for Sweden, which led to policies supporting welfare expansion. Skocpol (1995) emphasizes the importance of policy legacies in connection to institutions. According to her, Europe was able to adopt comprehensive social insurances due to its strong legacy of state intervention. On a similar vein, while acknowledging the importance of more than one factor,

48 When the Fifth Republic made executive stronger, France expanded health coverage by establishing national health insurance by decree and regulated medical professional fees. Sweden also developed national health insurance and brought all medical professionals under government salary due to the strong majority of the Socialist Democratic Party and effectively eliminated the right to practice privately. However, Switzerland failed to reform and continued without national health insurance, only subsidizing voluntary private health insurance carried by mutual aid.

Orloff (1993) also underlines how policy legacies affected the timing of social insurance adoption in Britain, Canada and the US.

Beyond the developed world, policy legacies can have critical importance in developing countries too. For example, Rudra (2007) argues whether a developing country has a protective or productive welfare regime depends on its historical policy choices. Huber and Bogliaccini argue that healthcare reform is heavily influenced by policy legacies in Latin America (2018: 652-653). In a similar vein, Pribble (2008) argues that opposing policy legacies of large role of state and privatization played a crucial role in Uruguay and Chile's diverging pathways to welfare reform, respectively. 49 Welfare expansion took place through a bottom-up process in Uruguay due to its policy precedents of the welfare state in the past. It emboldened the statist stakeholder during welfare reform. By contrast, the past policy of privatization under General Pinochet made the private sector lobby group powerful and forced the government to take a top-down approach to expand welfare provision.

Perhaps, the post-socialist states provide very clear examples of the effect of policy legacies on welfare expansion. Haggard and Kaufman (2004) argue that policy legacies had a decisive effect on post-socialist Eastern European states' welfare development. In their study of welfare reform in three separate regions of the world, Haggard and Kaufman argue that post-socialist states, namely Poland, Hungary, Bulgaria, Romania and Slovakia, spent more on education, healthcare and social security than countries in Latin America. For example, despite the fiscal crisis, the government in Poland had to balance the electoral interest in liberalization and the expectation from the socialist legacy in guaranteeing protection of the elderly by keeping many costly entitlements from the socialist period intact (Haggard and Kaufman, 2008:311). These changes took place through the preferences and organization of interest groups as social contracts during the past socialist regime created strong statist stakeholders who had vested interest in maintaining and expanding welfare benefits even after the democratic transition.

Indeed, the preferences and organization of interest groups could be the defining factors for welfare expansion in the post-socialist states as Cook (2007) demonstrates that not all post-socialist regime

49 Policy legacies was one of the three explanatory factors, the other two being the party character and party competition.

63 ended up with a broad-based welfare benefit. Post-socialist regimes tend to maintain Soviet-era welfare benefits only when the stakeholders with a vested interest in large welfare state remain politically powerful during the transition period. Cook (2007) contends that Belarus, often dubbed 'the last dictator of Europe,' maintained a strong welfare state as the Soviet state structure's bureaucratic stakeholders were powerful and played a decisive role against the privatization of the welfare sector. By contrast, the legacy of social contract failed to leave a strong effect on the post- socialist welfare system. Despite a communist-dominated legislature, which had little power vis- à-vis the executive in the authoritarian regime, Kazakhstan pursued quick privatization of its welfare due to powerful oligarchic elites.

In another work, re-evaluating the legacy of the social contract in during the first four decades in post-Mao China and Putin's Russia, Cook and Dimitrov (2007) argue that both regimes protect urban and working classes from market vulnerability at the cost of economic efficiency and in return, command monopoly power over politics, economy and society. Although the contract is not a result of bargaining between the working class and the autocratic leaders rather dictated by the later, it imposes a constraint on both parties. Cook and Dimitrov call this form of contract between the working class and the regime under a market economy' market social contract'. The social demands based on the legacy of entitlement are transmitted through the election in Russia's case and protest and petitions in China's case. According to them (2007: 24), "more authoritarian market capitalist states should be more distributive, using social goods to satisfy popular preferences in order to maintain political stability and quiescence."

That said, Cook and Dimitrov's argument falls short of addressing three questions. While they argue that we need to distinguish central and local level responses, they do not further explore how the central government's policies are adopted and expanded at the local level. They only indicate that welfare responses to popular demand have been mostly from the central government while underlining the local government's failure, as evidenced by rising protests. Thus, we get little clarity on how welfare is expanded at the local level when the local government implements the policies. Also, Cook and Dimitrov argue that such a social contract is costly to maintain for the regime but does not adequately explore the implication of China's welfare expansion when employees and employers share a significant share of social security costs through co-payment. In other words, how China's cost-sharing through the 'welfare-mix' regime creates popular acquiesce remains underexplored.

Nevertheless, the state-centric approach provides ample fodder for building testable hypotheses explaining variation in welfare expansion in China. Indeed, the reasons for the slow reform of China's various welfare policies have often been attributed to decentralization (Ho, 2010), bureaucratic politics (Frazier, 2010; Howell and Duckett, 2018) and institutional legacy (Duckett, 2004). Their comprehensive analysis of welfare development at the local level, however, remains underexplored. Particularly, state capacity can allow us to examine the local state's ability to expand welfare in China's single-party regime, which has de facto decentralized governance. Simultaneously, the effect of policy legacies in different localities can be critical in China, given the long socialist past under Mao's period. Whether policy legacies of social contract can remain an influential factor despite a period of retrenchment in some welfare policies need scrutiny.

3.5 Presenting Three Theoretical Lenses: State Capa city, P olicy Legacies & Popular Contention

Despite the shortcomings of various theories, the previous section underlined potential theoretical lenses that we can use to develop testable hypotheses and explain variation in welfare expansion in China’s subnational level. In this section, I build on the previous section's insights and present in detail the three theoretical lenses, namely state capacity, policy legacies, and popular contention. I demonstrate how each of these theoretical lenses could be conceptualized to explain variation in local leaders’ preferences for welfare expansion and variation in welfare provision in China’s subnational level.

3.5.1 State Capacity

State capacity, broadly defined as the state's ability to effectively implement official goals (Sikkink, 1991), can be a critical factor affecting leaders' preference to expand welfare. Effective state capacity can eventually serve two political purposes of authoritarian leaders. First, state capacity can be instrumental in gaining some 'performance legitimacy' through effective public

65 welfare delivery, helping the regime survive longer (Holbig and Gilley, 2010; Gille,y 2006). 50 Bustikova and Corduneanu-Huci (2017) also show that historically high levels of state capacity, measured by bureaucratic competence, can effectively implement policies such as welfare expansion and enhance trust in government, which is a critical ingredient of legitimacy and regime survival. Second, effective state capacity can eventually reduce the need to predominantly rely on repressive tools for building loyalty and further reduce the relative cost of delivering social welfare. Thus, it can help the leaders determine the right combination of carrots and sticks (Wintrobe, 1998; Gandhi, 2008; Hanson, 2015). Thus, when leaders are bestowed with a high level of state capacity, addressing local welfare needs can help leaders build loyalty and enhance performance legitimacy and regime survival. On the contrary, when the state fails to extract revenue and build necessary infrastructure even after economic development is achieved, state capacity remains weak. It can foster clientelism at the cost of benefiting the public, ultimately hurting the state's performance legitimacy (Hicken, 2011: 299-300). In China's case, Ong (2012) demonstrates that declining state capacity and autonomy led to the dismantling of developmental or corporatist state with the simultaneous emergence of predatory clientelist state at the expense of public benefit. Simultaneously, economic reform and liberalization led to 'hollowing out' of the state capacity in China's healthcare sector, causing further deterioration of access to basic healthcare (Duckett and Hussain, 2008).

State capacity can also be crucial for welfare provision in the long run because ensuring social welfare, in essence, requires the state's reach and ability to intervene in resolving the collective action problem in public good provision (Olson, 1965; Rueschemeyer and Skocpol, 1996; Kuhnle, 1996). Leaders can enhance their local state capacity for welfare provision by taxing and using the revenue to create infrastructures to train more teachers and doctors, build more schools and hospitals, increase government benefits and subsidy for social safety net even without high economic growth, as evidenced in Kerala (Se,n 1999). Seekings (2017) argues that the incremental expansion of state capacity led to inclusive welfare states in many developing countries. 51 Even the East Asian economies expanded state capacity by investing in schools, teachers, doctors and

50 In fact, in Gilley's ranking of states with perceived legitimacy, China ranks quite high (13). 51 He shows that several countries in Sub-Saharan Africa, including South Africa, have utilized various institutions such as intermediaries to administer and deliver old-age pensions and grants despite having a weak bureaucracy.

66 hospitals to expand basic education and healthcare to support productive the sector during the '60s and '70s (Mundle, 1998).

In sum, we must examine state capacity's effect on the local leader's preference for welfare expansion and the expansion of welfare provision in China at the city level. The assumption is that a high level of state capacity will motivate leaders to prioritize welfare expansion. The underlying logic is that a high level of welfare provision will provide an alternative to predominantly relying on coercion, which is costly because it undermines the regime's perception of legitimacy. On the contrary, low state capacity will lead to a low level of welfare provision.

That said, disagreement abounds on conceptualizing and measuring state capacity (Centeno, Kohli and Yashar, 2017: 3-7). Some scholars conceptualize state capacity based on the Weberian concept of bureaucratic apparatus and add a dimension of ‘relative autonomy’ (Johnson, 1982; Evans, Rueschemeyer and Skocpol, 1985; Evans, 1995). However, for a generalized policy area, measuring ‘relative autonomy’ is challenging, and good governance, state autonomy, and bureaucratic capacity may plausibly overlap. State capacity is studied along multiple dimensions: extractive, fiscal, administrative, despotic, infrastructural, and legal.52 In the study of China, state capacity is also conceptualized in various forms, such as bureaucratic apparatus (Ong, 2012), administrative and personnel control (Huang, 1996), coercive capacity through co-optation of social groups (Mattingly 2020), and extractive capacity (Wang 1995). Mann (1984), although not exclusively studying China, however, argues that we need to distinguish the state’s infrastructural power, the ability to implement policies from its despotic power, ability to control citizens in conceptualizing state capacity. Fukuyama (2013) points to the need to avoid a concept of state capacity that conflates regime type and capacity. Hanson and Sigman (2013) also expand the argument that the concept of state capacity should be minimalistic and avoid conflating with good governance and state autonomy. Following their arguments, I use Mann’s concept of infrastructural power and focus on the core function of a state, such as extractive capacity. Mann (1984:189) defines infrastructure power as “the capacity of the state to actually penetrate civil

52 Many scholars explain these various capacities differently, and debates abound. However, in short, extractive capacity helps mobilize resources; coercive capacity helps to maintain social control; administrative capacity helps regulate agencies and implement policies; steering capacity helps guide national interests, and legitimation capacity helps to garner popular support for policy (Migdal 1988, 2001; Tilly, 1978).

67 society and to implement logistically political decisions throughout the realm.” It is particularly applicable in the study of subnational variation as Soifer (2008: 242) writes, it “seeks to maintain a view of power based on the capabilities of the state rather than measuring state power in terms of effects. In this approach, the capabilities of the state vary at the subnational level: the state is not homogeneously powerful through the national territory; its reach is uneven over territory and over societal actors.” I focus on the extractive fiscal capacity because it encompasses the state’s reach and revenue directly affects the state’s ability to create infrastructure and resources for welfare provision. For example, Huber and Bogliaccini (2018: 649-650) show that one of the main reasons Latin America falls behind in overall welfare spending is its lack of fiscal capacity due to trade liberalization. On the importance of fiscal capacity, Magaloni’s (2010) pithy remark invoking Morrison (2009) is quite relevant, “If the regime controls natural resources or other economic means, it should be able to increase social spending, mobilize the masses, and thereby increase its survival prospects.” Perhaps, the words of Skocpol (1985: 17) describes its significance to measure state capacity best,

A state’s means of raising and deploying financial resources tell us more than could any other single factor about its existing (and immediately potential) capacities to create or strengthen state organizations, to employ personnel, to coopt political support, to subsidize economic enterprises, and to fund social programs . [emphasis added]

To conclude, the state’s fiscal capacity provides a useful theoretical lens to develop testable hypotheses explaining China’s subnational variation in welfare expansion.

3.5.2 Policy Legacies

As a single-party authoritarian regime under a communist party and with a socialist-market economy, China demonstrates some similarities with post-socialist states in terms of welfare reform. During Mao's period, the Party-state, like many post-socialist Eastern European countries, played a large role in welfare provision, be it for education, healthcare, and social security. The implicit social contract was based on every citizen's acquiescence. They would engage in state-led economic activities in return for cradle-to-grave welfare services and benefits, otherwise known

68 as the 'iron rice bowl' social contract. However, their expectation for welfare entitlement dealt a severe blow when China restructured its SOE sector in the late ‘90s, and many workers lost jobs along with their welfare benefits (Hurst, 2009, Frazier, 2010). Demonstrations and protests increased, particularly in the regions with a strong sense of entitlement to the welfare state. The popular contention in China mirrors the protests by workers in the post-socialist Eastern European countries when their transitional governments were under pressure to downsize the communist era's welfare state. As mentioned earlier, the socialist legacies of welfare policy had a long-term effect on welfare spending during the post-socialist economies where stakeholders with a vested interest in the large public sector were strong (Haggard and Kaufman, 2004; Cook, 2007; Cook and Dimitrov, 2013). To illustrate the critical importance of past legacies, Orloff's (1985:27) remark is quite apt, "all actors consciously build upon or react against, previous governmental efforts dealing with the same sorts of problems." Thus, the effect of policy legacies can be a critical factor behind China's recent welfare expansion.

Nevertheless, the implications of policy legacies on welfare expansion in China's subnational level remain underexplored, as demonstrated in the previous section. To address this gap and explore the theories' potential in developing testable hypotheses, I build on Pribble's (2013) work. Pribble (2013) argues that there could be two channels through which policy legacies leave its effect on welfare expansion. First, past policies structure the problem of the present. Accordingly, if we examine China's context, the strong popular attachment to the welfare state from the Maoist era created the potential for social instability and fiscal crisis if the Party-state fails to deliver welfare services and benefits. The SOE restructuring in the late ‘90s, which created mass unrest, most notably in Northeast and Central China with strong ties to the Maoist era welfare state, is a testament to that problem. Simultaneously, decades of uneven development and privatization created the potential for popular discontent as access to basic welfare services became costly and unequal, leading to a welfare crisis. Indeed, popular contention has been on the rise with demands for broader distribution of public welfare in the aftermath of Deng's decades-long policy of prioritizing marketization that made education and healthcare unaffordable for many people. Thus, social instability and fiscal crisis demonstrate how past welfare policies have structured welfare distribution problems later in China.

The second channel, according to Pribble (2013), through which policy legacies affect welfare reform, is the distribution of power among interest groups. Whether or not past policies have

69 emboldened statist stakeholders or the proponents of privatization of welfare can affect subsequent welfare effort. Cook (2007) and Haggard and Kaufman (2004) contend that states play a large role in welfare provision by either maintaining the status quo or expanding welfare commitment in countries where statist stakeholders are strong. By contrast, states with powerful stakeholders in the private sector or the sectarian community are likely to minimize the state's role in welfare provision and support welfare retrenchment or privatization. For example, past policies of informal welfare provision through sectarian groups during the Lebanese civil war emboldened non-state sectarian actors who later became a powerful obstacle against reforming and expanding the welfare state in Lebanon (Cammett 2014). In China's single-party regime, the statist stakeholder remains powerful despite pressures from the pro-reform factions (Shih, 2008). The central and local governments also have incentives to maintain a sizeable SOE sector – now considered the 'pillar industry' ( 支柱产业 zhīzhù chǎnyè), because they remain instrumental to achieving the Party's political goals and social stability interests through preferential access to welfare benefits and employment generation (Haley and Haley, 2013: 30-35). 53 To paraphrase Frye et al. (2004: 208- 217), autocrats have significant leverage over SOE directors or managers because their economic fate relies on the state. In turn, SOEs are likely to mobilize their workers in support of the state, and workers have incentives to work in SOEs because they receive exclusive benefits. In other words, the SOE sector provides a large base to the Party-state for cooptation purposes. Indeed, Huang (2015) and Ratigan (2017) demonstrate that the provinces with large SOEs have higher spending in social safety net than the rest of China. 54 If policy legacies of the social contract are evident in the provinces with a large SOE sector, it should also be true at the city level. Taking this argument to China's subnational city-level, one can expect that cities with large SOE sectors will have a strong popular attachment to the welfare state, exhibiting the effect of policy legacies of the social contract. The policy legacies can thus strengthen the statist group, which might play a critical role in welfare policy expansion at the city level.

53 Despite the opening up of the economy, the repetitive effort for reform and a period of welfare retrenchment (Duckett, 2011; Malesky et al., 2011), the SOEs remain a formidable force behind the Party-regime's stability. 54 In fact, in 2006 alone, the government allocated 25.1 billion yuan as subsidy under social security and employment spending targeted for reemployment and training of the 'laid-off' workers from the SOE restructuring, mostly concentrated in the Northeast provinces (Wenjiabao, 2006, March).

Maintaining the status quo due to the influence of the statist group, however, barely solves the two problems defined by the policy legacies, namely fiscal pressure and popular discontent discussed above. Conversely, broadening welfare provision through partial liberalization, such as wider risk- pooling across public-private labour forces, while providing supplementary benefits to the state- sector can help the Party-regime address both problems and simultaneously maintain a loyal base for regime survival. Some post-socialist European states took similar approaches during the transition period to balance expectations and fiscal pressure from the socialist legacy through incremental changes (Haggard and Kaufman, 2004). For example, on the healthcare issue, the Polish government, on the one hand, committed to universal health insurance through constitutional changes in response to the socialist entitlements. On the other hand, they changed the tax-based financing to payroll financing, but retained the control over insurance funds, which allowed them to maintain control over social security while outsourcing the fiscal burden to employees and employers. In Hungary, concessions were made to pension beneficiaries due to pressure from past legacies. However, the contribution was made compulsory to the new entrants in the labour market to bear fiscal pressure. Thus, as Haggard and Kaufman write (2004: 345), "Expectations with respect to the public sector's role in cushioning against risk contributed to the creation of new social safety nets and efforts to alleviate poverty and inequality." In other words, the post-socialist countries engineered a welfare regime, albeit incrementally, that addressed the effects of past policies and popular discontent while ensuring fiscal viability.

In China, social insurance is no longer the SOEs' responsibility since the reform in the 1990s. Access to medical insurance, pension insurance, maternity insurance, work-related injury and unemployment insurance have been standardized and made universal across the public-private labour market. It reduces fiscal pressure on the state by shifting the social safety net's cost to employers and employees through mandatory co-payments, standardized across public and private sectors. Simultaneously, it creates fiscal space for the Party regime to address poverty alleviation, education needs of the low-income families and welfare security for the people beyond the labour market through subsidies. On the one hand, the statist group wins because they maintain their privileged supplementary welfare benefits in addition to the standardized benefits. In return, they develop a patronage relationship with the Party-state and ensures stability and political support for

71 the Party-regime in return.55 On the other hand, the broader population also gains because broader welfare expansion improves their lot. The Party-state, in return, gain performance legitimacy. Thus, broadening welfare through a 'welfare-mix' helps address the two problems of the past policy legacies of the social contract. In the end, according to the logic of policy legacies, "state activity is not merely a reflection of socioeconomically rooted demands, needs, and preferences, given expression by organized groups" rather a reflection of or readjustment to past policies (Quadagno, 1987: 118-119). In other words, policy legacies can have a critical effect on the welfare expansion in China.

To conclude, policy legacies provide a useful theoretical lens to develop testable hypotheses explaining China's subnational variation in welfare expansion at the city-level.

3.5.3 Popular Contention

Piven and Cloward (1971) contend that popular protest and demonstration can lead to favourable welfare policy changes. However, Skocpol and Amenta (1986) doubt whether popular contention can result in a substantive gain in the absence of any democratic institutional channel. A single- party authoritarian regime can provide an ideal case to test whether popular contention leads to welfare expansion for two reasons. First, single-party regimes, which tend to be durable (Magaloni, 2008), allow greater participation by the population in policy formulation. As Geddes (1999: 135) argues,

single-party regimes survive in part because their institutional structures make it relatively easy for them to allow greater participation and popular influence on policy without giving up their dominant role in the political system.

Regime leaders have incentives to tolerate popular influence through protest to a degree because it can make leaders aware of the popular needs, which can be crucial to make credible power- sharing more effective (Hess and Martin, 2006; Wisler and Giugni, 1999).

55 The widely held argument is that the social consequences of economic policies, particularly consequences from SOE reform, often dictated China's associated social policy reforms (Hurst and O'Brien, 2002; Duckett, 2004).

Second, there is also an important link between authoritarian leaders’ need to maintain legitimacy and welfare expansion. Wong (2004: 15) articulates regarding South Korean and Taiwanese cases, “Efforts made towards social policy reform were always in response to a political crisis of legitimacy for the authoritarian regime.” 56 Even in Argentina’s military regime, Peron, soon after becoming the Minister of Labour, realized that the regime needed much popular support for legitimacy and cannot afford to continue the path of only heavy-handed oppression (Alexander, 1951). If repression comes at the cost of legitimacy, leaders have little choice but to react to the public demand even though the response can be piecemeal and fragmented. Post-Stalinist communist leaders prioritized stability through ‘carrots’ to ‘stick’ because repression was deemed costly (Cook 1993; Cook and Dimitrov, 2017). It could cut off the flow of information from the ground to the leaders, and people will complain only when a response is expected (Dimitrov, 2017). Gough also (2004: 18-19) articulates that welfare policy is often prioritized reactively rather than proactively. Therefore, we need to examine whether leaders expand welfare when the threat to stability is high from popular contention.

China’s single-party regime provides an ideal case to test the hypothesis. Despite precedents of violent suppression of protest in Tiananmen Square and the recent development of mass internments in Xinjiang, popular contention kept increasing, and mobilization in various forms, albeit cellular, kept spreading across the country (Cai, 2004, 2008; Ong, 2015; Elfstrom, 2019; Fu, 2017). In other words, China’s one-party regime, on the one hand, uses different methods of repression (Ong, 2018, Bernstein and Lü, 2003; Cai, 2006; Deng and O’Brien, 2013); on the other hand, it tolerates popular contention to a degree precisely because they are less about regime change and more about various types of demands for the public good (Chen, 2012; Bernstein and Lu, 2003; O’Brien and Li, 2006; Lee, 2007; Ong, 2019; Weiss, 2014). Further, popular protest is not always defensive and ineffective and saw success in bargaining for pension benefit in the past (Lorentzen, 2013; Cai, 2010; Lee, 2007; Perry, 2001; Hurst, 2004; Elfstrom and Kuruvilla, 2014). Cook and Dimitrov (2017: 17) emphasize,

56 KMT faced two challenges, one during the period of consolidating its authority during the 1950s and later in the 1970s in response to non-KMT candidates challenging the legitimacy of its rule on the island. In South Korea, the Park Chung-Hee regime faced a crisis during the unpopular Yushin Constitution in 1972. In both cases, the governments made overtures to welfare policy, albeit inadequate. They reformed the labour insurance law in 1979 in Taiwan and health insurance reform in 1976 in South Korea, which later failed (Wong, 2004: 57-60).

Major legislative change, such as the abolition of the agricultural tax in 2006, the promulgation of the Labour Contract Law in 207, and the expansion of the social safety net in the 2000s and 2010s can be directly traced to ctitizen grievances expressed through complaints and protests.

That is why a link between popular contention and concession made by the regime using welfare benefits remains to be tested comparatively.

However, we need to be cautious about not overestimating the bottom-up power of popular contention in pushing the Party-regime for welfare expansion. If we consider some major challenges that the Party encountered in the recent past, such as growing private entrepreneurs, middle class and online social network, it has been extremely adept at turning its weakness into its strength by adopting new means of co-optation, repression and surveillance (Dickson, 2003, 2008; Chen, 2013; King, Pan and Roberts, 2016; Wang and Minzner, 2015; Shambaugh, 2007). Although China has seen a growing number of strikes and protests in the last decade, they vastly remain uncoordinated, small and transitory though by no means passive. Caving into such small-scale contentious claim-making can only signal the Party's weakness and encourage other groups to make more demands.

Nonetheless, we need to be aware of two important reasons for making a concession. First, as Deng Xiaoping stated, stability maintenance ( 稳定压倒一切 wěndìng yādǎo yīqiè) at any cost is the single-most-important responsibility of Party-cadres in all ranks of government (Tanner, 1999; Xie, 2012; Yang, 2017). So, it is in the Party-cadre's interest to make a concession if that helps to maintain social stability when repression as an alternative measure is costly (Steinhardt, 2016). Second, welfare expansion in response to popular contention does not necessarily mean that the Party is addressing all the protesters' needs per se . Instead, welfare expansion can be divisive in nature. It can benefit specific groups more than others by creating division and preventing coalition because 'the haves' will have much to lose if they align with the 'have-nots.' 57 Therefore, we may see a relentless rise in popular protests in China, and it may remain a threat to social stability.

57 Class-coalition is crucial for popular contention to be successful. Protests and demands for welfare by the working class have been effective only when the middle class supported them (Baldwin 1990).

However, autocratic leaders could very well allow protest to a degree because they are confident of the tools available at their disposal. Welfare policy itself could be one of the tools because broad-based but fragmented and divisive welfare policies can prevent class-coalition between 'the haves' and 'have-nots' and weaken the effect of popular contention on regime's stability. Indeed, a social security expert and a policy adviser provide an example of how fragmentation ( 支离碎化 zhīlí suì huà) in China's welfare expansion can create tension among social groups. According to him, the slow process of merging the urban and rural resident health insurances underlines not only the competing interests of several bureaucracies and ministries but also a cause of inequality and social tension among public-private employees and people belonging to neither of them, which ultimately helps the regime maintain its overarching authority over a divided society (INTHZSE0629; INTHZPA0629). So, the assumption could be that a higher level of popular contention may give leaders incentives to spend more in welfare for social stability purposes and, consequently, lead to a higher level of welfare provision. To conclude, popular contention provides a useful theoretical lens to develop testable hypotheses explaining China's subnational variation in welfare expansion.

3.6 Segue to the Next Chapter

This chapter presented a critical review of the dominant welfare theories that examine the effect of economic development, globalization, mobilization of power resources and state on welfare expansion. I highlighted their shortcomings and potential use to develop a theoretical lens applicable in an authoritarian context. The critical review at the end helped us identify and build three theoretical lenses that I contend could be useful to build testable hypotheses in China’s subnational context of welfare expansion. These theoretical lenses are state capacity, policy legacies and popular contention. In the following chapter, I use these lenses to develop hypotheses to explain variation in local leaders’ short-term preferences for welfare expansion. The quantitative test results will then help us follow the next step, which is to explain the variation in the long-term welfare provision.

C hapter 4

S hort-Term W elfare P riorities of Local Leaders:

C ooptation & P ersonal G ain

4 . 1 Introduction

T his chapter examines local leaders' short-term political motivation behind welfare expansion. It explains a local leader, particularly a mayor’s importance in setting the local priorities of welfare expansion at the city level. It contends that micro-level focus on municipal leaders and their annual budget preferences for welfare spending is the first critical step to understanding the logic between welfare expansion and regime survival in the contex t of decentralization. T hen, it demonstrates that a significant empirical variation exists in local priorities of welfare expansion by identifying four distinct regimes of welfare policies: productive, aspiring productive, protective and mixed welfare policy regimes. T his chapter then addresses whether a mayor’s rational trade-offs between welfare policies as a tool of mass cooptation and economic achievements for personal gains explain the variation in local welfare priorities.

T his chapter demonstrates that both regime stability and personal promotional interests play a critical role in setting local welfare priorities for different social policies. L ocal priority in education spending is motivated by the trade-off between local leaders' personal promotional interests and human capital development for the local economy's productive purpose. B y contrast, local leaders' budget priorities in total welfare spending and social security are correlated with the local SOE sector's size. T he link between social security spending and the SOE sector's size can be explained by local leaders' incentives for mass-cooptation to maintain regime stability and demonstrates the legacies of two policy policies. F irst, the SOE sector's labour force has been increasing in most developed cities in response to policy effects from the D eng era's emphasis on the private economy. Strengthening the SOE sector and enlarging its labour force helps create a loyal support base for the Party-state in return for privileged access to welfare. T he aim is to establish the state sector with a commanding presence in an economy otherwise dominated by the private sector, which could pose a challenge to the Party-state's socialist agenda. Second, local

76 leaders maintain a large SOE sector in some cities in response to the Maoist era's policy legacies. A high level of social security spending helps renew the Maoist era social contract and maintain social stability. What's also important is that socialization of risk through standardization and expansion of risk-pooling of social insurances helps the Party-state address the financial burden of maintaining a large SOE sector for cooptation. In sum, local leaders' short-term interest in maintaining regime stability can be seen in their annual pattern of spending on welfare and social security.

The following sections first elaborate on the importance of local leaders, particularly the mayor's role in setting local welfare priorities. I further illustrate local leaders' competing motivations and options to trade-off in setting local welfare budgets. Then, I use cluster analysis to identify variation in welfare priorities by demonstrating four distinct welfare policy regimes at the local level. It is followed by building hypothesis and statistical analysis using panel data to explain the variation.

4.2 Importance of Local Leaders at the City level

Local leaders, particularly mayors, play a critical role in setting welfare priorities at the city level. Therefore, we need to examine mayors' policy preferences to explain variation in welfare priorities at the local level. In this section, I demonstrate a mayor's importance based on four criteria: 1) two- ways political pressure on local leaders to expand welfare services and benefits, 2) their ability to set policy details at the local level with an eye for promotion, 3) policy space which allows to local leaders in setting budget priorities and 4) past entrepreneurial precedents set by them in welfare policymaking.

First, the central government's policy orientation towards improving public welfare put immense pressure on local leaders. Leaders at the city level shoulder legal responsibility to formulate and fund welfare policies once the central government has approved a law or decree. Since the tax reform in 1994, local governments were made responsible for local welfare provision. On the education front, the Article 7 of the PRC Education law ( 长中以中中和中中中中中中 Zhōnghuá rénmín gònghéguó yìwù jiàoyù fǎ) made municipal governments at the lowest level of governance responsible for drafting and implementing policy measures for compulsory education measures.

Although it further entrusted the county-level governments for the day-to-day education provision (article 18), 58 the county-level budget ultimately relies on the municipal leader’s approval. The municipal government also operates the basic medical insurance.

There are, however, two channels of pressure on local leaders for welfare expansion. On the one hand, the Hu-Wen administration's policy reorientation towards social justice and equity over Deng's 'only economic growth' agenda demonstrates Party-wide pressure on the local level to address welfare needs. Subsequently, Xi Jinping's 13th five-year plan and 'the Chinese Dream' vision that aim to build a moderately prosperous China by 2020 by eliminating poverty further emboldened the need to improve welfare standard (South China Morning Post, 2015, October). These campaign-style agendas by top leaders impose top-down political pressures on local leaders. On the other hand, the local expectation on welfare provision puts a bottom-up pressure on the local leaders. One of the social security policy advisors of a municipal government articulated the arduous two-directional pressures on the local leaders,

There are also many channels [of pressure on the local government]. One is the law or regulations set by the central government [for ensuring public welfare]. Second is social pressures from citizens, presented by various means such as petitions, netizens grievances or opinions, various forms of consultation participated by policymakers, scholars and experts (INTHZPA0629).

Indeed, the spending pattern of local welfare since 2006 reflects the increasing importance of welfare commitment during the recent two administrations. Figures 4.2.1 illustrates that spending at the city level increased in three welfare policies since 2007. Much of it is a result of an increase in spending on education and social security. 59 The growth in welfare spending also coincides with

58 Although county governments are responsible to administer basic education, municipal governments are the lowest ranking government responsible for policy implementation and managing transferred fund in education according to Articles 7, 12, 18, 43 46 of the Compulsory Education Law of the People’s Republic of China, amended in 2006. (Ministry of Education, 2009) 59 Although the corresponding increase in social security in 2007 is important, the annual growth needs to be taken with some reservation. Because a close inspection suggests that the aggregate budget spending on social security from the year 2007 includes some welfare spending, which was posted separately from social security spending in the budget before 2007, two such categories include pension and social welfare relief ( 抚抚和维维抚抚抚海) and administrative retirement subsidy ( 行行行行行行行行行). These spendings were put together under the social safety

78 the central government's stimulus plan, worth 4 trillion yuan, in response to the 2008 Global Financial Crisis. Around 3.75 percent of the total stimulus spending, or 150 billion yuan, was earmarked for welfare programs such as education, healthcare and culture (Xiong, 2011).

Figure 4.2.1: Annual Budgetary Welfare Spending (114 Cities, 100 million Yuan)

Education Social Security Healthcare

Source: Annual budget spending (Year: 2006-2016) from various statistical yearbooks

Secondly, a city mayor is a key decision-maker who sets policy priorities and spending allocation at the local level with an eye for promotion to powerful posts. The municipal level is one step towards promoting powerful offices because the mayoral position is an important seat for catapulting one's career to a higher-up position either to the provincial or national-level offices in

net and employment effort ( 维维社社和社行社社). Unfortunately, I could not find consistent data on omitted categories for all cities before 2007 to combine them for demonstrating the real difference in growth in social security before and after 2006. Notwithstanding the anomaly, the spending pattern demonstrates that all three welfare policy areas saw substantial growth after 2006. However, the majority share of the expansion belongs to education policy with a new spike in the increase since 2009.

Beijing. For example, almost all mayors concurrently hold deputy party secretary positions in the city. Many of them are later promoted to the party secretary position of a city or vice governors and deputy party secretaries of a province (Landry, 2008; Zuo, 2015). Mayors also remain the key local leaders at the municipal level responsible for local governance, budget decision, and welfare provision, albeit under the guidance of the municipal party secretary responsible for carrying the Party leaders' mandate at the national level (Vortherms, 2019). Therefore, mayors' policy priorities are an important indicator for analyzing local welfare priorities.

Thirdly, the local governments at the city level enjoy a degree of policy space. They update the average local salary benchmark and minimum wage annually, which then determine the social security contribution rate and welfare assistance under the dibao program. This is precisely why there is a huge variation in social security and housing fund contribution from city to city in China. Some of the most recent policy changes also show the local government's responsibility at the city level regarding welfare policy implementation. The recent changes in the social security under the 'Notice on Promulgation of the Comprehensive Plan for the Reduction of Social Insurance Premium Rates' also allow the municipal governments to reduce and set new contribution rates for employees' pension. Even the article 16 of the recently promulgated 'Interim Regulations on Residence Permits' (Decree no.663 of the State Council) allows municipal governments in the mega and super-mega cities to establish point-system based settlement procedures to meet migrants' social and economic conditions.60 Local governments respond to these policy changes only when they are aligned with their local leaders' policy priorities, which is why it is important to examine a city mayor's policy priorities.

Finally, policy experimentation has been at the heart of many transformative changes in post-Mao China, be it for land reform, free compulsory education, social housing or social insurance initiatives. It is the local governments that have often been at the forefront of guerrilla-style policy experimentations and diffusion (Heilmann, 2008a, b; Heilmann and Perry, 2011; Teets and Hurst, 2014). Many pilot programs of the current welfare services and social insurances were first implemented at the city level. The first blueprint of the medical insurance experimented in

60 It was adopted by the 109th executive meeting of the State Council and introduced by the premier Li Keqiang in October 2015. The measure maintained the residence-permit system's decentralization and gave responsibility to the local government at the county level or above for policy implementation starting from January 2016.

Zhenjiang city in Jiangsu province and Jiujiang city in Jiangxi province in 1994 (Shi, 2012). The dibao was first set up and experimented in Shanghai in 1993 before expanding to six cities and gradually to 206 cities. The local leaders, particularly the mayors, play a critical role in initiating or sanctioning such important pilot projects.

However, there could be three lines of arguments against focusing exclusively on local mayors. First, one can argue that the district and county level leaders enjoy more discretion in implementing budget programs. Indeed, the bulk of the social policy expenditure responsibility is shouldered by the district and county level leaders, giving them a large degree of freedom in implementation (INTHZFR0628). During my fieldwork, some interviewees noted the importance of county leaders and party secretary compared to mayors for welfare policy implementation (INTHZSE0629; INTHZPA0629). That said, municipal leaders not only have influence over appointing the deputy head of a county (INTHZFR0628; INTHZBO0623-1, 2, 3, 4), they also have influence over budget allocation for the districts and counties under them. Particularly mayors have wide latitude in operational and program budgets. One of the budget officials at a large county under Hangzhou stated that special or earmarked funds, which are most often part of poverty alleviation or welfare subsidy, are routinely transferred to cover a shortfall in salary or pension payment. The funds are not yet subject to local People's Congress approval and often depend on the municipal leaders' discretion and their relation to upper-level leaders (INTHZBC0609; INTHZPC0609; INTCDWE0617).61 Despite recent budgeting reform initiatives, limitations and problems of lack of supervision still exist (Ma and Hou, 2009: Ma, 2009).62 It is perhaps unsurprising that mayors have a weak interest in making the budget more transparent and accountable (Ma, 2009: S71).

61 However, the official points out that there has been some level of streamlining of budget expenses since the beginning of the treasury account. 62 Of course, the local People's Congress approves the budget. But I gathered from several interviews that the budget- making process itself is not well understood by many actors involved in the process. Many policy implementation decisions and related budget allocation are adjusted later by experts, instead of the lawmakers in the local People's Congress (INTCCBX0518 & INTCHBE0615). The budget expert who also sat in the provincial budget audit committee states that while the budget is approved in March in the congress, the assessment process is done later in April. Simultaneously, there is a bottom-up process of numbers percolating vertically upwards that illustrates the local level's demands. Every government level adds its numbers and delivers it to the top. Later, the province finalizes it according to its imperatives, gets the budget approved and even after then, a process of deliberation, the assessment takes place, opinions are sought. But how much of it is taken seriously, by whom and when is subject to case-specific condition. Oftentimes, experts are sought budgets are made at the bottom-local level by people who don't have much technical understanding and knowledge to make wise decisions and consider a comprehensive outlook and technicality of a policy. So, experts' advice is sought later to change and adjust those numbers. (INTCCBX0518).

Additionally, one can argue that decision on budget spending ultimately depends on the local legislature's approval. However, Mayors can exercise influence because there are discrepancies between the level of the budget approved by the legislature and the actual amount being spent due to mismatch between fiscal and budgetary year. The fiscal year runs from January 1 to December 31, while the budget year runs from mid-year to mid-year (Ma and Yu, 2012). Thus, when the legislature approves a program, it takes time to get the finance department's approval for budget allocation, leaving insufficient time to implement the program by the end of the year. On the one hand, it leaves the program budget underspent, particularly on policies to improve quality of life (May & Yu, 2012:93). For example, only 44.9% of the allocated budget for healthcare was spent in 2007. On the other hand, the spending of a surplus budget is often left at the local leaders' discretion. They have leeway to start new policies during the budget execution period. Particularly, new mayors often start new programs aiming to improve welfare and quality of life at the beginning of their term to distinguish themselves from former mayor and gain popularity. "But they give more importance to any project specially directed by the central or provincial government and then in addition to that, they try to differentiate their leadership with some new campaign" (INTHZBC0609).63 This is also the case for over-collected revenues, which gets little supervision and is often spent on ad hoc basis by local leaders and only approved by the local legislature ex- ante. So, although the finance department manages the budget and the local Congress approves it, they lack control over the policy implementation process and the relevant expenditure decisions. In other words, municipal leaders, particularly the mayors, play critical roles in local budget allocation and implementation.

Finally, one argument can be that the Party leaders ultimately constrain a mayor's decision. The Leninist-party system developed an effective system of controlling local leaders to serve the Party's core political interest while allowing high decentralized governance (Edin, 2003; Minzner, 2009; Whiting, 2004, 2006; Tsui and Wang, 2004; O'Brien and Li, 1999). The system based on performance evaluation created an incentive structure that can drive local leaders' policy decisions and budget priorities. As mentioned earlier, although a mayor is in charge of governance, he does

63 Such local-level policy initiatives often encompass the national policy directives or campaign set by the Party leaders in Beijing. Such initiatives could also be original and experimental based on local context and under the local party leaders' discrete approval.

82 so under the general guidance of the appointed party secretary. But research also shows that a mayor is more influential than the party secretary in budget decisions and government operations, whereas the party secretary ensures that the local government follows the Party's mandates (Zuo, 2015; Dickson et al., 2016; Vortherms, 2019).

In sum, the local leaders, particularly the mayors at the city level, play a critical role in setting welfare priorities at the local level. They are obliged to respond to local welfare needs. They have political incentives in responding to policy problems, given their promotional prospects. They are responsible for setting policy details and budget allocation. And they set precedents for initiating welfare policy experiments. Therefore, it is important to look at a mayor's political motivations to understand the variation in welfare policy preferences at the city level.

4.3 Competing Motivations, Trade-offs & Welfare Priorities

Despite incentives in welfare expansion, all local leaders also grapple with competing priorities between economy and welfare. Hu and Wen administration's policy focus demonstrates a dramatic shift towards greater welfare spending after more than a decade of retrenchment. The current administration under Xi Jinping also demonstrates the regime's focus on poverty alleviation and emphasis on expanding social security coverage. However, changes in welfare-policy rhetoric and campaigns coincide with continuity in the government's ultimate priority in economic growth over welfare expansion. The counter-cyclical spending during and after the 2008 financial crisis suggests that non-welfare spending received a further boost as part of the nation-wide government stimulus. Fig 4.3.1 illustrates that non-welfare spending remains the bulk of the local government's budget priority.64 Although welfare spending increased concurrently with the 2008 stimulus spending, downward economic growth, and inadequate market reform have created financial strain for the local government to maintain welfare expansion commitments. This resulted in sluggish

64 Due to a lack of disaggregated data at the city level, I use the combined expenditure on education, healthcare and social security as total welfare spending. The rest of the expenditure is defined as non-welfare spending. Rudra (2009) also uses the total spending in education, healthcare and social security as 'total social budget allocation.' Also, the focus on education, healthcare and social security is a standard approach used by Kauman and Seura-Ubiergo (2001); Segura-Ubiergo (2007), Rudra (2009).

83 reform in healthcare and social security (Ho, 2010). In fact, the central government made a repetitive attempt to cut down economic costs by reducing the social security burden from employers' shoulders (Xin, 2016, April). As recent as March 2019, the government postponed the starting date of the collection of employment insurance fees and reduced premiums paid by enterprises to lessen the economic burden under declining economic growth.65

Figure 3.5.3.1:

Annual Budgetary Spending 0 (114 Cities, 100 million Yuan)

Non Welfare Spending Welfare Spending

Source: Annual budget spending (Year: 2006

84 administration, GDP performance became a key benchmark for evaluating local leaders (Landry, 2008). The performance evaluation system or the TRS (Target Responsibility System or gǎngwèi zérènzì 岗位责任制 ) has been systematically biased towards prioritizing economic objectives over welfare targets (Edin, 2003a, b; Minzner, 2009; Landry, 2008; Whiting, 2004, 2006; O'Brien and Li, 1999). 66 A key factor driving a local leader's promotion is their achievements in economic output and development projects, emphasized by the Party leaders at the centre (Guo 2009; Whiting 2006). As a result, local officials are likely to spend on big infrastructure and development projects, which can quickly produce a tangible outcome (Guo, 2009). Indeed, exploring the challenges embedded in central-local relations, albeit at the sub-county level, Fewsmith (2011) goes as far as to contend that local leaders are only responsible to higher authorities and are unaccountable to local people they govern.

At the same time, local leaders are hard-pressed to meet local welfare demands. Popular contention for welfare issues, both in the form of 'protest of desperation' as in the North rustbelt and 'protest against discrimination' as in the South sunbelt, targets the local government and creates a legitimacy crisis for local leaders and the Party-regime as a whole (Lee, 2007). That's why the central government also burdens the local leaders to address local welfare needs to maintain social stability. Zuo (2015) underlines, some recent changes to the TRS after 2006 demonstrate the increased importance of local welfare targets for local leaders' promotion. These targets are categorized as 'people's livelihood' ( 民生指标 mínshēng zhǐbiāo ) (INTHZSE0629). Thus, meeting local welfare needs or competition to achieve welfare targets ( 福利竞赛 fúlì jìngsài ) have also become part of local leaders' performance evaluation system. These targets, however, are not uniform in every locality and are not made public (INTHZPA0629). During my fieldwork, several interviewees also mentioned increasing the burden of meeting welfare objectives that could very well conflict with local economic interests (INTCDWE0617; INTCCBO0514). So, the true scope and weight of the welfare objectives in performance evaluation across the country remain a mooted point, if not opaque.

66 Among the three major criteria, the 'hard targets' (yingzhibiao 硬硬硬 ) –the necessary but not sufficient requirements– always gave more weight to the economic indicators. In contrast, the soft targets (yiban zhibiao 一一硬硬) included social welfare targets (Michelson, 2012).

Nevertheless, the conflict between economic targets and welfare priorities put the local leader's personal interest at stake. On the one hand, increasing fiscal commitment to local welfare needs can benefit a mayor because it can indirectly help 'buy' popular support and stave off unrest – critical for the Party-regime survival. Indeed, stability maintenance ( 维稳 wéiwěn) is a 'priority target with veto power' ( 一票否决 yī piào fǒujué), which means failure to achieve it will render success in other targets futile. On the other hand, welfare spending produces long-term gains, and the outcomes are not obvious in the short-term. Welfare outcomes such as improvement in literacy rate, infant mortality rate and life expectancy are intangible. A mayor could be transferred by the time his or her decision on welfare spending bears fruit. So, mayors are now challenged to balance their personal interest in ensuring the promotion and committing to popular welfare needs. Local leaders are often risk-averse and are likely to stick to the broader policy targets of the central and provincial governments (INTCCBX0518; INTCDWE0617; INTCDNP0615). So, it is not entirely clear how they set their welfare priorities.

In sum, the developments of change and continuity in welfare expansion demonstrate a continuous calculus by the Party leaders to make trade-offs between public welfare needs and economic development. On the one hand, the central and provincial government imposes top-down policy priority of reducing regional welfare disparity with redistribution and equalization effort for the regime's survival interest. On the other hand, local leaders are tasked to implement those policy targets but at the same time, have to make rational decisions for individual interest in promotion as well as in the survival of the very regime they depend on. Given these competing interests and the trade-off between welfare expansion and economic growth, it is imperative to examine what motivates local leaders to prioritize welfare policies to understand how welfare policies are expanded at the local level.

4.4 Short-term Welfare Preferences of Local Leaders

This section identifies the first dependent variable, which is the local leaders’ short-term welfare policy preference. I use annual public spending as a proxy to measure policy preferences. In the following subsections, I provide the rationale for choosing public spending as a proxy for welfare

86 policy preference. Then I identify variation in local leaders’ short-term preferences for welfare policies using cluster analysis.

4.4.1 Publics Spending as a Proxy for Policy Preferences: Limitations & Advantages

The objective is to identify a proxy that can effectively measure local governments' welfare priorities. A starting point can be identifying specific welfare policy initiatives and implementation. However, there are some pitfalls in relying only on this approach. First, the lifecycle of policy in China can be very dynamic. National leaders under China's one-party regime set policy goals that trigger top-down political implications. Simultaneously, the highly decentralized nature of policy experimentation in China also has a bottom-up uptake for policy initiatives and feedback, resulting in nationwide adoption. Local leaders, however, are regularly transferred to different regions, and not all policy initiatives experience successful adoption, which makes it difficult to track down a local leader's preferences based on the policy they worked on. Second, the prevalent informal governance often allows local leaders to comply with national policies in the paper but not in practice, which creates local variation (Edin, 2003a, b; O'Brien and Li, 1999). A relevant popular proverb is " 上有政策下有对此对策 " ( shàng yǒu zhèngcè, xià yǒu duìcè ), which roughly means that there are local countermeasures to national policies which are not compatible with local needs. For example, employers are required to enlist workers and co- pay for urban employee health insurance. Nevertheless, local companies often circumvent the obligation by encouraging workers to withdraw from insurance, and they are not held accountable for their actions because they collude with local leaders (Ye and Keng, 2015; INTHZSE0629; INTHZPA0629).67 Such informal approval by local leaders demonstrates that policies and rules can remain only on papers if it does not benefit local interests. Finally, policy changes occur frequently in China. Substantial regional variation exists in policy implementation in terms of timing. Also, reliable and comparable data is difficult to attain. As a result, relying on policy

67 Employers' contribution to social insurance in China is high (around 32.9%), and many workers migrate to cities for work and face high living cost opt-out from paying insurance fees. Employers also prefer hiring temporary workers, underreport wage payments, or making an informal arrangement to avoid paying for employees' insurance. As low as 27 percent of companies could comply with insurance payment (Caixin Global, 2018, November).

87 measures to analyze sub-national welfare priorities could give misleading results as they have a high degree of variation in their implementation.

A second alternative approach is to examine budget spending at the city level because municipal mayors have considerable political prerogative for setting policy priorities meeting local conditions. There are, however, two challenges using welfare spending data. First, Esping- Anderson's famous dictum that "expenditures are epiphenomenal to the theoretical substance of the welfare state" illustrates a glaring limitation of using budget data to operationalize welfare (1990:19-20). Allocated fiscal resources could be ineffective in producing outcomes and misused or redirected for other purposes. Moreover, there are several other ways to address welfare needs beyond spending, such as tax breaks, public employment, policy initiatives, etc. Therefore, spending data can provide a narrow perspective of the actual reality.

Nevertheless, there are specific advantages of the second approach without discarding associated limitations. Conceptually, the level of public spending is a major indicator for a government's policy priorities and commitments (Kaufman and Rudra, 2005; Rudra, 2005); after all, leaders allocate more resources to policy targets that they deem essential for their political survival. 68 Also, budget data are cross-nationally and sub-nationally comparable, which helps develop a comparative perspective on welfare priorities (Haggard and Kaufamnn, 2004; Segura-Ubiergo, 2009; Rudra, 2008; Wibbel et al., 2011). Therefore, spending data is a pragmatic alternative for examining subnational variation in policy preferences. Additionally, annual budget spending is a good proxy for short-term policy preferences because the turnover of local leaders at the city level, such as mayors, in China, is quite high, and year-to-year budget priorities provide good insight to a leader's priority set with a short-term horizon. I use the data from 2007 to 2016 because the social policy has been more consistently included in performance evaluation criteria for local leaders since 2006 in response to Hu-Wen's turn to sustainable and harmonious development (Zuo, 2015).

68 Welfare spending as a share of total expenditure instead of the GMP is used because it measures the local government's commitment better than the latter. The GMP share demonstrates the total share of resources available for welfare policies. However, as Rudra (2009) points out, South Korea and Singapore will belong to a group of countries such as Mali, Malawi and Liberia if we consider the welfare spending as the share of GMP even though the welfare provided is qualitatively different from that in the countries in the latter group. Further, although I am using only the share of total expenditure, I have also added a variable in Chapter 1 to include its effect in developing an index on local welfare provision.

4.4.2 Variation in Local Preferences: Four Distinct Welfare Policy Regimes

I employ annual spending data in cluster analysis to identify distinct subgroups of local welfare policy regimes. Cluster analysis is one of the most popular quantitative measures to create typology. It has its origin in anthropology and psychology studies but now is widely used in natural science and social science. It is a beneficial tool in multi-method analysis in political science (Seawright and Koivu, 2018). I use cluster analysis to classify cities into relatively homogenous groups. Each classified group is differentiated based on their distance from each other, whereas observations within a group are similar. There are two types of clustering techniques. The non- hierarchical one is not applied here because we do not know the number of clusters in advance. Instead, like Rudra (2008) and Ratigan (2017), I use the ‘tree clustering’ hierarchical method. 69 At its rudimentary level, if there are N observations, then this method considers each observation as a separate group (N number of groups) and then the agglomerative algorithm starts combining observations into homogeneous groups, increasingly combining units into a smaller number of groups and keeps repeating the process until all observations belong to one single group. The result is a hierarchical cluster. The process relies on creating a distance matrix among observations. There are, however, different types of computation methods for creating a distance matrix. I use the most common method is the Euclidean distance. This approach is also resistant to outliers.

Clustering also requires a linkage-method that help calculate the distance between clusters. Several linkage methods exist, such as Ward’s method, single linkage, complete linkage and average linkage. I use Ward’s method, which calculates the distance between clusters based on variance (see Fig 4.4.2.1and the ‘average linkage’ method for checking robustness (Ward, 1963) (see Fig 4.4.2.2). 70 Like Ratigan (2017), I do not follow any particular stopping rule method. Instead, I choose the common largest distance among the clusters based on the best possible judgement to capture key meaningful distinctions among clusters. The cluster analysis uses two variables,

69 Other scholars, such as Oli Kangas (1994), also used cluster analysis to create and test welfare typologies. 70 Ward is widely considered better and efficient among other linkage methods, and the average linkage method is chosen for robustness checks because of the shortcomings of simple and complete linkages.

88 9899 9 budget share of annual spending in education and social security subsidy. They are the two most significant indicators differentiating productive and socialist interest of welfare development.

Spending in healthcare variable is used only to dem onstrate how they vary in corresponding welfare regimes.

Figure 4.4.2.1: Cluster Result (Ward’s Method)

Figure 4.4.2.2: Cluster Result (Average Linkage Meth od )

Height = Distance between clusters

The two cluster results (Fig 4.4.2.1 & Fig 4.4.2.1) illustrate identical results except for eight ambiguous cases, namely Guigang, Harbin, Jieyang, Jingzhou, Maoming, Shenzhen, Taiyuan and Xiangyang (See 4.4.2.1). If we discard the ambiguous cases, then we end up with four different clusters of cities. Fig 4.4.2.3 and 4.4.2.4 provide corresponding cluster's spending patterns in proportion of budget share and per capita spending, respectively. The first important distinction that jumps out is that only one cluster (C4) spends more on social security than education and healthcare as a proportion of budget share and per capita. By contrast, the rest of the clusters spend more on education in budget proportion and per capita spending. I prefer the C4 cluster as a protective regime because a high level of social security spending aims to protect its population from the market's negative externalities. 71

The second important distinction is that the C1 cluster spends most in education as a proportion of their budget among all the clusters spending most on education. However, their per capita share of education spending turns out to be very low. This is telling because it demonstrates that the local governments in this group of cities attach high importance to education despite their lack of fiscal capacity, which imply that they are trying hard to develop productive labour capital by investing in education and want to break away from the constraints of a poor economy in the long run. I refer to this cluster of cities as an 'aspiring productive' welfare regime.

The third important distinction is that cluster C2 spends relatively low on education and the lowest in social security and healthcare as a proportion of budget (Fig 4.4.2.3). However, the corresponding per capita spending suggests that this cluster spends most in education (Fig 4.4.2.4). It is critical to understand this distinction between budget share and per capita spending. It does not mean that the local government in these cities attaches low importance to education because they spend a meagre share of the education budget. The municipal government in these clusters can afford to commit less in budget share because marginal per capita gain is higher. In other words, low earmarked spending in terms of budget share turns out to be very high in the per capita dimension. Thus, their spending pattern suggests that these cities are the actual 'productive welfare

71 Ratigan (2017) defines it as a 'social autocratic regime,' which is the authoritarian counterpart for a protective regime. Perhaps her term is more apt, but it does not jump out with conceptual clarity at first glance for any readers. So, I stick to the term 'protective regime.'

91 regime' because of their disproportionately high level of per capita spending in education, i.e. a high level of priority given to education.

Figure 4.4.2.3: Budget Share of Welfare Spending

Education Social Security Healthcare

Figure 4.4.2.4: Welfare Spending (Per Capita, RMB)

Education Social Security Healthcare 5

Finally, the remaining cluster C 3 illustrates a not-so-binary distinction. T heir budget share commitment in education is moderate, and per capita, corresponding spending is quite low. T here is, however, one important distinction. T heir social security spending is relatively higher than C 1 and C 2 clusters but lower than C 4. T he C 3 cluster’s social security spending is around 74 percent of their education spending in budget share and per capita dimensions. B y contrast, social security spending consists of around 45 percent of education spending in C 1 and around 58 percent of education spending in C 2, both in budget share and per capita dimensions. T herefore, cities in the

C 3 cluster appear to be mixed in their commitment to welfare policy. I refer to these cities as a

‘mixed welfare regime.’

F igure 4.4.2.5: Distribution of W elfare Policy R egimes (C ity L evel)

Source: Data collected from China City Statistical Y earbooks (Publication Y ears: 2008-2017), China Regional Statistical Y earbooks (Publication Y ears: 2008-2014), Individual city statistical yearbooks (Publication Y ears: 2008- 2017).

Figure 4.4.2.5 illustrates the distribution of four subnational welfare policy regimes at the city level map. The map demonstrates a high level of spatial variation across China. The most striking result is that the provincial level development can barely explain the geographic distribution of four welfare policy regimes. While productive welfare cities are concentrated in the coastal region, they are also situated in the central and western regions. Further, these productive regimes in the interior are mostly the provincial capitals, which further confirms that provincial-level analysis overlooks important intra-province variations. Similarly, although it is expected that some northeastern cities like Shenyang, Dalian, Harbin, and Changchun are protective regimes, several cities in the central poorer region, including Baotou in Inner Mongolia, also spend in social security subsidy more than education and healthcare.

What explains the variation in the subnational welfare regime? Why do cities choose to develop a distinct set of welfare priorities? Since mayors are key decision-makers in budget allocation and policy initiatives at the city level, can their personal motivation explain local welfare priority? If yes, how can we understand the individual rational interest in the context of the Party-regime’s top-down interest in welfare expansion for survival? If not, what other factors affect local priorities in welfare policy? In the following sections, I first develop hypotheses to address these questions.

4.5 Operationalizing Concept & Building Hypotheses

Chapter 3 identified three theoretical lenses that we can use to develop testable hypotheses in China's case. These theoretical lenses are based on state capacity, policy legacies and popular contention. In this section, I operationalize the independent variables for each lens and then present hypotheses that could be tested to explain variation among local leaders' welfare priorities.

The first theoretical lens is state capacity. As mentioned in chapter 3, I use the fiscal capacity to define state capacity. According to the theory, high fiscal capacity in the context of finite resources means that local leaders have more financial resources to invest in welfare policies without needing to compromise investment in non-welfare policies, which could be critical for their career promotion. On the contrary, weak fiscal capacity limits resources for high welfare commitment and reduces welfare commitment. Fiscal constraint heightens the trade-off between public welfare and personal gain because it compromises the chance of a leader's promotion if limited resources

94 are transferred from local economic projects to welfare commitments. Therefore, the assumption is that high fiscal state capacity should be positively correlated with high budget spending in total welfare policies.

There are, however, some caveats to using the fiscal capacity to define state capacity. High fiscal capacity does not tell us the effectiveness of state bureaucracies in policy implementation at an agency level. Policy implementation can be weak due to bureaucratic politics or corruption despite the presence of high fiscal capacity. That said, bureaucratic politics and corruption are very difficult to measure at the subnational level and even more difficult to measure for a hundred plus cities across China. Another shortcoming is that states may extract revenue at a lower level than they are infrastructurally capable of due to political considerations. I argue that this point rather supports, not undermine, the reason why fiscal capacity should be considered as a proxy for state capacity because political considerations to lower revenue are constraints that bind local leaders and condition local state's ability to act, be it for welfare provision or other purposes. Therefore, I contend that local fiscal capacity provides the best possible perspective of local state capacity.

However, measuring fiscal capacity in China's city-level is impossible because complete data on tax revenue below the provincial level is publicly unavailable after 2008. A portion of the local tax is shared with the central government, who, in return, redistribute and transfer an amount to all local governments based on their revenue needs. The annual data of the amount of tax transfer and subsidies are neither reflected in the general budgetary revenue nor publicly disclosed after 2008. To circumvent data unavailability, I use general budgetary revenue as a proxy. It comprises partial tax revenue and non-tax revenue. It also includes social insurance funds managed by cities, directly linked to their ability to expand social security spending. Therefore, I use general budgetary revenue as a proxy for extractive fiscal capacity for pragmatic purposes. I will use fiscal revenue and general budgetary revenue interchangeably.

Based on the logic behind state capacity, I assume that local leaders will be motivated to spend more on welfare in the short-term in cities with a high local fiscal revenue level. The hypothesis is,

H1: Cities that experience an annual increase in local fiscal revenue will display an annual increase in welfare spending.

The second theoretical lens is policy legacies. However, it is not an easy task to measure policy legacies. Scholars examine policy legacies using various methods. For example, according to Cook (2007), the strength of statist stakeholders or interest groups such as socialist political parties and unions was a key factor in understanding the effect of policy legacies. In the post-Communist regimes where people already developed ‘popular expectation’ for or 'popular attachment' to the welfare state, the statist stakeholders and interest groups pressed the state to maintain 'pre-existing [welfare] commitments.' Pribble (2013), by contrast, uses 'the scope of coverage' in the past to measure policy legacies in Uruguay's expansionary pension reform. The larger the scope of welfare coverage in the past, the stronger the pressure to maintain the future status quo.

In China's case, as mentioned in chapter 3, I measure policy legacies by the local SOE sector's size. The Maoist era social contract created 'popular attachment' to the welfare state where people's welfare was tied to their respective working units in the SOEs. While the ‘90s SOE restructuring led to sharp decline in the local SOE sector’s labour force, the statist stakeholder nevertheless became stronger for two reasons. On the one hand, failure to reduce local economy’s reliance on the state sector in the regions with historical concentration of large SOEs consolidated the statist stakeholders’ power for social stability. The SOE sector in this region remains predominantly a source of employment, economic growth and the embodiment of the Maoist era’s social contract, meeting the ‘popular expectation’ for state’s role in ensuring welfare. For the local leaders, the SOE sector is also a critical source of tax and non-tax revenues to shoulder welfare expenses and there are precedents where local leaders even defy central pressure to downsize local SOEs (Lin and Chen, 2015). Therefore, the high number or the further expansion of SOE sector’s size in regions like the Northeast or the Central China would reflect the legacies of Maoist era social contract.

On the other hand, threats to the Party’s socialist agenda as a result of the growing importance of private economy in the heartlands of China’s private sector also motivated Party leaders to strengthen and expand the SOE sector for its commanding presence in the domestic economy. The expansion of the SOE sector in the hotspots of China’s private economy would reflect the Party- state’s effort to reclaim its commanding presence and safeguard and advance its socialist agenda in response to Deng’s past policy of prioritizing capitalist market. In other words, local leaders would be motivated to expand local SOE sector for regime stability because it would establish a

‘market social contract’ where the employees would provide regime support in return for welfare benefits.

Based on the argument of policy legacies, I assume that cities with an increasing number of local SOE employees will display an increasing level of welfare commitment by local leaders. The hypothesis is,

H2: Cities that experience an annual increase in local SOE employee numbers will increase annual welfare spending.

The third theoretical lens is popular contention. As mentioned in chapter 3, I take a conservative approach and define popular contention by collective actions such as mass protests and demonstrations. In the late nineties, popular discontent from uneven economic development and lack of welfare provision pressed the central Party leaders to change their policy orientation and expand welfare provision. Popular contention, however, did not dissipate in the aftermath of the welfare initiatives since the early 2000s. In this context, given the local Party leaders are hard- pressed to maintain social stability, they can use welfare spending as a concessionary tool in response to local popular contention. In other words, they can spend more on welfare policies in response to more protests as a means of quelling popular contention by 'buying' their loyalty.

Accurate data on popular contention in terms of 'mass unrest' or 'collective incidents' ( 集体事件 jítǐ shìjiàn ) in China is unavailable. Some scholars have developed databases on mass unrest using various methods (Cai, 2008; Wallace, 2014; Hou et al., 2016; Ong, 2016; Elfstrom, 2019). In the absence of accurate and complete data, these databases present the best alternative and credible source of information on popular contention. I use mass unrest data developed by Elfstrom and the China Labour Bulletin because their data can be disaggregated by the city level. The two databases combined to cover the period of 2007 to 2016. I use only the verified incidents from the strike map developed by Elfstrom (2019) (covering the period from 2007 to 2012) and the Labour Bulletin data (from 2011-2016) in the selected 114 cities. 72 Elfstrom (2019) confirms that both data sets can be combined because the overlapping years contain the same records of mass unrest incidents.

72 Elfstrom's data covers from 2003 to 2012. The overlapping years of the two databases show very similar data. I took the higher value in small cases where the data did not match.

H3: Cities that experience an annual increase in the number of mass incidents will display an annual increase in welfare spending.

4.6 Statistical Analysis: Methods, Data & Results

This section uses a time-series analysis on a panel dataset to test what motivates local welfare priorities while controlling other factors. The data covers 114 cities and eleven years of the period from 2006 to 2016. I use a set of non-linear models with panel-corrected standard errors (Beck and Katz, 1995). Each dependent, independent and control variables, except the tenure years, are differenced, because the analysis is based on the assumption that the short-term priorities can be changed quickly (Vortherms, 2019:101). I also include AR(1) correction for standard error to avoid potential bias from a lagged effect on dependent variable. I use a fixed effect model based on the results from Hausman test and to avoid concerns that a random effects model may create greater bias (Wooldridge, 2002). Each model also includes municipal fixed effects. I first describe the dependent, independent and control variables followed by the statistical results in the following subsections.

4.6.1 Dependent Variables

The dependent variable is local welfare spending. I use the annual expenditure ( 一一一一社社 yībān yùsuàn zhīchū ) on welfare policies both in per capita 73 as well as budget share dimensions. Some can argue that per capita expenditure reflects the wealth effect. However, it should not be a problem given I use log per capita Gross Municipal Product (GMP) as a control variable. Additionally, the per capita expenditure can provide a crucial insight because a local leader can spend less on a policy, not because of lack of welfare commitment but because the marginal increase in per capita dimension for a small increase in budget share dimension is high. As I have shown earlier in chapter 1, productive regimes have a very low budget share of education spending

73 The wealth effect on per capita budget expenditure on welfare policies is controlled because I use log per capita Gross Municipal Product (GMP) as a control variable.

98 because the marginal increase in budget share spending leads to a much higher marginal increase in per capita spending. Therefore, leaders may assign low budget share spending on a particular policy, knowing its per capita spending will be very high. In that case, focusing only on the budget share dimension can give us a misleading picture of a local leader's policy priority.

The dependent variables cover the period of 2006 to 2016. I first test the hypotheses using the combined share of education, healthcare and social security spending, termed 'total welfare spending.' I also test the hypotheses using welfare spending disaggregated into education, social security and healthcare spending. Tables 4.6.1.1 and 4.6.1.2 present a summary of the dependent variables on three welfare policies' spending and total welfare spending. The data represents year- by-year changes for 114 cities. It shows a significant gulf between the lowest level and the high level of spending both in budget share and per capita dimensions. In terms of per capita spending; social security has annual spending higher than education and healthcare (Table 4.6.1.1). The highest annual spending commensurate to 6511 RMB, 6819 RMB and 2919 RMB in education, social security and healthcare, respectively. However, education policy has the highest level of spending, followed by social security and healthcare in budget share (Table 4.6.1.2). The highest annual spending level corresponds to 36 percent, 24 percent and 23 percent of the budget share in education, social security, and healthcare, respectively. It also shows that the highest annual total welfare spending level can be up to 60 percent of the budget share. The standard deviation is relatively quite high in the per capita dimension compared to that in the budget share dimension. In sum, it illustrates a broader variation in per capita welfare spending compared to the budget share of welfare spending.

Table 4.6.1.1: Summary of Dependent Variables (Per Capita Expenditure)

Education

Std. Dev. 823.41 605.22

100 the lowest share corresponds to 1.79 percent. The standard deviation is 3.23 RMB per capita. The number of SOE employees weighted to local population has the lowest number 0.16, highest number 39.23 and the standard deviation 3.78. The largest number of mass incidents is 111, while the lowest corresponds to cities with zero unrest. The standard deviation is 8.82.

Table 4.6.2.1: Summary of Independent Variables

101 the budget cycle is motivated by the incentive structure set in the Party's nomenklatura system of cadre management. Guo (2009) reveals a budget cycle in China's county-level, where local leaders maximize spending when the prospect for promotion is high. Dickson et al. (2016) 75 and Vortherms (2019) examine China's city level's budget cycle. Vortherms demonstrates a strong 'U' shaped budget cycle for spending total welfare and education policy from 2007 to 2012. According to her, mayors spend more on welfare, particularly in education, when they are least likely to get promoted at the beginning and the end of their term. Their spending in non-welfare items increases in the middle of their tenure, which maximizes their promotion chances. These works suggest that the mayor's spending priorities on welfare policy need to be tested within the framework of a budget cycle where leaders have the option of strategic spending. Testing the hypotheses within the framework of a budget cycle can help isolate each explanatory factor's effect on welfare policy spending, i.e. welfare policy priorities.

Each mayor's year of tenure was identified and tabulated based on publicly available online data from Baidu Baike ( 百度百科 ). I also cross-check the result with Fudan's WTF Social Science lab database of 2003-2012 for the overlapping years.76 When a mayor starts his or her office, then the corresponding year has a value of '1'. The following year's value is '2,' and the value subsequently increases until the end of their office. If a mayor's tenure term ends before the end of June, then the year was categorized as the succeeding mayor's first tenure year. Fig 4.6.3.1 shows that the mean tenure year is 2.7, and the longest record of tenure term is 12 years. Less than 10 percent of the mayors' office extends beyond year four.

conservative can also punish leaders for inefficiency, overspending and budget deficit (Brender and Drazen, 2005, 2008). Nonetheless, because of information asymmetry between voters and policy preference of a running candidate, incumbent leaders can use budget resources as a ‘signal’ of their policy priorities for the voters right before an election (Rogoff, 1990; Drazen and Eslava, 2010). The pioneering works by Bunce (1976, 1980) demonstrates that authoritarian leaders can also prioritize policy and budget spending strategically for political survival. In competitive authoritarian cases too, Pepinsky (2007) demonstrates budget cycle by studying three decades of fiscal expenditure of Malaysia and shows that leaders spend more right before an election. 75 Dickson et al. (2015) test the budget cycle in 49 cities covering 2007. They find that mayors are likely to spend more in healthcare and education towards the end of their term and not initially. They, however, argue that mayors' promotional motive has little effect on welfare spending. They find the level of economic prosperity, fiscal transfer and subsidy, and state capacity as the strongest explanator of local welfare spending. 76 This database was developed by professor Chen Shuo of the Department of Economics at Fudan University.

102

Figure 4.6.3.1: Mayors’ Tenure Year (1st Control Variable)

An important control variable for analyzing welfare spending, in general, is the dependency ratio, which is the share of population below the age of 15 and above the age of 65, to isolate the effect of structural needs. Unfortunately, comparable data on different age cohorts is not available for all cities for my study's chosen years. An estimation can be imputed based on China's two city-level census data, birth cohort and national child mortality rate as done by Vortherms (2019). Although this method is useful, I choose to use an alternative proxy for the age below 15. Given China has nine-year compulsory free education, the population share of primary students is a good proxy for structural needs specific to education spending and healthcare. Table 4.6.3.1 shows the number of primary students ranges from high 15.34 to low 1.67 with a standard deviation of 2.09.

I also use the log of per capita gross municipal product (GMP or 全全地海全全) to control the effect of the level of prosperity on local leaders' welfare priority. The assumption, according to Wagner's law, is that the size of government increases to meet the increasing demand for public welfare along with the increasing level of prosperity, measured here by log per capita GMP. Table 6.3.1 shows that the log value of the level of prosperity ranges from -0.06 to 3.13, with a standard variation of 0.85.

The third control variable controls the effect of urbanization as the assumption is that mayors are likely to increase spending as urbanization increases. Following the footstep of Dickson et al. (2016), I use the population share of urban employees in the tertiary sector as a proxy for

103 urbanization in the absence of any systematic data on the city-level for the eleven years. This variable is also one year lagged (2005-2015). Table 6.3.1 also shows the value of tertiary employees, ranging from high 93.79 77 to 0.14 with a standard deviation of 6.24.

Finally, I control the size of local population separately because the larger the population the higher the likelihood that a city may face unrest, which could press local leaders to spend more in welfare policies to ‘buy off’ the agitators or dissenters (Dickson et al., 2016:41). Table 4.6.3.1 shows the local registered population varies from high 33 million to low 145,000 with a standard deviation of 335 thousand.

Table 4.6.3.1: Sum m ary of 2 nd – 5 th Control Variables

104

Table 4.6.3.2: Summary of Hypothesized Effect on Dependent Variables

Variables Description

105 for checking robustness. These regression tests use a curvilinear time-series model to control the effect of local mayors’ tenure years. 78 I add population as an additional control variable in the last pair of models (model 3 and 4) of each table, except in Tables 4.6.4.3 and 4.6.4.6. The second robustness check is based on the pooled mean-group and dynamic fixed-effects models, the results of which are shown in Tables 4.6.4.3 and 4.6.4.6. I use this additional test only when any independent variable demonstrates significant association in the first set of regression models. The third robustness check is done using a lagged dependent variable as a control variable to avoid any potential bias from the last year’s spending amount. The results are shown only in the appendix section. These three-step robustness checks can strengthen the reliability of the regression results. Importantly, the coefficients cannot be interpreted in conventional term because each variable except mayor’s tenure year is differenced. So, the focus of the analysis is rather on the significance of the correlation.

Model 1 and 2 in Table 4.6.4.1 demonstrate significant positive association between the size of SOE employees and total welfare spending in both per capita and budget share dimensions controlling for other factors. The significant association suggests that the combined local spending in education, healthcare and social security increases as the size of the SOE sector increases. Model 3 and 4 which adds local population as an additional control variable also demonstrate significant positive association between the SOE employees and total welfare spending in per capita and budget share dimensions. Neither the fiscal revenue nor mass unrest show significant association with total welfare spending in both dimensions though mass unrest has significant positive association only in the per capita dimension of total welfare spending. Among the control variables, only GMP and the size of the local population have significant positive association with total welfare spending in both dimensions.

78 A square term of tenure-year is included in the model because the assumption is that a mayor’s tenure year will have a non-linear effect on spending.

106

Table 4.6.4.1: Short-term Effects on Total Welfare Spending

VARIABLES

107

(2.08) (0.02) (2.11) (0.02) Tenure Year -0.546 -0.171 2.663 -0.185 (19.76) (0.14) (19.74) (0.14) Tenure Year 2 -0.346

108

Table 4.6.4.3: Short-term & Long-term Effects on Total Welfare Spending

VARIABLES

109 other control variables, log per capita GMP, share of urban tertiary employment and local population also show significant association.

Table 4.6.4.4: Short-term Effects on Education Spending

VARIABLES

110 likely to spend in education strategically. Mayors are likely to increase education spending, both in terms of budget share and per capita spending, only at the beginning and end of their tenure year. This further confirms Vortherm's (2019) earlier findings. Annual education spending also increases consistently along with an increase in economic prosperity (log GMP per capita) and population but decreases as tertiary sector increases.

Table 4.6.4.5: Short-term Effects on Education Spending

VARIABLES

111 total welfare spending in per capita and budget share dimensions. Mass unrest also has significant positive association with social security spending in all four models. However, the fiscal revenue as well as the control variables do not show any significant association in either dimension.

Table 4.6.4.6: Short-term Effects on Social Security Spending

VARIABLES

112

Table 4.6.4.7: Short-term Effects on Social Security Spending

VARIABLES

113

In sum, the results again support the second hypothesis that local leaders’ preference for annual social security spending is significantly positively associated with the local SOE sector's size. In other words, as the size of the SOE sector increases, the per capita social security spending also increases controlling for other factors. This is an important finding because past scholarship found that social security spending is positively associated with either central transfer (Dickson et al., 2015; Ratigan, 2017) or local mayors' promotional interest (Vortherms, 2019). So, the positive association found between the size of the SOE sector and annual social security spending provides a novel finding.

Table 4.6.4.8: Short-run & Long-run Effects on Social Security Spending

VARIABLES

114

Observations 1018 1018 1018 1018 All variables (except mayors’ tenue year) are differenced Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Finally, Appendix 1 includes the third-robustness check. I test all the time-series fixed-effects models using dependent variables as a lagged control variable to avoid potential bias from the effect of last year’s spending. The results also support the second hypothesis in per capita total welfare spending and social security spending controlling for other factors.

As an extension of the above tests, I also test the hypotheses for healthcare spending in per capita and budget share dimensions (Table 4.6.4.9 and Table 4.6.4.10). Unlike the results above, the tests only demonstrate a consistent significant positive association between fiscal revenue and healthcare spending. However, the coefficient value is very low for the per capita dimension. For other independent variables, the results do not demonstrate any consistent significant association with healthcare spending. For example, the local SOE sector has a significant positive association with per capita healthcare spending in Table 4.6.4.9 but the significance level declines in Table 4.6.4.9. Mass unrest demonstrates a significant negative association with the budget share of healthcare spending in both tables. However, the R-squared value is quite low in the budget share spending, which means a substantial variation remains unanswered in both tables. As a result, the association between mass unrest and healthcare spending remains debatable. Mayors’ tenure year and tenure year squared variable demonstrates a significant positive and negative association with the budget share of healthcare spending, respectively, in both tables. It suggests that a mayor’s tenure year has an inverse ‘U’ relation with the budget share of healthcare spending in both tables, i.e. healthcare spending increases during the middle of a mayor’s tenure year. That said, the R- squared value is quite low in both tables, suggesting that substantial variation remains unanswered. In short, the test results on healthcare spending do not demonstrate any definitive association between the independent and dependent variables.

115

Table 4.6.4.9: Short-term Effects on Healthcare Spending

VARIABLES

116

(12.92) (0.33) (12.70) (0.32) Observations 1,018 1,018 1,018 1,018 R-squared 0.414 0.074 0.416 0.075 Number of City 114 114 114 114 All variables (except mayors’ tenue year) are differenced Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

4.7 Regime Survival: Policy Legacies & Welfare Expa n s io n

The quantitative results suggest that the local SOE sector's size plays a critical role in determining short-term annual budget allocation for total welfare and social security spending. To understand the causal relation between local SOE sector and local leaders’ welfare priorities, I explain the underlying policy legacies that created pressure for the SOE sector expansion. I argue that the Deng era’s past policy of prioritizing growth of the private economy and the Maoist era’s social contract created two channels of political pressure on local government. The first channel of pressure came from the statist proponents inside the Party. Deng's legacy of prioritizing the rapid growth of private sector led to unprecedented economic development. However, it also challenged the single-party regime's control over society and the economy. In response, one of the critical measures that the Party took was to strengthen and expand the state sector, which further consolidated a patronage base of loyal support for the single-party regime. 80 Indeed, the expansion of the SOE sector at the local level against the persistent pressure to downsize it shows the power of statist interest group and local protectionism. The SOE sector served the short-term interest of local leaders to maintain a loyal patronage base and preserve the regime's survival.

The second channel of pressure came from the legacies of the Maoist era social contract, which created a popular attachment to the welfare state. However, the state's withdrawal from welfare provision in the 80s intensified the social cleavage between state and non-state sectors, particularly in the regions with historically concentration of the SOE sector. The vast majority of the people outside the state sector had to bear the rising cost of welfare out of their pockets. By contrast, the privileged few inside the state sector had exclusive access to welfare provisions. The social

80 Another way the Party addressed this challenge is to expand the Party membership to the capitalists under Jiang Zemin's leadership (Dickson, 2008).

117 cleavage led to immense public pressure on local leaders since welfare provision largely lies on local governments' shoulders. Local leaders addressed the public pressure by supporting the socializing of risk, i.e. standardizing and expanding social insurance, particularly in the cities where the state-non-state sector cleavage was high. Meanwhile, local leaders in cities where they failed to reduce their dependence on the state sector, ultimately expanded the SOE sector for stability in return for expanded welfare benefits. This welfare solution served local leaders' short- term interest, on the one hand to create legitimacy and maintain social stability, and on the other hand, ensuring a patronage base for regime stability.

I support my argument by first presenting the SOE sector development pattern in the aftermath of the ‘90s reform. I show that there is a sector-wide expansion in the local SOE size in most cities. This underlines the power of the statist group that has a vested interest in maintaining the status quo. Then I show that the statist faction is strong, not necessarily only in the region that has been a historical bastion for large industrial SOEs. On the contrary, they are also powerful in the stronghold of China's private economy. I demonstrate that by looking at the expansion pattern of the SOE sector in the cities belonging to the productive welfare policy regime as well as the Coastal East of China.

Finally, I argue how the expansion of the SOE sector underlines the political logic of welfare expansion. On the one hand, it demonstrates the local leaders' political motif of maintaining and expanding its loyal support base by strengthening the SOE sector and rewarding the employees with exclusive benefits. On the other hand, it motivates the leaders to socialize welfare risk; in other words, expand social insurance to address the fiscal pressure from exclusive benefits and local welfare needs.

4.7.1 The Return of the Statis Group: Legacies of Deng Era

Encouraged by Deng, a growing number the Party members, government officials and SOE employees were entering the private economy, also known as xiàhǎi (下海). It created a challenge to preserving Party's control and authority over society (Dickson, 2003; 2008; Green and Liu, 2005). As a result, strong political resistance from the statist groups stalled part of the ambitious goal of further SOE reform to stop "leaching away of state assets" – a reference to stop erosion of

118 state wealth (Financial Times, 2016). Dickson (2008:61) succinctly explains the two political motifs behind preserving the status quo, “preventing private entrepreneurs from obtaining large amounts of wealth and control over scarce resources that could then be turned into political capital,” and “placate[ing] those within the party who oppose privatization on ideological grounds.” The state sector’s importance as an instrument to regime survival was further emboldened by the effect of the Asian Financial Crisis in the East Asian economies, the 2008 financial crisis and much later, the 2015 stock market crash in Shanghai. So, the State Council’s 81 multiple measures to consolidate and modernize China's SOE sector did little to make meaningful reform of the SOEs. More importantly, the 2015 reform separates some SOEs from commercial role ( shangyelei ) and assigned them into a public class ( gongyilei ) to perform 'public welfare,' which enhances their political role in maintaining social stability and advancing the interest of the state. 82 Leutert (2016) concludes that the 2015 reform would make even the commercial SOEs responsible for supporting social stability.

The statist interest groups, however, did more than just preserving the status quo. They further consolidated and expanded the SOE sector despite its falling share of the economy compared to the private sector. 83 To demonstrate that, I first present the pattern of SOE development in recent years. Surprisingly, the data from 114 cities covering 2003-2012 illustrate the size of the SOE sector has been increasing or has been on recovering trend after a period of decline in most cases. Figure 4.7.1.1 illustrates 38 percent of the 114 cities experienced a net increase, and 25 percent saw the employee number slowly rebounding at least in the last three years. By contrast, only nine percent of the 114-city sample saw a continual decline in SOE numbers.

81 In 2006, the government identified an expansive list of industries identified as 'strategic and key' industries, 'pillar' industries, etc. The Third Plenum in 2013 issued a document for further reform, and the detailed were outlined in The Guideline to Deepen SOE Reforms was published by the State Council and CCP Central Committee in 2015. 82 “Guiding Opinions of the Communist Party of China Central Committee and the State Council on Deepening the Reform of State-Owned Enterprises,” September 2015 83 Local SOEs with their complex and multi-tiered web of subsidiaries kept increasing in number since 2010 and outnumbers the central SOEs, under the direct control of SASAC (Finance Yearbook of China, 2016).

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Figure 4.7.1.1: Cities with Annual Pattern of Change in Urban SOE Employees

Net Increase

Net Increase Recovering Trend after Decline Mixed Pattern Continual decline

We also look at the cities that are 'laggards' in regional development, cities that are considered the engine of China's economic growth and stronghold of the private sector, and the hardest hit by the 90s SOE reform (Figure 4.7.1.2). According to Figure 4.7.1.2, we first observe that the expansion or recovering trend in the SOE sector is concentrated in the cities situated in the North, Northeast, Central and Western China – the regions considered less developed compared to the developed Coastal East. If we look at the cities belonging to the Coastal East China which represents the pillars of regional growth, we see 18 cities with a net increase and 13 cities with a recovering trend in their SOE employees. Only four cities have experienced a continual decline. We further look at the cluster of cities belonging to the productive welfare policy regime that spends more in education for human resource development and emphasize economic production over social protection. Among this cluster of 31 cities, 16 cities saw a net increase and nine cities have been on recovering trend after a temporary reduction in the number of SOE employees. No wonder that the top eight out of ten provinces with the highest number of SOEs are the most prosperous

120 provinces in China.84 By contrast, only two cities saw a continual decline. Finally, we also look at the 15 cities, identified by Hurst (2009: 17), that have been hardest hit by the 90s SOE reform.85 Among them, three cities have a net increase, and six cities have a recovering trend in the number of SOE employees. By contrast, only three cities have seen a continual reduction. These patterns altogether demonstrate that not only has there been resistance against further downsizing of SOEs across China, but the SOE sector has also been expanding even in the stronghold of China's private economy. The trend is surprising given the SOE sector witnessed around 44 percent reduction in its labour force within 10 years from 1993 (Chan and Selden, 2019).

Figure 4.7.1.2: Regional Cities with Annual Pattern of Change in Urban SOE Employees

Net Increase Recovering Trend after Decline Mixed Pattern Continual decline

84 According to the Ministry of Finance, Guangdong, Shanghai, Beijing, Zhejiang, Shandong, and Jiangsu are the top six provinces. Fujian and Tianjin are the top eight and nine provinces, respectively, with the highest SOEs. "State- Owned Enterprises in the Chinese Economy Today: Role, Reform, and Evolution" China Institute, 2018: 20< https://cloudfront.ualberta.ca/-/media/china/media-gallery/research/policy-papers/soepaper1-2018.pdf> 85 Hurst actually identified 20 such cities, but 15 fell within the 114 samples of this dissertation project.

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Two of the strongest proponents of preserving the SOE sector's status quo are the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and the local governments. The responsibility guidelines of the SASAC, which was set up in 2003 for non- financial SOEs, include goals such as promoting a "socialist harmonious society," "social progress," "national security" that demonstrate their highly political agenda behind market interests. The local governments, the other critical stakeholder in the SOE sector (Gold et al., 2009; Kuruvilla et al., 2011), and the main focus of this chapter also have vested interest in strengthening and expanding the SOE sector. Although local governments lost some influence over the SOE sector in the aftermath of the 90s restructuring, which recentralized SOE reform process and made it a zero-sum game, local leaders still managed to take an advantageous position in bargaining with the central government and the SOEs for three main reasons (Lin and Chen, 2015).

First, the SOEs remain a critical source of local tax revenue. Around 30 percent of the government tax revenue came from the SOE sector in 2016 alone (Rosen et al., 2018:13). As a result, local governments are often reluctant to comply with the State Council's directive on SOE reform. For example, when the government of Inner Mongolia planned in 2011 to consolidate its 35 rare-earth SOEs into only one, local protectionist resistance led to 12 SOEs instead of one (Rosen, 2013) . Moreover, the SOE reform process took many forms in China and improving corporate governance did not necessarily mean the loss of local government's control over local SOEs. In fact, local government often yielded power over managers' key appointments, personal files and residential permits, land use, layoff quotas, and labour regulations in return for their cooperation in SOE reform. Lin and Chen (2015: 85) write,

While achieving nominal compliance to central mandates, local governments may seek to obtain informal arrangements to protect their fiscal standing and local business interests, or they may collude with the enterprises in formulating a legitimate counteraction to the central regulators' pressures.

Secondly, local leaders can also make illicit financial gain through collusion with SOE executives (Pei, 2016; Chen, 2000; Ding, 2000; Lin and Chen, (2015). SOEs have preferential access to capital and soft budget constraints (Song et al., 2011; Dickson, 2008:55-56). Once receiving cheap capital, it is often used for corporate lending, unauthorized investment in the financial market, or even embezzlement, which is not always possible without local officials' tacit support and a politicized

122 bureaucracy. After all, the local government appoints the head of the local SOEs. SOE reform often stalled due to the intermingled vested interests of the local government and the SOE leaderships. And even when reform was in full swing, it further consolidated their power in the process of 'grasping the large and letting the small ones go ( 抓大放小 zhuā dà fàng xiǎo )' policy (Hseuh, 2011; Eaton, 2016; Naughton, 2008; Shih, 2008, 2011).

Finally, and perhaps most importantly, the SOE sector provides the local government with a vehicle for stability maintenance and preserving power through employment and exclusive benefits. Although the base salary of SOE employees is low compared to that in the private sector, the SOE employees now enjoy supplemental insurances in addition to the standardized five insurances ( 五保 ). Employees in the state sector enjoy generous social benefits, which underlies the public-private sectors' cleavage in welfare (Huang, 2015) .86 The SOE employees have access to enterprise annuity, annual medical checkup, additional housing subsidy, subsidy for degree update, internal mutual medical fund, subsidy for hospitalization fee, one time-subsidy for major diseases, and reimbursement for kindergarten and medical allowance for employee children. 87 Moreover, SOEs have earned a name for giving special perks and insurance to its employees counted as staff benefits, subsidized by the government and unaccounted for a tax deduction. Even when changes were made in tax rule and the SOEs were instructed to count insurance benefits as part of total salary, the 2012 National Audit report found that the firms have devised ways to evade restrictions (Financial Times, 2013, May). The subsidies help maintain patronage and control the strategic goals of the central, provincial and municipal governments in China (Haley, 2006). 88 Examining the progress of China's SOE reform, Song observes (2018: 359) "SOE's lower returns also result from problems of overstaffing, particularly due to consolidation, as social security

86 The SOE employees' benefits remain generous compared to non-state sector employees despite the transfer of some welfare responsibilities from SOEs in the 1980s to the local governments (Cai, 2002; Chen, 2000; Gu, 1999; Lee, 2000; O'Brien and Li, 1999; Frazier, 2006). 87 According to interview with SOE employees, these benefits can vary from enterprise to enterprise. 88 Patronage politics is a strong element behind China's large state sector. It can run vertically among the Party- bureaucratic ranks and horizontally between the Party and local elites, employees and citizens. One could argue that the best measure of patronage politics could be either the size of Party membership or the public sector (Pei, 2006; Lü, 2000; Ang, 2016; Yang, 2004; O'Dwyer, 2006). However, as Ang (2012) demonstrates, it is very difficult to gauge their true size at the national level, let alone at the city-level. I contend that the SOE sector's size could be a good alternative, though not the best one to measure local patronage ties.

123 protection is a political and functional feature of the SOEs." Indeed, the SOE employees have de facto life-long employment. No wonder that jobs in SOEs remain the most preferred choice among the Chinese graduates. 89 Referring to patronage politics behind the SOE economy, Walter and Howie (2012:23) authoritatively state,

Sponsored and supported by the full patronage of the state, this [SOE] economy was, and has always been, the beneficiary of all the largesse that the political elite can provide. It is the foundation of China’s post-1979 political structure and the wall behind which the Party seeks to protect itself and sustain its rule.

To conclude, the statist interest groups became powerful in response to Deng's policy legacies' emphasis on the private economy. The SOE sector's expansion reflects the Party's awareness of the need to regain control over the economy and society, where the private sector was increasingly dominating the market share. Leaders in the local government have been a key stakeholder in preserving the statist interest as it became a source for local revenue, personal gain and patronage base. As a result, undeterred by pressures from joining the WTO and repetitive measures by the State Council to consolidate and reform the SOE sector, the state sector's size has been growing or rebounding in most cities across China.

4.7.2 Popular Expectation: Legacies of Maoist Era Social Contract

Popular discontent and contention from the breaking down of the Maoist era social contract was the second channel of policy legacies' effect on welfare expansion. On the one hand, the breakdown of the iron-rice-bowl contract from the 90s SOE reform and the state's withdrawal from education, healthcare and social security during the reform period created widespread public discontent. On the other hand, the sharpening of cleavage between the state and non-state sectors' access to welfare further aggravated the widespread resentment. Those who benefited disproportionately from the economic reform and had the ability to bear the out-of-pocket cost for welfare services

89 A 2014 survey by a recruiting agency found that 53 percent of recent graduates prefer a job in the SOE sector compared to 34 percent in the private sector (Freetrade.com 2014). Another survey of 48,000 people by the ChinaHR.com found that the majority new graduates or 35.9 percent list SOEs as their first choice of employment (South China Morning Post 2014).

124 were few. In contrast, the vast majority of the growing middle-income class, for whom access to quality education, healthcare and social security became more important for aspirational improvement in their living standard, were burdened by increasing cost and privatization of welfare services. At the same time, those who lost employment and benefits due to the SOE restructuring felt betrayed by the Party-state for whom they sacrificed their hard work in the factory floors in promise for secured welfare. This led to widespread popular contention of various forms, imposed pressure on the ruling Party due to growing instability and created a legitimacy crisis for the Party-state as elaborated in chapter two.

In response, the state needed to make education and healthcare spending more affordable and expand social protection. However, doing so would pose a serious fiscal challenge to the already revenue-constrained local government, albeit the fiscal cost-share had different implications on welfare policies. The Party-state's initiative to expand free compulsory education was costly but is directly linked to the productive economy. Thus, the local government's priority in education expenses was an act of human capital investment for the local economy's productive purpose. By contrast, healthcare and social security expenses for an ageing population could be unbearable to the local government if reverting to the Maoist era social contract. The only way moving forward for the Party-state was to socialize risk by expanding risk-pooling between state and non-state sectors, which was accomplished by standardizing and expanding social insurances. Indeed, Hurst and Frazier (2002: 348) note that many official documents argued 'socialization' of pension obligation was necessary to remedy the age-old malfunctioning pension system. It was also heavily debated among the policy circles for alternative policy options for healthcare reform. A key advocate for the socialization of risk was the statist stakeholders, the SOE sector and the local governments. On the one hand, the SOE sector, which increasingly became a critical pillar of national interest, could neither bear the mounting cost of healthcare and pension of its employees nor could drastically cut down its labour force. On the other hand, the local government could neither bear the cost of welfare nor allow instability from mass unemployment if more SOE employees were laid off.

As a result, socialization of risk creates a sustainable solution for mitigating public backlash from widening state-non-state sector cleavage while preserving the status quo of exclusive benefits for the SOE employees. Indeed, socialization of risk has been serving the short-term interest of local leaders in two ways. First, it helped address public discontent from the rising cost of welfare and

125 inequality in welfare access. If we look at Figure 4.7.2.1, which illustrates survey outcomes on 35 major cities' quality of life index ( 中国城市生活质量指数调查 zhōngguó chéngshì shēnghuó zhìliàng zhǐshù diàochá ),90 education, healthcare, and social security were the top priorities of citizens. However, they were gradually replaced by other issues. The trend coincides with the government's simultaneous effort to establish and expand universal free basic education and a rapid increase in social insurance coverage in urban and rural areas. 91 Thus, allocating welfare spending as part of budget priorities have been instrumental to local leaders' short-term interest of maintaining social stability until their tenure ends in a city. Second, the socialization of risk through contributory social insurance policy helps local governments expand risk pooling for social security. Given that the SOE sector employees are also part of the general social insurance schemes, unlike the Maoist era social policies, further expansion of the SOE sector does not add a formidable fiscal burden on the local government's budget. It creates room for allowing supplementary exclusive welfare benefits to SOE employees, which preserves the patronage linkage between the local leaders and their loyal support base. Huang (2013) also echoes that the statist stakeholder made the status quo sustainable by supporting the socialization of welfare, which expands coverage through wider risk-pooling while securing their preferential benefit. She contends that due to the sustainability of the new safety net, "SOE employees, who managed to secure their positions during their enterprises' restructuring in the late 1990s, are the winners in China's urban social welfare reform."

90 The China Academy of Social Science has been publishing annually since 2000. The 35 cities include Beijing, Tianjin, Shanghai, Chongqing, Shenyang, Dalian, Changchun, Harbin, Hangzhou, Shijiazhuang, Jinan, Hefei, Fuzhou, Ningbo, Qingdao, Xiamen, Yinchuan, Nanning, Taiyuan, Kunming, Nanchang, Lanzhou, Guiyang, Wuhan, Xiamen, Guangzhou, Shenzhen, Nanjing, Xi’an, Hohhot, Urumqi, Xining, Zhengzhou, Changsha, Chengdu and Haikou. 91 Other top six social issues and these five welfare policies that appeared in different years include food safety, social stability, price affordability, unemployment, environment, public security, economy, social stability and corruption. Also, falling from the top six concerns does not necessarily mean that social security problems have been resolved effectively. Instead, it can very well suggest that the biggest group concerned about their social security might have been the main beneficiaries of the government response in China's social security reform compared to others.

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Figure 4.7.2.1: Welfare Among Top Six Issues of Concern in Cities in China

Education ( Social Security ( Healthcare Reform ( Housing ( Inequality ( Linear (Social Security (

In sum, local leaders' short-term welfare priorities are motivated by the local SOE sector's size due to two policies' legacies. On the one hand, Deng's policy of prioritizing the market led to an exponential increase in the private sector, so much so that the state sector's industry share fell dramatically. The rise of the private entrepreneurial class posed a challenge to the Party-state's authority. To consolidate control, strengthening the SOE sector through consolidation and 10 enlarging its employment base became necessary for cooptation purposes. On the other hand, the legacies of the Maoist era social contract created a popular expectation that the state should address the population's welfare needs. The breakdown of the social contract, privatization of welfare services and high cost led to popular contention and increased pressure over the local government 教教 to maintain stability. Socialization of risk through risk-pooling and standardization of social security helped the local government minimize its fiscal burden. As a result, the local government's 医医 annual welfare expenses, particularly that of social security, are motivated by the state sector's size. The cities that see an increase in the local state sector's size, the local贫 government, are likely to increase annual spending in welfare policies, particularly in social security.

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4.8 Missing Pieces of the Puzzle: Segue to the Next Chapter

In this chapter, I demonstrated that the local government's welfare policies in the short run are motivated by the size of the local SOE sector controlling for other factors. Local governments' total welfare spending and social security spending are correlated with the local SOE sector's size. As explained in the previous section, local leaders have vested interest in maintaining and strengthening the local SOE sector, and socialization of risk helps them achieve that objective. The simultaneous expansion and standardization of social insurance coverage make social security more inclusive in terms of its scope but, at the same time, help maintain and coopt a large SOE employee base for the Party-state's cooptation purpose through privileged coverage and benefits. It creates regime stability by renewing the social contract with the non-state sector population by including them into the welfare state while simultaneously enticing the SOE employees with privileged benefits. As a result, the expansion of welfare helps maintain regime stability. So far, this argument of mass-cooptation effort, however, has two pieces of the 'puzzle' missing in my empirical analysis. Two questions remain, do we see welfare provision actually increases in the long run in the cities where the SOE sector is large? And do the SOE sector employees actually receive privileged access to welfare services and benefits? In the following chapter, I address the first question.

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C hapter 5

Pathw ays to W elfare Expansion in the Authoritarian

C hina

5 . 1 Introduction

T his chapter's main objective is to determine whether the size of the local state sector can explain variation in welfare provision in the long run, and if yes, how can we unpack the causal pathway.

In the previous chapter, I demonstrated that local leaders' short-term priorities in welfare spending and social security priorities are motivated by the SOE sector's local size. T his chapter attempts to link the findings from the previous chapter and analyze whether local leaders' short-term welfare priorities actually translate into long-term welfare provision. In other words, I examine whether the size of the local state sector also determines variation in the level of long-term welfare provision, and if it does, I trace its causal pathw ay .

T he chapter first demonstrates that although a series of country-wide welfare reforms in education, healthcare and social security initiated since the late 90s and early 2000 under the single party's leadership have advanced welfare expansion, there is a wide degree of variation in implementation and outcomes. Only 24 out of 114 cities across the country show a high level of welfare outcomes and social security coverage in addition to welfare spending. T his chapter explains the variation in the long-term welfare provision using binary logistic regression and Qualitative C omparative

A nalysis (QC A ), followed by a brief paired case study.

The empirical analysis reveals two important findings. First, the SOE sector is an important determinant of the high level of welfare provision in the long run too. T he SOE restructuring in the late '90s and Deng's policy of empowering the private economy in the '80s triggered an inadvertent policy effect in the long run. On the one hand, the S OE restructuring pressed the local government in some cities to address the local population's social security needs for social stability purposes. It also emboldened the statist group through the consolidation and strengthening of the remaining SOEs, which led to a gradual expansion of the SOE sector. On the other hand, the

129 expansion and growing importance of the private economy in some cities prompted the Party-state to re-establish its authority by expanding and strengthening the SOE sector for its commanding presence in the economy. It also expanded the labour force in the SOE sector for co-optation in return for privileged access to welfare benefits, which established a new implicit social contract. As a result, the larger the SOE sector's size in a city, the higher the level of welfare provision in the long run. Second, in addition to the SOE sector's size, the level of local fiscal capacity also plays an important role in determining the level of welfare provision in the long run. On the one hand, economic development afforded some cities, such as Hangzhou, with a strong fiscal capacity, which helped the local state finance welfare expansion and, at the same time, provided a large pool of labour force in the formal sector to socialize risk and finance the social security expansion. On the other hand, cities with poor fiscal capacity, such as Changchun, relied on central/provincial subsidy and transfer to finance their welfare expansion. In short, the chapter identifies the importance of the state sector and fiscal capacity and demonstrates the conditional causal pathways to a high level of welfare provision in the long run.

In the following sections, I first present the variation in welfare provision, followed by a hypothesis based on the previous chapter's findings. I then provide descriptions of the methods and data. Then I test the hypotheses with quantitative and QCA methods followed by a comparative case study.

5.2 Long Term Local Welfare Provision

This chapter presents the second dependent variable, which is the long-term local welfare provision. By ‘welfare provision,’ I mean long-term aggregated welfare commitment by local government, welfare outcomes and the extent of populations protected by welfare measures. Thus, ‘welfare provision’ aims to capture the level and the distribution of welfare services and social security in addition to the welfare spending on a long-term horizon. This helps overcome examining welfare development only from one dimension, i.e. the level of spending. To emphasize the importance of welfare outcomes in addition to spending, Rudra (2008:93) insists that “outcomes help us see [welfare development] beyond the numbers” of spending, and it is “telling” when a high level of spending does not commensurate to a high level of outcomes in welfare policy. On the importance of social security coverage, Mares (2005: 625) contends that it is the coverage of social security, not “the statistical artifact” such as spending data, which is one of the

130 most critical factors for the workers who lose jobs. Thus, combining three components of welfare policies, i.e. spending, outcome and coverage, help gain a comprehensive view of welfare expansion in terms of the provision in the long run. ‘Welfare provision’ in this sense is different from local leaders’ short-term (annual) preferences explained in the previous section. Additionally, I use total welfare spending, welfare outcomes, and social security coverage, averaged for 10 years at the local level, to develop an index of welfare provision. The 10-year average helps avoid the effect of sudden spike and decline in data specific to a year, which could give a misleading perspective. In other words, it eliminates short-term fluctuations. For robustness check, I develop the index only using welfare outcomes and social security coverage to check whether both indices' results are identical.

In the following subsections, I provide the rationale for choosing a proxy for welfare provision. Then I identify variation in local welfare provision by creating an index of welfare provision.

5.2.1 Spending, Outcomes & Coverage as a Proxy for Welfare Provision: Limitations & Advantages

I build on the works of Rudra (2008), Rudra and Haggard (2005), Segura-Ubiergo (2009), Dreze and Sen (1989) and Esping-Andersen (1990) to develop an index of welfare provision. Their works set ideal benchmarks or provide multiple best practices and approaches to examine welfare development in developed and developing countries. The index helps address three issues: lack of availability of comprehensive data, measuring welfare beyond spending data, and accounting the long-term policy effects.

First, one of the challenges to identifying a good proxy for welfare provision in developing countries is the lack of adequate and reliable data. An option is to use multiple relevant indicators together. Rudra (2008:91) notes,

The difficulty here is the dearth and questionable reliability of data that can capture such occurrences across the developing world. One solution, albeit imperfect, is to include a combination of policy, spending, and outcome variables. The other alternative is to wait

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for more effective institutions to evolve or, relatedly, for more reliable data to become available. 92

The combination approach can provide the best possible perspective of overall welfare provision in developing countries where comprehensive data on welfare is hard to gather. However, scholars emphasize a different set of indicators, which often overlaps in some cases while differentiating in others. Rudra and Haggard (2005) use spending on education, health and social security, and outcomes on school enrollment and infant mortality to measure a government’s effective welfare provision. Segura-Ubiergo (2009) uses total social spending (education, healthcare and social security) and coverage of social security 93 to measure a government’s ‘welfare effort.’ Building on their approaches, I combine welfare spending and outcomes, and social security coverage to develop a proxy index for welfare provision. On the importance of spending and outcomes, to quote Rudra, “Spending and outcome variables are used to capture extensive public efforts aimed directly at expanding the basic capabilities of the population...” (Rudra, 2008: 92). In other words, the two variables provide us a reasonable insight to the basic welfare services available to a population. On the importance of coverage, to paraphrase Seguira-Ubiergo, it is a rough measure of the scope of a welfare system (2009: 28).

Second, the index helps overcome the limitations of examining only public spending, which is epiphenomenal (Esping-Anderson, 1990). The spending level can demonstrate local governments’ policy priority, but spending does not necessarily always achieve intended outcomes due to misuse, clientelism etc. Even though a high level of spending is committed to a welfare policy, it can produce a low-level of positive outcomes. In other words, the objective of identifying welfare ‘provision’ is more than simply identifying policy ‘priority,’ which I examined in the previous section.

Finally, building on Rudra’s (2008: 93) argument, outcomes, and coverage reflect the long-term effects of past policies. The gain from welfare spending takes time, which is why leaders are reluctant to commit to welfare spending when their promotion depends on immediate results. So,

92 She argues that scholars don’t afford to wait for the alternative solution. 93 Particularly the coverage of healthcare and pension insurance.

132 low welfare outcomes and coverage can suggest that past leaders have attached little importance for which little progress is made in welfare. An index based on 10-years of data can help capture the long-term welfare provision. In a nutshell, combining welfare spending and outcomes, and social security coverage can help measure welfare provision.

Nevertheless, there are several limitations due to the quality of data available at the city level in China. First, not all cities have consistent and continuous annual data on important welfare policies. For example, social housing is an important welfare policy even under a nominally communist party. However, data on public spending in social housing is more readily available only from 2010 and not for all cities. 94 Credible and comparable data on the number of beneficiaries of social housing is also nonexistent. Another problem is the reliability of statistical data in China. One of the important indicators for the outcome of social assistance spending is the number of its beneficiaries. The data is sketchy, and the program is criticized for being politically employed in different cities (Solinger and Hu, 2012). I contend that these limitations can be overcome by examining education, healthcare and social security, deemed the three most important welfare policies by many scholars (Kaufman and Segura-Ubiergo, 2002; Rudra and Haggard, 2005). I use spending data on these policies as an input measure of policy priorities. I use the teacher-student ratio and doctors-population ratio as the output measure of recent-past policies on education and healthcare, respectively. Other variables, such as literacy rate and infant mortality rate, could have been other ideal measures for spending outcomes.95 However, consistent and comparable data on these indicators at the city level is unavailable. Finally, I add the number of people enrolled for three social insurances (medical, pension and unemployment) as a share of the local population to include the coverage of the social safety net, in other words, the scope of the welfare system.96 As mentioned earlier, I also check the robustness of my results by using only welfare outcomes and social security coverage.

94 However, the housing spending data available from 2010 mostly reflects the monetary cost of development projects for social housing. People enjoying social benefit, including but not limited to social housing, is included in the social security spending, which is used in my empirical analysis. I use incomplete data on social housing as part of descriptive statistics whenever relevant. 95 On the importance of infant mortality, see Besley and Kudamatsu (2006); Wang (2003) 96 Rudra uses the gross number of enrolled students and infant mortality rates as outcome variables for education and healthcare spending, respectively.

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5.2.2 Variation in Welfare Provision: High vs. Low Welfare Provision

I follow the approach taken by Segura-Ubiergo (2009) to identify variation in welfare provision. I use Principal Component Analysis (PCA) with six welfare indicators to develop an index for welfare provision. Like factor analysis, PCA is a simple quantitative technique to generate an index based on multiple variables. For the welfare spending and outcomes, I use the data from 2007 to 2016 for two reasons. Consistent and disaggregated spending data for three welfare policies at the city level is available from 2007. Social policy has been more consistently included in performance evaluation criteria for local leaders since 2006 (Zuo, 2015). I use total spending in education, healthcare and social security as 'total welfare spending' instead of using them separately. Following the approach by Kaufman and Segura-Ubiergo (2001:561-562) and Segura-Ubiergo (2009: 28-29), I use the GDP share, budget share and per capita measure of total welfare spending to include different parameters of spending input. This approach's rationale is to circumvent disagreements among scholars on which of these indicators is more ideal for measuring the level of welfare spending. For the indicators on welfare outcomes, I use the average teacher-student ratio from primary, secondary and tertiary levels and doctor-population ratio, averaged for ten years (2007-2016) for their obvious importance to improve education and healthcare quality respectively and because they have been included in local leaders' performance criteria since 2006 (Zuo, 2015; INTCDWE0617). 97 Finally, social insurance coverage reflects the extent of the population secured for medical, pension and unemployment-related risk. In other words, as mentioned earlier, they are a rough measure of the scope of the welfare system. During my fieldwork, one of the interviewees, an expert on local social security policy, mentioned that the number of coverages has also been incorporated in some local cadre's performance targets (INTHZSE0629). However, the data on coverage used in PCA is from 2011 to 2015 because earlier data is unavailable at the city level.

The advantage of using PCA is that it reduces multiple dimensions into one based on their importance while retaining the valuable part of the discarded part. This statistical tool effectively overcomes the shortcoming of using any particular indicator of welfare provision; instead, it uses multiple indicators to develop a new data point or index. In other words, the 'welfare provision

97 Zuo's (2015) finding is based on a sample of 69 evaluation forms.

134 index' from the PCA produces the best possible combination from welfare spending and outcomes and scope of social security (see Appendix 2). I use 75 percentiles as a high cut-off point instead of using the mean to determine high welfare provision. 98 I also check the robustness of the index by matching the result with another index developed using only welfare outcomes and social security coverage.

The PCA result demonstrates only 28 cities out of 114 belong to the high-welfare-provision (HWP) category (Table 5.2.2.1). By contrast, 86 cities demonstrate low welfare provision (LWP). However, eight cities fail to meet the robustness check, and therefore they are omitted due to their ambiguous status (See Table 5.2.2.1, Table 5.2.2.2 & Appendix 3 for details). As a result, we have 24 cities that belong to the HWP category and 82 cities belong to the LWP category. If we plot the welfare index on the city-level map of China, we see that the cities with high welfare provisions are spread across the country instead of concentrating on the developed coastal region (Fig 5.2.2.1). Further, many cities in the developed coastal regions demonstrate low welfare provision. This vindicates the claim that city-level subnational analysis can provide new and important insights into the intra-region and intra-province variations in China. The map also illustrates that high welfare cities are mostly the provincial capitals or cities with special status with few exceptions. Among the notable exceptions are Chongqing, Shijiazhuang, and Quanzhou. Particularly Chongqing is important because it is often argued to be the last Maoist bastion of an egalitarian welfare city with generous housing benefits for the local population (Mulvad, 2015; Huang, 2011). The exception in Chongqing's case is not simply due to a matter of arbitrary cut-off point of 75 percentiles in the PCA index. In fact, it falls way below the average level, 60th in the welfare provision index. A possible reason for this exception is the incorporation of outcome variables. Several cities do well on welfare spending but do poor in welfare outcomes, which

98 Developing countries are often criticized as having a too low welfare level to qualify as a 'welfare state.' Therefore, taking a high cut-off point allows us to understand the extent to which these cities are comparable to low-to-high middle-income countries, particularly when China has reached a middle-income status but demonstrates the high regional disparity in the subnational welfare. Moreover, where to draw a line in measuring the level of welfare or poverty or inequality is a hotly debated issue. Despite standards, there remain numerous approaches. For example, the EU uses a cut-off point for relative poverty as 60 percent of the median line when a standard approach is 50 percent of a median line (Esping-Anderson and Myles 2011:650). So, what is most important in the context-specific importance of an approach. For my research, it makes sense to take a 75-percentile cut-off point given China has a wide variation in welfare spending, and its top range is more similar to the bottom range of welfare states in terms of the absolute value of spending.

135 indicates that public coffers may be misused or produce a less efficient welfare result in these cities.

Table 5.2.2.1: High Welfare Provision Cities, 2007-2016 (Descending Order) 28 Cities Welfare Spending per Capita

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Public Spending

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Compared to Mexico, cities with high welfare provision in China on average spent less, around US$580 in social spending in the last ten years. However, the highest spenders’, like Beijing and Shanghai, ten years social spending is comparable to that of Mexico in 2016. Nevertheless, this comparison should be taken with reservation. There can be discrepancies between how total social spending is conceived in my analysis and the OECD database's broad definition.

Moreover, the 24 high-welfare-provision (HWP) cities have, on average, 15 students per teacher compared to 17 students in the low-welfare-provision (LWP) cities and the national average of 17 students per teacher (2013-2016 year). The HWP cities do considerably better than the national average of India (33), Brazil (23), Russia (21), South Africa (31) but similar to Indonesia (16), U.S. (15), Canada (17), Australia (16) and worse than Saudi Arabia (11) and Costa Rica (13) in primary education according to 2013-2016 statistics (Fig 5.2.2.2). 100 In short, the HWP cities in China do considerably better in students-per-teacher statistics than many developing countries and are close to some developed ones.

Figure 5.2.2.2: Students per Teacher

Source: China Statistical Yearbooks & OECD Database

100 The data is from OECD (OECD Database).

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Figure 5.2.2.3: Doctors per 10,000

Source: China Statistical Yearbooks & OECD Database

On healthcare, the HWP cities have, on average, around 35 doctors per 10,000 population compared to 16 doctors in the LWP cities. This statistics contrasts the national average of China, which is 19 (the year 2015) and other countries, such as India (8), Brazil (21), Russia (40), South Africa (9), Indonesia (4), U.S. (26), Canada (26), Australia (36), Saudi Arabia (24) and Costa Rica (11), according to 2015 data (Fig 5.2.2.3). 101 In short, the HWP cities in China do considerably better in doctors-per-10,000 than many developing countries and are close to some developed ones.

Why some cities lead to high welfare provision while others remain trapped in low welfare provision in the long run? Can the factors responsible for variation in local leaders' short-term policy priorities also be responsible for the variation in long-term welfare provision?

101 The data is from WHO website (The Global Health Observatory)

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5.3 The Hypothesis

In chapter 3, I identified three theoretical lenses, namely state capacity, policy legacies, and popular contention, that we can use to develop hypotheses and explain variation in welfare development at China's subnational level. In chapter 4, we operationalized concepts and developed three hypotheses based on the three respective theories explaining variation in local leaders' year- to-year policy preferences . This chapter uses the same set of theoretical lenses to explain variation in the local welfare provision averaged for 10 years-period . Since the theoretical lenses are the same, the proxy indicators for their respective dependent variables are also same, but they are averaged for a 10-year period. To clarify again, the 'welfare provision' index reflects the long-term welfare development for a ten-years period (2007-2016) and includes spending (leaders' commitment), outcomes (a reflection of past policies and beyond 'numbers' of spending) and coverage of social security (the scope of the welfare system). Thus, the 'welfare provision' index measures broader welfare development than the leaders' preferences examined in the previous chapter 4. In this chapter, I examine whether the factors that determine local leaders' welfare priorities in a city also determine whether or not the city ends up having high welfare provision in the long run.

Chapter 4 demonstrated that the size of the local SOE sector was positively associated with the short-term welfare priorities. This raises the question whether the SOE sector also determine the long-term development of welfare provision. The underlying assumption is two-fold based on the Chapter 4’s findings. First, a city's welfare provision will likely increase if there remains a strong popular attachment to the past welfare state. Popular attachment puts pressure on the local Party leaders to maintain the status quo. The inability to maintain the status quo can lead to mass unrest and erosion of a loyal support base for the regime. By contrast, expansion of the SOE sector can help address the social stability interest of the local leaders and the Party-state. It can help coopt the employees to build a loyal support base in return for welfare benefits. So, the Maoist era's policy legacies can motivate the expansion of the SOE sector in the short-term, which in turn will expand welfare provision in the long-term. Second, cities with an emerging dominance of the private economy can force the leaders to expand the state sector to claim the Party-state’s commanding presence in the economy, advance the Party’s socialist agenda, and establish a loyal support base for regime stability. So, there can be an expansion of the SOE sector in the cities where the SOE sector has not been a dominant force in the past. The SOE sector's expansion can

140 help coopt the SOE employees for building a loyal support base for the party in return for welfare benefit, which can expand welfare provision in the long run in these cities. In other words, based on both assumptions, the cities with large size of SOE employees will likely have high welfare provision in the long run. Then the hypothesis is,

H1: The cities with more local SOE employees will have high welfare provision than those with few local SOE employees.

5.4 Mixed Method Approach

I use a mixed method approach to test the hypothesis. A substantive explanation of welfare variation should give us insight into the factors responsible for high welfare provision and should be grounded on the understanding of the underlying causal mechanism between the outcome and the causal factors. I use a mixed-method analysis first to determine what factor or factors are responsible for variation in welfare provision and then, I unpack the causal pathway. For the first objective, I rely on quantitative analysis and use a binary logistic model to test a hypothesis. The statistical test will help isolate the effect of one or more explanatory factors. I use a logistic regression model to test the hypothesis because the dependent variable, the welfare provision index, has two categorical outcomes – high welfare provision (HWP) and low welfare provision (LWP). The regression test results will demonstrate the likelihood of a city belonging to a high welfare provision group compared to other cities depending on the increase or decrease in the unit of an independent variable controlling for other factors. The logit regression result will demonstrate the correlation effect between an independent variable and the dependent variable holding other conditions constant.

Based on the statistical analysis results, I use Qualitative Comparative Analysis (QCA) to unpack the causal pathway. The objective to supplement the results from regression analysis with a QCA analysis for two reasons. The statistical analysis help isolate the correlational effect of each explanatory factor by controlling for other relevant factors. While a significant relationship between independent and dependent variables provides an important piece of information, critical insight into their relationship depends on the causal linkage and the direction of that link between the variables. The QCA allows us to develop a causal pathway between the independent and

141 dependent variables. Additionally, the QCA allows us to consider complexities in causal relation where the path to an outcome can depend on how different independent variables react at a stage of the causal pathway.

Finally, I provide a brief paired-case study with qualitative interview data that bolsters my argument of causal pathways with a more focused context-specific analysis. In the following subsections, I first provide details on the variables and the regression models' results. Next, I use QCA to identify the causal pathways.

5.5 Statistical Analysis: Data & Results

The dependent variable is the 'welfare provision' index. The welfare provision index is categorical with two outcomes, high welfare provision (HWP) and low welfare provision (LWP). The independent and control variables represent the value of a 10-year average by city except for the number of mass unrest, which I use only the 10-year aggregated number. The independent variable is the local SOEs' size measured by their population share of SOE employees and the number of SOE employees weighted to the population. The data covers the year 2003 to 2012 as the more recent data at the city level is unavailable. Table 5.5.1 shows the 10-year mean population share of the SOE employees is five percent in 106 cities. The maximum and the minimum population share of SOE employees in 10 years is 18.57 percent and 2 percent, respectively. The standard deviation is three. For the number of SOE employees weighted to the local population, the mean of 10-year average is 2.19 in 106 cities. The maximum and the minimum number of the 10-year average of SOE employees weighted to the local population is 0.22 and 30.48, respectively. The standard deviation is 3.79.

Table 5.2.2.1: Description of Independent & Control Variables Variables

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SOE Number of Employees 106 0.22 30.48 2.19 3.79 Employees (in 10,000) in the state (Weighted) enterprise sector (10 years average, 2003- 2012) CVs

143 general budgetary revenue is the sum of tax revenue and non-tax revenue of the local government. The data covers from 2006 to 2015. Table 5.5.1 shows that the mean amount of 10-year average per capita fiscal revenue is 4136 RMB in 106 cities. The maximum and minimum amount of 10- year average per capita fiscal revenue is 48,709 RMB and 455 RMB, respectively.

The second control variable is mass unrest, which I use to measure population contention. The logic is that popular contention defined by mass unrest is a pressure mechanism for welfare expansion in the absence of any effective democratic channel of accountability in China's single- party regime (Piven and Cloward, 1971; Lorentzen, 2013; Cai, 2010; Lee, 2007; Hurst, 2004). Popular participation in pressing the government for public demand is limited in authoritarian regimes due to the latter's propensity to use repressive tools more often. However, repressive measures could be costly because they fail to create legitimacy for the regime. Moreover, mass unrest, allowed to a degree, can help the single-party regime reduce asymmetry of information between central and local governments, which could be crucial to make credible power-sharing effective for leaders' survival in a single-party regime. However, mass unrests in China are mostly about demanding public goods. The number of mass unrests has been only increasing, which also puts pressure on local leaders as maintaining stability is a high priority. So, the cities with increasing mass unrest will likely to 'buy off' the protestors or create division among them by spending more in welfare, increasing coverage and better welfare outcomes during the 10-year period. In other words, the cities with more mass unrest will have high welfare provision. I use the total number of local mass unrest incidents to measure popular contention in a city from the year 2006 to 2015 (chapter 4). Table 5.5.1 shows the mean number of mass unrest incidents aggregated for 10-year is 33. The maximum and the minimum number of mass unrest incidents aggregated for 10 years is 313 and 3 respectively in 114 cities. The standard deviation is 48 incidents.

I also test the hypotheses controlling for the dependency, population size, cities with jurisdiction under the central government, coastal cities and the cities belonging to the productive and protective regimes. Due to a lack of disaggregated annual data of the population under the age of 15 and above 65 at the city level, I use the average population share of primary school students as a proxy for dependency. Nine-year compulsory free education is a good proxy of demographic needs of welfare, be it education or healthcare. Table 5.5.1 shows the mean population share of primary students aggregated for 10-year is 7.5 percent. The maximum and the minimum number

144 of the population share of primary students aggregated for 10 years is 12 and 4, respectively, in 106 cities. The standard deviation is 1.88. The population size is used as a control variable because a high level of welfare provision may depend on the population's large size in a given city. Table 5.5.1 shows the mean number of populations in 106 cities averaged for 10-year is 706.19 or around 7 million. The maximum and the minimum size of populations averaged for 10 years is 3304.91 million (around 33 million) and 163.77 (around 1.6 million), respectively. The standard deviation is 334.71.

I also control for categories of cities. The cities under the central government's jurisdiction are controlled because the large four municipalities belonging to this category receive special attention from the central government. As a consequence, the effect of their welfare provision may drive the overall result. I control for nine provincial capitals which are situated in the coastal region. Because they are disproportionately endowed with a high level of economic development, their effect can also drive welfare provision.

Additionally, I control for cities belonging to productive regimes and protective regimes. I control for the 31 cities belonging to the productive regime given their per capita commitment to education and healthcare is highest. Also, their per capita spending on social security is second. These may have a large effect on the overall welfare provision. I also control the cities belonging to the protective regime because they spend the highest level of social security spending which may disproportionately affect the social security coverage and the overall welfare provision.

Table 5.5.2 and 5.5.3 present the logit regression results. I first run a regression with the population share of SOE employees as the independent variable in Table 5.5.2. Then I run the regression with the weighted SOE employees as the independent variable to check for robustness in Table 5.5.3. I also test the relation for other control variables, such as the cities under central jurisdiction, and the cities belonging to the productive regime and protective regime in Model 2, 3, 4 and 5, respectively in both tables. Table 5.5.2 shows that all models consistently demonstrate that the SOE employees and fiscal revenue have a significant positive association with a city's likelihood of belonging to the high welfare provision group. By contrast, mass unrest has a significant negative association with a city’s likelihood of belonging to a high welfare provision category. The results and coefficients also remain almost identical in Table 5.5.3. However, the coefficients of fiscal revenue and mass unrest in both tables are negligible. Since the coefficients in a logit

145 model do not provide a linear relation and are difficult to interpret, I use the 'divide by four' rule to interpret them.102 According to the 'divide by four rule,' Model 1 demonstrates that for every one percent increase in the number of SOE employees, the likelihood of a city having high welfare provision (versus low welfare provision) increases by 15 percent controlling other factors. The coefficient of the weighted SOE employees' number is also similar. For every one-unit increase in the weighted number of SOE employees, the likelihood of a city having high welfare provision (versus low welfare provision) increases by 17 percent controlling for other factors. All models in both tables show identical results for the SOE employees with consistent significant positive relation with the level of welfare provision controlling for other factors.

Per capital fiscal revenue and mass unrest also demonstrate similar results in both tables. Their statistical significance remains consistent, even controlling for other variables in all models in both tables. According to the 'divide by four' rule, for every one-unit increase in the local fiscal revenue, the likelihood of a city having high welfare provision (versus low welfare provision) increases by close to zero percent in all models controlling for other factors. Similarly, for every one-unit increase in the mass unrest incidents, the likelihood of a city having high welfare provision (versus low welfare provision) decreases by around one percent in all models controlling for other factors. No other variables show a significant relationship with the level of welfare provision.

Table 5.2.2.2: Determinants of the Variation in Welfare Provision

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(0.327) (0.382) (0.335) (0.362) (0.338) Population 0.002 0.005 0.002 0.002 0.001 (0.001) (0.004) (0.001) (0.001) (0.001) City Jurisdiction Under Central Gov. -9.930 (10.024) Coastal Capitals Yes 0.675 (1.528) Productive Regime Yes 0.165 (1.238) Protective Regime Yes 1.149 (1.632) Constant -9.871** -13.844** -9.892** -9.706** -10.232*** (3.876) (6.380) (3.986) (4.028) (3.868) Pseudo R-Square 0.76 0.77 0.76 0.76 0.77 Observations 106 106 106 106 106 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 5.2.2.3: Determinants of the Variation in Welfare Provision

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Productive Regime Yes 0.740 (1.158) Protective Regime Yes 0.859 (1.865) Constant -6.659 -6.685 -6.700 -6.573 -7.269 (4.711) (4.786) (4.787) (4.679) (4.706) Pseudo R-Square 0.77 0.77 0.77 0.77 0.77 Observations 106 106 106 106 106 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

In sum, the results demonstrate that the size of the local SOE sector is an important determinant of a city’s level of long-term welfare provision controlling for several other factors. However, the shortcoming of the regression result is that it only demonstrates a city’s likelihood to provide a high level of welfare services and benefits in the long run but tells us little about the causal pathways. In other words, we do not know how a city is likely to succeed in demonstrating high welfare provision in the long run. It also leaves us with ambiguity about the effect of fiscal capacity and mass unrest that have significant positive association but with a negligible coefficient. In the following section, we use QCA to address the statistical results' gaps to map the causal pathways.

5.6 Qualitative Comparative Analysis: Pathways to W e lfa re E x p a n s io n

The regression analysis can provide valuable insights into the significance of each explanatory factor. However, it falls short of explaining how the relation works between the outcome and the explanatory factor, i.e. their causal relation. It also calls for a clear logic of the direction of this relation; in other words, when X and Y are statistically correlated, what is the causal pathway from X to Y but not the other way around. Further, there could be interaction effects between multiple explanatory factors along the causal pathways leading to the outcome. In other words, the causal pathway can be conditional upon the interactions between multiple explanatory factors.

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To address the aforementioned shortcomings in a regression analysis, I use QCA to determine conditional pathways to welfare provision. QCA is complementary to other types of data analysis methods (Schneider and Wagemann, 2010). When regression analysis isolates an independent variable's individual net effect across the cases, the QCA, by contrast, avoids the assumption of causal homogeneity and appreciates causal complexity. It is important to consider that causal complexity given welfare variation in China can interact among several factors based on contexts, including but not limited to temporal effects. To be precise, welfare policies in China were expanded since Hu-Wen's administration. However, by then, the country already underwent rapid industrialization resulting in a highly unequal distribution of resources and, consequently, creating unequal local fiscal capacity across the country between the beginning of the 'opening and reform' and the end of Jiang-Zhu administration. In response, as results from previous and current chapter show, local leaders prioritized welfare policies based on the size of the state sector and set a long- term development path of high welfare provision in some cities and low welfare provision in others. How do the specific contexts of local variation in fiscal capacity in different cities interacted with the variation in the SOE sector's size leading to variation in welfare provision? Testing theories only statistically and isolating net effects will underappreciate the importance of such contextual factors. The QCA can help us determine all possible combinations of multiple pathways leading to an outcome (Ragin, 1987; 2000; 2005; 2008). It also helps identify systematically the counterfactuals, which can help trace back the historical conjunctures leading to the possible pathways and unique outcomes (Mainwaring and Pérez-Liñán, 2014: 164-165). So, QCA, in addition to the quantitative analysis, can add value to the overall understanding of welfare provision in China. The small number of observations (114), due to the 10-year aggregation of data, allows me to employ QCA in this chapter's analysis. However, its use was impossible for developing any meaningful result in the previous chapter, given many observations (1140).

In the following subsections, I follow the steps of QCA analysis based on Segura-Ubiergo's (2007) work on welfare development., I first develop a tree diagram identifying conditional causal pathways and then use Boolean algebra for counterfactuals. Then I will provide a brief comparative analysis between two cities.

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5.6.1 Developing a Tree Diagram of Conditional Pathways

The objective is to determine how two separate explanatory factors, often identified by other scholars but rarely analyzed together, interact and develop conditional causal pathways to high or low welfare provision in different cities. I build on the approach taken by Segura-Ubiergo (2007) to develop a tree diagram to delineate the causal pathways. According to his approach, I build matrices based on the conditional linear relation between two explanatory factors, fiscal revenue and the size of the SOE sector, and the dependent variable (welfare provision) without controlling other factors. I also check robustness by using the share of the SOE sector instead of its size.

First, the fiscal revenue needs to be included in the QCA, given it shows a significant positive association in the regression results. Although it has a negligible coefficient, its importance in the long-term causal pathway for further examination cannot be ignored. The local government’s capacity to extract revenue was deeply affected by two decades of uneven economic development by the time the Party-state decided to expand welfare provision. The policy effect of uneven economic development on local fiscal capacity often came up during a handful of interviews during my fieldwork. So, it is important to account for the effect of fiscal capacity in the QCA. I expect that high fiscal capacity represents a possible conditional pathway to welfare expansion. I use average per capita fiscal revenue to identify the cities with strong fiscal state capacity for the year 2006-2015, which reflects the past economic policies of the Party-state because it largely exhibits continuation or path dependency rather than path-breaking. I use the high cut-off point, 75 percentiles, like that in determining high-low welfare provisions. Figure 5.6.1.1 shows a positive conditional linear relation between local fiscal capacity and welfare provision. Table 5.6.1.1 shows that most cities with a high level of local fiscal capacity demonstrate high welfare provision except Dongguan, Hefei and Jinhua. Further, two cities demonstrate high welfare provision despite having a low level of local state capacity. By contrast, 79 cities are with a low level of local state capacity and low welfare provision. Local state capacity can thus explain 92 percent of the cases of high welfare provision and 96 percent of low welfare provision without controlling for any other factors.

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Figure 5.6.1.1: Welfare Provision & Fiscal Revenue

Table 5.6.1.1: High Welfare Provision as a Result of Fiscal Capacity High Welfare Provision

151 the private sector, which pressed the Party-state to regain and expand its authority by enlarging the SOE sector for regime stability. Perhaps, it is not surprising that most cities either saw a net increase or a recovering trend in the number of SOE employees. Simultaneously, meeting the welfare needs of the SOE employees required broader socialization of risk, which made social security and welfare benefits more inclusive relative to the past. It helped address the policy legacies of the Maoist era social contract, i.e. meeting the popular expectation of a welfare state, in the aftermath of privatization and state's withdrawal from welfare provision, by expanding social security and welfare benefits to the broader population. Indeed, the statistical result shows that the SOE sector's size is positively correlated with a city's level of welfare provision. So, I expect that the cities with a large number of employees in the state enterprises will likely result in a high level of welfare provision. Figure 5.6.1.2 shows a conditional positive linear relationship between the number of employees (population share, weighted and actual numbers) in the state enterprises and the level of welfare provision. Table 5.6.1.2 demonstrates that 14 cities out of 24 high welfare cities have large state sectors. Six cities with small state sectors demonstrate high welfare provision, and three cities with large state sectors show low welfare provision. By contrast, 71 cities with a small state sector demonstrate low welfare effort. In other words, 58 percent of the cities with high welfare provision and around 87 percent of the cities with low welfare provision could be explained by the policy legacies without controlling other factors.

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Figure 5.6.1.2: Welfare Provision & the Size of SOE Sector

Table 5.6.1.2: High Welfare Provision as a Result of the Local SOE Sector (Employee numbers, share of employees and weighted)

High Welfare Provision

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Finally, I include the number of mass unrest incidents, in the QCA to trace the effect of popular contention. The statistical result shows that the mass unrest incident is negatively associated with a city's level of welfare provision. I expect that the cities with a large number of employees in the state enterprises will likely result in a low level of welfare provision. Figure 5.6.1.3, however, shows a conditional positive linear relationship between the number of mass unrest incidents and the level of welfare provision without controlling for other factors. Table 5.6.1.3 demonstrates that 18 cities out of 24 high welfare cities have a high number of mass unrest incidents in the 10-year period. Only 3 cities with a low number of mass unrest incidents demonstrate high welfare provision, and 9 cities with a high number of mass unrest incidents show low welfare provision. By contrast, 77 cities with a low number of mass unrest incidents demonstrate low welfare provision. In other words, around 75 percent of the cities with high welfare provision and 89 percent of the cities with low welfare effort could be explained by the political cleavage due to external risk without controlling other factors. Nevertheless, the effect of mass unrest incident on high welfare provision remain debatable as the regression result demonstrate negative association.

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Figure 5.6.1.3: Welfare Provision & the Popular Contention

Table 5.6.1.3: High Welfare Provision as a Result of Mass Unrest High Welfare Provision

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Figure 5.6.1.4: T ree Diagram of C onditional C ausal P ath w ay s

*Cities in bold letters belong to High Welfare Provision category Changsha, C hangzhou, Hohhot, L anzhou, Z hengzhou, Harbin, Y antai fail the robustness for HWP B aoding, C hongqing, Dongguan, Hefei, Handan, Jining, Nanchang, Nanning, Qingdao, Tangshan, Urumqi, X iamen, Y inchuan fail robustness check for population share, weight and actual number.

5.6.2 Minimizing C onditional P athways

T he previous sections demonstrate possible conditional pathways to high welfare provision (See

Fig 5.6.1.4 T ree D iagram). H owever, it can overdetermine the independent variables’ effect. S o, I use QC A to minimize conditional pathways. QC A uses simple logical principles based on B oolean algebra, which appreciates maximum causal complexities. T he B oolean analysis must meet several requirements (R agin 1987). First, only a binary value is assigned for each independent variable 103 (conditions) corresponding to the dependent variable (outcome). T he binary values demonstrate the presence (1) or absence (0) of the effect of a condition on the outcome, which also represents a binary form and not an average, i.e. ‘1’ represents ‘the outcome is obtained’ and ‘0’ represents

103 Schneider and Wagemann (2010) suggest explicitly that as part of the QC A terminology, we should avoid using the terms ‘independent/dependent variables’ instead use the terms ‘conditions/outcomes’ in the analysis.

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‘the outcome is absent.’ Second, a truth table or a matrix of ‘raw data’ in binary form (0 or 1) is necessary for qualitative comparison. The binary values of each condition have to be sorted out in a row for the outcomes. The rows represent all possible logical combinations of different conditions. In other words, if there are three conditions, each with a binary value, then there could be 2=8 possible combinations. Third, the consistency of the truth table relies on the fact that when all conditions are present, i.e. a value of ‘1’ for each condition, then the outcome cannot be negative, which means the outcome value cannot be ‘0’. In other words, a value of the negative outcome (0) in the case where all conditions are present (1) will make the truth table inconsistent. Likewise, a positive outcome (1) in the case where all conditions are absent (0) will also make the truth table inconsistent. Finally, if there are contradictory rows, i.e. both positive and negative outcomes with the presence or absence of the same conditional pathways, then it needs to be resolved with in-depth case analysis or through Ragin’s (1987: 113-121) proposed alternative solutions.

Theoretically, a truth table with three conditions can have 7 combinations of positive outcomes. So, if A = ‘High Fiscal Capacity,’ B = ‘Large SOE Sector,’ and C = ‘Large Mass Unrest,’ then all possible combination of conditional pathways to all outcomes includes,

Outcomes = abc + Abc + aBc + abC + ABc + AbC + aBC + ABC

Table 5.2.1 shows the truth table based on the results of each conditional pathways. We can observe that the entire truth table is consistent. It shows that three conditional pathways are leading to cities with high welfare provision (HWP).

HWP = ABC + ABc + AbC + Abc + aBC + aBc

At the same time, five pathways lead to cities with low welfare provision (LWP).

LWP = Abc + aBC + aBc+ abC + abc

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Table 5.6.2.1: QCA Truth Table

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The second step is to logically minimize the conditional pathways to avoid redundancy of any single pathway. We will first eliminate each redundant pathway to the least number of conditions with high welfare effort. Second, we will avoid all minimized conditions with contradictory outcomes.

ABC can be combined with ABc to produce AB (12 cities, row no. 1 & 2)

ABC can be combined with AbC to produce AC welfare (6 cities, row no. 3)

ABC can be combined with Abc to produce A  high & low welfare (2 cities, row no. 4 & 7)

ABC can be combined with aBC to produce BC  high & low welfare (3 cities, row no. 5 & 8)

ABC can be combined with aBc to produce B  high & low welfare (2 cities, row no. 6 & 9)

ABC can be combined with abC to produce C  low welfare (3 cities, row no. 7)

The result demonstrates two pathways (AB & AC) that lead to high welfare provision cities. In other words, if any city that has high local fiscal capacity (A) and large state sector (B), then we will observe the development of high welfare provision during the long period of 10 years. And if any city that has high local fiscal capacity (A) and large mass unrest (C), then we will observe the development of high welfare provision during the long period of 10 years. This condition represents 17 cities in China (Beijing, Chengdu, Dalian, Foshan, Guangzhou, Hangzhou, Jinan, Kunming, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou (JS), Tianjin, Wuhan, Wuxi). Nevertheless, while the AB path reinforces the importance of the SOE sector, which was demonstrated by the earlier logit regression analysis, the AC path remains inconclusive given it contradicts the negative association in the regression analysis. Granted the negative association demonstrated negligible coefficient, the importance of the positive effect evident in the tree diagram cannot be discarded easily.

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Among the ambiguous cases in the tree diagram, the first case is Jinhua which has high fiscal capacity but does not have either large state sector or large-scale mass unrest, and unlike Baotou, it does not demonstrate high welfare provision. Jinhua’s failure to produce high welfare provision can be explained by how it chooses to spend its use of fiscal resources. Jinhua belongs to the rich province of Zhejiang. Its economy is heavily reliant on diverse private enterprises. Despite its high fiscal capacity, it spends only 2.92 percent of its GDP to welfare spending, but its spending on public security is one of the highest, second among all cities with low welfare provision (Fig 5.6.2.1). Thus, in making trade-offs between welfare and security, Jinhua appears to disproportionately commit to public security as a tool for regime stability which explains why it does not have high welfare provision.

Figure 5.6.2.1: Jinhua (Contradiction Case)

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The other two ambiguous cases are Taiyuan and Changchun. Taiyuan is almost an opposite case of Jinhua. It has low fiscal capacity, a large state sector, and small-scale mass unrest incidents and unlike Guiyang, it has high welfare provision. Taiyuan’s high welfare provision can be explained by its ‘spending effect’ (Ross, 2001). The city has low fiscal capacity but spends on average a staggering 4.56 percent of its GMP in welfare spending during the ten-year period. This level of welfare spending is above the average (3.94 percent) of all high welfare provision cities (See Table 5.2.2.1). Only five cities spend more than Taiyuan. Taiyuan’s spending pattern can be rooted in its connection to natural resources. It is therefore not surprising that the number of doctors per thousand (4.74) and teachers per hundred (6.61) in Taiyuan is higher than the average of high welfare provision cities (3.55 and 6.57 respectively). Taiyuan is the capital of Shanxi province, which is the largest coal producing province in China and China is the largest coal producing in the world. Subnational effect of natural resource suggests that authoritarian leaders with decentralization and dependence on natural resources can choose to increase public spending in order to buy public support and create patronage network for regime stability (Gervasoni, 2010; Goldberg, Wibbels and Mvukiyehe, 2008; McMann, 2006). Therefore, Taiyuan’s decision to spend more in welfare spending using natural resource revenue for mass cooptation could explain why it provides high welfare provision. In other words, Taiyuan’s contradiction could be explained by its dependence on the rentier economy. 104

Changchun, by contrast, does not have natural resources. However, it belongs to the Northeast region of China with strong policy legacies of social contract due to its concentration of state- owned enterprises. In the aftermath of the SOE reform in the late 90s, the Northeast region was one of the major hotspots of mass unrest by workers who lost their ‘iron-rice-bowl’ social security. However, Shenyang and Harbin, the two provincial capitals, also belong to Northeast China. Shenyang has a high welfare provision because it has high state capacity and strong policy legacies of a social contract. By contrast, Harbin lacks a high level of welfare provision because it does not have high state capacity even though it has strong policy legacies of a social contract. There are

104 I should mention that I could not control the effect of natural resource dependence because credible data for all the cities during the period of 2006-2016 are not available.

161 two differences between Harbin and Changchun. First, Harbin lacks a large number of popular contentions in contrast to Changchun. Second, Changchun’s high welfare provision despite not having high fiscal capacity can be explained by its reliance on central and provincial transfer. Changchun is the only city with the lowest per capita budget surplus after welfare expenditure among the high welfare provision cities (Fig 5.6.2.2). In other words, high welfare provision must be more costly for Changchun compared to other cities with high welfare provision. As part of the regional redistribution strategy, the central government’s transfer share to cities with high-level revenue is low. Most of it is transferred to cities with a low level of revenue. Other scholars showed the importance of central transfer and subsidy in welfare spending in China (Dickson et al., 2015). Therefore, with low state capacity, Changchun must be relying on central and provincial transfer more than the other 27 high welfare provision cities. In other words, central and provincial transfer provide a credible assumption about why Changchun is an exception.

Figure 5.6.2.2: Changchun (Contradiction Case)

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In sum, the QCA provides an insight into the complex nature of welfare expansion at the city- level. On the one hand, it provides two conditional causal pathways for cities in an authoritarian regime to high welfare provision. A combination of high fiscal capacity and large state sector or high fiscal capacity and large-scale mass unrest provide cities in an authoritarian regime a pathway to high welfare provision in the long-term. There are only a few exceptions which can be explained with contextual analysis which nonetheless demonstrates the complexity of a real-world welfare expansion. Perhaps, Hurst’s (2009: 63) remark is apt in appreciating the complexity of welfare development in China. “There was no clean progression of centrally initiated comprehensive programs [of welfare expansion]. Rather, Chinese welfare reform was a hodgepodge of half- finalized and half-adopted policies (the implementation of which frequently had to be negotiated between individual forms and relevant state agents) – a variant of Chinese ‘welfare pluralism’.”

5.7 Case Study: Comparing Hangzhou with Changchun

In this section, I present a brief comparative case study of Hangzhou and Changchun. I choose Hangzhou and Changchun because both cities with large state sectors and mass unrest incidents have a very different level of fiscal capacity yet ended up with high welfare provision. So, the brief comparative case study's objective is to demonstrate how different levels of fiscal capacity can conditionally lead to welfare expansion in the presence of a large state sector. Simultaneously, the comparative analysis connects the previous chapter's findings, which focused on local leaders' short-term budget priorities, to this chapter's quantitative findings and QCA to develop a comprehensive picture of the two cities' welfare expansion. I use qualitative interview and statistical data to support my arguments.

I demonstrate that the fiscal capacity conditioned the causal pathway from the expansion of the local state sector to the expansion of welfare provision in Hangzhou and Changchun in a differentiated way. Hangzhou was able to spur a capital-intensive entrepreneurial economy, strengthened its private sector and quickly became one of the heartlands of China's economic growth. It also strengthened the local fiscal capacity. However, the Party-state's withdrawal from welfare provision in the 80s and two decades of privatization and liberalization worsened welfare access. It led to popular discontent and a legitimacy crisis for the Party-state. By contrast, Changchun failed to make a successful transition from the policy legacies of the Maoist era and

163 overreliance on its SOE sector to a more productive economy. The Maoist era social contract created a popular attachment to the welfare state. Its breakdown led to widespread public backlash in the aftermath of the SOE restructuring in the late 90s. Widespread popular contention put immense pressure on the local government to maintain social stability. Thus, both Hangzhou and Changchun saw a crisis of welfare unfolding when the Hu-Wen administration came into power.

However, the new administration's push for policy reorientation towards a more social justice- based development prompted across-the-board social policy reform, albeit with a fragmented approach. Concurrently, the statist group became a powerful force to advance the Party-state's socialist agenda. At the local level, the statist group in Hangzhou was empowered by expansion and strengthening of the local SOE sector to safeguard the Party-state's authority against the growing prominence of the private sector, i.e. Deng's policy legacy. The SOE sector received privileged access to social security and welfare benefits and became the flag bearer of the Party's socialist agenda and a loyal support-base for the Party-regime. On the one hand, the fiscal burden of social security was met by socialization of risk using the large pool of the formal sector labour force in the expanding SOE sector as well as the strong private sector. On the other hand, the strong fiscal capacity also helped the local government expand welfare provision, such as spending more in education for the local economy's productive purpose. This explains why Hangzhou belongs to the productive policy regime where the local leaders prioritize education spending in Hangzhou and why its annual social security spending is positively associated with its SOE sector size. In short, the Party-state established a new market social contract in Hangzhou, where the SOE sector became a loyal base for the regime in return for privileged access to social security and welfare benefits. By contrast, the statist group in Changchun regained its power as the local state failed to reduce its reliance on the SOE sector. As a result, as a source of employment generation, the SOE sector saw its labour force ultimately expanding. At the same time, the local state, which remained stuck with poor fiscal capacity and a population with popular attachment to the Maoist era welfare state, was helped by central and provincial subsidy and transfer to create a more protective welfare regime for maintaining social stability. It explains why Changchun belongs to a protective policy regime where local leaders prioritize social security spending in their annual budget spending (see the diagram in Fig 5.7.1).

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Figure 5.6.2.1: Hangzhou & Changchun Comparison

Hangzhou Changchun

Successful transition to Failure to alter the legacy of productive private economy large state sector

Strong fiscal capacity + Weak fiscal capacity Mass unrest + Mass unrest

Gradual strengthening of the SOEs for ensuring Party’s authority & survival Long-term Effect on Welfare Provision Provision Welfare on Effect Long-term Priorities Priorities Welfare on Effect Short-term

Productive interest of Fiscal support from local economy central/provincial influences local government leaders’ strategic spending on education policy Local leaders prioritize social security spending State sector for social influences local stability leaders’ social security spending

High level of welfare provision

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5.7.1 Types of Local Economy & Local Fiscal Capacity Economic opening and reform initiated during Deng's era created favourable conditions in the long run for the local governments for addressing rising public welfare needs, albeit subject to local leaders' political motivation. One of the county budget officials' remarks can sum it up well, "The economic base determines the superstructure, and the economics and politics influence each other and complement each other. The level of economic development of a region affects the policy decision-making of a region" (INTCCBO0514). Economic development's effect on local fiscal capacity is clearly observable along the coastal regions, particularly at the municipal level. Hangzhou, the provincial capital of Zhejiang, is one such example. The city has been one of the major economic centres of China's Yangtze River Delta. Serving as one of the three-spoke cities 105 to the economic hub of Shanghai and often a competitor, Hangzhou quickly became known for economic transformation first through a phase of slow growth, relying on labour and resource- intensive collective enterprises until the late 90s and then, through a phase of accelerated growth, relying on capital and technology-intensive private economy. While Hangzhou's competitor cities like Nanjing depended on external FDI support and closer ties with Party-cadres, Hangzhou pursued a more endogenous-private economy. Indeed, Hangzhou's private economy's entrepreneurial base was spurred by the initial lack of support from the central government in the '80s (INTHZFR0628). Privatization and liberalization accelerated, accompanied by the Party- state's withdrawal from welfare provision during the growth of its private economy. As a result, a crisis in welfare provision ensued where education and healthcare became immensely costly for the general population and lack of social security aggravated life-course risk. Apart from some anecdotal examples, credible data on popular discontent from Hangzhou's welfare crisis in the '80s and '90s is hard to produce. However, the scale and intensity of the welfare crisis from privatization and liberalization was a country-wide phenomenon, and Hangzhou was no exception to that. In short, although Hangzhou was able to take advantage of economic reform, the Party-state's concomitant withdrawal from welfare provision created a legitimacy crisis and popular discontent by the time the Wen-Hu administration came into power in 2002.

105 Nanjing and Suzhou being the other two spoke cities.

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In contrast to Hangzhou, Changchun, Jilin's provincial capital in the Northeast, otherwise known as China's rustbelt, failed to take advantage of China's post-Mao economic transformation. Instead, it remained one of the centres of China's command economy, dominated by the SOE sector with heavy industries and particularly developing a dependence on its automobile industry, for which it is often called the 汽车市 qìchē shì or the automobile city. The city had 5,016 industrial enterprises, and a staggering 68 percent of the industrial workforce belonged to the SOEs (Rithmire, 2015: 143-162). The large SOE sector created a popular attachment to the welfare state, where employees' welfare needs were met through their work unit. The social contract between the Party-state and the employees ensured 'cradle-to-grave' welfare security in return for their service to the economy and implicit consent to the Party's authority. However, this social contract was fragile as the loss-making SOEs were overburdened with welfare commitments that they cannot financially sustain. It finally led to the painful restructuring of the SOEs sanctioned by the Fifteenth Congress of the CCP in September 1997. In 1998, the SOE sector saw the highest number of bankruptcies and 79,000 layoffs in a single year alone. The long-term effect from the legacy of over-reliance on the SOE sector and its poor economic output left a long-lasting effect on the region's economic and fiscal health. For example, Changchun has been trying to revive its private sector, but the result remains poor. One interviewee noted, "Some private enterprises over time develop but very slowly and eventually go bankrupt (INTCCBO0514)." In contemplating the Northeast region's general trend, symptomatic of Changchun's economic plight, one public security official emphasizes the constant problem of brain drain from the Northeast region to the coastal south of China (INTSYPW0521). Failure to revive its economy and fiscal capacity further accentuated the financing problem of pension and social security of its ageing population and many older former employees of the SOEs (INTHZSE0629). In short, the 90s SOE restructuring and the dismal economic condition and weak fiscal capacity broke the social contract and the trust between the Party-state and the SOE employees who hitherto had been loyal to the cause of the Party-state's socialist agenda. In the aftermath of the mass layoff in the SOE sector, Changchun became an epicentre of mass unrest in the Northeast by the time the Hu-Wen administration started its term in 2002 (Frazier, 2004; Hurst, 2004; Hurst, and O'Brien, 2002).

Figure 5.7.1.1 shows that the per capita GMP gap between Hangzhou and Changchun was initially small until the late 90s. However, it gradually enlarged when Hangzhou made a successful transition to capital and technology intensive industry, but Changchun remained succumbed to its

167 legacy of dependence on the state sector. We also see the corresponding difference in per capita fiscal capacity, based on general budgetary revenue, between Hangzhou and Changchun in Figure 5.7.1.2. Hangzhou's fiscal capacity was on the track of an exponential increase by the time the Hu- Wen administration started their term. However, Changchun's fiscal capacity remained lacklustre for the long-term.

Figure 5.7.1.1: GMP (Per Capita)

Hangzhou Changchun

Figure 5.7.1.2: General Budgetary Revenue (Per Capita)

Hangzhou Changchun

20000

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5.7.2 Reconsolidating Party-State Power through SOE Expansion

Popular discontent from the welfare crisis in large cities like Hangzhou and Changchun, both in urban and rural areas, prompted the Hu-Wen administration to reorient social and economic policies. They crafted a party-wide campaign of 'harmonious society,' which vowed to make development more inclusive and expand welfare provision. Implementation of welfare policies, however, took a variant approach at the municipal levels. I first explain the local leaders' short- term political incentives for addressing the welfare crisis in these two cities based on the findings from the previous chapter (chapter four). Then I explain how long-term welfare provision was ultimately influenced by the level of fiscal capacity and local state sector based on the findings from quantitative and QCA analysis of this chapter.

Local leaders' short-term political incentives behind the expansion of different welfare policies were not the same in a different cluster of cities. Education was prioritized in cities such as Hangzhou that belong to productive policy regime. By contrast, local leaders prioritized social security in cities such as Changchun that belong to the protective policy regime. Hangzhou, with a strong fiscal capacity, focused on making education inclusive to develop human capital for the local economy, which has been a major source of budgetary revenue. Thus, for the local leaders in Hangzhou, expanding education was a strategic choice for its productive economy. It was an instrumental tool to address the legitimacy crisis due to privatization and liberalization from the Deng era. By contrast, for the local leaders in Changchun, expanding subsidy for welfare benefits was a strategic choice for maintaining social stability. Social security expansion was an instrumental tool to address the legitimacy crisis from the breakdown of the iron-rice-bowl commitment.

First, I explain the short-term policy motivations of local leaders in Hangzhou and Changchun. Hangzhou made several initiatives both in education and healthcare to make access to welfare services more inclusive in response to the widespread public discontent from privatization and liberalization during Deng's period. The city attaches great importance to education. The local government's emphasis on transitioning from labour and resource-intensive industry to capital and technology-intensive industry made education an important policy priority for human capital development. According to the 'Decision of Hangzhou Municipal People's Government on Deepening Reform and Accelerating Development and Taking the Lead in Realizing

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Modernization of Basic Education' ( 杭州市人民政府关于深化改革加快发展率先实现基础教育现代化的决定 ) of 2002, education was adopted as a 'strategic priority for development' ( 优先发展的战略地位 ) to build a 'strong economic city' ( 经济强市 ). Even earlier, the city started a trial program of annual evaluation commencing from 1996 to meet a high standard of education achievement and transform its townships to 'strong educational towns' ( 教育强镇 ). According to the Notice of Hangzhou Municipal People's Government on the Gradual Implementation of Free Compulsory ( 杭州市人民政府关于杭州市逐步实施免费义务教育的通知 ), more than 80 percent of the towns in Hangzhou received the 'strong education town' status after evaluation by 2005 (Hangzhoushizhengfu xinxi gongkai , 2016). Additionally, the entire city began eliminating miscellaneous fees in compulsory education from 2006 and textbook fees from 2007 in urban and rural areas (Hangzhoushizhengfu xinxi gongkai , 2013). As a result, it is not surprising that local leaders in Hangzhou have prioritized education spending over healthcare and social security spending. Moreover, when it comes to making a strategic decision on budget spending, local leaders in Hangzhou were likely to focus on education spending in a way that could ensure their promotional prospects. They would increase education spending particularly at the beginning and end of their term, when prospects for promotion is low, while increasing spending in economic projects during the mid-years of their tenure-term, when the prospect for promotion is high (chapter 4). Figure 5.7.2.1 shows that per capita education spending gradually increased since 2000 but jumped in 2007 to meet the expenses of city-wide free basic compulsory education. Between the years 2007 and 2016, Hangzhou's average per capita spending in education was 2020 RMB, which was 16 percent more than the average spending of the cluster of cities belonging to the productive welfare policy regime. Simultaneously, in expanding free and basic education, Hangzhou also took pioneering policy initiatives to address the education need of the most disadvantaged group, the children of the migrant workers (INTHZEE0716). In sum, this shows the local Party-state's effort to focus on education and make education services more inclusive in Hangzhou. The symbiotic relationship between education spending, human capital development and local economic development is complemented by strong fiscal capacity at the local level and helped address the legitimacy crisis from the high cost of education.

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Figure 5.7.2.1: Per-capita Education Spending (RMB) in Hangzhou

By contrast, many layoffs from the SOE reform in the late 90s created pressure on the local government in Changchun to maintain social stability. 'Mass unrest' in the form of protest and demonstration became widespread in the aftermath of the SOE restructuring in Northeast China, and Changchun was one of the epicentres. The popular contention manifested the policy legacy of the Maoist era social contract, which created a popular attachment to the welfare state, and further revealed a legitimacy crisis for the Party-state's authority. Given stability maintenance has been a 'priority target with veto power' ( 一一一一 yī piào fǒujué ) as local leader's promotional requirement, and the local Party-state were left with few policy tools to address the problem. To address the immediate need for maintaining social stability, the local government used in-kind subsidy in housing, pension and other forms, and minimum livelihood assistance to contain mass unrest (Rithmire, 2015: 151-156; Hurst, 2009; Frazier, 2004; Solinger and Hu, 2012). Changchun, however, had a low fiscal capacity, which resulted from its failure to take advantage of economic 500 reform during Deng's era and its dependence on low-yielding SOEs (Figure 5.7.2.2 and 5.7.2.3). As a result, the fiscal burden to meet pension expenses of the hundreds of thousands of former SOE employees and to 'buy-off' dissenters for maintaining social stability was overbearing for

171 local leaders. To address the gap in their fiscal capacity, subsidy and transfer from upper-level central and provincial governments became a critical support source to maintain social stability. Welfare subsidy, in fact, has been constantly exploited as a tool for stability maintenance in the entire Northeast (INTSYPW0521). Figure 5.7.3 illustrates the comparative level of per capita central/provincial level subsidy for Changchun for 2005, 2006 and 2007. 106 In these three years alone, Changchun received almost double the per capita subsidy Hangzhou received. Not to mention, the impact of the subsidy on households should be more significant in Changchun, given its lower living expenses compared to Hangzhou. These annual subsidies were likely to motivate local leaders to prioritize social security spending in the short-term, which was also argued by Dickson et al. (2015) and Ratigan (2017). Changchun also received an in-kind subsidy for education during these years. For example, the city received subsidies of 77 million RMB for teachers' salary in primary and secondary schools (长中科中中中中中中社中中中 zhōng xiǎoxué jiàoshī gōngzī zhuǎnyí zhīfù bǔzhù ) compared to only 25 million RMB subsidy to Hangzhou. The higher level of subsidy transfer to Changchun also suggests that despite weak fiscal capacity, the city has been able to provide a higher level of welfare provision in the long run (see the tree diagram).

Figure 5.7.2.2: Per Capita Central/Provincial Subsidy

Hangzhou Changchun

106 The data is gathered from the internal national data available publicly only until 2007.

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Second, I explain the long-term effect on welfare provision. The SOE sector's size is an important factor behind the overall welfare provision in Hangzhou in the long run, and it is deeply influenced by the Deng era policy legacy of stimulating and empowering the private market actors over the command economy. The growing importance of the private sector for the economy and the labour force, as the vast majority were employed in the private sector, eventually posed a challenge to the Party-state's authority because if the lure of unbridled capitalism sways the society with demand for more openness and personal rights, the importance of the Party and its social agenda could soon become futile and obsolete. In response, one of the ways 107 the Party-state reconsolidated its authority in the economy and re-established the importance of its socialist agenda was by strengthening and expanding the SOE sector in many cities, which empowered the state sector for a 'commanding presence' in the economy and created a loyal base for the Party-state's political agenda. In celebrating the 86th anniversary of the Party in Hangzhou, the secretary Xu Rongsen of the municipal SASAC, which played a key role in expanding the local SOE sector, emphasized the importance of strengthening the state sector (Hangzhou renminzhengfu guoyou zichan jiandu guanli weiyuanhui, 2007a). Another example is the acting mayor Zhang Hongming of Hangzhou who stressed the role of the SOE sector as the vanguard of economic development and that the goal should be to make SOEs even stronger, bigger and better with longevity ( 做做做做做做做久 zuò qiáng zuò dà zuò yōu zuò jiǔ) (Hangzhou renminzhengfu guoyou zichan jiandu guanli weiyuanhui, 2017). These statements echo Hu Jintao's assertation that "We [the SOEs] must continue to firmly hold onto the center of economic construction and unswervingly follow the path of scientific development." ( 我我我我我我我我我海海我我我我长我我运我，我维我中我科科以以学学 wǒmen yào jìxù láo láo niǔ zhù jīngjì jiànshè zhège zhōngxīn bù dòngyáo, jiāndìng bù yí zǒu kēxué fāzhǎn dàolù ). As a result, Hangzhou saw a gradual but definitive increase in the number of SOE employees from 2004 (Figure 5.7.2.3). The total number of SOE assets doubled

107 The Party also found other means to consolidate its authority. The comparative size of the private sector is larger in Hangzhou, but the Party dominates the private sector (Dickson, 2003; 2008). Howie remarks “All Chinese corporates are effectively either state owned enterprises or state overseen enterprises. And there seems to be no more to get away from that and indeed more and more effort to make it very clear the private sector is beholden to the Party.” Indeed, the largest 100 private companies in Hangzhou are obligated to assign a post to government representatives for closer supervision (Lucas, 2019, September; Wo, 2019, September).

173 in three years by 2007, and the municipal SOE economy accounted for half of Zhejiang province's state-owned economy (Hangzhou renminzhengfu guoyou zichan jiandu guanli weiyuanhui, 2007b). Zhu, Webber and Benson (2010) also note that Hangzhou's strong industrial base was soon represented by large share of SOEs. 108 The large state sector helped 'contribute to the goals set by provincial and municipal party committees' ( 以为为为为为全为为社为为为为硬为为为为 Wèi shíxiàn shěng wěi, shìwěi tíchū de fèndòu mùbiāo tiānzhuānjiāwǎ ); in other words, helped develop a base that toe the Party line (Hangzhou renminzhengfu guoyou zichan jiandu guanli weiyuanhui , 2007). In return, the SOE employees received privileged access to welfare benefits and social security, which established a new social contract in China's socialist market economy. However, the new social contract became financially viable only because the large educated labour force in the formal private and the state sector provided a large pool for the socialization of risk, which helped the local government bear social security expenses. For example, the standard contribution- based urban employee insurance for medical care and pension had a large consumer base, which had the need and affordability for a quick uptake. In other words, the large pool of risk socialization was the financial enabler of social security expansion. The average uptake for medical, pension and unemployment insurances as a share of the local population in Hangzhou between 2011 to 2015 were 82 percent, 74 percent and 45 percent, respectively. 109 Only six other cities, Beijing, Shanghai, Guangzhou, Xiamen, Suzhou and Foshan, had higher uptake than Hangzhou. In sum, the expansion of social security, due to the large state sector and other welfare provision in education and healthcare, complemented by strong fiscal capacity, established a new social contract under the socialist market economy in Hangzhou.

108 The expansion of the state sector in Hangzhou is also not easy to determine empirically. Many subsidiaries in arms- length of SOEs that seem private but could also have strong state influence. Rabinovitch (2012, November) aptly writes, “In many cases the advance of the state is less obvious. Rather than state-owned behemoths, the protagonists are smaller, often indirectly owned by local governments through financing vehicles.” 109 Based on the City Statistical Yearbook.

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Figure 5.7.2.3: Changes in the Size of SOE Sector in Changchun & Hangzhou

By contrast, Changchun, which had been historically a state sector stronghold, illustrates a different picture. If the empowering of the private sector spurred the Party-state to strengthen the state sector in Hangzhou, it is the aftermath of the SOE restructuring in the late 90s that led to the recuperating of the power of the statist group in Changchun. On the one hand, restructuring led to the consolidation of large SOEs by "grasping larger enterprises while letting go of the smaller ones" (抓大放小 zhuā dà fàng xiǎo ). The restructuring made the remaining consolidated SOEs more powerful while overburdening local government to address mass unrest by former SOE employees who lost employment and pension. On the other hand, Changchun's repeated effort to attract capital and investment to reduce its reliance on large state sectors remained unsuccessful. Only Shenyang in China’s Rustbelt provinces was able to break through with local revival of economy and, subsequently, better state capacity (INTSYJS0522; INTSYJD0522; INTSYSO0522; INTSYLS0522; INTSYTA0522). 110 As a result, the Changchun municipality's ability to create an alternative source for employment largely faltered.

110 By contrast, Harbin, another provincial capital of the Northeast rustbelt, has neither been able to revive its economy nor provide high welfare.

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The mass unrest from the restructuring and failure to transition to a more productive economy subsequently pressed the local government to address social protection needs and create economic sources for employment to maintain social stability. A large amount of social security spending was directed towards 'buying off' the laid-off employees who were too old to transition to other income sources. In fact, even though Changchun belongs to the protective policy regime where social security is prioritized over other welfare policies, the average uptake for medical, pension and unemployment insurances as a share of the local population in Changchun between 2011 to 2015 remained quite low, 37 percent, 25 percent and 17 percent respectively, which is the lowest among the cities with high welfare provision. 111 This suggests that a large sum of social security spending must have been used for the minimum livelihood guarantee scheme. 112 Indeed, a provincial budget committee member in Changchun acknowledged that the scheme was often used for the laid-off SOE employees and relied heavily on central or provincial subsidy and transfer (INTCCBX0518).

Moreover, the SOEs' restructuring emboldened the statist group in the long run because the SOE sector also became a solution to Changchun's unemployment problem. The size of the SOE employees in Changchun, although declined after restructuring, slowly started rebounding since 2010 (Figure 5.7.2.3). The slowly rebounding SOE sector provided three benefits in Changchun. First, became a source for employment and helped maintain social stability. A district budget official captures the SOE's importance for social stability in Changchun in comparison to the Coastal South,

While social insurance is a tool for maintaining social stability in the Northeast, its use for that same purpose is less relevant in the South where SOEs are small [in terms of the share of the local economy]. When the main objective is to alleviate the pressure from unemployment problems in the Northeast, the same problem is seen differently in the South as it is believed that the economic engine should take care of the burden of employment. Given the economy is more vibrant and entrepreneurial opportunities are more widespread

111 Based on the City Statistical Yearbook. 112 In fact, Hurst (2009: 74-76) also highlights that the expansion of the minimum livelihood scheme, dibao , became the most important relief for the laid-off workers in Liaoning province in the Northeast.

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in the coastal provinces, the laid off workers are thought to be finding their solution on their own from the economic opportunities. (INTHZBC0609)

Regarding Changchun and Shenyang, which also belong to the Northeast rustbelt, one law- enforcing official articulated,

The economic condition also created a different mindset for the central government in terms of its expectation from the Northeast region. They expect less on economic output and innovation but more on maintaining social stability. It created a path dependency such that today, social welfare became an instrument for immediate gain for the municipal and provincial leadership. (INTSYPW0521)

A provincial budget committee member also reiterated the same point,

There is a different type of expectations depending on the region. The central government expects more on economic development and innovation from the South but whereas in the North, the chief target is to maintain stability. Understanding variegated expectations and incentives in different level is key to understand the micro-mechanism of policymaking, implementation and outcomes [of welfare policy]. (INTCCBX0518)

Thus, the enlarging and strengthening of the SOE sector for stability maintenance created a large pool of risk socialization, which along with the subsidy from the central government became the financial enabler of Changchun’s social security expansion.

Second, the large SOE sector provided a strong patronage base of loyal supporters for the Party- regime. The municipal SASAC in Changchun that is responsible for advancing the Party's agenda in the state sector often plays a critical role in educating SOE officials about the Party's goals, building and strengthening the Party organization inside the SOEs and improving grassroots party organizations in the community. For example, the Party committee in the Changchun SASAC arranged a six-day long training and education workshop for more than 50 party members from various SOEs to review, promote and strengthen the history and spirit of the Party ( 回顾弘扬党的历史，加强系统党务干部党性修养 huígù hóngyáng dǎng de lìshǐ, jiāqiáng xìtǒng dǎngwù gànbù dǎngxìng xiūyǎn g) (Changchunshi renminzhengfu guoyou zichan jiandu guanli weiyuanhui , 2011). The patronage base of the SOEs thus helps advance the Party's political agenda, and in

177 return, the employees enjoy privileged access to supplementary welfare benefits, second best to the benefits accessible to government employees.

Third, the labour force in the formal large SOE sector and relatively weak private sector provided a large pool for socializing risk that helped to standardize social insurances. The experience from the '90s SOE reform and the ongoing pressure to make SOEs efficient while ensuring a strong, loyal base of the state sector for regime stability in return for privileged welfare benefit created the need to distribute social risk to help the local government afford the cost of social security. No wonder Shenyang, another SOE-dominated city in China's 'rustbelt,' was one of the first cities to initiate a pilot project for social insurance in China. In Changchun, the provincial capital of the neighbouring province of Shenyang city, the social pool of the educated labour force in the large SOE sector and the weak private sector soon allowed the local government to accomplish the goal. As a result, Changchun, with its large state sector, became part of the protective welfare policy regime where local leaders prioritized spending in social security.

To conclude, both Hangzhou and Changchun demonstrate two separate conditional pathways to high welfare provision. Hangzhou saw success under Deng's policy of empowering the private economy, which later became part of the reason to spend more in education and expand its SOE sector for re-establishing the Party's authority. In Changchun, by contrast, the legacies of the Maoist social contract in the aftermath of the 90s restructuring and the city's failure to transition to a more productive economic model led to more spending in social protection and the re- empowering of the statist group. As a result, both Hangzhou and Changchun ended up expanding the SOE sector with its large employee base. In Hangzhou, high fiscal capacity and large SOE sector became the critical force behind expanding its welfare provision. In Changchun, by contrast, the rebounding SOE sector and central/provincial subsidy and transfer in the absence of high fiscal capacity became critical factors behind its expansion of welfare provision.

5.8 The Remaining Missing Piece of the Puzzle: Segue to the Next Chapter

In the previous chapter, I demonstrated that the local state sector's size is an important factor motivating local leaders' welfare priorities in the short run . This chapter further explained that the

178 state sector determines welfare provision in a city in the long run , too. I used quantitative analysis, QCA, and a brief comparative case study to explain how the size of the SOE sector determined whether a city would end up with high or low welfare provision in the long run. The arguments, both in the last and this chapter, however, depends on the implicit social contract between the Party-state and the SOE employees, where the assumption is that the SOE employees prefer the status quo, and hence help to maintain the stability of the regime, in return for privileged access to welfare benefits. So, the evidence that the SOE employees actually have privileged access to welfare benefits remains until now the missing piece of the puzzle. In the following chapter, I use three household finance survey data to examine whether the SOE sector employees actually have special access to welfare benefits despite the Party-state's effort for broad-based welfare expansion.

179

C hapter 6

Im plications of W elfare E xpansion on R egim e

S tability: H ow P rivileged is the S tate S ector?

6 . 1 Introduction

In this chapter, I examine data from a nationwide household-finance survey, conducted in 2015, 113 2013 and 2011, to examine who benefit most from C hina's recent welfare expansion. T he main objective of this chapter is grounded in the previous chapters' findings. In the previous chapters, I demonstrated that the state sector's size, particularly the SOE sector, can determine the local government's welfare policy priorities. Furthermore, the SOE sector's size can also determine a city's local welfare provision level. T hese findings suggest that the S OE sector is a crucial political constituency for the single-party regime. The presumed social contract between the state's stakeholders and the ruling Party is that as long as the state sector employees receive privileged welfare coverage and benefits, they will remain a loyal support base for the authoritarian Party- regime, ultimately enhancing regime stability. T he argument, however, stands strong only if we can demonstrate that the SOE sector, in fact, benefits exclusively from the welfare expansion, which is the main focus of this chapter's analysis. In short, the main objective of this chapter is to consolidate the link between welfare expansion and regime stability.

In this chapter, I demonstrate that the SOE employees have gained most compared to the employees in other state and non-state sectors after the expansion of social security, controlling for other factors. T he SOE s are the largest employee group that is likely to be covered by pension, unemployment, maternity, and work injury insurances. A lthough medical insurance has the broadest scope for all employment sectors, the SOE employees are more likely to be covered by

113 T he survey is developed and conducted by the Survey and Research Centre for China Household Finance which is based in Southwestern University of Finance and Economics and the Research Institute of Economics and Management.

180 the Urban Employee Basic Medical insurances (UEBMI), which has the highest reimbursement rate. They also enjoy a higher pension benefit. Granted, there is a general trend towards broadening social insurances' scope in the last few years. However, social insurances' scope and generosity have largely been disproportionately concentrated in the state sectors, particularly among SOEs' employees. The findings further consolidate the political importance of the SOE constituency for the Party-regime. The SOE sector's privileged access to social security coverage and benefit, in addition to their closer proximity to the Party-state and recent growth in their labour force, despite growing pressure for reform (shown in chapter 5), only demonstrate the Party's high political stake in the SOE sector. The findings of this chapter underline the mutually beneficial social contract between the growing SOE sector and the Party-state. However, the Party's cooptation effort is not only limited to the SOE sector. Broader socialization of risk led to expanding social security coverage to other sectors relative to their earlier years. As a result, although the non-state sectors benefit less than the SOE sector, the level of satisfaction in social security shows little difference among the employment sectors. In other words, the Party has not only been able to strengthen its social contract with the state sector with privileged access to welfare coverage and benefit, but it has also been successful in renewing a social contract with the non-state sectors, which gained little from the state's withdrawal from welfare provision in the late 80s and 90s but now have access to coverage and benefit. Thus, the socialization of risk became an effective tool for Party- regime's mass-cooptation effort and, consequently, for ensuring regime stability. In other words, the Party regime has been effective in 'making welfare work' for its authoritarian stability.

6.2 Implications of Welfare Expansion & Regime Stab ility

The link between welfare expansion and regime survival in China's single-party regime is rooted in two distinct explanations of mass-cooptation. The first explanation is defined by a market social contract, advanced by Cook and Dimitrov (2017) and based on Cook's (1993) earlier works on the communist regimes' social contract. The second explanation is based on organizational proliferation, argued by Huang (2013, 2015) and built on earlier arguments advanced by Haber (2007). As succinctly presented by Mares and Carnes (2009), both streams of explanation demonstrate one of the three equilibria that work to solve an 'autocrat's dilemma' (Wintrobe, 1998). Autocratic leaders are constrained by the need to rely on the population for regime support and

181 stability but simultaneously are under constant threat by the prospect of a challenger from within the population and the regime. Apart from using brute force for total control, two other equilibria for regime stability relies on autocrats' ability to exploit distributive resources. One equilibrium is collusion with a small group. In this case, a narrow but generous distribution of benefit creates regime loyalists whereby an authoritarian regime will gain stability and critical regime support in return for the exclusive benefit to the targeted group. Thus, exclusive but generous support to targeted groups creates a welfare regime with low coverage and high generosity. The majority of the population are largely excluded from such a narrow scope of welfare. By contrast, the third equilibrium is based on mass-cooptation. Scholars highlight two approaches to mass-cooptation: social contract and the logic of organizational proliferation, two sides of the same coin. One emphasizes the stability through implicit consent, and the other underlines a 'divide and rule' tactic. In both cases, on the one hand, welfare expansion can be broad with uneven generosity and create regime stability by increasing the popular stake in the regime. The Soviet welfare state is one such example. Cook (1993) shows that the Brezhnev government maintained full employment, price subsidy and consistent spending in welfare policy even at great cost and, in return, gained workers' compliance. On the other hand, welfare could be fragmented, which helps coopt a broader population and create regime stability by simultaneously creating division and weakening any particular group or leader's ability to challenge the authoritarian leader or party. Some examples include the populist authoritarianism under Peron in Argentina, Brazil's welfare expansion under Getúlio Vargas and Mexico's one-party regime under PRI. Both streams of explanation have been applied to China's welfare development with limited scope and analysis. They either overemphasize political cohesion or take a narrow scope of analysis.

For example, Cook and Dimitrov (2017) modify the social contract thesis and apply it broadly in China's socialist market economy. They argue that the earlier social contract's reconstruction process ensued in the aftermath of the SOE restricting in the late 90s. The dismantling of the socialist iron-rice-bowl contract led to a new market social contract where expansion and standardization of welfare services and benefits took place simultaneously to strengthen the market and continue some of the older subsidies. The Party leaders operationalized the new social contract by studying petitions and protests as critical inputs from the citizens for new welfare initiatives. As Cook and Dimitrov underline, a range of new social security for urban and rural citizens, new labour rights under the Labour Contract Law passed in 2007 and maintenance, and expansion of

182 consumer subsidies created the basis of the market social contract that has a broader scope and cultivate popular quiescence in return for regime stability.

Some scholars look further into Cook and Dimitrov's thesis of social contract with a class perspective. For example, Li (2013) argues that the middle class in China has a high level of satisfaction with their standard of living and supports the Party-state and prefers maintaining the status quo. Taking a narrow scope on the housing policy, Tomba (2010) argues that housing and homeownership's privatization created a broad and shared interest among the urban middle class. Echoing He (2006), Tomba contends that this middle class may prefer more autonomy and support a conservative social order where they benefit from their proximity to the Party-state in return for regime stability. Few scholars, however, make an explicit link between the middle class and the state sector. Among them, Wang and Davis (2010) emphasize the importance of looking at the intersection of the middle class and their occupational sectors. They argue that the upper-middle class is crucial to China's regime stability, as most of them tend to work in the state sector. Tang and Unger (2013) also argue that particularly the 'educated middle class,' who disproportionately work in the SOEs, government and public sector, and benefit from the socialist economy are the 'bulwark' of the Party-regime. Similarly, using survey data and interviews from three major cities, Beijing, Chengdu and Xi'an, Chen (2013) shows that especially the part of China's new and growing middle class that works in the state sector is more supportive of the Party-state. By contrast, Dickson (2008, 2010) emphasizes Party cooperation of the entrepreneurial class who have become an important force of regime stability from the private sector instead of political change. Although not often explicitly mentioned, the bedrock of these class-based analyses is the implicit social contract between a growing but heterogeneous middle class and the Party-regime. The emphasis is on the political cohesion, though conditional, that creates an equilibrium for regime stability but lack a comprehensive look into the effect of China's recent welfare policies. Indeed, Gallagher & Hansen (2019) question the delicate stability achieved in the reform era as the virtual circle of growth and equality is under threat from rising inequality.

If Cook and Dimitrov's account emphasizes political cohesion under the social contract, Huang's (2013, 2015) argument, by contrast, relies on division and contention in establishing the link between welfare expansion and regime stability. According to her, Chinese society is divided into multiple groups with distinct welfare preferences, creating social cleavages and, consequently, fragmented welfare expansion. The two most critical cleavages are state and non-state sector and

183 labour-market insiders and outsiders. The state sector's proponents who are part of the labour market insiders support contributory and payroll-tax based social insurances. By contrast, the non- state sector proponents of the labour market insiders support the privatization of welfare policies. However, the labour market outsiders of both state and non-state sectors advocate for egalitarian, universal welfare policies with targeted subsidies and benefits. On the one hand, different welfare preferences created a fragmented process of welfare expansion where social stratification has been reproduced and solidified. On the other hand, the Party-regime enhances its authority and regime stability through the 'divide and rule' tactic using fragmented welfare policies. Indeed, Huang demonstrates the stratification strengthening social cleavages through unequal access and benefit from medical insurances across employment sectors, urban and rural areas, formal and informal economy, level of education and hukou status.

Both accounts advanced by Cook and Dimitrov (2017) and Huang (2013, 2015) provide a dynamic perspective of the linkage between welfare expansion and regime survivability in China's single- party regime based on expansion-shrinkage-expansion of welfare provision. Nevertheless, the link remains weak for three reasons. First, Cook and Dimitrov's (2017) account on China's welfare expansion falls short of providing a clear empirical link between the effect of stratification from fragmented welfare on regime stability. Their implicit consent thesis underappreciates society's plurality and diverse, if not conflicting, interests among different social groups that can enjoy some degree of freedom in one-party authoritarian regimes. They fall short of taking into account how that diverse interests interact with recent welfare expansion and help maintain stability. Although Huang (2013, 2015) 's works address this empirical gap, her analysis is based only on the health insurance policy. The first of the three China General Social Survey (CGSS) datasets she uses are from 2003, 2006 and 2008. The second dataset, based on the China Health and Nutrition Survey (CHNS), was collected in 2004 and 2009. Granted, Huang's works provide a powerful argument that fragmented welfare expansion strengthens regime stability. However, the dataset is too old to capture the rapid expansion of social insurance coverage since 2011 after the 2010 Social Insurance Law. Thus, we need to expand the analysis on the link between welfare expansion and regime stability by taking a comprehensive scope that includes other social insurances in the analysis and using a more updated dataset on China's social security expansion. In sum, the few works that examine the political logic of regime survival behind China's broad-based welfare expansion demonstrate the need to revisit and examines the question with a broader scope.

184

Indeed, I aim to address the gap in this chapter by primarily examining three social insurances, namely pension insurance, medical insurance and unemployment insurance, in addition to maternity and work injury insurances. I use a dataset from the China Household Finance Survey, a household finance survey conducted nationwide in 2015, which is provincially representative. The 2015 dataset is supplemented by data from two earlier household finance surveys conducted in 2013 and 2011, which are representative of provincial and national levels, respectively. Although I take a more comprehensive policy scope and use updated datasets, I build on Huang's (2015) analysis and use two parameters, namely scope and generosity of social insurance for this chapter's analysis. The analysis does not cover private social insurances. The focus is to examine whether or not the state sectors and, more precisely, the SOE sector enjoy an advantage in the scope and generosity of social insurance in the aftermath of China's recent welfare expansion.

6.3 Analytical Focus: Scope & Generosity of Social Insurances

This chapter analyzes social security's scope and generosity, particularly taking a narrow focus on the five protections ( 五社 wǔ bǎo), i.e. pension, medical, unemployment, maternity and work injury insurances. The analytical focus on social insurance is motivated by two reasons. First, China's recent social security expansion is largely Bismarckian, i.e. they are based on employers' and employees' contributions, as in most of the social insurances. At the same time, some are supplemented by government subsidy. Given that employers and employees play a critical role in social security, it demonstrates the employment sector's importance. Therefore, it is critical how the SOE sector benefit from the social security expansion compared to other employment sectors.

Finally, and most importantly, social security plays a critical role in strengthening the social contract between the Party and the SOE sector. The social contract between the SOE employees and the Party-regime is mutually constrained. The argument in chapter four was that the Party- regime has been enlarging the SOE sector because it provides a loyal support base for regime stability. Nevertheless, the relation between the Party-regime and the SOE employees is not unidirectional. When repression is costly, the Party needs to provide privileged access to vital benefits for regime support. In other words, the SOE employees will lend support to the Party- regime only when the employees have an advantage in receiving valuable benefits in return. In

185 chapter four, I demonstrated that social security had been one of the top priorities of the citizens in major cities in China. At the same time, chapter four demonstrated that local leaders' social security priorities are motivated by the local SOE sector's size. It showed that a mayor's budget spending on social security is likely to increase annually with an annual increase in the local SOE employees' size. This was not evident in the education and healthcare spending, however. Therefore, it is important to determine whether the local government's policy priorities in social security actually give advantage to SOE employees. To demonstrate that, we need to show the SOE employees actually enjoy a considerable advantage in the scope and generosity of social insurances than other non-state sectors.

6.4 General Trend on the Scope & Generosity in the Survey Dataset

The following section provides descriptive statistics illustrating the general empirical trend on who benefits most and how from social insurance expansion to develop testable hypotheses in the following sections. Figure 6.4.1 illustrates the results from the survey question “what type of pension do you participate in?”. Around 71 percent of the respondents are covered by one pension scheme, and 29 percent do not have any pension coverage. According to the figure, the Urban Employee Pension Insurance (UEPI) and the New Rural Cooperative Pension Insurance (NRCPI) have the broadest coverage among the survey respondents. The NRCPI is popular among employees in the private enterprise (15 percent), and the UEPI is popular among employees in the private enterprises (a little over 15 percent) as well as the SOE sector (around 13 percent). This translates into 71 percent of the total SOE employee respondents are covered by UEPI, which is the single most concentration of an employment sector to be covered by single pension insurance in the survey sample. However, if we look at the respondents who are not covered by any pension insurance, the vast majority of them (over 50 percent) are from the private enterprises, whereas only a small share of the SOE employee respondents are not covered. So, the SOE sector employees appear to be more likely to get covered by the UEPI, the major pension insurance besides the NRCPI that saw rapid expansion in recent years. The third-largest pension security is the public and civil service retirement pay, which is largely represented by the other state sectors, namely the public and the government sector. A similar trend is also evident from the 2013 survey

186 respondents in Figure 6.4.2. In fact, the highest coverage of the UEPI is represented by the SOE employees.

Figure 5.7.21: Pension Status (2015)

Figure 6.4.2: Pension Status (2013)

187

The UEPI is important to focus on because it is the second most generous pension scheme. Figure 6.4.3 shows that the Public and Civil retirement pay is most generous, followed by the UEPI and then in the distant third is the Urban Resident Pension Insurance (URPI). The median value of the employee's UEPI payment is 2000 RMB, which is around 500 RMB lower than the public or civil retirement payment and almost 1000 RMB more than the URPI. Given that the SOE sector employees are more likely to get covered by UEPI (see the previous Figure 6.4.1 & 6.4.2) and it is the second most generous pension scheme, the SOE sector appears to benefit disproportionately from China's pension insurance expansion. Indeed, if we look at the monthly pension pay across employment sectors for various pension schemes, the SOE sector has the highest median monthly pension pay under UEPI (over 2000 RMB). The public, SOE and government sectors also demonstrate to benefit disproportionately from the most generous pension scheme, which is the public and civil retirement pay. In sum, these figures illustrate that the SOE sector and the state sector, in general, enjoy the disproportionate benefit in terms of scope and generosity of pension insurance expansion.

Figure 6.4.3: Generosity of Pension (2015)

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The coverage of medical insurance and work injury insurance provides two stark pictures. The following two graphs (Figure 6.4.4 & 6.4.5) is based on the question, “Does the respondent have unemployment insurance?” According to the survey result, 88 percent of the population is covered by one or other medical insurance schemes compared to only 12 percent with no coverage. So, medical insurance appears to have the broadest scope in terms of its coverage. By contrast, only 23 percent of the survey respondents have unemployment insurance, and an overwhelming 71 percent of the workers are not covered. Figure 4.4 shows that medical insurance is most popular among private enterprises (over 35 percent) and ‘other’ categories (around 20 percent) in 2015. The SOE sector is in the distant third position representing a little over 10 percent of the respondents with medical insurance. The private enterprise employees also happen to have a higher share (around five percent) among the respondents. However, that translates into only 11 percent of the total respondents from the private enterprise not being covered. So, in terms of the scope of medical insurance, neither the SOEs nor the state sector as a whole appears to be privileged. A similar result is evident in 2013 (Figure 6.4.5).

Contrary to medical insurance, the SOE sector employees are more likely to be covered by unemployment insurance compared to other sectors in 2015 (Figure 6.4.4). It is the second most popular sector among the insured population, and it represents around nine percent of the total population. Although the employees in private enterprises have the most coverage, the gain in coverage (around 10 percent) is offset by over 30 percent of the employees not being covered. The state sector as a whole is more likely to have unemployment insurance. A similar trend is evident in the 2013 survey result (Figure 6.4.5). In fact, the SOE employees represent the highest share of the employees covered by unemployment insurance in 2013. In sum, the SOE employees and the state sector as a whole do not appear to have an advantage in medical insurance coverage but do have disproportionate access to unemployment insurance.

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Figure 6.4.4: Coverage of Medical & Unemployment Insurances (2015)

Figure 6.4.5: Coverage of Medical & Unemployment Insurances (2013)

Moving from scope to generosity, Figure 6.4.6 illustrates a mixed picture. The median in-patient reimbursement rate appears to be highest (around 65 percent) among collective enterprise employees. The SOE employees tie in with other state sectors, i.e. government and public sectors,

190 at 60 percent in their received median reimbursement rate for in-patient expenses. The two categories with the lowest reimbursement rate are private enterprises and ‘others’ category, around 45 percent and 40 percent, respectively. By contrast, the 2013 dataset shows that the SOE sector receives the highest median reimbursement rate (50 percent). In contrast, the collective enterprises are at the distant third position with less than a 35 percent reimbursement rate. In short, we do not see any clear and consistent advantage for the SOE sector in the generosity level of medical insurance.

Figure 6.4.5.7.26: Generosity of Medical Insurance

Finally, we look at the coverage of maternity and work injury insurances for supplementary but limited perspective as data on the level of generosity of these two insurances are not available. Maternity and work injury insurances have a very low coverage rate, only 23 percent and 29 percent, respectively. Figure 6.4.7 shows that employees in private enterprises represent the employees' largest share with maternity and work injury insurances among all employment sectors. However, they are more likely to be not covered by any of these two insurances. Among the private enterprise employees, 80 percent and 74 percent are not covered respectively by maternity and work injury insurances. By contrast, Figure 6.4.8 shows that the SOE employees represent the second-largest share of the employees covered by maternity and work injury insurances. In fact,

191 most SOE employees are likely to be covered by any of these insurances. 56 percent and 70 percent of the SOE employees are respectively covered by maternity and work injury insurances. The 2013 survey data also demonstrate that the SOE sector had an advantage in terms of coverage of the two insurances in 2013. In sum, the SOE sector again demonstrates to be privileged in terms of their access to maternity and work injury insurances.

Figure 6.4.7: Coverage of Maternity & Work Injury Insurances (2015)

Figure 5.7.28: Coverage of Maternity & Work Injury Insurances (2013)

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6.5 Hypotheses, IVs, DVs & CVs The general trend of the survey data demonstrates that the SOE sector appears to be advantageous in terms of some of the social insurances' scope and generosity. In terms of the scope of social insurances, the SOE sector is at an advantage in access to pension insurance, unemployment insurance, maternity insurance and work injury insurance compared to other non-state sectors. Regarding the generosity of social insurances, the SOE sector appears to be an advantage in pension insurance than other non-state sectors. We do not have data about the past employment history of the survey respondents receiving unemployment insurance. So, the generosity of unemployment insurance cannot be tested across the employment sector. Based on the general trend, we can conclude the following hypotheses,

H1: The SOE employees are more likely to be covered by pension and unemployment insurances than other non-state sector employees.

H2: The SOE employees are more likely to receive generous benefits from pension insurance than other non-state sector employees.

To test these hypotheses, we use two sets of dependent variables (DV). The first set of DV captures the scope of insurances, i.e. how many survey respondents participate in pension and unemployment insurances. I use a binary variable for the first set of DV, which means the DV is either '0' representing 'not covered' or '1' representing 'covered.' The second set of DV captures the level of generosity for which I use the monthly amount of pension payment for the generosity level of pension coverage and the reimbursement rate of in-patient medical cost for the generosity level of medical insurance coverage. Table 6.5.1 provides a brief description of the variables. For example, the median pension scope is 1, and the mean is 0.71 for 97,350 observations in 2015. The median scope of medical insurance is also 1, and the mean is 0.88 for 120,960 observations in 2015. By contrast, the median scope of unemployment, maternity and work injury insurances are 0 with a mean of 0.29, 0.23 and 0.29, respectively, in 2015. It suggests that the scope of pension and medical insurances is wider compared to unemployment, maternity and work injury insurances. Regarding the level of generosity, the median monthly pension payment is 1353 RMB, and the mean value is 1510 RMB in 2015. The highest monthly payment is 6000 RMB. The reimbursement rate (share of reimbursement received out of total cost) for in-patient medical cost,

193 the median is 50 percent, and the mean is 48 percent. The range of the reimbursement rate is from a minimum of 0 to a maximum of 100 percent.

Table 5.7.21: Description of DVs DVs Mean Median

The independent variable (IV) is the employment sector. I use multinomial categorical IV. The IV has seven categories. Among the categories, ‘1’ represents ‘Gov.’ which stands for government, ‘2’ represents ‘Public,’ which stands for the public sector, ‘3’ represents ‘SOE,’ which stands for the state-owned enterprises,’4’ represents ‘Collective,’ which stands for collective enterprises, ‘5’ represents ‘Private,’ which stands for private enterprises, ‘6’ represents ‘Foreign/JV,’ which stands for foreign and joint venture enterprises and finally, ‘7’ represents ‘Others,’ which stands for other non-specified employers including but not limited to Hong Kong and Macao owned enterprises, cooperatives, military, NGOs and individual businesses. To give an example of the description from Table 6.5.2, the IV’s mean categorical value is 4.61, and the median is 5, which represents private enterprises in 35,622 observations from the 2015 survey.

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Table 5.7.2: Description of Independent Variable IV Mean Median

We control a battery of factors listed in Table 6.5.3, including hukou status, CCP membership, job type, which is formal/informal status of employment, education level, age and income. Hukou is a binary categorical variable where ‘0’ represents ‘Migrant,’ and ‘1’ represents ‘Local.’ Disparity between local and migrant workers in access to welfare services is well researched. The migrant population working in factories is more likely to opt-out informally from social insurances to avoid extra financial costs when they are likely to earn less (Ye and Keng, 2015). For the hukou variable, the mean is 0.83, and the median is 1 for 123,386 observations in 2015. CCP membership is a binary categorical variable where it is either ‘0’ representing ‘non-member’ or ‘1’ representing ‘CCP member.’ Party membership can lead to privileged access to jobs, promotions and bonuses and may provide exclusive access to welfare benefits (Huang, 2014). For the CCP Membership variable, the mean is 0.14, and the median is 0 for 72,456 observations in 2015. The job type is a categorical variable with three categories, ‘Formal,’ ‘Informal’ and ‘Farming.’ The employment sectors overlap with formal and informal sectors. Employees in the informal sectors have weak labour rights, lack job security, and are likely to have limited social security access. For the job type variable, the mean is 1.96, and the median is 2 for 63,068 observations in 2015. Education is also a categorical variable with three categories, ‘1’ representing ‘No Education,’ ‘2’ representing ‘Secondary or Lower,’ which includes primary, junior high and high school level and ‘3’ representing ‘Post-Secondary,’ which includes college, undergraduate, M.A. and Ph.D. levels. The assumption is that the higher the education, the more likely an employee will work in a high-paid job with access to social security. For the education variable, the mean is 2.06, and the median is 2 for 112,981 observations in 2015. The final two control variables are age and log income, which is numeric variables. The assumption is that as people grow older, they are likely to work and, therefore, likely have social security coverage or are likely to participate in social security due to

195 age-related illness or are likely to have certain social security coverage such as pension or maternity insurance. The assumption behind the log of income is that higher-income means a person is likely to work in a high-paid job with access to social security. The mean and median for the age variable 46.38 and 46 respectively in 2015. The mean and median for the log income variable 10.03 and 10.17 respectively in 2015.

Table 5.7.2.3: Description of Control Variables CVs

6.6 Statistical Results

I run probit regression separately for 2015, 2013 and 2011 to cover pension insurance, medical insurance and unemployment insurance because the dependent variable has binary outcomes. I also run the regression for coverage of maternity and work injury insurances only for 2015 and 2013 as data for 2011 is not available. Since I use a probit model, the results will show which factors determine an individual’s likelihood of being covered. For the employment sector variable, the ‘government’ category is chosen to be the base case. In other words, the result of the SOE

196 sector has to be interpreted compared to the government sector. The advantage of having the government sector as the base case is that the government employees are most likely to be the privileged group due to their closest proximity to the Party. So, if the SOE sector demonstrates a clear advantage over the government sector, then the SOE employees will be the most privileged group within the state sector and other sectors for social security coverage.

6.6.1 Testing for the Scope of Social Insurances

Table 6.1.1 shows the results for pension insurance coverage for three years. The 2015 result shows that employees' probability of being covered for pension insurance increases significantly when they work in the SOE sector compared to the government sector. We find a similar result in the 2013 model but not significant relation in the 2011 model between the SOE sector and the pension coverage. A significant positive relationship exists between the foreign/joint venture enterprises and pension coverage only in the 2013 model. A negative relation exists for the employees in the 'private' and 'other' sectors. In other words, employees' probability of being covered for pension insurance decreases significantly when they are employed in 'private' or 'other' enterprises compared to the government sector. All control variables demonstrate a significant correlation. To briefly interpret their results, individuals with local hukou, CCP members, older population and highly educated individuals are more likely to be at an advantage in pension coverage. Females and workers in the informal job are less likely to have pension coverage. We cannot interpret the probit model's coefficients like any other linear regression model because the coefficients are not marginal effect. So, we plot the predictive margin to understand better the SOE sector's effect on pension coverage.

Table 6.6.1.1: The Effect of Employment Sectors on Pension Insurance Coverage

VARIABLES

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Foreign/JV 0.355** 0.450*** 0.289 (0.158) (0.149) (0.245) Others -0.258*** -0.583*** -0.978*** (0.080) (0.074) (0.168) Local 0.246*** 0.231*** 0.406*** (0.039) (0.040) (0.126) Informal -0.694*** (0.044) CCP Member 0.216*** 0.126** 0.424*** (0.058) (0.055) (0.118) Secondary/Lower 0.355*** 0.220* 0.303 (0.107) (0.113) (0.216) Post-Secondary 0.745*** 0.811*** 1.278*** (0.121) (0.123) (0.248) Female -0.119*** -0.167*** 0.303*** (0.034) (0.037) (0.083) Age 0.022*** 0.021*** 0.011** (0.002) (0.002) (0.004) Log (Income) 0.072*** 0.123*** 0.209*** (0.018) (0.024) (0.041) Constant -0.631** -1.208*** -2.652*** (0.257) (0.286) (0.553)

Observations 19,097 12,516 4,032 Pseudo R2 0.158 0.143 0.259 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

In Figure 6.6.1.1, we plot the predictive margin of the results from Table 6.6.1.1 to better understand the employment sector's effect on pension coverage. The overall predicted probability of the state sector as a whole and particularly of the SOE sector is high but only behind the foreign and joint venture enterprises. According to the 2015 dataset, an employee's predicted probability to have pension coverage is 91 percent when employed at an SOE, 86 percent when employed at a public institution and in the government. By contrast, when employed at a foreign or joint venture enterprise, an employee's predicted probability of having pension coverage rise to 92 percent. However, the predicted probability of the SOE and foreign/JV sectors appears identical (95 percent) in 2013 and 2011. The predicted probability falls to 81 percent when employed at a private enterprise and 80 percent when employed at a collective enterprise or other sectors. In sum, the statistical result and the predictive probabilities demonstrate that the SOE sector has a considerable advantage in pension coverage compared to all other sectors, except for foreign and joint venture enterprises.

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Figure 6.6.1.1: Adjusted Predictions for Pension Insurance Coverage

Moving to the results in Table 6.6.1.2, there appears to be no significant relationship between the SOE sector and medical insurance coverage in the 2015 and 2011 models. The 2013 model, however, demonstrate a significant positive relation. Private enterprise and ‘other’ sectors demonstrate significant negative relation in all 2015, 2013 and 2011 models. Workers in informal jobs are significantly likely to be uninsured in the 2015 model. Age has a significant positive correlation with pension coverage in 2015 and 2013 models. Given the larger and most recent dataset in 2015 demonstrates no significant result, we conclude that the SOE sector does not have a significant and consistent advantage in terms of medical insurance coverage compared to other employment sectors.

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Table 6.6.1.2: The Effect of Employment Sectors on Medical Insurance Coverage 2015 2013 2011 VARIABLES Covered Covered Covered

Public -0.175* -0.032 -0.108 (0.093) (0.082) (0.168) SOE -0.116 0.256*** -0.004 (0.105) (0.094) (0.186) Collective -0.209 -0.224* -0.441* (0.245) (0.124) (0.232) Private -0.384*** -0.274*** -0.763*** (0.090) (0.080) (0.171) Foreign/JV -0.210 0.254* -0.145 (0.167) (0.132) (0.252) Others -0.360*** -0.390*** -0.540*** (0.098) (0.080) (0.176) Local 0.180*** 0.313*** 0.617*** (0.046) (0.042) (0.133) Informal -0.272*** (0.058) CCP Member 0.050 0.102* 0.123 (0.069) (0.054) (0.147) Secondary/Lower 0.045 0.332** 0.449 (0.130) (0.131) (0.278) Post-Secondary 0.170 0.571*** 0.616** (0.147) (0.140) (0.311) Female -0.045 -0.074* 0.126 (0.043) (0.040) (0.092) Age 0.013*** 0.013*** 0.000 (0.002) (0.002) (0.006) Log (Income) 0.056** 0.065** 0.155*** (0.022) (0.026) (0.039) Constant 0.751** 0.049 -0.911* (0.297) (0.299) (0.539)

Observations 18,934 12,552 4,057 Pseudo R2 0.047

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SOE sector has a significant and consistent advantage compared to other medical insurance coverage sectors.

Figure 6.6.1.2: Adjusted Predictions for Medical Insurance Coverage

We find a significant positive correlation between the SOE sector and unemployment insurance coverage in all three models. The 2015 model in Table 6.6.1.3 demonstrates that the employees in four sectors except the ‘private’ and ‘other’ categories are more likely to be covered by unemployment insurance than the government. To briefly interpret the results of other control variables, workers with an informal job, older individuals and females are more likely to be disadvantaged in unemployment insurance coverage as they have significant negative relation. Highly educated individuals are more likely to have pension coverage.

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Table 6.6.1.3: The Effect of Employment Sectors on Unemployment Insurance Coverage

VARIABLES

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Figure 6.6.1.3: Adjusted Predictions for Unemployment Insurance Coverage

I also test the hypotheses of the SOE sector's advantage in maternity and work injury insurance coverage. The probit regression results on maternity and work injury insurances are listed and explained in Appendix 1. The results also demonstrate that the SOE sector employees are at a clear advantage in terms of maternity and work injury insurance coverage, and they are only second to the employees in foreign/JV enterprises.

The results demonstrate that the SOE employees and the employees in foreign and joint ventures are most likely to have coverage for pension insurance and unemployment insurance than any other employment state and non-state sectors. The result shows that the first null hypothesis is

203 false because the SOE is not the most privileged sector in terms of social insurances' scope compared to other non-state sectors.

6.6.2 Testing for the Generosity of Social Insurances

Moving to test the relation between the employment sectors and the generosity level of social insurances, I use a simple linear regression model to develop conjecture for two reasons. First, data on generosity is available only for pension and medical insurances, restricting our ability to develop a more comprehensive understanding of all social insurances. Second, disaggregated test, along with different types of pension and insurance coverage, including relevant control variables, is not possible as any attempt to do so leads to a significant decrease in the number of observations. In fact, even to test the relation for the generosity of monthly pension payment, the observation number drops to fewer than 1000. The number of observations drops even more for the other years, 594 in the 2013 model and 46 in the 2011 model. That is why I use a linear regression model to develop suggestive understandings about employment sectors' effect on the level of generosity on pension and medical insurances based only on the 2015 dataset.

Table 6.6.2.1 shows that the SOE sector has a significant correlation and the highest positive coefficient among the employment sectors for monthly pension payments. An employee's monthly pension payment can increase by 761 RMB if employed in the SOE sector compared to the government. The coefficient for the SOE sector is higher than that of the public sector. Among the control variables, CCP membership and higher education levels have a significant positive correlation. Individuals' monthly pension can increase by 325 RMB due to their CCP membership, by 655 RMB if they have secondary or lower-level education and 2301 RMB if they have post- secondary education. By contrast, individuals' monthly pension can decrease by 455 RMB if they work in the informal economy and 477 RMB if they are female. However, the results for the medical reimbursement rate do not provide any significant correlation for the employment sectors. Among the control variables, only individuals in the informal economy and age have a significant correlation. In short, the second hypothesis is partially true. The SOE employees are more likely to receive generous benefits only from pension insurance but not from medical insurances than employees in other non-state sectors.

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Table 6.6.2.1: Employment Sector’s Effect on Generosity of Pension & Medical Insurances Medical Monthly Pension Reimbursement Rate VARIABLES Payment (2015) (2015)

Public 559.977*** -1.296 (149.612) (3.469) SOE 761.122*** -3.528 (189.635) (3.495) Collective 42.043 8.290 (234.816) (6.225) Private 129.307 -6.668** (122.578) (3.326) Foreign/JV 16.340 -1.191 (336.716) (6.728) Others 57.930 -7.942** (126.095) (3.669) Local -150.141 2.163 (103.287) (2.104) CCP Member 324.917*** 2.575 (93.425) (2.323) Informal -455.426*** -7.436*** (84.749) (2.287) Secondary/Lower 654.824*** -0.968 (124.425) (5.329) Post-Secondary 2,301.039*** 4.698 (182.036) (5.925) Female -473.754*** -2.093

(71.477) (1.888) Age 0.446***

(0.094) Log (Income) 0.583 (1.006) Constant 1,054.164*** 29.777** (195.983) (12.509)

Observations 925 1,133 R2 0.352

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6.7 Implication of the Results: SOE as the Most Privileges Sector

The statistical results on the scope of social insurances, on the one hand, illustrate the SOE employees are not the only group most likely to be covered by pension and unemployment insurances controlling for other factors. On the other hand, the results do not undermine the argument about the SOE sector's privileged access to pension and unemployment insurances for two reasons. First, the differences in the probability of having insurance coverage between these two sectors are minimal. For pension insurance, both the SOE and the foreign/JV sectors have three years average of 94 percent predicted probability of coverage. For medical insurance, the SOE has a 96 percent probability, and the foreign/JV sector has a 95 percent predicted probability of coverage, averaged for three years. Finally, for unemployment insurance, the SOE has 66 percent predicted probability, and the foreign/JV sector has a 67 percent predicted probability of coverage on average for three years. In other words, the difference between the two sectors for social insurance coverage is negligible. Moreover, most importantly, the political implication of insurance coverage expansion is different for the foreign/JV enterprises and the SOEs. The foreign/JV enterprises have an apolitical relation with its labour force and are subject to the Party's informal interference. 114 They are wary of the Party's reprisal for any of their mishaps and are reluctant to flout implementing any government rules and regulations. As a result, the foreign/JV enterprises have been steadfast at enrolling their employees into social insurances despite the associated costs compared to private enterprises. By contrast, the fate of the SOE employees is intrinsically tied to the state for several reasons. The SOEs' operations are heavily subsidized, and their missions are directly dictated by the state and are not subject to market forces. Thus, the employment and welfare benefits are subject to the Party-state's political interests, which creates a dependent relationship between the Party-state and the SOE employees. The SOE sector's large labour force, which was 62 million in 2015, four times bigger than the 14 million labour force in the foreign-funded enterprises, and their dependence on the Party-state creates a strong support- base for regime stability (Guojia Tongjiju, 2019). Therefore, the political implications of SOE

114 Article 19 of China's Company Law requires a Party organization to be established in all private and foreign/JV enterprises according to the CCP constitution. Although the Law does not bestow any managerial or governance role on the Party organization within a foreign/JV enterprise, Party members have growing informal interference in the local operations of foreign firms. See (Martina, 2017, August; Stevenson, 2018, April; Blanchette, 2019, April)

206 employees having an advantage in social insurance coverage are far more profound than those in foreign/JV enterprises.

Regarding the generosity of social insurances, the statistical results suggest that the SOE sector has an advantage in pension insurance compared to other sectors controlling for other factors. By contrast, the initial statistical results on the scope and generosity of medical insurances do not suggest that the SOE sector has a clear advantage compared to others. However, the statistical analysis has its limitation because we could not test the hypotheses for variation in types of medical insurances. Digging deeper into the data, the descriptive statistics provide a different and more nuanced picture. Figure 6.7.1 shows that the Urban Employee Basic Medical Insurance (UEBMI) is the most generous medical insurance scheme for the median reimbursement rate. UEBMI's median actual reimbursement payment of in-patient care (cost of hospitalization) is also highest. The median reimbursement rate (share of total medical cost) of in-patient care from UEBMI is around 70 percent, with median actual median reimbursement payment being 5000 RMB. By contrast, the median reimbursement rate from URBMI is 50 percent, and NRCMI is around 45 percent. The median actual reimbursement payment from URBMI is less than 3000 RMB, and NRCMI is 2000 RMB. So, UEBMI provides disproportionate benefit to its participants, and we need to examine who actually benefit from the UEMBI most. Next, we look at the distribution of employee participants and the reimbursement rate across different sectors to find out the most privileged sector for the scope and generosity of UEMBI.

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Figure 6.6.21: Generosity of Medical Insurance Schemes (2015)

We look at the distribution of employees participating in UEBMI and their reimbursement rate across different sectors to determine the most privileged sector in terms of scope and generosity of UEMBI. Figure 6.7.2 shows that the private enterprise employees are the largest participant group in UEBMI (around 28 percent of the UEBMI participants) but have the lowest reimbursement rate (around 55 percent) in 2015. By contrast, the SOE employees are the second- largest participant group of the UEBMI (around 25 percent of all UEBMI participants) and enjoy the highest reimbursement rate (around 63 percent) in 2015. In fact, they dominate the UEBMI both in scope and generosity parameters in 2013 (Figure 6.7.3). This illustrates that the SOE sector represents the largest share of all employees who benefit from the most generous medical insurance. In sum, although the SOE employees as a whole do not appear to have an advantage in medical insurance coverage in our regression results, they are likely to be privileged in terms of the scope and generosity of the most generous medical insurance type.

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Figure 6.6.2: Scope & Generosity of UEBMI (2015)

Figure 6.6.2: Scope & Generosity of UEBMI (2013)

Additionally, we also need to assess the effect of rapid socialization of risk among the broader population and its effect on the Party-state’s co-optation effort. The expansion of social security coverage since the late 2000s made welfare more inclusive, albeit with uneven benefit levels. The

209 pension insurance coverage increased from 30 percent in 2009 to 55 percent in 2012, and by 2017, urban and rural basic pension insurance participation rate reached 77.97 percent (Zhonghua remin gong he guo guofuyuxinwen bangongshi 2020). The basic medical insurance coverage saw rapid progress where the participation rate expanded to 95 percent in 2018 (Guojia yiliao baozhangju 2018). Unemployment insurance participation also increased to 60.65 percent in 2017. Thus, the socialization of risk broadened the scope of social insurances. Despite the low benefit level, it improved the social security of the vast majority of the urban and rural population and employees in the non-state sectors. This created a sense of improvement among the non-state sectors’ employees for their general well-being and created performance legitimacy for the Party. As a result, when the 80s and 90s saw a society-wide breakdown of the Maoist era social contract, the social security expansion through rapid socialization of risk since the late 2000s renewed that social contract between the non-state sector employees and the Party-state. This is evident from the survey responses where mean and median responses are ‘acceptable’ to the question, “Are you satisfied with the social security level at present?” across all employment sectors (Fig 6.7.4).

Figure 6.6.27.4: Social Security Satisfaction level

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To conclude, mass co-optation through welfare expansion has helped the Party-state to maintain regime stability. The ruling party has been able to establish an implicit social contract, on the one hand, with the employees at the state sector, particularly the SOE sector, who gain disproportionately from the scope and coverage of social security, and on the other hand, with the employees at the non-state sector for whom any gain relative to the past is an improvement from having no social security at all. As a result, China's single party-regime has made welfare expansion work for its political end, the regime's survival. It has become quite adept at managing the contradiction of a welfare state. In other words, to paraphrase Gough (1978:12), the Communist Party of China evolved to expand social welfare, enhanced individuals' capability, harnessed the market forces while repressing and controlling the people to the requirements of a socialist market economy for regime survival.

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Chapter 7

C onclusion

7 . 1 Judges, Law yers, SO E O fficials & a Puzzle

A very common remark often heard is that China is a country full of contradictions that never stops to puzzle the outsiders. Admittedly, many other countries can also qualify for the remark.

Nevertheless, I had a first-hand experience of one contradiction in China that helped me appreciate the importance of addressing this dissertation's puzzle. During my fieldwork somewhere in a

Northeastern province, a group of judges, SOE officials and a lawyer guided me through a shoddy and badly lit corridor to a room with a large dining table for a soirée. The food served and the services offered in that otherwise lackluster place could compete with that in any five-star hotel's restaurant. That evening was a small glimpse of the disproportionate wealth and privilege enjoyed by individuals in the state sector even though they are cautious not to flaunt it, perhaps because of

Xi Jinping's anti-corruption campaign. A similar experience was also in one of China's rustbelt provinces where I saw a black-tinted large hummer limousine came to pick up a group of inebriated higher-up police and law enforcement officers after a lavish dinner, which I attended, at a police training institute. In both events, my conversations with the dinner attendees revealed that they had access to all five social insurances as well as supplementary benefits. Compared to these two events, which give a snapshot of the privileged lifestyle enjoyed by individuals in the state sector, my interactions with the general population also provide a glimpse of the generational improvements in living standards in a short period of time. Indeed, casual conversations with numerous taxicab drivers, residents and workers in more than twelve cities I visited for field work or travel revealed that the majority of them had access to some form of medical insurances, either urban resident or rural or employment insurance, which is an important social safety net. Being aware of Canada's advanced social security, the counterpart candidly acknowledged in almost all cases that their access to medical insurance, albeit inadequate and incomparable to that in Canada, improved significantly compared before, and the Party deserves the credit for it. These anecdotal pieces of evidence suggest that while few are privileged to have disproportionate access to welfare benefits and resources, the vast majority of the population also gained considerably even though

212 not as much as the former. In other words, China's single-party authoritarian regime has been able to make broad-based welfare expansion, which has increased inclusivity for the broader population without compromising the exclusivity of a few. China's single-party regime contrasts with many other authoritarian regimes in the past that initiated welfare expansion, but only a few benefited from it. Thus, China's case raises important questions: what motivates authoritarian leaders at the local level to implement such broad-based welfare expansion policy when it can compromise the political patronage of their loyal supporters who expect exclusive benefits in return for their support for the regime? What determines long-term welfare provision variations at the subnational level in a country as vast as China? Furthermore, who actually benefits from the welfare expansion and how much? This dissertation attempted to address these three questions to understand the link between the unique case of broad-based welfare expansion and an authoritarian regime's survival. I examined these questions in a three-part analysis using three theoretical lenses based on state capacity, policy legacies and popular contention.

7.2 Local Leaders’ Preferences: When Local Logic Meets Top- Down National Campaign

Several scholars examined local leaders' budget priorities in an authoritarian regime, including but not limited to China (Bunce, 1976; 1980; Pepinsky, 2007; Guo, 2009). Other scholars such as Dickson et al. (2016) and Vortherms (2019) examined the local leaders' budget priorities stopped short of establishing a connection between local leaders' short-term priorities and long-term welfare development. I examine local leaders' budget in the first part with more updated data and some differentiated findings. On the one hand, my findings support earlier works that show that authoritarian leaders' budget priorities are also motivated by their constituency's interests, albeit a narrow one. Further, my findings support Vortherms' (2019) work that local leaders make strategic budget spending. However, it also supplements her works by bringing a new perspective where local leaders' promotional interests as a motivating factor are not uniform across different welfare policies and cities. My findings demonstrate that not all welfare policies' budget spending follows a 'U' pattern, as argued by Vortherms.

The dissertation started focusing on the leaders at the local level, particularly the city-level, for several reasons. For example, policy experimentation and defiance frequently take place at the

213 local level. What is also important is that the dissertation starts from the point after the central government made policy initiatives for welfare expansion and when it is the responsibility of the local leaders to refine policy details subject to local contexts and implement it. So, local-level leaders are naturally the focus of analysis to understand how welfare expansion policies were implemented at the local level. Second, mayors possess significant jurisdictional authority as local leaders at the city level for setting annual budget priorities. However, their welfare policy horizon is short-term for two reasons: mayors have high turnover, and gains from welfare commitment take a long time, which makes it less attractive for short-tenured mayors as they cannot demonstrate their success quickly. So, it is critical to understand the short-term policy preferences of mayors. To that end, the dissertation illustrates four distinct welfare policy regimes based on budget priorities at the city level. The productive regime invests more on per-capita education; the protective regime spends more on social security in terms of the budget share as well as per capita; the aspiring productive regime spends more in education in terms of budget share, but it translates into one of the lowest in terms of per capita; and finally, the mixed regime demonstrates priorities which is a mix of both productive and protective regime. Examining the variation in local leaders' welfare policy priorities in the short-term is the first puzzle the dissertation tackled in Chapter 4.

I used cross-sectional time-series data to show that local leaders' budget priorities for different social policies are motivated by different factors. Education spending is motivated by, on the one hand, personal promotional interest in the near-term horizon and, on the other hand, the necessity to maintain investment in human capital for the productive purpose of the local economy. As a result, mayors spend in education strategically, so it does not harm its prospect for promotion because budget commitment to non-welfare spending is crucial for achievements and promotion. They increase spending in education only at the beginning and the end of their tenure when promotional prospect and opportunity costs are low, thus following a 'U' pattern. Indeed, the strategic spending in education is significant in the productive policy regime, which spends more on education. By contrast, annual spending on social security and annual combined spending in all three welfare policies are positively correlated with the local SOE sector's size. In other words, annual spending on social security and combined spending all three welfare policies increase if the SOE labour force's size increases. Furthermore, local leaders' budget spending on social security does not follow a non-linear pattern. The link between welfare spending and the SOE sector could be explained by the fact that the size of the SOE labour force has been increasing in many cities

214 due to the Party-state's policy to strengthen and expand the SOE sector for empowering it in a commanding position in the economy. The underlying political intention is to re-establish the Party's indisputable authority in an economy where the private sector growingly became important. However, the positive correlation between social security spending and the local SOE sector is not significant in the protective policy regime, which spends more on social security. This is surprising but not inexplicable as it supports the findings by other scholars who argued that cities with historical attachment to the SOE sector, which is also substantially representative of the protective regime in my research, rely on central subsidy and transfer for their spending in social security. In short, local leaders' short-term preference in welfare spending, particularly in the social security, is motivated by its need to maintain a large SOE sector, crucial for its tax-revenue base and critical for preserving its patronage base of loyal supporters for regime stability in return for privileged access to welfare benefits. Thus, the SOE sector, not local fiscal capacity or mass unrest, largely determines local leaders' short-term welfare priorities at the local level. The findings suggest that local leaders in authoritarian regimes set budget priorities for their narrow constituency. They are capable of prioritizing spending in different welfare policies differently, showing a non-linear 'U' pattern in education spending but a linear relation in social security spending, in a way that enhances their promotional interests while preserving a productive economy and social stability.

7.3 Long-Term Welfare Provision: How Broad-Based Welfare Expansion Takes Place?

The second part of the analysis, where I examined whether the SOE sector also determines long- term variation in welfare provision, addresses an important gap in the existing works on welfare, which is the link between short-term budget priorities and long-term welfare provision. Here welfare provision constitutes welfare spending and outcomes and the scope of social security combined, which is different and broader than only budget commitments. It is important to differentiate the long-term welfare provision because local leaders' short-term policy commitment may not translate into an equivalent level of welfare provision in the long run. Empirically, China's case is important, given many emerging economies with similar development challenges that China faces are adopting comprehensive welfare policies. So, how welfare expansion occurs in China can provide a theoretical ground to study welfare expansion in the long run in other 'late

215 developers.' Additionally, China's case can also help build theories to study welfare expansion in other authoritarian regimes.

The cities in China demonstrate large variation; only 28 cities out of 114 in the sample demonstrate high welfare provision (HWP) in the long run. I used cross-sectional logit analysis to demonstrate that the local SOE sector also influences welfare provision development in the long run, controlling for other factors. The fiscal capacity also appears to be positively correlated but with negligible coefficients. To better understand the effect of the SOE and fiscal capacity on welfare provision, I then used QCA to develop a tree diagram for identifying conditional causal pathways. The diagram illustrated that the cities with large state sector and high fiscal capacity always end up with HWP. By contrast, the cities with small SOE sector and weak fiscal capacity always end up with low welfare provision (LWP).

To bring contextual understanding to the conditional causal pathways, I used a comparative case study and identified two city cases based on the 'most different' method. I enquire how Hangzhou and Changchun, both with a large SOE sector but different fiscal capacity, ended up with HWP. The Hangzhou case is influenced by the Deng era's policy legacies, where costly welfare led to popular discontent and contention while the Party-state increasingly deeming the growing private sector as a potential political challenge to its authority. As a result, the Party-state in Hangzhou gradually expanded its SOE sector to reestablish the state sector's commanding power in the economy. The expanding labour force of the SOE sector and the large formal private economy provided a large pool for risk socialization. As a result of the expansion of the SOE sector, Hangzhou also saw an expansion of welfare and social security spending, which, one the one hand, helped address the popular demand for affordable welfare and, on the other hand, helped maintain a large base of loyal supporter in the state sector. Changchun, by contrast, demonstrates the importance of policy legacies from the Maoist era social contract. Popular attachment to the welfare state due to its historically large SOE sector prompted widespread popular contention in the aftermath of SOE restructuring. The local government with weak fiscal capacity could barely address the popular demand for social security, particularly when its economy failed to transition to a productive private sector from over-reliance on the state sector. Therefore, maintaining the large SOE sector became important not only for employment generation but also for social stability. Under this circumstance, the subsidy and transfer from the central/provincial government helped Changchun to maintain a high level of spending on welfare and social security and achieve

216

HWP in the long run. In sum, both Hangzhou and Changchun demonstrate two different causal pathways to high welfare provision in the long run, where different policy legacies play a critical role in welfare expansion.

The second part suggests that welfare expansion at the subnational level is more complex, and the causal pathways could be different across cities. It underlines the importance of considering how past policy legacies can play a critical role in determining long-term welfare provision. As many 'late-developers' such as Indonesia and Vietnam embrace welfare expansion policies, it is important to understand how past policies can affect their welfare reform and craft better policies in response to them. China's case demonstrates how policy legacies from two different contexts, Mao's legacy of a social contract and Deng's legacy of empowering the private sector, can equally play a critical role in welfare expansion spatially with the same or different outcomes. Therefore, we need to pay more attention to policy legacies at the subnational level to understand welfare expansion.

7.4 Authoritarian Survival: Why Broad-Based Welfare Expansion is Adopted?

Finally, the third part established a link between welfare expansion and regime stability, demonstrating the uniqueness of China's welfare expansion compared to past authoritarian regimes. It addresses the last missing piece of the puzzle of the dissertation. Does the SOE sector actually enjoy privileged access and benefits from the welfare expansion, given the sector's influence over local leaders' short-term welfare priorities and long-term welfare provision, which underlies the political logic of patronage building in support of the Party-regime? Demonstrating that the employees in the SOE sector gain more from the recent welfare expansion than others can strengthen the argument that the Party has vested interest to expand the SOE sector because it provides a strong patronage base for political support and the SOE sector is willing to provide that political support in return for privileged access and benefits to welfare. The findings suggest a unique empirical development in the study of welfare expansion in an authoritarian context. Several scholars like Mares and Carens (2009), Mesa-Lego (1978) and Wong (2004) demonstrated that welfare expansion in authoritarian regimes tends to benefit a small group of people who are politically connected to the regime, at the cost of broader public welfare. Empirically, authoritarian

217 leaders in East Asian economies like South Korea and Taiwan made broad-based welfare expansion only when the democratic transition prospect threatened their survival. China, from that perspective, provides a unique example where authoritarian Party-state not only has ensured privileged access for its strong support base, the state sector but has also made successful overtures to improve the welfare of the broader population even though they gain less from welfare expansion compared to the state sector. In other words, the findings of the third part of the analysis in the dissertation bring a novel perspective on the political processes of welfare expansion in authoritarian regimes.

I used household finance data from three surveys conducted nationally in 2011, 2013 and 2015 by The Survey and Research Center for China Household Finance, based in Southwestern University of Finance and Economics and the Research Institute of Economics and Management in China. I focused on analyzing who benefited and how much from the social security expansion and used the scope and generosity of three social insurances, pension, medical and unemployment 115 insurances. Using probit analysis, I demonstrated that the SOE sector employees are more likely to have coverage in pension and unemployment insurances. Only the foreign/joint ventures fairs slightly better than the SOE employees in terms of coverage of pension and unemployment insurances. However, the SOE employees have far better pension benefits, as the SOE employees' monthly pension benefits top any other state or non-state sector. Additionally, the SOE employees are not more likely to have coverage of medical insurances than others and in fact, the medical insurances coverage appears to be more egalitarian. However, insurance employees are more likely to be covered by the most generous medical insurance, which is the Urban Employee Medical Insurance. In other words, the SOE sector are more likely to be covered by the social insurances with higher benefits. Therefore, on the one hand, the expanding and large labour force in the SOE sector has high stake in the current Party-regime and are likely to prefer the status quo to maintain their privileged status. On the other hand, the survey result shows that the general population is more likely to be satisfied by the improvement in their social security coverage, demonstrating that they have also gained from the welfare expansion, albeit not as much as the state sector. So, the Party-state has been able to engineer mass-cooptation by establishing a new

115 I could not test the benefit level of unemployment insurance as the employment history of those availing the benefit is not available.

218 social contract under its socialist market economy where it maintains a strong base of loyal support through the privileged welfare benefit for the expanding SOE sector while improving the welfare of the general population through broad-based welfare expansion. To conclude, the Party expands the SOE sector; the SOE sector explains why local leaders spend more in welfare in the short-term and why some cities develop high welfare provision in the long run; and the Party ensures the SOE employees' high stake in the regime because the sector benefits more from the welfare expansion through privileged access to welfare benefits and therefore, prefer the status quo and the Party- state's survival. Simultaneously, broad-based welfare expansion also helps the general population, though not as much as it does to the SOE sector employees. As a result, the general population also has reason to prefer the status quo. Thus, China represents a unique empirical development in the study of welfare development's link to regime stability.

7.5 Fiscal Sustainability of China’s Welfare Expansion

The dissertation’s title Making welfare works implies that the authoritarian Party-state in China has established a welfare state overcoming many challenges to its political end. On the one hand, these challenges are structural such as uneven regional growth, rising inequality, an ageing population, mounting local debt and around 600 million people still living barely with 1000 yuan per month (The State Council of the PRC, 2020). On the other hand, the challenge is to maintain performance legitimacy in the general population's eyes who demands social justice, welfare and equality while preserving a loyal base of regime supporters with exclusive benefits. These challenges are not trivial even for the world's second-biggest economy and the Party-state that is paranoid about social and political stability. Nevertheless, the dissertation showed that Party leaders had utilized welfare expansion as one of the effective tools for political stability. It expanded basic welfare services, improved healthcare access, and established a new social contract by pursuing a mix of employer-employee contribution-based and tax-based social insurances. However, how fiscally sustainable the recent welfare expansion is? I identify two major challenges.

Although the Party-state has succeeded in establishing a social security system and expanded the medical insurance coverage in a short period of time, economic interests still supersede any effort for further welfare reform. For example, employment-based pension, medical and unemployment

219 insurances are a critical backbone of China's social insurances, but their financing depends on the local government's ability to enforce employers' participation. Weak local state capacity compromises the state's ability to collect social security dues from the employers. The employers are reluctant to participate and pay for their employees because social security is a big financial burden for them because their contribution could be as high as 32.9 percent of their employees' social insurance. The central government measures to make local taxation authorities responsible for the enforcement and collection of employers' contributions as an effective response. However, the central Party leaders have already postponed the enforcement a few times in response to the declining economic growth (Caixin Global, 2018, November). Moreover, the Standing Committee of the State Council took initiatives in February to reduce or waive employer obligations on social insurance contributions in response to COVID. This puts financial pressure on the local government to continue expanding and delivering social security. So, economic imperatives still dictate progress in welfare expansion. So, the campaign for welfare expansion rooted in social justice to 'put people first' ( 以人为本 or 一人为本 yiren weiben ) still lags behind the economic interest of the Party-regime.

Another important weakness of making welfare work is the vast majority of Chinese cities' reliance on central/provincial transfer and subsidy. If we take per capita budget surplus after welfare spending as a proxy for a city's reliance on transfer and subsidy, then the sample of 114 city cases shows that almost 60 percent of cities' fiscal health is critically dependent on transfer and subsidies (Fig 7.5.1). Additionally, these cities have a low level of welfare provision. In other words, they are critically dependent on central/provincial transfer and subsidy even to maintain a minimum level of welfare provision. Another alarming point is that some cities (20 percent of the sample) with a high level of welfare provision also run a very low level of surplus, which means they are also dependent on transfer and subsidy to a degree. On the one hand, this shows the strength of the fiscal equalization policy of the central government. On the other hand, the declining growth rate and debt fragility in the heart of China's economic powerhouse in the coastal cities raise questions on how sustainable the system is. In short, the picture provides a glimpse of fiscal weakness and strength in the backdrop of regional inequality in local fiscal capacity. Other fiscal challenges, such as meeting the pension need of an ageing population with a shrinking labour force, demonstrate 'making welfare work' to its political end will remain a rocky balancing feat for the Party-state.

220

Figure 6.6.2.1: Level of Dependence on Central & Provincial Transfer & Subsidy

7.6 Limitations of the Findings

The dissertation’s findings need to be considered in the context of limited data availability and its lack of focus on welfare provision quality. First, as mentioned earlier, budget and welfare data need a be analyzed with some reservations. There are some overlapping discrepancies in budget data in different statistical yearbooks. Although some scholars suggest that the city statistical yearbook provides a good standard, but someone who examined local statistical yearbooks’ data can identify inconsistency even in the city statistical yearbooks. Second, data on several important factors such as the dependency ratio, residential population versus hukou population, infant mortality rate and immunization or literacy rate are not available that are consistent and comparable at the city level. Nevertheless, I contend that the triangulated data from various sources and the proxies used in the dissertation serve the best alternative approach in the absence of credible, consistent and comparable data at the city level.

221

Another important limitation is that the dissertation does not incorporate the quality of welfare in its index of welfare provision level. Despite an improvement in welfare access, China’s welfare services are still beset by the poor quality of services. On the healthcare front, for example, practices of over-prescribed traditional medicine with dubious effect, illicit kickback ( 红包 Hóngbāo ) for medical surgery, lack of timely access to basic healthcare due to overcrowding by wealthy residents and medical malpractices were recurrent problems noted by medical professionals in Changchun (INTCCMP0512-1,2,3). By contrast, Hangzhou medical professionals admitted that inequality in access to basic healthcare services and overreliance on medical fees exists. However, the problem appears less acute, particularly the illicit kickbacks for treatments compared to Changchun and Northeast in general (INTHZDO0630-1, 2, 3, 4) .116 On the education front, there were some marked differences of opinion among education professionals. Education professionals 117 from both highly coveted and struggling schools suggested the high level of disparity in benefit, training opportunities and promotion prospects on top of basic income between Hangzhou and Changchun (INTCCMT0516-1,2; INTCCHT0516; INTCCHH0516; INTCCMT0517-1,2; INTHZPT0703-1,2; INTHZPP0703). An education policy expert noted that disparity, quality, high fees and lack of funding are prevalent across China but more acute in the less developed cities and villages compared to the developed ones like Hangzhou (INTHZEE0716). In other words, the disparity in the quality of education and healthcare services is a critical factor and can provide insight to the level of welfare provision, but lack of access to relevant data and challenges to interview key actors in different cities made it impossible to incorporate the ‘quality’ factor.

116 The interviews of Hangzhou medical professionals were conducted after Changchun. So, the semi-structured questions were asked with comparative reference to Changchun. 117 Teachers interviewed were from primary, middle and high schools, the headmasters were from high school only and one vice principal from primary school. Basic monthly income is about 4000-5000 RMB in Changchun. If a teacher works in a top school, the salary can be up to 7000-10,000 RMB with incomes from overtime and extra classes. Teachers from less popular schools have little chance to earn on top of their basic salary. Teachers are ranked based on four levels, 特地，特地，长地，特地 Changchun but in Hangzhou, the teachers mentioned about 12 ranks. The basic salary for Hangzhou school teachers are not that high but bonuses and training opportunities are higher compared to the teachers in the smaller cities and cities in the Northeast.

222

7.7 Policy Implications

China's single-party state demonstrates that authoritarian regimes can make broad-based welfare expansion even though the expansion policy itself could be a tool towards a narrow end, such as enhancing regime stability and maintaining a patronage base of regime support. It shows that it can still expand broader populations' access to welfare services and benefits despite the narrowness of its goal. It provides two important policy lessons: welfare expansion is possible without political change, and 'getting politics right' is important for the international community.

First, the important political lesson for other 'late developers' and authoritarian regimes is that regime survivability can encompass inclusivity and welfare expansion is possible despite fiscal constraint. As mentioned earlier, more often than not, authoritarian leaders were prone to make welfare expansion only to benefit a small group of its regime supporters. Bismarck's social insurance initiatives aimed to buy the working-class allegiance for the regime and presumably prevent another social revolution toppling the regime and did little to improve their condition (Alber, 1986; Baldwin, 1990). The losers from the welfare reform were the large labour force who were 'unskilled' and in the informal sector. Peron's social security initiatives established and expanded the social safety net but also created division in the labour force by providing 'legal' recognition for the Perónist loyalists only, creating dependency on the regime among the subordinated labour organizations and violently oppressing independent labour movement and (Alexander, 1951:85-99; Mainwaring and Pérez-Liñán, 2013: 137-138; McGuire, 1997). Similar trends were observed when in the authoritarian regimes in South Korea and Taiwan (Wong, 2004). The only democratic transition led to the effective expansion of welfare, covering a broader population in these countries (Wong, 2004; Peng and Wong, 2008). China's case demonstrates broad-based policy overtures in welfare expansion is possible that serves regime leaders to attain their political goals while improving the welfare of the broader population. Moreover, one crucial aspect of the policy choice could be undertaking a welfare-mix approach, where paid-contribution and tax-based means-tested benefits can help establish a broad-based welfare policy in developing economies.

Second, the important lessons for international development organizations advocating for sustainable development and social protection are that getting the politics right is essential for making effective social policy development changes. International organizations or donor groups

223 are criticized for imposing a top-down approach without understanding the local political imperatives. In other words, national and local political logic is an essential and critical factor for the success of the global campaign for sustainable development and expansion of social protection (Niño-Zarazúa, 2012; De Haan, 2014). Political incentives of local leaders at the micro-level of governance are as crucial as those of the national level. Any policy advocacy by international organizations is doomed to fail if a targeted country's political parameters are not considered earnestly. Instead, policies of 'good governance' or 'best practices' are followed blindly.

7.8 Future Research Agenda

There are three potential projects where the research findings could be further tested, and new sources of change in welfare expansion could be further explored. First, we need to incorporate the effects of recent hukou reform on equitable welfare expansion. The central government has recently presented a new proposal for hukou reform based on five-tiered cities. The State Council in an earlier notice proposed ranking of cities based on the number of population and to decentralize hukou reform for population control (Zhonghua remin gong he guo zhongyang renmin zhengfu, 2014). Later, the Interim Regulations on Residence Permits (Decree no.663 of the State Council) was adopted by the State Council's 109th executive meeting in October 2015. According to the regulations, the local government at the county level or above will implement residence- permit starting from January 2016. It categorizes cities with a five-tiered system based on their urban population size and allows municipal governments to set requirements for a local residence permit.118 It is up to the local government to liberalize these requirements provided they deem that their social and economic pressure is low. By contrast, cities with fewer than 500,000 population will fully liberalize requirements for settlement. In essence, on the one hand, the plan incentivizes people to move to cities that are likely to have low local state capacity and lack welfare provision. On the other hand, it raises the barrier for people with low education qualifications to move to

118 Large cities with 1 million to 5 million will set requirements based on stable employment and residence and the maximum length of five years of social insurance payment. Within this group, the cities with 3 million to 5 million population can further define scope, length and condition of employment and residence. A municipal government in cities with an urban population between 1 million and 5 million can set stable employment, residence, and social insurance participation requirements. However, the length should not exceed three years.

224 large cities that enjoy high welfare provision. In other words, China could be moving away from making access to welfare provision further equitable for the disadvantaged groups. The effect of the recent hukou reform on local welfare provision, therefore, warrant further examination.

The regressive outlook mentioned above in the aftermath of hukou reform, however, is not entirely certain. Another development campaign by the central government opens up the possibility of a more progressive welfare development by creating several city clusters to take advantage of the spillover effect from the high-growth centers to their relatively impoverished neighbours. The 2018 State Council opinion suggests developing several city clusters ( 城市群 ) to promote regional economic development and integration (Zhonghua remin gong he guo zhongyang renmin zhengfu, 2018). Most of the 114 cities fall within these city clusters, and most of the large cities with high welfare provision are the focus city of these clusters. 119 The progress made from 2007 to 2016, which is the focus of this dissertation, need to be further analyzed in the context of this city-cluster development. Whether and how high-welfare-provision cities help their neighbouring cities with low-welfare-provision in their respective cluster to improve welfare provision could be a fruitful venture of research. Clustering cities, together into a regional group for regional development is not new to China. There are numerous examples of urban agglomeration in Japan, the U.S. and countries in Europe. While the primary focus is economic integration and development, it could significantly reduce the welfare gap among cities, particularly among the low-income population.

Finally, one of the relatively underexplored aspects of unequal access to welfare in this dissertation is the migrant population as a disadvantaged group. Although the findings from this dissertation demonstrate that low-income migrant population, mostly employed in the informal economy, are likely to gain little from the recent welfare expansion, there are also generational changes taking place within the migrant working class. According to a 2017 report, published by the Department of Sociology of Tsinghua and China Youth Development Foundation, the 'new generation' of migrant workers who have at least secondary education are more tuned to urban-lifestyle with a

119 These regional clusters for development include (with confirmed year of initiatives in the parenthesis): 包长长长长长包长长全全长 (2016), 包长长长全全长 (2015), 成成全全长 (2016), 京京京全全长(2012), 珠长长长长全全长 (2008), 哈包全全长以以 (2016), 山山山山全全长, 辽长辽全全长, 关长关关全全长 (2018), 海海海海海海海 (2011), 长关全全长 (2016), 长江全全长, 天山天天全全长, 天北北全全长, 呼包呼呼全全长 (2018), 兰海全全长 (2018), 滇长全全长 (2018), 黔长全全长, 晋长全全长, 宁宁宁宁全全长.

225 different set of network, have higher expectation, reluctant to return to their original hometown and are less likely to be passive in the protection of their rights (" 被动维权 ") (Caixin Wang , 2012, August). The report further suggests, based on surveys, that 93.3% of the migrant workers want to integrate into the new cities they have migrated to. This could put more pressure on local governments in large cities with high welfare provision if they plan to contain population numbers through a tiered system and capitalize on migrant workers to socialize risk but are unwilling to provide a secure path to integration. A closer inspection of welfare access to the 'new generation' of migrant workers and its effect on the regime's stability interest remains warranted.

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Appendices

Appendix 1

The regression tests in the Appendix include the lagged corresponding dependent variable as an independent variable. The rationale is the spending on a policy is more likely to increase from the last year’s spending amount. So, the objective is to check the robustness of earlier results controlling for the effect of the previous year’s spending decision.

Among all three independent variables, the SOE employees and mass unrest demonstrate a significant positive association with per capita total welfare spending in Table A.1.1 and Tables A.1.2.

A.1.1: Short-term Effects on Total Welfare Spending (TWS)

VARIABLES

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Number of City 114 114 114 114 All variables (except mayors’ tenue year) are differenced Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

A.1.2: Short-term Effects on Total Welfare Spending (TWS)

VARIABLES

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Error Correction Coefficients -0.216***

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6.6.24: Short-term Effects on Social Security Spending (Soc. Sec.)

VARIABLES

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(0.08) (0.08) Soc. Sec. (SH) − 1

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(14.42) (0.24) SOE Emp. (Weighted) − 4

257 the variation in the six component measures of the welfare provision. Therefore, the index can be considered a good summary indicator for the six subcomponents of the index.

A.2.1: Principal Component Analysis for Welfare Provision Index

Co m p o n e n t

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For the robustness check, I develop an index using only welfare outcomes and the scope of social security (Table A.2.3 in Appendix 2). The three variables I use produce an eigenvalue of 2.166 in the PCA (Table A.2.3). I apply the general rule of thumb, and since the eigenvalue associated with the second factor is smaller than 1, I use only one factor. The welfare provision index based on the first principal component explains around 72 percent of the variation in the three component measures of the welfare provision. Therefore, the index can be considered a good summary indicator for the three subcomponents of the index.

A.2.3: Principal Component Analysis for Welfare Provision Index Component Eigenvalue

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Appendix 3

A.3.1: List of 82 Low-Welfare-Provision Cities 82 Cities

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Guilin 1683.73 37.38

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Yulin

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Harbin* 2.11 7.42 17.44 0.7868235 Lanzhou* 3.36 6.03 20.75 0.7678413 Xining* 3.94 5.79 12.27 0.7318797 LWP

Xi'an 2.77

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Xuzhou 1.47 6.17 11.72 -0.5320477 Quanzhou 1.55 5.84 15.57 -0.5826992 Huaihua 1.78 5.92 8.05 -0.59924 Luoyang 1.93 5.45 15.28 -0.6001039 Lianyungang 1.41 6.11 11.26 -0.6186681 Cangzhou 1.87 5.75 8.9 -0.6330001 Baoding 1.64 5.92 9.35 -0.6494367 Ziyang 1.18 6.38 8.89 -0.652415 Yongzhou 1.27 6.29 7.25 -0.696861 Guilin 1.74 5.67 10.88 -0.7005201 Xingtai 1.62 5.85 9.04 -0.7151661 Xinxiang 1.57 5.53 16.61 -0.7341629 Hengyang 1.7 5.6 11.86 -0.7414407 Xiaogan 1.3 6.02 10.86 -0.7471489 Chenzhou 1.67 5.73 8.84 -0.7678418 Huanggang 1.85 5.52 7.22 -0.8293735 Handan 1.46 5.73 10.65 -0.8414785 Liaocheng 1.41 5.6 13.29 -0.8724045 Yibin 1.21 5.51 11.77 -1.091887 Heze 1.46 5.32 8.7 -1.145491 Nanyang 1.25 5.55 7.56 -1.156937 Nanchong 1.26 5.46 9.42 -1.162246 Yichun 1.24 5.34 11.15 -1.200089 Shantou 1.37 4.66 23.09 -1.210106 Suqian 1.2 5.38 10.42 -1.218526 Xinyang 0.89 5.81 6.9 -1.236733 Shangrao 1.16 5.34 9.87 -1.283502 Shangqiu 1.21 5.44 5.82 -1.305234 Jingzhou 1.37 5.01 11.28 -1.315977 Qujing 0.97 5.52 8.31 -1.328231 Jieyang 1.05 4.94 19.12 -1.342024 Maoming 1.16 5.01 13.93 -1.372031 Shaoyang 1.2 5.29 6.65 -1.37668 Ganzhou 1.03 5.33 8.39 -1.407989 Luzhou 1.37 4.85 10.98 -1.42624 Zhanjiang 1.11 4.99 12.52 -1.454412 Liu'an 1.02 5.36 5.37 -1.476993 Zunyi 1.06 5.28 6.15 -1.480273 Zhumadian 1.27 5.02 5.69 -1.529784 Dazhou 0.99 5.14 8.76 -1.536443 Zhaotong 0.75 5.43 3.3 -1.654768

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Suzhou-AH 1.04 5.09 4.72 -1.656491 Zhoukou 1.06 5.07 4.38 -1.657806 Guigang 0.9 5.22 4.16 -1.66827 Bozhou 0.66 5.44 3.32 -1.699626 Yulin 0.95 4.94 5.13 -1.785794 Anqing 1.17 4.56 8 -1.808939 Fuyang 0.86 4.85 3.67 -1.932696 Bijie 0.66 5.01 2.88 -1.984263 *Cities that don’t match with the first PCA result

Appendix 4 Table A.4.1 shows that the SOE sector has a significant negative relation with individuals not being covered for maternity insurance. In the 2015 model, according to the ‘divide by four’ rule, the probability of an individual not being covered by maternity insurance is 22 percent less in the SOE sector than that in the government. Only foreign or joint venture enterprises have a higher probability (27 percent) than the SOEs. This is also the case for the 2013 model. Workers in the informal job and ‘other’ category and older individuals are more likely to be uninsured than their counterparts. Individuals who are female or highly educated or who have high after-tax income are more likely to be insured compared to male, less educated and low-income populations, respectively.

A.4.1: The Effect of Employment Sectors on Maternity & Work Injury Insurance Coverage

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Others -0.279*** -0.676*** -0.357*** -0.566*** (0.078) (0.063) (0.072) (0.060) Local 0.012 0.002 0.016 0.014 (0.039) (0.035) (0.038) (0.036) Informal -1.278*** -1.418*** (0.049) (0.043) Member 0.049 0.027 0.028 -0.002 (0.042) (0.040) (0.042) (0.039) Secondary/Lower 0.465*** 1.082*** 0.401** 0.594*** (0.174) (0.303) (0.157) (0.152) Post-Secondary 0.983*** 1.740*** 0.886*** 1.135*** (0.178) (0.306) (0.162) (0.156) Female -0.448*** -0.338*** -0.008 0.007 (0.034) (0.032) (0.033) (0.031) Age -0.014*** -0.017*** -0.009*** -0.013*** (0.002) (0.002) (0.002) (0.002) Log (Income) 0.140*** 0.251*** 0.173*** 0.240*** (0.019) (0.025) (0.018) (0.023) Constant -1.887*** -3.844*** -1.812*** -2.974*** (0.285) (0.402) (0.271) (0.293)

Observations 19,012 12,502 18,998 12,502 Pseudo R2 0.316 0.229 0.356 0.179 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

A similar result is found for the work injury insurance coverage. Table A.4.1 also shows the employees in SOEs and foreign/joint ventures are least likely to be not covered for work injury insurance. In the 2015 model, according to the ‘divide by four’ rule, the probability of an individual not being covered by work injury insurance is 27 percent less in the SOE sector than that in the government. Only foreign or joint venture enterprises have a higher probability (34 percent) than the SOEs. This is also the case for the 2013 model. Workers in the informal job and ‘others’ category and older individuals are more likely to be uninsured than their counterparts. Individuals who have higher after-tax income and are highly educated are more likely to be insured compared to males and less educated, respectively.

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A.4.1: Adjusted Predictions for Maternity Insurance Coverage

The predictive margin in Figure A.4.1 illustrates a low predicted probability of maternity insurance coverage. The two most advantageous groups are employees in the SOE and foreign/joint ventures. The predicted probability of maternity insurance coverage for employees in the SOE sector is 39 percent and for the employees in the foreign or joint ventures is 44 percent. A similar result is evident in the 2013 dataset. In sum, the SOE remains the second most advantageous group compared to any other sectors except the foreign/joint ventures.

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A.4.2: Adjusted Predictions for Work Injury Insurance Coverage

The predictive probabilities of employment sectors in Figure A.4.2 also illustrate the overall low probability of work injury insurance coverage across all sectors. The two most advantageous groups are employees in the SOE and foreign/joint ventures. The predicted probability of work injury insurance coverage for employees in the SOE sector is 56 percent and for the employees in the foreign or joint ventures is 62 percent. A similar result is evident in the 2013 dataset. In sum, in work injury insurance coverage, the SOE remains the second most advantageous group compared to any other sectors except the foreign/joint ventures.

Appendix 5

Interview List (All interviews are conducted on the condition of maintaining anonymity of the interviewees) INTHZBC0609, Budget Official INTHZBO0623-1, District-level Budget Official INTHZBO0623-2, District-level Budget Official INTHZBO0623-3, County-level Budget Official INTHZBO0623-4, County-level Budget Official INTHZDO0630-1, Medical Professional

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INTHZDO0630-2, Medical Professional INTHZDO0630-3, Medical Professional INTHZDO0630-4, Medical Professional INTHZEE0716, Academic Expert on Education Policy INTHZFR0628, CEO of Investment Project INTHZPA0629, Social Security Policy Advisor INTHZPC0609, Administration (People’s Congress) INTHZPP0703, Primary School Vice-Principal INTHZPT0703-2, Middle School Teacher INTHZSE062, Academic Expert on Welfare Policy INTHZSE0629, Academic Expert on Welfare Policy INTCCBO0514, County-level Budget Official INTCCBX0518, Provincial Budget Committee Member INTCCHH0516, High School Headmaster INTCCHT0516, High School teacher INTCCMP0512-1, Medical Professional INTCCMP0512-2, Medical Professional INTCCMP0512-3, Medical Professional INTCCMT0516-1, Middle School Teacher INTCCMT0516-2, Middle School Teacher INTCCMT0517-1, Middle School Teacher INTCDNP0615, Migrant Population Expert (Non-profit sector) INTCDWE0617, Welfare Policy Expert INTCHBE0615, Provincial Budget Committee Member INTSYJD0522, Judge INTSYJS0522, Judge INTSYPW0521, Public Security Official INTSYSO0522, SOE Official INTSYTA0522, Tax Policy Expert & Professional