CHINA’S STATE CAPITALIST TURN: POLITICAL ECONOMY OF THE ADVANCING STATE by Sarah Eaton A thesis submitted in conformity with the requirements for the degree of Doctor of Philosophy Graduate Department of Political Science University of Toronto © Copyright by Sarah Eaton (2011) China’s State Capitalist Turn: Political Economy of the Advancing State Sarah Eaton PhD. Thesis Department of Political Science University of Toronto 2011 The thesis explores puzzling change in Chinese state sector over the past two decades. China‟s debt-ridden state-owned enterprises (SOEs) were long seen as the most thorny reform dilemma; however, in the past decade, the surging profitability of large SOEs in the so-called “monopoly sectors” (longduan hangye 垄断行业) have made them lynchpins of an emerging state capitalist system. The main argument is that the state sector‟s apparent reversal of fortunes is, in large measure, a legacy of the brief period of neoconservative rule (1989-1992) following the Tiananmen uprising in spring 1989. The fleeting ascendance of Chen Yun‟s neoconservative faction provided them the opportunity to redirect the reform course set by Deng Xiaoping and embed a market vision which saw SOEs as pillars of the economy. The neoconservative leadership laid the normative and institutional foundations of a robust SOE-directed industrial policy regime which has gained momentum through the 1990s and into the last decade. The study also sheds lights on the political and economic drivers of China‟s unfolding market order through analysis of the industry foundations of China‟s emerging state capitalist system. In recent years, state ownership has concentrated in some industries and largely retreated from others. What is driving this process of what Pei (2006) terms the “selective withdrawal” of the state from the economy? To address this question, the nature of ownership change across Chinese industry in recent years is first analyzed. Focus then shifts to comparative analysis of the ii reform pathway of two industries in which state ownership remains dominant: telecommunications and airlines. Combining insights from the partial reform equilibrium model and historical institutionalism, the study argues that both the particularist interests of “short-term winners” in industry and the neoconservative policy legacy have left an imprint on the process of selective withdrawal. iii Acknowledgments It is truly a pleasure to thank to those individuals and organizations who made this thesis possible. First and foremost, I am grateful for excellent supervision. Louis Pauly and Joe Wong were a great advisory team. Generous encouragement and incisive questioning as well as a thousand acts of kindness made the tailwind that pushed me through to completion of this project. Richard Stubbs has been a mentor since my time at McMaster and his wisdom and generosity continue to inspire. Todd Hall‟s contributions toward the end of this project helped to sharpen the thesis and have set the task for future elaborations of this work. I drew from Victor Shih‟s deep knowledge about Chinese politics and economics at several points in the research process and was fortunate to have his invaluable feedback on the final draft. I‟m thankful, too, for a lot of help from my friends and classmates. At the University of Toronto, I was lucky to be surrounded by a brilliant and merry band of fellow travelers on the dissertation road, especially Mike Mastroeni, Wendy Hicks, Seth Jaffe, Bill Flanik, Steve Trott, Andy Paras, Charmaine Stanley, Caroline Shenaz Hossein and Jenn Wallner. Special thanks go to the incomparable Alanna Krolikowski whose wit, intelligence and friendship have been a sustaining force for me. Friends made in China also helped to make this a process of discovery and growth, particularly Chen Shu, He Weimin, Cigdem Gül and Andrée Chenard. Trinh Thuy Hang taught me a lot about life, putonghua and the wonders of fish sauce—I‟ll always be grateful that she took me into her world. Many people contributed in one way or another directly to my thesis findings. Unnamed interview subjects generously shared their insights with me and allowed me to get a toehold on complex issues. Gao Haihong and Zhang Ming were greatly helpful during my time as a Visiting Scholar at the Chinese Academy of Social Sciences. At various points, exchanges with the following people helped to save me from wrong turns and generally kept me in a (roughly) forward motion: Kay Shimizu, Jennifer Choo, Margaret Boittin, Matt Ferchen, Sandra Heep and members of „The Vineyard‟ Wednesday night group. I also benefited from talks with Carl Walter, Kan Kaili, Yukyung Yeo and Rosie Hsueh. iv A dissertation is a slow-moving process and these people were especially important influences before the formal project ever came into view. Marilyn McCullough‟s student exchange trip to Hangzhou in summer 1998 was nothing less than life-changing for me as it was for several others. She is missed and fondly remembered. Another of Marilyn‟s students, Susan Andrews is a wonderful person who I am better for knowing. The same goes for her family. My last year of writing was a juggling act and I was fortunate to have been surrounded by kind, smart and hilarious people at a challenging time. Thanks especially to the ladies of the Asia Pacific Foundation of Canada for good times at „Moose‟s Downunder‟, soccer pitches and other spots in town: Heather Kincaide, Lia Cosco, Trang Nguyen, Erin Williams and Alexandra Ho. Yuen Pau Woo and Jill Price were hugely supportive and understanding. Hillary Bullock and other old friends were also great companions. Without research funding from a number of sources, this thesis would not have been written. I am grateful to the Social Sciences and Humanities Research Council of Canada, the Canada-China Scholars‟ Exchange Program, the Chiang Ching Kuo Foundation, the China Times Cultural Foundation, the Dr. David Chu Scholarship Fund for Asia Pacific Studies and the Department of Political Science at the University of Toronto. Finally, I owe deepest thanks to my nearest and dearest. My parents, Diane and Curtis Eaton, are my role models, guides and best friends. Annual visits to see them in the Crowsnest Pass were and are the highlights of my calendar. Brett and Isabelle Eaton and their brood took a crazy Ellie husky into their busy lives while I was living in China—they are true mensches, not to mention brilliant. I thank Genia Kostka for all the joy she has brought into my life. She helped this thesis along in more ways than I can recall, most of all with incisive comments, understanding and a steady stream of good cheer. While many people contributed to this thesis, all errors and omissions are mine and mine alone. v Table of Contents TABLE OF CONTENTS ................................................................................................................ VI LIST OF TABLES..............................................................................................................................X LIST OF FIGURES ......................................................................................................................... XI LIST OF APPENDICES .............................................................................................................. XIII LIST OF ABBREVIATIONS ...................................................................................................... XIV 1 INTRODUCTION ...................................................................................................................... 1 1.1 Research Questions...................................................................................................................................... 1 1.2 Contributions ............................................................................................................................................... 5 1.3 Thesis Structure and Summary of Findings ............................................................................................... 6 2 SELECTIVE WITHDRAWAL: AN ANALYTICAL FRAMEWORK ......................... 10 2.1 Introduction ............................................................................................................................................... 10 2.2 The Politics of Postcommunist Transitions ............................................................................................... 12 2.2.1 Przeworski vs. Hellman ...................................................................................................................... 12 2.2.2 The China Transition Debate .............................................................................................................. 16 2.2.3 A Critique of the Partial Reform Equilibrium Model ........................................................................... 18 2.2.4 A Historical Institutionalist View ........................................................................................................ 20 2.3 A Critical Juncture in China’s Economic Transition: Tiananmen and Everything After ....................... 23 2.3.1 The Neoconservatives‟ Economic Legacy ........................................................................................... 23 2.3.2 The Shifting Tides of Elite Politics ..................................................................................................... 28 2.3.3 The Growing Clout of SOEs in the Crucible of Regulatory Reform ..................................................... 31 vi 2.4 Research Agenda