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Reviewed by:
  • Between Politics and Markets: Firms, Competition, and Institutional Change in Post-Mao China
  • R. Bin Wong
Yi-min Lin , Between Politics and Markets: Firms, Competition, and Institutional Change in Post-Mao China. Cambridge, UK: Cambridge University Press, 2001. 255 pp. $60.00

The study of Chinese economic reform has followed two major approaches. One focuses on the initial spread of market relations in the non-state plan sector and the subsequent impact on state-owned enterprises, and the other traces the emergence of local government agents as key economic players seeking increased revenues. Yi-min Lin builds on insights of both approaches to look at the relationship between markets and hierarchy to show that important forms of political exchange have emerged alongside the more frequently observed forms of economic exchange. He makes three main arguments:

  1. 1. exchange relations between economic agents and state agents encourage mutual accommodation;

  2. 2. the self-seeking behavior of public officials undermines capacities for mutual monitoring; and

  3. 3. competition among economic agents for favors from the state influences institutional changes.

Organized into seven chapters bracketed by an introduction and conclusion, the book begins with two chapters that provide an overview of changes in the organizational setting for industrial enterprises as central planning declined. Chapter 1 poses [End Page 166] questions about the difference in profit rates between state and non-state enterprise sectors, the similarities of profit rates for individual firms irrespective of their state or non-state status, and the common decline of profit rates for firms in both sectors. Chapter 2 introduces case study data on state enterprises and non-state enterprises to begin answering questions posed in the previous chapter. Chapter 3 draws the reader into Lin's key arguments about the role of local state agents in setting the conditions for market success and failure through three arenas of activity. First, they can influence access to factors of production; their support helps certain firms gain bank loans, and their authority over land-use rights allows them to set the prices for land use and to control transfers of land-use rights. Second, local governments enter into contracts with firms for the use of state-owned resources; this gives local officials incentives to extract revenue from firms but also encourages some measure of negotiation and mutual accommodation. Third, local governments distribute liabilities and have considerable discretion over how they levy taxes, so some firms will benefit from exemptions and others will bear arbitrary burdens. The analysis in this chapter is especially helpful in showing how the decisions of local state agents can affect firms differently, an important refinement on the general local developmental state argument.

Chapter 4 shifts from the activities of local governments to the role of so-called backyard profit centers, economic entities linked to state agencies as sources of funding and favorable regulatory treatment and tied to markets in their sale of goods and services. Not surprisingly, it is difficult for an enterprise to compete with a backyard profit center that enjoys preferential access to resources and markets. Enterprises sometimes voluntarily do business with these profit-centers and at other times can be forced to do business with them in order to survive. Finally, various forms of collusion result when bureaucrats quit their posts to begin working for companies that are closely tied to their former employers, a situation that makes dubious asset transfers more likely. Chapter 5 combines an analysis of backyard profit centers and local government through two case studies to contrast situations in which local state authority is singular with situations in which multiple state authorities exist. When enterprises were under revenue contracts to different bureaucracies at higher levels of administration, officials established backyard profit centers outside the formal organizational structure of the local state, and these backyard profit centers preyed on local enterprises. In contrast, when all enterprises were under a single township agency that was under a revenue contract with the next higher level of government, there were no separate profit-seeking entities under other township agencies. The two contrasting scenarios reflect different structural conditions. Multiple state authorities with enterprises under them are typically found in urban areas, whereas the concentration of industries...

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