Between Politics and Markets: Firms, Competition, and Institutional Change in Post-Mao China (review)

Yi-min Lin's Between Politics and Markets is an excellent study of the political economy of China's reform era. Lin tries to resolve one of the lingering puzzles in interpreting China's two decades of relatively successful economic reform: in the absence of overhauling the country's political system China's economy has been growing rapidly, and the standard of living has improved substantially. Lin attributes this to the interplay between two emerging markets: an economic market for the exchange of finished goods and resources and a political market for the exchange of state-controlled resources, opportunities, and official favors.

In his introduction, Lin sets out to further the arguments of the two main schools of interpretation with regard to China's economic reform: (1) the economic competition thesis that emphasizes the growth of markets and competitive pressures generated by many piecemeal reforms and (2) the local-developmental-state thesis that stresses the pro-market policies of local governments in the reform era. The author also offers a sketch of his thesis of "dual marketizaton" with its focus on "how the competitive advantage of firms has been formed in two emergent markets, the economic and the political."

Chapter 1 provides an overview of the Chinese industrial economy, with an emphasis on various new forms of firms and the institutional changes they undergo with the rise of markets in China. Lin raises some interesting questions, especially concerning "dichotomized ownership labels," and argues that "the widely perceived superiority of the non-state sector has been exaggerated." According to the author, "the marketization in both the economic and political processes holds a key to understanding these issues."

Chapters 2 and 3 explore with case study materials the changing advantages and disadvantages among different types of firms during the reform era. And the issues involved are examined in the context of the interactions between the economic and political markets. Lin points out that although "concrete markets" have become "the main motivating and mediating force for economic activities" in China, they are not yet in a position to play "the dominant role" in determining the "distribution of relative payoffs among firms," where "particularistic state action" continues to be predominant. In discussing state-firm relations against the backdrop of decentralization, he highlights the "particularistic state action" in terms of resource allocation, regulation, and distribution of liabilities.

Chapter 4 looks into the entrepreneurial activities of state agents and the interactions between these agents and firms in three areas: competition, transaction, and collusion. The author argues that firms capable of making the best use of such interactions "tend to have an edge" over others, and the decline of central planning is largely due to the "corrosive effects" of the self-seeking behavior of state agents.

Chapter 5 reveals, on the basis of case studies, how exchange relations have evolved in the process of China's decentralization and in what way state-firm relations have thus been affected. While it had occurred several times before, the decentralization in the reform era is unique in the sense that "state agents have gained increasing individual discretion in defining both the content and the scope of the agenda implemented in local jurisdictions." Furthermore, the author argues, the policy shift from political mobilization to economic development has "fostered greater interest convergence" and "collusive collective actions" among local officials, and opportunistic officials have used various ways to pursue their own interests "under the cover of reform," especially in the "gray area."

Chapter 6 analyzes the "means and contexts of favor seeking." The author goes beyond the general interpretation of guanxi (personal networks) by exploring "what shapes the outcomes of guanxi-mediated favor exchange, especially in the context of multiple-party interactions." He argues that the use of guanxi is more restrictive in urban than in rural areas because urban enterprises are "more extensively exposed" than rural ones to...