China’s Crony Capitalism: More Than Property Rights

Minxin Pei’s excellent new book China’s Crony Capitalism: The Dynamics of Regime Decay makes several important contributions to the fields of China studies, political economy, and comparative politics. It invigorates the debates about the viability of China’s model of economic development and political system, develops a host of analytical concepts and tools for the study of crony capitalism, and provides a comprehensive and well-documented analysis of the evolution and nature of China’s crony capitalism in the post-Tiananmen era.

Each of these contributions deserves further elaboration and acclamation, but for the purposes of this review, it would be more useful to critically assess Pei’s arguments. The core argument advanced in the book rests on the connection between corruption and partial public property reforms as the defining features of China’s crony capitalism. Decentralizing the rights of control over state assets without clarifying the rights of ownership, Pei argues, has provided those who govern those assets with “opportunities and incentives” for stealing undervalued state-owned assets (pp. 29, 34). Radical decentralization of administrative authority, moreover, has granted officials new discretionary powers, thus creating “capacity” and “means” for plundering state assets (p. 34). The mechanisms for performing these activities include “vertical collusion” among superiors and subordinates, “horizontal collusion” among insiders in state agencies, and “outsider-insider collusion” between officials and private businesspeople (pp. 37–43).

The above framework is crisp and brilliant but overstretched, achieving analytical clarity at the expense of empirical complexity. Incomplete property reforms certainly facilitated the theft of state assets both quantitatively and qualitatively, but with or without public property or its incomplete reform, many forms of crony capitalism covered (and not covered) in the book would still exist, given China’s current political setting. In all those forms, the common denominator is unchecked public power—or to partially borrow Pei’s term, ambiguous ownership rights over public power, not just over public properties. Regardless of property ownership rights in statutes, the execution of public policies and laws will always entail decision-making and the discretionary powers of individual officials. It is the checks and limits on these powers that make a difference. In Asia alone, crony capitalism has existed in states from East to Southeast Asia without having anything to do with public ownership per se. Pei’s analytical prism of incomplete property reforms is too narrow to capture the range and dynamics of China’s crony capitalism or its corruption in general.

First, Pei’s model cannot account for all forms of crony capitalism in China and arguably not even all those treated in his own study. His framework does a superb job of explaining collusive corruption in areas directly involving state assets, such as land use, property development, mining, and state-owned enterprises. But it is less convincing in areas not directly involving state assets, such as public offices for sale, collusion with organized crime, and abuse of judiciary or regulatory power. The linkage of offices for sale to partial property rights, Pei argues, is that the practice binds subordinates to a network of “vertical collusion” with superiors, who must secure their cooperation in the delivery of favors to private businessmen (p. 79). However, Pei does not show any direct evidence of this linkage, basing the claim mainly on the fact that officials disciplined for the sale of office also engaged in bribe extraction in other areas. But there are many ways superiors can induce collusion from subordinates, including sharing spoils and reciprocating favors. In fact, few subordinates would conceivably pass up on opportunities to curry favor with superiors by cooperating.

In other forms of crony capitalism that do not directly involve state assets the linkage to unclear property rights seems even weaker. Of those covered in the book, official collusion with the mafia is attributed to the irresistible opportunities created by changes in property rights for the mafia to expand into high-profit sectors, which necessitates political protection, while the abuse of judiciary and regulatory powers is blamed on the ecosystem of crony capitalism created by partial property rights reforms. But in all these forms...