SpringerBriefs in Economics

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Kenji Yamamoto, Kobe University Graduate School of Law, Kobe, Japan
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Kai Kajitani · Tomoki Kamo

Political Economy of Reform

in China
Kai Kajitani Tomoki Kamo
Graduate School of Economics Keio University
Kobe University Fujisawa-shi, Kanagawa, Japan
Kobe, Hyogo, Japan

ISSN 2191-5504 ISSN 2191-5512 (electronic)

SpringerBriefs in Economics
ISSN 2520-1697 ISSN 2520-1700 (electronic)
Kobe University Social Science Research Series
ISBN 978-981-19-0201-7 ISBN 978-981-19-0202-4 (eBook)
https://doi.org/10.1007/978-981-19-0202-4

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Preface

This book contains four research papers that attempt to clarify the issues behind
China’s rapid economic growth, using empirical studies. The book makes three
distinctive points. First, it elucidates the unique economic development of China
from a different perspective than the “state capitalism” theory, based on empir-
ical research on the Chinese economy and politics with the cooperation of leading
scholars. Second, the book paints a total picture of China through an interdisciplinary
analysis of economics, politics, and history. Third, this book focuses on the various
political–economic context of China’s rapid economic growth on the following basis:
preferential treatment of state-owned enterprises (SOEs), local government inter-
vention in business management, the promotion of innovation backed by historical
institutions, and local government’s competition to attract companies through the
auction of the land usage right.
We have conducted the following empirical analysis in this book.
First, we analyze whether a clear difference in the labor distribution rate exists
between SOEs and non-SOEs, using data from industrial enterprises. Our analysis
shows that wage share throughout the analysis period was much higher at SOEs than
at non-SOEs.
Second, we focus on Shenzhen as an innovation hub and examined sustainable
innovation and its institutional context in China. And we found how firms avoid the
prisoner’s dilemma in the context of the manufacturing industry in China, which
faces uncertainty from the constant entry of micro-companies or traders.
Third, we empirically clarify the questions by matching the databases of indus-
trial enterprises and information on elected representatives of the Local People’s
Congress of Yangzhou City, Jiangsu Province. Our analysis shows that the acqui-
sition of political capital as a representative of the Municipal People’s Congress
certainly improved the performance of local enterprises in terms of scale, but not in
terms of efficiency.
Finally, we focus on the competition by local governments to attract companies
by auctioning land usage rights. The existing studies on the competition among
local governments tended to focus on the competition of growth rate through the
performance evaluation system or the tax competition for attracting companies.

v
vi Preface

This book was published as part of the Kobe University Social Science Research
Series by Springer Nature. And Kobe University Center for Social Systems
Innovation (KUSSI) fully supported the publication of this book.
The description of the empirical research in Chap. 5 is based on a paper co-
authored with Dr. Daisuke Fujii of Osaka University of Economics, who kindly
agreed to allow us to use part of the co-authored paper as the content of this book.
We would also like to thank Takahiro Sato of the Research Institute for Economics
and Business Administration, Kobe University, for his helpful comments on the
revision of each chapter.
We would like to express our deepest gratitude to all those who contributed to the
publication of this book.

Kobe, Japan Kai Kajitani

October 2021
Contents

1 Introduction: The Future of Chinese Economy Under the U.S.–

China Economic Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The U.S.–China Economic Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Chinese Economy and "Another Capitalist Economy" . . . . . . . . . . . . 4
1.3 Structure of This Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2 Ownership Structures and Disparities in the Labor Share
of Chinese Industrial Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 The Guojin-Mintui Phenomenon and the Decline of the Wage
Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Previous Research on Disparities in Wages and Wage Share
at SOEs and Non-SOEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3 Analysis of Wage Share Differentials Using Propensity Scores . . . . . 16
2.4 Analysis Methodology, Data, and Analysis Results . . . . . . . . . . . . . . . 18
2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3 Evaluating the Sustainability of Innovation in China
from the Perspective of Institutional Economics . . . . . . . . . . . . . . . . . . . . 27
3.1 Is China’s Innovation Sustainable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2 Shenzhen’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.2.1 The Three Groups of Companies Based on Their
Consideration of Intellectual Property Rights . . . . . . . . . . . . . . 30
3.2.2 Ignoring Intellectual Property Rights and Vertical
Disintegration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.2.3 Protection Through Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.2.4 Innovations Through the Open-Source Concept . . . . . . . . . . . . 32
3.3 The Institutional Background of the Shenzhen Ecosystem . . . . . . . . . 33
3.3.1 Coexistence of Shanzhai and Innovations . . . . . . . . . . . . . . . . . 33
3.3.2 Shenzhen’s Ecosystem and Independent Design Houses . . . . 34
3.3.3 Solving the Prisoner’s Dilemma . . . . . . . . . . . . . . . . . . . . . . . . . 35

vii
viii Contents

3.4 Institutional Background of Innovation in China . . . . . . . . . . . . . . . . . 36

3.4.1 Brokerage Economy as the Traditional Economic Order
of the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.4.2 Brokerage as a Form of an Incomplete Contract . . . . . . . . . . . 37
3.4.3 Nash Equilibrium and the Prisoner’s Dilemma . . . . . . . . . . . . 38
3.4.4 Historical Institution of the Brokerage Economy . . . . . . . . . . . 41
3.5 Contemporary Significance of the Brokerage Economy . . . . . . . . . . . 42
3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4 Political Capital and Enterprise Performance in China: Empirical
Analysis Using Data from the People’s Congress of Yangzhou
City and Industrial Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.1 Introduction: Local People’s Congress as “Chinese-Style
Democracy” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.2 The Methodology of Empirical Studies . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.3 Results and Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.4 Robustness Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5 Land Market Competition Among Local Governments: A Spatial
Analysis of Zhejiang Province . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.1 Land and Real Estate System Reform and Price Restraint Policies . . 67
5.2 Land and Real Estate Markets and Regional Governments’
Fiscal Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
5.3 Land Market Structure and Rent-Seeking . . . . . . . . . . . . . . . . . . . . . . . 76
5.4 Empirical Studies on the Fiscal Competition by the Local
Governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
5.5 Data and Empirical Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
5.5.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
5.5.2 Empirical Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
5.6 Results of the Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
5.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
About the Authors

Kai Kajitani is a professor at the Graduate School of Economics at Kobe Univer-

sity. He received his Ph.D. in economics from Kobe University in 2001 and special-
izes in modern Chinese economics. His research interests also include development
economics and comparative economics. He was a visiting scholar at the Center for
Chinese Studies, University of California, Berkeley, from September 2005 to June
2006. He is the author of Lectures on Chinese Economy, Chuou Koron Shinsha, 2018
(in Japanese); Chinese-Style Capitalism Evolving Beyond a Dual Trap: Empirical
Studies on Ambiguous Institutions (ed. with Hiroyuki Kato), Minerva Shobo, 2016
(in Japanese); The Fiscal and Financial System in Modern China: The Economics
of Globalization and Central–Local Relations, Nagoya Daigaku Shuppankai, 2011
(in Japanese); and other works.

Tomoki Kamo is a professor at the Faculty of Policy Management, Keio University,

where he received his Ph.D. in media and governance in 2004. His research interests
include Chinese politics and comparative politics. He was appointed as a consul in
the consulate-general of Japan in Hong Kong from October 2016 to October 2018.
He was a visiting scholar at the Graduate Institute of Political Science, National
Taiwan Normal University (Taiwan) from September 2010 to October 2010 and the
Center of Chinese Studies, University of California, Berkeley, from March 2011 to
March 2012, as well as a visiting associate professor at the College of International
Affairs, National Chengchi University (Taiwan) from February 2013 to September
2013. He is the author of Political Institutions in Contemporary Chinese Politics:
The Politics of Temporality and the Rule of the Chinese Communist Party (ed. with
Jaehwan Lim), Tokyo: Keio University Press, 2018, (in Japanese); The Sources of
China’s Foreign Policy, Tokyo: Keio University Press, 2016, (in Japanese); The Rise
of China as a Major Power, Tokyo: Ichigeisya Press, 2016, (in Japanese); Contem-
porary Chinese Politics and People’s Congresses: Reforms of People’s Congresses
and Changes in the “Guiding-Guided” Relationship, Tokyo: Keio University Press,
2006 (in Japanese); and other works.

ix