Strange Bedfellows: Dynamics of government-business relations between Chinese local authorities and Taiwanese investors

Journal of Contemporary China

Volumn 6, Issue 15, 1997, Pages 319-346

  Wu, Jieh Min ^a  

^a Howard Hughes Medical Institute   (United States)

Author keywords

[No Author keywords available]

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EID: 10144244042     PISSN: 10670564     EISSN: None     Source Type: Journal    
DOI: 10.1080/10670569708724281     Document Type: Article

References (89)

1. See Anne O. Krueger, 'The political economy of the rent-seeking society', American Economic Review 64, (1974), pp. 291-303; Robert D. Tollison, 'Rent seeking: a survey', Kyklos 35, (1982), pp. 575-602; Samuel P. Huntington, Political Order in Changing Societies (New Haven: Yale University Press, 1969);
2. See Anne O. Krueger, 'The political economy of the rent-seeking society', American Economic Review 64, (1974), pp. 291-303; Robert D. Tollison, 'Rent seeking: a survey', Kyklos 35, (1982), pp. 575-602; Samuel P. Huntington, Political Order in Changing Societies (New Haven: Yale University Press, 1969);
3. See Anne O. Krueger, 'The political economy of the rent-seeking society', American Economic Review 64, (1974), pp. 291-303; Robert D. Tollison, 'Rent seeking: a survey', Kyklos 35, (1982), pp. 575-602; Samuel P. Huntington, Political Order in Changing Societies (New Haven: Yale University Press, 1969);
4. A. J. Heidenheimer, M. Johnston, and H. M. Levine, eds, Political Corruption: A Handbook (New Brunswick, NJ: Transaction Books, 1989);
5. and James Scott, Comparative Political Corruption (Englewood Cliffs: Prentice-Hall, 1972).
6. See Armen Alchian and Harold Demsetz, 'The property right paradigm', Journal of Economic History 33, (1973), pp. 16-27; Louis De Alessi, 'The economics of property rights: a review of the evidence', Research in Law and Economics, (1980), pp. 1-47; and Gary Libecap, Contracting for Property Rights (Cambridge: Cambridge University Press, 1989).
7. See Armen Alchian and Harold Demsetz, 'The property right paradigm', Journal of Economic History 33, (1973), pp. 16-27; Louis De Alessi, 'The economics of property rights: a review of the evidence', Research in Law and Economics, (1980), pp. 1-47; and Gary Libecap, Contracting for Property Rights (Cambridge: Cambridge University Press, 1989).
8. See Armen Alchian and Harold Demsetz, 'The property right paradigm', Journal of Economic History 33, (1973), pp. 16-27; Louis De Alessi, 'The economics of property rights: a review of the evidence', Research in Law and Economics, (1980), pp. 1-47; and Gary Libecap, Contracting for Property Rights (Cambridge: Cambridge University Press, 1989).
9. The average annual growth rate in industrial output during 1980-1992 was 13.1%. Taken respectively, the state-run sector was a below-average 7.8%; the collective, 18.4%; and the private, 64.9%. See Gary H. Jefferson and Thomas G. Rawski, 'Enterprise reform in Chinese industry', Journal of Economic Perspectives 8, (1994), pp. 47-70. Moreover, the growth of total factor productivity in the non-state sector has been faster than in state-run enterprises after reform. See Dwight Perkins, 'Completing China's move to the Market', Journal of Economic Perspectives 8, (1994), pp. 23-46. For the industrial growth in the rural area, cf. William Byrd and Qingsong Lin, eds, China's Rural Industry: Structure, Development, and Reform (New York: Oxford University Press, 1990).
10. The average annual growth rate in industrial output during 1980-1992 was 13.1%. Taken respectively, the state-run sector was a below-average 7.8%; the collective, 18.4%; and the private, 64.9%. See Gary H. Jefferson and Thomas G. Rawski, 'Enterprise reform in Chinese industry', Journal of Economic Perspectives 8, (1994), pp. 47-70. Moreover, the growth of total factor productivity in the non-state sector has been faster than in state-run enterprises after reform. See Dwight Perkins, 'Completing China's move to the Market', Journal of Economic Perspectives 8, (1994), pp. 23-46. For the industrial growth in the rural area, cf. William Byrd and Qingsong Lin, eds, China's Rural Industry: Structure, Development, and Reform (New York: Oxford University Press, 1990).
11. The average annual growth rate in industrial output during 1980-1992 was 13.1%. Taken respectively, the state-run sector was a below-average 7.8%; the collective, 18.4%; and the private, 64.9%. See Gary H. Jefferson and Thomas G. Rawski, 'Enterprise reform in Chinese industry', Journal of Economic Perspectives 8, (1994), pp. 47-70. Moreover, the growth of total factor productivity in the non-state sector has been faster than in state-run enterprises after reform. See Dwight Perkins, 'Completing China's move to the Market', Journal of Economic Perspectives 8, (1994), pp. 23-46. For the industrial growth in the rural area, cf. William Byrd and Qingsong Lin, eds, China's Rural Industry: Structure, Development, and Reform (New York: Oxford University Press, 1990).
12. For the trend in foreign investment and its consequences, see Y. Y. Kueh, 'Foreign investment and economic change in China', China Quarterly 131, (1992), pp. 638-690. See also Table 2 below.
13. 'Wearing-red-hat' is a local strategy in patronizing private entrepreneurship, which allows private businesses to affiliate with official unit (guahu). It originally developed from Wenzhou area (Zhejiang Province) in the early 1970s when private businesses were illegal. The local governments granted official patronage to private and household units with the title of collective enterprises. See Ya-Ling Liu, 'Reform from below: the private economy and local politics in the rural industrialization of Wenzhou', China Quarterly 130, (1992), pp. 293-316; and Kristen Parris, 'Local initiative and national reform: the Wenzhou model of development', China Quarterly 134, (1993), pp. 242-263. The continued informal institutional arrangement that helped avoid the problems of political legitimacy since then has been emulated everywhere in China with various modifications. It also produced a dynamics in extending its functions from legitimation to other economic benefits.
14. 'Wearing-red-hat' is a local strategy in patronizing private entrepreneurship, which allows private businesses to affiliate with official unit (guahu). It originally developed from Wenzhou area (Zhejiang Province) in the early 1970s when private businesses were illegal. The local governments granted official patronage to private and household units with the title of collective enterprises. See Ya-Ling Liu, 'Reform from below: the private economy and local politics in the rural industrialization of Wenzhou', China Quarterly 130, (1992), pp. 293-316; and Kristen Parris, 'Local initiative and national reform: the Wenzhou model of development', China Quarterly 134, (1993), pp. 242-263. The continued informal institutional arrangement that helped avoid the problems of political legitimacy since then has been emulated everywhere in China with various modifications. It also produced a dynamics in extending its functions from legitimation to other economic benefits.
15. Fuzzy property rights or hybrid forms of ownership are often seen in the context of socialist reform. The boundaries along various forms of property are vaguely delineated, particularly of the distinction between public and private property. In an enterprise, there may have a complex combination of state, communal and private sources of capital. The phenomena is common in China since reform. Cf. Victor Nee, Organizational dynamics of market transition: hybrid forms, property rights, and mixed economy in China', Administrative Science Quarterly 37, (1992), pp. 1-27.
16. By path dependence, I mean the situation in which the choice set for a specific actor is constrained by preexisting institutions and rules when encountering a new environment. See Douglass North, Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990), for an original theory. For empirical applications in the marketized socialist economies, see Dorothy Solinger, 'Urban reform and relational contracting in post-Mao China: an interpretation of the transition from plan to market', in Richard Baum, ed., Reform and Reaction in Post-Mao China: the Road to Tiananmen (New York: Routledge, 1991); David Stark, 'Path dependence and privatization strategies in Eastern Europe', Eastern European Politics and Societies 6, (1992), pp. 17-54; and Simon Johnson and Heidi Kroll, 'Managerial strategies for spontaneous srivatization', Soviet Economy 7, (1991), pp. 281-316.
17. By path dependence, I mean the situation in which the choice set for a specific actor is constrained by preexisting institutions and rules when encountering a new environment. See Douglass North, Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990), for an original theory. For empirical applications in the marketized socialist economies, see Dorothy Solinger, 'Urban reform and relational contracting in post-Mao China: an interpretation of the transition from plan to market', in Richard Baum, ed., Reform and Reaction in Post-Mao China: the Road to Tiananmen (New York: Routledge, 1991); David Stark, 'Path dependence and privatization strategies in Eastern Europe', Eastern European Politics and Societies 6, (1992), pp. 17-54; and Simon Johnson and Heidi Kroll, 'Managerial strategies for spontaneous srivatization', Soviet Economy 7, (1991), pp. 281-316.
18. By path dependence, I mean the situation in which the choice set for a specific actor is constrained by preexisting institutions and rules when encountering a new environment. See Douglass North, Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990), for an original theory. For empirical applications in the marketized socialist economies, see Dorothy Solinger, 'Urban reform and relational contracting in post-Mao China: an interpretation of the transition from plan to market', in Richard Baum, ed., Reform and Reaction in Post-Mao China: the Road to Tiananmen (New York: Routledge, 1991); David Stark, 'Path dependence and privatization strategies in Eastern Europe', Eastern European Politics and Societies 6, (1992), pp. 17-54; and Simon Johnson and Heidi Kroll, 'Managerial strategies for spontaneous srivatization', Soviet Economy 7, (1991), pp. 281-316.
19. By path dependence, I mean the situation in which the choice set for a specific actor is constrained by preexisting institutions and rules when encountering a new environment. See Douglass North, Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990), for an original theory. For empirical applications in the marketized socialist economies, see Dorothy Solinger, 'Urban reform and relational contracting in post-Mao China: an interpretation of the transition from plan to market', in Richard Baum, ed., Reform and Reaction in Post-Mao China: the Road to Tiananmen (New York: Routledge, 1991); David Stark, 'Path dependence and privatization strategies in Eastern Europe', Eastern European Politics and Societies 6, (1992), pp. 17-54; and Simon Johnson and Heidi Kroll, 'Managerial strategies for spontaneous srivatization', Soviet Economy 7, (1991), pp. 281-316.
20. See Christine P. W. Wong, 'Central-local relations in an era of fiscal decline: the paradox of fiscal decentralization in post-Mao China', China Quarterly 128, (1991), pp. 691-715. The major institutional arrangement for financial decentralization is a nation-wide fiscal responsibility system between the center and local governments.
21. For the concept of soft budget constraint, see Janos Kornai, 'Resource-constrained versus demand-constrained systems', Economica 47, (1979), pp. 801-819.
22. The Chinese economic reform can be divided into two phases. The first stage spanned from 1978 to 1991. The second began from 1992, a significant year in marking new dynamics of Open Door. The reform had been in the doldrums since the price and urban reform failed in 1988. In early 1992, the 'conductor of the Chinese reform' Deng Xiaoping traveled to the southern provinces to boost further reform. A series of further opening and institutional reform have been under way since then.
23. Roughly, partial reform represents a contrast approach to 'shock therapy'. It implies an incremental, piecemeal, and gradual approach in reforming the existing system. Cf. Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993). The Chinese government once considered using the method of blitzkrieg to cancel the dual price system in 1988, but failed to implement it due to a soaring inflation and consumer panic beforehand. For economic arguments for incremental reform, see Peter Murrell, 'Evolution in economics and in the economic reform of the centrally planned economics', in Christopher Clague and Gordon Rausser, eds, The Emergence of Market Economics in Eastern Europe (Cambridge, MA: Basil Blackwell, 1992), pp. 35-53; Ronald I. McKinnon, The Order of Economic Liberalization: Financial Control in the Transition to Market Economy (Baltimore, MD: Johns Hopkins University Press, 1991); and idem, 'Taxation, money, and credit in a liberalizing socialist economy', in Christopher Clague and Gordon Rausser, eds, pp. 109-127. See David Lipton and Jeffrey Sachs, 'Creating a market economy in Eastern Europe: the case of Poland', Brookings Papers on Economic Activity 1, (1990), for the rationale and procedures of the rapid transition approach needed for Eastern Europe.
24. Roughly, partial reform represents a contrast approach to 'shock therapy'. It implies an incremental, piecemeal, and gradual approach in reforming the existing system. Cf. Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993). The Chinese government once considered using the method of blitzkrieg to cancel the dual price system in 1988, but failed to implement it due to a soaring inflation and consumer panic beforehand. For economic arguments for incremental reform, see Peter Murrell, 'Evolution in economics and in the economic reform of the centrally planned economics', in Christopher Clague and Gordon Rausser, eds, The Emergence of Market Economics in Eastern Europe (Cambridge, MA: Basil Blackwell, 1992), pp. 35-53; Ronald I. McKinnon, The Order of Economic Liberalization: Financial Control in the Transition to Market Economy (Baltimore, MD: Johns Hopkins University Press, 1991); and idem, 'Taxation, money, and credit in a liberalizing socialist economy', in Christopher Clague and Gordon Rausser, eds, pp. 109-127. See David Lipton and Jeffrey Sachs, 'Creating a market economy in Eastern Europe: the case of Poland', Brookings Papers on Economic Activity 1, (1990), for the rationale and procedures of the rapid transition approach needed for Eastern Europe.
25. Roughly, partial reform represents a contrast approach to 'shock therapy'. It implies an incremental, piecemeal, and gradual approach in reforming the existing system. Cf. Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993). The Chinese government once considered using the method of blitzkrieg to cancel the dual price system in 1988, but failed to implement it due to a soaring inflation and consumer panic beforehand. For economic arguments for incremental reform, see Peter Murrell, 'Evolution in economics and in the economic reform of the centrally planned economics', in Christopher Clague and Gordon Rausser, eds, The Emergence of Market Economics in Eastern Europe (Cambridge, MA: Basil Blackwell, 1992), pp. 35-53; Ronald I. McKinnon, The Order of Economic Liberalization: Financial Control in the Transition to Market Economy (Baltimore, MD: Johns Hopkins University Press, 1991); and idem, 'Taxation, money, and credit in a liberalizing socialist economy', in Christopher Clague and Gordon Rausser, eds, pp. 109-127. See David Lipton and Jeffrey Sachs, 'Creating a market economy in Eastern Europe: the case of Poland', Brookings Papers on Economic Activity 1, (1990), for the rationale and procedures of the rapid transition approach needed for Eastern Europe.
26. Roughly, partial reform represents a contrast approach to 'shock therapy'. It implies an incremental, piecemeal, and gradual approach in reforming the existing system. Cf. Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993). The Chinese government once considered using the method of blitzkrieg to cancel the dual price system in 1988, but failed to implement it due to a soaring inflation and consumer panic beforehand. For economic arguments for incremental reform, see Peter Murrell, 'Evolution in economics and in the economic reform of the centrally planned economics', in Christopher Clague and Gordon Rausser, eds, The Emergence of Market Economics in Eastern Europe (Cambridge, MA: Basil Blackwell, 1992), pp. 35-53; Ronald I. McKinnon, The Order of Economic Liberalization: Financial Control in the Transition to Market Economy (Baltimore, MD: Johns Hopkins University Press, 1991); and idem, 'Taxation, money, and credit in a liberalizing socialist economy', in Christopher Clague and Gordon Rausser, eds, pp. 109-127. See David Lipton and Jeffrey Sachs, 'Creating a market economy in Eastern Europe: the case of Poland', Brookings Papers on Economic Activity 1, (1990), for the rationale and procedures of the rapid transition approach needed for Eastern Europe.
27. Roughly, partial reform represents a contrast approach to 'shock therapy'. It implies an incremental, piecemeal, and gradual approach in reforming the existing system. Cf. Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993). The Chinese government once considered using the method of blitzkrieg to cancel the dual price system in 1988, but failed to implement it due to a soaring inflation and consumer panic beforehand. For economic arguments for incremental reform, see Peter Murrell, 'Evolution in economics and in the economic reform of the centrally planned economics', in Christopher Clague and Gordon Rausser, eds, The Emergence of Market Economics in Eastern Europe (Cambridge, MA: Basil Blackwell, 1992), pp. 35-53; Ronald I. McKinnon, The Order of Economic Liberalization: Financial Control in the Transition to Market Economy (Baltimore, MD: Johns Hopkins University Press, 1991); and idem, 'Taxation, money, and credit in a liberalizing socialist economy', in Christopher Clague and Gordon Rausser, eds, pp. 109-127. See David Lipton and Jeffrey Sachs, 'Creating a market economy in Eastern Europe: the case of Poland', Brookings Papers on Economic Activity 1, (1990), for the rationale and procedures of the rapid transition approach needed for Eastern Europe.
28. For example, cross-regional variation in decentralization of foreign trade and foreign exchange has made the Special Economic Zones (SEZs) enjoy better terms of trade in exporting goods vis-à-vis other areas. See Yun-Wing Sung, The China-Hong Kong Connection: The Key to China's Open-Door Policy (Cambridge, UK: The Press Syndicate of the University of Cambridge, 1991). Hence, to specialize in manufacturing export-led goods is a comparative advantage for the SEZs.
29. Cf. Thrainn Eggertsson, Economic Behavior and Institutions (Cambridge, UK: Cambridge University Press, 1990), pp. 277-280; and James M. Buchanan et al., eds, Toward a Theory of the Rent-Seeking Society (College Station, TX: Texas A & M University Press, 1980).
30. Cf. Thrainn Eggertsson, Economic Behavior and Institutions (Cambridge, UK: Cambridge University Press, 1990), pp. 277-280; and James M. Buchanan et al., eds, Toward a Theory of the Rent-Seeking Society (College Station, TX: Texas A & M University Press, 1980).
31. For a parallel finding based on fieldwork in China, see Alan Smart, 'The political economy of rent-seeking in a Chinese factory town', Anthropology of Work Review 14, (1993), pp. 15-19.
32. For the problem of unproductive rent-seeking, see David C. Colander, ed., Neoclassical Political Economy: The Analysis of Rent-Seeking and DUP Activities (Cambridge, MA: Ballinger Publishing Company, 1984).
33. Cf. Nan Lin, 'Local market socialism: local corporatism in action in rural China', Theory and Society 24, (1995), pp. 301-354; and Jean C. Oi, 'Fiscal reform and the economic foundations of local state corporatism in China', World Politics 45, (1992), pp. 99-126. Oi links fiscal reform to 'local state corporatism' in which local officials play the leading role in rural industrialization. Although her argument is basically consistent with the research, it does not take account of the regional variation adequately. Oi and Lin have tried to build up a single model of local state corporatism. As argued in the article, differences in regional decentralization, local endowments and international linkage have made it difficult to see the local developments in China as moving on a uniform path. They also downplayed the regional differences in institutional making.
34. Cf. Nan Lin, 'Local market socialism: local corporatism in action in rural China', Theory and Society 24, (1995), pp. 301-354; and Jean C. Oi, 'Fiscal reform and the economic foundations of local state corporatism in China', World Politics 45, (1992), pp. 99-126. Oi links fiscal reform to 'local state corporatism' in which local officials play the leading role in rural industrialization. Although her argument is basically consistent with the research, it does not take account of the regional variation adequately. Oi and Lin have tried to build up a single model of local state corporatism. As argued in the article, differences in regional decentralization, local endowments and international linkage have made it difficult to see the local developments in China as moving on a uniform path. They also downplayed the regional differences in institutional making.
35. For the concept of social capital in contrast to economic capital, see Bourdieu (1986). Cf. Alan Smart, 'Gifts, bribes, and Guanxi: a reconsideration of Bourdieu's social capital', Cultural Anthropology 8, (1993), pp. 388-408.
36. Cf. Mancur Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982), for the problems of the interest group.
37. The second drive of reform, beginning from 1992, has emphasized on non-preferential policy, more or less. It includes granting the inland area similar conditions like those in the coastal area to solicit foreign capital (1992); unifying the multiple foreign exchange rates (1994); launching a comprehensive tax reform and establishing a nation-wide framework for collecting the central government taxes (1994); a new policy for land appropriation and development (1995); and a more rigorous labor policy (1995).
38. For a comparison of Guangdong's economic structure with other regions, cf. Nicholas R. Lardy, Foreign Trade and Economic Reform in China, 1978-1990 (Cambridge: Cambridge University Press, 1992), particularly pp. 126-136. For an account of the disadvantages of interior areas under preferential policies, see Dorothy Solinger, 'Despite decentralization: disadvantages, dependence and ongoing central power in the inland - the case of Wuhan', China Quarterly 145, (1996), pp. 1-34.
39. For a comparison of Guangdong's economic structure with other regions, cf. Nicholas R. Lardy, Foreign Trade and Economic Reform in China, 1978-1990 (Cambridge: Cambridge University Press, 1992), particularly pp. 126-136. For an account of the disadvantages of interior areas under preferential policies, see Dorothy Solinger, 'Despite decentralization: disadvantages, dependence and ongoing central power in the inland - the case of Wuhan', China Quarterly 145, (1996), pp. 1-34.
40. It is interesting to find that at the time when Guangdong was welcoming the sunset industries from outside, the rural southern Jiangsu was receiving aged manufacturing equipment from state-owned and collective enterprises in urban Shanghai. See Philip Huang, The Peasant Family and Rural Development in the Yangtzi Delta, 1350-1988 (Chinese translation) (Beijing: Zhonghua Chubanshe, 1992), ch. 12, for a description of the process.
41. Although these areas had been opened as early as 1984, they did not attract foreign investment until around the late 1980s. This trend is shown in Table 2.
42. For the development of indigenous industrialization and its financial results in southern Jiangsu, see Byrd and Lin, China's Rural Industry.
43. This observation is based on a fieldwork in 1995 by the author.
44. Not surprisingly, competition for foreign investment also happened within the same region, as will be reported later.
45. For a study of Chinese economic integration with other economies, see Yun-Wing Sung, 'Non-institutional economic integration via cultural affinity', Occasional Paper No. 13, (July 1992) of the Hong Kong Institute of Asia-Pacific Studies, The Chinese University of Hong Kong; and idem, 'Explaining China's export drive: the only success among command economies', Occasional Paper No. 5, (May 1991) of the Hong Kong Institute of Asia-Pacific Studies, The Chinese University of Hong Kong. Remarkably, 'cultural affinity' has influenced the way in which China's open-door policy was carried out. Most of the foreign investments came from Hong Kong and overseas Chinese. Taiwanese capital also played an important role despite that its significance was underestimated due to disguise in registration. Although the Chinese government did not regard these 'overseas Chinese' investments as 'foreign' for political reasons, they were actually treated as foreign capital in policy implementation.
46. For a study of Chinese economic integration with other economies, see Yun-Wing Sung, 'Non-institutional economic integration via cultural affinity', Occasional Paper No. 13, (July 1992) of the Hong Kong Institute of Asia-Pacific Studies, The Chinese University of Hong Kong; and idem, 'Explaining China's export drive: the only success among command economies', Occasional Paper No. 5, (May 1991) of the Hong Kong Institute of Asia-Pacific Studies, The Chinese University of Hong Kong. Remarkably, 'cultural affinity' has influenced the way in which China's open-door policy was carried out. Most of the foreign investments came from Hong Kong and overseas Chinese. Taiwanese capital also played an important role despite that its significance was underestimated due to disguise in registration. Although the Chinese government did not regard these 'overseas Chinese' investments as 'foreign' for political reasons, they were actually treated as foreign capital in policy implementation.
47. Both 'Tai-Yang' and 'Xizhu' are pseudonyms as are all the companies, personal names, and locations used below.
48. On paper, the company's chairman of the board of directors and vice president are appointed by Xi Light while the Taiwanese side holds the positions of vice chairman and president. For more information about Xi Light, see below.
49. See below for more details about the corporation.
50. See Sung, The China-Hong Kong Connection, p. 58, for similar observation.
51. One time when I traveled on the ferry with Lee from Hong Kong to Xizhu, he carried 3 million yuan in his luggage. We passed the customs checkpoint easily because of his good relations with the officials, yet he said that nobody really can be sure that they will not someday search his bag, although to his knowledge this has rarely happened before. A manager of a shoes company seems more intelligent as he told me that he never directly buys renminbi from black markets in China or Hong Kong for political safety, not to mention other risks. He pays foreign currency to the 'dealers' at Hong Kong, and then get the renminbi in China. Regarding the foreign exchange black market in China, similar stories are reported in Sung, The China-Hong Kong Connection, p. 60. For a more systematic study of the problem, see Wen-Hung Chen, The Problems of Foreign Exchange in China (in Chinese) (Hong Kong: Wide Angle Press, 1989), final chapter in particular.
52. One time when I traveled on the ferry with Lee from Hong Kong to Xizhu, he carried 3 million yuan in his luggage. We passed the customs checkpoint easily because of his good relations with the officials, yet he said that nobody really can be sure that they will not someday search his bag, although to his knowledge this has rarely happened before. A manager of a shoes company seems more intelligent as he told me that he never directly buys renminbi from black markets in China or Hong Kong for political safety, not to mention other risks. He pays foreign currency to the 'dealers' at Hong Kong, and then get the renminbi in China. Regarding the foreign exchange black market in China, similar stories are reported in Sung, The China-Hong Kong Connection, p. 60. For a more systematic study of the problem, see Wen-Hung Chen, The Problems of Foreign Exchange in China (in Chinese) (Hong Kong: Wide Angle Press, 1989), final chapter in particular.
53. 14.4 million × 24% × 1/2 = 1.728 million.
54. For a detailed discussion of Chinese foreign trade system and foreign exchange policy during reforms, see Lardy, Foreign Trade and Economic Reform in China, ch. 3 and 4.
55. Guang Light retains a portion of entitlement and turns over the remaining to the government.
56. Note that the average price of foreign exchange entitlement is always a little lower than that of foreign currency. See Sung, The China-Hong Kong Connection, p. 53.
57. The People's Bank of China in 1994 devaluated the renminbi drastically. The value of renminbi fell from 0.74 yuan per HK dollar in 1993 to 1.11 yuan per HK dollar in 1994.
58. This fee is called 'shouxu fei' (procedural fees, a kind of administrative surcharge) in the document.
59. This amount roughly equals the amount gained from the previous formula of remittance.
60. Guanliqu is the lowest level of administration in Guangdong. It is equivalent to xingzhengcun (administrative village) that usually comprises one to several natural villages in other provinces. In Guangdong the size of Guanliqu is often larger than that of Xingzhengcun. Nafu is composed of twelve natural villages, with about 4,800 permanent residents and 2,600 immigrant workers and their dependents as of mid-1994. The district office has seven collective-owned enterprises, all of which have been leased out. There are also 20 foreign enterprises. They all pay rentoushui to the office.
61. In legal terms, lands in China cannot be sold. So Tai-Yang leased the land for 50 years.
62. See for example Liu, 'Reform from below'; and Parris, 'Local initiative and national reform', for Wenzhou; David Zweig, "'Developmental communities" on China's coast: the impact of trade, investment, and transnational alliances', Comparative Politics, (April 1995), pp. 253-274, for southern Jiangsu; and Jieh-min Wu, 'A tale of two villages: deconstructing the developmentalist image of Chinese rural industrialization', Paper presented at the Second Annual Meeting of the Taiwanese Political Science Association, Taipei, (23-24 December 1995), for Zhengzhou.
63. See for example Liu, 'Reform from below'; and Parris, 'Local initiative and national reform', for Wenzhou; David Zweig, "'Developmental communities" on China's coast: the impact of trade, investment, and transnational alliances', Comparative Politics, (April 1995), pp. 253-274, for southern Jiangsu; and Jieh-min Wu, 'A tale of two villages: deconstructing the developmentalist image of Chinese rural industrialization', Paper presented at the Second Annual Meeting of the Taiwanese Political Science Association, Taipei, (23-24 December 1995), for Zhengzhou.
64. See for example Liu, 'Reform from below'; and Parris, 'Local initiative and national reform', for Wenzhou; David Zweig, "'Developmental communities" on China's coast: the impact of trade, investment, and transnational alliances', Comparative Politics, (April 1995), pp. 253-274, for southern Jiangsu; and Jieh-min Wu, 'A tale of two villages: deconstructing the developmentalist image of Chinese rural industrialization', Paper presented at the Second Annual Meeting of the Taiwanese Political Science Association, Taipei, (23-24 December 1995), for Zhengzhou.
65. See for example Liu, 'Reform from below'; and Parris, 'Local initiative and national reform', for Wenzhou; David Zweig, "'Developmental communities" on China's coast: the impact of trade, investment, and transnational alliances', Comparative Politics, (April 1995), pp. 253-274, for southern Jiangsu; and Jieh-min Wu, 'A tale of two villages: deconstructing the developmentalist image of Chinese rural industrialization', Paper presented at the Second Annual Meeting of the Taiwanese Political Science Association, Taipei, (23-24 December 1995), for Zhengzhou.
66. A catchphrase for this tactic is known as yongzu zhengce, which means utmost use of state policy. Guangdong, particularly in recent years, has become the target of criticism for locally-centered behavior and abuse of state policy. The Chinese vice premier Zhu Rongji was reported to have harshly criticized Guangdong for tax evasions and illegal tax returns for exported commodities. See China Times (in Chinese, Taipei), (25 July 1995).
67. Technically, lailiao jiagong is a kind of original equipment manufacturing (OEM) in the international division of labor. According to the Chinese development strategy, it belongs to a more general concept called sanlai yibu (processing, assembly, and compensation trade). In contrast, foreign direct investment is called sanzi qiye that includes equity and contractual joint venture, wholly-owned investment, and joint exploration.
68. Cf. Bo-Wei Liao et al., Chinese Reform and Economic Development In the Pearl River Delta Area (in Chinese) (Hong Kong: Nan-Yang Commercial Bank, 1992), pp. 52-54. Liao found that there is little difference between the two kinds of investment by comparing their average capital inputs. A Chinese study also confirms the argument, see Ming-Jun Shao, An Introduction to the Taxation in Special Economic Zones (in Chinese) (Beijing: Zhongguo Jingji Chubanshe, 1992), ch. 23.
69. Cf. Bo-Wei Liao et al., Chinese Reform and Economic Development In the Pearl River Delta Area (in Chinese) (Hong Kong: Nan-Yang Commercial Bank, 1992), pp. 52-54. Liao found that there is little difference between the two kinds of investment by comparing their average capital inputs. A Chinese study also confirms the argument, see Ming-Jun Shao, An Introduction to the Taxation in Special Economic Zones (in Chinese) (Beijing: Zhongguo Jingji Chubanshe, 1992), ch. 23.
70. The general trend of labor-intensity in China's export drive is confirmed by Lardy. He identified, by taking into account the processed exports, a strong inverse correlation between export performance and capital intensity in production in the period 1985-1990. See Nicholas Lardy, 'China's foreign trade', China Quarterly 131, (1992), pp. 691-720.
71. The central leadership seemed to have understood the point quite well. In 1986, Gu Mu, then a State Councilor in charge of Special Economic Zones, opposed to raise wages at that time when he came to meet Guangdong officials: 'Low costs of labor is an advantage in attracting foreign investment. Our competitive edge would be gone if labor costs are raised'. See Gu, 'Seriously implement the "2 Articles" (for encouraging foreign investment)', in CCP Guangdong Provincial Committee Office, ed., A Collection of the Center's Work Directives to Guangdong (in Chinese) (internal circulation document, 1988), pp. 228-234.
72. Cf. Dorothy Solinger, 'China's urban transients in the transition from socialism and the collapse of the communist "urban public goods regime",' Comparative Politics 27, (1995), pp. 127-146. Local governments often issue temporary residence cards to the floating population. Some kind of the residence card is called 'green card' in Wenzhou where the system of temporary residence first developed. But unlike Wenzhou's prevailing household workshops and individual-based economy, the factory workers in the Pearl River Delta are collectively organized. The enterprises usually apply the temporary residence on behalf of the workers and hold their residence cards. This has been a very important social control in the coastal factories.
73. A Chinese survey points out that the foreign firms in Shenzhen enjoyed an average 20% rebate of the remittance of processing fees. The monthly remittance should be HK$600 per worker for the factories in Baoan county, and HK$700-800 in the special economic zone according to the official guidelines. See Shao, An Introduction to the Taxation in Special Economic Zones, p. 550.
74. Cf. Zweig, "'Developmental communities" on China's coast'.
75. The following data of Xizhu have been compiled from internal documents.
76. For the problems of the fiscal system, see World Bank's report, China: Revenue Mobilization and Tax Policy (Washington, DC: The International Bank for Reconstruction and Development, 1990).
77. According to a study on township finance in Wuxi County, administrative fees in a sample township constitute about 20% of the total government revenues. See William Byrd and Alan Gelb, 'Why industrialize? The incentives for rural community governments', in Byrd and Lin, China's Rural Industry, pp. 358-388. A major difference between the management fees and the head tax lies in that the former is collected against enterprise sales (rate varies across regions and industries; usually set at 0.5-2%) while the latter is counted on the number of workers.
78. Cf. Prasenjit Duara, 'State involution: a study of local finance in North China, 1911-1935', Comparative Study of History and Society, (1987), pp. 132-161, for a study of local finance in North China.
79. China Statistics Yearbook, (1995), pp. 222-223.
80. Ibid. The figures include formal budgets and extrabudgetary funds. Contrary to general allegation that the center's financial strength has been declining during the reform era, the central government's share of the total revenues has shown an average annual increase of 15.5% in the period from 1983 to 1992, which is higher than the 13.6% of the subnational governments.
81. See Shao-Guang Wang and An-Gang Hu, A Report on the Chinese State Capacity (in Chinese) (Hong Kong: Oxford University Press, 1994).
82. Cf. North, Institutions, Institutional Change and Economic Performance, for the issue of the costliness of information.
83. For a classical definition of principal-agent (agency) relationship, see Michael C. Jensen and William H. Meckling, 'Theory of the firm: managerial behavior, agency costs and ownership structure', Journal of Financial Economics 3, (1976), pp. 305-360. Cf. Eggertsson, Economic Behavior and Institutions; and Steven L. Solnick, 'The breakdown of hierarchies in the Soviet Union and China: a neoinstitutional perspective', World Politics 48, (1996), pp. 209-238.
84. For a classical definition of principal-agent (agency) relationship, see Michael C. Jensen and William H. Meckling, 'Theory of the firm: managerial behavior, agency costs and ownership structure', Journal of Financial Economics 3, (1976), pp. 305-360. Cf. Eggertsson, Economic Behavior and Institutions; and Steven L. Solnick, 'The breakdown of hierarchies in the Soviet Union and China: a neoinstitutional perspective', World Politics 48, (1996), pp. 209-238.
85. For a classical definition of principal-agent (agency) relationship, see Michael C. Jensen and William H. Meckling, 'Theory of the firm: managerial behavior, agency costs and ownership structure', Journal of Financial Economics 3, (1976), pp. 305-360. Cf. Eggertsson, Economic Behavior and Institutions; and Steven L. Solnick, 'The breakdown of hierarchies in the Soviet Union and China: a neoinstitutional perspective', World Politics 48, (1996), pp. 209-238.
86. Note that value-added tax is a powerful tool for double-checking the truthfulness of enterprise accountings.
87. The above figures are computed from data in China Statistics Yearbook, (1995), pp. 222-223.
88. See for instance the various articles in the Guangdong Tax Administration (in Chinese, Guangzhou), (1994), Nos 2, 9.
89. Cf. North, Institutions, Institutional Change and Economic Performance, ch. 10 and 11.