The Chinese Regulatory State Debate: Competing Models of China’s State-Economy Relations Spring 2007 Matthew G. Ferchen Ph.D. Candidate Department of Government Cornell University  The Chinese government has…steadily boosted its regulatory capacity to sustain and police the markets and cope with various forms of market failure (Yang 2004a:183) The Chinese reform experience suggests that, while decision makers have been remarkably successful in creating the conditions for a basic market economy, they have been far less successful in changing the functions of the state to actively monitor markets for goods, services, and capital to ensure that they perform competitively and effectively (Huang 2004:56-7) Introduction How should we understand the relationship between the state and the economy in contemporary China? 1 Is Chinese state regulation of the economy becoming more modern, rational and efficient as Yang would have us believe or is Huang correct in pointing to China’s stalled and incomplete reforms? These are questions of vital importance not only to academics but also to policy makers and businesspeople across the world and, as the quotes above demonstrate, are increasingly the subject of intense debate. On one side of this debate are those who claim that China is developing into a “regulatory state,” with American Progressive Era regulatory reform often serving as a model.2 On the other side of the debate are three different groups of scholars who for a variety of reasons find fault with the claim that China is becoming a regulatory state. The first group of critics argues that in important ways China looks more like an East Asian 1 I will sometimes refer to “state-economy” relations and at others to “state-market” relations. I mean the former in the most general level of abstraction between the Chinese state and all aspects of the economy, whereas by the latter I mean state regulation of specific markets. I also purposely do not refer to “state- business” relations as my focus in the dissertation is not on the firm per se while such a focus is at the heart of other state-business studies. For more on the state-business literature related to China see Kennedy (2005) and for an important comparative study using this framework see Maxfield and Schneider (1997). 2 As I will explain in more detail below, many China scholars who have employed the concept of a regulatory state have failed to rigorously define or apply the term. However, what advocates like Yang Dali and Wang Shaoguang mean by a regulatory state is a system populated with regulatory institutions that are rational, modern, and independent of direct private or political influence. 2 “developmental state,” with Japan and South Korea serving as the classic examples. A second group, focusing on a variety of mostly domestic economic, social and political dilemmas, claims that China is a case of “partial reform” reminiscent of other developing and post-socialist countries. Finally, a third group of scholars rejects all-inclusive efforts to categorize state-economy relations at the national level and instead emphasizes that local geographic differences, combined with variation across economic sectors, create a wide variety of state-market interactions at the sub-national level. There are two key reasons why this is an important debate not only within the field of China studies but for international political economy as well. First, one of the main intellectual projects of the past three plus decades among scholars of international and comparative political economy, the analysis of state-economy relations among capitalist nations, has rarely included China.3 As the world’s fastest growing economy over the last 20 years, the second largest trading country in the world next only to America and as the world’s largest recipient of foreign direct investment (Bergsten, Gill, Lardy and Mitchell 2006), it increasingly makes sense to view China as a market economy and to analyze China’s state-economy relations against the experience of other capitalist countries. This wide-ranging body of literature has traditionally focused on the different “varieties of capitalism” (VoC) that have emerged among the world’s wealthiest nations. One of the key questions posed in this literature is the extent to which the domestic institutional frameworks of capitalist countries tend toward a common model (a 3 One recent exception is a chapter entitled “China’s Transformation towards Capitalism” (Wilson forthcoming) in a soon-to-be-published edited volume (Lane and Myant forthcoming) on different forms of capitalism in the post-communist world. 3 convergence theory) or whether important variations continue to exist and flourish.4 If different, stable types of capitalism can co-exist, then important normative questions emerge about how countries can “choose” among different systems of social welfare, how income is distributed and how public goods are provided.5 If one of the key aims of the VoC literature is to highlight the possibility of alternative forms of capitalism and the different social and economic alternatives inherent within those forms,6 then the second and closely related reason for a more complete understanding of Chinese state-economy relations is to better explain whether China fits into any of the pre-existing capitalist models or whether it provides a new and unique alternative model of capitalist development. Since the most recent turnover of top Chinese state and party leaders, which was completed in early 2003, Chinese and international observers have renewed discussions about how to define the Chinese developmental model and how it compares to the existing alternatives. One of the boldest arguments is that a “Beijing Consensus” has emerged to replace the 1990s orthodoxy of the “Washington Consensus.” The Washington Consensus, which became synonymous in the 1990s with market reform policies espoused by the international financial institutions like the IMF and World Bank and which in turn was often associated with global financial liberalization and the “shock 4 One of the key claims of authors like Hall and Soskice (2001) is that different varieties of capitalism (for them the two key varieties include Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs)) are equally capable of producing economic growth. However, different types of capitalism produce different social tradeoffs and entail a range of technological innovation capabilities. For a recent convergence argument that specifically refutes Hall and Soskice see the edited volume by Soederberg, Menz and Cerny (2005). 5 See Goodin (2003). 6 Mark Blyth (2003b:217) argues that the VoC literature, especially as presented by Hall and Soskice (2001) is not agnostic as to which form of capitalism is best, but rather implies that the “Coordinated Market Economy” (CME) model, with Germany as a prototype, is superior to the “Liberal Market Economy” (LME) model, with America as the prototype. 4 therapy” structural reforms in much of the developing and post-socialist world, is said to be a dead letter.7 In place of the Washington consensus, argue certain observers and Chinese government officials, a Beijing Consensus has formed and is increasingly gaining influence. The Beijing Consensus, a concept first proposed by a former Time magazine editor named Joshua Cooper Ramo and later endorsed by Communist Party Secretary Hu Jintao himself,8 is defined by China’s unique approach to economic development, including the country’s role in international affairs, and China’s increasing status as a model for other developing countries. The Beijing Consensus boils down to two key propositions. The first is that China has adopted a novel, evolutionary approach to economic development and to the transition from a planned to a market economy. This approach stresses equitable growth and rejects many western economic orthodoxies, especially those embodied in the Washington Consensus. The second proposition is that much of the world, especially the developing world, has not only taken notice of this unique Chinese development and transition model, but also seeks to emulate it. However, neither Ramo nor those writing in Chinese about the Beijing Consensus provide much if any detail about the institutional and regulatory structure that has given rise to this so- called consensus. It is to this question of how to best understand the nature and direction of state-economy relations in reform-era China that this dissertation is concerned and in 7 The term “Washington Consensus” is associated with a paper written by John Williamson (1990) of the Institute for International Economics in which he detailed ten economic policies that Latin American countries had begun to pursue more or less in common in order to recover from the debt crisis of the 1980s. As Williamson later acknowledged (2003), there were certain components of the Washington Consensus that were disputed (including the desirability of market-determined as opposed to fixed exchanged rate policy). Williamson is critical of how opponents of certain or all aspects of the Washington Consensus willfully misrepresented his original arguments in order to bolster their anti-globalization agenda. Williamson notes that under the George W. Bush administration the correspondence between official US policy and the policies of the international financial institutions is far from complete and has since revised his own viewpoints about the initial reform package presented in his 1990 essay (see Williamson 2003 and Kuczynski and Williamson 2003). 8 Hu Jintao, on a state trip to Europe in 2003, became aware of Ramo’s formulation of the Beijing Consensus and soon began to refer to the concept in official statements (cite?). 5 this chapter I will explain the range of scholarly opinion on this subject, highlighting the strengths and weaknesses of the arguments presented and pointing to areas that need improvement. In this chapter my purpose is twofold. First, by bringing together a rather wide range of scholars, many of whose work is not typically mentioned in relation to the others, I will show how they are in fact engaged in a common project. This project involves a comprehensive overview of the distinguishing characteristics of China’s contemporary political economy. While each author tackles a specific and discreet aspect of this project, each is nonetheless interested in painting a broader picture about the nature of state economy relations in China. If the first task of this chapter is to provide a map to understand the current intellectual landscape of Chinese political economy, the second is to draw out the continuing gaps in the overall debate and in specific arguments and assumptions in particular. After describing and critiquing each of the key arguments in the debate I will then conclude with an overview of how my own research provides a corrective to these analytical and substantive gaps. I will argue that while proponents of the regulatory state argument are correct in identifying a general long-term trend toward the formal creation of Weberian ideal-type regulatory institutions, these arguments at best miss the complex reality behind actual enforcement patterns of these newly reformed institutions and at worst fail to analyze the political interactions that drive the relationship between regulators and those they seek to regulate. Specifically, by stressing formal, structural changes in regulatory institutions some of the authors in the regulatory state debate fail to follow up on whether or how such reforms translate into actual changes on the ground. 6  On the other hand, while I agree with regulatory state critics in their more explicit focus on the political motivations for regulatory reform, I find arguments that focus on China’s attempts to create a developmental state (whether at the central or local level) often conflate Chinese efforts to mimic Japan or South Korea with actual regulatory outcomes, which often differ dramatically from official policy goals. Just as official claims about the creation of modern and efficient regulatory institutions may differ from actual regulatory outcomes, it is one thing to aspire to be a developmental state and it is another to be successful.9 Indeed, while regulatory state theorists ascribe too much objectivity and benevolence to regulatory reforms, their developmental state critics ascribe too much planning and strategic acumen to state regulatory officials. Both proponents of China’s regulatory state and their developmental state critics focus too much on formal, procedural changes in China’s regulatory institutions (even though they come to very different conclusions about the nature of these changes) and not enough on the substantive impact of the reforms. I find much more plausible and accurate arguments that demonstrate the limitations of efforts at creating a developmental state (Thun 2004) or that testify to the complexity of regulatory outcomes that are themselves the result of specific struggles between state agents and those who operate in the markets those agents seek to govern (Mertha 2005; Kennedy 2005). As for my own positive contribution to this debate, aside from assembling the key existing arguments in a unique format, I will offer a more complete understanding of the role of ideas in China’s ongoing reforms. I will argue that the regulatory state debate in China fails to fully account for the power of ideas in shaping the emerging system of 9 As I will discuss below, assigning the label “developmental state” has almost always implied successful state intervention to promote economic development. 7 state-economy relations in contemporary China. Specifically, even though certain authors claim to examine how ideas about the nature of markets, and how government can and/or should control markets, shape state-market relations, there are two faults in their approach. First, they too often assume a fixity and stability to the ideas (sometimes too casually referred to as “norms”) about the nature of markets and the proper role of the state in governing those markets. In fact, China’s reforms over the past quarter century have been accompanied by intense intellectual and policy debates about the direction of reform. These debates are themselves informed by different domestic and international understandings of state-market relations. Just as importantly, in the arena of ideational debate, ideas are political weapons and understanding how they are deployed is essential if we are to understand contemporary Chinese political economy. The second chapter of this dissertation will serve to address this gap. The other gap that becomes apparent upon review of the Chinese regulatory state debate is that too little emphasis has been placed upon urban political economy, and specifically upon the plethora of marginalized urban markets that has appeared as the result of massive rural-to-urban migration and layoffs from state-owned enterprises. Much of the analytical attention of the authors reviewed in this chapter is spent on the commanding-heights of the economy and/or on high-profile sectors and industries. This focus is understandable and necessary as far as it goes, but it leaves the vast majority of day-to-day interactions between agents of the state and a range of economic actors unexplored. More importantly, it leaves a key form of state-economy interaction under- analyzed. In China a great many interactions between agents of the state and market actors, interactions that are crucial not only to the functioning of the economy (some 8 would say to its dysfunction), but also to the maintenance of social stability, happen at a level far below the commanding heights and are only accessible through the most local form of research. In the third chapter I will explore in detail this important realm of informal, urban politics and link it to the regulatory and ideational debates explored in this and the second chapter. First, however, I will set the stage with an overview of the Chinese regulatory state debate. The Debate As noted above, the principal debate about the nature of China’s state-economy relations is between those who see China as an increasingly modern and rational regulatory state and 1) those who explicitly reject this regulatory state argument in favor of a developmental state model, 2) those who claim that China is better understood as a case of stalled or partial reform and 3) a final group that examines China’s sub-national geographic and sectoral variation and argues that China is a complex mixture of different types of state-market interaction. The wide range of approaches among critics of the regulatory state does not diminish the importance of this debate. Despite its importance, a skeptic may question whether the scholarly discussions analyzed here have reached the level of a full blown “debate,” especially given that only a few of the scholars have actually engaged one another directly in writing on the issue of the regulatory state. Such skepticism would be misplaced for two important reasons. First, a number of prominent publications as well as conferences have focused directly on the question of the regulatory state and more generally with Chinese state-economy relations. Among 9 the key publications, Yang Dali’s 2004 Remaking the Chinese Leviathan, in which he fully elaborates the case for an emergent regulatory state in China, was a catalyst for critical book reviews (Kennedy 2004/05; Yang and Kennedy 2005; and Pearson 2005a) and more complete counter-arguments in prominent journals like World Politics (Pearson 2005b).10 Second, at least two academic conferences have been held on the topic of the Chinese regulatory state and the nature of Chinese capitalism: the first, held at the University of Maryland in April of 2004, was entitled “Transforming Institutions in Global China: Past Lessons, Future Challenges,” and the second, held in May of 2006, was entitled “Capitalism with Chinese Characteristics: China’s Political Economy in Comparative and Theoretical Perspective.”11 These two conferences brought together many of the best scholars of China’s political economy to discuss the key issues in this chapter: the first involved applications of the regulatory state concept to various issues in Chinese political economy and the second highlighted questions about how contemporary Chinese capitalism compares with other forms of capitalism across the globe. While these publications and conferences clearly show the vitality of the regulatory state debate, in this chapter I will also include scholars who do not directly confront the regulatory state argument but whose scholarship is nonetheless clearly related to the core issues at stake in this debate. My goal in laying out the various arguments about the type of state-market interaction that predominates in China is first to provide a picture of this important and increasingly large body of literature. It is precisely because so much of what is being 10 While Yang’s regulatory state argument is most complete in Remaking the Chinese Leviathan, he had been making similar arguments well before then (see Yang 2001, 2003 and 2004b). 11 For more on the Indiana conference see the conference web site at http://www.polsci.indiana.edu/china/default.htm. 10 written about in state-economy relations in China today does not acknowledge the larger debate, in part because there has been too little recognition among themselves that these scholars are engaged in a common enterprise, that it is crucial to understand these various arguments in relation to one another so that progress can be made. By the end of this chapter it will be clear that in important respects the quality of the debate is hampered by participants who are critical of one another but who are, in fact, simply speaking past one another rather than engaging each other on the substantive issues at stake. China as a Regulatory State What is a “regulatory state?” And of specific importance to this overview, what do China scholars mean when they argue for or against the claim that China is becoming a regulatory state? The concept of a regulatory state has long been associated with the American system of economic governance and more recently with changes in state- economy relations in western Europe. A regulatory state is one that governs the economy by establishing rules about proper market behavior and then creates independent bureaucratic institutions to enforce those rules. As one prominent regulatory state scholar, Michael Moran (2004), has noted, “the modern regulatory state is an American invention” (p. 13). According to Moran, the American regulatory state developed over three distinct periods: the Progressive Era, the New Deal, and the 1960s period of social regulation (e.g. Johnson’s Great Society programs). In contrast, most scholars agree that the emergence of the regulatory state in western Europe has been a post-1970s phenomenon. Due to the crisis of the Keynesian state, where the model of economic 11 regulation was based on control of state-owned enterprises and a high degree of direct state intervention in the economy, western European governments have increasingly privatized state-owned enterprises and decentralized economic decision-making.12 It is then left to autonomous regulatory authorities, the hallmark of “regulatory capitalism” (Jordana and Levi-Faur 2005:102), to enforce the rules of market behavior, and thus promote market competition.13 According to some of the most prominent regulatory state scholars, even though this model originated in the United States and has become dominant in western Europe as well, the rules and institutions that make up the regulatory state have recently begun to spread globally as well (Levi-Faur 2005). In recent years a number of China scholars have begun to argue that the global diffusion of the regulatory state has also spread to China. However, in borrowing the concept of the regulatory state from the literature on the advanced capitalist economies, China scholars have often adopted a highly restricted understanding of the concept when applying it to the Chinese case. Despite the voluminous and growing literature about the role of the regulatory state in advanced industrialized countries, the application of the concept to the ever-changing and complex relationship between the Chinese state and economy has been a recently new phenomenon.14 Scholars who have applied the concept 12 The normative connotations of the regulatory state are markedly different in the US and Europe. As Moran (2004) points out, much of the scholarship on the American regulatory state laments the rise of an increasingly intrusive federal government while scholars of the European regulatory state often tie its rise to a right-of-center, neo-liberal agenda in which the state has retreated too dramatically from its former regulatory position. 13 A common image used to describe the difference between the Keynesian and regulatory states is the juxtaposition of rowing versus steering a boat. The Keynesian state, during which “welfare capitalism” predominated in Europe, both steered and rowed, but the newly emergent regulatory states have concentrated solely on steering, leaving the rowing to the private sector. For more on the steering and rowing analogy see Moran (2004) and Levi-Faur (2005 14 The literature on the Chinese regulatory state is almost completely dominated by western-trained scholars writing in English. While there is no shortage of Chinese-language scholarship about regulatory reform and state-economy relations, articles or books that rely on the concept of the regulatory state, in Chinese 12 of the regulatory state to describe the current relationship, or at least the prevailing trajectory, between the Chinese state and economy often rely not on contemporary studies of the US and western Europe, but instead on an ideal-typical historical model of regulatory reform drawn from one particular place and historical period: the US during the Progressive Era. They argue that the creation of government institutions to regulate the US economy during the Progressive Era was grounded in the perceived failure of unrestrained markets to provide for “orderly” economic development (Yang 2004a:8-9).15 Proponents of the argument that China too is not only in need of new institutions to govern its often-unruly markets but is, in fact, witnessing a clear transition in this direction openly draw on this historical US model for lessons in how to ensure stable, equitable growth. One of the most prominent champions of the case that China is becoming a regulatory state along the lines of the Progressive Era United States is the University of Chicago political scientist Yang Dali. While Yang does not provide an extensive comparison of contemporary Chinese regulatory reform with the US during the Progressive Era, he does, however, explicitly allude to the comparison. Quoting Fligstein (2001), Yang notes that market-led development has historically been accompanied by efforts to “stabilize markets” and that post Civil War America in specific, due to challenges from convergent pressures of “nationalization, industrialization, mechanization, and urbanization,” was engaged in “a search for order” (Yang 2004a:8).16 jianguan (监管), guanzhi (管制), guizhi (规制), or guiguan zhengfu (规管政府), are few and far between. See, for instance Da and Kong (2004). 15 Key Progressive Era institutions include the Interstate Commerce Commission (1887), the Food and Drug Administration (1906), the Federal Reserve Board (1913) and the Fair Trade Commission (1914). 16 Yang cites American political development scholars Bensel (1990 and 2001) and Skowronek (1982), drawing on Bensel’s 1990 Yankee Leviathan for the title of his own book. 13 He goes on to argue that during the Progressive Era in America a new kind of state was necessary to deal with the stresses of industrialization and that what emerged was “a managerial and regulatory state” that “arose to tackle problems ranging from poor public health to monopolies” (Yang 2004a:9).17 The ultimate importance of the comparison between Progressive Era American political development (as opposed to contemporary America or western Europe) and China since the 1990s is to highlight the fact that China too is in the early stages of creating its own regulatory state. From the outset of his book entitled Remaking the Chinese Leviathan,18 Yang is clear about what he sees as the essence of regulatory reform in China today. He argues that The Chinese leadership has been in a marathon quest for institutional development, rationalizing existing institutions and building new ones to cope with the unruliness of markets and bring about a regulative economic order. (Yang 2004a:1) Yang makes a classic Weberian modernization argument for China, presenting evidence to show how Chinese officials are creating a set of professional bureaucratic institutions to promote economic development and correct for market failures through rule-based regulation.19 Yang’s answer to his own question, “can the Chinese state remake itself into a regulatory state, offering sound laws and regulations and enforcing them in a 17 Yang does not claim that America ever perfected its own regulatory state, noting the more recent regulatory challenges presented by the Enron and Worldcom scandals (2004a:9). It is however quite clear that Yang sees China following in the footsteps of America’s Progressive Era regulatory revolution and that this is a very positive move indeed. 18 While Yang makes his argument for China’s emerging regulatory state most forcefully in his 2004 book, he also makes the case in other writings including a book chapter (see Yang, 2004b) and an article for a special version of the Journal of Democracy devoted to questions of Chinese democracy (see Yang, 2003). 19 While the regulatory state literature, as it applies to the United States and western Europe, is very clear that the key institution of the regulatory state is the independent regulatory body, Yang does not emphasize the independence of China’s newly reformed regulatory bodies per se. Independence might be implied in Yang’s emphasis on the increasingly “rational” and “modern” (terms he uses again and again) character of China’s regulatory institutions, but he does not make an extended case for independence. 14 reasonably impartial manner?” (2004a:16) is a qualified “yes.” Yang sets up his own regulatory state argument against two other contending schools of thought about the relationship between the Chinese state and economy. The first he calls the “Developmental School,” which draws mainly on research connecting robust economic growth to the largely positive impact of the local state (e.g. Oi 1999) and the second he refers to as the “Distorted Market School,” whose proponents claim that a combination of local protectionism and interference in markets by what should be objective and autonomous state regulators creates market distortions (Yang 2004a:11-14).20 In Remaking the Chinese Leviathan Yang is primarily concerned with demonstrating how the Chinese state has set about to reform itself to cope with the range of challenges presented by the Distorted Market School scholars. The breadth of regulatory reforms that Yang tackles in his book is impressive, ranging from efforts to improve the regulation of consumer safety to cracking down on smuggling all the way to fiscal reform. As for what has driven these reforms, he mainly advocates the importance of exogenous shocks (as in the case of post-East Asian Financial Crisis anti-smuggling efforts and the divestiture of businesses owned and operated by the People’s Liberation Army)21 and the general change in economic conditions that prompted officials to make “rationalizing” reforms across a multitude of regulatory bodies from the most local (e.g. The Nanjing City Appearance Bureau) to the peak of central power (e.g. the National Development and Reform Commission). In the end, Yang’s main concern is less with 20 Yang’s “Developmental” and “Distorted Market” schools roughly approximate my own categorizations in this chapter although as I explain below the developmental school has both national and local variations. 21 PLA divestiture plays an especially important part in Yang’s overall argument. He claims that “the divestiture of myriad businesses run by or affiliated with China’s party and state institutions, particularly the armed forced, was not a simple ad hoc move but part of the overall trend toward the rationalization of the state and of government-business relations” (2004a: 148-49) and that the divestiture was a key catalyst for a massive wave of reform starting in 1997. 15 explicating the political and economic mechanisms driving reforms than with cataloging the myriad transformations in China’s formal bureaucratic structure since the early 1990s in an effort to show that there is a clear trend toward the creation of a modern, rational, regulatory state in China. For him, the centralization of authority with certain bureaucratic units, the downsizing and streamlining of bureaucracies often associated with this centralization, and efforts to extricate the state and military from direct ownership and management of for-profit enterprises constitute the core achievements of China’s emerging regulatory state. Yang also includes the improvement of “market order” as a primary goal of the Chinese regulatory state, a topic I will take up more fully in later chapters. While Yang Dali provides the clearest and most extensive elaboration of the China regulatory state argument, there are also other important examples that help fill out important aspects of the regulatory state school and here I will present one of the best and most recent. A long-time proponent of the need to check centripetal forces associated with economic reform and to reinvigorate efforts to rebuild and reconstitute state capacity, Wang Shaoguang has also begun to speak of China’s emergence as a regulatory state. Wang takes the example of coal mine safety reform as indicative of Chinese state efforts to reconstitute the bureaucratic apparatus and to halt negative patterns of state-market interactions that have been largely responsible for China’s alarming rate of coal mine- related deaths and injuries. In his article “Regulating Death at Coalmines” (2006), Wang makes the case that the twin processes of denationalization of ownership and the liberalization of markets contributed significantly to the deterioration of coal mine safety 16 in China.22 In specific, the proliferation of small coal mines operated by township and village enterprises (TVEs) led to a situation in which local officials who were in charge of enforcing safety standards in the mines also had a financial and political interest in extracting maximum revenues from the mines, often leading to a conflict of interest (Wang Shaoguang, 2006: 6-7). In far too many cases, this conflict of interest meant reduced safety oversight and underreporting of mining accidents. To make matters worse, prior to 1999 the national mine safety regulatory system covered only state owned mines, excluding TVEs (Wang Shaoguang 2006: 19). Wang’s argument for the emergence of a Chinese regulatory state rests on the government’s response since the mid 1990s to the problem of coalmine safety. As with Yang Dali, Wang’s focus is not so much on the specific mechanisms that have been driving regulatory reform in the coal mining sector as it is to enumerate the formal bureaucratic reforms that have been enacted to enhance coalmine safety and to tie this in to a larger trend of regulatory reform in China. 23 Key among these reforms has been a spate of new legislation dealing with coalmine safety and the consolidation of the previously fragmented regulatory bureaucracy, culminating in the creation of the State Administration of Coal Mine Safety in 2000 and its elevation to full-ministerial level 22 This would then be the flip side of the same decentralizing reforms that some associate with dynamic local economies. 23 The essence of Wang’s argument about what prompted safety reforms is that increased state-owned media coverage of mining accidents, combined with a growing public awareness of and outcry over deplorable mine safety conditions, eventually led to the spate of mine safety reforms that began in the late 1990s and continues today (Wang 2006:23). While the argument that increased public dissatisfaction with mine safety is what prompted reforms is highly plausible, Wang provides little to no evidence for this actually being the case. What’s more, Wang chooses a difficult case to prove his point about increased government regulation of the economy. As Wang (2006) himself notes, “While China’s [coalmine] safety performance has improved, its present safety levels are arguably the worst in the world” (p. 13). 17 status in 2005 (Wang Shaoguang 2006:24-5).24 For Wang, the passage of new coalmine safety laws and the creation and elevation of a new coalmine safety regulatory body is evidence of the larger trend toward the creation of a fundamentally new kind of state apparatus in China. Unlike Yang Dali’s focus on the debate between the “Developmental School” and the “Distorted Market School,” Wang argues that “what replaces China’s ‘totalistic state’ in the wake of denationalization and marketization is not a Hayekian night-watchman state, but a regulatory state” (2006:30). While Wang leaves the concept of a Hayekian night-watchman state unexplained,25 he argues that under Mao, China was a totalistic state in which administration of the economy took place through comprehensive administrative decrees, that regulations and rules were applicable only to those being regulated (as opposed to the regulators themselves) and that enforcement was carried out through persuasion and “administrative chastisements” (2006:30). In contrast to the totalistic state that preceded it, Wang argues that the essential economic management activities of China’s regulatory state include standard-setting, supervision, monitoring, and enforcement (2006:1). His claim is that the reform of the administrative framework for governing coalmine safety is indicative of a larger trend in China whereby the state has largely withdrawn from direct control of the economy and is now trying to both “set 24 The regulatory body has been renamed the General State Administration of Work Safety/State Administration of Coal Mine Safety and as the unwieldy new moniker shows, this institution is now charged with general work safety regulation, not just in coal mines (Wang 2006:25). 25 This is significant because what a Hayekian night-watchman state is is not self-explanatory. Moreover, Wang’s reference to Hayek is not incidental and is instead a symbolic salvo in the on-going war of ideas between the New Left and neo-liberals in China. For further evidence that Wang is making an undeclared case against neo-liberal scholars and their champion Hayek, he later notes that the demise of China’s totalistic state has not ushered in the “rise of self-regulating society” (2006:29). For more on the New Left versus neo-liberal debate, see the following chapter. 18 general economic parameters” and at the same time to offset the natural tendency of unfettered markets to exacerbate human misery. Before moving on to analyze the key criticisms of and alternatives to the regulatory state approach, let me first conclude with a brief summary of the main regulatory state arguments as presented above.26 To begin, both Yang and Wang see Chinese regulatory reform as following a clear trajectory toward professional, rational, law-based regulatory institutions where the priorities of state economic regulation and the means of doing so have changed fundamentally from the preceding period. In this, they see China as following a global trend, one that primarily proceeds along the path of the advanced industrialized countries but also increasingly appears to describe developing countries in the South and the East as well. 27 While neither author says so directly, it is clear that they both see this trend as not only natural, but positive: a regulatory state is a good state. Part of this normative judgment comes from the authors’ shared interest in enhanced rather than diminished Chinese state capacity, something both have written about elsewhere.28 Not only Yang and Wang, but other like-minded scholars have also 26 While he does not invoke the concept of the regulatory state or directly engage the larger debate swirling around it, Kun Chin-Lin in his 2003 Ph.D. dissertation tackles a variety of related regulatory issues and in key ways concurs with Yang and Wang in their assessment of increasing central state regulatory capacity. In researching the role of the Chinese central government in “facilitate[ing] the emergence of the market economy” (1), Kun finds that there were two key phases of reform, the first lasted from the early 1980s through 1998 and was defined by economic and political decentralization that seriously weakened central state capacity while the post-1998 period has been about re-strengthening central state institutional, economic and political authority. In this his argument is compatible with the regulatory state case as presented by Yang and Wang. 27 In a long footnote on his understanding of the regulatory state, Wang refers to the historical American origins of the regulatory state, the adoption of regulatory governance in Europe since the 1980s and an ongoing wave of regulatory reform that has since engulfed developing countries from Latin America to East Asia. He then remarks that “What has happened in China is apparently a part of this global wave of regulatory reform” (2006:2). Curiously, according to the footnote, to qualify as a regulatory state a nation simply needs to add to its stock of regulatory institutions, notwithstanding their actual efficacy. 28 See, for instance, Wang (1995), Wang and Hu (2001) and Yang (2003 and 2004b). In many ways the position of regulatory state advocates like Wang and Yang is inseparable from the case for rising state capacity, and, in some respects these scholars conjoin the two concepts. The western literature on the regulatory state says very little about state capacity per se, but it is clear that Wang and Yang equate the 19 expressed concerns about the ravages of unconstrained markets and venal officials that have been a product of China’s reform process.29 It thus follows that they would see the creation of more professional regulatory institutions staffed by impartial bureaucrats committed to the promotion of fair competition and equitable outcomes as a highly positive trend. Ultimately, it is only in choosing who they are arguing against that Yang and Wang different significantly, Yang primarily aiming to show those in the “Distorted Market School” that the situation is changing dramatically, while Wang chooses no direct intellectual battle but instead aims to show that China has made a definitive move away from a totalistic state towards becoming a regulatory one. The Critics of the Regulatory State The National Developmental State As noted at the outset of this chapter, the relatively recent growth of writing on the regulatory state in China has been the catalyst for a growing debate, with Yang Dali serving as the main target of criticism and analytical reflection. The critics of the regulatory state argument, while in agreement on certain issues, are, however, far from reaching a consensus about their alternative understandings of how to portray state- economy relations in China today. I divide critics of the Chinese regulatory state emergence of a regulatory state with increasing state capacity. Their argument is the exact opposite of that made by Pei Minxin, who claims that capacity is low and eroding. 29 Here I refer to the ongoing intellectual and policy debate between the New Left and neo-liberals in China. Wang is especially close to this debate and an active participant in it. Another prominent overseas Chinese academic associated with this school of thought and who is also actively concerned with issues of state capacity is Zheng Yongnian, whose work I discuss at more length in the following chapter. 20 literature into three groups, two of which largely correspond to Yang’s categories above: 1) the Developmental State School, which I further divide into national and local varieties, 2) the Partial Reform School, and 3) a third group of scholars who focus on different sectoral and local regulatory variation. The first two groups directly criticize the regulatory state literature, although primarily for quite different reasons. While the developmental state advocates warn that the regulatory state approach overlooks key aspects of strategic political decisions that continue to fundamentally shape patterns of institutional reform, those in the Partial Reform School stress that ever-rising corruption and the lack of political liberalization have left China stalled on the road to true reform. Finally, the third group of scholars, many with relatively recent Ph.D.s, have begun to paint a more nuanced portrait of sub-national, central-local as well as international- domestic patterns of state-market interactions. In many ways, the different findings of these three groups of critics of the regulatory state approach are very much a function of the questions asked, just as they are for scholars like Yang Dali and Wang Shaoguang. One of the main bifurcations in the regulatory state debate comes between those who focus primarily on changes in formal institutional structures and those who are principally concerned with on-the-ground changes (or lack thereof) in relations between state regulatory bodies and those they seek to regulate.30 It is also clear that basic predispositions and normative commitments of the authors involved play a large role in the questions asked and the type of conclusions drawn. Here I will flesh out the arguments made by each of the different challenges to the regulatory state case. 30 While advocates of an emergent Chinese regulatory state want to make a connection between improved formal regulatory reforms and regulatory implementation, they too often assume formal reform will lead to improved implementation rather than proving their case. 21  Margaret Pearson of the University of Maryland has emerged as the primary critic of the regulatory state approach, especially as it is presented by Yang Dali. In a review of Yang’s Leviathan book and in a subsequent World Politics article, Pearson takes Yang to task for a number of misplaced analytical assumptions that lead to factual inaccuracies and overlooked patterns of state regulatory behavior. Pearson begins her review of Yang’s book with the blunt observation that it “is at the same time highly valuable and deeply flawed” (2005a:64). While she praises Yang’s detailed attention to the changes in China’s regulatory structure, especially given many other China watchers’ largely ineffectual search for China’s illusory democratic transition, she disagrees with Yang’s portrayal of the fundamental nature of regulatory reform, claiming that he overlooks key changes in the form and mission of top-level regulatory institutions (2005a:65). By focusing on structural bureaucratic reforms and arguing that China is witnessing the emergence of a minimalist and neutral state regulatory apparatus, Pearson claims that Yang misses the strategic and political nature of regulatory reform. To the extent that champions of China’s emerging regulatory state predict convergence toward (perceived) norms of good governance, Pearson challenges these claims with an alternative framework for understanding China’s ongoing regulatory changes. Pearson provides a much more thorough presentation of her own alternative argument in her full-length World Politics article, contending that in many key respects China more closely resembles an East Asian developmental state than a regulatory one.31 Her primary focus is on the norms and institutions at the heart of China’s governance model. While Pearson acknowledges the wide array of reforms in China’s regulatory 31 Despite her highly critical take on the regulatory state, the subtitle of the article, “Institutions and Norms of the Emerging Regulatory State,” seems to acknowledge the existence of this dubious entity. 22 institutions, she argues that the resultant institutional structure reflects the state’s strategic goals and normative commitments. Unlike Yang, who sees China’s bureaucratic reforms as progressing along a path toward rationality and normalcy, Pearson fixes her attention on the commanding heights of the Chinese economy, providing examples from the telecommunications, electric power, civil aviation, and financial services sectors to argue that the state is anything but a neutral bystander in its approach to regulating these sectors. Indeed, she argues that it is precisely because the state sees these sectors as strategic to the maintenance of its own authority that it cannot create wholly independent and objective bodies to regulate them. Far from establishing neutral, autonomous regulatory bodies for the oversight of these sectors, she emphasizes that the state has shown a desire to retain the “power of comprehensive agencies…to foster national champions, and…to actively structure and limit competition in favor of incumbent firms” (2005b:302). In this sense Pearson argues that China, rather than becoming a regulatory state, more accurately resembles a developmental state along the lines of East Asian late developers like Japan and South Korea (2005b:300-02).32 The state’s primary goal in terms of regulatory 32 The concept of a developmental state was largely pioneered by and continues to be associated with Chalmers Johnson and the rapid rise of a number of East Asian economies in the post World War II era. In his 1982 MITI and the Japanese Miracle, Johnson was intent on showing that Japan’s post war development model offered an alternative between western laissez faire capitalism and socialism. The key aspects of the developmental state model included the existence of a professional bureaucracy that was largely independent from direct political interference; state intervention in the economy in a way that was “market conforming” (Johnson 1982:317), which often meant state control over allocation of credit; the creation of a super-ministry like MITI (the Ministry of International Trade and Industry) to co-ordinate industrial policy; and the creation of national champions in select industries. The two countries most closely associated with this model are Japan and South Korea, but Johnson and others have also pointed to its applicability to Taiwan, Singapore and Hong Kong as well in what is sometimes known as the “flying geese” model of East Asian development. In a recent retrospective on the history and controversy surrounding the developmental state concept, Johnson is also clear that the developmental state was one that was successful at generating rapid economic growth. Summing up the main point of his 1981 book, Johnson (1999) says, “The essence of the argument is that credit for the postwar Japanese economic ‘miracle’ should go primarily to conscious and consistent governmental policies” (p. 37). Johnson’s research on Japan was followed by a number of other important works that also relied on the developmental state concept, especially as it applied to East Asia, including Amsden (1989 and 2003), Wade (1990), Deyo (1987) and Evans (1995). Two more recent additions to this literature that seek to understand why some 23 reform, then, is not to create independent regulators but instead, through active intervention and guidance, to enhance its control over the commanding heights’ sectors thus enhancing its own position and allowing it to avert destabilizing social dislocations. The other component of Pearson’s argument is ideational: in addition to pursuing a set of institutional arrangements that in many respects resemble a Japanese-style developmental state, Pearson claims that Chinese regulatory reformers have also shown a clear set of normative preferences about the state’s developmental goals and the means of achieving those goals. She argues that these preferences act as a formidable obstacle in the creation of a regulatory state. 33 According to Pearson, the Chinese leadership holds a set of normative preferences, including the desire for “orderly” competition and, as part of this, for the maintenance of only a small number of dominant, state-owned firms in strategic sectors (2005b:312, 314). According to this line of thought, some competition is healthy for increased efficiency, but fears of excessive price-cutting that might eat into state revenues have prompted a preference by state officials for limited competition. 34 Tied to domestic concerns about diminished revenue streams and fear of unemployment that might be the result of excessive competition, state officials have also expressed their countries (or parts of countries) are more effective in creating a developmental state are Kohli (2004) and Sinha (2005), while Herring (1999) seeks to explain India’s failed developmental state. 33 Pearson interchanges the concepts of regulatory state and “independent regulator model.” She says that despite not being reflected in the actual results of regulatory reform, the “desirability of adopting the independent regulator model is entrenched in the political and scholarly discourse” in China (2005b:301). This begs the question of what, if any, is the impact of the “influential scholars in central government think tanks,” a question I will turn to more fully in the next chapter. At the same time, it seems like a contradiction that Chinese officials both embrace the rhetoric of the regulatory state and at the same time abide by the norms of a developmental state. 34 Scott Kennedy has written specifically on the politics of price floors in connection with attempts to control competition (see Kennedy, 2003 and 2005). I find Kennedy and Pearson’s discussions of Chinese officials’ preference for “orderly” competition to be accurate and insightful as far as they go, but find them to be too narrow and limited. A significant portion of this dissertation is an attempt to tackle this issue of “market order” more comprehensively. 24 desire to create “national champion” industries that can be internationally competitive and technologically innovative.35 By focusing on the importance of commonly held assumptions about how markets operate and the state’s proper role in governing those markets, Pearson has introduced an important topic into the regulatory state debate. Pearson has also hit on a vital theme with her stress on the key role that state officials place on the maintenance of market order and stability. However, I would argue that Pearson overplays the level of consensus (what she refers to as a “normative preference”) that exists about what policies are most likely to produce this sought-after orderliness. Moreover, the very definition of what constitutes orderly competition or a stable market is itself a subject of heated debate. Finally, though a focus on the state’s strategic decisions in commanding heights’ sectors is undoubtedly of great importance in understanding China’s contemporary political economy, it is equally imperative to understand the less-than-commanding nooks and crannies of Chinese state-economy relations in order to more fully comprehend all the dimensions of the struggle over market order. The Local Developmental State For Margaret Pearson, then, one of the key attributes of regulatory reform in China is that the state, far from simply rationalizing or normalizing its role in the economy and creating autonomous regulatory institutions, has been engaged in a profoundly political effort to reconstitute its authority and control over the economy by actively intervening in the regulation of strategic sectors. An important variant of the 35 For more on China’s attempts to create national champions in the auto sector see Thun (2006). 25 national level, commanding heights type of developmental state argument as presented by Pearson is the case for local developmental states. While writing on the local developmental state has been a staple of China studies scholarship for quite some time, its proponents have as of yet not actively entered into the larger debate about the broad scope of state-economy relations that has been the focus of the Yang-Pearson dialogue. Yet it is important to briefly discuss the local developmental state as a variant of the national-level version because it sheds a slightly different light on the issues raised by Pearson and at the same time presents a number of puzzles about central-local relations and whether one can actually hope to place such a complex entity as China into any neat, all-encompassing analytical category.36 The concept of a local developmental state is almost uniquely deployed in the study of Chinese development.37 With the beginning of the reform era in China, scholars were granted long-denied access to localities all over China. Based on this research these scholars began to classify local state-economy interactions in a variety of ways. One of the key variants was the local developmental state, a category designed to describe the way local officials had begun to take on many of the key roles of national developmental states by interven[ing] indirectly in the economy, “helping to plan, finance, and co- ordinate local projects, investing in local infrastructure, and promoting co- operative economic relations with external agencies” (Blecher and Shue 2001:368, fn. 1).38 36 I distinguish between two types of local regulatory state arguments. The primary difference is that the first type of argument tends to assume, along with its national variant, that local developmental states are successful at promoting local development whereas the second variant leaves the question of what leads to developmental success or failure as an open question. 37 One important exception is Aseema Sinha’s (2005) work on comparative local developmental states in India. 38 In a helpful overview of varieties of local state-economy interaction, Richard Baum and Alexei Shevchenko and also Marc Blecher and Vivienne Shue have argued for four basic local state forms: developmental, entrepreneurial, clientelistic and predatory (see Baum and Shevchenko, 1999 and Blecher 26 In the sense that local officials also see certain sectors as strategically important and seek to create or support “local champions,” they too actively intervene in markets to produce desired outcomes. Yet another variation on the largely positive developmental role played by the local state is Oi’s (1999) description of “local corporatism” in which local state and Party officials coordinate government and business activities along the lines of a private corporation. As with Pearson’s analysis of central state intervention in commanding heights sectors, arguments about the local developmental state are also fundamentally at odds with claims that China is headed toward becoming a regulatory state. The change of scale from the national to the local makes for a dramatic increase in the number of potential cases of state-market interaction. To the extent that the policies of local developmental states converge with those of the central government, there is no problem logically in accepting the compatibility of local and national forms of the developmental state. However, there is the very high possibility for central and local developmental policies to diverge. What for some may be a case of local developmentalism may for others be a case of local protectionism. There are at least two variants of the problem of diverging central-local interests in terms of development promotion. In the first case, local officials seek to promote a local champion, be it the leather industry or the automobile industry or whatever local officials choose,39 and in so and Shue, 2001). Here I deal primarily with the challenge the developmental and predatory (which I place in the category of “partial reform”) models present to the regulatory state case. The entrepreneurial state ideal type (see Duckett, 1999), as much as it captured the important phenomenon of government bureaus spinning off private and semi-private businesses, has not really received much subsequent attention. To the extent that bureaucratic entities continue to spin off private enterprises, this clearly poses a challenge to the regulatory state thesis, but on the other hand Yang Dali may have been correct that the PLA divestiture marked the beginning of an overall crackdown on these types of enterprises. 39 See, for example, Blecher and Shue (2001) and Thun (2004). 27 doing protect local firms from competitive pressures, discriminating against non-local competitors. In the second, closely related case, local officials, also in an effort to promote local development, collaborate in the production and/or commerce of goods or services that the central government has formally forbidden. In either scenario, local developmental state policy may be at odds with national policy.40 In this sense, while the existence of local developmental states certainly provides evidence against an emerging regulatory state, it also poses a problem for the argument that China is a smoothly oiled developmental state. So even though both national and local variations on the developmental state argument are antithetical to claims that China is becoming a regulatory state, in large part because they disagree with regulatory state claims about the purpose of institutional reform in china, they share a similar focus on formal, bureaucratic changes and tend to downplay questions of regulatory implementation. The following two groups of regulatory state critics have a very different orientation, instead choosing to concentrate on patterns of regulatory enforcement. Partial Reform A second group of critics of the regulatory state thesis argues not that China is becoming a developmental state that strategically intervenes in markets (national or local) in order to promote development and maintain political authority, but claims instead that 40 Scholars of the local development state would most likely claim that the second scenario more closely resembles a simple case of corruption or illegal behavior and that the former may simply go against economic rationality in terms of scale of production. But from the perspective of central authorities both scenarios pose a problem of local policies that run counter to the creation of a unified national market or the enforcement of national laws that themselves, like Intellectual Property Rights (IPR) legislation, are part of global treaties. 28 China is a case of stalled or partial reform.41 Here I will briefly explore three variants of this argument, one which argues that corruption undermines regulatory reform and economic development in general, a second that also stresses the negative impact of corruption but places it within the context of incomplete economic and political reform, and a third that relies on cultural and ideational factors to explain what many see as sub- optimal financial and enterprise reform. While it is only in the first corruption-oriented argument that there is a direct critique of the regulatory state case, all three variants of the partial reform argument draw attention to negative aspects of China’s reform process by focusing on what they perceive to be the failure to successfully implement policy reforms based on a rule-based regulatory system. The first variant of the partial reform school shares much in common with what Yang Dali has called the “distorted market school.” These scholars see many of the problems associated with regulatory reform rooted in corruption.42 Two scholars associated with this perspective are Huang Yanzhong and Lü Xiaobo. Huang in particular directly attacks the regulatory state argument for contradicting the plentiful evidence of official venality. One of his key points is that even with regulatory reform, and sometimes because of it, many officials function as both referee and player in market competition. According to Huang, bureaucrats at almost every level, from central government ministries to local authorities, can assure themselves a privileged position in the emerging market economy by being the owners of key corporations and/or the regulators of market competition (Huang 2004:40). 41 For the classic study on post-socialist “partial reform” see Hellman (1998). 42 What constitutes a “problem” for the partial reform scholars is not always immediately apparent. While corruption is often the focus of their work, the question of what difficulties corruption itself leads to quite often go unexplained. 29 Moreover, he argues that bureaucratic promotion policies continue to have perverse incentives built in such that advancement is not necessarily tied to actual regulatory improvements (say in health or sanitation standards) but is instead a function of pleasing one’s superiors (Huang 2004:41, 49). Finally, Huang directly contradicts Yang Dali when he concludes that “despite the restructuring and reorganization of the country’s bureaucracy, the reform has failed significantly to rationalize or revamp China’s state apparatus.” (Huang 2004:58). Lü Xiaobo takes the corruption argument to another level, arguing not only that reform has failed to rationalize state institutions, but also that it has led to what he calls “organizational corruption.” Lü defines organizational corruption as actions of a public agency that, by exploiting its power in regulating the market or its monopoly over vital resources, are aimed at monetary or material gains for the organization. Such gains often violate official rules or regulations, at the expense of both the public and the state.” (Lü 2000:275).43 He is particularly concerned about four different kinds of practices that for him constitute organizational corruption: the collection of extra-budgetary funds, the misuse of regulatory power, the illegal use of public funds and the “profit-generating activities of government agencies” (2000:276). According to Lü then, many of the types of behavior described in the local developmental state and entrepreneurial state models as key to dynamic local development would have to be considered organizational corruption. Ultimately, for both Lü and Huang, economic reform in China has opened up the floodgates of corruption and many government officials, far from helping to create modern, Weberian regulatory institutions or acting as local developmental state planners, 43 The concept of organizational corruption is highly problematic. It fails to account for the complexities of the incentives faced by local officials and indeed of the entire Chinese legal system. Given that Chinese law is often interpreted and executed by bureaucratic rather than legal entities (e.g. courts), what local officials argue to be the proper interpretation of a given regulation de facto becomes the official interpretation. I will discuss this at much further length at various other points in the dissertation. 30 have instead abused their power to enrich themselves or their entire organization, thus leading to stalled economic reform. Taking the corruption-based partial reform case one step further by extending the argument beyond economics to the realm of politics is Pei Minxin of the Carnegie Endowment for International Peace. In Pei’s 2006 book, China’s Trapped Transition, he argues that corruption goes hand-in-hand with a state apparatus that is increasingly unable and unwilling to enforce its own rules and regulations and which has become increasingly “predatory” toward its own citizens.44 Directly contradicting the assertions of the regulatory state scholars, Pei (2006a) argues that China is experiencing extensive “institutional breakdown” (13) and that “various measures of governance confirm the underdevelopment of key public institutions in China” (5). Pei finds that neither the media nor public opinion serve as a useful check against the Party’s single-minded efforts to maintain a stranglehold on power. According to Pei, the Party’s failure to allow for political opening has Stunted the development of an effective legal system, constrained the constitutional role of the legal branch, obstructed the growth of rural self- government, and restricted the emergence of civil society (2006a:7). Pei argues that the Party’s unwillingness to place any constraints on its own power or that of the state more generally has weakened state capacity in a variety of ways, from the enforcement of contracts to the protection of property rights to “policing the marketplace” (14). In essence, Pei takes the partial reform case one step beyond simple economic corruption to claim that economic elites and party officials (often one-in-the- 44 For more on Pei’s “decentralized predation” argument see Pei (2003). Although he makes no reference to it, in some ways this predatory state argument recalls Duara’s (1988) historical analysis of “state involution” during the first half of the 20th Century in China in that both emphasize the growth of rogue local officials who exploit their official positions to extract resources rural citizens. 31 same) have not only contributed to incomplete reform, they have purposely manipulated reform to enrich themselves and to increase their stranglehold on political power. For Pei, the ultimate goal of Chinese reform should be the creation of a market democracy, but as it stands “China seems to be on a Long March to nowhere” (2006b: 17). For Pei this “Long March to nowhere” is anything but benign. Instead he sees a vicious circle of corruption and state predation that persists and worsens due to the lack of institutional checks and balances and causes ever-decreasing institutional capacity. Pei thus reasons that China, unlike other East Asian countries that achieved rapid development under authoritarian leadership, will not transition to democracy and for him this is truly the crux of China’s partial transition. A final version of the partial reform argument relies on cultural and ideational arguments to explain stalled reform. Ed Steinfeld, in a 2004 Political Studies article sets out to explain the lack of success in reforming the Chinese financial and enterprise sectors.45 Steinfeld says that many other partial reform theories offer a non-economic rationale for stalled financial and enterprise reform, such as fears over social instability, state deference to politically powerful social groups or intentional government distortion of markets to maximize control.46 He in turn dismisses each of these non-economic, or what might more simply be seen as political, explanations. His alternative explanation is that cultural understandings of how markets function, or what he calls “market visions,” predispose Chinese policy makers to continually prop up large underperforming state 45 As with many corruption-based partial reform arguments, Steinfeld does not specify what a fully reformed financial market would look like in China. He does however argue that state-owned banks over- supply credit to large state-owned enterprises and that state credit policy has led to over-investment in real estate markets. 46 These are all arguments that Pearson uses in one form or another and are all political arguments. Why Steinfeld, as a political scientist, is worried about providing an explanation that doesn’t violate the assumptions of economic rationality, is unclear. 32 owned enterprises (SOEs) by relying on bailouts from the financial sector. He argues that most of the Chinese officials whom he has interviewed view the poor performance of some SOEs as a sign not of those firms’ failure to compete effectively in the market but instead reflects the flawed nature of the market itself. Rather than viewing the market as an instrument for selecting out uncompetitive firms, many Chinese officials hold that large firms underpin the market itself and if those firms are underperforming it reflects only that the market has failed to accurately assess the real value of these firms. What is crucial here is that it is ideas about how the economy functions that shape the behavior of officials. As Steinfeld puts it: “in the case of China today, virtually all citizens are believers in the market, but the question is what kind of market they actually believe in” (2004:653). It is his stress on market “beliefs” that truly distinguishes Steinfeld from the others in the partial reform camp. Steinfeld notes in the abstract to his article that institutional change and resultant economic outcomes are driven less by contestation than by societally held assumptions regarding the nature of economic causation in market contexts (643). Thus it is broadly shared understandings about the nature of markets, and, one would assume, the proper role of government in regulating those markets, that underpins China’s still-incomplete financial market reforms. Steinfeld argues that such shared beliefs about cause-effect relationships in markets play an especially important role during times of uncertainty and/or complex change (644).47 It is these shared understandings, what others might recognize more readily as cultural beliefs, that have led to partially-reformed financial markets in China during the uncertain years of the 47 In his analysis of the two periods of major political-economic transformation in the 20th century Mark Blyth (2002) also stresses the importance of ideas in times of uncertainty. 33 reform period. As to where these understandings came from Steinfeld is silent and whether or not they are as widely held and uncontested as he leads us to believe are issues I will explore in more detail in the following chapter.48 The authors explored here offer a vision of the glass of Chinese reform as half empty at best. For scholars like Huang, Lü and Pei, what drives this pessimism is a strong distaste for what is seen as pervasive official corruption and skewed systemic incentives. But whether it is corruption or a pre-existing ideational/cultural framework that leads to suboptimal outcomes (at least identified as such by these scholars), what is sure is that for them China has not only not become a regulatory state, but it has also veered very far off of that trajectory. Certainly one part of the explanation for why scholars like Yang Dali and Pei Minxin have such diametrically opposing views about the direction of Chinese state capacity, for instance, is that each is looking at a different part of the proverbial elephant, and in this case the elephant is Chinese regulatory reform. Yang is mostly interested in formal, institutional change, from which he assumes regulatory performance will improve, whereas Pei burrows into the still very messy world of regulatory implementation without often stepping back to gauge long-term, relative changes in the overall regulatory system. Both arguments prove, however, to be highly teleological: for advocates of China’s emerging regulatory state China is now firmly set along a path toward normal, good government whereas partial reformers see China as missing the route to true and proper reform and instead heading toward economic and political turmoil. 48 In yet another iteration of the partial reform argument Victor Shih (2005) directly contradicts Steinfeld’s ideational argument by claiming that stalled Chinese financial reform is the result of technocrats aiming to enhance their own power even if this results in unhealthy long-term public policy. 34 A New Generation of Sectoral and Local Analysis In addition to the developmental state and partial reform critiques of the regulatory state thesis, a third more disparate challenge has arisen from a new generation of scholars who tend to eschew sweeping generalizations about broader state-economy relations in favor of a more fine-grained approach. While difficult to place a single label on this group, the scholars within it are unified by their understanding that different types of markets (sectoral considerations), often combined with local and regional differences (geographic considerations), lead to different patterns of state-economy interaction. While only one scholar within this group directly confronts the case posed by the regulatory state scholars, the approach and findings of all of them combine to pose a challenge not just to the regulatory state thesis, but also to the developmental and partial reform schools as well. Margaret Pearson has been joined by Scott Kennedy in reviewing and passing critical judgment on Yang Dali’s Remaking the Chinese Leviathan. Kennedy, echoing Pearson’s critique, faults Yang for an overly-optimistic portrayal of Chinese regulatory reform (Kennedy 2004/05:82). In his initial book review and again in a rejoinder to Yang’s response to the book review, Kennedy faults Yang for placing too much faith in the good intentions of China’s leaders, arguing that they are as much a part of the problem of regulatory reform as they are part of the solution (Yang and Kennedy 2005:104). Unlike Pearson, Kennedy’s description of state-economy relations is not based on a commanding heights, developmental state alternative, but instead draws attention to the importance of sectoral differences in state-business relations. Kennedy is 35 not as concerned with giving the Chinese state a label, be it Regulatory, Developmental or otherwise, but instead in analyzing the dynamics of state-business relations. In his own dissertation research and in the recently published book based on that research, Kennedy examines the impact of business lobbying efforts on state regulation of three different economic sectors that varied along multiple lines. His research on the steel, home electronics and software sectors reveals different forms of organizing and lobbying techniques that, combined with different market characteristics and relationships to the state, resulted in unique patterns of what he terms “policy influence.” Based on these results, Kennedy says that “China has multiple political economies” (Kennedy 2002:v-vi). Ultimately, Kennedy’s work provides a powerful corrective to the idea that state-economy relations in general and government-business relations in specific are a product only of top-down reforms. Kennedy’s book, The Business of Lobbying in China, focuses on the strategic interaction between business actors from the three sectors mentioned above and various government regulatory bodies. Kennedy’s work is crucial in illuminating the multiple factors, including both state and business influences, that come into play to structure new regulatory regimes. His work thus improves upon both that of Yang and Pearson by specifying the strategic interactions among key state and business players. Just as Pearson and Steinfeld have emphasized the importance of ideas in their research on state-economy relations, whether in the form of “normative preferences” or “market visions,” Kennedy too talks about the role of norms and their impact on shaping these multiple political economies. In a separate article on competition policy, Kennedy (2003) takes note of the important role of ideas, here in the form of norms about what 36 constitutes acceptable competition. Unlike Pearson or Steinfeld, Kennedy is careful to explore the process by which different groups deploy different ideational frameworks to back up their claims for certain policy outcomes. Here he notes that pro-competitive forces, often backed by western-trained economists, vied with those who preferred limited or managed competition, with each side marshalling ideas and theoretical constructs to back their arguments (Kennedy, 2003: 4-7). In other words, as I will emphasize in the following chapter, Kennedy’s work highlights how it is not enough to take “normative preferences” or “market visions” as a given, instead they themselves are both tools and products of politically charged debates. Kennedy is not alone in his interest in the determinants of Chinese regulatory policy. Another scholar with similar interests but a different focus is Andrew Mertha. Mertha’s research is about intellectual property rights enforcement in China and is concerned with American influence on Chinese IPR legislation. Moreover, he is interested in explaining why formal IPR regulatory reforms have translated into uneven enforcement results on the ground, thus stressing the very different aspects of formal regulatory restructuring on the one hand and regulatory enforcement on the other (Mertha 2005:3). In order to answer these questions, and uniquely among all the authors covered here, he not only investigates the political and economic pressure that the United States brings to bear on China to encourage them to adopt stricter IPR enforcement legislation (the formal, institutional side of the equation), but also the complex bureaucratic structures and incentives at the sub-national level that affect policy implementation on the ground. Moreover, Mertha, without simply chalking up poor enforcement records to 37 “corruption,”49 demonstrates how government bureaucracies with oversight over IPR enforcement have themselves become subject to certain market incentives (see Mertha, forthcoming).50 Mertha’s research clearly demonstrates the pitfalls of assuming that formal regulatory change necessarily translates into effective enforcement. Finally, recent scholarship has also used the local developmental state paradigm to explore the comparative efficacy of local governments to champion certain industries. Eric Thun and Adam Segal, in a comparative study of Shanghai and Beijing local governments’ efforts to promote the auto and electronics industries (2001), respectively, ask under which conditions local governments can succeed in creating champion industries. Unlike much of the developmental state literature, whether in the national or local variants, Thun and Segal do not assume that efforts to create a developmental state will necessarily prove successful. Despite their research design that allows for failed developmental state experiments, Thun and Segal do find that both the Beijing and Shanghai city governments were successful in their promotion of their chosen sectors, but these successes were dependent on a number of variables specific to each industry and the unique endowments of each region. Conclusion: Ideas and Order In this paper I have argued that recent scholarship about the emergence of a regulatory state in China has been a catalyst for a variety of critical responses. What has emerged is a range of perspectives about how best to understand the nature and direction 49 For one of the more sophisticated treatments of Chinese corruption see Sun (2004). 50 For other insightful analyses of bureaucratic response to market incentives see Dutton (2000 and 2005). 38 of the relationship between the state and economy in China. This distinction is key, for even though there are serious disagreements about whether China currently most closely resembles a regulatory state, a developmental state or any of the alternatives, most would agree that there is a wide range of governance challenges that China faces. Despite this agreement, some would have us believe that the state is not up to the task of managing the myriad challenges it faces while others argue that it is already well on its way to doing so. In the chart below I have attempted to summarize the main findings of this chapter so as to allow comparison across a number of key issue areas. 39  Varieties of Chinese Political Economy Regulatory State Developmental State Partial Reform Sectoral and Geographic National Local Level of No clear National-level, Local industrial Mostly local National and Analysis and preference; commanding promotion corruption or sub-national, Subject Includes national heights sectors like national finance cross-sectoral and local regulation industry and of range of markets finance State and State is far-sighted State a strategic Effective local Corruption Analyze Market and benevolent and actor that state intervenes to and/or wrong multi-level an increasingly intervenes in promote targeted “market vision” state and objective and “market- industrial leads to state market neutral observer; conforming” ways development incapacity; strategic Frequent state to promote State failure interaction. intervention industrial outweighs Neither state necessary to correct development market failure nor market market failure failure assumed Form versus Focus on formal Focus on formal Often assume Focus on failure Equal Content bureaucratic commanding- effective of regulatory attention to changes, often heights institutional promotion of implementation, formal assume effective change, often local little discussion institutional implementation assume effective developmental of formal changes and control and growth strategies institutional implement- outcomes (Segal/Thun changes ation exception) effectiveness Role of Ideas Growth of Chinese Pearson notes Local officials For Steinfeld, Kennedy RS part of global importance of effected by ideas are the notes strategic trend based on rhetoric of national ideas of key explanatory and variable common ideas of “orderly” what constitutes variable; use of good governance; competition; development – Corruption preference for RS analysts close to Assumes shared little direct focus variant assumes “orderly “New Left” stance understanding of on ideas per se (venal) material competition” “order” interests Point of Progressive Era East Asian Other forms of Other No explicit Comparison America; Advanced Developmental local Chinese developing comparisons western economies States; Japan and state: countries, in general South Korea key entrepreneurial, predatory states examples predatory, etc. in particular 40 Up until this point, I have mainly traced the debates between regulatory state scholars and their critics, allowing their arguments to speak for themselves and withholding my own critical judgments. But in conclusion I want to make a final assessment of the debates here and to set the stage for the remainder of the dissertation by offering my own alternative views on how best to make sense of certain under-studied and overlooked aspects of state-economy relations in China. First, the case for the emergence of a Chinese regulatory state provides a number of useful insights into the evolving relationship between the state and the economy in China. Yang Dali provides a useful reference for the formal changes in regulatory institutions across a variety of sectors and at various levels of government. The fact that China is undergoing an important wave of institutional reform is certainly true; the passing of new legislation, the streamlining of existing bureaucracies and the creation of new ones are certainly phenomena worthy of further study. To the extent that such institutional transformation represents a new role for the Chinese state as the custodian of a largely market-based economy as opposed to an owner and producer in a planned economy, the regulatory state literature is on safe analytical ground. Moreover, the continued interest in changes in state capacity that is often associated with the regulatory state literature most certainly constitutes a welcome research agenda. But it is precisely on this question of state capacity that the regulatory state argument begins to falter. For all of their emphasis on enhanced Chinese state capacity, there is a strange lack of follow-up on the resulting on-the-ground changes that are presumed to follow from the modernization and rationalization of regulatory institutions. In far too many instances one is struck by the fact that Yang Dali relies on the formal 41 mouthpieces of the Party or of a given government agency to tell us how successful professionalization of the bureaucracy has been. Just because the People’s Daily reports that a given regulatory reform has been a success does not mean one should immediately reject it as an outright falsehood, but one should view such statements with a healthy dose of skepticism by at least accounting for the political motives that may have prompted the issuing of such reports. Yang’s strongest evidence of actual change (for Yang, this means “improvement”) in regulatory performance is drawn from the case of military divestiture and related improvements in smuggling in the wake of the East Asian Financial crisis, but he fails to follow up on most of his claims that formal institutional reforms translate into better governance. Equally, Wang Shaoguang’s study on coalmine safety is a hard case to say the least: does the move from having the worst coalmine safety record anywhere in the world to having marginally improved safety standards but still the world’s most dangerous coal mines really mean China is now a regulatory state? Just as important, the regulatory state literature on China reviewed here fails to take the political processes of regulatory reform seriously and far too often fails to explicate the causal mechanisms at work. Why are some regulatory institutions streamlined while others are expanded or given new guidelines? Who stands to gain by such reforms and who to lose? What are the material and ideational resources that different actors bring to bear in their attempts to impact the reform process? How do non- state actors impact these debates? If new regulatory standards are set, do they benefit certain state or private entities more than others? These are all crucial questions of reform but ones that are almost completely ignored in the regulatory state literature. It’s 42 as if regulatory reform is progressing along a path, and a path free of politics at that, toward some mythical land of modernity and good government. Aside from the inherent teleology of the Chinese regulatory state literature, and a problem associated with some of its critics as well, is the superficial nature of any comparisons that are made, if they are made at all. The regulatory state literature, which primarily focuses on the advanced industrialized countries, often draws extended comparisons between different patterns of regulatory politics in different countries. As I explained above, there is not simply one type of regulatory state, but many, with the American model different from the British model, which in turn is different from the German model, and so on. So when China scholars speak of China becoming a regulatory state they basically do so only in reference to a single ideal type, failing to account for the possibility of different types of regulatory state with very different implications for how we understand China’s evolving state-economy relations.51 The developmental state and partial reform critiques provide an important corrective to certain flaws in the regulatory state thesis. Developmental state arguments of both the national and local variety take the political nature of regulatory reform more seriously in noting that state authorities view certain markets and the revenue streams they provide to the state as strategic assets and then attempting to explain institutional reform as the outcome of a process of political contestation. However, a flaw in the developmental state argument, especially as presented by Pearson here, is that it may vastly overestimate the state’s ability to exert the type of control over certain markets that 51 The most extreme example of oversimplifying the definition of a regulatory state comes in Wang Shaoguang’s extended footnote on the concept where he notes that the number of regulatory agencies in Latin America has expanded dramatically in recent years, providing evidence of emerging regulatory states there. Certainly there is more to the concept that simply adding or subtracting regulatory institutions. 43 it would like. This has always been part of the critique of developmental states in general, and may be especially applicable to markets where China is a price taker, like global energy markets for instance. In connection to this, the partial reform critics, especially by pointing out the potential for bureaucratic malfeasance, draw our analytical attention to the possibility that even in redesigned regulatory institutions the enforcement of new or existing regulations may not very closely resemble formal guidelines.52 One of the most fruitful, yet underdeveloped aspects of the critique of the regulatory state argument is the focus on the importance of ideational frameworks and their impact on the politics of regulatory reform. Pearson, Steinfeld and Kennedy all note the impact of ideas, or for them “normative preferences,” “metapreferences,” “market visions,” or “norms of competitions.” This is a step in the right direction, because as Mark Blyth (2002) has powerfully argued elsewhere, changes in economic ideas were at the core of the 20th century’s major institutional reforms and we should expect nothing less in China as well. However, the treatment of ideas in the Chinese regulatory reform literature discussed above leaves much to be desired and much room for improvement. One should not, as some of the works discussed above do, assume that ideas about how markets do or should operate are a given or part of a pre-existing cultural construct. Ideas about how markets operate have a powerful effect on the politics of state-market interactions and they themselves are both open to political contestation and are frequently powerful weapons in the effort to reform regulatory institutions and in debates about how to govern 52 Here I’m thinking of recent discussions, including those by Yang Dali (Tam and Yang 2005) about the newly reformed food safety and pharmaceutical bureaucracies where the new institutions have not only failed to solve key regulatory problems but have themselves added to those problems through what appears to be classic predatory behavior. 44 the economy in general. As such, we must place ideas about markets as objects of political study at the center of our understanding of state-economy relations in China. One of the most important ideas in contemporary Chinese debates about economic reform is that markets and competition should be “orderly” and that state regulation of markets should foster “stability.” Both Pearson and Kennedy touch on these issues, but in my own research I will more fully explore how and why such ideas, which have come to have different meanings for different users in different settings, are of crucial importance to both economic and political reform in China. Beyond the role of ideas about markets, recent articles by Yang Dali and Margaret Pearson on “social regulation” point to the second substantive theme of this dissertation: the regulation of marginalized urban markets. Yang, along with a co-author (Tam and Yang 2005), picks up on the theme of “market order” enforcement that he covered in his Leviathan book, taking the case of food safety to show the ineffectual implementation of certain consumer protection regulations. Unlike his other work, Yang highlights the difficulties facing even newly overhauled regulatory bodies, especially in the area of consumer protection. Pearson (2006) also ventures into new territory in a recent conference paper where she argues that it’s not just the commanding heights that matter for understanding Chinese political economy, but that there are different “tiers” that matter. Pearson argues that we should envision the Chinese economy as having three tiers: the first being the commanding heights that she has written about elsewhere, the middle tier she admits may only exist of one case, pillar industries like the automobile sector and the third, or low tier, is made up of private and collective firms that produce consumer goods. She claims that government oversight of the low tier is about “social 45 regulation” rather than “economic regulation,” which is the aim of governing the top and middle tiers. For Pearson, social regulation differs from economic regulation because it is focused on the protection of consumers from market failure and on worker safety rather than merely on competition policy (2006:3-4). Whatever the merits of the distinction between social versus economic regulation, a topic I will pick up again in later chapters, Pearson’s distinction among different tiers, and emphasis on the low tier in particular, highlights a major gap in the larger discussion of state-economy relations in China. Drawing on Yang’s discussion of the regulation of “market order” and Pearson’s “low tier” of the economy, I will show how state regulation of marginal urban markets is crucial to understanding larger trends and processes in China’s political economy. Specifically, I will focus on the regulation of economically, legally and socially marginal markets in urban settings. That such markets are marginal means only that they exist in a physical and/or legal space that makes their daily existence highly tenuous and subject to capricious official enforcement, not that they are in some sense of only minimal importance to the Chinese economy and as a source of livelihood for many Chinese citizens. 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