China’s Economic Transition and the Value of Firms’ Political Connections: A Longitudinal Study

• In Event: 117 - Regular Session. Economic Sociology: Embeddedness, Hybridity and Economic Performance in Asian Capitalisms

Abstract

In the wake of China’s transition from state socialism toward market capitalism, there has been much debate about how ties between political and economic actors, in particular between state bureaucrats and business firms, changed. Some propose that the benefits of such ties for business diminished, while others contend that these benefits remained resilient. We argue that given the lack of political reform, the value of politician connections for business strengthened. Economic reform created many new business opportunities; in the absence of political reform, political connections became more important for acquiring state-controlled resources and for gaining state authorization of business activities that allowed firms to take advantage of these opportunities. Our analysis of Chinese listed firms from 1992 to 2007 supports this argument: as market development progressed, firms’ political connections had increasingly positive effects on overall performance and access to bank loans. These effects were more pronounced in more-competitive markets because there was more at stake there. These effects were less pronounced for larger firms because they benefited from economies of scale and so were better-positioned to handle increased competition; they also had easier access to state-controlled resources and lower risks of state expropriation of their assets. Overall, our result reveals that economic reform without political reform has made political actors in China increasingly powerful economic actors.

Authors

• Heather A. Haveman, University of California-Berkeley

• Nan Jia, University of Southern California

• Jing Shi, Australian National University

• Yongxiang Wang, University of Southern California