My dissertation tries to solve two puzzling questions in China’s economic miracle: why some private firms enjoy better property rights protection than others under similar political and economic institutional conditions. Secondly, under the incentive structure designed by the central government, why some local officials in some localities actively protected private property rights than others hence foster local economic development. Existing literature either emphasizes social networks or focuses on fiscal decentralization and personnel control system. But neither these accounts is able to systematically explain the considerable variation of private property rights protection across regions and over time.
I develop a game-theoretical model to study the political economy of property rights in China, that is, a bargaining game between a firm and a local political official to explain these empirical puzzles. Under the current institutional arrangements, resources and constraints created by the incentive structure of the Cadre Evaluation System (CES) affect goals and strategies of both local political officials and private investors in that bargaining relationship. A firm with a high level of Firm Specific Assets (FSAs) may possess strong post-entry bargaining power, and thus enjoy better protection of the local official, but a weak firm is vulnerable to the local officials’ predatory activities, and therefore needs to rely on other mechanisms, such as their social networks or bribery, to overcome the commitment problem. In particular, all else being equal, the availability of an exit option greatly enhances the private firms’ post-entry bargaining power vis-à-vis local political actors.
In addition, the degree of symbiotic relationship between the local officials and indigenous private entrepreneurs determines the level of private property protection. Compared to rotated officials, native local officials have fewer political connections with higher-level officials and therefore have less chance to be promoted in the power hierarchy. This condition makes them seek the support of local economic actors for their political survival. Moreover, native local political leaders who were born in their jurisdiction have lower transaction costs, and therefore a symbiotic relationship between native local officials and local private entrepreneurs is feasible. The chances were high that the native leaders would have close ties to local economic actors and face more strict social constraints; therefore, they were more likely to protect local property rights.
I statistically test the effects of firms’ characteristics on the security of property rights using different types of evidence including a nationwide survey data in 2012 and media reports on government-related property rights expropriation cases. With the proxy of property rights protection, I also provide systematic empirical evidence from Guangdong province both cross-sectionally and over time to test the effects of different types of local political leaders by investigating the characteristics of 203 prefecture-level political leaders between 1992 and 2008. A detailed case study of local B&B industry policymaking in Xiamen, Fujian province, utilizing government reports, news reports, as well as interview notes of fieldwork, further supports the model
