Chapter 1 for Zouping Revisited

CHAPTER 1

Jean C. Oi and Steven M. Goldstein

Observers have often pointed out that China has undergone dramatic change in its economic institutions without corresponding changes in its political institutions. On the surface, this seems an obvious point. China remains a one-party state ruled by the Chinese Communist Party (CCP). The institutional structure and the formal organization of the government and party bureaucracies have changed little since the onset of economic reform. Yet the political institutions have so far seemed capable of governing a vastly more complex market economy that has a much more heterogeneous and rapidly changing labor force. Is it possible that China’s political institutions have somehow managed to cope despite remaining basically unreformed, or have there been more subtle and profound changes in the way that the existing organizational structures actually operate? This is the core question pursued in this book.

The research collected in this volume suggests that the old organizational structures in fact have come to operate in surprising new ways. Drawing on fieldwork at the lowest levels of the administrative bureaucracy in one Chinese county, this volume offers new insights into the adaptability of this communist one-party system. Such findings also may shed new light on the concept of “authoritarian resilience,” which has gained currency in the political science literature (with the case of China front and center) as many attempt to explain how economic change progresses seemingly without political reform.¹ Andrew Nathan’s seminal piece argues that it works through institutionalization, the creation of new mechanisms that address critical issues such as succession, promotion, functional specialization, and increased political participation.² Kellee Tsai builds on the institutional perspective by showing how new institutions come about, a process that she sees resulting in “adaptive informal institutions,” whereby the rules eventually change regarding actions or groups that were originally outside of the system.³ Ben Hillman takes a different direction to argue that it is in fact informal institutions, specifically patronage networks, that contributes to resilience.⁴ Others, such as Sebastian Heilmann and Elizabeth Perry, reject the focus on institutions, formal or informal, as too narrow and instead argue that one needs to look at unique policy mechanisms, especially at those that may precede the reform period, back to the Chinese Communist Party’s past.⁵ They argue that methods inherited from the “guerrilla and revolutionary style of governance” explain China’s success.

The search for answers is far from over. Our understanding of authoritarian systems remains incomplete, especially when it comes to China’s one-party state. While Nathan and Tsai shed light on how new institutions and agencies come into being, and Heilmann and Perry help explain how policy changes are more easily achieved in China than in other countries, both approaches pay far less attention to the adaptive capacities of the existing system. The first perspective is about subtracting or adding to existing institutions; the latter is about policy changes and their implementation. Some important new work is being done on how the state has managed to maintain a smaller core bureaucracy while reducing the size of the larger bureaucracy overall.⁶ Others worry that township governments have turned into “hollow shells” with fewer and fewer resources.⁷ Many unanswered questions remain about what has happened within China’s existing institutional structure, inside the agencies of local government, after reductions are made and resources are taken away.

This volume looks inside existing institutions of local governance to see if and how they have evolved over time in response to changing economic and political contexts. We examine how a local government has been able to govern within a radically changed economic and political environment while the preexisting Leninist structure remains. The fundamental finding that emerges is that China’s economic reforms and growth have not only affected incomes and quality of life but have significantly changed ways of governance, despite the fact that institutional forms of governance often appear unchanged.

Our approach recognizes the importance of informal relations, the existence of corruption, and the many problems facing local governments as China develops, but we argue that there is more to the story of governance, one that can easily be overlooked when one focuses only on the problems. That said, while none of the chapters focus on complaints that may lead to protests, a number of the chapters provide new insights into how local governments actually respond to problems and who in those governments are working to find solutions. Some might wonder whether our special relationship with the county limited our research and prevented us from probing informal relations and problems. On the contrary, because of good connections developed over the years, we sometimes gained privileged insights about problems in governance as we will discuss below. We seek to go beyond describing problems to analyze how the system has coped with challenges and adapted to the economic and political changes.

This volume describes ad hoc bureaucratic adaptations and accommodations that change the operation, if not the organizational form, of government institutions. In this process, existing agencies play new and unexpected roles. What emerges in this volume is a perspective close to what Martin Dimitrov calls “adaptive institutional change.”⁸ It is a story of how state agencies, faced with rapid and far-reaching economic changes that create new demands and challenges, are adapting, sometimes in a creative and entrepreneurial fashion, in the ways they carry out their functions and exercise their authority. The picture that emerges is one of institutional agility, with ongoing political change masked by outward continuity in formal organizations. Local government agencies have changed almost imperceptibly to meet new challenges.

A Window onto China: Zouping County, Shandong Province

Almost a decade after the policy of reform and opening was adopted, most places in China remained closed to foreign researchers. As Steven Goldstein’s preface details, through the efforts of Michel Oksenberg, a professor of political science at the University of Michigan who was serving on the staff of the White House National Security Council at the time of diplomatic normalization in 1979, an agreement was reached between the United States and China that provided an open field site for American researchers. That site was Zouping County in Shandong Province. Beginning in the mid-1980s, American researchers were allowed to conduct research in the county seat as well as in a number of “open villages” in Zouping County. Since then Zouping has provided a window on the changes that have been taking place at the local level. At least two hundred foreign scholars have been hosted by the county, and Zouping has been featured or used as a case in numerous studies.⁹ A representative collection of the first wave of research was published in Andrew Walder’s edited volume on Zouping, Zouping in Transition, almost two decades ago, which focused heavily on economic changes and their consequences during the earliest phase of market reform.¹⁰

In Walder’s 1998 volume, Zouping County was described as “unexceptional in either the pace and nature of change . . . or in its historical and geographical endowments.”¹¹ In the late 1980s, the county seat looked like so many others in rural China, with few automobiles, a limited road network, and little commercial development. The county government’s guest-house had limited modern facilities. A member of the service staff inquired every evening how many buckets of hot water would be needed for bathing the next morning. Each morning, a line of staff members would deliver the buckets of scalding hot water, which would be poured into the large bathtub, where the hot water could be mixed with the cold water from the faucet. International phone calls were possible but had to be placed and received at the front desk. The most imposing building in town was the three-story Russian-style concrete government and party headquarters, where the offices were poorly furnished and dimly lit, cooled in summer with fans. Officials, including bureau heads, lived in cramped government-owned apartments. A few lived in larger quarters, but the dwellings were rustic single-story structures, often with tamped-earth floors. The few passenger cars that existed belonged to the county or township governments. A few rich villages, like the one where foreign scholars lived when doing research in the countryside, also had cars. But that was the old Zouping soon after the beginning of the reforms.

Today, more than three decades later, Zouping is far from “unexceptional.” Its subsequent growth has made it nothing short of spectacular. By 2003 the county was officially ranked as one of the thirty richest within Shandong Province. In 2005 it ranked among the richest 100 counties nationally. In 2008 it became the second-richest county in Shandong and was ranked fifteenth nationally among small-and medium-size cities.

The new prosperity is reflected in the development of the county seat. It has become a bustling commercial entity with a wide array of shops, modern hotels, and restaurants. The restaurants, which serve a range of local and foreign cuisines, include a branch of a Taiwanese soy milk breakfast shop, a Brazilian steakhouse, and a French-style bakery that sells freshly made and tasty whipped-cream birthday cakes, complete with candles. Instead of nearly deserted, dusty roads, the county has an extensive network of well-lit and well-maintained asphalt roadways, including a number of six-lane boulevards. Traffic jams are now common, especially in the city center, as more ordinary citizens have acquired cars and as trucks deliver goods and services throughout the area.¹²

The government and party headquarters have moved to a gleaming new high-rise complex of metal and glass, with skylights, brightly lit offices, nicely appointed furniture, greenery inside and out, and central air conditioning.¹³ Instead of a walled government compound in the center of town, the new combined offices stand on a small hill, anchoring a new development of parks and housing, including those for government staff. Many officials now own their apartments in the new housing development.

County revenues have grown immensely. In 1992 total county revenue was a just under 67 million renminbi (RMB).¹⁴ By 2003 it had increased to 104 million RMB, by 2011 it reached 1.4 billion RMB, and in 2015 it reached 10.6 billion.¹⁵ The scope of the growth is further reflected in the total gross output of the county. Adjusted to constant 1990 yuan, in 1993 total gross output was 4.5 billion RMB; by 2009 it had increased more than tenfold, to 47.3 billion RMB. By 2015 the number amounted to 81.8 billion RMB.¹⁶

In light of questions about the reliability of government numbers on revenue and output,¹⁷ one can look to proxies to provide further measures of the county’s growth.¹⁸ Zouping’s total electricity consumption steadily increased, rising from 3.00 billion kilowatt hours in 2003 to 11.13 billion kilowatt hours in 2011. In 2014 Zouping consumed 15.7 billion kilowatt hours of electricity, of which 15.1 billion was used by industrial production.¹⁹ The volume of railway freight has increased considerably as well, almost quintupling from 640,000 tons in 2006 to 3 million tons in 2011. The amount of new loans issued by banks shows a slightly different trend: the annual growth rate is moderate, apart from a drastic jump from 153.29 million RMB in 2004 to 1.6 billion RMB in 2007.²⁰ Growth in government revenues has allowed the county to increase expenditures on education as well as social services. Social insurance per capita more than tripled, from 1.50 RMB in 2006 to 4.65 RMB in 2011. The per capita expenditure on education for the same period rose from 189.33 RMB to 1,311.33 RMB.²¹

Precisely because it has undergone a dramatic economic transformation, Zouping remains an ideal window on China to help us understand how governing structures have been able to adapt to dramatic economic and social changes with little apparent political institutional change. Moreover, the wealth of earlier research and published works on Zouping provide a rare and invaluable baseline to help us understand exactly how the county has changed, both economically and politically, and to allow us to better gauge the evolution of its institutions of governance. What has transpired in Zouping provides a unique opportunity to examine both continuity and change in great detail.

We begin with a detailed overview of the economic transformation in Zouping. The story of the county’s economic development has yet to be told, although bits and pieces have been reported in various publications that have described China’s changes generally in the past two decades. The details of this story are useful for providing a more fine-grained understanding of how and when economic changes occurred and what political consequences followed. As we will show, the consequences of these economic changes are not limited to revenues or gross domestic product (GDP).

Changing Economic Structure

The structure of Zouping’s economy has evolved rapidly along with its growth. The previous edited volume on the county, Zouping in Transition, edited by Andrew Walder, emphasized the early impact of rural industrialization via the township and village owned enterprises (TVEs). Since then industry has continued to grow apace, but it increasingly has had to share prominence with a rapidly growing services sector. Industry’s share of output reached 76 percent in 2003 but declined to 64 percent by 2011 as the service sector almost doubled during the same period. By 2015 industry’s share was only 59.9 percent.²² Agriculture, which still contributed 26 percent of output in 1993, shrunk to less than 5 percent by 2004 and has stabilized at that level. In 2015 agriculture still contributed 4.8 percent to Zouping’s growth.

The stabilization of agriculture in Zouping’s economy today has been helped by a conscious policy choice made after the 1994 fiscal reforms, which permitted local governments to keep revenues from industries that process local agricultural products.²³ The county government started a small factory to produce dried vegetables used in packaged instant noodles. In chapter 3, Kay Shimizu’s details another example of industry based on local agriculture—a township glycerin factory, which relies on locally grown corn (maize), one of Zouping’s primary crops. This factory has become one of Zouping’s most profitable new enterprises.

The county’s industrial sector itself has evolved rapidly. During the early 1990s the most important source of tax revenue was the county-owned brewery.²⁴ By 1995 the brewery had lost its top position, but it was still among the top four revenue-generating firms in the county as late as 2000. By 2005, however, it was no longer among the top enterprises. The top position was taken over by a factory that was formerly the Number Five Cotton Textile and Cottonseed Oil Processing Factory, which produced cotton yarn, gray fabric, and denim, and even as early as 1992 had been ranked number two in tax contributions.²⁵ This firm, which belonged to the County Supply and Marketing Cooperative, started out as a small factory engaged in cotton and cottonseed oil processing. Then in the 1990s, it was reorganized as the Weiqiao Textile Mill, which went on to become the most important economic entity in the county and eventually one of the largest textile mills in the world. To this day, Weiqiao has remained the key enterprise in the county. As chapters 2 and 3 document, the rise of this one factory changed the fate of a part of the county that was historically the poorest.

The decline of Zouping’s brewery reflects the similar fate that hit alcohol-related enterprises throughout China in the wake of the 1994 fiscal reforms.²⁶ Under the 1994 reforms, taxes were divided into categories according to which level of government would receive the revenue.²⁷ After this reform localities preferred to promote enterprises whose taxes would belong largely to them. Within this context it is clear why the county might lose interest in growing the brewery. The major tax on the brewery was the consumption tax, which goes exclusively to the center, and the county keeps only a small portion of the value-added tax (VAT). The Weiqiao Textile Mill, on the other hand, paid the VAT, which is shared between the center and the localities, but it also paid the enterprise income tax, which accrues to the localities. Moreover, in addition to providing a large amount of taxes that benefitted the county, Weiqiao Textile was a large, ready-made market for cotton grown in the county, and it also provided jobs.

The rapid rise of Weiqiao Textile also reflects a change in the scale of firms in the county and in particular the scale of industrial employment. While the percentage of total county revenues from Weiqiao Textile was only slightly more than the old Hubo Brewery’s share in 1992,²⁸ the scale of local firms has increased greatly in the following years. In 1992 the largest firm employed only 3,186 people. Weiqiao Textile’s precursor, the Number Five Cotton and Oil, employed only 1,626. The total employment of the top ten firms in 1992 was 7,880, and the grand total of workers in all the county’s enterprises was 13,181.²⁹ Today, Weiqiao Textile alone employs a workforce of more than 150,000 and operates twenty-four hours a day. This factory’s demand for labor has been so great that it has exhausted the local labor supply and must hire labor from outside the county. To accommodate the large number of migrants, the company built massive dormitories and other buildings that have virtually become a new town.

In addition to growing in scale, Zouping’s firms have expanded outside the county. Weiqiao Textile has led the county in exports as well as imports. It ranks number one among all factories in China in exports of fabric and yarn, with more than three hundred customers in twenty countries. It also imports large amounts of raw materials from abroad, including high-quality pima cotton from California. Moreover, over the last decade and a half, as chapter 3 details, some village entrepreneurs have opened successful factories in distant provinces, such as Xinjiang, to become major producers of canvas. The county is also bringing in foreign experts. The glycerin factory mentioned above has hired technical personnel from Africa for its research labs. Other entrepreneurs from Zouping have set up factories in Africa.

While industry has grown in scale and expanded outside of the county, the recent economic expansion has also been helped by a rapidly growing service sector, the most dynamic and fastest-growing sector in recent years. Although it accounted for only 15 percent of the total economic output in 1993, the service sector had more than doubled it share, to 31 percent, by 2011. In 2015 it was 35.3 percent.³⁰ In Zouping the development of the service sector was an opportunity to make the most of geographical and ecological constraints, which historically were a major hindrance to development, as chapter 2 describes. Parts of the county remained agricultural and undeveloped even during the height of the development of TVEs in the 1980s and early 1990s. Many of these localities were townships and villages in hilly or mountainous areas. Eventually, the county took advantage of the unspoiled natural beauty and developed them as tourist areas, explicitly prohibiting these townships from engaging in heavy industry. Researchers going to these townships in the 1980s found households growing flowers. Now an increasing number of households run privately owned inns, or more commonly, operate private restaurants where city residents come for the day to enjoy the countryside, walk in the fields and gardens, and dine on the farm-to-table meals. The popularity of these establishments is another indicator of the increased wealth and urbanized nature of the county’s residents.³¹

The Shift from Public to Private Enterprise

The evolution of the reforms also brought a fundamental change in ownership patterns. The earlier edited volume on the county (Zouping in Transition, edited by Andrew Walder), emphasized the key role of government-owned and -operated township and village enterprises during Zouping’s early takeoff period—a phenomenon that inspired the term “local state corporatism.”³² However, by the mid-1990s when the limits of the local state-owned model were becoming clear, the county government began to rethink the costs of the government-directed model and the potential benefits of shifting to private enterprise.³³ Zouping’s TVEs, like those elsewhere, were beginning to go into debt, and some failed after the central authorities instituted retrenchment policies to cool the economy; these policies cut off credit for the rapidly growing township and village firms.³⁴ To circumvent the retrenchment policies, the county established township-level financial services offices (nongcun jinrong fuwu suo) to keep TVEs afloat when other sources of credit dried up. Unfortunately, in Zouping as well as in many other places, those financial services offices ended in disaster, with many of them collapsing when large numbers of TVEs failed. Failing and bankrupt TVEs became a leading cause of local village and township debt nationwide.³⁵ This promoted the systematic restructuring of township and village enterprises,³⁶ which radically changed the local property rights regime and had several political consequences.

Starting at the end of 1995, the county undertook a two-pronged strategy to “enliven” rural industry. On the one hand, the county started to actively support the development of larger private firms. The private sector had already grown rapidly during the first phase of reform, from a little over 7 percent of output in 1985 to almost 37 percent by 1993. This early growth consisted almost exclusively of very small “individual household” firms (个体户), which numbered more than 5,000 in 1993. While the number of private firms greatly outnumbered the 579 TVEs, their small size limited their ability to generate output and create jobs. Starting in the mid-1990s, private firms were given preferential treatment, and they grew rapidly in size. Although there were only 69 in 1990, the number of large private firms in the county grew to 528 in 1995.³⁷

The importance of the private sector is also reflected in tax revenues. Using data on the VAT, which is the major tax on industry, table 1.1 shows that in 1994 the nonpublic firms were starting to contribute a good portion of the county’s revenue, although the larger private firms (siying私营) contributed only 43,000 yuan, a small portion of the total. The small private entrepreneurs (geti个体户) paid 11.2 million yuan, which was close to the 17.2 million yuan paid by the collective township and village firms. However, by 1995 the tax paid by the large private firms jumped to 1.4 million yuan, while the individual entrepreneurs’ contribution decreased to 7.5 million yuan. This supports our earlier point that firms were growing in scale—the previously small private firms were becoming large enough to be counted in the large private firms (siying私营) category. While we have the numbers for only the first half of 1996, one can already see that the trend continued as the importance of the private sector greatly outpaced that of the collective sector. For the first five months of the year, the large private firms had already paid 1.5 million yuan, which is more than the sector paid for the entire previous year. An additional 2.3 million yuan came from the individual household firms, while the collective sector for the same first five months paid only 11.6 million yuan.³⁸

The more difficult part of the “enliven” strategy was restructuring existing public firms—both TVEs and state-owned firms. Given the county’s extremely rapid growth at the time, one might think that finding employment for laid-off workers would be relatively easy. Nonetheless, county authorities, like the central government, worried about political consequences, especially the reaction of workers who would be negatively affected by the proposed property rights changes of the factories.³⁹

The county eventually did restructure its firms but used a variety of methods. In some cases it sold enterprises outright, but it also employed less radical measures: sometimes it leased firms to private operators, and sometimes it created shareholding cooperatives, in which the state, township, or village still owned a public share while allowing workers to hold the remaining shares. Some firms were allowed to go bankrupt, but this was done infrequently and cautiously because of the fear of the political consequences.⁴⁰

TABLE 1.1. Changing Sources of Zouping County Tax Revenue (10,000 yuan)

SOURCE: China Interview 19696.

In Zouping, like elsewhere in China, firm restructuring decisions—if, when, and how—were made by the state, that is, the local government, not by the firms themselves.⁴¹ County government started the industrial restructuring process at the village level. This was the level that needed immediate attention in the wake of the problems caused by the retrenchment policies; it was also probably the safest political choice.⁴² Those working in TVEs were not state workers; there was no explicit social contract to break. The peasant workers in township and village factories still had land linked to their rural household registration, so there was no question about whether those working in factories would have a means of livelihood. However, even when township or village enterprises were sold, the county tried to institute terms of sale that would minimize political reaction. The new owners of these township or village factories had to agree to keep existing workers for a stipulated period of time.

Most of the collectively owned village enterprises were sold in 1995–1996, except for a few of the strongest and most profitable ones. The township-owned firms were restructured soon after. By 1997 their number was reduced by more than half of what it was in 1993, leaving 103, and by the year 2000 only 42 township-owned enterprises remained. Like the village collectively owned enterprises, most of the 17 collectively owned township enterprises that were sold were purchased by the former factory managers. The 42 remaining township-owned firms adopted various forms of restructuring, including leasing and shareholding cooperatives, where the township government still held shares.⁴³

County-owned enterprises were the last to be restructured, in the late 1990s.⁴⁴ Unlike the township and village enterprises, few state-owned firms were sold. Following the national policy of “letting go of the small and medium but grasping the large,” the county sold outright only three of its forty industrial enterprises (state-owned enterprises, or SOEs).⁴⁵ The majority of firms were restructured into limited liability companies or shareholder cooperatives; restructuring allowed workers to hold shares, and minimized the number of layoffs. In Zouping, as elsewhere, shareholding cooperatives was the most common form of restructuring. Table 1.2 shows the change in the number of county-level firms over time.

Because Zouping County officials were most concerned about the reactions of workers to restructuring, especially those who were employees of the firms that were to be sold, they took steps to preempt worker protests and minimize the potential for what they deemed to be “political instability.”⁴⁶ In some cases firms were prevented from being sold, even when there was a buyer, because a solution could not be found to “resettle” the workers. Local officials stated that they worried that if issues of worker welfare and resettlement were not dealt with effectively, there would be collective protests and other conflicts. While Zouping County officials did not discuss any street protests by laid-off workers, they stated emphatically that they needed to be very sensitive to workers’ reactions, using the experience of other localities as examples. They said that it was imperative to maintain political stability during this period of restructuring. The county officials remained cautious in this regard in how they carried out the reforms.

To ensure that there would be coordination and all relevant parties would be involved in SOE restructuring, Zouping County formed a “corporate restructuring leading small group” (改制领导小组), with approximately twenty-three individuals, which included the county magistrate, vice party secretary, vice county magistrate, along with personnel from relevant bureaus. This group had to craft specific restructuring plans for each of these firms, given that the resources and conditions for each enterprise were different. There was no easy, common solution for any of the firms.

In interviews local officials would routinely acknowledge that political concerns, especially those related to the possibility of mass layoffs and job losses, shaped restructuring decisions. For example, one might wonder why the county essentially gave away or sold some firms at very low prices, either to outsiders or to locals. Earlier studies would likely see such examples as illustrations of asset stripping and corruption.⁴⁷ However, local officials argued that selling at low prices was not corruption but the only way to deal with an economic issue that could have severe political consequences for local workers. Giveaways were meant to ensure future returns, both in terms of jobs and revenue. Local officials attached strings to the low-priced sales, including the requirement that the new owners keep workers for a specified length of time.⁴⁸ Such strings were meant to ensure that workers in these former SOEs would continue to have jobs. These were the same types of strings that were attached to the sale of the township and village enterprises described earlier. In the case of the sale of a firm that had already closed, the new owner of the factory, which sometimes amounted to nothing more than an empty building, had to promise that a new firm would be built and remain in Zouping. This would provide jobs, and in some cases these factories would serve as outlets for agricultural crops such as corn.

TABLE 1.2 Number of County-Level Industrial Enterprises, 1988 to 2003

SOURCE: Andrew Walder, “The County Government as an Industrial Corporation,” in Andrew Walder, ed., Zouping in Transition: The Process of Reform in Rural North China (Cambridge, MA: Harvard University Press, 1998), 66; China Interview 6292005.

Another way the county avoided closing firms was by merging stronger and weaker firms.⁴⁹ Like many areas in China, Zouping County formed corporate groups or “holding companies” (集团). The best companies formed the cores of these groups, under a corporate structure that included a board of directors. It was hoped that this increased size also would provide firms with name recognition and market share.⁵⁰ This strategy was expanded to fourteen of the county’s best township and village owned enterprises and private firms. This process helps explain the increased scale of firms in Zouping during the past decade and a half, which we noted earlier. The Weiqiao Textile Mill became a holding company in 1997, incorporating nine smaller firms under its corporate umbrella.

In sum, the development of Zouping has taken some unexpected turns since researchers first arrived in the late 1980s, especially in the past decade and a half. The beginnings of some trends, such as the shift to the private sector, were already clear in the earlier edited volume (Zouping in Transition, edited by Andrew Walder), but few would have predicted the economic transformation that has taken place in the county, both in terms of the sectors and firms that have grown or declined and the parts of the county that would prosper. Moreover, few would have predicted the development in different parts of the county, where there have been a number of surprising changes in economic fortune of different townships. Similarly, firms that prospered in the early years of reform did not necessarily succeed in the long run. This includes once-successful SOEs and the early TVEs, which started to fall on hard times beginning in the early to mid-1990s. By the end of the 1990s, many of the successful and powerful collectively owned TVEs were in decline and were sold to private owners in a process directed by the county government. Yet new firms would rise to become the economic bases of the county.

The Political Consequences of Economic Change

Many studies have chronicled the dramatic economic changes in China, but few if any have traced the political impact of that transformation. The change in the economic system described above presented Zouping County’s government with a set of new challenges for which the institutions of governance were not originally designed. The entire economic base of the local economy had radically changed after corporate restructuring. The state continued to hold shares, and state-controlled firms remained, but in most instances, the state was only one shareholder. Even the Weiqiao Textile Mill, the largest firm and taxpayer, was a “mixed enterprise,” where there were private as well as state shares. The resources that the county or its agents directly controlled were radically changed. The county was now dependent on the success and cooperation of private firms rather than simply administering state-owned or collectively owned enterprises.

Having the advantage of following Zouping County over time, the contributors to this volume are able to examine ways in which the local government had to adapt its operations to meet new challenges. We first examine the political consequences that emerged from the economic restructuring. In a later section, we will see how the county government itself has had to adapt and change the institutions of governance to deal with the new economic profile of Zouping.

Political Fallout from the Demise of Collective Village Enterprise

While the restructuring of TVEs may have been easier to implement than that of SOEs, nonetheless, it yielded considerable political fallout. One of the most unexpected turns of events was the demise of the village collective economy and its effect on the power of village leaders. Few studies have been privy to details of what happens in villages after the sale or collapse of the collectively owned village firms.

When researchers went back to the once prosperous and industrialized villages after the fall of collectively owned enterprises, they immediately saw that physically and structurally the aura of wealth and dynamism was gone. Even in villages such as Fengjia, which was prosperous enough to serve as a base for foreign researchers, a decade and a half later its lucrative village industry was almost all gone, the village having returned to agriculture and livestock breeding. The only remaining signs of the early prosperity are the rusting remnants of the village factories.

Less obvious but more significant are the consequences for governance. Zouping had many examples of the rich, successful industrialized villages, which were models of “local state corporatism.” In the 1980s and 1990s, powerful party secretaries presided over publicly managed village enterprises as unchallenged political leaders, commanding respect and obedience. Their power derived largely from their success as builders of village enterprises. But when their economic basis of political power dissolved with the collapse of collectively owned village enterprises, some of the most successful and powerful of these party secretaries met a fate that few, if any, could have imagined.

Starting in the late 1990s, some disgruntled villagers started to turn against once revered and unchallenged leaders. In one village, the party secretary was physically beaten, and his house was burned. In another case, the party secretary escaped physical attack, but peasants protested and petitioned to higher levels to charge him with corruption and cadre abuse of power. In this instance, the upper levels sent work teams to the village to investigate the once invincible cadre. Another powerful and politically astute village party secretary stepped down from his party secretary position before he could be attacked and tried to regain legitimacy by running for village committee head through the village election.

What should we conclude from these examples? On the one hand, the fate of these once powerful bosses suggests that the era of the strongman party secretary has passed. Power built on village enterprises is gone, and those who have become the new leaders seem much weaker, having to deal with different diverse groups within the village. Overall, in villages that have seen the old party leaders pass from the scene, the leadership is much less dynamic and entrepreneurial. In some villages cadres are almost nowhere to be found, with little to do and little interest in promoting development. This has put additional burdens on township and county governments that now provide support for village cadre wages.

We should make clear, however, that despite the demise of some of the earlier village party bosses and the decline of the enterprises they managed, the collective economy is by no means dead in counties like Zouping, but it has changed. Some formerly rich industrialized villages may have experienced a decline, but there are now other villages that are engaged in a new type of collective economy. In such villages, cadres, especially the party secretary, are reminiscent of the entrepreneurial party secretaries that led rural industrialization in the 1980s and early 1990s. These new examples of village strongmen underscore the continued importance of control over economic resources as the basis for political power. However, the bases of power of the most successful new party secretaries are rooted in what might be called a new and strengthened “collective.” In these villages, like the most successful villages in the 1980s and 1990s, cadres are using the village’s collective resources, including a modernized industry, to provide new subsidized housing and public goods to residents. The collective, as an institution, continues to evolve and adapt.

What distinguishes these newly strong collective economies is that village leaders have taken advantage of the New Socialist Countryside (社会主义新农村) policies to increase collective resources for development, especially land. In one such village, the cadres promoted the creation of a new village community (农村社区) that moved villagers out of their old courtyard homes and into new, higher density housing, such as apartment buildings or townhouses. The old residential areas, where the peasant families used to live, are then redeveloped for more lucrative use by the collective, whether for factories or commercial real estate development. This yields the collective as well the village substantial revenues. Some of these villages, like the most industrialized villages in the 1980s and 1990s, are so successful industrially that they need to bring in labor from outside the village.

Institutional Adaptation: Changing County Governance

The above descriptions provide some sense of the new economic and political context of governance in Zouping. But what do these changes mean for the actual institutions of governance in the county? Once the county shifted its economy from public to private enterprise, how did the county deal with the fundamentally changed relationship between the state and business? How did Zouping’s government adjust to the fact that most of the key firms were no longer completely or even partially publicly owned? Did the local state come up with new strategies to deal with firms that were now mostly private rather than collectively or state owned? Were new government offices created to handle these new problems, or did agencies get retooled and assigned tasks outside their original scope of work? What happened to the agencies that were set up to manage and develop the TVEs when there were no more collectively owned firms?

What about legal measures and regulations? The rapid change in the economy has required a reconsideration of existing legal measures. Who would decide what rules need to be discarded and what new rules should be formulated to take their place? Finally, even though there has been a huge increase in revenues, the county faces many constraints in funding public goods, including schools and hospitals. How and where did the local government get revenues after the 1994 fiscal reforms that allowed the central government to take a much larger proportion of local revenues, radically reducing the revenue surplus left for the county?

Moreover, how has the county been able to train and select the right type of cadres for the jobs of government when the economy has become so much more complex? The job of governance, from the village level on up to the different bureaus and agencies, requires new skills and a new group of leaders in the county. Have the old ways of selecting cadres still been sufficient? Can the Organization Department or the Personnel Department handle the new demands put on them? If not, how do they deal with these challenges?

Entrepreneurial Adaptation inside the Institutions of County Government: Contributions to the Volume

The chapters in this volume address the above questions. Part 1 continues with two chapters that underscore the dramatic economic changes in Zouping county over time. These allow us to understand the diversity within the county and to see how the fortunes of its different parts have changed. In chapter 2, Guy Alitto gives a historical overview that highlights Zouping’s earlier status as an experimental county, where the rural reforms of Liang Shuming were implemented during the 1930s. The chapter provides a necessary historical backdrop for understanding the magnitude of current changes and the courses that those changes have taken. Alitto teases out archetypes of development, demonstrating how various parts of the county have been affected by history and ecological challenges, especially those areas along the Yellow River. The chapter traces the changing fortunes of different parts of the county over time. Alitto argues that only in the era of the post-Mao reforms have certain areas been able to overcome the ecological challenges that had plagued them throughout their history. For example, the historically poorest area of the county, Qidong, is now one of the richest thanks to the rise of the Weiqiao Textile Mill.

Kay Shimizu’s chapter 3 pairs nicely with chapter 2 by tracing the changes that have taken place in different townships within the county over the past two decades, including the dramatic change in the historically poor Qidong with the rise of the Weiqiao Textile Mill. She uses the shifting fiscal relationships between the county and its townships—whether a township pays taxes to the county or whether it gets subsidies from the county—to show changing economic fortunes. Researchers in the late 1980s found the county to be quite diverse in terms of levels of development. There were, for example, nine townships that were so poor they were exempt from paying taxes to the county, and some even received subsidies. This detailed knowledge of the county in the 1980s allows us to see how radically things changed a decade and a half later.

Shimizu explores the divergent development paths of three townships to understand the change. She shows that some townships prospered due to local development while others have found opportunities outside of the county, in some cases setting up factories in Xinjiang. Having done lengthy and multiple interviews in the county over a number of years, Shimizu is able to demonstrate the continued important, but changed, role of local government.

Part 2 examines how specific agencies adjusted and adapted to govern in a changed context. In chapter 4, Yuen Yuen Ang shows how the county has managed to fund public goods and services when official government revenues were limited by the 1994 fiscal reforms, which left less revenue in the hands of local officials. The 1980s and early 1990s saw the extrabudgetary funds of the county soar, providing it with large amounts of funds that they could use at their discretion. But the 1994 fiscal reform took away much of the extra-budgetary revenue that helped support public goods, causing many local agencies to resort to self-financing. Chapter 4 examines how the county managed to adapt through strategies of creative administrative self-financing when the county failed to receive sufficient state-budgeted funds. Using case studies, Ang reveals how schools and hospitals have coped with budget cuts and outdated personnel allocations by using entrepreneurial but legal initiatives. The county public agencies and service providers themselves generated “taxless revenue” (e.g., fees, fines, commercial profits) to meet their expenses.

A reason why institutional adaptations of local government are so difficult to gauge is that bureaucracies sometimes play roles outside their formal mandates or places on the organization charts. For example, while one might expect that legal agencies like the courts might be involved in the enforcement of intellectual property rights (IPR), in chapter 5, Martin Dimitrov finds that at the local level, courts play no role. Instead, it is administrative agencies like the Bureau of Sports and Culture and the Bureau of Industry and Commerce that are mainly responsible for IPR regulation. The findings of Dimitrov and others in this volume show that county bureaus and agencies have had to take on new roles, sometimes surprising ones, as the economy has evolved. Moreover, depending on the issue area and importance of the sector to the local state, enforcement exhibits significant variation.

In chapter 5, Dimitrov examines regulation within the broader and fundamental question of how relations between government and business have changed as Zouping has been economically transformed. He assesses which of the models of government business relations that have been used in earlier studies best characterize the changed relationship between the state and business in Zouping three decades after marketization began. During an earlier period, at the height of local state corporatism, it seemed that the developmental state model best described the relationship. With the rise of the private economy, one might think that the regulatory state model might be more appropriate. Dimitrov explores the different models and the degree to which they apply to the different relationships that the state has had to develop with the different types of firms that now are key parts of its economy.

In chapter 6, Douglas Grob turns to a little-studied aspect of local government—the crucial role played by the Legal Affairs Office (法制室). Starting out with the premise that China’s courts are often seen as chronically weak and dependent, he asks whether the “loci of legal development appear elsewhere.” Focusing on Zouping’s Legal Affairs Office, Grob shows “how nonjudicial actors at the local level are charged with ‘legalizing’ the local administrative state.” He demonstrates how this office not only decides which local government rules and other legally binding measures will be kept in effect and which are outdated but also makes decisions about when and how departments should be allowed to issue new legally binding measures on what topics. Such power also opens the door for this office to be a key arbiter of bureaucratic competition within local government. Moreover, the Legal Affairs Office has become a place for citizens to appeal administrative actions. “Not only has the Fazhi Shi adapted as the demands on local government have changed, but by serving as interpreter of legality, gatekeeper in the development of the rule-making agenda, and mediator among government departments, it has provided local officials and the departments in which they work room and procedures with which to adapt to local needs and changing circumstances.” Grob provides a much-needed analysis of the institutionalization of the legal process at the county level by which local government measures and administrative actions are deemed legal (合法).

Part 3 turns to the Communist Party itself, both in its selection of cadres and their training. Again, while the institutions remain the same, we see subtle but significant behavioral changes. In chapter 7, Melanie Manion focuses on the Organization Department (组织部), which is one of the most (if not the most) powerful departments of the CCP and charged with “identifying suitable, high-quality officials for leadership which is at the center of Communist Party rule.” This department controls what Manion sees as the “linchpin of Communist Party rule” through the “party’s monopoly in all matters of personnel, of which political selection is the most important.”

While Manion examines the Organization Department that dictates who gets to receive further cadre training in the Communist Party schools, in chapter 8, Charlotte Lee delves into the operation and changes that have taken place within these institutions and how “cadre training . . . is characterized by new pressures to reform, and diverse responses by local actors.” Lee traces the processes of organizational adaptation and local sources of change within Party Schools while at the same time showing that this institution contributes to the CCP’s continued ability to maintain system-wide controls in reform-era China. What she finds is that the need for entrepreneurial skills to cope with the changing environment has reached into the workings of the Communist Party schools that are officially tasked with cadre training. This institution now must do more than teach Marxism-Leninism.

Notes

1. Andrew Nathan, “Authoritarian Resilience,” Journal of Democracy 14, no. 1 (January 2003), 6–17; Martin Dimitrov, ed., Why Communism Did Not Collapse: Understanding Authoritarian Regime Resilience in Asia and Europe (Cambridge: Cambridge University Press, 2013).

2. Nathan, “Authoritarian Resilience.”

3. Kellee S. Tsai, “Adaptive Informal Institutions and Endogenous Institutional Change in China,” World Politics 59.1 (2006): 116–41.

4. Ben Hillman, Patronage and Power: Local State Networks and Party-State Resilience in Rural China (Stanford, CA: Stanford University Press, 2014).

5. Sebastian Heilmann and Elizabeth J. Perry, “Embracing Uncertainty: Guerrilla Policy Style and Adaptive Governance in China, in Sebastian Heilmann and Elizabeth J. Perry, eds., Mao’s Invisible Hand: The Political Foundations of Adaptive Governance in China (Cambridge, MA: Harvard University Press, 2011), 1–29.

6. See Yuen Yuen Ang, How China Escaped the Poverty Trap (Ithaca, NY: Cornell University Press, 2016).

7. Graeme Smith, “The Hollow State: Rural Governance in China,” China Quarterly, no. 203 (September 2010), 601–18; see also Jean C. Oi and Zhao Shukai, “Fiscal Crisis in China’s Townships: Causes and Consequences,” in Merle Goldman and Elizabeth Perry, eds., Grassroots Political Reform in Contemporary China (Cambridge, MA: Harvard University Press, 2007), 75–96.

8. Martin Dimitrov, ed., Why Communism Did Not Collapse.

9. A sampling of work based on Zouping includes Jean C. Oi, “The Fate of the Collective after the Commune,” in Deborah Davis and Ezra Vogel, eds., Chinese Society on the Eve of Tiananmen: The Impact of Reform (Cambridge, MA: Council on East Asian Studies, Harvard University, 1990), 15–36; Jean C. Oi, Rural China Takes Off: Institutional Foundations of Economic Reform (Berkeley: University of California Press, 1999); Andrew Kipnis, Producing Guanxi: Sentiment, Self, and Subculture in a North China Village (Durham, NC: Duke University Press, 1997); Andrew Kipnis, Governing Educational Desire: Culture, Politics, and Schooling in China (Chicago: University of Chicago Press, 2011); Andrew Kipnis, “Urbanisation in Between: Rural Traces in a Rapidly Growing and Industrialising County City,” China Perspectives, 2013, 5–12; Stig Thogersen, A County of Culture: Twentieth-Century China Seen from the Village Schools of Zouping, Shandong (Ann Arbor: University of Michigan Press, 2002); Jonathan Morduch and Terry Sicular, “Risk and Insurance in Transition: Perspectives from Zouping County, China,” in Masahiko Aoki and Yujiro Hayami, eds., Community and Market in Economic Development (Oxford: Oxford University Press: 2001); and Susan Whiting, “Fiscal Reform and Land Public Finance: Zouping County in National Context,” in J. Y. Man and Y.-H. Hong, eds., China’s Local Public Finance in Transition (Cambridge, MA: Lincoln Institute of Land Policy, 2011), 135–41.

10. Andrew Walder, ed., Zouping in Transition: The Process of Reform in Rural North China (Cambridge, MA: Harvard Contemporary China Series, 1998).

11. Walder, Zouping in Transition, 2.

12. Within the last decade and a half, the number of passenger cars per capita has risen from 0.0068 in 2003 to 0.0768 in 2011. The number of trucks per capita has risen from 0.0044 in 2003 to 0.0107 in 2011.

13. Some of the government bureaus have separate but similarly impressive structures.

14. Andrew Walder, “Zouping in Perspective,” in Walder, Zouping in Transition, 13.

15. Zouping government website, http://www.zpxc.gov.cn/mlzp/zpgk/14996.html.

16. Zouping Statistics Bureau, “2015 nian zouping xian guomin jingji he shehui fanzhan tongji gongbao” 2015 年邹平县国民经济和社会发展统计公报 (2015 Zouping County Statistical Bulletin on the Development of the National Economy and Society), http://www.zouping.gov.cn/zgzp/15/22/160809050737606288.html.

17. On problems with Chinese official statistics, see Jeremy L. Wallace, “Juking the Stats? Authoritarian Information Problems in China,” British Journal of Political Science, 2015, 1–19.

18. The Keqiang Index consists of measures for the consumption of electricity, the volume of railway freight, and the issuance of new loans. This is seen as an alternative and more reliable measure of growth.

19. Zouping Statistics Bureau, “2014 nian quan xian jingji yunxing qingkuang jian xi” 2014 年全县经济运行情况简析 (A brief analysis of the county’s economic operations in 2014), http://www.zouping.gov.cn/zgzp/15/22/150402111308941843.html.

20. Zouping Statistics Bureau, Zouping County Statistical Yearbook (in Chinese), various years.

21. Ibid.

22. Zouping Statistics Bureau, “2015 nian zouping xian guomin jingji he shehui fanzhan tongji gongbao” “2015 年邹平县国民经济和社会发展统计公报” (2015 Zouping County Statistical Bulletin on the Development of the National Economy and Society).

23. Jean C. Oi, “The Evolution of Local State Corporatism,” in Walder, ed., Zouping in Transition, 35–61.

24. As listed in Andrew Walder, “The County Government as an Industrial Corporation,” in Walder, ed. Zouping in Transition, 77.

25. Walder, “The County Government as an Industrial Corporation,” 77.

26. Oi, Rural China Takes Off.

27. Some taxes, such as the consumption tax and the income tax on central-level enterprises such as banks and railways, were paid exclusively to the central government. Other taxes were designated exclusively as belonging to the localities, most importantly the local enterprise income tax. A third category of taxes was shared between the center and the localities, the most important of which was the VAT. These designations meant that some types of firms contributed more fiscal benefit to the county revenues than others.

28. Walder, “The County Government as an Industrial Corporation,” 77.

29. Ibid.

30. Zouping Statistics Bureau, “2015 nian zouping xian guomin jingji he shehui fanzhan tongji gongbao” “2015 年邹平县国民经济和社会发展统计公报” (2015 Zouping County Statistical Bulletin on the Development of the National Economy and Society).

31. The official nonrural population of the county has steadily increased, from 24.12 percent in 2003 to 31.00 percent in 2011.

32. Jean C. Oi, “Fiscal Reform and the Economic Foundations of Local State Corporatism in China,” World Politics 45, no. 1 (October 1992), 99–126. Also see Walder’s related analogy of local government as an industrial corporation in Walder, “The County Government as an Industrial Corporation,” and his “Local Governments as Industrial Firms: An Organizational Analysis of China’s Transitional Economy,” American Journal of Sociology 101, no. 2 (September 1995), 263–301.

33. Oi, “The Evolution of Local State Corporatism.”

34. Also see Lynette Ong, Prosper or Perish: Credit and Fiscal Systems in Rural China (Ithaca, NY: Cornell University Press, 2012).

35. See Oi and Shukai, “Fiscal Crisis in China’s Townships,” 75–96.

36. Oi, Rural China Takes Off; also Hongbin Li and Scott Rozelle, “Insider Privatization with a Tail: The Buyout Price and Performance of Privatized Firms in Rural China,” Journal of Development Economics 75 (2004): 1–26; and Scott Rozelle and Hongbin Li, “Saving or Stripping Rural Industry: An Analysis of Privatization and Efficiency in China,” Agricultural Economics 23, no. 3 (September 2000): 241–52.

37. Oi, “The Evolution of Local State Corporatism,” 60.

38. China Interview 19696.

39. See Jean C. Oi, “Political Crosscurrents in China’s Corporate Restructuring,” in Jean C. Oi, Scott Rozelle, and Xueguang Zhou, eds., Growing Pains: Tensions and Opportunities in China’s Transformation (Washington, DC: Brookings Institution, 2010); and see Jean C. Oi, ed., Going Private in China: The Politics of Corporate Restructuring and System Reform in the PRC (Stanford, CA: Walter H Shorenstein Asia Pacific Research Center at Stanford University, 2011) for detailed studies of how political concerns shaped firm restructuring.

40. Fourteen township enterprises and fifteen county-level enterprises were allowed to go bankrupt.

41. For a more detailed discussion of corporate restructuring, see Oi, ed., Going Private in China.

42. Earlier studies have argued that the government has been strategic in how it handles layoffs. In the urban areas, within what are usually thought of as SOEs, there are enterprises that are state owned and others that are collectively owned. As Yongshun Cai points out, people who worked in state-owned versus collectively owned urban factories were treated better in the restructuring process because of the potential political consequences of worker reactions. See Yongshun Cai, State and Laid-Off Workers in Reform China: The Silence and Collective Action of the Retrenched (London: Routledge, 2006); and his “Distinguishing between the Losers: Institutionalizing Inequality in China’s Corporate Restructuring,” in Jean Oi, ed., Going Private in China, 71–94.

43. A few strong performing enterprises did not go through corporate restructuring; for example, there were four in Changshan Township.

44. Oi, ed., Going Private in China.

45. In 2000 of these, only twenty-six were industrial enterprises. There were an additional forty collectively owned firms in the county, of which thirty were industrial.

46. In 2000 there were approximately one thousand laid-off workers in the county.

47. Ding Xueliang, “The Informal Asset Stripping of Chinese State Firms,” China Journal, no. 43 (2000).

48. This is an example of privatization with a tail. See Li and Rozelle, “Insider Privatization with a Tail.”

49. For a discussion of this on a national level, see Jean C. Oi and Zhang Xiaowen, “Creating Corporate Groups to Strengthen China’s State-Owned Enterprises,” in Kjeld Erik Brodsgard, eds., Globalization and Public Sector Reform in China (London and New York: Routledge, 2014), 144–58.

50. Depending on their output, holding companies were given one of three designations: national, provincial, or local.