Ling Chen

Why are perennially entrenched institutions so hard to reform? This paper proposes a theory of institutional rebound when implementing difficult changes. It untangles reforms in China's stateowned enterprises, which aimed to break the three "iron institutions" in leadership (iron chair), employment (iron bowl), and wages (iron wage) so as to introduce competition and raise efficiency. I argue that under the guise of new institutions, informal institutions emerge to fight back against further reforms and let old rules rebound. When actors had denser political connections, their active manipulation helped redesign rules and maintain privileges. When they had fewer political resources, they used performative resistance to delay reforms and penalize reform advocates. Implementing reforms to the former group requires tougher political battles, while the latter can be dealt with by replacing employees. The pressure of completing reforms drove SOE leaders and state cadres to initially target the latter (lower tier workers and nonstrategic sectors), who have fewer political resources. However, because of institutional rebound, the vacancies were soon replaced with the cronies of the powerful, which ironically shrank the pool of personnel that could be targeted. Over time, reforms moved to target higherlevel cadres and strategic sectors. In contrast to institutional stagnation, the paper identifies the dynamic process of institutional rebound. It also goes beyond seeing institutions in the public sector as only a matter of ownership and highlights the tenacious roots of internal rules. The paper triangulates data by combining in-depth interviews, secondary sources, and topical modeling of newspaper and journal articles across three decades.

There is no doubt that the political economy of contemporary China has received significant attention both in academic disciplines and in the real world. The role of the state in the economy and the relations between government and business actors have always been central concerns of classic social science works on China. There are, however, several crucial challenges in studying this topic. The complicated landscape of a multilayered, fragmented Chinese state and numerous state-owned, private, foreign, or mixed-type businesses has made it difficult to tease out their interactions and establish a comprehensive theoretical model. The fast-changing nature of state-market relations and their vast sub-national and sectoral variation has often prevented scholars from generalizing those lessons beyond the case or issue area. Yet, among all these, the most daunting challenge is: how can studies of a particularly interesting phenomenon in China’s political economy contribute to broader discussions of state-society relations, regime durability, and state-led development without losing respectable country expertise?

Do more mobile firms pay lower taxes? Conventional wisdom argues that capital mobility creates downward pressure on corporate taxes, as firms can threaten to exit. Nevertheless, empirical findings are highly mixed and hard to reconcile, partly due to a lack of data at the micro-level. Using two comprehensive panel data sets with more than 780,000 Chinese firms over two decades, we find that firms with higher shares of mobile capital pay higher effective tax rates. We contend that this counter-intuitive finding results from the strategic interaction between firms and governments. Knowing their vulnerability and sunk cost, firms with more fixed assets were more active in protecting themselves by bribing and colluding with local officials. Meanwhile, officials were more willing to seek bribes from these firms in exchange for tax cuts. In contrast, mobile firms were disadvantaged. Although capital mobility may provide additional bargaining power, firms with fixed assets can overcome this advantage through state-business collusion. Our quantitative and qualitative evidence show that fixed firms paid lower taxes in cities with cozy government-business relations. However, such advantages decreased after the launch of anti-corruption campaigns and in cities with higher fiscal transparency.

How does a globalized context influence domestic development policies and the allocation of government resources in an authoritarian country like China? This study explores the coalitional politics in China's transition from foreign direct investment (FDI) attraction to domestic technology upgrading, which created winners and losers in the local allocation of government resources. Drawing on comparative case studies, semi-structured interviews and newly compiled data across 300 cities, the study finds that the varied levels of government support for domestic upgrading are shaped by coalitions for or against the transition. The major obstacle for bureaucrats within a city government to garner resources for domestic technology does not directly depend on the overall level of FDI. Rather, it comes from the vested interest of international commerce bureaucrats. These bureaucrats are more likely to form a cohesive coalition when the export share of foreign firms is large. At the same time, such a coalition is more likely to gain political influence when industrial sales are concentrated in large firms. The direction and magnitude of foreign capital influence, therefore, is channeled and manifested through local bureaucratic coalitions. This study sheds light on the politics of implementing development policies in an era in which globalization has cultivated fragmented interests within the local bureaucracy.

Do more mobile firms pay lower taxes? Conventional wisdom argues that capital mobility creates downward pressure on corporate taxes, as firms can threaten to exit. Nevertheless, empirical findings are highly mixed and hard to reconcile, partly due to a lack of data at the micro-level. Using two comprehensive panel data sets with more than 780,000 Chinese firms over two decades, we find that firms with higher shares of mobile capital pay higher effective tax rates. We contend that this counter-intuitive finding results from the strategic interaction between firms and governments. Knowing their vulnerability and sunk cost, firms with more fixed assets were more active in protecting themselves by bribing and colluding with local officials. Meanwhile, officials were more willing to seek bribes from these firms in exchange for tax cuts. In contrast, mobile firms were disadvantaged. Although capital mobility may provide additional bargaining power, firms with fixed assets can overcome this advantage through state-business collusion. Our quantitative and qualitative evidence show that fixed firms paid lower taxes in cities with cozy government-business relations. However, such advantages decreased after the launch of anti-corruption campaigns and in cities with higher fiscal transparency.

The era of globalization saw China emerge as the world's manufacturing titan. However, the "made in China" model—with its reliance on cheap labor and thin profits—has begun to wane. Beginning in the 2000s, the Chinese state shifted from attracting foreign investment to promoting the technological competitiveness of domestic firms. This shift caused tensions between winners and losers, leading local bureaucrats to compete for resources in government budget, funding, and tax breaks. While bureaucrats successfully built coalitions to motivate businesses to upgrade in some cities, in others, vested interests within the government deprived businesses of developmental resources and left them in a desperate race to the bottom.

In Manipulating Globalization, Ling Chen argues that the roots of coalitional variation lie in the type of foreign firms with which local governments forged alliances. Cities that initially attracted large global firms with a significant share of exports were more likely to experience manipulation from vested interests down the road compared to those that attracted smaller foreign firms. The book develops the argument with in-depth interviews and tests it with quantitative data across hundreds of Chinese cities and thousands of firms. Chen advances a new theory of economic policies in authoritarian regimes and informs debates about the nature of Chinese capitalism. Her findings shed light on state-led development and coalition formation in other emerging economies that comprise the new "globalized" generation.