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to accept below-market prices until the late 1990s. The only beneficiary of the system seems to be the SOEs. The interests of these monopolistic firms are at odds with those of the state and the peasantry. Their overriding objective is to maximize monopoly rents, not to ensure market stability (the state’s goal) or increase income for the grain growers. Consequently, their behavior has been almost counter-cyclical: when there is a glut, SOEs will do everything to reduce purchases; when there is a shortage, SOEs will hoard.23 In addition, government monopolies in charge of exports and imports of grain displayed the same rent-seeking behavior, which worked at the expense of market stability. For example, during the 1994 shortage, state-owned grain exporting companies exported, at low prices, 20 million tons of grain. The same firms imported 10 million tons at high prices during the glut in 1995.24 The government’s restrictions on private competition in this sector have benefited monopoly SOEs as well. Even though, in reality, private grain wholesale purchasers controlled a large share of the markct, most private participants in this market were forced to work with SOEs in an opaque business environment rife with opportunities for corruption and irregularities.25

The story of the halting—and failing—reforms in China’s grain procurement system is a cautionary talc of the limits of gradualist reform. The political imperative of maintaining direct influence in a vital economic sector led the government to restrict the entry of market forces and preserve its monopoly in this sector. When the costs of maintaining its direct control became excessive, the government behaved opportunistically by reneging on its commitments to the grain growers, an act to which farmers responded with lower production and the withholding of sales. This tit-for-tat game of opportunism and withholding of cooperation made the Chinese grain market unusually volatile during the reform period. In the meantime, the underlying infrastructure of an alternative, market-oriented grain procurement system remains to be buill. 26

The Telecom Service Sector

China’s telecom service sector has been one of the fastest-growing industries in the reform era, measured both by the expansion of capacity and growth in revenues. From 1980 to 2002, the number of fixed line subscribers grew from 4.1 million to 213 million. Revenues of China’s telecom service firms totaled 411.6 billion yuan in 2002. In 1980 the combined revenues of post and telecommunications were only 1.3 billion yuan.27 At the end of 2003, China claimed to have 30.9 million computers connected to the Internet and almost 80 million people with access to the Internet.28 Based on capacity and revenues, China’s telecom service sector is among the largest in the world. Yet, despite such impressive growth, the telecom service sector remains one of the most closed industries in China, with the state-owned firms dominating the market through monopolies or duopolies. Private firms have been banned from providing fixed-line and mobile services. Before China joined the World Trade Organization (WTO) and was forced to open up the telecom service sector under the pressure of its trading partners, foreign telecom firms were kept out of this industry as well.

Monopoly and State Control

Until 1994, the Ministry of Post and Telecommunications (MPT) had maintained a national monopoly over the telecom sector, which included fixed-line long-distance, local, and mobile services, data transmission, and satellite transmission. MPT was also a dominant provider of paging services, with almost 70 percent of the market share.29 Under MPT’s monopoly, telecom services were both expensive and low quality. 30 The lucrative rents in the telecom service sector attracted other powerful players to the market. As early as in 1988, the Ministry of Electronic Industry (MEI), the Ministry of Electric Power (MEP), and the Ministry of Railways (MR) joined forces in seeking the State Council’s authorization to establish a rival telecom