China's Trapped Transition_ The Limits of Developmental Autocracy - Minxin Pei [72]
Analysis
In retrospect, the Chinese government’s belated, costly, and largely unsuccessful attempt to reform the banking sector should not be surprising. Like grain procurement and telecom services, banking is one of the “commanding heights” that the government cannot afford to abandon. Indeed, given the crucial importance of the banking sector’s role in allocating capital, which is one of the scarcest resources in developing countries, this sector is even more important to maintain the CCP’s ability to protect its patronage system and base of support. With 1.7 million employees, 150,000 branches nationwide, and, most critically, assets totaling 13 trillion yuan, no other economic organization or network could rival the power of the four SCBs in allocating resources and securing political support.“116Indeed, it would be politically risky, even unthinkable, for the CCP to willingly cede its control of this economic artery at the early phase of the economic transition through real liberalization and destatization.
Constrained by the overriding logic of political survival, the Chinese government’s strategy for reforming the banking sector has been focused on ensuring the state’s control even in an overall environment of economic liberalization. Such control has been maintained by keeping out competition from domestic private actors and foreign banks and by, even among state-affiliated financial institutions, giving the four SCBs a virtual monopoly over the banking sector during the reform era. There is in this regard a striking similarity between the government’s effort to protect the virtual monopoly of the SCBs and the MPT’s persistent—and successful—campaign to prevent other (new) state-affiliated competitors from grabbing a significant share of the telecom services market.
An obvious explanation is bureaucratic politics: established monopolies such as the MPT (and its spin-offs such as China Telecom and China Mobile) and the four SCBs enjoy more bureaucratic clout within the regime, and they are reluctant to see their privileged positions threatened by new entrants. But this explanation does not address another puzzle. The top leadership is the ultimate arbiter in deciding the winners and losers in such bureaucratic turf wars. To the extent that the top ruling elites are aware of the aggregate benefits of improved efficiency that would flow from liberalization and competition in these sectors, they should rise above the fray and favor more liberalization and competition. Why did the top leadership side with the existing monopolies?
A plausible answer is that the introduction of new entrants, even state-affiliated, would likely produce an organizational shock to the existing patronage system and threaten to disrupt the CCP’s ability to allocate critical resources. It is worth noting that the CCP itself has a highly centralized structure of power. Ideally, a centralized political structure is best served by a centralized economic decision-making structure. In the Chinese context, even creating competition without real destatization would lead to more economic decentralization. Even though two of the hallmarks of China’s gradual reform were fiscal and administrative decentralization, it is worth noting that Beijing conceded its control over fiscal policy gradually and reluctantly, and, starting in 1994, began to recentralize the fiscal system.
Ironically, the central authorities’ concessions on fiscal decentralization guarantee that they will maintain centralized control over credit allocation as a vital means