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under state control) has greatly raised the systemic risks in the economy as a whole. Second, as dependent as ever on its control of the patronage provided by these critical sectors (even as the financial conditions in these sectors progressively deteriorate), the ruling elites have likely become even more risk-averse, taking half-hearted short-term measures but shying away from decisive reforms. As it happened with other gradualist reform experiences in the former Soviet bloc countries, reform will ultimately lose momentum as it grows, both politically and economically, more difficult and risky.

FOUR

Transforming the State: From Developmental to Predatory

IN THE THEORETICAL discussion on decentralized predatory states, I argued that the nature of the Chinese state has undergone a critical transformation during the reform era and, consequently, a decentralized predatory state has emerged. In this chapter, I apply the analytical framework developed in Chapter 1 to explain why such a state has emerged in China during its economic transition.1 It concludes with a description of the rise of the most extreme form of decentralized predatory state: the local mafia states.

The Institutional Dynamics of Decentralized Predation

The underlying causes of the decentralization of state predation can be traced to four institutional factors: the decentralization of property rights, the declining monitoring capability, the availability of new exit options, and the erosion of ideological norms. I now discuss in detail how changes in these institutional variables have transformed the Chinese state into a decentralized predatory state since the late 1970s.

Corruption and Decentralization of Predation

The decentralized predatory state perspective provides a useful analytical tool for understanding corruption. In the centralized predatory state, corruption tends to be centralized as well, with the regime’s top leaders being the most corrupt figures and gaining a large share of the looted wealth. In a decentralized predatory state, however, corruption is also decentralized. Viewed from this perspective, the emergence of a decentralized predatory state in China should be examined in the contcxt of the decentralization of corruption that have occurred in China since 1978. The rising level and scope of corruption have been extensively studied and documented. Compared with the prereform era, post-1978 corruption is notable not only because of its rapid growth, but also because of its decentralized characteristics, as corrupt activities permeate nearly all public sectors and all levels of the state.2 Results from public opinion polls, which consistently show that official corruption had become one of the top three issues regarded as “of great concern” by the Chinese public in the 1990s, appear to support this view.3 There were few reliable estimates of the level and scope of corruption, howevcr.

Out of fear of losing legitimacy or revealing its ineffectiveness in fighting corruption, the Chinese government does not provide systematic data on official corruption. Nevertheless, official reports on the growth of the number of corruption cases investigated and prosecuted by antigraft agencies and courts may provide some clues on the extent of corruption. The number of cases investigated by various anticorruption agencies grew at an annual rate of 9 percent from 1993 to 1999, and the number of individuals investigated by these agencies in the same period grew at an annual rate of 12 percent.4 In addition, if the number of people accused of corruption is used as an indicator of the scope of corruption, and the amount of money involved in corrupt activities is regarded as a measurement of the level of corruption, then official data would indicate a consistent increase in both the scope and the level of corruption (Table 4.1). The share of corruption cases characterized as “large” (involving large sums of money) doubled from 1990 to 2002, suggesting that the level of corruption, as measured by the amount of money involved, rose