Authority, The "relationship" With The Expansion Of The Private Sector Financing In The Chinese Transitional Economy: Theoretical And Empirical Analysis

Compared with its primary stage in late 1970's, economy in China has experienced huge changes after marketization-oriented reform during last two decades. One of the most important characters in this process is the rapid growth of private sector. Although private sector is currently playing a critical role in China's economy, it seems less attractive to economists and is seldom on academic research. This paper, introducing related theories and definitions of sociology and politics, gives an analysis to the development of private enterprises in China and focuses on its capital enlargement under the condition of transition ecnonmy. In addition, we pay special attention to the role played by "Guanxi(relationship, means social capital)" on development of private enterprises in China.Chapter 1 is an introduction, where we, on basis of description to some characters of the development of private economies in China, draw the core problem of this paper. Chapter 2 is a survey to literatures on the development of private economy and other non-state-owned economy, which provides a theoretical preparation for latter analysis.From Chapter 3 on, we come into the mainbody of this paper. In this chapter, we discuss the reason why private enterprises need to appeal to "guanxi". Chapter 3, in application of price-searching theory and an incomplete contract model with reputation effect, makes an analysis to the transaction relationship in both diversified market economy and transition economy. It is concluded that in a diversified market economy, establishment of transaction relationship is realized by price-searching implemented by both sellers and buyers, and renegotiation is a dominated strategy of sustaining the traction relationship which will establish a reputation and then lead to prevailing of cooperation strategies in the economy. However, different market conditions in a transition economy result in various bargaining position for players, and the reputation established under such a situation will cause the expansion of rent-seeking in the economy.In Chapter 4, we try to give an analysis to another precondition how operators of "guanxi" existing between government and private enterprises (we call her "relational authority" in this chapter) acquire the power of resource allocation. Introducing conceptions like "authority", "differential structure" from sociology and politics, we enlarge the definition of "authority" in economics. Then we distinguish altruism andegoism of the true national authority who has control of the power of resources allocation when he transfers the power to the relational authority. It is concluded that different relational authorities have different incentives of transfering the power.Based on former two chapters, in application of incomplete contract theory and theory of transitive economy, Chapter 5 gives an analysis to the behavior of capital expanding taken by medium and small private enterprises under the situation of the transitive economy in China. This chapter holds that, although the government gave up its control to Township-Village enterprises in the later 1990's and didn't directly take part in the management of private enterprises in cities which got a rapid development almost at the same time, it still, by the way of agents called "governmental entrepreneurs" in this paper, has great influences to entrepreneur behaviors including financing. This chapter analyzes its mechanism under this situation, and discusses its effects to the social welfare. In addition, we compare this mechanism with the first-best condition in a standard market and believe that this is a second-best choice in the situation of transition economy.Chapter 6 is an empiric analysis for some propositions in the former chapter. Because micro data of private enterprises in China is unavailable, we employ three case studies such as Dawu Group in Hebei Province, Hongzhi Tech in Fujian Province, etc. Though the method of case study is lack of universal significance, cases selected in this paper are quite representative because they have been discussed lively and paid great attention in the nationwide.We conclude this paper in Chapter 7. Conclusions in the paper are summarized and issues for further study are also discussed.