Political Connection And Capacity-building

Since the 18th Congress of CPC, China has always stressed that to insist and improve public-owned economy as principal parts and developing together with non public-owned economy was China basic economy system, there was no doubt to encourage, support and conduct the development of non public-owned economy confirmedly. The non-public ownership economy played an important role in the economic development of China during the transitional period. It represented the vitality of the economy, the innovation ability of the enterprise and the economic growth space of the country in the future. The report of Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform 2013 (The decision 2013) showed: the focus of all the efforts to deepen the reform was to deal with the relationship between the government and the market. The government should gradually reduce the direct allocation of resources through steady progress, and eventually shift its role into a better governmental management function by exerting adequately the market rules to resources allocation, thereby improving the government efficiency.The decision 2013 was a reflection of the defects of China’s current market economy system and the prospect of its reform. Under the background of transitional economy in China, the uncertainty of institutional environment and the existence of institutional distance bring more policy risk to private enterprises in the process of strategy formulation and selection. Private enterprises attempted to seek the protection of the government and so could be shield from the handicaps such as risk-control expenses, institutional isomorphism cost and governmental opportunism behavior in unexpected etc. Meanwhile the differences in institutional environment brought differential treatment for the enterprises of different ownership natures on sharing resources, accessing information and so on. In this process, non-state owned enterprises have been a bottom in the principal and subordinate sequence, in order to obtain development resources and living space, the establishment of a political association has turned into a necessary means of their development, and which became a common phenomenon in the social economic environment of Chinese social.Generally speaking, there were two methods for the government to impact on the enterprises, interfering directly or indirectly by intervention to external environment of the enterprise. For the enterprises, based on the purpose of benefit maximization they would aggressively pursue the possibility of improving the external environment by the means as meeting the political needs of the government or turning economic resources into political resources and so forth. For governments, based on the effect of the session and promotion incentives they also had a willingness to cooperate with the development of local enterprises, achieving rapid growth of regional GDP. Accordingly, the political connection might be found widely and stably in China, whose impact to the development of social economy was twofold:they provided aids to the enterprises short-term in government subsidies, tax relief, market access permits and financial support etc. But at the same time played a negative role in core competencies building of enterprises, entrepreneurship breeding and creating a level playing field in long term. The widespread collusion between government officials and business owners (government-business corruption) would gradually evolve into an alliance form, which could undermine economic growth and development and caused political damage to the country in certain degree, even stored up trouble for country security in the future.There existed some resemblances between the logical starting point of the paper and the conclusion which the individual rationality lead to collective non-rationality. For enterprises, the "rationality" based on a short-term vested interest will lead to the lost of enterprise strategic concept, while the misarrangement for development strategy will lead to non-rationality on long-term decision-making behavior. The political connection brought short-term benefits for enterprises as well as corrodes entrepreneurship and core competition of enterprises in long-term. For society as a whole, the short-term vested interest of the enterprises as individuals was inevitably accompanied by inefficiency of industry development and rent dissipation of whole society, while the individuals who have benefited from political connection was difficult to achieve the living space of international market as the core competency of those related enterprises has not be developed, which was unfavourable to the development of the whole social economy. Therefore, the paper tried to find reasonable and enforceable way to disrupt the stable and harmful interaction between government and enterprises, which could thereby extricate enterprises’concern from the short-term benefits, rather, carry out strategic plans with a forward-looking and broader vision.This article was divided into eight chapters with the basic structure as follows:The first chapter was an introduction, which introduced the research background, the significance of this topic, the basic framework and the structure of the arrangement, and the research methods and the possible innovation of the article to a certain extent.The second chapter was the literature review and the research status in quo in domestic and abroad. Detailed theoretical and Empirical Study of the political association in recent years, including conversion of the government from the perspective of and political association formation process and political relevance for enterprises; On the other hand, respectively from the diversity of institutional environment, institutional distance and the institutional environment itself to enterprise growth theory by analysis of alternative mechanism of institutional environment, points out the substitution effect.The third chapter focused on the short-term interests of the political connection and long-term harm, which mainly expounds that the short-term resource effect, information effect and protective effect basing on political connection cause "reputation effect" resembling brand effect along with a substantial increase in the industry’s reputation to related enterprises. However there were long-term potential risks in the related enterprises, including inhibition and damage to the development of core competency and the quality of product or engineering project of the enterprises, or even to social equity.The fourth chapter analyzed the influence of institutional environment on the growth of enterprises at first, according to the existing research results, and model based construct a quality difference of price competition model. In the model of the system variables and calculate the equilibrium solution, the results based and institutional environment for enterprise strategic choice, and for the fifth, sixth chapter is the empirical analysis modeling and provide a theoretical basis.The fifth chapter was the empirical part of this paper, based on enterprises to establish a political association relief from the perspective of financing constraints, empirical test of political connection, the relationship between financial ecological environment and enterprise financing. It was found that the financial ecological environment of upward can weaken the enterprise desire to establish political association, the degree of verify the through to the hypothesis: institutional environment on corporate political association have substitution effect of reputation. Enterprises located in Good institutional environment area would have inclined their development strategies to enhance capacity building, which will inevitably be conducive to enterprise’s long-term development.Based on perspective of political connections improved enterprise performance, the sixth chapter did empirical test of political connection to the relationship between the institutional environment and corporate performance. On one side, this chapter used the market index which is a more objective and authoritative system environment proxy variables to test the substitution effect of reputation of institutional environment on political connection. On the other side, the response to the enterprise growth level was interpreted variable to the conclusions of the second investigation, in order to make the conclusion more robust.The seventh chapter brought forward and tested empirically the relationship between institutional environment, core competency and the growth of the enterprises, which inflected more straightforward that the impact of institutional environment to enterprise strategy. The empirical conclusion reveals that good institutional environment would prompt the enterprises to focus more on the improvement of internal capability.Through the empirical conclusions of chapter five, six and seven, it could be known that good institutional environment could bring positive effect to regional growth of enterprises, along with the significance for the long-term social and economic development.The eighth chapter analyzed the influence of individual belief and social belief on the development of institutional environment based on the perspective of policy audience. The conclusion showed that the belief and the system of privatization has become the main factor to destroy the system development environment, and pointed out that the faith for the sharing of social significance and theory significance of the system implementation of effective governance in the process, which provided provides a micro theoretical support for the development of institutional environment in a certain extent.The ninth chapter was the conclusion and the policy implication, summarized the research conclusion, which expounds the significance of this research and the policy implications.This paper attempted to examine the institutional environment for the reputation of the substitution effect. The political association of enterprises through the establishment of a political association could lead to significant for its advantages. As everyone knew that this advantage will gradually become a social development for the enterprise’s cognition, and it also became a kind of "reputation", formed by enterprises in the repeated game by a trust relationship between each other to obtain the stable information. This kind of trust based on reputation could reduce transaction costs, help enterprises to obtain long-term excess returns. Therefore, in poor institutional environment, the establishment of political association for enterprise reputation will bring development similar to the "brand" effect for the competition in the enterprise. In the immediate political association was often able to bring economic benefits to the enterprise, and the core competence must go through long and hard efforts to gradually accumulated in the capital. The source and energy under the premise of limited, once the enterprise focus on building and maintaining the political relationship, it was bound to the core competitiveness of the construction investment. Out of regional institutional environment can produce good reputation effect similar to the political association, a highly efficient government, perfect legal environment, the high level of financial development of the region also mean that the enterprise you can get the contract through lower transaction cost, to obtain funds to lower financing costs, the government can also get excellent service more legal protection and other aspects, this situation will likely produce a reversal effect on the choice of the enterprise. Therefore, advocating a good system environment, for all enterprises to the development of external equity the environment will make the enterprises more willing to develop internal management in the core, and pay more attention to the improvement of its own competitiveness.China to be an economic decentralization and political centralization of state and political studies association and its influence on the growth of enterprises had important theoretical significance, and as a transitional economies, fully understand the changes of enterprise survival and development strategy under the specific institutional environment is more practical significance, not only help us deeply understand the advantages and disadvantages of the China model. It also can make the transition period. The government supplied system more for and execution, for economic development create a better external environment.The innovation of this paper is expected to include:1. This paper tried to research the relationship between the political connection and the growth of enterprises, which would be helpful to clarify the mechanism of the micro effect of how political connection impact to the growth of enterprises, by which furthermore would deepen the recognition of the role of those two development strategies, namely political connection and capacity building, can play in non-public economy especially in the operation and development of private enterprises. The study found that the institutional environment had the substitution effect of reputation on enterprise political connection, as good institutional environment undoubtedly is propitious to the development of corporation by leading the enterprises to more reasonable development strategy selection of spending more energy on the production activities.2. Based on the threshold regression model, this paper takes review of the efficient boundary of political connection, seeking to a corresponding institutional efficiency critical point. As the enterprises will not take the initiative to establish a political connection in the institutional environment when exceeding this critical point, which could eliminate the benefits source of public power corruption, to some degree, and could relieve the rent-seeking and corruption activities, by enriching the research on the related situation in the field of corruption control.3. Based on policy audience subject perspective to analyze the individual beliefs and social total belief in the influence of the institutional environment of the development, pointed out that belief of individual and institutional privatization was the destruction of the system development environment was one of the main factors, the shared belief was preserving the validity of certificate system was an important ideology foundation in the process of social governance;...