Association for Public Policy Analysis & Management

China’s statecraft for economic development resembles that of East Asian developmental states, such as Japan, South Korea, and Taiwan because both China and developmental states have exhibited the government’s plan rationality with the long-term blueprint and its coordination with large or public firms under nationalism, and because both achieved policy performances, like export promotion and advanced public education. However, China’s developmental strategy may not be compatible with that of developmental states considering its huge size of population and domestic market as well as its decentralized system. Thus, China will not be sustainable comparing it with developmental states that exhibited a virtuous cycle between high economic growth and long-term low inequality during their rapid industrialization period from World War II to the early 1990s.

My research focuses on dimensions of state capacity created by state size, the political regime, and the coordination between the state and firms; regarding these dimensions, the Chinese state’s coordination capacity has created its vicious cycle between growth and inequality. On the other hand, developmental states’ state capacity and their coordination mechanism helped these states overcome collective action problems, such as inequality and clientelism. Developmental states had maintained long-term redistribution during their high economic growth period; inequality appeared after the mid- or late 1990s’ economic recession, which signaled the end of the high economic growth period and the breakdown of developmental states. Meanwhile, China’s economic growth has been accompanied by increasing inequality and corruption.

In my research, the institutional disequilibrium caused by state size, the political regime, and the coordination between the state and firms might weaken China’s state capacity. In turn, the weakened state capacity as Pareto suboptimum will lead to a vicious cycle between growth and inequality. This vicious cycle will not only gradually dismantle political legitimacy of the Chinese party state, but it is also likely to bring about economic depression and social disorder in China’s capitalism in the long run. Therefore, reforms of the state capacity can promote institutional performances of the Chinese state. Considering its state size, federalism can improve the state capacity to resolve its collective action dilemmas, in particular the principal-agent problem. As for the regime crisis, democratization measures can reduce the regime crisis and promote social peace and regime stability. Regarding the inefficient alliance between the state and large or public firms, the Chinese government needs to replace its closed, concealed collusion with democratic corporatism based on consensus making in democratic procedures and open participation.