The Domestic Distributional Effects of China's Opening to the International Economy and the Politics of Institutional Choice
China’s opening to the international economy has brought about a great transformation in its economy, society, and political system. Allowing trade, investment, international finance, and other vehicles of the international economy into China’s domestic economy has changed the distribution of assets in society and, in turn, has changed the distribution of political power among important domestic constituents. I argue in this brief survey that the pattern and timing of China’s opening was driven by the anticipated distributional effects on important domestic constituents of specific opening policies. Similarly, the areas that remain closed can be explained with the same distributional logic.
This survey of the patterns of China’s opening is based on a simple, and highly stylized, three-actor model in which top leaders vie for support from subordinate constituents in either central government or local government positions. The main thrust of the argument is that top leaders design and promote policies and regulatory structures in order to deliver support from one or the other set of constituents to individual top leaders. The simple point made is that, rather than being driven by an enlightened bureaucracy, or driven by multilateral economic negotiations, a sector will be opened only when the political payoffs to top leaders from opening outweigh the payoffs from intervention and protection in a sector. These payoffs are related to the distribution of political power within society and the industrial organization of the sector in question. Top leaders used the distributional effects of opening to the international economy to their own benefit, and allowed for opening in areas where opening would either help current constituents, or attract new constituents to their supporting coalitions.