The Political Economy of Private Sector Development in Communist China: Evidence from Zhejiang Province

This article investigates a natural experiment in China’s Zhejiang province in order to identify why local officials across the province had varying motivations and capacities for protecting and promoting private entrepreneurship after 1949. As the result of communist revolution before 1949, all Zhejiang’s counties were divided into two categories in 1949: guerrilla counties and non-guerrilla counties. In guerrilla counties, local cadres were marginalized by the newly established provincial power structure and faced huge political insecurity, while their counterparts in non-guerrilla counties could rely on the patron–client network that was built by the provincial leadership for promotion. The local cadres in guerrilla counties were forced to cultivate popular support from below in order to guarantee their political survival, i.e., they looked after local economic interests by supporting local private sector development in exchange for the grassroots’ support. This mutual protection between local elites and potential private entrepreneurs explains why, relative to the non-guerrilla counties, the private sector was effectively protected after 1949 and therefore better developed in the long run. We argue that the analytical framework developed by this research can go beyond Zhejiang to apply to other provinces.