Weapons Of The Rich. Strategic Action Of Private Entrepreneurs In Contemporary China. Thomas Heberer

expressed his strong support of private sector development in order to calm down growing apprehensions among Chinese entrepreneurs that private businesses might be more strictly constrained in the future. See http://finance.sina.com.cn/roll/2016-03-09/doc-ifxqafrm7345622.shtml (accessed 10 March 2016).

      ⁴In this study, we define ‘private entrepreneurs’ as the owners of large companies (including the presidents or CEOs of business conglomerates) and those of smaller and mediumsized firms to the exclusion of small-scale, self-employed business owners with only a few workers and staff members (getihu). Large entrepreneurs are those with an annual turnover of more than 100 million RMB, and medium-sized ones account for more than 30 million. According to a decree of the Chinese government from 2009, there is no general definition that applies to all types of private enterprises. Generally speaking, they are differentiated according to the number of employees, revenue and total assets, but the categorization varies across different business fields (Zhonghua Renmin Gongheguo Gongye He Xinxihua Bu, 2011).

       Chapter 1

       The Rise and Current State of China’s Private Sector

       Brief Overview of Private Sector Development after 1949

      After the Communist Revolution succeeded in 1949, China’s private entrepreneurs were politically exposed and were soon targeted by the new leaders. Although most of them were identified as belonging to the ‘National Bourgeoisie’¹ and, as such, accepted as allies of the Communist government in the early years of the new regime, the tide had already changed by 1952. In the ‘Five-Anti Campaign’ launched that year, large-scale entrepreneurs were accused of tax evasion and other economic wrongdoing. In 1953, the regime announced a new ‘general line for the transition to socialism’ and the socialization of industry and commerce. In 1956, the private sector in urban China was eradicated and all entrepreneurial assets taken over by the state. At roughly the same time, private enterprises in rural areas were abolished as well. For the rest of the Maoist period (1949–1976), China’s economy was state-controlled, although some petty businesses were able to survive in the countryside (Dickson, 2007: 831; Dickson, 2008).² By the time of the groundbreaking reforms promulgated at the 3rd Plenum of the 11th CP Central Committee in December 1978, no more than 140,000 officially counted ‘household enterprises’ existed in China (Gold, 2017: 464).

      After ‘reform and opening-up’ was formally introduced in the years following the 3rd Plenum, China’s private sector soon reemerged and quickly gained steam. Its starting point was the development, in the mid- 1970s, of a private shadow economy and illegal market activities in many of China’s poverty-stricken areas which were tolerated at the time due to the economic crisis in the countryside. In other words, China’s private sector development was initiated by spontaneous local action as peasants returned to household-based agricultural production.³ As a consequence, markets emerged which were officially illegal at the time. Over the course of the economic crisis, which hit the country in the second half of the 1970s, pressure on the rural areas became unbearable. In response, some poorer provinces (Anhui, Sichuan) tolerated the rise of local markets. Taking note of the ensuing rapid recuperation of the rural economy resulting from these local markets, the central leadership gradually legalized and eventually permitted the establishment of small-scale individual businesses. In fact, the reform policies of the late 1970s, including private sector reforms, must be regarded as a belated legalization of collective action on the part of the peasantry and not merely as a political turn initiated by the Communist Party, even though the role of the party leadership was critical (see Figure 1).⁴

       Figure 1: The Rise of China’s Private Sector

      Source: Compiled by the authors.

      The return to family-based commercial agriculture eventually led to some 150–200 million rural workers being made redundant, with no access to the labor market in the urban state-owned sector. The only way to absorb them was through incorporation into the informal sector, i.e. self-employment in petty trade and craft-based activities. As this was initially forbidden for ideological reasons, these individually owned companies (getihu) employed paid ‘family members’ or ‘relatives’. Though hesitantly, the state accepted this practice and, since the beginning of the 1980s, gradually liberalized employment of up to seven workers as wage labor.⁵ Until 1988, when the above-mentioned regulation allowing for the registration of individual companies with more than seven employees came into force, private entrepreneurs operated in a gray area.⁶ Although they had enjoyed constitutional protection since the end of 1982,⁷ the social reputation of private entrepreneurs was low and they remained politically stigmatized. Only when Deng Xiaoping, the Communist Party’s paramount leader at the time, remarked in 1985 that it was good if some people became rich first did the perception of private entrepreneurs in Chinese society begin gradually to change (Yang and Li, 2008; Li, 2013).⁸

      Overall, developments on the ground were always one step ahead of ideological adaption and political decision-making, indicating that the party state was neither willing nor able to control the dynamic of the private sector with its undeniable advantages in creating employment, reinvigorating production, and generating new income. Moreover, the political leadership was under significant pressure from the rural population, reinforcing internal differences on the future trajectory of China’s economic transformation and enabling reform-minded party leaders to push ahead with market-oriented reforms.

      In an interview with one of the authors, Hu Yaobang, who was the General Secretary of the Chinese Communist Party (CCP) at the time, argued that the private sector was, on the one hand, an ‘absolutely indispensable supplement to the socialist economy’ (bi bu ke shao de buchong); however, on the other hand, he stated that it should not exceed (bu neng chaoguo) the collective and state-owned economy (Hu, 2011: 30).⁹ This assessment shows that, at that time, the Chinese leadership did not imagine that private entrepreneurship would once again become the dominant economic force in China’s economy. After Zhao Ziyang, then the Communist Party’s General Secretary, announced in 1987 that China was in the ‘primary stage of socialism’, implying that more elements had to be taken from capitalism to develop the socialist economy, the ‘green light’ was finally given for private sector development. During the 1st Session of the 7th National People’s Congress in spring 1988, the constitution was amended by declaring the private sector to be a supplement to the socialist public economy, resulting in the formal legalization of individual companies with more than seven employees as private enterprises (siying qiye).¹⁰ In August of that year, the ‘Provisional Ordinance on the Administration of Self-Employed Individuals in Urban and Rural Industry and Commerce’ was promulgated by the State Council, the legal basis for the individual economy until 2011 (Lin, 2017: 32).¹¹ Some 225,000 private enterprises with more than seven employees, which were registered as individual, collective, or cooperative companies at the end of 1987, could now gain the new status of ‘private enterprise’ by registering organizationally in terms of ‘sole proprietorship’, ‘partnership’, or ‘limited liability company’ (Heberer, 2003a: 18). This was an important confirmation of the party state’s reform course and its rising support for the private sector. However, private entrepreneurs were soon targeted by conservative regime forces which accused them of subverting socialism, allegedly proven by their support of the Tiananmen protests of 1989.¹² They were banned from becoming members of the Communist Party and politically stigmatized in the aftermath of the 1989 events, despite the fact that the Chinese economy, and thus the Communist Party, benefited hugely from the stamina and economic prowess of the country’s private entrepreneurs, who were critical for driving forward market reforms in what had become a ‘dual-track’ economy¹³ since the early 1980s.¹⁴

      The number of private companies dropped significantly in the aftermath of the 1989 crackdown of the protest movement. Only after