Decoding the governance structure of state dominance with market system in China : empirical study of the industrial land market

Abstract

China is renowned for its successful economic reform within the institutional framework of a socialist nation. The market system has gradually been established even though its regulations and application are constantly undergoing modification and adjustment. In this context of political and economic transformation, the relationship between the state and the market is a key area of interest for many scholars and policymakers. Some studies have also attempted to examine the reshuffling central-local relations concerning fiscal or other economic issues. However, few works have integrated these two relationships and undertaken comprehensive analysis. This study aims to fill the gap by constructing an integrated analytical framework based on the political-economic approach. The urban land market is one of the, if not the most, vital components of the market system in China. Given the defining characteristic of state ownership, the marketization of urban land has been complicated with potential disparity between its surface and essence. Most of the previous studies tend to generally analyze the urban land market, with little regard to the differences among industrial, commercial and residential uses. In this study, the characteristics of industrial land and its functioning path in economic development have been dissected, and therefore the industrial land market is selected as the empirical focus to examine the governance structure of land market in China. This study first reviews the neoliberal theory and specifically focuses on the neoliberal practices in China. It is generally argued that in China the state has retreated to make the market mechanism dominant in governing economic development. However, increasing evidence implies that the state is still sustaining a strong control over the economic operation. This study identifies a different governance structure of “state entrepreneurialism” with a salient feature of combining state dominance with market system to fulfill economic and political goals. Further enquiry on the industrial land market recognizes the divergent attitudes of the central state and local governments towards the industrial land market. To precisely delineate the industrial land market, this study defines two indices, namely the marketization level and competition level, which are found to be controlled by the central state and local governments respectively. With an aim to provide quantitative evidence for understanding central-local divergence in market-based transactions of industrial land and explaining how the market is used as a tool for fulfilling the state’s goals, a quantitative method of regression modeling is applied to analyze the market-based transactions of industrial land. Empirical results support the stance of the central state to prevent over supply of industrial land, as well as the action of local governments to control the competition level of the industrial land market. This study demonstrates the governance structure of state dominance with market system through analyses of the behaviors of both the central state and local governments and their divergence. It argues that the central state leads the economic direction while local governments flexibly implement the central policies, and the market is used as an instrument.