Emory Report

February 21, 2000

 Volume 52, No. 22

Kellee Tsai:Understanding private enterprise the Chinese way

By Eric Rangus

With more than one quarter of the world's population, the economic potential of the People's Republic of China has long fascinated businesspeople and researchers alike.

However, China, with its closed communist regime, did not share in the massive economic growth spurt experienced by other, smaller Asian countries such as Taiwan, South Korea and Singapore in the last quarter of the 20th century. Rather than privatize its economy as those nations did, China's economy remained a less-than-dynamic, state-run behemoth.

Things changed in 1978; Mao Tse-tung died in 1976, and his ultimate successor, Deng Xiaoping, began reform. The private sector in the Chinese economy was reborn, and it began to grow.

Kellee Tsai wanted to know how much.

Prior to joining Emory's faculty at the beginning of the fall semester, Tsai, assistant professor of political science, had spent a year-and-a-half of doctoral work (followed by two years of writing) trekking through China's cities and bicycling around its vast countryside. She interviewed private entrepreneurs and state bureaucrats alike to examine the evolution of private financial institutions in the People's Republic.

"The private sector is the most dynamic sector of the Chinese economy," Tsai said. "It accounts for most of new employment, and more than 30 million private business have been established since 1978."

In all, Tsai spoke on the record to 374 private entrepreneurs and 186 Chinese officials, more than enough to turn her findings into a book, which is something she in the process of doing when she's not in the classroom.

Tsai found that local governments largely determined how the financing of private enterprise developed.

"In some areas there's a real colorful range of financial institutions, from neighborhood loan sharks to pawnbrokers, to basically private banks, which are illegal," Tsai said. "On the other extreme, there are places that have barely any informal finance at all." A formal financial institution is one sanctioned by the People's Republic; informal finance is not sanctioned.

"My research was trying to explain this variation. Local governments can decide whether they are going to allow more innovative financial institutions to support the private sector or really clamp down on them."

One example of an informal financial institution is the rural cooperative foundation (RCF), created by the Chinese Ministry of Agriculture as a grass-roots source of finance for farmers who had left collective farms and returned to household farming.

The People's Bank didn't appreciate what it saw as the Ministry of Agriculture's horning in on its territory. That started a bureaucratic hubbub. The RCFs began calling themselves "nonfinancial cooperative organizations," with the hope that the People's Bank might leave them alone.

No luck. The People's Bank clamped down last May and made the RCFs merge with Rural Credit Cooperatives, a formal financial entity. When Tsai was in China in January, though, she saw that some RCFs were still operating.

Advanced areas of private entrepreneurship go back, by and large, to who received central financing during the Mao era. Or rather, who did not receive it.

The coastal south of China, for instance, has historically received very little state finance. Therefore the private sector had to develop to fill in the financial gaps. As a result, China's private sector is at its most advanced in that region. Coincidentally or not, that part of the country is closest to the Asian tigers of Hong Kong and Taiwan.

Private enterprise in the Chinese interior is not so well off. This is where most of the state's money went; the center of China is where the country's Stalinesque factories sprouted up, employing tens of thousands of people. Private enterprise has not made as much headway here.

"What was an advantage has now become a humongous burden," Tsai said. "Now they're stuck with these massive factories. How do you reform them?"

According to Tsai, many scholars claim that China is slowly evolving toward a capitalist system with a liberal democratic bent. She challenges this assumption.

"There isn't a desire on the part of the government or everyday people to let that happen," she said. The free market is increasing, but it's not textbook capitalism, she said. Rather the growth is a mix of state-run and private organizations, and some of the latter register as collectives and get state help.

Doing research in China is tricky, Tsai said. "It took me a while to get the rhythm of how to approach individual entrepreneurs," she said. "I'd go into a village or town with my stack of word-processed surveys, and it's kind of obvious that I'm not a local. [The people] don't know what to make of me."

In rural areas, particularly, Tsai's status as a doctoral researcher was completely foreign--most rural Chinese have no experience with people in college, much less someone writing a dissertation.

Her academic standing did allow her some independence, though. Had she been a journalist, the government would've kept a much tighter watch on her. As it was, Tsai had quite a bit of freedom. But that didn't mean everyone wanted to talk to her.

Getting five surveys completed in a day was a good effort. Mixed in with her interviews of farm families and urban dwellers was discussion with state bureaucrats, who ranged from helpful to standoffish.

China has always held Tsai's interest. Her parents emigrated to the United States from Taiwan, meeting as graduate students at Kansas State University. Tsai was born in Kansas, raised in New Jersey and lived in New York most of her adult life. She speaks both Taiwanese and Mandarin, which helped quite a bit in her dissertation field work.

Since coming to Emory, she's been back to China twice, most recently in January as part of a Carter Center delegation to observe village elections. Tsai, in fact, accepted her Emory position two years ago but deferred until 1999 to finish her dissertation as an Academy Scholar at Harvard. She currently teaches comparative politics and contemporary Chinese politics.

In all, she spent two years in the People's Republic and gathered enough research that she won't need to go back. At least on this project.

Return to February 21, 2000 contents page