Do deep pockets have more political influence?—the size of private enterprises and their strategy selection in resolving administrative disputes

Literature review

The bargaining mechanism, including whether private entrepreneurs can articulate their collective interests to influence government policy, and the concrete approach and extent of their influence is the central concern in the study of Chinese politics. Lee and Zhang (2013) argue that the grassroots state in China absorbed popular protest through three microfoundations: protest bargaining, legal-bureaucratic absorption, and patron clientelism. The framework of this article is inspired by Lee and Zhang’s analyses, but also differs from it. Taking the view of the state, Lee and Zhang unravel how grassroots officials understand, choose, and practice different strategies, but they pay less attention to how societal actors choose, borrow, and resist certain bargain mechanisms. For example, when is protest bargaining chosen over patron-clientelism for what kind of conditions? While agreeing that the bargain mechanism is the key to understanding the state-society relationship in China, this article pays more attention to answering how the bargaining power of societal actors influences their specific choice of bargaining strategies and the bargaining process. Specifically, the central question of this article can be put in the following way: along the increasing weight of private economy in China, can the economic capital of private entrepreneurs be translated into their bargaining power? How does the possession of bargaining power influence their choices among different bargaining strategies?

We propose three main bargaining mechanisms between the government and private entrepreneurs: clientelism, which is concerned with the coalition and interest exchange between entrepreneurs and politicians; organized associations, which is concerned with the solidarity of organized individual businesses; and contentious activism, which is a confrontational way to defend rights or interests. Private entrepreneurs’ bargaining power influences their choice among these different bargaining strategies (see Fig. 1 for an analytical framework). Existing research has thoroughly discussed clientelism and organized business associations. There is an empirical emergence of protests by Chinese businesses, but the topic has attracted less academic attention. This paper also contributes to this discussion.

Generally speaking, the state-business relationship includes a lasting and stable pattern that reflects how the businesses communicate their interests and appeals to the state. As a quantitative work, the empirical analysis of this paper focuses on strategy selection of private entrepreneurs in resolving administrative disputes for two reasons. First, this paper contributes to expanding the scope of the issue to all types of disputes resolution in China. In previous quantitative research regarding dispute resolution,³ class, social networks, clan, region, and political connections have been found to influence the strategy selection in resolving civil disputes (Michelson 2007; Cai 2008; Chen and Wu 2010; Lu and Yang 2010; Fan et al. 2016). Chen (2009) uses CGSS (2005) to reveal the general pattern and major determinants of administrative dispute resolution in contemporary China. However, both quantitative analysis of administrative dispute resolution and the resolution strategies of private entrepreneurs need further analysis. Second, a description and a causal analysis of the model of dispute resolution of private entrepreneurships can benefit the general understanding of the relationship between the Chinese state and businessmen group. This paper also contributes to deepening and completing our understanding of the state-business relationship in China. Disputes with the governmental administrative agencies essentially are conflicts between state and society, which is a facet of the state-society relationship that has the highest tension.

The following section reviews discussions on the three bargaining mechanisms in contemporary China: clientelism, organized association, and contention. Hypotheses will be presented accordingly.

The clientelist perspective and its modification

Clientelism has undoubtedly been the dominating perspective in understanding the elite-mass relationship, bureaucratic operation, and grassroots politics in China. Researcher’s understanding of the importance and scope of this mechanism, however, has been changing.

At the core of clientelism is the assumption that the state monopolizes power and resources and dominates the allocation of resources. In contrast, social groups, including private entrepreneurs, have to gain information and resources and solve problems through particularistic relationships with individual officials. Wank (1999) proposes the concept of “symbiotic clientelism” to modify the traditional observation. Symbiotic clientelism differs from the traditional concept of clientelism fundamentally. Government officials and private entrepreneurs are now mutually dependent on each other instead of the latter having a unidirectional reliance on the former. That local governments are now also counting on private entrepreneurs to boost local economic development which reduces inequality between these two actors. Yet this new mutual dependence does not change the essential function of the clientelist network in Chinese society, namely serving as a bridge between the bureaucracy and the market, laying the institutional foundations for the emerging market economy. Thus, from the clientelist perspective, a particularistic personal relationship with officials will always be the first choice of private entrepreneurs to acquire resources and solve problems.

The formation and consolidation of clientelism networks are rooted in the political economy of the state socialism system. Thus, it is reasonable to infer that the transformation of the state socialism system would also lead to the decay or modification of clientelism. Two possibilities have been identified by previous research. First, Guthrie (1998) finds an increasing awareness among Chinese people of the difference between guanxi and “pulling guanxi” (走关系). The former is a legitimate behavior of utilizing social network to get convenience in the market, which can happen anywhere. The latter refers to the behavior of avoiding legal or institutional regulations by seeking patronage from social networks. Along with the development of the rational legal system and the legal-rational culture, the significance of both guanxi and “pulling guanxi” will diminish. Keng and Chen’s case study (2001) supports this prediction. The characteristics of social networks that weave the officials and businessmen together are developing toward equality and nondependence in market reform, but are not yet fully transformed. Lee and Zhang (2013) also agree that the importance of clientelist networks is declining.

Second, despite the general observation that the importance of clientelist networks may decline, some research works indicate that private enterprises may be influenced to different extents according to their scale. Huang (2013) argues that private enterprises are actually embedded in the institutional structure of the state. The specific positions that enterprises occupy determine their bargaining power vis-a-vis the government and their participation to political decision-making. For example, private enterprises supported by the key industrial projects of the government and pillar enterprises accounting for a great proportion of the local gross domestic production (GDP) or fiscal income exert visible influence on policy decisions. Ji (2015) finds that local governments are predominantly driven by concerns of economic development. In this context, key enterprises that greatly contribute to the local economy, raising employment rate and tax revenue, enjoy greater access to the policy process, higher priority, and more chances to negotiate with the local government through direct institutional arrangements than small- and medium-sized enterprises. Keng and Chen (2015) propose the concept of “reversed rent-seeking.” The local government, which is anxious to develop the economy, has to provide many subsidies, tax refunds, and policy privileges to attract foreign enterprises, which can bring out monopolistic advantages and higher profits. This kind of reversed rent-seeking is not limited to foreign investments.

Development of business associations

Beyond the scope of clientelism, recent research also points out the emerging organized activism in Chinese politics, especially as business associations are playing increasingly visible roles in policy processes (Jia et al. 2004; Kennedy 2005; Jiang et al. 2011; Gao and Tian 2006; Deng and Kennedy 2010; Tsai 2007; Huang 2014a; Ji 2016). However, it is still unclear exactly to what extent business associations can facilitate interest intermediation and influence governmental policy decisions. A concern of this article is to identify what kinds of private enterprises utilize business associations to assert interests and solve problems.

Dickson (2009) argues that the majority of Chinese private enterprises are small- and medium-sized enterprises. This disparity of enterprise scale inhibits the possibility of effective collective action, but helps to solidify clientelist networks. In other words, Dickson presumes that small and medium enterprises in China tend to construct patron-client relations rather than organize formal associations. Lucas (1997) argues that in developing countries, large enterprises possess resources that are easily concentrated and mobilized, and that usually also share common targets with the state in industrial transformation. These factors are all helpful for large enterprises in performing effective associational actions. However, resources are dispersed in a limited way among small entrepreneurs and are thus difficult to mobilize to support collective action. Haggard et al. (1997) argues that the smaller the size of the private sector, the weaker its ability, and the harder it is for it to influence government policy. In contrast to these above opinions, You (2014) proposes that the big groups were more inducive to official corruption as they could provide officials with more opportunities of rent seeking, whereas the organizational structure of small- and medium-sized enterprises reduces corruption. Hence, the South Korean bureaucracy is believed to be more corrupt than that of Taiwan, as the Taiwanese market is dominated by small and medium enterprises, whose structure suppresses corruption. Kennedy (2005) provides a case study of Chinese national business associations to support You’s hypothesis. In China, the electronic and software industry is mainly composed of small- and medium-sized enterprises. It is easier for these members to communicate and negotiate for common pursuits. Business associations in the electronic and software industry are thus more active and effective in business lobbying than the iron industry, which is dominated by large state-owned enterprises.

Moreover, it is necessary to differentiate the action logics of businesses of different sizes. Large enterprises that carry much more bargaining power probably avoid involvement in business associations, worrying they would get free ridden by those small enterprises that lack policy influence. Small enterprises and the self-employed lack bargaining power to negotiate with the local government directly. It is thus reasonable to argue that medium-sized enterprises would prefer to join together and enhance their collective bargaining power through organized associations. They still lack institutional chances to contact local governmental agencies directly and avoid any aggressive confrontations that would lead to political risks or economic costs.

It needs to be emphasized that this article focuses on whether private enterprises actually solve problems through associations, instead of simply holding membership. This distinction between nominal involvement and employing an associational approach is necessary in the Chinese context. The state uses a corporatist system to co-opt private entrepreneurs. Many private entrepreneurs may join all kinds of associations formally but do not really participate in associational activities. Membership itself does not necessarily mean the entrepreneur really takes associations as a means to assert pursuits or solve problems. Fieldwork has discovered the dilemma of inactive members and low organizational cohesion⁴ that many business associations face.

The contention between government and business

Both clientelist networks and formal associations belong to the nonconfrontational variation of the Chinese state-business relationship. This type has been a dominating focus, while the contentious type of relationship has been neglected. Recently, confrontations between private entrepreneurs and the local government have been increasingly reported.⁵ A few research works have attempted to answer what kinds of private entrepreneurs or enterprises are more likely to use lawsuit against local governments, petition to higher authorities, or popular media exposure. The existing explanation is complicated.

Some case studies find that economic capital is the key independent variable. Lu (2016) analyzes the Shanbei Oil Event and argues that the “growth coalition” between local government and business groups was not always formidable and could be transformed into intense conflicts between the state and society, leading to political crisis. In the Shanbei Oil Event, large private entrepreneurs chose to compromise or quit collective resistance efforts; the small- and medium-sized private entrepreneurs ultimately composed the major force of resistance. On the will and ability to resist, Tsai (2007) identifies a four-category typology of private entrepreneurs in China, namely the grudgingly acceptant, the loyally acceptant, the avoidant, and the assertive. The assertive type mainly refers to the self-employed or petty entrepreneurs. Ji (2015) argues that the self-employed basically carry no weight in the local political economy and thus have no direct influence on local government through institutional channels. Since there was no need for them to fear destroying personal networks with familiar officials or losing political and economic capital, they were more likely to become involved in collective resistance in order to push the local government to manage local affairs. The self-employed or petty private entrepreneurs who identified themselves as weak had to use extreme and confrontational strategies to attract the attention of the local government and the sympathy and support of public opinion since they had no other leverage. This argument is also supported by the research on contentious politics in China (Dong 2008). A reasonable hypothesis would thus be that the self-employed or petty entrepreneurs with little bargaining power are more likely to oppose the local government than larger ones.

However, other studies argue that the choice to perform collective actions is conditioned by noneconomic factors. Li (2013) finds that a few private entrepreneurs chose to sue tax agencies, which were regarded as one of the most powerful departments of the Chinese government. According to the Supreme People’s Court, out of 136,353 administrative lawsuits, 405 were against tax agencies. After reviewing all administrative lawsuits regarding taxation in Henan Province during the period of 2009–2011, Li concludes that entrepreneurs are likely to file lawsuits against tax agencies when they (a) are not registered locally, (b) face seriously broken state-business relationship, (c) have powerful allies in the local state, and (d) wrongly estimated their chance of winning. Ang and Jia (2014) argue that owners of private enterprises with political connections, namely those that formerly served as government officials or representatives in the People’s Congress, were more likely to initiate lawsuits to resolve disputes than those without political connections because enterprises with political connections possessed more relevant knowledge or experience required for using legal approaches. Similarly, Huang and Chen (2015) find that xiahai (下海) entrepreneurs who used to work inside the government were more inclined to challenge and exert external pressure on local governments to settle disputes through lawsuits or media exposure than those entrepreneurs who had never worked in party-state agencies. Michelson (2007) also finds that individuals with more political capital were more likely to resort to legal approaches or government agencies to settle all types of disputes. In conclusion, political connections or political capital significantly influences the resolution of civil and administrative disputes.

Data

We use the Chinese Private Entrepreneur Survey 2006 (hereafter CPES2006), which selects the sample based on the distribution of enterprise scale and industrial structure recorded by the China Statistical Yearbook. The survey is operated by the Federation of Industry and Commerce and Administration of Industry and Commerce at the provincial, municipal, and district levels. The interviewees are limited to the corporate representatives of private enterprises. Thus, CPES2006 covers private enterprises in different industries and different scales from 31 provinces, municipalities, and autonomous regions of China. It is one of the most authoritative datasets in the field of Chinese private enterprises. CPES2006 retrieved 3837 valid questionnaires, among which 1785 provide a valid response to strategy selection in resolving disputes. After listwise deletion, the final sample size is 1563.

Variables

Model

Since the first dependent variable—“whether or not action was taken to resolve a dispute”—is dichotomous, we used the binary logit regression to analyze it. We used the multi-nominal logit regression (hereafter MNL) to analyze the strategy selection resolving administrative disputes. We then conducted the robust test with the sequential logit model (hereafter SLM) (Buis 2011). In the end, nonlinear probability models (Karlson et al. 2012) were used to decompose the total effect of a variable into direct and indirect parts.

Descriptive statistics

To take action or not

Strategy selection

On the individual level, gender, age, and education exert no significant effects on strategy selection. As for the period of establishment, compared to enterprises established in 1978–1992, private enterprises established in 1993–2002 are significantly less likely to resort to business associations rather than government agencies. However, there is no significant difference between the group established in 1978–1992 and that in 2003–2006. Compared to the group established in 1978–1992, the group in 1993–2002 significantly prefers informal ways than associations. Private enterprises joining business associations significantly prefer associations rather than informal ways to resolve disputes. The number of employees is significantly positively associated with the preference for government agencies.

Table 4 also demonstrates that economic capital and organizational political connections do not have significant effects on the selection of confrontational strategies. However, individual political capital denoted by CCP membership does exert significant effects. The possibility that CCP members select confrontation rather than government agencies is higher than that of non-CCP members by 70.06% (e^0.531–1). The possibility that CCP members select confrontation rather than informal ways is also significantly higher. To summarize, the above findings do not support hypothesis 4.1, but do support hypothesis 4.2 to a great extent. Individual political identity instead of enterprise scale influences private entrepreneurs’ selection of confrontational strategies.

On the regional level, compared to private enterprises in eastern areas, those in the middle and western areas of China are more likely to select formal government agencies and informal ways to resolve disputes. Compared to private enterprises in eastern areas, those in middle areas prefer associations to informal ways. However, the lack of significant difference between the western group and the eastern group might be a potential topic for further discussion. Private enterprises that have membership in business associations select associations more frequently than confrontation or informal ways. This simply reflects that fact that association members have a higher consciousness of and ability in using the associational approach. The regional private economy level and the provincial GDP do not exert significant effects.

Models 4.1, 4.2, and 4.3 also demonstrate that the tax figures are positively associated with the preference for formal government agencies over associations, confrontation, or informal ways. For example, when the natural logarithm of tax amount increases by one unit, the possibility of choosing associations over government agencies decreases by 12.45% (1–1/e^0.133). Hypothesis 1 is supported.

Table 5 continues to test hypothesis 2 and hypothesis 3. We added the square of the natural logarithm of the tax figure in model 5.1 and model 5.2. In model 5.1, the square term of tax has a negative coefficient, which indicates an inverted-U shape for the relationship between economic capital and selection of the association strategy. However, it is not statistically significant. To further test hypothesis 3, we added the cube of tax into model 5.1. The resulting model 6.1 shows significance for both the cube term and the square term. For those private enterprises that have the lowest economic capital, the possibility that they choose associations over government agencies for dispute resolution decreases quickly with the increase of economic capital. When an enterprise’s economic capital is in the middle or high range, the possibility of selecting associations over government agencies first decreases slowly, but is followed by a sharp increase. This indicates that for different economic scales, the pattern of economic capital’s effects on strategy selection is different. In model 5.2, all the terms of economic capital are significant. This clearly demonstrates that along with the increase of economic capital, the possibility of selecting informal ways over government agencies first increases and then decreases—also an inverted-U shape pattern. To summarize, both hypothesis 2 and hypothesis 3 are supported, as displayed in Fig. 2.

	Tax (ln)	Square of tax (ln)	Cube of tax (ln)	Other CVs
Model 5.1	0.081	− 0.032	–	Yes
	(0.143)	(0.020)	–	–
Model 5.2	0.266+	− 0.055**	–	Yes
	(0.141)	(0.020)	–	–
Model 6.1	− 0.317+	0.139*	− 0.018**	Yes
	(0.175)	(0.061)	(0.007)	–

Robust standard error in parentheses

Other CVs include gender, age, education level, CCP membership, association involvement, employment figure, period of establishment, private economy level, region, and provincial GDP

***p < .001; **p < .01; *p < 0.05; +p < 0.1

Robustness test