Friends with Benefits: How Political Connections Help to Sustain Private Enterprise Growth in China

34 Pages Posted: 7 Dec 2017

See all articles by James Kai‐sing Kung

James Kai‐sing Kung

Hong Kong University of Science & Technology (HKUST)

Chicheng Ma

The University of Hong Kong

Date Written: January 2018

Abstract

By analysing data from a survey of 511 Chinese private enterprises, we find that their owners respond to government discrimination by developing political connections with government officials. A one‐standard‐deviation increase in the insecurity of property rights has the effect of increasing the number of ‘friends’ in the government by a substantial 22%. These ‘friends’ significantly help to mitigate by half the negative effect arising from the difficulties of obtaining land and excessive regulations on enterprise growth. This explains why an institutional environment of weak property rights has not stopped private enterprises in China from developing rapidly.

Suggested Citation

Kung, James Kai‐sing and Ma, Chicheng, Friends with Benefits: How Political Connections Help to Sustain Private Enterprise Growth in China (January 2018). Economica, Vol. 85, Issue 337, pp. 41-74, 2018. Available at SSRN: https://ssrn.com/abstract=3083169 or http://dx.doi.org/10.1111/ecca.12212

James Kai‐sing Kung (Contact Author)

Hong Kong University of Science & Technology (HKUST)

Clear Water Bay
Hong Kong

Chicheng Ma

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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