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Reconciling socialism with the market: the "privatization" debates in China (1993-2002)

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Reconciling socialism with the market: the "privatization" debates in China (1993-2002)

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RECONCILING SOCIALISM WITH THE MARKET:
THE “PRIVATIZATION” DEBATES IN CHINA (1993-2002)

by

Yayoi Kato

___________________________________

A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(POLITICAL SCIENCE)

December 2008

Copyright 2008 Yayoi Kato
Table of Contents

List of Tables iv

List of Figures v

Abstract vii

Chapter 1: Introduction 1

Chapter 2: Research Hypothesis, Data and Methods 11

Chapter 3: Ownership Reform Debate (1993-2002) 34
Open debate period (1993- 1995) 37
Empirical period (1996- mid 1997) 45
Breakthrough (1997) 48
Incorporation period (1998 – 1999) 58
Consolidation period (2000-2002) 78
Conclusion 88

Chapter 4: Property Rights/Shareholding Reform Debate (1993-2002) 92
Experimental period (1993-1994) 98
Clarification Debate period (1994-1995) 105
State’s marketization period (1995-1996) 117
SHS Debate period (1997-1998) 123
Reconciliation period (1998-1999) 134
Internationalization period (2000-2002) 143
Conclusion 154

Chapter 5: Hypothesis Test: Ideology’s Influence on the Reform Debate
Process 157
Overview 158
Comparison 163
Detection of ideological debates, constraints and reconciliation 163
Ideological dynamics 169
Why is the SH debate process less stable? 174
Relationship 183
Hypotheses on the Relationship 185
Testing the Relationship: Cross Examinations 186

Chapter 6: Conclusion 196

Bibliography 208

ii
Appendix A: Coding Process and Coding Sheet 211

Appendix B: Abbreviations 218

Appendix C: Key Events in the Jiang Zemin Era (1993-2002) 219

iii
List of Tables

Table 3.1: Ownership reform debate process in the Jiang Zemin era (1993-2002) 35

Table 3.2: Re-defined “correct” and “incorrect” 54

Table 4.1: Property rights/shareholding reform debate process in the Jiang Zemin era
(1993-2002) 93

Table 5.1: Empirical and normative orientation of OSYS and SH articles 160

Table 5.2: The OSYS and SH debate processes in the Jiang Zemin era (1993-2002) 161

Table 5.3: Agenda structure of the OSYS and SH debates 177

Table 5.4: Standard issues listed in the coding sheet 178

iv
List of Figures

Figure 2.1: The interaction between socialist and market principles in the policy
making process 12

Figure 2.2: The number of private enterprises and state owned enterprises 15

Figure 2.3: The number of workers employed by private enterprises and tax revenue
from private enterprises 15

Figure 2.4: Gross output produced by private enterprises 16

Figure 2.5: The number of listed companies at the Shanghai Stock Exchange 16

Figure 2.6: Market values for stocks traded at the Shanghai Stock Exchange 17

Figure 2.7: Research Hypothesis 18

Figure 3.1: Articles categorized as liberal or conservative, and engaging in ownership
debates 36

Figure 3.2: Ideological alignment before Jiang’s address 53

Figure 3.3: Re-definition of ideological principles 54

Figure 3.4: A new line of cleavage and ideological realignment 55

Figure 3.5: “Market/public ownership” contradiction 62

Figure 3.6: “Lip-service conservatism” and “market/public ownership” contradiction 71

Figure 3.7: Articles categorized as liberal or conservative 72

Figure 3.8: Ideological Realignment (reprinted) 73

Figure 3.9: Articles categorized as liberal or conservative and “market/public
ownership” observed 77

Figure 3.10: “Market/public ownership” and “market/socialism” contradictions
observed in OSYS articles 90

Figure 4.1: Ideological arguments and lip-service conservatism observed in SH articles 141

Figure 4.2: Articles categorized as liberal or conservative 142

Figure 4.3: Fear of capitalism/privatization and market disorder 149

Figure 4.4: The rise and fall of pro- and anti-foreign views 151

v
Figure 4.5: Fear of market disorder and anti-foreign views 152

Figure 5.1: The number of OSYS and SH articles each year 158

Figure 5.2: Market/public ownership contradiction observed in OSYS and SH articles 164

Figure 5.3: “Lip-service conservatism” observed in OSYS and SH articles 168

Figure 5.4: OSYS articles categorized as liberal or conservative 169

Figure 5.5: SH articles categorized as liberal or conservative 170

Figure 5.6: OSYS articles categorized as liberal or conservative, and engaging in
ownership debates 175

Figure 5.7: SH articles categorized as liberal or conservative, and engaging in
Ownership debates 175

Figure 5.8: Comparison of the agenda structures of the OSYS and SH 180

Figure 5.9: Ownership issues/debates observed in SH 187

Figure 5.10: Ownership issues/debates observed in OSYS and SH 189

Figure 5.11: SH reform issues/debates and ownership issues/debates observed in OSYS 190

Figure 5.12: The relationship between the OSYS and the SH debate process 193

Figure 5.13: How ideological constraints are produced 194

Figure 6.1: The cycle of pluralistic debates and ideological homogenization 200

vi

vii
Abstract

This dissertation examines the role of ideology and its interaction with market
principles in China’s reform policy making process. Through the content analysis of internal
publications, this research analyzes the policy debates over the treatment of the private
economy (the ownership reform) and the property rights/shareholding reforms during the
Jiang Zemin era from 1993 to 2002. The emphasis of the analysis lies on how the central
policy makers adjusted socialist ideology according to the changing market conditions at
local levels, such as the emergence and expansion of the private economy and private
ownership. The 10 years of the reform debates reveal a painful process during which the
Chinese state slowly—and often reluctantly—relinquished its control over economic affairs,
leaving their management in the hands of private entities and market forces. After the
chronological descriptions of the debate process of each reform issue area, the dissertation
determines which of the two factors—socialist ideology or market principles—was more
important in deciding the direction of these “privatization” debate processes. The two
competing hypotheses—the ideology-driven and market condition-driven debates—are
tested with the content analysis data. This research also examines the top leaders’ role in
controlling the reform debate as well as the reform process itself using ideology as a political
resource, and illuminates ideology’s enduring importance, its changing core principles, and
its function for the reform process and the maintenance of the political system. Through
these examinations, this dissertation research attempts to understand some of the key
mechanisms of China’s political and economic system called “socialist market economy” or
“socialism with Chinese characteristics.”
Chapter 1: Introduction

China’s economic reform has been characterized as a gradualist and incremental
approach. The Chinese state initiated market reforms without a roadmap, starting from
partial and experimental reforms, and gradually practicing successful experiments on a
nationwide basis. This approach turned out to be successful, and has widely been considered
the primary reason China has been enjoying continuous economic growth and political
stability. The gradualism is particularly admired in market transition and economic reform
studies. Scholars argue that due to the gradual approach, China was able to avoid the
troubles associated with radical market transition programs such as “shock therapy.”
1

The Chinese state’s adaptability and responsiveness to local market conditions—or
the degree of the penetration of market—has been considered the main reason for the
success of its market reform and gradualist approach. As is prescribed in the Deng era’s
slogans, such as “practice is the sole criterion of truth,” “start from reality,” or “seeking truth
from facts,” the Chinese government and the Chinese Communist Party (CCP) flexibly
reformed its system according to market conditions at local levels.
However, is the Chinese state’s adaptability to market conditions the only reason
that China’s reform has been so successful? If the country has been successful in its market
reforms, and the primary objective of the reforms was a transition to a market economy, why
does China still describe its political and economic system as “socialist market economy” or
“socialism with Chinese characteristics” thirty years after the initiation of the reform? Does

1
See, for example, Solimano, Sunkel, Blejer eds. Rebuilding Capitalism: Alternative Roads after
Socialism and Dirigisme (The University of Michigan Press 1994), especially, chapter 7, Dwight
Perkins, “China’s ‘Gradual’ Approach to Market Reforms”. Or Goldstein Steven, “China in
Transition: The Political Foundation of Incremental Reform.” The China Quarterly 144 (December,
1995):1105-1131.

1
this “socialist” part not have any influence on the reform process or distinguish China’s
reform from those of non-socialist countries?

The adaptability of the Chinese state—both the central and local levels—to market
conditions has been well documented and researched in the literatures on China’s economic
reform. The central government took a decentralization policy and provided local
governments incentives to increase wealth and power over their territories. This resulted in
the rise of local state corporatism or “developmental state” at local levels that guided
China’s economic growth and market transition.
2
The CCP also provided “entrepreneurial”
incentives to party cadres, bureaucrats and local governments to directly engage in profit
making activities. Although such incentives increased corruption, the central government
was still able to impose political order and local compliance in its policies.
3
The corporatist
approach also indicates the CCP’s adaptability to the rise of the private economy. In order to
preempt the formation of autonomous interests and limit political participation, the Leninist
state co-opted private entrepreneurs and included them into the system through corporatist
arrangements. As part of the corporatist arrangement, the Chinese government assisted non-
state firms’ business operations through semi-official business associations such as the All
China Federation of Industry and Commerce (Gongshang lian).
4

2
See, Oi, Jean, “The Role of the Local State in China’s Transitional Economy.” The China Quarterly
144 (December, 1995):1132 – 1149. See also, Nevitt Christopher, “Private Business Associations in
China: Evidence of Civil Society or Local State Power?” The China Journal 36 (July, 1996):25-43.

3
Shevchenko, Alexei. “Bringing the Party Back In: The CCP and the Trajectory of Market Transition
in China.”

4
See, for example, Dickson, Bruce. 2000. “Cooptation and Corporatism in China: The Logic of Party
Adaptation.” Political Science Quarterly 115 (November):517-540. Pearson, Margaret 1994. “The
Janus Face of Business Associations in China: Socialist Corporatism in Foreign Enterprises.” The
Australian Journal of Chinese Affairs 31 (January):25-46. Unger, Jonathan and Chan, Anita. 1995.
“China, Corporatism, and the East Asian Model.” The Australian Journal of Chinese Affairs 33
(January):29-53.

2
The Chinese state has also adapted to the global market and foreign pressures
exceptionally well. Through interactions with the international community, such as WTO
negotiations, the institutional norms of foreign trade and economic bureaucracies have
increasingly conformed to the norms of the international regimes. The new elites who
developed a “new thinking,”
5
a more globalized and liberal perspective, form a “cohort”
within the policy elites, often directly participate in economic policy making, and become a
driving force of economic liberalization.
6
Some also argue that China’s integration with the
world economy has forced the Chinese government and leadership to commit to further
marketization as tactical means to maintaining political power through continuous economic
growth.
7

These literatures focus mainly on political and economic strategies of the Chinese
state or the party, often taking a rational- or unitary actor assumption. Most of these
literatures assume that the Chinese state is an agent that could take any strategic measures
free from the influence of ideology, and that reform decisions have been made solely based
on local market conditions. On the other hand, the analysis of possible influence of socialist
ideology on the reform policy making process is largely neglected. Ideology is considered a
mere hindrance to market reforms and the impact of its contents, changing principles or

5
The term is in English, Robert. 2000. Russia and the Idea of the West: Gorbachev, Intellectuals, and
the End of the Cold War.

6
Economy, “The Impact of International Regimes on Chinese Foreign Policy-Making: Broadening
Perspectives and Policies…But Only to a Point.” 230-253; Pearson, “The Case of China’s Accession
to GATT/WTO.” 337-371. In The Making of Chinese Foreign and Security Policy in the Era of
Reform, 1978-2000, ed. David Lampton.

7
See, for example, Moore and Yang. 2001. “Empowered and Restrained: Chinese Foreign Policy in
the Age of Economic Interdependence.” 191-229. In The Making of Chinese Foreign and Security
Policy in the Era of Reform, 1978-2000, ed. David Lampton; Johnson, Alastair. 1996. “Learning
versus Adaptation: Explaining Changes in Chinese Arms Control Policy in the 1980s and 1990s.”
The China Journal 35 (January): 27-61.

3
function in the political system is unknown. In the studies of market transition and property
rights reform, socialist ideology is treated as a “political constraint” responsible for
ambiguous and hybrid property rights, or “quasi-privatization.”
8
Furthermore, with the
institutionalization of Chinese politics, ideology is increasingly disregarded as irrelevant, or
considered a formality without substance.
China is, however, a socialist country that is still ruled by the Communist party.
This is the main reason China’s market reform and privatization concern many scholars to
begin with. Officially, privatization (siyouhua) never occurred in China, and this fact alone
suggests the importance of socialist ideology and principles in China’s reform process. As
long as China maintains a one-party rule and socialism regardless of its form, socialist
ideology could continue to impose structural constraints on the reform process. Focusing on
the influence of market conditions alone as a driving factor of the reform leads to a one-
sided understanding of China’s policy making process, as well as its political and economic
system. Joseph Fewsmith asserted that the role and importance of ideology declined in the
Jiang Zemin era, but it has not become totally irrelevant to Chinese politics.
9
Ideology is
defined by Michel Oksenberg as “a set of explicitly held beliefs that guide action,” and also
that Chinese elites’ distrust of capitalism “affects and constrains public policy.”
10
Ideology,
therefore, due to its very role as a constraint, might have prevented the country from taking
radical transition measures such as “shock therapy” and caused its gradual, incremental but
“successful” approach to market transition and privatization. It might have also prevented a

8
Oi and Walder, “Property Rights in the Chinese Economy: Contours of the Process of Change,” in
Oi and Walder eds., Property Rights and Economic Reform in China. Oi, 2005. “Patterns of
Corporate Restructuring in China: Political Constraints on Privatization.” The China Journal 53
(January): 115-137.

9
Fewsmith, 2001. “The New Shape of Elite Politics.” The China Journal 45 (January): 83-93.

10
Oksenberg, 2001. “China’s Political System: Challenges of the Twenty-First Century.” The China
Journal 45 (January): 21-35.

4
simple-minded pursuit of market and economic efficiency, and contributed to the political
and economic stability of the country.

In order to examine the influence and roles of ideology in China’s reform policy
making process, this research analyzes internal debates over reform policies during the Jiang
Zemin era from 1993 to 2002. The research examines how influential socialist ideology
was, in comparison to market conditions, as a factor deciding the direction of the reform
debate process. What influence or restrictions did ideology impose on the policy debate
process? How were ideological dynamics of the debate formulated? Who defined,
controlled, and enforced ideological principles at any given time? How did Chinese policy
makers reconcile socialist ideology and market conditions during the course of the reform?
And, most importantly, which of the two factors—ideology or market conditions—was more
influential in deciding the course of the reform debate and policy making process? How are
these two factors related, and how did they interact with each other in policy debates?
The dichotomy between ideology and market conditions could be considered an
analogue to the dichotomy between socialist principles and market principles. To balance or
reconcile these two principles in the name of “socialist market economy” is one of the
theoretical goals of China’s economic reform. Making reform policy is largely the
negotiation, reconciliation, and compromising process between these two principles. The
analysis of the ten-year period of debates, therefore, illuminates the interaction process
between these two principles during the decision making process, as well as how and if
China was successful in attempting to reconcile the two seemingly contradictory principles.
The reform process is, at the same time, part of the still on-going process that establishes a
new Chinese political and economic system, which is often described by such terms as
“socialism with Chinese characteristics” or “socialist market economy.” This research will

5
also ask what exactly these terms mean, what kind of systems they are, what roles ideology
plays in these systems, and what mechanisms maintain the systems. Examining these
questions will contribute to a clearer understanding of these terms as well as the inner
workings of China’s economic policy making process.
The examination of the role and influence of ideology on the policy making process
will also shed more light on the (changing) roles, political power and the influence of the top
leaders not only in the policy making process but also in the whole political system.
According to Fewsmith, ideology is closely related to political power and the legitimacy of
Chinese leaders. He argues that ideology is “a potent resource of leadership” and the top
leader defines his own ideological “line” in order to distinguish his rule from his
predecessors.
11
If so, how did Jiang Zemin define his “ideological line” as opposed to his
predecessors, especially to Deng Xiaoping? How did Jiang’s “lines” influence the course of
the policy debates over the reform? Did his “line” affect the alignment of liberal and
conservative forces in the policy debate circle? What new policies were formulated as a
result of Jiang’s definitions? How did Jiang use ideology as a “resource” and attempt to
control debates?
Through the application of Schattschneider’s theory of issue control in political
debates,
12
this research analyzes how the top leader, Jiang Zemin, framed a new ideological
line and removed ideological constraints placed on capitalistic elements that emerged in the
socialist system, such as the private economy or private ownership. Jiang’s speech at the
15
th
Party Congress replaced the dominant issues of the “privatization” debates, produced a
large scale “ideological realignment” among liberal and conservative forces, set off

11
Fewsmith, 2001. “The New Shape of Elite Politics.” The China Journal 45 (January): 83-93.

12
Schattschneider, E.E. 1975. The Semisovereign People: A Realist’s View of Democracy in
America. Harcourt Brace Jovanovich College Publishers.

6
ideological reconciliation between the two contending forces, and brought harmony to the
political space.
This research also examines how the top leader’s role—notably, the control of
debates using ideology as a political resource—is related to the maintenance of their political
power, China’s political system, and political stability. Sun Yan and Richard Baum both
observed the cycle of relaxation and ideologization—or “fang/shou cycle”—during the
Dengist period, and argue that Deng’s “middle course” approach or “balancing act” is
related to these ideological cycles. The “middle course” approach is not simply taking
ideologically middle positions but also, Sun implies, enacting policies or taking positions
that increase contradictions and stimulate and encourage reinterpretations of socialism.
Deng took the dialectical materialist approach and encouraged reform theorists to reinterpret
socialist theories to justify economic reform, although he prohibited such attempts in
political or ideological realms. Deng’s “production criterion,” which put priority on the
development of the productive forces, was used as a tool for the reinterpretation of
socialism. Deng’s formulation of such terms as “socialism with Chinese characteristics” or
“socialist market economic system” was also part of the middle course approach because
these terms allowed tolerance for the diverse forms of socialism.
13

Did Jiang Zemin inherit Deng’s “middle course” approach? Or was Jiang’s
approach different from Deng’s in terms of controlling debates? Willy Lam calls Jiang’s
style a “policy of strategic ambiguity” that maintained a balance among the contending
forces so that no one challenged his rule. Jiang did this deliberately, taking contradictory
positions on important issues such as state-owned enterprise (SOE) reforms.
14
These
contradictory positions were well observed in his “breakthrough” address at the 15
th
Party

13
Sun, Yan, The Chinese Reassessment of Socialism, 1976-1992. Pp 260-72. Baum, Richard,
Burying Mao.

14
Lam, Willy wo-lap, The Era of Jiang Zemin. Pp43-46.

7
Congress, which drastically changed the direction of the reform debates and significantly
affected the political status of the private economy.
If Jiang inherited Deng’s middle course, can we observe a similar ideological cycle
in the Jiang Zemin era? If so, how did Jiang attempt to control the cycle? This research
found a similar cycle of relaxation and ideologization during the Jiang era. Jiang intervened
in the private economy debates once the ideological division began to hinder the policy
making process, and successfully closed off the debate. As a result, ideological
reconciliation was initiated and the private economy began to be officially incorporated into
the system. This period of harmony (ideologization) was, however, replaced by a period of
disharmony (relaxation) as new reform issues set off new debates in the wave of
internationalization after 2000. As the rise of new voices and ideological divisions began to
destabilize Jiang’s rule, the top leader again attempted to “re-ideologize” the political space
through the formulation of “Three Represents” and the emphasis on people’s initiative in
economic activities, as seen in the definition of “Minben economy.” As long as China tries to
build a hybrid system of socialism and the market, China’s political system could not avoid a
cyclical pattern of a relatively pluralistic period of ideological debates (relaxation) and a
more harmonious period of ideological reconciliation (ideologization). And the top leaders
nearly control this cycle with the re-definition of ideological lines. If China’s political
system is repeating this cycle, it can be argued that China’s political system is not likely to
be on the evolutionary path toward pluralism, but merely repeating a rise and fall of
pluralism.
This research, however, found that despite the similar cycles observed in the Deng
and Jiang eras, the top leaders’ role in the reform debate process shifted from active
stimulation and control of debates that characterized the Deng era, toward a more reactive
one, such as endorsing existing ideological climates or balancing contending ideological

8
forces. This shift had a potential to move Chinese politics toward a more pluralistic
direction because if the top leaders’ primary role is an endorsement of existing ideological
climates, ideological dynamics are largely formed through debates among policy elites. The
rising influence of public opinion and bureaucratic interests—a trend observed after 2000—
could also push Chinese politics toward this direction. The findings from this research,
therefore, will contribute to a deeper understanding of the changing Chinese political system
and political process, even beyond the research period.

Considering the growing pluralization trend of China’s policy making process,
15
this
dissertation assumes that policy changes and liberalizations are largely the products of
debates among central policy makers. The final decision making process of the national-
level reform policies or regulations often involves sensitive adjustments of socialist
ideologies and theories, and these ideological adjustments often trigger ideological debates
among policy elites or academics. Through the content analysis of internal publications, this
research specifically analyzes the policy debates over the two reform issue areas that are
closely related to ideology. The first area is the ownership reform debate, which includes
policies concerning the treatment of the private economy; the second area is the property
rights reform debate, which includes policies concerning shareholding and stock market
control. These two reforms are part of the SOE reforms, and reflect the processes that
increase the portion of private ownership as opposed to public ownership. Since the
predominance of public ownership was considered a foundation of socialism, policy changes

15
See, for example, Lampton. “China’s Foreign and National Security Policy-Making Process: Is It
Changing, and Does It Matter?” 1-36, or Pearson, “The Case of China’s Accession to GATT/WTO.”
337-371. In The Making of Chinese Foreign and Security Policy in the Era of Reform, 1978-2000, ed.
David Lampton (Stanford University Press, 2001); Bureaucracy, Politics, and Decision Making in
Post-Mao China, eds. Kenneth Lieberthal and David Lampton (University of California Press, 1992).

9
in these areas are more likely to involve an adjustment of socialist ideology, or a
reinterpretation of socialism, in order to accommodate new market conditions.
The dissertation first examines the nature of these so-called “privatization” debate
processes, including the ownership reform debates in chapter three and the property rights
reform debates in chapter four. The two chapters chronologically describe and analyze the
“trial and error” process of these reforms in the Jiang Zemin era, during which China’s
central government slowly—and often reluctantly—gave away part of the rights, authority,
and financial assets previously managed and owned solely by the state to private entities.
During this process, ideological and political debates ensued, while private enterprises and
shareholding firms increasingly and gradually accommodated as an alternative, reliable force
to develop China’s economy. The emphasis of the analysis lies on the interaction process
between market and socialist principles, and on how the policy makers adjusted socialist
ideology in order to justify the rise and need for the so-called “capitalists,” or private
enterprises, and the incorporation of private ownership into the socialist system.
The chronological accounts are followed by the analysis of the relationship between
the two debate processes. Chapter 5 first compares the two debate processes and specifies
the differences between them. I conclude that the ownership reform debates were driven
more by ideology and the property rights reform debates were driven more by local market
conditions. By examining how these two debate processes are related to each other, the
chapter attempts to answer the central question of this research: Which of the two factors—
ideology or market conditions—was more important as a driving force of the “privatization”
debates in the Jiang Zemin era.

10
Chapter 2: Research Hypothesis, Data and Methods

This research mainly examines the influence of ideology and how socialist ideology
interacted with market principles during the reform debate process. For this purpose, the
research analyzes internal policy debates over the two reform issue areas that have close
relevance to ideology: The ownership system (OSYS) reform and property
rights/shareholding (PR/SH) reform. The ownership reform (suoyouzhi gaige) covers a
variety of issues relevant to ownership forms and their changes, but this research mainly
focuses on the issues concerning the treatment of the private economy. The debates over
how to treat, control or accommodate private enterprises, as well as over the relationship
between the public and private economies are the main focuses of the analysis of the OSYS
reform area. The second reform issue area, the property rights reform (changquan gaige),
includes not only debates over property rights of state owned enterprises (SOEs), but also
those concerning shareholding reform (gufenzhi gaige) and stock market control. The main
issues of the PR/SH reforms consist of technical, theoretical or legal issues that arose from
local levels during the course of the reforms. The PR/SH reforms are part of the general
SOE reforms and the process of gradually introducing private capital or private ownership
into the public entities through shareholding or property rights transfer. The OSYS and
PR/SH reforms are, in fact, partially overlapping and similar to each other in terms of their
goal of increasing the portion of private ownership compared to public ownership. Since
public ownership had long been considered as the foundation of socialism in China, the
policy debates over these two reform areas involve more ideological conflicts, adjustments
and interactions between socialist ideology and market principles than other reform areas.

11
Research Assumptions
This research also determines which of the two factors—socialist ideology or market
conditions—was more influential in controlling the debate process in the Jiang Zemin era.
This research assumes that socialist ideology and local market conditions are, as the diagram
below shows, the two major factors that influence the reform debate process that eventually
produces reform policies. The debate process is also the interaction between these two
factors. Whereas socialist ideology places ideological constraints on the debate process,
local market conditions introduce pressure for policy liberalization. The two factors,
therefore, are dichotomized in this research. As noted in the introduction, the interaction
between the two factors is considered an analogue to the interaction between socialist and
market principles. This research emphasizes this contrast between the two factors, which
introduce the conflicting pressure on the debate process, and compares the amount of
influence exerted on the debate process by each factor.

Figure 2.1: The interaction between socialist and market principles in the policy making process

Ideology Debate
process
Pressure for policy
liberalization
Socialist principles
Socialist principles
Reform policies
Local market
conditions
Ideological constraints
Market principles

12
Since this research analyzes the debate process using journal articles as data, both
the factors of ideology and local market conditions that influenced the debate process are
measured by the arguments made by the authors of the articles selected for the analysis.
Socialist ideology is defined as conservative ideological belief or preference that opposes or
prevents further penetration of market forces in order to uphold socialist values and
principles. Therefore, the influence of “socialist ideology” is measured by the arguments
that employ socialist principles and oppose further marketization of the economy, the
adoption of market principles, or the legitimation of new market practices. Although
socialist values and principles are subjective beliefs that keep changing and have a
significant variation, this research adopted the following criteria to measure the influence of
socialist ideology:

• Support for the dominance of public ownership and the state-owned economy
• Support for collectivism, egalitarianism, union of workers or social equality
• Opposition to the adoption of capitalist models and principles
• Demand for government control or planning of the economy and enterprises affairs
• Concerns over further marketization, internationalization and commercialization of
the economy

On the other hand, the factor of local market conditions is defined as the increased
degree of penetration of market forces at local level. This research assumes that the
increasing level of market penetration influenced the debate process by exerting pressure for
policy liberalization. The influence of local market condition is, therefore, measured by the
authors’ arguments that support the legitimation of new market conditions or the adoption of

13
more market principles in order to ensure fair market competition. This research adopted the
following criteria to measure the influence of local market conditions.

• Support for the diversification of ownership system, shareholding, property rights
transfer or share trading
• Support for economic efficiency, objective economic laws and fair market
competition
• Support for policy liberalization and the adoption of capitalist models
• Concerns over government control of the economy or bureaucratic interference to
enterprise affairs
• Support for globalization and international norms

In case of debate analysis, however, the local market conditions measured from the
authors’ arguments are the “perceived” local market conditions by the authors. The
perceived conditions are different from real market conditions, which are measured by
statistical numbers, although many authors describe local market conditions by employing
statistical data. Different authors could perceive the same market conditions in different
ways and local market conditions have a significant regional variation. For these reasons, as
real measures of the increased degree of market penetration that pressured the reform debate
process, several indicators are introduced below for each reform issue area: the indicators
that show a rapid expansion of the private economy for the OSYS issue area, and the
indicators that show an increase in stock trading and listed companies for the PR/SH issue
area. This research assumes that these measurable market conditions are perceived by the
authors and manifest themselves as support for market principles or demand for new market
regulations.

14
Indicators showing a rapid expansion of the private economy in the Jiang Zemin era
(1993-2002)

Figure 2.2: The number of private enterprises and state owned enterprises
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
93 94 95 96 97 98 99 2000 2001 2002
Private enterprises
State enterprises

Source: “Gongshang Xingzheng Guanli Tongji Huibian” (Compendium of Statistics on the
Administrative Management of Industry and Commerce). P. 3 in Report on the Development of China’s
Private Enterprises No.5 (2003).

Figure 2.3: The number of workers employed by private enterprises
and tax revenue from private enterprises
0
10
20
30
40
50
60
70
80
90
100
93 94 95 96 97 98 99 00 01 02
Employment (mil.)
Tax revenue (RMB mil.)

Source: The tax revenue data comes from “Zhongguo shuiwu nianjian” (China Tax Yearbook), the employment
data comes from “Gongshang Xingzheng Guanli Tongji Huibian” (Compendium of Statistics on the
Administrative Management of Industry and Commerce). P.6 and P. 7 in Report on the Development of China’s
Private Enterprises No. 5 (2003).

15
Figure 2.4: Gross output produced by private enterprises

0
200
400
600
800
1,000
1,200
1,400
1,600
93 94 95 96 97 98 99 00 01 02
Gross output produced by private enterprises
(RMB billion)
Source: “Gongshang Xingzheng Guanli Tongji Huibian” (Compendium of Statistics on the Administrative
Management of Industry and Commerce). P. 3 in Report on the Development of China’s Private Enterprises No.
5 (2003).

Indicators showing an increase in stock trading in the Jiang Zemin era (1993-2002)

Figure 2.5: The number of listed companies at the Shanghai Stock Exchange
0
100
200
300
400
500
600
700
800
93 94 95 96 97 98 99 00 01 02
The number of listed companies

Source: The Shanghai Stock Exchange, Historical Data,
http://www.sse.com.cn/sseportal/en_us/ps/md/sh_b_hd.jsp

16
Figure 2.6: Market values for stocks traded at the Shanghai Stock Exchange
0
5,000
10,000
15,000
20,000
25,000
30,000
93 94 95 96 97 98 99 00 01 02
Market value for stocks (RMB 100 mil.)

Source: The Shanghai Stock Exchange, Historical Data,
http://www.sse.com.cn/sseportal/en_us/ps/md/sh_b_hd.jsp

Figure 2.2 shows the number of private enterprises and state-owned enterprises
(SOEs) during the Jiang Zemin era from 1993 to 2002. Figures 2.3 and 2.4 show the
increase in private firms’ gross output, the number of employees, and the tax revenue from
the private economy. Figures 2.5 and 2.6 show the increase in the market value of stocks
traded and the number of companies listed at the Shanghai Stock Exchange during the same
period. These statistical data show, in a symbolic sense, the increased degree of the
penetration of market forces at local levels during the Jiang era.
This research assumes that the increased degree of marketization demonstrated by
these indicators was recognized and perceived by the central policy makers and manifested
itself in their demand for policy liberalization. The increase in the number of private firms
and the output produced by the private economy clearly affected the OSYS debate process
by pressuring the legitimation of the private economy, although it concurrently raised
ideological concerns. Similarly, the increasing number of stock trading and listed companies
affected the PR/SH debate process, which mainly discusses the issues related to property
rights transfer, shareholding and stock market control.

17
Research Hypothesis
This research hypothesizes that the factor of ideology is more influential than
local market conditions in controlling the debate process, as shown below.

Figure 2.7: Research Hypothesis

Pressure for policy liberalization
Ideological constraints
Local market
conditions
Ideology
Debate
process
Reform policies

In order to determine which factor had more influence on the debate process, the
research submits two competing hypotheses—the ideology-driven and market condition-
driven hypotheses—and tests these hypotheses after analyzing the two debate processes.
The two hypotheses are not mutually exclusive, however. This research assumes that both
ideology and market conditions definitely influenced the debate process. The purpose of
testing the hypotheses is not to determine causal relations among these factors, but to
analyze their relative importance and to examine which factor is more influential in deciding
the course of the entire debate process.

Research Methods
The analysis is conducted through content analysis of the selected articles published
in an internally circulated journal. Although content analysis is the main method this

18
research employs, the analysis of the debates relies more on a close examination and
qualitative analysis of the articles, which is supplemented by the use of a variety of internal
or publicly circulated journals, as well as secondary sources. The data from the content
analysis is mainly used as supporting evidence for the findings of the qualitative debate
analysis, to compare the two debate processes, and to observe the broader trend and nature of
the debates.
In addition, content analysis is insufficient for the testing or determination of
causality. As noted above, the purpose of the hypothesis test in chapter 5 is not to determine
causal relation between ideology and reform policies or between ideology and local market
conditions. The test does not engage in any quantitative analysis of the content analysis
data, such as regression. In order to determine the relative importance of the two factors, the
test is conducted through qualitative examination of the articles or open-ended items
available from the content analysis.

Coding Items:

Since the primary objective of the research is to examine the influence of ideology
and the interaction between market principles and socialist ideology in the policy debate
process, the coding sheet for content analysis was developed based on the liberal-
conservative criteria. The major liberal and conservative criteria adopted for the coding
sheet are listed as follows. The liberals’ criteria mainly represent market principles, while
the conservative’s criteria represent socialist ideology.

19
Liberal criteria: (Support for) the expansion of the private economy or private
ownership, enterprise independence, the adoption of international norms or foreign
capitalist models, government’s regulatory roles, legal protection and legal rights,
economic efficiency, individualism. (Concerns over) traditional socialist thinking,
government control over the economy.

Conservative criteria: (Support for) the maintenance of the dominant status of the
state-owned economy and public ownership system, government control and
guidance of the economy, workers’ rights and well-being, social equality,
collectivism. (Concerns over) privatization, market and social disorder, globalization
and foreign influence.

Some caveats, however, must be indicated with regard to these criteria. The
difficulties in coding sheet formulation for this research mainly derive from the three
phenomena that were distinct in China’s reform debates in the Jiang Zemin era: The
changing ideological dynamics, the increase of ideologically contradictory arguments owing
to ideological reconciliation, and liberals’ strategic argumentation efforts under ideological
constraints.
First, the research covers the ten year period from 1993 to 2002, during which the
liberal-conservative criteria or dynamics changed as broader political conditions changed or
ideological reconciliation between liberals and conservatives occurred. It is often the case
that the arguments or recommendations that were considered very liberal or even radical at
the beginning of the research period came to be considered conservative after 2000. The
liberals’ “liberalness” also changed through the ideological reconciliation with
conservatives. In fact, before the ideological reconciliation started, some liberals were more
assertive or naïve, expressing no doubt to the correctness of capitalist market principles or
objective economic laws and believing idealistically that they could transform China into a
capitalist country through market reforms. During the 10 years, the core socialist principles
also changed. Once the private economy ceased to be “capitalist” and no longer raised
ideological questions, the issue of social equality emerged as a new point of contention

20
dividing liberals and conservatives. In order to deal with these changing ideological criteria,
some remedies are included on the coding sheet. First, in order to avoid confusion over
ideological criteria, important ideological arguments and debate issues are quantitatively
coded as well as specified in a brief sentence as open-ended, descriptive items. These open-
ended items are carefully reconstructed in the process of creating the descriptive accounts of
the debates (chapter 3 and 4). Through the creation of the descriptive accounts, the broader
contexts of the debates are analyzed, and the quantitative data is used as supporting
evidence. Second, several different measures of liberalness and conservativeness are
included in the coding sheet to deal with the changes in ideological criteria or core
ideological principles. For example, in addition to anti-private economy attitude and support
for the superiority of public ownership, there are several other items that measure
conservative characteristics, such as an anti-foreign view or a pro-worker stance that
includes support for collective employee shareholding and the government’s protection of
SOEs. With these items, it is possible to measure conservativeness even after the
replacement of core ideological principle in the late 1990s. As the public-private ownership
dichotomy ceased to be a dominant ideological principle that separated liberals from
conservatives toward the late 1990s, new dichotomies that distinguished the two camps—
such as economic efficiency versus social equality—emerged, and gradually replaced the old
one. These measures were created by specifying liberal and conservative issue positions on
major debate issues throughout the research period.
The second problem is the ideologically contradictory arguments that combined
liberal and conservative stances. As ideological reconciliation began, liberals and
conservatives began to make similar arguments by incorporating claims of the other side into
their own. Although the reconciliation of the market and socialist principles is the central
theme of Chinese economic reform as well as the main topic of inquiry in this research,

21
ideologically contradictory arguments often make the detection of ideological dynamics
difficult. As a remedy, the open-ended item called “contradictory arguments” is included in
the coding sheet. When contradictory arguments are found, they are specified in a brief
sentence as an open-ended item. The nature of the contradiction recorded on the coding
sheet is quantified or categorized at the time of analysis.
The third problem is the strategic argumentation efforts of liberal authors. The
liberals in the mid 1990s frequently paid “lip service” to conservatives when they
recommend more reforms, by quoting communist slogans or superficially agreeing with
conservatives’ arguments. The liberals did this in order to maintain ideological
appropriateness, especially when ideological constraints were strong. In order to detect
these efforts, the coding item called “lip-service conservatism” was created.
Due to these difficulties, the coding sheet was developed through an inductive
manner and its construction involved frequent revisions until finalized.
16
A single coding
sheet is used for both OSYS and PR/SH reform analyses. Main coding items are as follows:

Agenda / Issue specification
All issues raised in each article are coded or specified. Some of the issues in this
section, however, take a form of statement or recommendation and, therefore, can be called
an “agenda” or “things to be done.” For example, the item, “More support for
private/shareholding firms” represents an agenda rather than just an issue. The articles
selected for the content analysis deal with a variety of issues from the purely technical to the
heavily ideological. The issues that relatively frequently appeared in the articles are listed
on the coding sheet as standard issues. There are 29 of these issues. And the issues not
listed on the coding sheet are specified in “other” item at the time of coding. In order to

16
Due to the frequent revisions, all the articles used for the construction of the coding sheet were re-
coded and re-analyzed after the finalization of the coding sheet.

22
analyze the shift of salient issues or debate agendas in relation to ideological climates, these
standard issues are divided into four categories based on the liberal-conservative criteria:
liberal, conservative, regulatory, and welfare issues.
The “liberal issues” are the ones supporting more marketization, such as the
adoption of Western capitalist models, more private investment, or less government control.
The “conservative issues” are the ones supporting the dominant status of public ownership
system, the protection of SOEs, and more party or government control. The concerns over
the state asset drain problem were also raised by liberals but the issue is included in the
conservative category because the drain was, originally, more ideologically threatening to
conservatives. The regulatory issue category is set up because some regulatory issues, such
as illegal share trading, corruption or local government negligence, cannot be categorized as
ideologically liberal or conservative. The welfare category is set up to avoid confusion over
ideological criteria. Generally, conservatives tend to raise more welfare issues but some
liberals often argue for workers’ well-being or for building a strong social security system in
order to promote their reformist agenda with less resistance from conservatives. In order to
avoid possible confusion, the welfare issues are separated from the conservative issues. For
the reasons noted above, however, the ideological categorizations are not absolute. The
following are the actual items listed on the coding sheet.

Issues (Problems / Solutions) (Coded 1 if mentioned or discussed; otherwise 0)

Liberal issues
More listing of state shares, more PR/share trading
More pvt capital investment, involvement
More support for pvt, SH firms
Capitalist/Western model adoption
A separation of government and enterprises, concerns over bureaucratic ctrl
More reform perception, knowledge
Anti-state monopoly
More competitive SOEs, industrial policies, large SOE reform
Anti-collective share, majority control, more labor mobility
More clarification of PR
Set up new PR
Other (liberal)

23
Conservative issues
Maintain public ownership as the principal system (gongyouzhi wei zhu)
No listing, trade or transfer of state/collective shares
More SOE protection, subsidy, guidance
Prevent state asset drain
Other (conservative)
Other (conservative)

Regulatory issues
Need for universal regulations for fair market competition
Insufficiency of existing regulations
What regulation (specify)?
Corporate governance, management rules
Party control of pvt firms
Stock market regulation, macro economy control
Legal protection (e.g., shareholders’ rights, private property)
State asset mgmt (e.g., holding company)
Local gvnt negligence, corruption
Local protectionism, a divided China market
Center-local gvnt relations
Illegal, criminal activities (e.g., black market)
Audit
Other (regulatory)

Welfare issues
More collective employee share, workers’ well-being and protection
Unemployment, social security issues
Other (welfare)

Note: Abbreviations: PR (property rights), pvt (private), SH (shareholding), gvnt (government), mrkt (market), SOE (state
owned enterprises), mgmt (management), SS (social security)

Ideological perception
This section clarifies the authors’ ideological positions that could not be clearly
determined by the issue specification alone. The section is divided into the measurement of
liberal and conservative perceptions. Liberal perception is measured by support for capitalist
market principles, high level of legal rights consciousness, support for enterprise
independence and international norms. Conservative perception is measured by fear of
privatization, fear of market/social disorder, fear of state asset loss (would jeopardize the
predominant position of public ownership system) or anti-foreign views. In addition, the
items that measure the authors’ expectation of a role for government are added. Since
liberals, in general, support regulatory roles of the government while conservatives support
government control or guidance, the item, “support for government’s regulatory role,” is

24
added in the liberal category and “support for government’s control or guidance for
development” is added in the conservative category.

Ideological Perception
(1=normal, 2=high)

Liberal
Legal rights consciousness
Support for capitalist mrkt principles
No gvnt ctrl, enterprise independence, individual responsibility
Pro-international view, support for international norms
Support for government’s regulatory role

Conservative
Fear of privatization, capitalism
Fear of state asset drain
Fear of mrkt disorder
Anti-foreign, anti-globalization view
Gvnt’s ctrl or guidance for development

Support for the private economy
This section is important to measure the changing support for the private economy
and includes items assessing the percentage of the discussion of the private economy in an
article and the tone used to describe the private economy. Chinese terms that refer to the
private economy or enterprises are also specified in this section for the purpose of examining
a possible systematic shift in the terms used over time. “Various economic elements”
(“duozhong jingji chengfen”) and “non-public economy” (“fei gongyouzhi jingji”) were
relatively prevalent in the early 1990s but “non-governmental economy” (“minjian jingji”)
was more often used toward the later years. For the ownership reform articles that
predominantly discuss private economy issues, more specific measures of support for the
private economy are added.

Support for the Private Economy
(Yes=1, No=0, unless instructed)
More expansion of the pvt economy
Percentage (approximately) of the pvt economy discussion: %
Tones used to describe the pvt economy: Describe in one word (e.g., supportive, suspicious)
Chinese terms referring to private enterprise/economy:

25

(For OSYS articles)
The private economy support scale (1-5)
The discrimination of the pvt economy mentioned?
Suspicions over the pvt economy expressed?
The pvt economy blamed? (specify reasons)
The “party build-up mission” mentioned?

Argument specification
The main arguments of the authors are specified in brief sentences. The coding
sheet allows the description of maximum of ten different arguments for each article. This
section, as well as the “debate detection” section, is descriptive and consists of open-ended
items. These descriptions are important for creating the chronological accounts of the
debates. If ideological contradictions are observed, they are also described in the
“contradictory argument” items.

Debate detection
This section is very important for the detection of debates. Debates are not
necessarily ideological. If an author mentions other people’s views and specifies his/her
own position (agree/disagree) on particular issues, the topic of the debate and the author’s
views are described in a brief sentence. The type of the debating issue(s)—political,
ideological or economic, and if related to the ownership issue—are also specified.

Debate detection
Debate detected (yes/no)?
If yes, describe the issue:
Author’s view, position (describe):
Is the debate political/economic/ideological? (political, economic, ideological)
Is the debate over ownership issues? (yes=1)

26
Discussion style
This section is for multiple purposes. The items in this section are important to
measure the intensity of ideological debates, if any, or to determine if the debates are
ideological or non-ideological. The items in this section can also be used for the comparison
of the OSYS and PR/SH debate processes, or for confirming the ideological categorization
of the article—either liberal or conservative—made in other sections. The first item asks if
the articles have an empirical or a normative orientation. Conservatives or ideologues tend
to make more normative or idealistic arguments with fewer references to actual conditions.
Market-oriented liberals tend to discuss observable problems, referring to local market
conditions. The first two items can therefore be used for ideological categorization purposes
as well as for judging whether the debate that occurred in a particular period is more
ideological or regulatory. The item, “lip service conservatism,” is marked if liberal authors
are clearly paying “lip service” to conservatives in an attempt to alleviate conservatives’
criticism or to maintain ideological appropriateness. Therefore, it can be a measure of
ideological constraint. The item addressing the level of emphasis of the argument (5 point
scale) is also included. A higher emphasis level indicates more salience of the issue under
debate. The final item asks if the article is an ideologically neutral, statistical or descriptive
report.

Discussion Style
Empirical or normative orientation? (E=empirical, N=normative, B=both)
Mentioned local market conditions? (Specify localities)
Lip-service conservatism? (Yes=1, No=0)
Emphasis level of arguments (1-5, with 3=normal)
Neutral, descriptive reporting? (Yes=1, No=0)

27
International factor
This section is coded if an author refers to foreign or international situations,
recommends/criticizes specific foreign models or countries, or mentioned China’s foreign
relations. The purpose of this section is to detect the rise of nationalism, anti-foreign
sentiment, national confidence or global view, and to examine if (and how) these
international factors are related to the private economy or shareholding reform issues. The
influence of internationalization on the debate process can also be measured by these items.

International factor
(Yes=1, No=0, unless instructed)
Good foreign model: (specify)
Bad foreign model: (specify)
The pursuit of a model distinctively Chinese, foreign model not applicable to China
Global view development observed?
The adoption of international norms recommended?
More opening of the domestic market recommended?
National confidence (low - normal - superior)

Fear of international financial crisis, global economic disorder
Security, hegemony concerns
Anti-foreign, anti-US, anti-West sentiment

Overall categorization
The overall characteristics of the articles are specified in this section. Categorization
of the articles—whether an article is liberal or conservative, and whether pro- or anti-private
economy—is made based on the overall arguments and tone of the article. These two
categorizations are very important to analyze the changing ideological dynamics over time.
At the same time, new economic or reform related terminologies and citations of foreign
magazines or top leaders’ slogans/theories, if any, are also described.

Overall: liberal or conservative? (Choose one: liberal / conservative / neutral)
Pro or anti-pvt economy?
Mentioned PR/SH reform issues? (OSYS articles only)
New term appeared (Chinese):
Quotation/citation (if any, specify sources):

28
Data
The primary data source selected for the analysis is the restricted, internally
circulated journal, “Internal Reference on Reform,” or Gaige Neican, edited by the
Economic System Reform Commission (Guojia jingji tizhi gaige weiyuanhui).
17

The articles for the analysis are selected in the following way. The journal is
bimonthly. In total, 240 issues were published during the 10 year period of the Jiang Zemin
era, starting from the issue 1 in 1993 and ending at the issue 24 in 2002. The 240 issues
approximately contain 3,000 articles. The titles of all the articles were translated into
English, and then categorized by issues. The list of issues for the categorization is as
follows:

• Economic issues: Agriculture / Bank reform / Budget and tax / Enterprise reform /
Financial policies and macro-control / General economic reform or development
strategies / Industry and market / *Ownership reform and the private economy
/*Property rights reform / *Shareholding reform and stock market / Tax reform /
Other

• Political issues: Corruption / Law / Other

• Social issues: Labor / Local issues / Social Security / Society and culture / Other

• International issues: Global economy and globalization / International trade and the
WTO / International politics and security / Foreign societies / Other

Note: *The Issues selected for coding

From these issues, the articles categorized as “Ownership reform and the private
economy” are selected for the OSYS reform debate analysis, and the articles categorized as
“Property rights reform” and “Shareholding reform and stock market” are selected for the

17
The Chinese Economic System Reform Commission (Guojia jingji tizhi gaige weiyuanhui) is the
current National Development and Reform Commission (NDRC, Guojia fazhan gaige weiyuanhui),
which also incorporated other economic institutions such as the former State Planning Commission.
See Appendix A for more details of the Economic System Reform Commission and the journal,
Internal Reference on Reform.

29
PR/SH reform debate analysis. The total number of the articles selected for the analysis is
281.

The journal, Internal Reference on Reform, has been considered liberal, and their
roles in leading China’s market reform have been recognized by many scholars. Although
the analysis is supplemented by the use of conservative journals such as “The Pursuit of the
Truth” (“Zhenli de Zhuiqiu”), provincial-level party publications, and secondary sources,
selecting a liberal journal as a primary data source might raise some concern over the
likelihood of selection bias. Such criticism is understandable; however, there are important
reasons for the primary use of “Internal Reference on Reform” for the analysis.
First, the primary purpose of this research is to illuminate the interaction process
between market principles and ideology. Such interactions are most clearly observed at the
“forefront” of the reform, where leading reformers attempted to break through the previous
limits on policy liberalization or ideological taboos in order to advance market reforms,
while persuading or negotiating with conservative forces. An examination of the ideological
adjustment or negotiation process in which these leading reformers engaged is very
important for an understanding of the robustness or influence of ideology in the policy
making process. Many of the writers for this journal were leading reformers in the Jiang era
who actively pushed market reforms. Their main responsibilities were to set reform agendas
and to persuade conservatives who posed ideological obstacles and constrained the reform.
Therefore, the degree of success of these reformers in their efforts to persuade conservative
forces is an indicator of the overall success in the interaction process between market and
socialist principles.
Second, while the journal is liberal, it does not mean that conservative voices can
not be observed. There are many conservative articles in the journal. In addition, the

30
liberal-conservative divisions are, paradoxically, observed in this journal in clearer and
simpler forms than would be the case if other, more conservative journals were also used.
Because of the journal’s leading role in reforming China, the writers in the journal tend to
introduce opponents’ arguments in setting out their reform agendas. The reformers needed
these conservative arguments in order to illuminate conservatives’ “misperception” or
“misunderstanding” with regard to the reforms, by which they justify their arguments and
persuade conservatives. The summaries of conservative arguments quoted by the reformers
are very helpful to detect on-going debates or salient issues in the broader policy community
and the liberal and conservative positions on these issues.
Third, the OSYS and PR/SH reform process coincided with the period in which
conservative voices were losing influence through bans on journal publications, warnings
about traditional or “leftist” thoughts, and ideological realignment. Therefore, tracking
consistent conservative voices throughout the research period is technically very difficult.
Although diehard conservatives endured for a relatively long time, they increasingly lost
their influence on policy making and the policy debate process. In addition, the definitions
of “liberal” and “conservative” themselves changed during the ten year period through
ideological reconciliation or homogenization trends. Some conservatives considerably
marketized themselves in the late 1990s, merged with liberals, and began to support
marketization. For these reasons, concurrently analyzing a conservative journal is more
likely to add confusion than to shed additional light. Furthermore, selecting a conservative
journal might possibly lead to further selection bias because it is nearly impossible to rank
journals published during such a dynamic period of the reform based on rigorous liberal-
conservative criteria.

31
The journal’s editing style was also a factor that influenced data selection. First of
all, “Internal Reference on Reform” covers a wide range of issues, not only the issues related
to economic reforms but also social issues, political issues, international issues and cultural
issues. In addition, the journal has the section called “News and Recent developments”
(“Xinxi, Dongtai”) at the end of each edition, in which major domestic and international
events that occurred, and recently implemented regulations are listed and summarized.
Therefore, readers could quickly grasp the current social or political trends of the country,
which is helpful in understanding particular reform issues in the broader political, social and
international contexts.
This balanced focus, however, does not mean that the journal lacks a key element.
The main focus of the journal is still economic reform. The journal is edited by the System
Reform Commission (Tigaiwei)—China’s leading research institution that specifically
engaged in the research on market reforms—and its research unit, the System Reform
Committee (or China Society of Economic Reform, jingji tizhi gaige yanjiuhui).
18
The
Commission’s mission includes providing policy recommendations to the State Council and
the Central Committee and facilitating reform discussions.
19
The journal’s contents and
editing style reflect these mission goals, which make this journal ideal for the analysis of the
reform debate process. Every edition of the journal starts with the section called,
“Summaries and Theory,” in which the current outlook and the forecast of China’s economy
and reforms are described and analyzed. This section often carries a full text of the top
leaders’ speeches, such as those made by Jiang Zemin, Zhu Rongji, or Deng Xiaoping.

18
See Appendix for more details on the System Reform Commission, CSER, and the journal, Internal
Reference on Reform.

19
Keyser, Catherine. 2003. Professionalizing Research in Post-Mao China: The System Reform
Institute and Policy Making, M.E.Sharpe.

32
Despite the journal’s liberal position, it frequently carries debates and the interviews
of high-ranking officials, academics, or foreign scholars regardless of their ideological
positions. The journal’s website states that it carries internal debates over important policies,
analyzes potential problems of the reform, and provides policy recommendations to the
central policy makers, such as the representatives of the National People’s Congress, the
officials in the State Council offices, and the executives of large corporations; therefore, the
journal has influenced the implementations of major policies, major reform debates, and
China’s reform history. The journal also carries investigative reports on particular issues,
the summaries of seminars, symposiums, or conferences held in the country, foreign
scholars’ essays, and the direct translations of the articles published in foreign newspapers or
magazines, such as the Hong Kong newspaper, Xinbao, or Foreign Affairs.
Finally, a relative shortness of the articles in the journal was also a decisive factor
that influenced the selection of this journal. The length of most articles in “Internal
Reference on Reform” is from two to five pages. This relative shortness in length is ideal
for coding because longer articles make a systematic coding difficult and are more
susceptible to misjudgment or mis-measurement of coding items.

33
Chapter 3: Ownership Reform Debate (1993-2002)

Overview

The debates over the ownership reform mainly discuss the treatment of the private
economy as well as the relationship between the state owned and the private economies.
The ownership reform debate process in the Jiang Zemin era (1993 to 2002) is divided into
two major phases: the “debate” and “consolidation” phases according to the status of the
private economy (See Table 3.1). In the debate phase, the ideological division between
liberals and conservatives was deep, and the private economy’s political status was still
being debated. The liberals were the so-called market reformers and supported the
expansion and incorporation of the private economy into the socialist system. The
conservatives, on the other hand, took cautious attitudes toward the private economy and
were concerned that further development of the private economy would jeopardize the
socialist system.
The point dividing the two major phases is Jiang Zemin’s address at the 15
th
Party
Congress in September, 1997, at which Jiang defined the non-state economy as “an
important, integral part” (zhongyao zucheng bufen) of China’s socialist market economy.
This address is called by reformist policy makers and academics the “major theoretical
breakthrough” and nearly closed the ideologically divisive debates over the private
economy’s status. The “breakthrough” address removed the ideological constraints placed
on private ownership and drastically changed the course of the debate. It produced an
ideological realignment in the debate circle and let a majority of the conservatives join the
market reformers’ camp. Since then, the private economy has officially been considered
equal to the state-owned economy and part of the socialist system.

34
Table 3.1: Ownership reform debate process in the Jiang Zemin era (1993-2002)
1993 Open debate period*

(1993 - 1995)
"Socialist-capitalist" debate over the private economy
1994 Ideological justification of the private economy
Widespread suspicion over private enterprises
1995 Liberals' criticism of the state-owned economy
“Grasp the large, let the small go” policy Debate phase
1996 “Empirical” period

(1996 – 1997)
Drastic decrease in ideological arguments
"Seeking truth from facts" trend, increase in neutral reporting
1997 Discussion or survey reports on private enterprises
Demands for worker's ownership system

Jiang's "breakthrough" address at the 15th Party Congress (1997)

Incorporation period*
(1997 - 1999)
Ideological realignment
Ideological reconciliation, building socialist market economy
1998 Incorporation of private economy into the socialist system
- More accommodations of private enterprises
- Party control, socialist education of private entrepreneurs
1999 The end of the ownership debates, ideological homogenization
2000 Consolidation period
Consolidation
phase
(2000 - 2002)

Growing internationalization trend, developmental planning
2001 More accommodation of the private economy
Anti state-monopoly, private bank issues
“Three Represents” (Jiang’s “7.1 Important Address”)
WTO membership
2002 Re-ideologization trend

- Collective characterization of private enterprises
- “Minben” (people-based) economy
The 16th Party Congress, Jiang’s retirement
Note: *The period in which ideological debates occurred.

In the “consolidation” phase after the address, the incorporation efforts of the private
economy accelerated. In the “incorporation period” from 1997 to 1999, ideological
reconciliation between the liberals and conservatives started and the two sides engaged in
efforts to marketize the state-owned economy on one hand, while giving socialist
characteristics to private enterprises on the other hand. The ideological negotiation went

35
relatively successfully and the debates over the private economy mostly ended by 2000. The
“consolidation period” after 2000 saw a growing influence of global market conditions on
the debate process. During this period, the efforts to make private enterprises competitive in
the global market accelerated. By 2002, the private economy nearly became a dominant
economic force in China and the political status of private entrepreneurs was consolidated
with the address of Jiang Zemin’s “Three Represents” theory.
Figure 1 shows the content analysis data that indicates the changing ideological
dynamics on the private economy issues during the research period. The three lines
represent the percentages of the articles categorized as liberal or conservative and engaging
in ownership debates each year.

Figure 3.1: Articles categorized as liberal or conservative, and engaging in ownership debates

The turning point: Jiang’s “breakthrough” address at the 15
th
Party Congress (1997)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
93 94 95 96 97 98 99 00 01 02
Articles categorized
as liberal (%)
Articles categorized
as conservative (%)
Articles engaging in
ownership debate (%)

In general, liberal articles support further expansion of the private economy, while
conservative articles express concerns or suspicion over the private economy. During the
“open debate” period from 1993 to 1995 when the ideological debate over the private

36
economy was most intense, all the percentages are higher than the later periods. This
indicates a deep ideological division between liberals and conservatives on the private
economy issues. In the following “empirical period” (1996-1997), liberal articles and the
articles engaging in ownership debate decreased due to the non-ideological characteristics of
the period. After the “breakthrough” at the 15
th
Party Congress in 1997—the dividing point
of the two major phases, liberal articles drastically increased in the “incorporation period”
(1997-1999) and established their dominance by 2000. On the other hand, conservative
articles and the articles engaging in ownership debate continued to decrease and nearly
disappeared. This suggests that major ideological debate over the private economy mostly
ended by 2000 and that the private economy consolidated its status by then.

Ownership Reform Debate Process (1993-2002)

---“Debate phase” (1993-1997)---

Open debate period (1993- 1995)

Ideologically sensitive period
The period from 1993 to 1995 is labeled as the “open debate period.” Compared
with later years, academics or policy makers more freely and openly engaged in the debates
over the status and treatment of the private economy, and the ideological positions of the
authors were clearer. However, for private enterprises and entrepreneurs, the mid-1990s was
ideologically a very sensitive period. Whereas the growing admiration and support for
private enterprises were observed, the private economy was still officially considered an
“outside of the system” element. Strong ideological constraints were placed on the private

37
economy and private firms’ future was deeply uncertain. Terms such as “privatization” or
“capitalists” more frequently appeared in the articles written in this period, and the so-called
“capitalist-socialist” debate over the private economy occurred.
The debates over the private economy were conducted based on the clear
dichotomies between “public” and “private” ownership or between “socialism” and
“capitalism.” Liberals (market reformers) were struggling ideologically and theoretically to
justify the existence of the private economy in the socialist system. On the other hand,
conservative authors expressed their concern that “capitalists” would be coming back as the
non-state economy continued to develop at the current pace. The increase in illegal behavior
of private firms, such as “red hat” firms (private enterprises registered as collective
enterprises) or the close ties between bureaucrats and private entrepreneurs, contributed to
the suspicions over private enterprises among conservative policy makers and academics.
The growing wealth and well-being of private entrepreneurs, which often was accomplished
through illegitimate means, also caused a sense of envy among the general public. Some
policy makers, therefore, were concerned about the potential for social instability that further
development of private enterprises might cause.

Ideological justification of the private economy
The strong ideological constraints placed on the private economy is observed
through the fact that a majority of the reformist articles tried very hard to deny the
conservatives’ allegations that private entrepreneurs are capitalists or that allowing further
development of the private economy is a road toward privatization (siyou hua). The liberals
argued that these allegations were based on their misperception of the reform and were
influenced by leftist thought (zuo de guannian). In order to alleviate the conservatives’ fear
of privatization, the liberals used a different Chinese term to describe privatization, minying

38
hua (transition to non-governmental management), and distinguished the term from siyou
hua (transition to private ownership). Liberals asserted that “minying hua” is different from
the narrowly defined privatization or the dominance of private ownership. A liberal, Li
Dewei, defined “minying hua” as the removal of government control over enterprise
management, which at the same time encourages people’s involvement in economic
activities. Some liberals equated the shareholding reforms with “minying hua” and
incorporated publicly owned, privately-managed firms (contracted or leased SOEs) into the
“minying” economy.
20
Other liberals employed Deng’s production criterion and claimed
that the development of the private economy promotes social productivity development, and,
therefore, is a necessary step of socialist economic development.
21

A considerable part of these ideological justifications made by the liberals in this
period later became part of Jiang Zemin’s “theoretical breakthrough” address at the 15
th

Party Congress in 1997. Some reformist authors already claimed in 1994, three years before
Jiang’s address,
22
that the non-state economy is an “important integral part” (“zhongyao

20
“Zhongguo minying jingji fazhan xianzhuang yu qianjing taolun zongshu” (The summary of the
discussions over the current outlook and future forecast of China’s private economy development),
Gaige Neican (Internal Reference on Reform), vol. 22 (1993), pp. 13-16.

21
He Wei, “Dui Minying jingji de kanfa he zhengce jianyi” (Different perspectives and policy
recommendations of the private economy), Gaige Neican (Internal Reference on Reform), vol. 22
(1993), pp. 17-19.

22
This raises questions over the workings of China’s internal debates and the top leaders’ influence on
the debate process. Are the top leaders, before debates started, send signals to academics or officials
to set the limits on how far debates can go, and, then, the debates are freely conducted within the set
limits? Or do debaters start discussing whatever they want to discuss, while the top leaders closely
monitor the debates and decide next official lines, intervening whenever the debates go too far? To
find out which research institutions or policy makers are close to the top leader is a first step to
investigate these questions. See the conclusion chapter for more discussions over the top leaders’ role
in the reform debates.

39
zucheng bufen”) of the national economy
23
or an “organic integral” (“youji zicheng bufen”)
part of the system.
24

The main point of the justification was how to reconcile the two contradictory
concepts, “public” and “private” (“gong” and “si”), within the Marxist or socialist
framework. There are two major methods of justification. One is to submit new definitions
or interpretations of the private elements, such as the private economy or private ownership,
emphasizing public or socialistic aspects of them so as to be included in the public or
socialist system. As described above, defining the private economy as a people-managed
economy as opposed to a government-managed economy, or emphasizing the private
economy’s contributions to social or economic development, are typical examples of this
method. The other is to give new definitions or interpretations of the public ownership
system, expanding the scope of its definition so as to incorporate private ownership or the
private economy into it. This method became more common than the first one with the re-
definition effort of the state-owned economy that was observed in this period. By the mid
1990s, the state-owned economy could no longer sustain the “dominant position” (zhuti-
diwei) of China’s economy and was given a new role, the “guiding function” (zhudao
zuoyong) of the national economy. The redefinition effort helped promote new
interpretations of the public ownership system and of the relationship between the state-
owned and the private economies. The increase in individual shares in the shareholding
reform also stimulated this trend, and the policy makers faced the growing need to
theoretically incorporate individual ownership into the public ownership system. Various

23
Zhang Houyi, “Dui siying jingji diwei he zuoyong de zai renshi” (Re-examine the private
economy’s status and function), Gaige Neican (Internal Reference on Reform), vol. 18 (1994), pp. 29-
32.

24
Ma Jianxing, “Guanyu siying qiye de jige lilun he zhengce wenti” (Some theoretical and policy
problems concerning private enterprises), Gaige Neican (Internal Reference on Reform), vol. 20
(1994), pp. 25-29.

40
innovative ideas were submitted in this period. The following are the quotations of the
justification arguments from ownership reform articles:

Pursuing a purer or eternal form of socialism only leads to a dead-end. According to
the objective reality and economic principles, the public ownership system has to
change or develop so as to include various economic elements, including individual
ownership, within it. For example, workers’ individual shareholding, or laodongzhe
geren gufen suoyouzhi, is neither private ownership nor “red capitalism” but a new
way of realizing the public ownership system through the socialization of enterprise
assets and management rights.
25

The traditional sole proprietorship (quanmin suoyouzhi) is unrealistic at a time when
SOEs’ property rights or ownership rights are increasingly being divided into
various entities through the shareholding reform. It should be replaced by “financial
socialism” (jinrong shehui zhuyi), a new and “real” sole proprietorship under the
market economy. Through the development of the financial market, individual
shareholders come to gain the rights to collectively manage enterprises. Therefore,
marketization and financialization (jinronghua) are the socialization of the rights
previously managed by the state alone.
26

In fact, the two methods of justification—changing the definitions of the private
elements and of the public ownership system—are part of the same process of equating or
reconciling the “public” and “private” concepts. The more justifications were made, the
more the two concepts became closely associated with each other. In this justification
process, therefore, the interaction and reconciliation between market and socialist principles
are well observed.

25
Cao Yiping, Song Jun, “Wang Jue jiaoshou tan laodongzhe geren gufen suoyouzhi” (Professor
Wang Jue’s talk on the workers’ individual shareholding ownership system), Gaige Neican (Internal
Reference on Reform), vol. 19 (1994), pp. 29-33.

26
Li Guo, “Rang quanmin suoyou bu zai xuwang—Fang zhuming jingjixuejia Huang Fanzhang” (Do
not let sole proprietorship illusion again), Gaige Neican (Internal Reference on Reform), vol. 24
(1994), pp. 13-15.

41
Demands for regulation and control
Into 1995, the debate began to shift away from ideological to regulatory issues.
Despite the difference in their motivations, both liberals and conservatives started
demanding regulations and control of the private economy. The liberals persistently
indicated that there was discrimination, misperception or an unfair business environment
hindering private firms’ development. These liberal authors were sympathetic to private
enterprises and depicted them as the victims of the transitional, contradictory system. They
criticized the government for the delay or negligence in establishing regulations for fair
market competition and used the discrimination issues to push their reformist agendas.
Conservatives were, on the other hand, more concerned about the control “vacuum”
(zhenkong didai) of the private economy. Conservative authors indicated various problems
or illegal behavior associated with private enterprises, such as corruption, profiteering, low
quality of the products or lack of employee benefits, and demanded the control of private
firms’ behavior.
27

In this context, some corporatist arguments appeared. Unless private enterprises are
incorporated into the system right now—either through accommodation or control—they
would threaten social stability or the Chinese economy would lose important contributors to
its economic growth. Many liberal authors demanded more accommodations, such as the
increase of state bank loans to private firms or constitutional and legal protection of private
firms’ property. Some liberals worried about possible capital flight of private enterprises if
discrimination or unfair treatment continued.
28
Pragmatists proposed legitimatizing local

27
Niu Chonghuai, “Minying qiye fazhan zhong yin zhuyide jige guanxi” (The relationships that have
to be paid attention during the development of private enterprises), Gaige Neican (Internal Reference
on Reform), vol. 18 (1994), pp. 33-35.

28
He Wei, “Xianfa: Gei Siying jingji dingge ‘mingfen’” (The constitution: Give the private economy
a legal status), Gaige Neican (Internal Reference on Reform), vol. 6 (1995).

42
practices, including illegal or illegitimate practices such as “red hat” firms.
29
These
proposals can be considered the pragmatic reformers’ attempt to move the reform process
away from an ideological focus to more a practical one. The growing demands for
regulation and control also imply that ignoring the private economy as an “outside of the
system” element was increasingly difficult by the mid 1990s.

Shift toward the criticism of the state-owned economy
In 1995, the “capitalist-socialist” debate shifted its focus away from the justification
of the private economy to the criticism of the state-owned economy. This change is related
to the adoption of the “Grasp the large, let the small go” (“Zhuada Fangxiao”) policy and the
re-definition of the state-owned economy. With the “Grasp the large, let the small go,” the
central government permitted de-facto privatization of small or mid-sized SOEs (“let the
small go” part), while strengthening its control over large SOEs (“grasp the large” part).
These changes were helpful to the liberals’ justification efforts. With the re-definition
efforts, the shrinking portion of the state economy became an undeniable fact and the
liberals’ could more easily justify the importance of the private economy. The adoption of
the “Grasp the large, let the small go” policy also promoted the liberals’ perception that the
private economy would soon become a dominant force in China’s economy because a
majority of small or mid-sized SOEs were allowed to privatize and become actual and
potential non-state firms.
The liberals’ criticisms of the state-owned economy increased. Liberals listed a
wide range of problems associated with SOEs from surplus labor, inefficiency,

29
Yuan Yue, “Siying jingji butai ‘hong maozi’ xing ma” (Is the private economy not wearing “red
hat” legitimate?), Gaige Neican (Internal Reference on Reform), vol. 6 (1995). Pp. 26-28.

43
irresponsibility, corruption, government control, unclear property rights to price control.
30

These liberals presented statistical data and emphasized the shrinking portion of the state-
owned economy for the purpose of contrasting SOEs’ inefficient performance with the
successful private enterprises. Sarcastic comments concerning the state-owned economy
also appeared. One author noted, the state-owned economy is continuously shrinking but the
real problem is that it still accounts for too large a portion, with 90 percent of the industrial
output being produced by inefficient SOEs.
31
A liberal questioned if the state economy can
really satisfy the “guiding function” because the enterprises leading China’s economic
development and creating employment opportunities are mostly non-state enterprises.
32

However, the “Grasp the large, let the small go” policy raised the liberals’ concerns
over the state monopoly. Since the policy legitimated the government control over large
SOEs and the setup of the state monopolies, the liberals worried that the government would
expand the monopoly area to “competitive areas” in which a majority of the non-state firms
operated. The liberals tried hard to limit the state monopoly to “non-competitive” areas,
such as public works or the industries related to national security or resources.
33
From the
discussions over the state monopoly, however, emerged an idea of a functional division
between the state and non-state economies. Whereas SOEs dominate the “non-competitive”
or strategic industries, non-state enterprises operate in “competitive” industries such as
service or manufacturing. The idea of this functional division gave the private economy

30
Hu Yan, “Guoyouzhi xia de shi da nandian” (The ten problems of the state ownership system),
Gaige Neican (Internal Reference on Reform), vol. 8 (1995). Pp. 34-36.

31
Wei Jie, Zhang Yu, “Guoyou jingji: Fanwei bubi gouda” (The state-owned economy: Its range does
not need be too large), Gaige Neican (Internal Reference on Reform), vol. 7 (1995). Pp. 6-10.

32
Guan Yijin, “Dui guoyou jinji “zhudao” de jidian zhiyi” (Some questions over the state-owned
economy’s “guiding” function), Gaige Neican (Internal Reference on Reform), vol. 15 (1995).

33
Ibid.

44
legitimated reasons for its existence and the space in which it could assume important
functions for the economy.

Empirical period (1996- mid 1997)

The relatively brief period from early 1996 to the 15
th
Party Congress in mid 1997 is
the “empirical period.” Once the year 1996 started, ideological justification or arguments
drastically decreased and neutral reporting from local levels or foreign countries increased.
A variety of surveys on private enterprises or private entrepreneurs were also conducted in
this period. The findings of the surveys on private entrepreneurs’ personal expense, private
firms’ decision making styles, or the comparison of the firms “inside the system” (SOEs)
and “outside of the system” (private firms), were reported in detail without ideological
comments or moral judgments. Although the development of sophisticated survey
techniques and the increase in research organizations accounted for the increase in these
reports, the sudden increase of neutral reporting concurrent with the drastic decrease in
ideological arguments could also derive from political reasons. First, policy makers and
academics started collecting information on private enterprises in preparation for the
forthcoming 15
th
Party Congress. Second, pragmatist or realist policy makers—mainly the
reformists—grew tired of the endless ideological debates and attempted to persuade
conservatives or ideologues to become more realistic. Since mid-1995, the articles calling
for a drastic perception change or liberalization from traditional socialist thoughts appeared,
and “seeking truth from facts” (“Shishi qiushi”) became the most frequently quoted slogan.
This “seeking truth from facts” trend could be the reformists’ efforts to disclose
more “facts” or local market conditions, to alleviate conservatives’ privatization fear, and to
get the reform process back on track. The increase of the articles discussing foreign

45
privatization experiences could be part of this effort. Previously, the articles on foreign
privatization experiences nearly exclusively focused on the “shock therapy” taken by Russia
and contrasted the “failed” Russian experience with China’s successful reforms.
34
In the
“empirical period,” however, the privatization models other than the former communist
countries, such as Taiwan or Britain’s, began to be introduced. These articles emphasize the
gradual and partial privatization process undertaken by these countries and the governments’
effort to establish a reliable social security system prior to privatization. Ideologically less
sensitive words describing privatization, such as “minyinghua” (a transition to non-
governmental management) or “gongsihua” (incorporation), rather than “siyouhua” (a
transition to private ownership), are used in these articles.
35
The liberals attempted to show
conservatives that SOE or shareholding reforms are not something leading to capitalism or
Westernization but the process of reforming management rules and clarifying property rights
of SOEs.
36
In fact, in some Eastern European countries such as Poland or Hungary, a report
insisted, only ten percent of the total state shares were sold to the public, and the setup of
internal employee shares increased workers’ well-being and labor productivity.
37

The “seeking truth from facts” trend was also applied to private entrepreneurs, and
the articles discussing sensitive issues surrounding private entrepreneurs began to appear in

34
Yang Bin, “Eluosi siyouhua de shijian xiaoguo ji dui woguo de qishi” (Lessons that our country can
learn from the effects of Russian privatization practices), Gaige Neican (Internal Reference on
Reform), vol. 8 (1995), pp. 30-33.

35
“Dui Taiwan gongying qiye minyinghua de kaocha” (Examining Taiwan’s privatization of public
firms), Gaige Neican (Internal Reference on Reform), vol. 9 (1997), pp. 31-34. And “Yingguo shi
ruhe gao guoyou qiye minyinghua de” (How did Britain conduct privatization of national firms?),
Gaige Neican (Internal Reference on Reform), vol. 16 (1997), pp. 32-35.

36
“Guoqi gaige qineng zuojian zifu” (The SOE reform is against its own interests ), Gaige Neican
(Internal Reference on Reform), vol.23 (1996), pp. 4-7.

37
“Zhongdong Ou de hou minying hua zhongzu” (The re-organization experience after the
privatization in the Central European countries), Gaige Neican (Internal Reference on Reform), vol.19
(1996).

46
early 1997. One article discussed whether private entrepreneurs could be good officials, and
whether their characteristics are appropriate to take party positions such as village party
secretary. The author examined private entrepreneurs’ political ambitions, personal
backgrounds or business styles, and analyzed the strength and weakness of these
entrepreneurs. While concerns over private entrepreneurs’ individualistic, independent and
often corruptive tendencies were expressed, their skills, motivations and self-confidence
were considered as their strengths.
38
The treatment of red hat firms also became a
controversial issue in this period. Documenting Henan’s lawsuit against a red hat firm, one
article discussed whether red hat firms must be punished for “eating public funds” or
legitimized for their economic contributions.
39

As the 15
th
Party Congress drew closer, several conservative articles appeared in
succession. Ding Bing, an economics professor of the Capital Economic and Trade
University, was interviewed by the journal and expressed his complaints over de-facto
privatization or “non-nationalization” (“fei guoyouhua”).
40
In the report of the national labor
union’s seminar held in Shandong, conservative ideologues such as Han Wen expressed their
concerns over the lowered status of workers and proposed the establishment of a “workers’
ownership system” (zhigong suoyouzhi) in order to recover workers’ “masters” status.
41
The
liberal-conservative debate over state bank loans to private firms was also reported. A
liberal, Wang Jun from the Chinese Academy of Social Sciences (CASS), and two

38
Zhou Guohui, Lu Fukang, “Siying laoban neng dang cunzhishu ma” (Can private enterprise owners
become village party secretary?), Gaige Neican (Internal Reference on Reform), vol.9 (1997), pp. 18-
21.

39
“Yige “Hong maozi” qiyejia de beiju” (The tragedy of a “red hat” enterprise owner), Gaige Neican
(Internal Reference on Reform), vol.9 (1997), pp. 21-23.

40
“Ruhe kan guoqi gaige zhong de “fei guoyouhua” (How to look at the “privatization” during the
reforms of SOEs), Gaige Neican (Internal Reference on Reform), vol.17 (1996), pp. 30-32.

41
Lin Ya, “Zhigong tiwei wenti fengyun zaiqi” (The status of workers became controversial again),
Gaige Neican (Internal Reference on Reform), vol.19 (1996), pp. 12-15.

47
conservative officials from the China Commerce Bank and the Construction Bank debated
the issue but could not reach any agreement. Whereas Wang Jun argued for an increase in
state bank loans to non-state firms and the adoption of economic performance-based criteria
for loan approval, the two conservatives from the state banks emphasized the importance of
SOE’s political missions and opposed the economic criteria.
42
These local reports became a
prelude to the official legitimation of the private economy and the encouragement of further
shareholding reforms at the forthcoming 15
th
Party Congress. Jiang Zemin particularly
addressed these two issues at his speech.

Breakthrough (1997)

Jiang’s “breakthrough” address at the 15
th
Party Congress
Jiang Zemin’s address at the 15
th
Party Congress was considered by many reformers
an important “theoretical breakthrough”
43
for China’s ownership reform. Jiang declared that
China is still in the primary stage of socialist development, which was expected to take at
least one hundred years, and that during this stage China has to develop various economic
elements while maintaining the public ownership system as the principal system (yi
gongyouzhi wei zhuti). In this address, the non-state economy was defined as “an important
integral part” (zhongyao zucheng bufen) of China’s socialist market economy and its
important contributions to the development of socialism were emphasized. Following

42
Li Shuang, “Guoyou yinhang de qian yin dai gei shei” (Who must receive state bank loans?), Gaige
Neican (Internal Reference on Reform), vol.9 (1997), pp. 7-10.

43
Gao Shangquan, “Tiaozheng he wanshan suoyouzhi jiegou (Shang)—jingji tizhi gaige de zhongda
renwu” (Adjust and improve the ownership system structure, 1—Economic reform’s important
mission), Gaige Neican (Internal Reference on Reform), vol.20 (1997), pp. 4-11.

48
Jiang’s address, private or shareholding firms came to be officially considered part of the
socialist system and were allowed to compete equally and to develop together with public
firms, such as SOEs or collective enterprises. Jiang particularly encouraged the
diversification of “the existing forms of the public ownership system,” (“gongyouzhi shixian
xianshi”), by “boldly using various means to develop social productivity.” Jiang also
encouraged further shareholding reforms and defined the shareholding system as the union
of workers and the union of labor and capital. These two comments can be interpreted as the
official endorsement of SOEs’ de-facto privatization.
The 15
th
Party Congress was held soon after Deng Xiaoping’s death and Deng’s
legacy was inherited by Jiang. Most importantly, Deng’s production criterion—whatever
promotes the development of socialist productivity is the system that China should adopt—
was well reflected in Jiang’s comments, as was Deng’s pragmatism. Jiang stated that for the
victory of socialism over capitalism, China must borrow and adopt the best practices of
capitalism. Deng’s “middle course” or “balancing act” was also inherited by Jiang. Despite
the strong push for further marketization of the economy, Jiang carefully framed the issues
of the private economy and SH reforms in a way that did not alienate conservatives from the
market reform, using conservatives’ preferred terminologies or lines such as “union of
workers” or “maintaining public ownership as the principal system.” Jiang’s address equally
incorporated the arguments made by liberals and conservatives prior to the address and
attempted to balance the opposing ideological forces. This revealed ideological
contradictions in Jiang’s comments. It is noteworthy that Jiang’s address, which was very
important for him to establish his legitimacy as China’s new paramount leader, consisted of
the use and quotes of others’ works, such as the upholding of Deng’s theory, the
accommodation with liberal and conservative arguments, and the revival of others’
theoretical approaches such as the “primary stage of socialism,” which was derived from

49
Zhao Ziyang.
44
This is indicative of Jiang’s style of ruling as well as the top leader’s role in
policy debates and the reform process. The top leaders often act as a balancer of the
contending ideological forces or an endorser of the existing ideological climates found in the
policy communities.
45

Reformers’ immediate consolidation efforts
Before the momentum produced by Jiang’s address was lost, the liberals swiftly
submitted their interpretation of Jiang’s “breakthrough” address in an attempt to consolidate
his address in the most favorable way. In these “consolidation effort,” Deng’s slogans, such
as “start from reality” (“shiji chufa”) and “three benefits” (“sange youligan”), were
frequently used to justify the private economy’s equal status to the state-owned economy.
Deng’s production criterion—developmental goals take precedence over ideological
principles—was also used by the liberals to discourage unproductive ideological debates.
A leading reformer, Gao Shangquan, then the vice director of the System Reform
Commission (Tigaiwei), published an essay entitled, “Adjust and Improve the Ownership
System Structure: Economic Reform’s Important Mission.” In this essay, Gao emphasized
the following points: 1) The irrelevance of the distinction between “public” and “private”
ownership forms for developmental goals, 2) the changing status and functions of the state-
owned economy, and 3) the acceleration of the shareholding reforms.
Gao first claimed that any ownership forms that satisfy the “three benefits,” such as
the one that develops social productivity or that improves people’s living standards, are the
“correct” ownership systems. The distinction between “private” (“si”) versus “public”
(“gong”) or “capitalist” (“zi”) versus “socialist” (“she”) is no longer relevant. The “existing

44
Ibid.

45
See the conclusion chapter for more discussion of the top leaders’ role in the reform debates.

50
forms of the public ownership system” must be selected according to the actual
accomplishments of ownership forms in a market economy. The ownership forms that do
not contribute to productivity development, such as sole proprietorship, must be adjusted or
abolished in the course of the reform. Gao emphasized the importance of the concept of
“start from reality” for the state-owned economy issue. The shrinking portion of the state
economy is an undeniable fact and it is impossible to reverse this trend. As history already
revealed, maintaining the state ownership system as a sole legitimate system does not
contribute to the development of social productivity. What is important, Gao insisted, is to
accept this fact and go beyond the traditional thinking that the shrinking portion of the state
economy jeopardizes China’s socialism. Gao ensured conservatives that with the new role it
assumed as the “guiding function” (zhudao zuoyong), the state-owned economy could be the
“lifeline” of China’s economy through the strategic re-organization effort of large SOEs,
which in fact strengthens the public ownership system.
On the shareholding (SH) reform issue, Gao quoted Jiang’s words, “the union of
workers” and “the union of labor and capital,” and framed the SH reforms as the
establishment of the workers’ collective ownership system rather than an attempt to increase
private or individual ownership. By insisting that the SH reforms promote collective
ownership and the management of enterprises by workers, leading liberals such as Gao tried
to find common ground with the conservatives, who were concerned about potential
privatization as a result of the shareholding reforms. Gao defined the shareholding system
(SHS) as a new form of “collective economy” (jiti jingji), and discouraged to give any
ideological labels to this system. The SHS should be labeled neither capitalism nor
socialism. Quoting Marx, Gao argued that the SHS promotes the shift of the economic
system away from individual ownership to collective ownership since shareholding
combines individual capital through investment. This allows for more efficient allocation

51
and management of capital possible, which is beneficial to the development of a market
economy and the re-organization of large SOEs. The SHS also increases labor productivity
through workers’ ownership, and, therefore, satisfies Deng’s Xiaoping’s endorsement of
“prosper together” (“gongtong fuyou”).
46

The “Displacement of Conflicts”
The “theoretical breakthrough” by Jiang’s address can be considered as an attempt
to “displace the conflicts,”
47
or to re-define the dominant ideological principle in order to
remove the ideological constraints placed on private ownership or the private economy. The
“displacement of conflicts” is Schattschneider’s theory of party politics and political power.
The theory states that when “new alternatives” are defined by political leaders, “a new line
of cleavage” that divides the political space is drawn, and the dominant issue or principle
that previously divided the political space becomes irrelevant. The result is a shift of
political alignment, or “a new allocation of power,” in the political space. Therefore, “the
definition of the alternatives is,” as Schattchneider states, the “supreme instrument of
power.” Although this theory is mainly applicable to democratic societies with two party
systems in which elections are held, which is not the case in China, it could explain the shift
of liberal-conservative alignment observed after Jiang’s “breakthrough” address. The theory
also illuminates the top leaders’ political power, which mainly derives from their roles in
defining new ideological lines and deciding the course of reform policy debates. Jiang’s

46
Gao Shangquan, “Tiaozheng he wanshan suoyouzhi jiegou (Shang)—jingji tizhi gaige de zhongda
renwu” (Adjust and improve the ownership system structure, 1—Economic reform’s important
mission), Gaige Neican (Internal Reference on Reform), vol.20 (1997), pp. 4-11. See also
“Tiaozheng he wanshan suoyouzhi jiegou (Xia)—jingji tizhi gaige de zhongda renwu” (Adjust and
improve the ownership system structure, 2—Economic reform’s important mission), Gaige Neican
(Internal Reference on Reform), vol.21 (1997), pp. 4-9.

47
See, E.E. Schattschneider, The Semisovereign People: A Realist’s View of Democracy in America.
Pp. 60-75.

52
address defined the “new alternatives,” replaced the dominant issues of the ownership
debates, and produced an “ideological realignment”
48
in the political space.
As shown in Figure 3.2, before Jiang’s address, the political space was divided into
the liberal and conservative camps, and the two sides debated the private economy issues
based on the “capitalist-socialist” or “private-public” dichotomy. The major issue was
whether or not the private economy could be incorporated into the socialist system. The
conservatives considered that private enterprises were capitalist and an “outside of the
system” element. The liberals disregarded such claims and attempted to legitimate the
private economy.
Figure 3.2: Ideological alignment before Jiang’s address
Political space
The line of cleavage
(Ideological principle --
public/private dichotomy)
Conservatives
Market reformers
(Liberals)

Jiang’s comments on the private economy at the 15
th
Party Congress drew “a new
line of cleavage” and replaced the former ideological principle with the new one based on
the “production criterion” (See Figure 3.3). With the replacement of the principles, what
considered “correct” and “incorrect” were re-defined. The essence of Jiang’s address was
that any ownership system that promotes “social productivity development” is the “correct”
ownership system, regardless of whether it is private or public ownership. What came to be
considered “correct” after the address, therefore, was not merely public ownership but also

48
The use of the term, “realignment,” in a rigorous sense, is not appropriate unless democratic
elections are held.

53
the ownership forms that contribute to socialist productivity development. What came to be
considered “incorrect,” on the other hand, was not the “capitalistic” element or private
ownership but the ownership forms that go against market principles. (See Table 3.2).

Figure 3.3: Re-definition of ideological principles
Conservatives
Market reformers
Old principle
(public-private
dichotomy)
New principle
(production criterion)
(Liberals)

Table 3.2: Re-defined “correct” and “incorrect”

Correct Incorrect
Before Jiang’s address Public ownership Private ownership
__________________________________________________________________________

After Jiang’s address Ownership forms that Ownership forms that do
develop social productivity not develop social productivity

The new line changed the ideological alignment in the political space, or at least, in
the internal debating circle over the private economy issues. Due to the production criterion
imposed by the address, public ownership also has to marketize itself in order to be
considered the “correct” ownership system. This divided the conservatives in two and led a
majority of them to join the market reformers’ camp (See Figure 3.4).

54
Figure 3.4: A new line of cleavage and ideological realignment

Conservatives
Market reformers
(Liberals)
Old cleavage
(public/private
dichotomy)
New cleavage
(Production criterion)
Pro-SOE market reformers
Diehard ideologues

Market reformers
Losers
The new cleavage
Diehard ideologues
Winners

Jiang also drew the new line of cleavage in a way that prevented the alienation of the
conservative forces from market reforms. Jiang’s comment, “maintaining public ownership
as the principal system,” and the re-definition of the state-owned economy from “dominant
player” to “guiding function” of the national economy, were crucial to placating the
conservatives and preventing their alienation. Because of these efforts to accommodate the

55
conservative forces, the majority of the conservatives could agree to more market reforms
without compromising many of their socialist principles. These former conservatives soon
became a sort of “pro-SOE market reformers” and began to support the strategic re-
organization effort of large SOEs by promoting state monopolies. On the shareholding
reform, the conservatives accepted de-facto privatization of small SOEs and began to
promote the workers’ collective ownership system through the setup of collective employee
shares.
49
On the other hand, those who continued to raise ideological questions over the
private economy were left as a small minority of “diehard ideologues” in the political space
and lost their influence on internal debates and the policy making process over the
ownership reforms.
50

If Jiang Zemin needed the fewest possible enemies in order to consolidate his
position as China’s top leader at the 15
th
Party Congress, Jiang was very successful in this
regard. His address eventually made nearly everyone “market reformers” and the political
space was “realigned” in favor of Jiang Zemin and the original market reformers. The
political space after the address consisted of the dominant portion of market reformers and

49
See the next chapter for more discussions of the shareholding reform debates.

50
In this analysis, the political space only consists of the two groups, the liberals and the
conservatives. The simplification of the main actors demonstrates the ideological realignment with
the application of Schattschneider’s theory that assumes a two-party system, and the changing
ideological dynamics during the critical period of the reform debate over the private economy. Each
of the two main groups—the liberals and the conservatives—could be sub-divided into several groups
depending on such factors as the authors’ ideological flexibility or emotional commitment to the
issues at hand. In the case of the liberals in the mid 1990s, for example, at least radical, idealistic,
realistic, ambivalent, or opportunistic liberals existed, depending on the degree of support for the
private economy and market principles, or on the attitudes toward the conservatives. The
conservatives during the mid- to late 1990s is clearly divided into the two groups: the “opportunistic”
ones who joined the “market reformers” camp after Jiang’s “breakthrough” address and marketized
themselves, and the “hardliners” (the conservative ideologues) who continued to criticize the private
economy. As internationalization accelerated in the late 1990s, mercantilistic and nationalistic
attitudes appeared both in the liberal and the conservative camps. The emergence of these new
positions owes to a growing national confidence perceived by the policy makers, as a result of the
relatively successful ideological reconciliation and building of the socialist market economy. As later
sections and chapters show, the diversification of actors further accelerated after 2000. See the
Conclusion chapter for more discussions of the major actors.

56
the small minority of diehard ideologues as shown in Figure 3.4. With the diehard
conservatives losing influence thereafter, it is possible to refer to the newly formed and
strengthened market reformer’s side as the “winner’s camp” and the rest as the “loser’s
camp.”
This shift of the political space, however, was produced not only by Jiang Zemin
himself, but also by the liberals who seized the opportunity presented by Jiang’s speech and
swiftly attempted to consolidate their position. As observed in Gao’s arguments, leading
liberals picked particular lines of Jiang’s speech, redefined the central issues of the private
economy debate, and initiated the reconciliation process with the conservatives. Without
these efforts, the realignment could not have happened so successfully. It took some time,
however, for the original liberals to fully consolidate their positions, as well as for the
consolidation of the political status of the private economy. The liberals’ efforts continued
until the end of the following “incorporation” period. During this period, significant
interaction and negotiation between the liberals and conservatives were observed.

57
---Consolidation phase (1998-2002) –

Incorporation
51
period (1998 - 1999)

Reconciling socialism with the market: Building SME
The incorporation process of private enterprises into the socialist system is the major
part in the process of building a socialist market economy (SME), a hybrid system of
socialism and market. Although the establishment of SME was first addressed at the 14
th

Party Congress held in 1992, the building process did not go smoothly until Jiang’s address
removed the ideological constraints placed on the private economy. Although the
ideological differences between the former liberals and conservatives still persisted after
Jiang’s address, the two sides now agreed with the common goal that builds SME.
The effort to build SME was mainly the negotiation process between the liberals
who supported market principles and conservatives who supported socialist principles. The
process, therefore, consists of two parts. One part is to make socialist elements, such as the
state-owned economy or SOEs, more market-oriented, and the other is to make capitalist
elements, such as the private economy or shareholding firms, more socialistic. Through
these negotiations, the original liberals became more socialistic—or less “liberal”—while the
conservatives increasingly marketized themselves. The negotiation itself was therefore part

51
The “incorporation period” as well as the following “consolidation” period is named based on the
changing status and the treatment of the private economy rather than the nature of the debate
conducted in this period or the status of the liberal-conservative alignment. Although it is possible to
interpret the “incorporation” in relation to the workings of the debates, “reconciliation” could also be
used effectively in that case. It is true that as the private economy was increasingly incorporated into
the system, the conservatives’ arguments were also incorporated into the reformers’ (liberals’)
arguments to the point that the two positions nearly merged with each other. However, what mainly
occurred in the “incorporation” period was more of an equal interaction, negotiation, and
reconciliation between the original liberals and conservatives, or between market principles and
socialist ideology. These negotiations eventually led to the near unification of the political universe,
at least on the ownership issues, by which the status of the private economy was consolidated.

58
of the process of building SME, during which a significant degree of interaction between
socialist and market principles occurred.
The collaboration between the liberals and conservatives started right after the 15
th

Party Congress. The liberals engaged in removing the socialist privileges associated with
the state-owned economy in order to balance and re-organize the relationship between the
state and private economies. On the other hand, the conservatives tried to remove private or
individual characteristics of the private economy in order to make the private elements fit in
the socialist system. Despite the fact that the liberal-conservative collaboration was often
conducted with each side having different motives, the ideological reconciliation went
relatively smoothly owing to the common goal of building a SME.

Making socialist elements market-oriented: Marketizing SOEs
To marketize SOEs was a major part of the ideological reconciliation. The re-
organization of large SOEs, which was initiated by the adoption of “Grasp the large, let the
small go” (“Zhuada, fangxiao”) in 1995, was further accelerated during the incorporation
period. As noted above, the central government set up holding companies, created SOE
conglomerates, and began to control them through majority control of the shares (guojia
konggu). In order to realize the “guiding function” of the state economy, the government
tried to make these SOE conglomerates the “lifeline” of the economy, by establishing a
“non-competitive area,” or a state monopoly over the industries in which these SOEs
operated.
52
This was an attractive idea for the conservatives who wanted to maintain the
superiority of the state-owned economy over the non-state economy. With the establishment
of the state monopoly areas, a “functional division” between the state and non-state

52
Tang Renwu, Han Weiye, “Daotaxing kongzhi: Gongyouzhi zhongzu zhi lu” (The inversed tower
control: The re-organization of the public ownership system), Gaige Neican (Internal Reference on
Reform), vol.5 (1999), pp. 9-11.

59
economies was established: SOEs operate in a “non-competitive area” and non-state firms
operate in “competitive areas” such as manufacturing. This, in some sense, ensured an
“honorary exit” of the state economy from the more marketized and “competitive areas,”
53

but still maintained the privilege of the state-owned economy. As the former conservatives
joined this effort, the government-led marketization of SOEs accelerated, which eventually
resulted in marketizing not only SOEs but also the conservatives themselves.
Conversely, the liberals engaged in further clarification of the state-owned
economy’s redefined status. They began to remove the ideological privileges that the state-
owned economy had been enjoying, in order to equate the status of the state and non-state
economies. The liberals tried to make the conservatives understand that “maintaining public
ownership as the principal system” or the state-owned economy’s “guiding function” did not
mean to give a superior status to the state-owned economy. The liberals emphasized that the
state-owned economy is not the same as the “public ownership system” but simply a part of
it, just as non-state economies and firms are. The ideological arguments found in this
clarification process are very similar to the ideological justification arguments observed in
the “open debate period” between 1993 and 1995. However, the difference between the two
periods is that in the “incorporation period,” the more ideological clarifications were made,
the less clear the ideological divisions between the liberals and conservatives became.
Ironically, however, the term, the “public ownership system,” increasingly lost its meaning
as the state and non-state economies was equalized because nearly everything—including
the private economy and market principles—was incorporated into the term’s definition.

53
Zhu Yang, “Guanying minying fenshuiling zainali” (Where is a dividing line between governmental
and non-governmental management?), Gaige Neican (Internal Reference on Reform), vol.3 (1999),
pp. 23-24. Also, Yu Jianguo, “Tiaozheng guoyou jingji buju yin cong ‘fangxiao’ zheshou’ (The
adjustment of the state-owned economy must start from “let the small go”), Gaige Neican (Internal
Reference on Reform), vol.14 (1999), pp. 4-7.

60
Eventually the “public ownership system” assumed nearly the same meaning as a “market
economy.”
During the “incorporation period,” the former conservatives and the CCP
significantly marketized themselves. Some conservatives eventually began to argue like
liberals and the CCP’s slogans began to incorporate some market principles. Into 1998, the
ideological arguments found in the ownership reform articles became more contradictory in
a Western sense because of the effort to reconcile the two conflicting principles: the market
and socialism. The confusion over socialist and capitalist concepts, terminologies, as well as
favorable or subjective interpretations of Marxism or Western economic theories began to
appear. This suggests that the reconciliation of the two principles went relatively smoothly.
The content analysis data shows the reconciliation between the liberals and
conservatives during this period. Figure 3.5 shows the percentages of the articles containing
contradictory arguments that simultaneously support more market reforms and the
dominance of public ownership. The “contradictory argument” is a coding item chosen if
both liberal arguments (demanding more market reforms) and conservative arguments
(demanding more socialistic measures) appear in the same article. Therefore, the item’s
higher percentage indicates ideological reconciliation between the two sides. Although
“contradictory arguments” are divided into several categories depending on the contents of
the contradiction, Figure 3.5 shows, specifically, the percentages of the arguments
categorized as a “market/public ownership” contradiction. This contradiction concurrently
supports more market reforms including privatization and the dominant status of the public
ownership system. The percentages peaked during the incorporation period from 1997 to
1999. This indicates that a reconciliation effort was largely acceptable to the two sides in
this period, so was the reconciliation of socialist and market principles.

61
Figure 3.5: “Market/public ownership” contradiction
Contradictory arguments
(market/public ownership)
0%
5%
10%
15%
20%
25%
30%
35%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002

Making capitalist elements socialistic: Incorporating the private economy
The incorporation of the private economy into the socialist system was the process
that made the capitalist elements more socialistic or “fit in” the socialist system through
accommodation and control. The liberals attempted to give more accommodations to private
firms, while the conservatives concentrated on giving more socialist characteristics to the
private economy. As the incorporation proceeds, however, the party’s influence and
commitment also increased. Major incorporation efforts of the private economy in the
“incorporation period” are as follows:

Accommodation:
1) The legitimation of the political status of private enterprises and private
entrepreneurs: The effort was made by giving socialist characteristics to private
enterprises.
2) Improving private enterprises’ business environment: The effort consisted of the
removal of the restrictions imposed on private enterprises’ business operations and

62
the provision of more financial, administrative or legal support for private
enterprises.

Control:
3) Developmental planning and socialist education of private entrepreneurs: The effort
was made by planning the future developmental path of the private economy and by
educating private entrepreneurs to work for the society with the setup of
entrepreneurial models.
4) “Party build-up mission” (“dangjian gongzuo”): The effort consisted of the setup of
party branches in private enterprises and the invitation of private entrepreneurs to
join the Communist party.

Accommodation:
1) The legitimation of the political status of private enterprises and entrepreneurs
This was mainly accomplished by giving socialist characteristics to private
enterprises, often emphasizing private firms’ contributions to social and economic
development, or through the education of entrepreneurs. This effort therefore partially
overlapped with the control methods such as socialist education or “party build-up mission”
as described below. The liberals and the conservatives engaged in the effort with different
motivations. The conservatives were ideologically motivated to make private enterprises
socialistic, and began to categorize private enterprises or shareholding firms as part of
collective ownership, or the “cooperative ownership system” (“gongtong suoyouzhi”).
54
The

54
Guan Yixin, “”Gongyouzhi” de xin moshi” (New models of the “cooperative ownership system”),
Gaige Neican (Internal Reference on Reform), vol.20 (1997), pp. 11-13. Lu Yonghua, “Jiakuai

63
liberals, on the other hand, had pragmatic motivations. First, giving more socialist
characteristics to private firms protects them from further discrimination.
55
Second, higher
political status gives entrepreneurs social respect and a feeling of honor, which, in turn,
reduces their illegal behaviors or corruption. Third, social respect or higher political status
also satisfies entrepreneurs’ personal ambitions and gives them incentives to contribute to
the society’s development through their business.
The liberals continued to emphasize that private entrepreneurs are not self-interested
businessmen, but loyal socialist contributing to the society.
56
Some liberals indicated the
misperception associated with the concept of “private” due to the influence of “leftist
thoughts.”
57
In order to de-emphasize the private or capitalistic image of private
enterprises, the word “minying” (non-governmental management), instead of “siyou”
(private ownership) or “siying” (private management), began to be used more frequently
describe private enterprises. Some liberals also recommended the adjustment of party
theories for the improvement of private entrepreneurs’ po
to
litical status.

2) Improving private enterprises’ business environment
The liberals continued to promote a fair treatment of private firms in the approval of
state bank loans, the removal of the restrictions placed on private firms’ listings in stock
markets, the granting of foreign trade management rights to private firms, or the protection

butong suoyouzhi jingji de ronghe” (Accelerate a merger of the different ownership systems), Gaige
Neican (Internal Reference on Reform), vol.1 (1999), pp. 24-28.

55
Luo Jingfen, “Wei siying jingji zhengming” (The justification of the private economy), Gaige
Neican (Internal Reference on Reform), vol. 14 (1998), pp. 11-15.

56
He Wei, “Siying qiyejia shibushi zibenjia” (Are private entrepreneurs capitalists?), Gaige Neican
(Internal Reference on Reform), vol.1 (1998), pp. 32-34.

57
Wu Hongguang, “’Siyou’ xin shuo” (New thoughts on “private ownership”), Gaige Neican
(Internal Reference on Reform), vol.11 (1998), pp. 11-16.

64
of private firms’ legal rights and properties. These are the issues thoroughly discussed and
recommended by the liberals since the previous period, but the tone of the appeals assumed
more urgency and the liberals’ demands became more specific in this period.
As the de-facto privatization of small, mid-sized SOEs accelerated, private firms
were encouraged to purchase more SOEs. The benefits of leasing or purchasing SOEs were
emphasized in some articles: Private firms could use the resources only available for SOEs
and do not need to worry about employee benefits because SOEs are already equipped with
them. These recommendations often sounded like an advertisement for SOE’s bargain sale.
In relation to the on-going WTO negotiation, anti-state monopoly arguments
appeared in 1999. Some liberals started demanding the opening of state monopoly areas to
private firms and the legitimation of private banks. The debates over these issues show a
bottom-up nature of the accommodation process of private enterprises. By the time private
enterprises were officially and ideologically legitimated, the private economy had already
developed at local levels and informal or illegitimate practices, such as private loans or red
hat firms, had been prevalent and routinized in some areas. Therefore, the accommodation
process was a matter of legitimizing these informalities rather than creating new regulations
from scratch. The eventual legitimization of private banks or the opening of the state
monopoly areas to private investment are good examples of the bottom-up policy making
process. In developed localities like Shanghai or Zhejiang Province, local authorities had
already allowed private firms to enter state monopoly areas, such as banking, when the
central policy makers started seriously debating the issue.

65
Control:
3) Developmental planning and socialist education of private entrepreneurs
During the ideological reconciliation, the CCP increasingly marketized itself.
58

Some market principles became part of the party ideology and the party increased its
commitment to make private enterprises socialistic as well as competitive market players.
One of the consequences of the party’s increasing commitment was a developmental
planning of the private economy. Under the party’s new slogan, “Produce competitive and
highly moralistic leaders,” the creation of “entrepreneur market,” backed by a training and
evaluation system of entrepreneurs, was recommended.
59
A step-by-step plan to remove the
restrictions on private firms’ listing in stock markets was also proposed.
60
These plans were
the application of the methods once used under the central planning economy. Even if the
party was marketized, the traditional planning mentality did not easily go away.
The party also discouraged the small-scale, family-based management of private
enterprises by creating an entrepreneur model. The owner of a successful private enterprise
in Zhejiang, Jinyi group, was used for the model. The president of Jinyi group expanded his
small company to a conglomerate. The party admired Jinyi’s accomplishments, such as a
society-wide recruitment policy based on fair competition, collaboration among employees,
and the setup of a professional market research team, and encouraged other entrepreneurs to
emulate these practices. This effort was part of the “modern enterprise reform” (Xiandai
qiye zhidu gaige) that originally intended to improve SOE’s management system but the

58
Similar argument is found in Geremie Barme, In the Red: on Contemporary Chinese Culture.

59
Guo Wanchao, “Woguo qiyejia shichang xu jiakuai peiyu” (Develop China’s entrepreneur market),
Gaige Neican (Internal Reference on Reform), vol.24 (1999), pp. 25-27.

60
Dong Fan, Zhou Yu, “Shidu kuoda siyingjingji shangshi bili you haochu” (A gradual expansion of
private enterprises’ listing is beneficial), Gaige Neican (Internal Reference on Reform), vol.24 (1998),
pp. 20-23.

66
party began to apply it to private firms. Discouraging a family-based management was
based on the party’s developmental concern, but also intended to weaken the individual or
private image of private enterprises. The effort could have also been part of the party’s
attempt to prevent, as the corporatism literature argues, the development of autonomous
interests or social groups such as business conglomerates owned and controlled by close knit
families or kinship ties.
The setup of the entrepreneur model was also an attempt to re-create and re-educate
private entrepreneurs in a way that fits the party’s ideal image through psychological
manipulation. By stimulating entrepreneurs’ personal ambitions, the party attempted to
make private enterprises more economically competitive on one hand; and politically loyal
to the party and society on the other hand. The party’s main goal was to plant public-
mindedness into private entrepreneurs’ minds in order to encourage their social contribution
and reduce corruption. An educational slogan, “private ownership, public use,” or “siyou
gongyong,” which encouraged entrepreneurs to use their private wealth for the well-being of
the society, appeared in 1999 and became part of the entrepreneur model.
One of the ironies of the control efforts is that private enterprises enjoyed more
freedom before the incorporation started despite the discrimination and the public suspicion
they faced due to their “outside of the system” status. As the incorporation progressed and
more social respect and higher political status was given to private entrepreneurs, they
became the target of official planning, control and manipulation.

4) Party build-up mission, “Dangjian gongzuo”
In mid-1998, an article appeared in which the authors expressed grave concern over
the non-activity of party branches in former SOEs purchased by private individuals or non-

67
public entities.
61
In a form of local reporting, the two authors criticized the new owners’
individualistic, independent and authoritarian tendencies in their management of firms and
their indifference to the party organizations. The authors described the goal and detailed the
procedure for the “party build-up mission” (dangjian gongzuo) targeted at these private
firms. The main goal of the mission was to change private entrepreneurs’ dedication to the
party and to encourage them to contribute to the society. Unlike bureaucratic or
administrative control, the party’s control was more subtle and psychological. The article
stresses the importance of penetrating entrepreneurs’ mind and urges against the adoption of
forceful or authoritarian measures in the “build-up” mission. “Party missionaries” must keep
a low profile in the beginning and apprehend the characteristics of the targeting enterprises
in order to eventually participate in the firms’ decision making process with the control of
the firms’ dongshihui, or directors of boards. The mission must be initiated by organizing
party members or existing labor unions in the targeted firms, and the party gradually exerts
its influence on the firms through the education of workers or through the consultations of
these firms’ management matters. In this way, the party organizations could eventually
assume the “fortress function” (zhandou baolei zuoyong) of these private firms.
Unlike the accommodation effort, establishing party control over private enterprises
was a top-down process. At local levels, the party build-up mission was enforced, and began
to make progress after 2000 in developed regions such as Zhejiang. During 2001 and 2002,
the official provincial party journal of Zhejiang, Communist Party Member, (Gongchandang
yuan), was filled with the progress reports that documented the party build-up mission in

61
Huang Xiaoping, Wu Jianjun, “Guoqi bei siqi jianbing, dangde gongzuo zenmmeban” (How could
party missions be conducted for the SOEs purchased by private enterprises?), Gaige Neican (Internal
Reference on Reform), vol.15 (1998), pp. 30-33.

68
non-state firms at county or township-village levels.
62
The detailed method and goals of the
mission described in this 1998 article and the mission that was actually conducted in
Zhejiang from 2001 to 2002 were nearly identical. This suggests that, unlike the
accommodation effort, the party’s control over private enterprises had been established in a
“top-down” manner, as the corporatist literature assumes. The corporatism accounts argue
that the inclusion and cooptation of private entrepreneurs are part of the party’s corporatist
arrangement, through which the Leninist state has tried to “preempt” the rise of autonomous
interests and limit political participation.
63
The party was possibly being threatened by the
emergence of a potentially independent and powerful social force so that the scenario of
control was written immediately after private enterprises were officially legitimated.

The end of major ideological debate over the private economy
As private firms assumed more socialist characteristics, many authors started de-
emphasizing the difference between public and private ownership and admiring the rapid
development of a “mixed ownership economy,” or hunhe suoyouzhi jingji.
64
As more
reconciliation of public and private ownership was made, it became difficult to distinguish
liberals’ arguments from conservatives’. This suggests that the two sides reached
ideological agreements on the private economy issues, and that the ideological incorporation
of the private economy into the system had nearly been completed by then.

62
See Zhejiang province’s party journal, Communist Party Member, Gongchandang yuan, from vol.
396 to vol. 417, published from January, 2000 to December, 2001.

63
See Dickson, Bruce, 2000. “Cooptation and Corporatism in China: The Logic of Party
Adaptation.” Political Science Quarterly 115 (November), Pp. 517-540.

64
Zhu Yan, “Guanying minying fenshuiling zainali” (Where is a dividing line between governmental
and private managements?), Gaige Neican (Internal Reference on Reform), vol.3 (1999), pp. 23-24.

69
At the end of 1999, the Chinese Academy of Social Sciences (CASS) invited Janos
Kornai and reported his speech on “post” socialist policies. Kornai’s talk covered a wide
range of post-socialist management issues, such as government’s regulatory functions, the
role of the central bank, and the importance of social security for further privatization.
65
By
detailing Kornai’s seminar on the post-socialist policies, the CASS indirectly suggested the
end of the major ideological debate over the private economy.
The end of the ownership debates around 1999 is also supported by the content
analysis data. Figure 3.6 shows the percentages of the two coding items that indicate the
existence of ideological debates, “lip-service conservatism” and “market/public ownership
contradiction.” The item, “lip-service conservatism,” is coded if a liberal author pays lip
service to conservatives in an attempt to alleviate conservatives’ criticisms or to maintain
ideological appropriateness. Lip-service is in many cases made by referring to socialist or
party slogans or propaganda in a relatively superficial manner. The item is, therefore,
indicating the existence of ideological divisions or constraints. The “contradictory
argument” is, as noted earlier, a similar item coded if an article contains both liberal and
conservative arguments. However, unlike “lip-service conservatism,” it indicates
ideological reconciliation rather than ideological division.

65
Han Meng, “Ke-er-nai tan ‘hou shehuizhuyi guojia’ gaige de jiaoxun” (Konai’s talk on reform
lessons from “post-socialist countries”), Gaige Neican (Internal Reference on Reform), vol.15 (1999),
pp. 37-40.

70
Figure 3.6: “Lip-service conservatism” and “market/public ownership” contradiction
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Lip-service conservatism
Contradictory arguments
(market/public ow nership)

The end of the debate

Figure 3.6 shows the higher percentages of “lip-service conservatism” throughout
the 1990s, which indicate the ideological constraints placed on the private economy issues.
On the other hand, the percentage of “market/public ownership” contradiction increased with
Jiang’s address in 1997 and peaked during the “incorporation period” from 1997 to 1999.
This suggests that ideological reconciliation largely occurred in this period. The zero
percentage of the “contradictory arguments” during the “capitalist-socialist debate” period
from 1993 to 1995 indicates that no such ideological reconciliation was made because of the
deep ideological division between the liberals and the conservatives. Figure 3.6 also shows
the near disappearances of both items by 2000. Since the two items indicate the existence of
ideological debates despite their difference, the disappearance indicates the end of the major
ideological debates over the private economy by then.

71
Ideological homogenization
The end of the debate could be the indication of an ideological homogenization of
the political space, at least on the ownership reform issue, as a result of the successful
ideological reconciliation between the liberals and the conservatives during the incorporation
period. The content analysis data clearly shows the homogenization of the political space at
the end of the incorporation period.

Figure 3.7: Articles categorized as liberal or conservative

Jiang’s address at the 15
th
Party Congress

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
93 94 95 96 97 98 99 00 01 02
Articles categorized
as liberal (%)
Articles categorized
as conservative (%)

Figure 3.7 above shows that conservative voices started decreasing after Jiang’s
address and nearly disappeared by 2000 as liberal articles established their dominance. The
dominance of liberal articles could be considered a completion of the “ideological
realignment” set off by Jiang’s address (See Figure 3.8), which made nearly everyone in the
political space “market reformers” or “liberals” on the private economy issues.

72
Figure 3.8: Ideological Realignment (reprinted from the previous section)

The old cleavage
Market reformers
Conservatives

Market reformers
Losers
The new cleavage
Winners
Diehard ideologues

What happened to the “diehard ideologues”? Even if such conservative ideologues
still existed, it is apparent that they had lost their influence on the reform debate processes by
the end of the “incorporation” period. The articles published in a conservative journal, The
Pursuit of the Truth (Zhenli de Zhuiqiu), which was banned in mid-2001 because of its ultra
conservative stance, show a significant deviation of these conservatives’ arguments from the
ones found in Internal Reference on Reform, the journal used for this research.
In late 2000, the articles in The Pursuit of the Truth still argued that private
enterprises were “capitalists” and strongly opposed private entrepreneurs’ membership to the
Communist party. Huang Rutong, a researcher of the CASS, argued that private

73
entrepreneurs cannot be socialist workers because the salaries of private enterprise owners
do not come from their labor but from their firms’ profit and their salaries are often several
hundred times higher than those of ordinary workers.
66
The Communist party, therefore,
cannot absorb private entrepreneurs who are exploiting workers; nor could the entrepreneurs
be a model of workers. The capitalists’ membership in the party also would produce
detrimental consequences for the party, such as ideological confusion of the party, and the
formation of interest groups within the party that represent capitalists or wealthy people
(zichan zhe).
67
From late 2000 to 2001, as Jiang’s Zemin’s “Three Represents” appeared,
the authors labeled private entrepreneurs a “new capitalist class” (xin de zichan jieji) and
firmly opposed their membership in the party.
68
These arguments often developed into
criticism of the party and the denial of market reforms. A professor of the Party School in
Nantong city, Chen Xueming, indicated the “cover-up” of privatization with the use of the
word, “minying.”
69
The word, “minying,” literally means a non-governmental management
but normally indicates the private economy or enterprises. It was, in fact, the reformist’s
strategy to de-emphasize de-facto privatization and the expansion of the private economy
with the use of ideologically less sensitive words, “minying” or “minying hua” (a transition
to non-governmental management) rather than “siyouhua” (privatization). Shen’s comment,
therefore, told the truth and uncovered the reformist’s strategy. However, the reformist

66
Huang Rutong, “Siying qiyezhu bushi shehui zhuyi laodongzhe” (Private enterprise owners are not
socialist workers), Zhenli de Zhuiqiu (The Pursuit of the Truth), vol.11 (2000). Pp. 28-31.

67
Huang Qiuhua, “Buneng xishou siying qiyezhu jarru gongchangdang” (The Communist Party can
not absorb private enterprise owners), Zhenli de Zhuiqiu (The Pursuit of the Truth), vol.12 (2000). Pp.
7-12.

68
Guan Minzheng, “Woguo dangqian youmeiyou xiangcheng xin de zichan jieji?” (Is a new capitalist
class being formed in our country?), Zhenli de Zhuiqiu (The Pursuit of the Truth), vol.5 (2001). Pp.
12-16.

69
Chen Xueming, “Jinfang siyouhua jia ‘minying jingji’ zhi ming yi xing” (Guard against the
privatization going on under the ‘non-governmental management economy’), Zhenli de Zhuiqiu (The
Pursuit of the Truth), vol.1 (2001). Pp. 23-26.

74
strategy was endorsed by Jiang Zemin and used as a tool to maintain the coalition of the
liberals and conservatives in the political space. Therefore, criticizing the strategy was
nearly the same as criticizing Jiang and his attempt to reconcile the contending ideological
forces. This could have been one of the reasons that the journal was banned by Jiang in
2001.
Overall, these conservatives’ arguments show that these ideologues still clung to the
“old cleavage” or the “socialist/capitalist” principle, which was abolished by Jiang’s speech
nearly four years before. Even after Jiang re-defined the ideological principle and replaced
the dominant issues of the debate, these ideologues continued to raise old issues. However,
their issue—private entrepreneurs are capitalists—could no longer be an issue in the new
alignment. Schattschneider states that politics is a fight between the displacement of
conflicts and efforts to resist the displacement of conflicts. Once the old issue or conflict
was replaced by a new one, the “power of irrelevance” is imposed on those who “want to
continue the old fight.” However, it is often the case that diehard minorities become a
“permanently isolated minority” in the political space and attempt to divide the majority by
starting a new fight.
70
The ban of the journal might have been Jiang’s attempt to remove
such a potentially destabilizing force that could threaten the unity of the political universe.

The paradox of ideological homogenization
The ideological homogenization, however, was not a simple victory of market
principles over socialist principles or of the original market reformers over the former
conservatives; nor was it the end of ideology. On the contrary, the homogenization can be

70
See, E.E. Schattschneider, The Semisovereign People: A Realist’s View of Democracy in America.
Pp. 68-73.

75
considered an “ideologization”
71
of the political space by the top leader. On the surface,
with the removal of the ideological constraints placed on private ownership, the private
economy was incorporated into the system and the marketization of the economy further
accelerated after Jiang’s address. However, during the reconciliation process between the
liberals and conservatives, a significant degree of reconciliation was made between market
and socialist principles. What occurred during the reconciliation could therefore be
considered an ideologization of market principles and a marketization of ideology. The
conservatives marketized themselves enough to the point that some market principles
became part of official ideology. If the conservatives’ side compromises could be referred to
as the marketization of ideology, the liberals’ side compromises could be the ideologization
of market principles. During the ideological negotiation, the original liberals became more
socialistic and started showing more understanding of socialist principles to the same degree
that the conservatives marketized themselves. Therefore, the original liberals’ “market-
orientedness” or “liberalness” regressed despite the increasing accommodation and the
incorporation of the “capitalists” or the private economy. For the original liberals, the
reconciliation was a trade-off between the legitimation of the private economy’s political
status in the system and the acceptance of more socialist principles. The liberals before the
reconciliation were, therefore, more “liberal” or market oriented, showing no doubt on
Western capitalist principles or concepts such as natural selection, survival of the fittest or
objective economic laws. It is ironic but their market-orientedness was compromised
through the incorporation of the “capitalists” in the socialist system, and private enterprises
assumed more socialistic characteristics. In this regard, what happened during the
incorporation period was considered the ideologization of market principles, rather than a

71
The term is borrowed from SunYan, The Chinese Reassessment of Socialism, 1976-1992.

76
victory of market principles over socialist ideology, and the political space was more
ideologized.
The content analysis data supports the paradox of the ideological homogenization.
Figure 3.9 combines the previously shown data, the number of articles categorized as liberal
or conservative (shown in Figure 3.7) and the percentages of “market/public ownership”
contradiction (shown in Figure 3.5).

Figure 3.9: Articles categorized as liberal or conservative and “market/public ownership” observed
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
93 94 95 96 97 98 99 00 01 02
0%
5%
10%
15%
20%
25%
30%
35%
Articles categorized as liberal
(%)
Articles categorized as
conservative (%)
Contradictory arguments /
Market/public ownership (%)

The end of the debate

Figure 3.9 shows that the dominance of liberal articles was established around 1999
and 2000, which indicates the ideological homogenization, where nearly everyone became
market reformers and the ideological realignment was completed. And the establishment of
the dominance of liberal articles came at nearly the same time as the end of the liberal-
conservative reconciliation, which is captured by the peaked percentages of “market/public
ownership” from 1997 to 1999. This suggests that despite the established dominance of
liberal articles at the end of the major debates, the liberal arguments after the reconciliation
assumed more socialistic or “less liberal” characteristics compared with the ones observed

77
before the reconciliation. The articles categorized as liberal after 1999 even include the ones
written by relatively conservative authors.
72

If what occurred during the reconciliation were the ideologization of market
principles and the marketization of ideology, it means that ideology’s influence increased
during this period. It also can be said that the political space was more pluralistic—or at
least, dualistic—before the ideological realignment occurred, in which the liberals and
conservatives debated the private economy issues based on their ideological beliefs. Despite
the ideological constraints imposed on the private economy, the element of pluralism (or the
“relaxation” period in Sun’s words) existed before Jiang’s address because the two camps at
least existed in the political space.
If this was the case, the observed two distinctive periods so far—the pluralistic
debate period before Jiang’s address and the following reconciliation period characterized
with harmony and ideological homogenization—can be a continuation of the ideological
cycling or “fang/shou” cycle mentioned by Sun and Baum.
73
The relatively pluralistic
debate period before Jiang’s address could be a “relaxation” or “fang” phase of the cycle and
the following ideological reconciliation and homogenization period could be an
“ideologization” or “shou” phase of the cycle.

Consolidation period (2000-2002)

By 2000, private enterprises were fully legitimated. The appearance of the
dichotomy of the state and non-state economies decreased, and the terms calling both the

72
See Chapter 5 for more discussion of the paradox of ideological homogenization.

73
See, Sun Yan, The Chinese Reassessment of Socialism, 1976-1992. Richard Baum, Burying Mao

78
state and non-state enterprises and economies without distinctions, such as the “national
economy” (guomin jingji) or “small, mid-sized enterprises” (zhongxiao qiye) began to be
used more often to describe the private economy or enterprises. In an accelerated
internationalization trend after 2000, the policy makers’ arguments over the private economy
were more influenced by global market conditions than ideology or socialist principles.

Internationalization-led accommodation of private enterprises
As the WTO negotiations entered into the final stage, the Chinese policy makers
began to realize that China’s domestic firms, especially private enterprises, were not
competitive enough to compete with foreign or multi-national firms that would soon rush
into China’s domestic market. Many authors started lamenting the poor performance of
China’s private enterprises in terms of corporate governance, marketing research, risk
analysis or global business strategies.
74
Perceiving the potential threat of foreign domination
of China’s domestic market, the policy makers started calling for strengthening the private
economy. To make private enterprises more competitive in the domestic and world markets
became an immediate goal of the reform in 2000 and 2001. By this time, the non-state
economy accounted for two-thirds of China’s overall economy and private enterprises came
to be counted as a potentially reliable force to compete equally with foreign capital if their
performance was improved.
The policy makers listed and examined the discrimination against private enterprise
that still remained—formally or informally—in financing, listing, tax, market entry, land use
or foreign trade rights.
75
Unlike the previous periods, these indications documented specific

74
Sung Yangyan, “Minqi ‘liuji’” (The six things that private enterprises must avoid), Gaige Neican
(Internal Reference on Reform), vol.14 (2000), pp. 12-16.

75
“Minjian touzi weihe xianzhi jiaoduo” (Why are the restrictions placed on private investment so
high?), Gaige Neican (Internal Reference on Reform), vol.13 (2000), pp. 39-40.

79
details of local conditions, such as unfairly strict standards for licensing for private
enterprises imposed by particular local bureaus or the list of industries that were still
“illegally” closed for private investments in specific localities. The lack of intermediate
organizations to assist private firms’ business management or the lack of preferential
policies or incentives for private investment was also indicated.
76
The policy makers’
intention to use private investments for the development of less developed regions such as
western China also existed behind this accommodation drive. Some policy makers
considered that it is more economically rational if the Great Western Development (Xibu
dakaifa) would be financed by private investments rather than by government subsidies.
77

Private bank issue
The legitimization of private banks became one of the prominent issues from 2000
to 2001. The private bank issue emerged as part of the anti-state monopoly issue triggered
by the WTO negotiations. The main argument was that if foreign firms are allowed to enter
into the state’s monopoly areas like the financial service industry, domestic private firms
must also be allowed to engage in such businesses as banking.
There are some noticeable tendencies in the debate over the private bank issue.
First, unlike the 1990s, there were few ideological debates involved, although some authors
expressed cautious opinions over the opening of strategic areas such as energy or
telecommunication industries to private or foreign investments. Second, the advocates of

76
Geng Hongfu, Liu Guoyan, Lu Aiguo, “Hushang minjian touzi ji duo nan” (Shanghai’s private
investment difficulties), Gaige Neican (Internal Reference on Reform), vol.1 (2001), pp. 17-20.

77
An Shiwen, “Zouchu yitiao fazhan minying jingji de xinlu” (Take a new road for the private
economy development), Gaige Neican (Internal Reference on Reform), vol.23 (2000), pp. 2-5. Also,
Shi Shaochun, Guo Qiaolin, “Xibu kaifa yao ladong minjian ziben” (Western development needs
private capital for its jump-start), Gaige Neican (Internal Reference on Reform), vol.3 (2001), pp. 29-
31.

80
private banks made their claims based on their clear understanding of Western economics
theories or the workings of the global economy. Some authors engaged in social-scientific
analysis of private banks conducting extensive field research. Based on field research of 40
villages across the country, Wen Tiejun, a researcher from CASS, concluded that the state
banks’ withdrawal from villages due to the commercial bank reform caused the emergence
of private, illegal, and high-interest rate loans (gaolidai) in villages across the country.
Some of the high-interest loans were managed by former cadres or local elites with the
assistance of local criminal organizations.
78

Third, the private bank issue symbolizes the increasingly market-driven, bottom-up
tendency of China’s reform policy making process. Policy liberalization therefore became a
matter of legitimizing local market conditions. When the central policy makers began to
debate the private bank issues, the private loan market had already emerged, developed and
functioned relatively well in developed regions. What the researchers or authors have found
during their field research in villages was the spontaneous development of illegal private
loans nationwide, such as “village fund,” “underground banks,” or the private financial
market, especially in developed regions such as Wenzhou. The central government could
not simply punish those engaged in making or receiving these illegal loans because they had
developed according to market logic or economic rationality, satisfied financial needs of
local enterprises or farmers, and contributed to economic growth. It turned out that even
illegal high interest loans conformed to the market principle: the high interest rates reflected
higher political and economic risks that mainly derived from their illegal status. The authors
concluded that unless the government legitimated these private financial organizations as
soon as possible, the result would be economic instability because the emergence of these

78
Wen Tiejun, “Nongcun gaolidai: Sheju xinyong hezuo quewei de daijia” (High interest loans in
villages: The price paid for the lack of district-level credit cooperatives), Gaige Neican (Internal
Reference on Reform), vol.5 (2001), pp. 15-9.

81
illegal private loans had actually been necessary. Zhang Shuguang even stated that
restricting private loans was “absurd” and merely promoted the development of criminal
high interest loans.
79
Furthermore, the authors found that close human relationships among
villagers had contributed to maintaining the business credibility of those offering these
private loans, despite their illegal status. They also lowered the economic risks. The central
policy makers were in fact amazed that the foundation of credit culture, such as business
credibility, was already existed in the villages.
80

Internationalization-driven nationalism and fear
After the acquisition of WTO membership in late 2001, the two conflicting feelings
began to appear at the same time: Growing national confidence and fear of global market
competition in China’s domestic market. The WTO membership clearly gave Chinese
policy makers national confidence that China became a member of the prestigious
international organization as a result of the successful economic reform. The national
confidence was also expressed by comparing China’s economic reform with Russia’s
“failed” reforms and near collapsed economy.
81
The indication of the “failed” Russian
reforms was, however, also the manifestation of a sense of insecurity or a contradictory
feeling that the Chinese policy makers felt in the growing wave of internationalization.
Although China’s reform was successful so far, China would become like Russia or the

79
Zhang Shuguang, “Zhengmen bukai bizou panmen” (If the front gate is not open, get in from the
back door), Gaige Neican (Internal Reference on Reform), vol.5 (2001), pp. 19-21.

80
Wang Xiaoyi, “Cong Wenzhou qingkuang kan nongcun minjian jinrong” (Analyze private finance
in villages based on Wenzhou’s experience), Gaige Neican (Internal Reference on Reform), vol.5
(2001), pp. 21-24.

81
Tai Hui, Jin Yan, “Shehui jingji zhuangui de daijia—Rehuati yu lengsikao zhi er” (The prices paid
for social economic transformation: Hot topic and cool analysis (2)), Gaige Neican (Internal
Reference on Reform), vol.5 (2002), pp. 9-12.

82
reform would fail if China simply follows or copies Western models and opens its market to
foreign capital.
The contradictory feeling of fear and confidence was also observed in the policy
makers’ expressed desire to build an economic model that is not simply a copy of Western
models but is distinctively Chinese, emphasizing more of social equality or fairness.
82
The
growing internationalization influence, especially the forced opening or liberalization of
China’s domestic market with the acquisition to the WTO membership, sharpened the
Chinese policy makers’ deep-seated fear of market instability and distrust of Western
capitalist models that place economic efficiency over social equality.
Anti-foreign sentiment appeared in this context. Some authors asserted, foreign
firms only think about their own profit, not about China’s development; therefore, China has
to avoid being manipulated by foreigners into an import-substitution development.
83
The
domination of China’s market by foreign capital through the acquisitions of major Chinese
companies could be the result if China liberated stock trading, as had happened in Hungary.
The “oligarch privatization” or the concentrations of wealth by a few individuals, which
happened in Russia, was also a potential problem that internationalization would bring
about. In order to avoid such outcomes, two things were recommended: 1) Do not blindly
follow the advice of Western economists, especially those who support neo-classical models,
and 2) Give priority to social equality over market efficiency, consider consumers’ interests
first, and adopt a “mass” privatization strategy.
84

82
In the property rights/shareholding reform debate process, heated debates over economic efficiency
versus social equality is observed. For details, see Chapter 4.

83
Zhao Xiao, “Jiaru WTO hou zui zhongyao de shi shi shenme” (What is the most important thing
after entering the WTO?), Gaige Neican (Internal Reference on Reform), vol.4 (2002), pp. 6-9.

84
Qin Hui, Jin Yan. “Shehui jingji zhuangui de daijia—Rehuati yu lengsikao zhi san” (The prices
paid for social economic transformation: Hot topic and cool analysis (3)), Gaige Neican (Internal
Reference on Reform), vol.6 (2002), pp. 9-12.

83
Re-ideologization toward the 16
th
Party Congress
From 2001 to 2002, a change of trend was observed in the arguments over the
private economy. Regulatory issues or practical recommendations prevalent in 2000 and
2001 were replaced by political or legal rights issues surrounding the private economy. The
change of trend was related to the formulation of Jiang Zemin’s “Three Represents” in the
“7.1 Important Address” in July 2001, and the forthcoming 16
th
Party Congress in 2002, at
which the political status of private entrepreneurs became one of the major themes. Since
mid-2001, the articles that conducted “background checks” of private entrepreneurs
increased. Detailed statistical reports on the demographics of private entrepreneurs or the
analysis of entrepreneurs’ backgrounds appeared, in which the authors discussed possible
detriments of incorporating private entrepreneurs into the leadership structure of the society
as one of the “three represents.”
85
While some authors attempted to promote a good image
of private entrepreneurs, cautious opinions or suspicion were also expressed. Some articles
claimed the opening of “a new era” for the private economy and predicted that the private
economy would soon become China’s principal economic system.
86
The discussion over
constitutional amendment for the protection of private property also started. The increased
capital flight of private enterprises after 2000 in part promoted the need for legal protection
of private property for further development of a market economy.
87
Terms considered
ideologically sensitive in previous years, such as “private ownership” (siyouzhi), “freedom”

85
Li Qiang, “Siying qiyezhu shi cong nail laide” (Where are private enterprise owners from?), Gaige
Neican (Internal Reference on Reform), vol.9 (2001), pp. 20-24.

86
“Minqi yinglai xin jiyu” (Private enterprises are given new opportunities), Gaige Neican (Internal
Reference on Reform), vol.4 (2001), pp. 40-42.

87
Li Shuguang, “Xianfa wei shenme yao baohu siyou caichangquan” (Why should the constitution
protect rights to private property?), Gaige Neican (Internal Reference on Reform), vol.23 (2001), pp.
35-37.

84
(“ziyou”), or “individual autonomy” (“geren zizhi”) frequently appeared in these articles.
The increasing use of these words indicates a significant perceptual change from previous
years and the rise of legal rights consciousness among the Chinese.
On the other hand, as some entrepreneurs became wealthy and politically influential,
the concerns over “power-money trade” (quanqian jiaoyi) between government officials and
private entrepreneurs were raised. Some successful private entrepreneurs were former
government officials who supervised SOEs. The former-officials-turned-private-
entrepreneurs (xiahai jingshang) were enjoying the advantages in resource procurement or
financial support and privatized political power for personal interests (yi quan mou si).
88

Such “power-money trade” is, cautious authors argued, more likely to result in “oligarch
privatization” (guatou siyouhua) or “bureaucratic state capitalism” (Guanliao guojia
zibenzhuyi) as happened in Russia.
89

As the 16
th
Party Congress came closer, ideological framing of the private economy
increased. A new term, the “people-based economy” (“minben jingji”), appeared in early
2002. According to Gao Shangquan, the minben economy is a market-based economy and
the private economy is the central component of it. The minben economy is managed
primarily by people (minying), and financed by non-governmental (minjian) or social
(shehui) capital. Under the minben economy, community projects (sheju shiye) are primarily
undertaken by people’s initiative (minban), and the government role in the economy is
restricted to the creation and maintenance of a good economic environment.

88
Li Qiang, “Siying qiyezhu shi cong nail laide” (Where are private enterprise owners from?), Gaige
Neican (Internal Reference on Reform), vol.9 (2001), pp. 20-24.

89
Qin Hui, Jin Yan. “Guatou siyouhua de Eluosi” (Oligarchy privatization in Russia), Gaige Neican
(Internal Reference on Reform), vol.9 (2001), pp. 37-42.

85
These definitions give an instant impression that the private economy finally
consolidated its status in the socialist system and China accomplished a transition to a
market economy. Under the “minben economy” the government is expected to retreat from
enterprise affairs, market competition is encouraged, and people’s legal rights are protected.
However, the “minben economy,” by definition, sounds rather like the re-establishment of a
new public or collective ownership system. The definitions emphasized people’s initiatives
in economic activities and characterized private enterprises as collectively-run, “people’s
enterprises,” just as SOEs once were, rather than firms owned and managed by private
individuals. The definitions actually discouraged private ownership, emphasizing the
concept of the “socialization of capital” (ziben shehuihua): Individual capital needs to
combine into larger accumulations to become “socialized,” which is necessary to survive
market competition. Through the “socialization of capital,” individual or private capital
eventually ceases to exist.
90
As the 16
th
Party Congress came closer, ideological terms such
as “mass line” (qunzhong luxian) re-appeared and the importance of “people” or the
collectively-run characteristics of the “minben economy” were emphasized.
The emphasis on “people” or “masses” is also the central theme of Jiang’s “Three
Represents.” Despite the theory’s justification of the private economy and private
entrepreneurs, it also emphasizes the importance of satisfying the basic needs of the masses.
According to Fewsmith, the “Three Represents” was Jiang’s response to rising social
criticism and nationalism after 2000, and attempted to adjust social inequalities or distortions
that emerged in the rapid economic growth and internationalization.
91
The “Three
Represents,” as well as the encouragement of private entrepreneurs to join the CCP, is

90
Gao Shangquan, “Zai lun dali fazhan minben jingji” (Discuss again the promotion of Minben
economy), Gaige Neican (Internal Reference on Reform), vol.7 (2002), pp. 2-4.

91
Fewsmith, China since Tiananmen: The Politics of Transition, Pp. 229-30.

86
normally considered to be evidence of the consolidation of the private economy’s status and
a victory of market principles over socialist ideology. However, the consolidation of private
entrepreneurs’ status in the socialist system also means strengthening control over private
entrepreneurs. As observed in the “incorporation period,” the more private enterprises were
accommodated, the more party control was established over them. Through the socialist
education and indoctrination efforts, the party nearly forced private entrepreneurs to become
loyal to the society and socialism. As a result, when the incorporation of the private
economy was nearly completed with the formulation of the “Three Represents” theory,
private enterprises and entrepreneurs had become much more socialistic than before.
The efforts to define the private economy and private enterprises as collective
entities with the emphasis on “people,” and the accelerated effort to set up party branches in
private firms at local levels, could be viewed as part of the top leadership’s “re-
ideologization”
92
attempt, by emphasizing collectivism, equality, a well being of the masses,
and social harmony. If so, Jiang again used ideology as a political resource and attempted to
reconcile the emerging social and ideological division. The 16
th
Party Congress placed a
greater emphasis on socialist principles such as the importance of social equality, compared
with the 15
th
Party Congress, which had encouraged “liberation” from traditional socialist
ideology and the adoption of market principles. In this regard, Chinese politics around 2002
was heading back toward more a socialistic direction on the market-socialist scale. The 16
th

Party Congress and the “Three Represents” could be considered a turning point in China’s
economic reform where the Party shifted its emphasis from economic growth to more
balanced development, social equality and social harmony. The concern for less developed
regions and lower income strata has been inherited by Hu Jintao, and is observed in his well-
known emphasis on building a “harmonious society.”

92
The term is borrowed from Sun Yan’s The Chinese Reassessment of Socialism, 1976-1992. Pp 260-
72.

87
Conclusion
The analysis of the ten years of the ownership reform debate process shows
continuous ideological justification efforts of market conditions: New market developments
occur at local levels and as the mismatches or contradictions between ideological principles
and local market conditions become wide enough, the policy makers attempt to justify the
new developments by adjusting socialist ideology. In this regard, it can be said that the
debate is driven by local market conditions. It is certainly true for two obvious reasons.
First, without new market development at local levels, no policy debate is necessary.
Second, local market conditions often set off policy debates because of Chinese economic
reform’s gradual, incremental, and partial approach. As noted in the introduction, the
Chinese government initiated market reforms without a roadmap, starting from partial,
experimental reforms and gradually practicing successful experiments on a nationwide basis.
This approach makes continuous adjustment of policies and regulation inevitable.
In terms of the ownership reform debate, however, the debates were largely set off
by the policy makers, especially the conservatives who expressed ideological concerns over
the rapid development of the private economy at local levels. Despite the fact that the
private economy had been rapidly developing since its emergence in the 1980s, and had been
regulated relatively successfully by local governments, the conservatives in the central
government still raised ideological questions over the “capitalists” in the 1990s. Although
the liberals discussed market conditions more, once debates started, their major efforts were
concentrated on ideologically justifying local market conditions in order to win over
conservatives. Therefore, nearly any policy debate turned ideological and ideological
climates controlled the debate process. While the liberals attempted to legitimate market
conditions, the conservatives opposed such attempts; as a result, ideologically divisive
debates ensued and the division delayed or blocked formulations of national level

88
regulations over the private economy. For these reasons, it is reasonable to argue that the
factor of ideology is stronger than local market conditions in controlling the debate process.
The analysis also illuminated the top leaders’ roles in controlling reform debates
with the use of ideology. As ideological debates heat up and ideological division is deep
enough to block the policy making process, the top leader intervenes in the debates, re-
defines ideological principles, and “homogenizes” the political space. The top leader’s
intervention is necessary to close off these debates and get the reform process back on track.
The intervention is also necessary for an eventual legitimation of new market conditions,
such as privatization of small SOEs or the incorporation of the private economy into the
system.
However, if the Chinese political system needs continuous efforts of ideological
justification of new market realities, it probably makes ideological debates and the re-
definition of socialist principles (or the top leader’s intervention) inevitable and cyclical.
The Chinese political system might have been repeating this cyclical process since the
economic reform started.
Although this research only examined the 10 years of the Jiang Zemin era between
1993 and 2002, content analysis data suggests a cyclical rise of ideological debates beyond
the research period. Figure 10 shows the percentages of the articles having the two types of
contradictory arguments, “market/public ownership” and “market/socialism.” The
“market/public ownership” is, as mentioned earlier, the contradiction that supports more
market reforms and the dominant status of public ownership at the same time. The items’
percentages are shown by shading in Figure 10. This contradiction mainly appeared during
the incorporation period from 1996 to 1999 because it was the central theme of the

89
ownership reform debates. With the near end of the ownership debates in the late 1990s, the
contradiction also disappeared.
93

Figure 3.10: “Market/public ownership” and “market/socialism” contradictions observed in OSYS articles

Contradictory arguments
0%
5%
10%
15%
20%
25%
30%
35%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Market/public ownership
Market/Socialism

On the other hand, the “market/socialism” contradiction covers a wide range of
contradictions between market and socialist principles. While supporting more market
reforms, the authors also support more government control or planning, equality among
people, the protection of workers’ welfare, or the importance of collective interests over
individual self-interests. The percentages of this contradiction are shown in bars in Figure
10, which constantly appears throughout the research period. This suggests that the
“market/socialism” contradiction is the more inherent, deep-rooted contradiction in the
Chinese system. This tells us that even if the ownership debates ended and the private
economy was legitimated, this contradiction built in to the system makes ideological debates
nearly inevitable. The contradiction is a manifestation of the gap between socialist ideology
and market conditions, or socialist principles and market realities, and, therefore, the seeds
of potential debates.

93
The reappearance of the item in 2002 is because of the collective characterization of private
enterprises.

90
This supports Sun and Baum’s argument that Chinese politics is repeating a cycle of
relaxation and ideologization or the “fang-shou” cycle.
94
As observed in this chapter, the
debate process experienced a cycle of debates and ideologization during the research period.
The relatively pluralistic, “open debate period” before Jiang’s 1997 address can be seen as a
“relaxation” or “fang” phase of the cycle. The period after the 15th Party Congress, which
was characterized by ideological reconciliation and homogenization, can be seen as an
ideologization or a “shou” phase of the cycle. In this period, the ideologization of market
principles largely occurred and the political space maintained a unity of voices. After 2000,
the accelerated internationalization trend raised a wide range of new issues as well as
government criticism, and a “relaxation” phase returned. To stabilize the disharmony, Jiang
Zemin, again, attempted to “re-ideologize” the political space with the emphasis on
collectivism, “people’s initiative” and social equality at the end of his rule. If a similar cycle
is observed in the analysis of the property rights/shareholding reform debates in the
following chapter, it could be a continuation of the ideological cycle in the Deng era
mentioned by Sun and Baum, and one of the generalizable characteristics of the Chinese
political system beyond the research period.

94
See, Sun,Yan, The Chinese Reassessment of Socialism, 1976-1992. Richard Baum, Burying Mao.

91
Chapter 4: Property Rights/Shareholding Reform
Debate (1993-2002)

Overview

China’s property rights (PR) and shareholding (SH) reform are very different in their
initial motives and goals from the privatization or PR reform experiences observed in Russia
or East European countries. Some of these former communist countries attempted to
privatize state-owned enterprises (SOEs) overnight, adopting market transition programs
such as “shock therapy.” Whereas the goal of these countries was to abolish the inefficient
public ownership system through privatization, China’s PR/SH reform was initiated in order
to improve the public ownership system. One of the political motives of the PR/SH reform
was to maintain social stability by strengthening the public ownership system.
95
These
original motives and goals significantly influenced the reform debate process as well as the
reform policy making process.
China’s PR/SH reform process is characterized as “avoiding the inevitable.” In
general, a property rights (PR) reform is the process that introduces non-public ownership
into the public sphere and gradually increases the portion of private ownership; therefore,
eventually, privatization is an inevitable result of the reform. However, China initiated and
undertook the PR reforms, firmly avoiding the inevitable result of privatization due to the
ideological constraints placed on private ownership. This “avoiding the inevitable” attitude
made the PR/SH reform process incremental and led to a series of unintended consequences.
The ideological constraints placed on private ownership also made the ten years of the
debate process unstable, filled with sudden changes in agendas and ideological climates.

95
Zhou Laiwu, “Shenhua changquan zhidu gaige: Guoqi zhuanhuan jizhi de guanjian” (Accelerate the
property rights reform: The key to the re-organization of SOEs). GN, vol.8 (1995).

92
Table 4.1 below summarizes the major issues debated, reform policies implemented, and the
changing ideological climate in the PR/SH debate process in the Jiang Zemin era.

Table 4.1: Property rights/shareholding reform debate process in the Jiang Zemin era (1993-
2002)
1993 Experimental period
(1993 - 1994)
Information gathering from test sites
1994 The Company Law (1994)
State asset drain problem / state asset management issue
Clarification debate period*
(1994 - 1995)
The unified state ownership rights challenged by reformers
1995 Ideological debate over enterprise property rights (remained hybrid)
Proposals for the state’s rights transfer
State’s marketization period
(1995-1996)
“Grasp the large, let the small go” policy (1995)
Ideological division submerged
1996 The rise of the state's interests, holding company issue
De-facto privatization of small SOEs, re-organization of large SOEs
1997 SHS debate period*
(1997 - 1998)
Ideological division re-surfaced
Conservatives’ workers-centered, “cooperative” model of the SHS

------------------Jiang's "breakthrough" address at the 15th Party Congress (1997)--------------

Liberals’ backlash
1998 Liberals’ dilemma (efficiency/equality contradiction)
Reconciliation period*
(1998 - 1999)
Ideological reconciliation, conservatives’ concessions
1999 The end of SHS debate (1999)
The Securities Law (1999)
The pursuit of China model, SME build up, national confidence
2000 Internationalization period
(2000 – 2002)
2001 Growing internationalization, WTO membership (2001)
State share reduction debate, the failure of the "Methods" (2001)
Government criticism, Jiang’s “7.1 Important Address,” “Three Represents” (2001)
2002 Rising fear of market disorder, nationalism, growing influence of public opinion
The 16
th
Party Congress (2002)
Note: *The period in which ideological debates occurred.

93
China’s PR/SH reforms started as part of the enterprise reform—or the modern
enterprise reform (Xiandai qiye zhidu gaige). The Chinese government attempted to
introduce a more responsible and efficient management system to SOEs by granting more
managerial autonomy to enterprises. The government first separated the management rights
of enterprises from the ownership rights (“liangquan fenli”) and transferred the former to
enterprises. However, SOEs’ performance did not improve as expected. So the top
leadership decided to allow shareholding experiments with the expectation that it is a
financial incentive rather than normative managerial autonomy that really increases
enterprise efficiency. With the Standard Regulations for Shareholding issued in 1988, the
experiments started.
Although shareholding (SH) and share trading were originally considered a means to
improve enterprise efficiency, allowing SH experiments was like opening Pandora’s Box, no
matter how confined the experiments were to test sites at the beginning. The central
government set the basic regulatory framework at the initiation of experiments; however, the
experiments at local level were conducted freely with local governments’ initiatives. As a
result, these experiments began to erode the state’s assets as unregulated property rights
transfer or share trading increased. Some local governments claimed the ownership rights of
local SOEs in their territories and engaged in illegal trading of state shares in the name of
experiments. Although the central government made some attempts to restrict
uncontrollable local experiments in the early 1990s,
96
the PR/SH reform reached the point
by the mid 1990s that unless the legal ambiguities over the state’s ownership rights we
clarified, the consequence was a continuous loss of the state’s assets, which eventually
would threaten the maintenance of the public ownership system.
re

96
Walter and Howie, 2003. Privatizing China: The Stock Markets and Their Role in Corporate
Reform.

94
The debate over state asset drain soon turned ideological, and the “clarification
debate period” began (see Table 4.1). In 1994 and 1995, the liberals (reformists) challenged
the concept of the unified state’s ownership rights—that is, all SOEs and their assets are
owned by the state—and argued that it was a root cause of the legal ambiguity of the state’s
ownership rights as well as state asset drain. The reformists proposed a partial or full
transfer of the state’s ownership rights to enterprises and the abolition of the sole
proprietorship system (Quanmin suoyouzhi). However, such proposals were ideologically
unacceptable in the mid 1990s. The liberals in this period were the so-called reformists and
advocated the expansion of private ownership and the adoption of capitalist market
principles in order to increase enterprise efficiency. Based on the principle of a separation of
government and enterprises, the liberals demanded more enterprise autonomy. The
conservatives, on the other hand, upheld the unified state’s ownership rights and opposed
most of the reformist proposals. The conservatives were primarily concerned that further
introduction of new shareholding practices would lead to privatization. Both the liberals and
conservatives were equally concerned about the state asset drain problem, but the debate did
not produce any agreement between the two sides. The conservatives’ main concern was
that a continuous drain would jeopardize the dominant status of the state-owned economy,
which they considered the foundation for socialism. The liberals, on the other hand,
perceived the asset drain problem as a regulatory issue and used it to advance their reformist
agenda. Due to the strong ideological constraints placed on private ownership, however,
SOE’s property rights remained ambiguous.
With the adoption of the “Grasp the large, let the small go” in 1995, the
“clarification debate period” was replaced by “the state’s marketization period,” and the
ideological division was temporarily submerged. During this period, the liberals’ voice
disappeared and the government’s control over enterprises (SOEs) strengthened. The

95
adoption of this policy, however, can be considered as an attempt to narrow the gap between
local market conditions and socialist ideology, which places ideological constraints on
privatization. As local level privatization and share trading—legal or illegal—was already
being practiced, it was nearly impossible for the government to stop this progress. The
central government, therefore, decided to renounce its control and ownership rights of small
SOEs (“let the small go” part), while strengthening its control over large ones (“grasp the
large” part). With the adoption of this policy, the Chinese government increasingly
marketized itself and began to assume the characteristics of an “entrepreneurial” and
“developmental” state. To make large SOEs competitive in the market and the “life line” of
the Chinese economy became an important goal of the government. The idea of creating
SOE conglomerates and controlling them through holding companies emerged and became a
major issue.
However, as the 15
th
Party Congress drew closer, the liberal-conservative division
re-surfaced and the definitions of the shareholding system (SHS) became a major issue in
early 1997. The conservatives characterized the SHS as a “cooperative” system owned and
managed by workers. This definition is almost the same as that of collective enterprises or
cooperatives, and the “shareholding” aspect of the SHS was largely ignored; therefore, such
definitions were not acceptable for market-oriented liberals.
In the middle of the SHS debate, the 15
th
Party Congress was held in September
1997. Jiang Zemin’s “breakthrough” address removed the ideological constraints placed on
private ownership, and changed the ideological climate of the SHS debate. Ideological
reconciliation and negotiation was initiated between the liberals and the conservatives. How
to reconcile the economic efficiency necessary for market competition with a socialist
requirement of equality among workers became a major point of the negotiation. Through
the negotiation, the efficiency-oriented liberals and equality-oriented conservatives began to

96
realize that choosing either one of the principles would not lead China’s SH reform to a
success. A one-sided focus on economic efficiency would result in social inequalities, and
could turn China’s PR reform into the same course as the failed Russian reform. However,
placing equality over the efficiency principle would not change the iron rice bowl mentality
of SOEs and could equally lead the reform toward failure. The interaction between market
principles and socialist ideology was well observed during this debate. Through the
reconciliation, a definition of the SHS that is distinctively Chinese began to be formulated,
and the Chinese policy makers began to feel national confidence over the uniqueness of the
Chinese SHS and the Chinese economic system that they were trying to establish. The SHS
debate ended with the promulgation of the Securities Law in mid-1999.
After 2000, the SH agenda began to be overwhelmed by the issues arising from
growing internationalization. Despite the expressed hopes and expectations for the new
century in the late 1990s, the internationalization trend, which is symbolized by China’s
ascendance to the WTO in 2001, triggered government criticisms, anti-foreign sentiment,
and a sense of fear over market disorder, and began to destabilize Jiang’s rule.
Overall, the PR/SH reform debate process is unstable, compared with the ownership
debate process examined in the previous chapter. A sudden change in ideological climate, a
disappearance of dominant issues, or an abrupt end of debates frequently occurred. In
addition to the incremental nature of China’s PR/SH reforms and the ideological constraints
placed on privatization, the SH agenda’s high responsiveness to local market conditions
accounts for this instability. Therefore, the conflict between local market conditions and
socialist ideology or the interaction between them is more clearly observed in the PR/SH
debate process.

97
Property Rights/Shareholding Reform Debate Process (1993-2002)

Experimental period (1993-1994)

Information gathering from local test sites
In 1993 and in the first half of 1994, the PR/SH reforms were in test phase, and most
of the articles written in this period are the reporting from local levels that documented a
variety of reform experiments being conducted at test sites. No ideological debate is
observed during this period and very few articles are ideological in nature. The Company
Law (gongsi fa) was promulgated in 1994, in which the basic rules for the setup of SH firms
were described. However, policy makers or academics in the central government still did
not have a clear blueprint with regard to the future direction of the PR/SH reforms. They
were mainly collecting information from local test sites.
SH experiment had a significant regional variation, depending on the historical or
geographical characteristics of each region. Local government officials’ interests also had
an influence on how the experiment was conducted. Most of the local reports came from test
sites in developed regions like Zhejiang, Fujian or Jiangsu Provinces. These test sites
relatively freely practiced shareholding or property rights trading even before the central
policy makers began to discuss the ideological legitimacy of these practices. In Zhejiang
Province, local governments already allowed de-facto privatization based on the Standard
Regulation on Shareholding issued in 1988. They also conducted a trial implementation of
the Company Law before it was promulgated. Local officials had a high level of freedom to
decide if they would follow national regulations or how to implement them.
97
In Jiangsu
Province, which is famous for the corporatist and developmental economic development,

97
Krug, Barbara, 2003. “China Incorporated: Property Rights, Networks, and the Emergence of a
Private Business Sector in China,” Managerial Finance 29(12), Pp. 33-34.

98
“Sunan model,” various type of shares—for example, township collective shares, internal
employee collective/individual shares, legal person shares (faren gu), or social legal person
shares (shehui faren gu)—were already introduced by the mid-1990s.
98
The ideological
“appropriateness” of these shares, in particular of internal employee and legal person shares,
became a major debate issue in the years to come among the national policy makers.
This tells us that these developed regions played an important role in setting a future
direction of the PR/SH reforms as well as debate agendas. Local reports in this period
specified the difficulties or contributions of the SH experiments to local economies, and
demanded a clarification of the legal rights necessary for fair share trading, especially of the
ownership rights of state assets of local SOEs. The concern over employee or legal person
shares was first raised in local governments in Jiangsu and was already debated there before
it became a major issue among the central policy makers. In Shenzhen or Shanghai, the
stock markets were established earlier and had already experienced stock bubble by then.
These cities already recommended an earliest possible implementation of the Securities Law
in 1993. The implementation of the Securities Law, however, was in 1999 and the central
policy makers had to go through repeated ideological debates and ideological adjustment
until the approval of the Law in late 1998. This illustrates how strong the ideological
constraints placed on the PR/SH reform process were. Shenzhen’s local government,
therefore, regulated the SH experiment during the test period by issuing their own local
regulations, such as the Regulation on Shareholding Limited Liability Firms in the Shenzhen
Special Economic Zone. Developed regions were also internationalized earlier than the

98
Liang Tao, “Suzhou xiangzhen qiye de gufen hezuozhi” (The shareholding system of the collective
enterprises in Suzhou). Gaige Neican (Internal Reference on Reform), vol.3 (1994).

99
central government, and some localities already recommended the adoption of national level
regulations on share trading in accordance with international norms.
99

The Company Law and its implications
From mid- to late 1994, problem indications from local test sites increased due to the
promulgation of the Company Law. More local reports came in both from developed and
undeveloped regions and these reports discussed how the law was implemented and
enforced. The implementation of the Company Law at the local level was not at all
universal. The situations in some localities were unsatisfactory to the national policy
makers. The lack of local officials’ understanding of property rights concepts or of the
Company Law itself, and favorable interpretation and implementation of the law were the
typical problems. The implementation of the Company law also illuminated the gap
between the central and local government officials’ knowledge and expertise on the property
rights reforms or shareholding. Some local officials in developed regions, many of which
had been chosen as test sites, were far more knowledgeable of the concepts of property
rights or shareholding in general when the Company Law was adopted, and soon started
complaining about the insufficiency or primitiveness of the new law. Facing local criticism,
some central policy makers recommended more “researches” on property rights concepts or
theories by referring to Western academic literature or successful foreign models.
100
This
shows that central policy makers, whose main concern was more ideological than local
officials’, were behind in developing their technical or legal knowledge of property rights or

99
Li, Zhangji, “1993 nian Zhongguo gufenzhi yunzuo gaikuang” (The outlook of China’s
shareholding in 1993). GN (Gaige Neican), vol.5 (1994).

100
Zhang Jiuda, Yang Dexiang, Zhang Xiaowen, Zhang Haiyu, “Dui sanshi yisheng qiye changquan
jiaoyi qingkuang de diaocha” (An research on PR trade in three cities and one province). GN, vol.13
(1994).

100
share trading. This also illustrates the importance of local initiatives as well as the bottom-
up and incremental nature of China’s PR/SH reform process.
The implementation of the Company Law, therefore, contributed to heightening the
central policy makers’ interests, concern, and understanding of the PR/SH reform issues. A
flood of local information also raised the central officials’ legal consciousness on a variety
of the rights associated with property rights transfer or trading, especially the ownership
rights of state assets.
101
The central policy makers also started examining the PR reform
issues in a broader perspective, linking them with other reform issues, such as the enterprise
reform, government reform and ownership reform. The seeds of future debates were planted
in this information collecting phase. The division of the ownership rights between the
government and enterprises soon became a major issue.

The rise of the state asset management issue
In the course of SH experiments, the drain of state assets became a serious problem
as unregulated share or property rights trading increased. Facing this problem, many authors
began to express their concern over the legal ambiguities surrounding the ownership and
management rights of state assets. The policy makers worried that the ambiguity of state
asset management would cause a further drain of state assets. From mid- to late 1994, the
management of state assets became a dominant issue. Who has ownership or control rights
of state assets in SOEs or state shares in SH firms? Which government organization must
legally represent all the state assets in the country? Who must be responsible for the
management of these assets? How should the assets be managed?

101
Wang Qingping, “Bixu zouchu changquan gaizhi de wuju” (Must remove a misperception of the
PR reform). GN, vol.16 (1994); Lin Shijie, “Changquan zhidu gaige de nandian” (Difficulties of
property rights reform). GN, vol.16 (1994); Zou Dongtao, Zhang Xiaowen, “Guanyu changquan
jiaoyi wenti de zai tantao” (Reconsider PR trade problems). GN, vol.16 (1994).

101
State asset management is a very complex topic involving a variety of issues,
including the clarification of the legal rights over SOE assets, a separation of government
and enterprises, a separation of ownership and management rights, central-local relations,
government-enterprise relations, and the role of government in the economy. However, at
the beginning, the major discussion was focused on who has the ownership rights of all the
state assets in the country, and who must take responsibility for the management of state
assets, including their transfer, preservation and investment.
Although the State Asset Law had already existed by then, the authors attempted to
re-define the ownership and management rights of state assets by relying on available
provisions, regulations, the Constitution, and even Marx. With regard to the ownership
rights, the existing State Asset Law issued by the State Council stated that the People’s
Congress is an owner of all the state assets in the country. However, some policy makers
argued that the Constitution states that unified ownership rights belong to the State Council,
which also is a legal representative of state shares in SH firms.
102
Others recommended the
division of the ownership rights between the central government and local governments.
Some local governments, from city to township levels, claimed ownership rights over state
assets of SOEs in their localities and often engaged in illegal trading of state shares in black
markets. This proposal, if adopted, would be a de-facto legitimation of local practices.
How and who manages state assets was a more complex issue because the State
Asset Law states that the responsibilities for state asset management are taken by three
entities—contracted government committees, intermediary organizations such as holding
companies, and the enterprises themselves. However, a significant regional diversity in local
practices existed in this regard. Each region or test site managed state assets based on local

102
Yu Ji, “Jianli shiying shehuizhuyi shichang jingji de guoyou zichang guanli tizhi” (Build a state
asset management system appropriate for socialist market economy). GN, vol.19 (1994).

102
or bureaucratic interests, taking advantage of the delay or lack of universal regulations. In
addition, different interpretations of the State Asset Law and other regulations contradicting
the State Asset Law made the discussion over state asset management nearly chaotic.
Although various proposals and suggestions were made, it is difficult to call these
discussions a “debate” because each author merely expressed his or her concern and
submitted his or her own arguments without mentioning the opinions of others.
The attempt to clarify the legal rights of state assets resulted in more questions than
solutions. How to define the ownership rights of collective enterprises’ assets (or jiti assets)
was a complicated issue involving central-local relations. Collective enterprise assets were
officially part of the state assets but collective enterprises were owned and managed by
township or village governments or employees.
103
The ownership rights of SOEs’ non-
productive or invisible assets such as copyright, land, and welfare assets such as hospitals or
schools were also unclear.
104
How to set a universal standard for the evaluation of state
assets also became an issue. Tradability of state shares was also a problem in need of
solutions. In spite of the rapid development of stock markets in many localities, state shares
were still not officially tradable. Some authors, expecting the legitimatization of state share
trading in the near future or in an attempt to promote it, discussed who becomes the main
investment body (touzi zhuti) of state shares, who becomes the beneficiary of the earnings
from state share trading, or how the earnings will be spent.
105

103
Shi Jiangwei, Zhang Jianping, “’Xiangshou Hougu” Gaohuo xiangzhen xiaoweikui qiye” (“Sell
First, Incorporate Later” The vitalization of township village enterprises with small debt). GN, vol.8
(1994).

104
Lin Shijie, “Changquan zhidu gaige de nandian” (Difficulties of the PR reform). GN, vol.16
(1994).

105
Ibid.

103
Perception change of the state
As a result of the legal rights discussions, the state asset management issue became
linked with the issues of the role of the government in the economy and of the relationship
between the government and enterprises. Some policy makers reasoned that the ambiguity
of the government’s ownership or property rights over SOEs mainly derived from the
ambiguity of the government’s role in the economy. And the ambiguity of the state’s rights
and authority over enterprises made its relationship to enterprises also ambiguous, hindering
enterprise reforms. After a series of unintended consequences in the course of the SH/PR
reform that originally started as part of the enterprise reform, policy makers began to realize
that the reform of enterprises was associated with the reform of the government.
The Communist Party’s “Decision” issued at the 3
rd
Plenum of the 14
th
Party
Congress in 1993 separated the government’s macro-economy control function from the
government’s role as an owner of state assets. It also defined a new relationship between the
government and the enterprises as one between an investor (shareholder) and the invested
enterprises.
106
The Decision, therefore, allowed the government to become a regulator of the
market. At the same time it was a player in the market as the owner of state assets. This
caused the development of two conflicting perceptions of the government’s role. One is the
rise of “the state’s interests.” It can be observed through the increasing use of the words,
“the state’s interests” (guojia quanyi), by many authors during the debate over state asset
management and the state’s ownership rights. As the owner of state assets, the government
increasingly perceived itself as a rational and profit-maximizing market player engaging in
the preservation and increase of state assets. Some authors argued that the government must
pursue and protect its own interests, by proactively engaging in the increase of state

106
Zhou Laiwu, “Suzao guoyou zichang yunying zhuti de jidian sikao” (Some thought on the creation
of a main body for the management of state assets). GN, vol.19 (1994).

104
assets.
107
This perception—the government as a player in the market—later influenced the
re-organization effort of large SOEs through the formation of holding companies.
On the other hand, government officials, in particular reformist officials,
on gave
hrough
nd
e
’s
Clarification Debate period (1994-1995)

he unified state’s ownership rights challenged
increasingly perceived the government as a regulator of the market. This percepti
the reformist policy makers the incentive to “re-organize” the relationship between
government and enterprises by transferring more of the state’s rights to enterprises t
the clarification of the state’s rights. Some policy makers realized in this period that
clarifying the state’s ownership rights was the process of restricting the state’s rights a
authority over enterprises. The clarification involves the division of the rights between th
government and enterprises, and without clarifying the state’s rights, the enterprise’s rights
are not defined owing to a zero-sum characteristic of rights division (enterprises get the
rights that the government gives up). This reasoning influenced the debate over the state
ownership rights.

T
ghts (guojia suoyouquan) is that it is
an abstr
).

The inherent problem of the state’s ownership ri
act concept that has no legal foundation. It is an ideological concept and nearly a
metaphor of the socialism in the pre-reform era when all enterprises and their assets were
solely owned by the government under the sole proprietorship system (quanmin suoyouzhi

107
Hong Hu, “Tuidong changquan liudong he zhongzu shixian guoyou zichang baozhi zengzhi”
(Promote PR transfer and re-organization for the preservation and increase of state assets). GN,
vol.13 (1994).

105
From late 1994 to 1995, this unified state’s ownership concept began to be “challenged” by
some reformist authors.
The reformist authors proposed a procedure for the clarification of the government’s
ownership rights and the transfer of some of these rights to enterprises. The reasoning is as
follows: By assuming that state shares in SH firms or state assets in SOEs are the
government’s investment in these enterprises, the government sets up some legal rights over
these assets, such as shareholder’s right (gu quan) or investor’s right (chuzi quan), then
separates these “definable” rights from the abstract concept of the unified state ownership
rights, and gradually transfers these rights to enterprises as “legal person asset rights” (faren
caichangquan). In this way, state assets in SOEs eventually become tradable.
108

At this point, however, it was unclear whether these proposals meant an eventual
transfer of the state’s ownership rights to enterprises, which technically means privatization,
or simply an expansion of enterprises’ management rights, including the control of income
flows. This point was not specified by the authors owing to the ideological sensitivity
surrounding the issue. Depending on the definition of “legal person asset rights” (LPAR), it
could be interpreted in either way. The definition of LPAR, therefore, soon became
controversial. Some authors considered it was merely an extension of enterprises’
managerial control rights. A range of enterprise responsibility was expanded from
managerial matters alone to the management of the “invested” assets by the government.
109

However, others considered it as equivalent to the enterprise’s ownership rights and used the
term interchangeably with “legal person ownership rights” (faren suoyouquan).

108
Zou Dongtao, Zhang Xiaowen, “Guanyu changquan jiaoyi wenti de zai tantao” (Reconsider the
problems of PR trade). GN, vol.16 (1994); “Tang Fengyi tan qiye zhidu chuangxin de nandian yu
zhengjie (Tang Fengyi’s talk on the difficulties in the reforms of enterprise system). GN, vol.1
(1995).

109
Ibid.

106
Then, the conflicting definitions and the ambiguity of LPAR themselves became a
target of criticism. Some authors criticized an in-between characteristic of LPAR defined
neither as management rights nor ownership rights.
110
Finally, in early 1995, some
reformists proposed giving full ownership to enterprises. This argument, which was
technically proposing privatization by giving full ownership to enterprises, was the most
liberal argument observed in the entire LPAR debate. The authors argued that unless
enterprises were given ownership rights over their assets, enterprise managers would not be
fully responsible for the operation of their firms and the enterprise reform would fail. These
authors also criticized the principle of a separation of ownership and management rights
(“liangquan fenli”). Despite its original intention to increase enterprise efficiency, it
resulted in enterprise dependency on the government because of the ambiguous line
separating the two rights.
111
And this ambiguous line was the cause of the confusion over
LPAR.
On the other hand, some authors who had knowledge of legal matters tried to end
the controversy over LPAR by submitting their own definitions of terms relevant to an
enterprise’s property rights. According to one legal scholar, an “ownership right” is a
“broad” definition of property rights and does not have a legal foundation. On the other
hand, LPAR is a “narrow” definition of property rights and a legal term that guarantees an
enterprise’s ownership rights over all the assets in the enterprise, regardless of who invested
them or how the assets were produced.
112
Other authors attempted to define LPAR

110
“Changquan bu lishun, Guoqi nan gaohao—Fang Qingnian jingjixuejia Fang Hengshan boshi”
(Property rights disorganized: the increase in SOEs difficulties—Visiting a young economist, Fang
Hengshan). GN, vol.3 (1995).

111
Zhang Chenghui, “Guangyide changquan yu xiayi de changquan” (Property rights broadly defined
and narrowly defined). GN, vol.9 (1995); Wang Kaiguo, “Changquan gaige: Jidao nanjieti” (Some
difficulties in the PR reform). GN, vol.6 (1995).

112
Ibid.

107
according to the Enterprise Law and the Company Law. However, the two laws
contradicted each other once they were applied to the interpretation of LPAR. Under the
Enterprise Law issued in 1988, LPAR can only be interpreted as enterprises’ managerial
control right. On the other hand, the Company Law issued in 1994 defines the relationship
between the government and enterprises as that between shareholders and invested firms.
Therefore, under the Company Law, the government can maintain its ownership rights over
SOE assets as an investor but it is illegal for the government as an investor to directly control
the income flows of the enterprises it has invested.
113
On this interpretation, LPAR is
enterprises’ right to control income flows.
Despite these attempts, the LPAR debate did not reach any solution. Owing to the
strong ideological constraints surrounding the unified state ownership concept, a clear and
unified definition of LPAR was not given. Other than the ideological constraints placed on
privatization, the policy makers’ lack of legal knowledge caused confusion and an endless
debate over LPAR.

Hybrid property rights: Enterprise property rights kept ambiguous
Although the LPAR debate continued for a while, no legal boundary that separates
the government’s rights from the enterprise’s rights was defined during the debate. As a
result, the property rights of enterprises remained ambiguous. The ambiguity of LPAR, as
several authors pointed out, derives from the fact that it was defined at the intersection
between management and ownership rights. In other words, enterprise property rights are
the so-called “hybrid” property rights. The middle-ground definition is, possibly, the policy

113
Chen Yiping, “Shouquan jingying: Liangge jiduan duo yao bimian” (Contracted management: The
two extremes that must be avoided) GN, vol. 19 (1995).

108
makers’ deliberate effort due to the ideological constraints placed on privatization in this
period.
In order to explain the hybrid forms of property rights, Oi and Walder employed
Domsetz’s “bundle of rights” concept, which disaggregates property rights into three kinds
of right—managerial control right, income flow control right, and transfer right.
114
If this
categorization is applied to the definition of LPAR debated from 1995 to 1996, managerial
control was already given, income flow control was being discussed but officially was given
to enterprises according to the Company Law, and the last one, transfer right—the right to
decide the transfer of the rights to other parties—had not yet been given.
Oi and Walder also described an evolutionary path of property rights reform that
consists of the five steps of ownership forms. The path starts from “traditional state
ownership,” goes up to “management incentive contacts (reformed state firm),” “the
contracted public assets,” “leased public assets,” and finally reaches the “privatization”
form. Although this model is an ideal type and each type does not exactly fit existing
patterns, the model indicates a gradual increase in enterprise autonomy, authority and rights
as the path goes up. China’s enterprise autonomy in the mid 1990s could be placed around
the “contracted public assets” (the 3
rd
step) and the “leased public assets” (the 4
th
step). The
Chinese word, “shouquan”—literally meaning a delegation of authority—is often used for
both “contract” (chengbao) and “lease” (zulin); therefore, an exact placement is difficult.
According to the model, the “contracted” and “leased public assets” assign basically
a similar degree of authority to enterprises in terms of managerial and income flow control
rights. However, in the “leased public assets” form, the leaseholders (enterprises) have all
managerial and income flow control rights in exchange for a fixed payment to the

114
Oi and Walder, 1999. “Property Rights in the Chinese Economy: Contours of the Process of
Change,” in Oi and Walder eds., Property Rights and Economic Reform in China. P.5-10.

109
government. This means that the difference between the “contracted public asset” and the
“leased public asset” is that there is no sharing of risk and profit (residual) between the
government and enterprises in the latter. Although enterprises in the “leased public asset”
form still cannot sell off state assets (no transfer right), the enterprise’s managerial and
income flow control rights are nearly the same as those of private firms. Oi and Walder state
that the only difference between the “leased public asset” and “privatization” is the
government’s investment in enterprises’ fixed assets.
115

In fact, a major point of the controversy over LPAR and the state’s ownership rights
transfer was how to treat the government’s investment. The reformists proposed that the
government set the state’s “investor” right, transfer it to enterprises as their LPAR (the
“leased public asset” form), and eventually makes it part of an enterprise’s ownership rights
(the “privatization” form). However, granting ownership rights to enterprises is the same as
privatization, and crossing such a threshold was politically impossible in China in the mid-
1990s. This is one of the reasons that the definition of LPAR was placed, perhaps
deliberately, at the intersection of the enterprise’s ownership and management rights.

The emergence of ideological divisions during the clarification debate
By the mid-1990s the unified state ownership rights became obsolete and nearly an
obstacle for further PR/SH reforms; however, it was still the foundation for socialism. As
more proposals were made for the transfer of the state’s ownership rights, the debate often
turned ideological. The authors’ ideological positions became clearer during 1994 and 1995
through the debate over LPAR and the state asset management issue.
The liberals in this period were market reformers (or rightists) and supported more
enterprise autonomy through the transfer of the government’s rights to enterprises. The also

115
Ibid.

110
supported the commercialization of SOE assets and an expansion of the private economy.
They expressed strong support for capitalist principles, such as economic efficiency, the
optimal resource allocation, individual responsibility, or fair market competition. They were
also knowledgeable of foreign situations and frequently referred to capitalist or Western
models when they proposed new ideas and justified their arguments. When the political
climate turned ideological, the liberals started criticizing sole proprietorship (quanmin
suoyouzhi) as a cause of the ambiguity of the state’s ownership rights and argued that the
maintenance of sole proprietorship was unrealistic in the age of a market economy.
116

The conservatives (leftists), on the other hand, showed strong reluctance and
opposition to further SH/PR reform because many of them considered the PR/SH reform as a
process toward privatization. The conservatives supported the upholding of the unified state
ownership rights under sole proprietorship and were against any division or transfer of the
state’s ownership rights to enterprises. They defended the principle of a separation of
ownership and management rights,
117
and opposed the setup of legal person or enterprise
shares. However, some conservative authors later became supporters of collective employee
shareholding for ideological reasons. The conservatives liked the idea behind collective
employee shareholding that workers unite and collectively own their own companies.
However, their support was limited to collective shareholding. They firmly opposed
individual-level employee shares because it was the privatization of public assets, or “hua
gong wei si”
118

116
Wang Kaiguo, “Changquan gaige: Jidao nanjieti” (Some difficulties in the PR reform). GN, vol.6
(1995); Zhou Laiwu, “Shenhua changquan zhidu gaige: Guoqi zhuanhuan jizhi de guanjian”
(Accelerate the property rights reform: The key to the re-organization of SOEs). GN, vol.8 (1995).

117
“Ping jizhong changquan gaige fangan” (Analyze several proposals on the PR reform). GN, vol.9
(1995).

118
Xiao Liang, “Buneng longtongdi jin “zichang lianghua taoren” (Proceed cautiously with the
“individualization of the assets”). GN, vol.13 (1995).

111
Ideological constraints and the liberals’ debate strategy
Although the PR/SH reform articles in general focus more on technical issues of the
reforms and are therefore less ideological in nature compared with the ownership reform
articles, ideological sensitivity or constraint was clearly observed during the debate over the
state’s ownership rights, especially in the articles written by the liberal authors. Most of the
liberal authors attempted to maintain ideological “appropriateness” when they proposed new
ideas or raised new issues related to ownership forms. The appropriateness can be
maintained by showing respect for the public ownership system or by defending its
maintenance and dominance. The liberals normally emphasized how their recommendations
would contribute to the strengthening of the public ownership system and the state-owned
economy.
The major debate strategy liberals took was to indicate conservatives’ misperception
over the SH reform and to turn over the foundation of the conservatives’ arguments. The
liberals’ main arguments are: 1) To stop the SH reforms leads to the result that the
conservatives are most worried about, such as privatization or further state asset drain, or 2)
The SH reforms are, in fact, beneficial to what the conservatives tried to protect, such as the
public ownership system. The following are the quotations of some liberals’ arguments that
attempted to refute the conservatives’ claim that further SH reform leads to privatization or a
greater drain of state assets.

(Defending the SH reform and the state’s ownership rights transfer to enterprises)
The real cause of state asset loss is the misperception that the division or clarification of the
state’s ownership rights leads to state asset loss. If we stick to the traditional state ownership
concept, it is impossible to define or clarify property rights or other legal rights necessary for
further SH reforms. Without the clarification, no true separation of government and
enterprises is possible, and the continuous government interference to enterprise affairs will
cause further corruption, which, in turn, leads to more loss of state assets.
119

119
“Tang Fengyi tan qiye zhidu chuangxin de nandian yu zhengjie (Tang Fengyi’s talk on the
difficulties in the reforms of enterprise system). GN, vol.1 (1995).

112

(Defending SH reform)
The argument that the SH reforms lead to privatization does not make sense. The SH reform
is not the establishment of the individual ownership system but the process of improving the
public ownership system. The primary goal of the SH reform is to merge the public
economy with a market economy and to make more efficient allocation of resources possible,
as the theory of socialist market economy states. A strong public ownership system is an
important condition for social stability and development.
120

(Defending the tradability of state shares)
We must uphold the public ownership system as the principal system, but it is only possible
through the merger of public ownership and a market economy. Our economic reform is not
to promote private ownership. The public ownership system could take a variety of forms
from a traditional planning economy to a socialist market economy…. Or we could have a
mixed ownership system, in which the state-owned economy coexists with collective (jiti)
economy or other various economic elements and increasingly assumes its “guiding
function”… Therefore, the arguments that the SH reform weakens public ownership or leads
to privatization do not make any sense….Selling out part of the state assets in the market
does not increase state asset loss. Only through the trading of state assets through a market
mechanism is the efficient allocation of resources possible, which in turn increases the
overall state assets.
121

Some liberals’ arguments sounded very contradictory in a Western sense since they
were recommending more private investment while denying privatization. Still, the liberals
did relatively well in their argumentation. In order to defend their positions, the liberals also
employed the “seeking truth from facts” slogan (“shishi qiushi”) or statistical data, with
which they could prove and more openly criticize loss-making SOEs and, at the same time,
praise the more efficient performance of private enterprises.

120
Zhou Laiwu, “Shenhua changquan zhidu gaige: Guoqi zhuanhuan jizhi de guanjian” (Accelerate
the property rights reform: The key to the re-organization of SOEs). GN, vol.8 (1995).

121
Jia Heting, “Zhidu yao chuangxin, Guannian bixu gengxin” (The system needs to be reformed,
Perception needs to be refreshed). GN, vol.2 (1995).

113
Proposals for the state’s rights transfer to private entities
Even if enterprise ownership was politically difficult and enterprise property rights
remained “hybrid,” once the unified state ownership was challenged, many authors began to
submit a variety of ideas with regard to the state’s rights transfer to enterprises, employees,
and private individuals through shareholding or commercialization of SOE assets.
There are three major proposals: The state’s rights transfer to enterprises, to
employees, and the commercialization of non-productive assets of SOEs. Since the transfer
of rights involves changes in ownership forms, these proposals described a new type of
shareholding practices as well as of ownership forms. Policy makers in this period were
struggling to find a compromise solution between the ideological constraints placed on
private ownership and the need of further SH reforms, or between socialist ideology and
local market conditions. The proposed shareholding practices had already been practiced at
local levels by the mid 1990s, but ideological legitimation of these practices for universal
regulations was still politically difficult. However, the policy makers did the best they could
in finding the ways to legally transfer the state’s rights to non-state entities, while carefully
avoiding privatization. These proposals became the basis of the “Grasp the large, let the
small go” (“Zhuada Fangxiao”) policy, under which the government attempted to retain
control over large SOEs (“grasp the large” part), while allowing de-facto privatization of
small or mid-sized SOEs (“let the small go” part). The following are the three major
proposals.

1) Legal person shareholding (faren zhigu) system
The focus of this proposal is to establish a legal person share (enterprise share)-
based ownership system through the transfer of the state’s investor rights or shareholder
rights to enterprises. The transfer is made by equating these rights with enterprises’ LPAR

114
or legal person shares.
122
The term, LPAR, was used in this proposal virtually synonymous
with an enterprise’s ownership rights. Therefore, enterprises eventually can transform state
shares to enterprise shares and can trade in the stock market. The proponents of this
proposal asserted that the eventual goal of the PR reform is, as specified in the “Decision”
issued by the CCP, to gradually de-emphasize the state’s “investor rights” (chuzizhe
suoyouquan) and transform it to legal person ownership rights (faren suoyouquan).
123

There are some variants in this proposal. The “legal person shareholding system
model” (or faren gufenzhi moshi) proposed the transfer of state assets to “investment funds”
(touzi qijin) managed by contracted organizations or holding companies. This model was
submitted for the reorganization of large SOEs and became the basis of the “Grasp the large,
let the small go” policy. The proposal therefore specified how to control SOE
conglomerates through holding companies and a majority share control by the government
(guojia konggu). The model also described the benefit of cross shareholding among the
enterprises (qiye zhijian zhigu) in the SOE groups.

2) Employee shareholding (zhigong zhigu) system
The focus of this proposal is to set up collective employee shares and let employees
or workers collectively own their own firms. This employee shareholding-based, “workers’
ownership system” was mainly recommended for the reorganization (or privatization) of
small or mid-sized SOEs.
124
Although the setup of employee-owned cooperatives was

122
Wang Naifen, “Farenzhigu: Guoyou qiye gongsihua de yizhong xuanze” (Legal person
shareholding: One option for the incorporation of SOEs). GN, vol.6 (1995); Zhou Laiwu, “Shenhua
changquan zhidu gaige: Guoqi zhuanhuan jizhi de guanjian” (Accelerate the property rights reform:
The key to the re-organization of SOEs ). GN, vol.8 (1995).

123
Ibid.

124
Ze Fulin, “Danqian queli laodongli changquan zhi guan zhongyao” (The establishment of the
property rights for labor is very important). GN, vol.8 (1995); Xian Shifen, Zhou Tianyong, Zhang

115
already allowed by the Company Law, employee shareholding began to be promoted by the
reformists in this period because of its contribution to increase labor incentives and
productivity. The conservatives also advocated the idea because employee shareholding
makes workers the “master” of their firms.

3) The commercialization of non-productive assets of SOEs
The idea is to first define property rights of non-productive assets of SOEs, such as
hospitals, schools or housing, then transfer them into “social security funds,” make them
tradable, and, gradually allow the commercialization and private ownership of these assets.
This method is called the “breakup of existing assets” or “cunliang fenjie,” and eventually
led to housing ownership or privatization of hospitals. Although some critics argued that
commercialization would cause the further loss of state assets or jeopardize the enterprise-
based social security system, the counter argument by the advocates eventually won. The
advocates (mainly reformists) argued that keeping these assets rather increases the burden on
the state budget and leads to state asset loss in the long run. The advocates also argued that
commercialization increases labor incentives and productivity because lazy workers are
worse off with the commercialization of the welfare system.
125

Dajun, “Zhengque chuli gaizhi, Gaizao yu neibu guangli de guanxi” (Correctly handle the relationship
between the reform and enterprise management). GN, vol.9 (1995).

125
Liu Shijin, “Cunliang fenjie: Shi “fanhuan” haishi “liushi” (The breakup of existing assets:
“Return” or “Drain”?). GN, vol.3 (1995).

116
State’s marketization period (1995-1996)

“Grasp the large, let the small go”: A compromise solution?
The debate over the division of the state’s ownership rights lost its momentum by
mid-1995. The liberal-conservative division was temporarily submerged in this period and
ideological articles decreased. Urgent calls for more enterprise autonomy, which were
prevalent in the previous period, nearly disappeared by late 1995, and many authors began to
take a cautious attitude toward, or show reluctance to, the transfer of the state’s rights to
enterprises. Some authors began to argue that even if SOEs received private investments or
bank loans, the ownership rights of SOE assets still belong to the government because the
government holds the “ultimate ownership rights” over all SOE assets.
126
Others argued that
the government is an investor in SOEs but the right of investors is part of the ownership
rights.
127
These arguments come close to a denial of the reformist proposals made less than
a year before.

This sudden change of the trend was related to the adoption of the “Grasp the large,
let the small go” (“Zhuada Fangxiao”) policy in 1995. As mentioned earlier, with this
policy, the government retained its control over large SOEs, while permitting de-facto
privatization of small or mid-sized SOEs. Considering the ideological constraints placed on
private ownership in the mid 1990s, this policy could have been a compromise solution to
the issue over the state’s ownership rights. The government attempted to reconcile the
growing contradiction between the ideological constraints and market conditions at the local
level, where de-facto privatization and share trading—legal or illegal—were already widely

126
Wang Weiwei, “Zhunque lijie guoyou qiye zichang gainian” (Correctly understand the concept of
SOEs’ assets). GN, vol.20 (1995).

127
“Changquan qingxi yao zhen qing” (The clarification of PR must be done clearly) GN, vol.8
(1996).

117
practiced. Instead of universally permitting the transfer of the state’s ownership rights to
enterprises, the government divided SOEs into two groups—large and small—and attempted
to maintain its control over large SOEs, while renouncing it over small- or mid-sized SOEs.
Behind this policy, there were ideological and realistic motives of the government.
Ideologically, facing the shrinking portion of the state-owned economy, the government
wanted to maintain a superiority of the state-owned economy over non-state economies. By
controlling large SOEs that operated in strategic industries and by establishing the state
monopoly over these areas, the government made these large SOEs the “lifeline” or “guiding
function” of the national economy. Around the mid 1990s, the state-owned economy’s
function was re-defined from a “dominant player” (“zhuti tiwei”) to a “guiding function”
(“zhudao zuoyong”) of China’s economy. With the “Grasp the large, let the small go,” the
government attempted to make it a reality.
As a pragmatic motive, the government wanted to retain its control over the
strongest part of the economy, and to control state assets by itself. The rising state’s
interests and the new perception, “the state as a market player,” influenced this motive. Lin
and Zhu quoted an article published in the People’s Daily that suggested such intentions by
the government. The article states that “by maintaining a controlling interest in restructured
enterprises (large SOEs), the state in fact expands its influence over economic activities by
bringing under its control the use of additional amounts of capital.”
128
This motive
increasingly became clear as holding company schemes emerged in late 1995.
With the “Grasp the large, let the small go” policy, privatization at local levels
accelerated in this period. However, the lack of the legal clarification of the state’s
ownership rights and the ideological constraints placed on private ownership resulted in

128
Lin Yi-min and Zhu Tian. Ownership Restructuring in Chinese State Industry: An Analysis of
Evidence on Initial Organizational Changes, The China Quartely vol. 166 (2001), P. 312.

118
ideological and legal confusion at local levels. Local governments raised a wide range of
questions over ownership rights. Who has the right to sell or trade the state’s property rights
or state shares in local SOEs? Who must take responsibility for the loss of state assets
caused by market operations?
129
How could the ownership rights of individual employee
shares legally be defined? Are the assets produced by a reduction in taxes part of the state
assets? Local governments also demanded the clarification of the ownership rights of jiti
(collective) enterprises.
Some authors asked questions that were still ideologically sensitive in the mid
1990s. One author asked whether the state’s ownership rights over jiti assets could legally
be transferred to private individuals in case collective firms received private investment or
formed a partnership with private individuals. The treatment of “red hat” firms or “fake
collectives” (jia jiti)—private enterprises registered as collective enterprises—also posed
legal questions. The assets of these firms officially belonged to the public but, in reality,
they were controlled by private individuals.
130
During this period, words such as private
investment (siren chuzi) or private property (siren caichang) frequently appeared in articles
that documented local situations, which indicates the acceleration of de-facto privatization of
small SOEs.
131
Owing to the ideological constraint placed on privatization, however, the
central policy makers had not well prepared for these questions from local levels, especially
the ones related to private ownership.

129
Ding Ningning, “Changquan jiaoyi bijing nan zai nali” (What are the difficulties of PR trade?).
GN, vol.19 (1995).

130
Chen Yongjie, “Jiti qiye changquan jidai jieding” (The property rights of collective enterprises
must be defined immediately). GN, vol.22 (1995).

131
“Guozi cong zhongxiao qiye chetui bu yi” (The withdrawal of the state assets from small or mid-
sized SOEs is not easy). GN, vol.10 (1996).

119
The holding company scheme: The emergence of an “entrepreneurial state”
From late 1995 to 1996, the holding company issue became the dominant issue of
the PR/SH debates. Holding companies (guojia konggu gongsi) originally appeared as part
of the state asset management issue. The State Asset Law assigned three entities for the
management responsibility of state assets: official contracted organizations specialized in
state asset management, holding companies, and the enterprises themselves. The
establishment of official contracted organizations and the rights transfer to enterprises were
still being debated during this period, and the holding company seemed to be the most
feasible option to many policy makers. Despite the official principle of a separation of
government and enterprise (zhengqi fenkai), the establishment of holding companies
matched the rising state’s interests. By creating a half-state, half-enterprise entity, the
government attempted to retain and even strengthen its direct control over state assets and
the management of these SOEs, in order to protect the state’s rights and interests. The
governments—both the central and local—significantly marketized themselves and became
“entrepreneurial”
132
from the mid- to the late 1990s. At local levels, administrative bureaus
or provincial governments created holding companies and directly controlled the companies
by filling important posts with government officials.
133
Despite growing criticism over such
activities, this trend accelerated as more “test sites” for state asset management were
established.
As further evidence for the rise of the state’s interests, many authors started raising
issues over evaluation standards for state assets, including the SOEs’ “invisible assets”

132
For the definition of “entrepreneurial” state, see, Oi, “The Role of the Local State in China’s
Transitional Economy.” The China Quarterly, vol. 144. Pp. 1132-1149, or Shevchenko, “Bringing the
Party Back In: The CCP and the Trajectory of Market Transition in China.”

133
“Shei lai guan guoyou zichang touzi zhuti” (Who will become the main investing body of state
asset?). GN, vol.18 (1996).

120
(wuxing zichang) such as copyrights, technology, corporate governance, or market shares.
134

Others demanded the more competitive management of state assets. The government needs,
one author argued, competent and experienced “contractors” of state asset management who
could act like self-interested, profit maximizing private entrepreneurs, in order to preserve
and increase state assets.
135

The central government also began to assume the role of a “developmental state”
through the use of holding companies. With the “Grasp the large, let the small go” policy,
the central government initiated the grouping of large SOEs controlled by holding
companies, and attempted to make these SOE conglomerates the “guiding function” (zhudao
zuoyong) of the national economy. As a result, some holding companies became an
important tool for the government’s industrial policies by late 1996. The government
control over these companies strengthened and those holding the most important posts in the
companies were appointed by the government.
One of the unintended consequences of the rise of the state’s interests was the
government’s increased commitment to the enterprise reform. The discussion over the
holding company often stepped into the reform of the SOE’s management system,
suggesting that the SOEs should become more competitive and be managed in accordance
with international norms. It is ironic, however, that China’s enterprise reform made real
progress with the increase in government control over enterprises, considering the fact that a
separation of government and enterprises was, originally, the central theme of the modern
enterprise reform.

134
“Guoyou qiye changquan zhongzu buneng luan lai” (Organize the re-organization of SOEs’
property rights). GN, vol. 3 (1996).

135
Zuo Dabei, “Guoyou zichang gai shei guan” (Who must manage state assets?). GN, vol.5 (1996).

121
Emerging contradiction and the pursuit of the China model
Behind the sudden shift from the ideological “clarification debate period” to the
pragmatic “state marketization period,” the policy makers also feared “real” market
competition with foreign capital or non-state actors. This sense of fear caused contradictory
feeling among the policy makers, regardless of whether they were liberals or conservatives.
While admiring market principles such as fair market competition, anti-monopoly, economic
efficiency or natural selection in theory, the same authors often demanded the setting of
limits on foreign or non-state capital investment in SOEs, the restriction of their listing on
stock markets, or the state monopoly over strategic industries. On the global economy issue,
some authors admired capitalist management models and introduced some of them for a
partial adoption, but concurrently expressed their concern over laissez faire capitalism and
its exclusive pursuit of efficiency principles (xiaoli yuance). These authors were mainly
concerned that placing efficiency principles over equality principles (gongping yuanzi)
would result in growing social inequality and instability.
136
This contradictory feeling
perceived by many authors derives from an inherent contradiction between market principles
and socialist ideology.
On the other hand, a sense of fear over capitalism promoted the Chinese desire to
establish a system or model that is distinctively Chinese—or the Chinese version of
capitalism—by reconciling capitalist principles with socialist principles. In late 1996, Zhou
Qiren, a professor at Beijing University, discussed his “theory of human capital property
rights” in a provocative article. The theory states that human capital, rather than financial or
material capital, is the key for enterprise development and success. Human capital is the
origin of the material or financial wealth of companies because enterprise wealth is only

136
“Guoyou qiye changquan zhongzu buneng luan lai” (Organize the re-organization of SOEs’
property rights ). GN, vol. 3 (1996).

122
created by competent and skilled human capital (or entrepreneurs).
137
The theory, possibly,
was an attempt to overcome the ideological confrontation between capital and labor under
socialist principles. It could also be an attempt to establish a labor-(human-capital) based
Chinese capitalism as opposed to the financial capital-based Western capitalism. The desire
to establish a more equality-oriented and worker-centered economic model manifested itself
as unique definitions of the shareholding system (SHS) were submitted by the conservatives
in the following period. The contradiction between efficiency and equality principles also
developed into a new ideological debate over the definition of the SHS in the next period.

SHS Debate period (1997-1998)

Ideological division re-surfaced
The first half of 1997 can be labeled as a blank period in the PR/SH debate process.
After the holding company issue disappeared from the agenda, the number of SH reform
articles also decreased. The possible reason for this decrease is that policy makers restrained
themselves from engaging in specific or ideological discussions over controversial SH
issues, expecting major changes in the reform policies at the forthcoming 15
th
Party
Congress to be held in September.
As the Party Congress drew closer, however, the ideological division re-surfaced
and the debate over the definition of the SHS began. Many conservative policy makers or
academics who wrote the SH articles in the late 1990s shared a similar characteristic with

137
“Renli ziben changquan lun: Changquan lilun xin shidian” (The theory of human capital PR: A
new focus on PR theory). GN, vol. 20 (1996).

123
social democrats found in Western countries. They took a pro-labor and pro-welfare stance,
expressed concerns over increasing income gaps, social instability, and the deterioration of
social welfare, and recommended the slowdown of market reforms. Although some
conservatives still argued that the SH reforms would lead to privatization, relatively
pragmatic conservatives recognized that it is impossible to turn back the reform and began to
define the SHS on their own terms.
On the other hand, the liberals in this period, most of whom were academics
educated in the West or reformist policy makers, strengthened their commitment to capitalist
market principles. Their support for capitalist principles is well observed in their increasing
use of terms such as the survival of the fittest (yousheng lietai), economic law (jingji guilu),
economic rationality (jingji helixing), or efficiency principles (xiaolu yuanze). Some liberals
considered that social equality or welfare must be compromised for economic development,
at least at the beginning of market reforms. The ideological division between the liberals
and conservatives in this period, therefore, could boil down to the conflict between
efficiency-oriented market principles backed by the liberals and equality-oriented socialist
principles backed by the conservatives. Compared with the ideological division found in the
ownership reform debate articles, however, a clear-cut dichotomy of pro-capitalist (the
private economy) and anti-capitalist is not observed in the SH articles.

Conservatives’ cooperative definitions of the SHS
The SHS debate started shortly before the 15
th
Party Congress. The conservative
authors, in their last minute efforts, tried to define the SHS as a cooperative system
(hezuozhi) characterized by the workers’ union and self-control of their firms. The Chinese
official term indicating the SHS is a “shareholding-cooperative system” (Gufen hezuo zhi).
The conservatives, however, largely ignored the “shareholding” aspect of the SHS, which

124
involves more of capitalistic and market principles in its definitions. The conservatives
nearly exclusively focused on the “cooperative” part, under which workers collectively own
their own firms and “democratically” manage them. The conservatives promoted the
distribution of collective employee shares (CES) and recommended non-tradability or
majority control rights of these shares. They argued that CES or internal employee shares
increase workers’ incentive, productivity, risk perception and solidarity. They supported
their arguments by citing successful local experiments of “employee shareholding
companies” (zhigong gufen gongsi) found in less developed regions such as Heilongjiang
Province and by emphasizing CES’s great contribution to revive nearly bankrupt SOEs.
138

While the liberals kept silent on these definitions, the conservatives specified their
definitions into detail, from corporate governance to decision making procedures to the
organizational structure of SH firms. The conservatives asserted that SH firms’ operational
or managerial decisions are made by the labor representative meeting (zhigong daibiao
dahui) rather than shareholders’ meeting or the board of directors.
139
To ensure equality
among workers and democratic management by workers, voting for a firms’ important
decisions must be conducted with a “one person, one vote” (1p1v) principle rather than a
“one share, one vote” (1s1v). The conservatives in this period considered SH firms as a
political organization rather than a business or economic entity. These proposals were
intended to ensure “labor-capital collaboration” by making workers the “masters” of their
firms and broadening their power base. The conservatives argued that 1p1v is important to
ensure democratic management of SH firms by workers and to prevent the firms from being

138
Fang Yi, “Fenchang taoren, Gufen chengbao” (The individualization of assets and shareholding
contract). GN, vol. 14 (1997).

139
Qi Guizhen, “Zhongxiao qiye tizhi luan wu zhang” (Small and mid-sized SOEs are in chaos). GN,
vol. 14 (1998).

125
taken over by few large shareholders, such as managers who often obtain a large number of
shares through political means or official connections.
The liberals kept silent before the Party Congress and did not openly criticize these
conservative definitions. Although some concerns over anti-market practices, such as non-
tradability or majority control rights of CES, were expressed, the liberals were simply
repeating an official definition that the SHS is the public ownership system under which
collaborations among various economic elements are possible. For some liberals, the fact
that some conservatives started defining the SHS could be welcome “progress,” no matter
how socialistic or anti-market their definitions were. It was evidence that some
conservatives, at least, agreed with the SH reforms and began to involve themselves in the
process by submitting their own definitions. The liberals’ silence was, however,
immediately broken after the Party Congress.

The 15
th
Party Congress
The conservatives’ last minute effort in definition making prior to the 15
th
Party
Congress possibly derived from the same anticipation for the forthcoming Party Congress
held by the liberals. The liberals largely anticipated major changes toward marketization
and waited to submit their “market-oriented” definitions of the SHS until after the Party
Congress. On the other hand, the conservatives, despite their very vocal presence, felt
insecure, also anticipating changes toward marketization, just as the liberals did. The
conservatives therefore hastened to submit their definitions while they were still being heard.
If this was the case, their last minute effort turned out not to be entirely meaningless.
At the 15
th
Party Congress, Jiang Zemin commented, referring to some conservative
arguments, that the SHS promotes the “union of labor and capital” and the “union of
workers,” and encouraged further SH reforms for the development of social productivity.

126
Jiang also removed the ideological constraints placed on private ownership and the private
economy in a way that did not offend conservative forces. While stating that the non-state
economy is “an important integral part” (zhongyao zucheng bufen) of China’s socialist
market economy, Jiang also said that China maintains public ownership as the principal
system (yi gongyouzhi wei zhuti). This statement is ideologically contradictory, but Jiang
justified his position by encouraging the diversification of the “existing forms of the public
ownership system” (gongyouzhi shixian xingshi).
The ideologically middle-ground and contradictory position Jiang took in this
“breakthrough” address resulted in encouraging both the liberals and conservatives, and
eventually turned the ideologically divisive SHS debate into a reconciliatory one. The
conservatives were particularly encouraged by Jiang’s comments on the SHS as the “union
of workers,” and “maintaining the public ownership system as the principal system.” On the
other hand, the liberals were encouraged by the endorsement of the non-state economy’s
equal status to the public economy.

The reconciliation between the liberals and conservatives, however, did not
immediately start after the Party Congress. Although Jiang’s ideologically middle-ground
position was undoubtedly effective in preventing the alienation of conservative forces from
market reforms, it did not have an immediate effect on narrowing the ideological division
between the liberals and conservatives. On the contrary, the division was temporarily
intensified after the 15th Party Congress, and the liberals started their attacks on the
conservatives’ definitions of the SHS. This stems in part from the fact that some liberals
interpreted Jiang’s address, especially the legitimation of the private economy, as a full
legitimation of private ownership and capitalist principles. Furthermore, according to
Fewsmith, the brief period after the 15
th
Party Congress from 1997 to 1998, is called

127
“Beijing Spring,” during which liberal thoughts were allowed to be expressed relatively
freely.
140
If so, the liberals’ backlash and often bold attacks on the conservative definitions
could also be part of this trend.

Liberals’ backlash immediately after the Party Congress
The liberals’ attack started with an article in Gaige neican published at the time of
the Party Congress. The author, Wang Ping, Jiangsu’s System Reform Commission (Jingji
Tizhi Gaige Weiyuanhui), declared that a majority control of public shares (gongyou gu) in
SH firms is unnecessary, calling it “adding feet to a drawing of a snake” (“huashe tianzu”).
If the SHS is by definition the collective ownership system and one of the “existing forms of
the public ownership system,” Wang asked in a sarcastic manner, why do SH firms need
public or collective shares’ majority control to begin with? Wang meant that a majority
control by public shares—including collective and state shares—was unnecessary because
SH firms are, officially, “public” companies. Wang argued that a majority control of public
shares gave local governments a good excuse to strengthen their control over SH firms,
increased the firms’ dependence on the government and harmed workers’ interests. It also
caused corruption and a further state asset drain because some local officials, taking
advantage of their positions as official representatives of public shares, often procured illegal
acquisitions or engaged in the trading of public shares, and were “eating public assets.”
Wang called for the earliest possible cancellation of majority control of public shares.
141

Wang’s article later received a “reply” from a conservative, Zhen Feixing, the head
of the Zhejiang labor union, and the two authors conducted a debate in the journal. In his

140
Fewsmith, China since Tiananmen: The Politics of Transition, P. 196.

141
Wang Ping, “Gufen hezuozhi qiye: Gongyougu ‘Huashe tianzu’” (Shareholding cooperative firms:
Public shares are ‘the unnecessary snake’s feet added to the drawing). GN, vol. 16 (1997).

128
reply, Zhen listed the benefits of CES’s majority control, referring to successful foreign
models. Zhen argued that CES is, in fact, helpful to eliminate government control because it
makes workers the owners and “masters” of their own firms. CES’s non-tradability is also
important to prevent takeovers of the “workers’ firms” by outside or foreign capital. Many
Japanese companies, in their recovery effort from World War Two, set up internal employee
shares to avoid outside or foreign control. Majority control of CES is also ideologically
necessary to prevent SH firms from becoming private firms.
142

Following Wang’s article, the liberals’ criticism exploded on a variety of issues from
the tradability of state shares to the corporate governance of SH firms. With regard to the
tradability issue, in order to promote more listing of SH firms and trading of state or
collective shares, the liberals refuted the conservative’s claim that state share trading would
cause stock bubbles and harm individual shareholders’ interests. According to the liberals,
state shares were deliberately priced lower than other shares of the same company, which is
against the “same share, same price” principle. These practices were also against
international norms, and therefore inhibited the development of China’s financial market.
The liberals also demanded more sophisticated management rules and regulations of stock
markets and recommended the establishment of a supervising organization similar to the
US’s Securities and Exchange Commission.
The liberals were especially critical of the conservatives’ attempt to define the SHS
as a cooperative system. Li Dewei, a leading reformist, asserted that limiting the SHS
definition to cooperative aspects is “suicidal” and “illusionary socialism” (kongxiang shehui
zhuyi). The cooperative system is exclusive in nature, making outside investment nearly
impossible. The goal of the SH reform is not to ensure a workers’ union but to reform the

142
Zhen Feixing, “Sheli zhigong jitigu haochu duo” (To set up collective employee share is
beneficial). GN, vol. 7 (1998).

129
enterprise management system in order to make SH firms competitive in the market. For the
development of SH firms, Li asserted, SH firms must overcome the exclusiveness of the
cooperative system and welcome investments from outside or from individual shareholders.
For that purpose, the “1 share, 1 vote” principle must be adopted for voting and individual
shareholders’ interests should also be protected.
143

An article form the Hong Kong newspaper, Xinbao, was quoted to criticize the
conservative definition. According to the Xinbao article, China’s SH firms were, in fact,
“cooperatives” (hezuoshe), and do not satisfy the operational principles of a market economy
because equality principles (gongping yuanze) are placed over efficiency principles (xiaoli
yuanze). Such a labor union-based system and the principle of “cooperation of capital and
labor” cannot smash the “iron rice bowl” mentality, and are increasingly obsolete in the age
of global market competition.
144

In order to save the “shareholding” part of the SHS from the conservatives’ “mixed
up” definition, other liberals emphasized the differences between the shareholding system
and the cooperative system. The cooperative system (hezuozhi) is an equality-based system
under which “1 person 1 vote” voting for firms’ decisions is appropriate, and shareholders in
cooperatives can cancel their commitment to shares anytime they want. On the other hand,
the shareholding system does not allow these practices. The voting method of
“shareholding” firms must be unified to “1 share, 1 vote” in order to protect shareholders’
interests, and shareholders cannot sell their shares anytime they want because their

143
Li Dewei, “Gufen hezuozhi gai zhemme guihan” (How can the shareholding cooperative system be
modeled?). GN, vol. 2 (1998).

144
Qin Hui, “Qiye gaige yao minzhu” (The enterprise reform must be democratic). GN, vol. 6
(1998).

130
investment became part of the assets of the invested firms.
145
In this period, the liberals
developed a sophisticated global view and legal consciousness, which were well reflected in
their arguments. Despite the ideological division, the liberals engaged in the SHS debate
from a regulatory point of view rather than an ideological one, and increasingly referred to
international norms or legal concepts to justify their arguments.

Share distribution debate
In early 1998, a major debate issue shifted from the definition of the SHS to share
trading. With the development of stock markets, the liberals began to demand “securities
democratization” (zhengquan minzhuhua) or a “democratic” distribution of shares through
market mechanisms. According to the liberals, the government has largely decided who
owns how many shares or who invests in what type of shares of SH firms. Government
control often caused government officials’ illegal acquisitions of shares. The liberals argued
that these practices are preventing the optimal distribution of shares. With the usage of new
terms such as “securities privatization” (zhengquan siyouhua), “economic democracy,”
(jingji minzhu), or “economic freedom” (jingji ziyou), the liberals demanded a full
liberalization of share trading.
The conservatives uniformly opposed such an idea for the same reasons that they
defended non-tradability or majority control rights of public or collective shares. They
argued that “securities democratization” is most likely to result in a share concentration
problem (controlling of majority shares by a few large shareholders) or outside control of SH
firms. Although the share concentration problem was a common fear of the liberals, the
liberals argued that government control is the main cause of such a problem because it

145
Wang Liansheng, “Gufenzhi yu hezuozhi bu neng ‘zajiao’” (The Shareholding and cooperative
systems cannot be mixed up). GN, vol. 18 (1997).

131
increases illegal trading or acquisition of shares through political means. If government
control is removed, the market mechanism and the individual firm’s pursuit of economic
efficiency naturally lead to an optimal distribution of shares and eliminate the share
concentration problem.

During the debate over share distribution, however, some liberals realized that the
removal of government control could also lead to the same result in the case of market
failures. The realization that free market competition also leads to a share concentration
problem posed a dilemma for some liberals who showed increasing support for capitalist
principles. These liberals began to ask if their simple-minded pursuit of market efficiency is
beneficial to the reform.
Reflecting this emerging dilemma, the issue of “managers’ larger shareholding”
(jingyingzhe dagu) divided the liberals’ opinions and made some liberals ambivalent in
deciding their position on the issue. Managers’ larger shareholding had long been practiced
at local levels and the regulations for limiting the maximum percentage of managers’ shares
had been set by provincial or local governments, such as Guangdong’s 40% or Shandong’s
30%.
146
However, the conservatives in the central government nearly uniformly opposed
this practice based on an “equality” principle and insisted on equal shareholding among
employees, regardless of whether they were executives, managers, or factory workers.
The liberals were divided on the issue. While some liberals considered it as part of
the government control and therefore opposed it, other liberals argued that larger
shareholding increases managers’ incentive and produces more competitive entrepreneurs

146
Wen Tiejun, Yan Hui, “Gufen hezuozhi ‘Fen’ ‘Mai’ geyou ji miao” (Separate “breakup” and
“sale” under the shareholding cooperative system). GN, vol. 7 (1997).

132
necessary for the coming international market competition.
147
The issue even made radical
liberals such as Qin Hui ambivalent. Qin was against managers’ larger shareholding if
managers’ acquisition of shares was accomplished through political means or their
government connections because such practices fail to meet market principles of fairness and
efficiency. Qin repeatedly warned that if larger shareholding through political means
became a norm, China’s SH reform will fall into the same fate as the “failed” privatization
experience in Russia where a few people connected to the former communist government
obtained a majority of the shares in privatized firms.
148
On the other hand, Qin also
confessed his concern that following fairness and efficiency principles often invites the same
result as the “failed” privatization in Russia, or the acquisitions of larger shares by a few
wealthy individuals.
In this period, Russia’s “failed” privatization experience, which resulted in a
concentration of wealth by a few and a widening income gap between rich and poor, was
frequently discussed by both liberal and conservative authors. The Chinese policy makers in
this period desperately tried to find an answer to the question, “How could China avoid
falling into the same fate as Russia?” Some liberals began to consider that a certain degree
of government control is necessary to ensure market stability in order to avoid the Russian
experience. This liberals’ recognition was very effective in narrowing the gap between the
liberals and conservatives and eventually led to reconciliation between the two sides. Some
liberals noticed in this period that a solution to the Russian problem could be found in the
intersection between efficiency principles and equality principles.

147
Li Jiangning, “Jingyingzhe ‘zhidagu’ xing ma” (Is managers’ larger shareholding legitimate?)
GN, vol.3 (1999).

148
Qin Hui, “Qiye gaige yao minzhu” (The enterprise reform must be democratic). GN, vol. 6
(1998).

133
Reconciliation period (1998-1999)

Facing the same dilemma?
Due to the rise of the liberals’ dilemma, the liberals’ backlash lost momentum in a
relatively short period of time. By mid 1998, the liberals’ criticism over conservatives’
equality principles began to disappear, and the debate turned to a reconciliatory mood. By
then, the conservatives faced a similar contradiction or dilemma between market and
socialist principles. The liberals began to realize that, as was seen in their dilemma, a
simple-minded pursuit of economic efficiency and the removal of government control often
leads to market failures and invites unintended consequences such as the share concentration
problem. On the other hand, some conservatives in this period increasingly realized that
their exclusive pursuit of equality principles and the cooperative characterization of the SHS
was incongruent with a growing marketization and internationalization trend. This
recognition made some conservatives ambivalent on many SH issues.
In mid-1998 a few conservative articles appeared that acknowledged the limitation
of the equality-based SHS. The author of one of the articles stated that employee shares’
majority control or the equal shareholding principle (Jundeng zhigu yuanze) among workers
restricted the development of SH firms by preventing outside investment, which is the main
reason for the fact that only a handful of successful SH firms are found in China. Such
equality principles cannot be sustained once SH firms become larger or engage in
international operations.
149
Some conservatives even began to question whether CES or
equal shareholding was economically rational.
150
This provides some evidence that some
conservatives began to recognize the importance of market principles, although these articles

149
Han Kang, “Zenme ban gufen hezuozhi (Shang)” (What kind of shareholding cooperative system
we must establish?: 1) GN, vol.7 (1998).

150
Li Jiangning, “Jingyingzhe ‘zhidagu’ xingma” (Is managers’ larger shareholding legitimate?) GN,
vol.3 (1999).

134
also expressed concerns over a rising social inequality once share trading was fully
liberalized.
Here, some conservatives faced the same dilemma that the liberals faced: A one-
sided focus on either efficiency or equality principles could fail the reforms. Facing the
same dilemma between market and socialist principles, the two sides began to compromise
with each other and ideological negotiation between the two sides started. The key point of
the negotiation was how to reconcile the two principles that often contradict each other:
economic efficiency and socialist equality.

Conservatives’ concessions
Jiang’s careful effort not to alienate and offend conservative forces in his address at
the 15
th
Party Congress finally bore fruit. Once the negotiation between the two sides
started, it was the conservative side that made larger concessions, especially on their
definition of the SHS. The conservatives began to loosen their one-sided definition that
focused exclusively on the “cooperative” part of the SHS. The major concessions are as
follows:

1. Voting method
Whether to take a “1 person, 1 vote” (1p1v) or “1 share, 1 vote” (1s1v) principle in voting
for firms’ decisions was a point of contention between the two sides during the debate.
Some conservatives agreed with a hybrid practice that uses 1p1v for protecting workers’
interests and 1s1v for shareholders’ interests.
151
The conservatives’ recognition of

151
Qi Guizhen, “Zhongxiao qiye tizhi luan wu zhang” (Small and mid-sized SOEs are in chaos). GN,
vol. 14 (1998).

135
shareholders’ interests is noteworthy because it suggests their recognition of the
shareholding part of the SHS.

2. CES
The conservatives made a significant compromise on CES. Some conservatives
acknowledged the legal ambiguity associated with CES and agreed with individual employee
shareholding if an appropriate ratio between collective and individual employee shares were
maintained or if workers’ representatives were admitted to firms’ boards of directors
(dongshi hui).
152
A compromise over majority control of CES was also effected. Some
conservatives proposed setting a limit on CES’s ratio maximum of 30% of all the shares.
Other conservatives proposed that the adoption of CES can be decided by the employees
themselves.
153

3. Shift toward social security issues
The conservatives’ increasing emphasis on social security issues can be considered part of
their concessions. Some conservatives began to link CES with social security issues and to
frame CES as a self-financed social security system that could reduce the burden on the state
budget. A conservative author proposed that a performance-based welfare fund for
employees called “labor share” (laoli gu) be set up. The author boasted that “labor share”
makes possible a “true merger of labor and capital.”
154
Regardless of its feasibility, such an

152
Wu Xianqing, “Guoqi changquan, Zhigong zhi duoshao” (How much SOE shares could
employees buy?). GN, vol. 15 (1998).

153
Qi Guizhen, “Zhongxiao qiye tizhi luan wu zhang” (Small and mid-sized SOEs are in chaos). GN,
vol. 14 (1998).

154
Laoligu: Wuchangzhe bienzhe youchangzhe (Labor share: Proletariats become producers). GN,
vol. 20 (1997).

136
idea was noteworthy in that some conservatives introduced market incentives in workers’
welfare, which shows a departure from their egalitarian principles. As the conservatives
shifted their emphasis from the worker-centered CES to social security issues, their
arguments became less ideological, which helped find a common ground with the liberals.
Some liberals in this period considered the establishment of a new, reliable and feasible
social security system as an important condition for further market reforms.

The Securities Law
As conservatives made more concessions and marketized themselves, it became
increasingly difficult to distinguish conservative articles from liberal ones. Some
conservatives often argued like liberals, and criticized—or self-criticized—CES for its
“contribution” to the “iron rice bowl” by decreasing workers’ incentives. In late 1998, the
major trend was already the “post” debate and the ideological debates over the SHS nearly
ended by then. In 1999, the SH agenda shifted toward more regulatory issues and the
discussions over stock market control or state share trading became major issues. These
issues are related to the promulgation of the Securities Law in July 1999.
The Securities Law was approved by the Standing Committee of the National
People's Congress (NPC) in December, 1998. It is noteworthy that its approval happened at
the same time as the end of the SHS debate. The promulgation of the Securities Law
represents an ideological agreement between the liberals and conservatives as a result of the
relatively successful reconciliation effort after the 15
th
Party Congress. Without such an
agreement, it might have been very difficult to adopt such a law. It can also be said that with
the adoption of the new law, the ideological climate finally caught up with local market
conditions, at least on the shareholding issues. In test sites located in developed regions such
as Shenzhen, the need of such laws had been emphasized by local officials since the early

137
1990s. This suggests the importance of the ideological constraint placed on the reform
process.
The Securities Law was intended to bring more openness, fairness and efficiency to
China’s stock market by remedying the deficiencies of the regulations implemented earlier,
such as the Company Law in 1994 or the 1993 Securities Regulation. The new law specifies
the procedure for the issuance of new shares or for stock trading, and strictly regulates unfair
trading. The 1993 Securities Regulation was insufficient to prevent unfair practices such as
insider trading. The Securities Law also relaxed the restriction placed on acquisitions of
listed companies by individual shareholders. Such acquisitions were discouraged and
strictly regulated under the 1993 Regulations, but the Securities Law eliminated the
Regulation’s requirement that a natural person—or an individual shareholder—could not
own more than 0.5% of the issued stock of a listed company.
155
The removal of this
restriction suggests that the ideological constraints placed on private or individual ownership
were officially removed.

Building SME: A distinctively Chinese economic model
The success in the reconciliation between the liberals and conservatives was also a
success in the building process of the “socialist market economy” (SME), a hybrid system of
market and socialism. Overall, the SHS debate was not fundamentally divisive as was the
debate over the state’s ownership rights observed in 1994 and 1995, when the liberals and
conservatives maintained a fundamental ideological difference and did not make any
reconciliation attempt. The successful reconciliation during the SHS debate occurred
because the two sides agreed on a unified goal of building SME by then and maintained a
position that the SHS was a new and innovative form of corporate governance satisfying the

155
See Xiaowen Qiu. 2001. “How Chinese Laws Regulate Tender Offers for the Stock of Public
Companies.” Perspectives, vol. 3: No.1. Overseas Young Chinese Forum.

138
requirement for SME. This was possible because of Jiang’s “breakthrough” address at the
15
th
Party Congress, in which he encouraged the building of SME by diversifying ownership
forms, promoting more SH reforms, and adopting good practices regardless of whether they
are capitalist or socialist. This illustrates the top leaders’ influence over the policy debate
and policy making process. In fact, the SHS debate itself became part of the process of
building SME, in which the liberals and conservatives negotiated with each other and
reconciled market principles with socialist principles.

The SME buildup, on the other hand, stimulated the Chinese desire to build a model
that is distinctively Chinese. Toward the end of the 1990s, some liberals increasingly
referred to foreign reform or corporate governance models. The models to be emulated are
the ones that emphasized social equality and had social democratic characteristics, such as
those found in the Czech Republic or Japan. For example, the Czech Republic’s SOE
reform models, which emphasized “social fairness,” were admired by some liberals as
opposed to the Russian privatization model that only benefited a few individuals who had
connected to the political power structure. Japanese models, especially the ones adopted
during the reconstruction effort after World War Two, were also frequently mentioned by
these liberals. The liberalization of stock trading in Japan after the war contributed to a
dismantling of the zaibatsu conglomerates that led the war effort; therefore, some liberals
reasoned, this experience could be applied to China’s SH reforms for a breakup of the state
monopoly.
156
On the other hand, US models were criticized for their individualistic
characteristics and for the “contradiction” between labor and capital. Russian models, in

156
Qin Hui, “Qiye gaige yao minzhu” (The enterprise reform must be democratic). GN, vol. 6
(1998).

139
particular “shock therapy,” were considered “failed” reform models; however, the Chinese
tried to learn from the failures, too.
The emerging preference of some foreign models over others is related to the SME
building process and ideological reconciliation. The admiration for social democratic
models such as the Japanese reflected the Chinese attempt and desire to reconcile the
contradiction between socialist and market principles in order to build a model that is
uniquely Chinese, combining the strength of socialism and the market (or capitalism). As
more ideological reconciliation between the liberals and conservatives was made, national
confidence began to be expressed by the authors, regardless of whether they were liberals or
conservatives. The authors emphasized the uniqueness or innovative aspect of SME and one
author called it “Confucian capitalism.”
157
The growing national confidence is also
observed in comments such as, “Chinese SOEs reformed the shareholding system rather
the shareholding system reformed Chinese SOEs,”
than
re
158
or “Chinese shareholding firms a
superior to the ones in Western capitalist countries because they have overcome the
contradiction between labor and capital.”

The end of major ideological debates and changing ideological dynamics
The content analysis data suggests the end of major ideological debates in the
PR/SH debate process around 1999. Figure 4.1 shows the percentages of the articles
carrying “ideological arguments” and “lip-service conservatism” each year. The
“ideological arguments” and “lip-service conservatism” are the coding items that measure
the existence of ideological debates or constraints. The “ideological arguments” item is

157
Ibid.

158
“Guoqi gufenhua zha nuan hai han” (The shareholding of SOEs again faced problems). GN, vol.
21 (1997).

140
coded if the authors make ideological arguments, regardless of whether they are liberal or
conservative. The “lip-service conservatism” item is coded if the authors of liberal articles
pay lip service to the conservatives, for example, by posting socialist slogans outside of their
contexts. Some liberal authors do this in order to maintain ideological appropriateness,
especially when ideological constraints are strong.
159
The percentages of both items in
Figure 4.1 peak in 1997, then go down, and disappear by 2001. This supports the view that
major ideological debates in the PR/SH reform debate occurred around 1997 and mostly
ended by 2000.

Figure 4.1: Ideological arguments and lip-service conservatism observed in SH articles

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
"Ideological
arguments"
35% 33% 50% 53% 87% 79% 50% 25% 0% 0%
"Lip-service
conservatism"
17% 22% 16% 6% 27% 14% 0% 0% 0% 0%
93 94 95 96 97 98 99 00 01 02

1998 and 1999 were the critical years of the SH debate process, when the ideological
dynamics prevalent in the previous years drastically changed. Figure 4.2 shows the
percentages of the articles categorized as liberal and conservative each year, which is a good
indicator of the changing ideological climate. At the time of coding, each article was
categorized as one of the three categories—“liberal,” “conservative,” or “neutral”—based on

159
For more details on this item, see Chapter 2, the coding sheet section.

141
the overall tone and nature of the arguments found in each article. The two lines in Figure
4.2 show a temporal reversal of the liberal and conservative percentages in 1998 and a near
dominance of liberal articles thereafter. The reversal is evidence for the conservatives’
concessions during the “reconciliation period” rather than their backlash. As noted earlier,
some conservatives increasingly marketized themselves and made concessions on the SHS
issues. The establishment of liberal dominance, therefore, indicates a completion of the SHS
debate with a relatively successful ideological reconciliation between the liberals and
conservatives. The timing of the reversal and the start of liberal dominance also correlates
with the approval of the Securities Law by the NPC.

Figure 4.2: Articles categorized as liberal or conservative
The reversal (1998)
0%
10%
20%
30%
40%
50%
60%
70%
80%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Articles categorized
as liberal (%)
Articles categorized
as conservative (%)

However, the ideological reconciliation and the established liberal dominance in the
late 1990s do not mean that ideology or socialist principles lost their influence or the liberal-
conservative division completely disappeared. Rather, the changing ideological climate
derives from a shift of core ideological principles. After Jiang’s address removed the
ideological constraints placed on the private economy and private ownership, how to balance
the economic efficiency necessary for market competition and the social equality necessary

142
for the upholding of socialism became a major point of the reform debates. In this regard,
Jiang’s address replaced as a core ideological principle the support for public ownership with
the support for social equality. A dichotomy between “efficiency principles” (xiaoli yuanze)
and “equality principles” (gongping yuanze) frequently appeared during the SHS debate.
Even after the successful reconciliation occurred, the difference between the liberals and
conservatives persisted in the form of the efficiency versus equality contradiction. This
difference, in some sense, symbolizes an inherent contradiction of SME. In the SME
building process, the conservatives emphasized more of the socialist side of SME and
advocated policies promoting workers’ welfare or social equality, while the liberals
emphasized more the market side and promoted policies which would increase economic
efficiency for market competition. Because these two principles are inherently
contradictory, keeping an appropriate balance between the two is difficult and the pursuit of
either of the two principles is likely to result in a de-emphasis on the other. The persistent
difference and contradiction between efficiency and equality, therefore, caused a new
ideological division in later years.

Internationalization period (2000-2002)

After 2000, the number of issues that the government had to deal with drastically
increased and diversified, and a wide range of international and domestic issues, as well as
economic and political issues, began to be linked together. The number of issues that
individual articles discussed also increased, and the articles solely focusing on a single issue
became increasingly rare. On the other hand, the issues discussed in the articles became

143
more specific and the authors often focused on technical or legal details concerning stock
trading or stock market control, which indicates the increase in the number of specialists or
policy makers who developed expertise in these issue areas.
As a result, particular issues were not deeply explored or discussed enough to
develop into a debate. This tendency was similar to the one observed during the test period
in the early 1990s. The policy makers at that time were overwhelmed by the new situation
and new information from local levels, and did not have enough time to contemplate one
issue or problem. After 2000, a similar tendency is observed but it was mainly caused by the
glowing influence of the global economy on China’s financial or stock markets.
In addition, after the ideological reconciliation that occurred in the late 1990s, the
liberal-conservative dynamics that were dominant during the 1990s are no longer applicable
to the situation after 2000, which often made it difficult to detect an ideological position in
each article. In mid-2000, the state asset management issue re-surfaced and several authors
criticized the inefficiency of contract organizations for state asset management. State asset
management is an old issue that caused a heated debate during the mid 1990s, but the
authors’ primary concern after 2000 was no longer ideological. These articles are simply
complaining about the lack of competence of these contract organizations. The re-
appearance of the state asset management issue, however, was a prelude to a major debate
over state share reduction.

Failure of the state share reduction methods
In order to finance social security funds and to solve non-tradability of state shares,
the central government attempted to reduce its state share holding by selling part of the
shares. In June, 2001, the State Council issued the “Methods for State Share Holding
Reduction and Raising Social Security Funds”—or simply called “Reduction Methods”

144
(“Jianzhi banfa”) or “Methods” (“Banfa”). The “Methods” announced that ten percent of all
new shares issued on stock markets must be state shares and the earning from the share trade
will be spent to finance social security funds.
The discussion over the “Reduction Methods” started a year earlier in mid 2000.
Although the idea of reducing state share holding for social security was nearly universally
supported by the policy makers, many authors criticized the means to accomplish it. Some
authors worried about the potential market instability the state share trading might cause.
They argued that an attempt to sell a large number of state shares with the prices set by the
government would cause a fall in stock market prices and hurt individual shareholders’
interests. The critics considered it as nearly the same as transferring SOEs’ debt to
individual shareholders. The government would lose shareholders’ trust, and the result
would be a financial crisis.
160
However, few discussions over technical procedures or
economic analysis of the “Methods” were observed, and the policy makers failed to predict
how investors or shareholders would react to the plan. As expected, when the “Methods”
was issued, it resulted in a drastic fall in stock market prices and nearly ended the two years
of a “bull market” (niushi). Higher-than-expected prices of the state shares set by the
government caused individual shareholders’ fear that more over-priced state shares would
come onto stock markets and cause a further fall in stock prices or even a market crash. Only
four months later, therefore, the “Methods” were called off by the China Securities
Regulatory Commission (CSRC).

160
Feng Shenbai, “Cong guoyou peigu shou zuji tanqi” (The distribution of state shares began to face
obstacles). GN, vol. 8 (2000).

145
Criticisms of the government
The failure of the “Methods”—or the “failed policy” (“shice”)—caused individuals
to criticize the government in an emotional manner during 2001 and 2002. The criticism
began with the accusations that the government attempted to control market prices. The
main argument was that the collapse of the stock market was mainly caused by the
government’s setting of prices that did not reflect the real value of the state shares. With the
fall in stock market prices, not only investors but also policy makers seemed to lose
confidence in stock markets and became suspicious about government policies. Some
authors indicated a widespread sense of fear shared by many policy makers and the general
public that further stock market crashes might trigger financial crises.
These criticisms, however, were often emotional and inconsistent. Most articles
insisted on the removal of the government’s price controls, and demanded fair state share
trading in the market. On the other hand, the same authors often argued that individual and
small shareholders’ losses caused by the “Methods” must be compensated by the
government. This argument indicates a contradictory feeling held by the public with regard
to the role of the government. Despite their accusations of the government’s control over the
market, they still relied on the government to make up the losses in the market. The demand
for market trading of state shares is also contradicted by a broadly held concern that China’s
stock markets cannot absorb a huge number of state shares once all state shares become
tradable. Some authors suggested a debt-equity swap or state share trading in secondary
markets, but none of these options were seriously discussed.
Blame was often directed toward particular bureaucratic organizations such as the
CSRC or the State Economic and Trade Commission (SETC). Some argued that the CSRC
called off the “Methods” in order to protect wealthy shareholders’ interests and its own

146
bureaucratic interests.
161
The SETC was criticized for its self-centered decision to “please”
foreigners after it allowed foreign investors to purchase a portion of the state shares. The
critics felt that the issue of state share reduction and tradability must be solved before
foreigners are involved.
162
The rise of bureaucratic interests also invited the public’s
suspicion and distrust of the government they felt had become a “tool” of wealthy
individuals or foreigners.
163
Although the involvement of bureaucratic interests in the
foreign policy making process has been well documented in the studies of WTO
negotiations,
164
bureaucratic conflicts and criticisms were rarely seen in the SH reform
debates during the 1990s. The increase in these recriminations, therefore, indicates that the
SH reform policy making process increasingly involved bureaucratic interests.
These criticisms of the government were soon linked with a concern for a potential
financial market disorder, the issue of growing social inequality, and anti-foreign
nationalism induced by the WTO accession, and began to destabilize the final years of Jiang
Zemin’s rule.

Fear induced by WTO negotiations and globalization
China officially became a WTO member in late 2001. WTO membership clearly
gave China national confidence as the country was recognized by the world as a major
player in the global economy. WTO negotiations and the globalization trend also promoted

161
Yi Xianrong, “Zhengquan jianguan he yi fali wipian que wuli” (Why are the legal authorities
unable to control stock markets?). GN, vol. 6 (2002).

162
Wang Qia, “Guoyougu xianzhi qineng chencang andu” (How could state share reduction end with
a double-dealing?). GN, vol.24 (2002).

163
Sheng Hong, “Guoyougu xianzhi: 6000 wan dui 13 yi” (State share reduction: 6 million versus 1.3
billion people). GN, vol.4 (2002).

164
See Pearson, “The Case of China’s Accession to GATT/WTO,” and Moore and Yang,
“Empowered and Restrained: Chinese Foreign Policy in the Age of Economic Interdependence,” in
Lampton ed., The Making of Chinese Foreign and Security Policy in the Era of Reform.

147
the development of a more liberal world view or respect for international norms among
policy elites.
165
However, the accession to membership in the WTO, on the other hand,
caused a rising fear of “real” global market competition. Many policy makers in this period
seemed to be losing the high expectations, hopes and national confidence they previously
held with regard to China’s future in the mid- to late 1990s. Policy makers developed a
sense of insecurity over Chinese firms’ competitiveness, and began to worry about the
coming competition with foreign firms in China’s domestic market. The domestic economic
and reform situation and the competitiveness of domestic firms were still not satisfactory to
many policy makers. In particular, the continuance of the loss-making state sector and non-
tradable state shares were among the major problems that promoted a sense of insecurity
among China’s policy elites.
Figure 4.3 below shows the percentage of the two kinds of fear observed in the
content analysis: A fear of capitalism or privatization and a fear of market disorder. Each
item was coded if the authors express a fear or concern of potential privatization, and a fear
of potential market disorder. These two measures are listed as part of the conservative
perception on the coding sheet, but liberal articles began to express a fear of market disorder
in later years. As Figure 4.3 shows, the two fear items are highly correlated and experience
similar peaks by the late 1990s. However, whereas the privatization/capitalism fear (the
lower line) disappeared with the end of the SHS debates, the market disorder fear shows two
peaks since the late 1990s, in 1999 and in 2002. The 1999 peak largely stems from the then
on-going WTO negotiations. The possibility of a forced opening of state monopoly areas to
foreign capital caused a fear of market disorder and of the potential dominance of China’s

165
See Pearson, “The Case of China’s Accession to GATT/WTO,” and Economy, “The Impact of
International Regimes on Chinese Foreign Policy-Making: Broadening Perspectives and
Policies…But Only to a Point,” in Lampton ed., The Making of Chinese Foreign and Security Policy
in the Era of Reform.

148
domestic market by foreign capital. The 2002 peak derives from the rising fear of financial
market disorder on a global scale, which was mainly triggered by the stock market fall after
the failure of the “Methods” in late 2001.
Figure 4.3: Fear of capitalism/privatization and market disorder
0%
10%
20%
30%
40%
50%
60%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Fear of capitalism, privatization
Fear of market disorder

A fear of market disorder and market competition could be related to Chinese policy
makers’ planning mentality nurtured under a central-planning economy. Although such fear
became a driving force for the government-led marketization of large SOEs in the mid-
1990s, the same fear seemed to cause a loss in confidence after 2000. The economic
situation that the policy makers faced after 2000 was different from the 1990s. China’s
economy was increasingly linked with the global economy and well beyond government
control or guidance. Still, many Chinese policy makers—regardless of whether they were
reformists or conservatives—could not easily renounce their planning mentality and
attempted to control the market. Despite their admiration for the world-class MNCs and
support for market principles, many policy makers were still struggling to guide a market
development or to control the stock market with the embedded planning mentality.
Ironically, one such effort—the attempt to sell state shares according to the “plan”—resulted
in the failure of the “Methods,” and the following stock market fall further sharpened the
inherent fear of market disorder. The fact that the failure of the “Methods” and WTO

149
accession occurred at the same time also contributed to the rising fear. In the articles
published in 2002, words such as “stock market crisis” (gushi weiji) or “market disorder”
(shichang shiling) frequently appeared. On the other hand, a fear of market disorder at least
gave an opportunity to Chinese policy makers to re-define government’s role in the economy
and revived the discussion over it.
166
Some authors began to seriously discuss how to
balance or reconcile government control to ensure market stability and free market
competition.

Growing nationalism and new ideological division
A sense of fear over market disorder was, at some point, linked with the nationalism
that had already been strong since the embassy bombing in Yugoslavia in 1999 and nurtured
through the WTO negotiation process. The rise of anti-foreign, anti-US, or anti-globalization
sentiment is also a dominant trend in this period and the nationalism grew stronger by 2002.
Some 2002 articles expressed the distrust of the global financial system or international
system controlled and dominated by the US. Pessimistic assessments of the future of the
global economy also appeared. Some authors even developed paranoia. Referring to the
stock market decline caused by the “Methods,” one author argued that international capital
(guoji ziben) took advantage of China’s stock market reform, manipulated market
information using the international media, and deliberately created China’s stock market
crash for its own benefit. The author insisted on the danger of blindly following
international norms or WTO rules.
167

166
Fewsmith, in Epilogue of his 2001book, China Since Tiananmen: The Politics of Transition,
indicated reformists’ efforts to redefine the role of the state in this period.

167
Yang Fan, “Gushi weiji de yuanyou ji duice” (The cause and prevention of stock market crisis).
GN, vol. 7 (2002).

150
Figure 4.4 shows the content analysis data, with the rise and fall of pro- and anti-
foreign views through the research period. These two items were measured part of the
liberal and conservative perception. Whereas the “pro-foreign view” item is listed in the
coding sheet as a liberal perception, the “anti-foreign view” is listed as a conservative
perception.
168
The upper line indicates the percentages of the articles expressing “pro-
foreign views”—such as favorable views of the international system, international norms
and foreign countries. These are the percentages of these articles that account for all the
analyzed articles written in the same year. The lower line indicates the percentages of the
articles expressing “anti-foreign views,” such as anti-foreign or anti-US sentiment. Except
for the sudden rise in anti-foreign views in 1999 that followed after the bombing of Chinese
embassy in Belgrade, Yugoslavia, Chinese policy makers basically maintained favorable
views of foreign countries and the global economy throughout the research period. A
gradual increase in favorable views was also observed as internationalization deepened.
However, the trend was reversed in 2002.
Figure 4.4: The rise and fall of pro- and anti-foreign views

17%
15%
16%
24%
33%
21%
33%
38%
50%
20%
0%
4%
5%
6%
0% 0%
33%
0% 0%
20%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Pro‐foreign view Anti‐foreign view

Note: These percentages do not include the articles that did not express pro- or anti- foreign views or attitudes,
even if they mentioned international or foreign situations. In the mid 1990s, however, most of the articles did not
mention foreign situations or international topics. The gradual increase in the percentages of pro-foreign views,
therefore, also indicates the increased level of internationalization.

168
For more details of these coding items, see Chapter 2.

151

A fear of market disorder and anti-foreign sentiment could be related to each other,
if a sense of insecurity or threat promotes a hostile assessment of or behavior to others.
Figure 4.5 below shows that the two lines—a fear of market disorder and anti-foreign
views—are highly correlated since the late 1990s in the wave of internationalization.
Figure 4.5: Fear of market disorder and anti-foreign views
‐10%
0%
10%
20%
30%
40%
50%
60%
1992 1994 1996 1998 2000 2002 2004
Fear of market disorder
Anti‐foreign view

According to Fewsmith, the anti-globalization or anti-US attitude was largely taken
by the New Left or postmodernists who took a nationalistic and populist stance. The New
Left linked its anti-WTO and anti-globalization stance with the domestic problem of glowing
social inequalities.
169
After the ideological dynamics of the 1990s became largely irrelevant,
it seemed that new conservative voices began to be expressed by these New Left authors.
Much of the above mentioned critique of the government along emotional lines may reflect
the view of those who supported social equality and social stability and opposed further
internationalization or commercialization of the economy, since that saw such
commercialization as contributing to the gap between rich and poor or among regions. If
so, it is possible to argue that the nationalism, fear of market disorder, social inequality—
both perceived and real—are all linked together by the end of Jiang Zemin’s tenure as

169
Fewsmith, China since Tiananmen: The Politics of Transition, Pp. 205-33.

152
leaders, and that a new ideological division between the forces that had benefited from
globalization and economic growth and the newly rising conservative forces such as the
“New Left” had emerged.
However, considering the liberal nature of the journal used for this analysis, the fact
that a majority of the articles published after 2000 expressed, one way or another, the
concern over social inequality, government criticism or anti-foreign sentiment, suggests that
these arguments were not solely supported by the New Left authors alone. The government
criticism and nationalist sentiment were held more broadly among policy elites, or to a
certain degree represented the voices of ordinary citizens, especially the low-income strata of
the society or the so-called “losers” who had not benefited from globalization or market
reforms. Fewsmith indicated the rising influence of public opinion on the policy making
process since the late 1990s, and that it was increasingly difficult for policy makers or top
leaders to ignore public opinion.
170

As the economic reform went further, a widening gap between rich and poor became
a serious problem for the top leadership and central policy makers, as a factor threatening
political and social stability. Internationalization sharpened the problem by linking the
domestic problems with nationalism, as Fewsmith argued. Nationalism provided a means
for the public to express their frustration with domestic problems. Although the involvement
of public opinion in the reform debates or policy making process can be considered an
evidence for the rise of pluralism, it also promoted more criticisms of government and
started threatening political stability in the final years of Jiang’s rule.

170
Ibid.

153
Conclusion
The ideological constraints placed on privatization made the debate process unstable
and inefficient. Dominant issues or ideological climates often abruptly changed and policy
compromises often led to unintended consequences. The effect of “avoiding the
inevitable”—initiating the property rights reform while avoiding its inevitable result of
privatization due to the ideological constraints—are well observed in the debate process,
especially during the 1990s. Even if new types of shareholding or property rights trading
were freely practiced at local levels, the central policy makers could not formulate universal
regulations until the ideological constraints were removed. On the other hand, the
interaction between ideology and market conditions is more clearly observed in the PR/SH
debate process. Even though the debates did not produce agreement between the liberals and
conservatives, the debates still stimulated the interaction between socialist and market
principles and often led to ideological reconciliation or compromises.
The debate over the clarification of the state’s ownership rights in 1994 and 1995
did not produce any agreement because the liberals’ proposals such as enterprise ownership
or the end of sole proprietorship were ideologically unacceptable in the mid 1990s.
However, with the adoption of “Grasp the large, let the small go” in 1995, the government
made a compromise between ideological requirements and local market conditions because
de facto-privatization already became prevalent in some regions. While renouncing the
state’s ownership rights over small SOEs and allowing their privatization, the government
kept large SOEs under its control and succeeded in maintaining the privilege and importance
of the public sector. The consequence of such compromise, however, was hybrid property
rights and strengthened government control over SOEs. Here the reform process deviated
from its original goal of giving more autonomy to enterprises, and the government-led
developmental effort of SOEs began.

154
The second debate was over the SHS definition that started in early 1997. The
debate was ideologically divisive, but Jiang’s “breakthrough” address removed the
ideological constraints on private ownership and promoted the reconciliation between the
liberals and conservatives. This made the agreement between the two sides possible on a
variety of SH reform issues and led to the approval of the Securities Law in late 1998. The
end of the debate, however, does not mean that ideology lost its influence in the reform
policy making process. Even after the reconciliation, a continuation of the original
ideological cleavage was observed. The conservatives promoted pro-labor and equality-
based policies and recommended the government’s guidance or intervention in the economy
for market stability. Such a policy preference made the Chinese conservatives similar to the
social democrats found in Western European or capitalist countries. On the other hand, the
liberals promoted efficiency-based policies, a shareholder model or less government control
over the economy. The difference emerged as a new ideological division between the
liberals supporting economic efficiency and the conservatives supporting social equality, as
the old dichotomy between public and private ownership lost its importance. This could be
considered a shift of core ideological principles from the maintenance of public ownership to
social equality.
After 2000, the SH debate process was increasingly influenced by the globalization
trend due to the SH agenda’s high responsiveness to local market conditions. With the
accession to the WTO, the debate agenda was filled with nationalistic sentiments, fear of
market disorder, and criticisms of the government for the growing social inequalities. These
issues were soon linked together, and with the involvement of public opinion, began to
destabilize the final years of Jiang’s rule. As noted earlier, Jiang’s “Three Represents” has
been considered a response to these social criticisms and the rising political instability.
171
If

171
Fewsmith, China since Tiananmen: The Politics of Transition, Pp. 229-30.

155
so, Jiang tried to reconcile the emerging social and ideological division with the formulation
of the “Three Represents” theory that emphasized social equality.
Overall, the PR/SH reforms accomplished a great deal and contributed to the
Chinese economy’s marketization and internationalization, in spite of the limited intentions
behind the original motive of the reforms—to strengthen the public ownership system to
maintain social and political stability. Many of the debt-ridden SOEs were privatized or
restructured, and SOE conglomerates were formed and became internationally competitive.
Stock markets developed, more and more firms were listed, and the number of shareholders
(gumin) reached nearly sixty million by 2002. In some sense, however, all these
accomplishments are unintended consequences of the reforms. Therefore, it is ironic that
after all these efforts and accomplishments of the SH/PR reforms during the ten years of the
Jiang Zemin era, the top leadership and central policy makers again faced the same, old
problem of social instability at the end of the Jiang era not because of the lack of progress in
the reforms but because of the very accomplishments these reforms had made.

156
Chapter 5
Hypothesis Test: Ideology’s Influence on the Reform Debate Process

This chapter analyzes the relationship between the two debate processes described in
the previous chapters, namely, the ownership reform (OSYS) debate and the property rights/
shareholding reform (PR/SH) debate. Through an analysis of the relationship between the
two debate processes, the chapter answers the central question raised for this research:
Which of the two factors—ideology or local market conditions—is more important as a
driving force of the “privatization” debates in the Jiang Zemin era? How influential was
socialist ideology, in comparison with local market conditions, on the reform debates and the
policy making process? Were the reform debates in the Jiang era driven more by local
market conditions? Was the role of ideology more important? As noted earlier, the OSYS
debate is driven more by ideology and the SH debate is driven more by local market
conditions. By examining how these two debate processes have influenced each other, the
main factor controlling the entire debate process is determined.
The analysis is conducted in the following order: 1) Comparing the two debate
processes, 2) Specifying the difference between the two, and 3) Analyzing the relationship
between the two, and specifying the direction of influence that either of the debate processes
exerted on the other. The direction of influence is determined through the test of two
competing hypotheses, ideology-driven and market condition-driven debates.
Although the test of hypothesis specifies the level of influence that the two debate
processes exerted on each other, it is not the purpose of the test to determine a causal
relationship between the two through a rigorous quantitative testing such as regression. The
two debate processes, obviously, mutually influenced each other, and it is nearly impossible
to determine a causal relationship with the content analysis data alone. Rather, the main
purpose of the test is to examine whether the debate processes were controlled more by

157
ideology or more by local market conditions. What matters is the importance of ideology in
relation to local market conditions as a controlling factor of the reform debates. The test is,
therefore, conducted through a qualitative analysis of the content analysis data, including
open-ended items that describe the authors’ main arguments.

Overview

Figure 5.1: The number of OSYS and SH articles each year

Jiang’s address (September, 1997)

0
5
10
15
20
25
30
35
40
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
SH
OSYS

Figure 5.1 shows the number of OSYS and SH articles examined for the content
analysis each year. The distribution of shareholding (SH) reform articles is uneven
compared with ownership (OSYS) reform articles. The differences between the two debate
processes are largely a reflection of what kind of issues were debated in each reform issue
area.
SH reforms were in the test phase from 1993 to 1995, which accounts for the larger
number of SH articles in the mid 1990s. During this period, many local reports came in
from test sites and the SH agenda was nearly overwhelmed by new issues. SH articles
mainly dealt with technical or legal issues arising from local levels. Since SH experiments

158
were conducted relatively freely in an absence of any universal legal or regulatory
framework, the central policy makers often faced unanticipated problems. These problems
raised ideological questions or concern and often triggered ideological debates. However,
the ideological constraints placed on the private economy or private ownership in the mid
1990s were strong, and most of the ideological debates failed to produce solutions or
agreement and disappeared by 1996. A flood of local information and unresolved
ideological or regulatory issues mainly account for a larger number of SH articles during the
mid 1990s.
The number of OSYS articles, on the other hand, has a more even distribution
throughout the research period. Main reason for this is that OSYS articles tend to discuss
more of theoretical and ideological issues or “broader” issues: that is, phenomena or
problems that already developed or became prevalent at local levels, such as the
development of the private economy nationwide. The number of issues that enters the
OSYS agenda therefore was fewer than those enter the SH agenda, and the OSYS agenda
maintains a relative stability. For example, the major issue in OSYS debates during 1994
and 1995 was if private enterprises could be part of the socialist system, and most OSYS
articles discussed this issue. On the other hand, a larger number of issues appeared during
the same period in SH articles, from enterprise property rights to state asset management to
holding company.
It does not mean, however, that OSYS articles are purely theoretical and deviated
from realities. Both OSYS and SH issues basically deal with the problems arising from local
levels. The percentage of the articles having “empirical orientation” is even higher for
OSYS articles (See Table 5.1). If the overall argument of an article consists more of the
references to actual conditions or a discussion of technical or regulatory aspects of the
reform, the “empirical orientation” item is coded. On the other hand, if an article consists of

159
ideological or normative arguments with few references to actual conditions, “normative
orientation” is coded.
Table 5.1: Empirical and normative orientation of OSYS and SH articles

OSYS SH .
Articles having empirical orientation 69.9% 58.6%
Articles having normative orientation 13.6% 23.6%
Both 13.6% 15.9%
Neither 2.9% 1.9%

A higher level of empirical orientation of both OSYS and SH articles derives mainly
from the gradual and bottom-up characteristics of China’s economic reform and policy
making process. Rather than conducting the reform with a clear blueprint of market
transition programs such as “shock therapy” and setting goals beforehand, in China new
reform policies start with experiments in test sites, and successful practices are gradually
introduced on a nationwide basis. Although the central government and its top leaders set
basic rules and regulations at the initiation of new reform policies, local governments have a
significant degree of discretion on how or whether to implement them. During a test period,
the central government collects information from local test sites, and if the experiments seem
successful, considers the formation of universal regulations. During this process, ideological
debates are often triggered in an attempt to ideologically legitimate new market conditions.
The number of SH articles, however, started decreasing in 1996 and continued to
decrease thereafter. Although the end of the test period is the main reason for the decrease,
the decrease could also be related to ideological reasons, such as the removal of ideological
constraints surrounding the private economy or private ownership because nearly all SH
issues involve the issue of ownership changes. It is therefore possible that the SH debate
process was influenced by the OSYS debate process, which mainly discusses ownership
reform issues.

160
Table 5.2: The OSYS and SH debate processes in the Jiang Zemin era (1993-2002)

OSYS debate SH debate
1993 Open debate period* Experimental period
(1993 - 1995) (1993 - 1994)
Information gathering from test sites
1994 The Company Law (1994)
State asset drain / state asset management issues
"Socialist-capitalist" debate Clarification debate period*
Ideological justification of the private economy (1994 - 1995)
Widespread suspicion over private enterprises The unified state ownership challenged
1995 Liberals' criticism of the state owned economy Debate over enterprise PR (remained hybrid)
"Grasp the large, Let the small go" policy Proposals for the state’s rights transfer
State’s marketization period
(1995-1996)
“Grasp the large, let the small go” policy (1995)
Ideological division submerged
1996 Empirical period The rise of the state's interests, holding company
(1996 - 1997) De-facto privatization of small SOEs
1997 Increase of neutral reporting SHS debate period*
"Seeking truth from facts" trend (1997 - 1998)
Discussion or survey on private enterprises Ideological division re-surfaced
Demands for worker's ownership system Conservatives’ “cooperative” model of the SHS

Jiang's "breakthrough" address at the 15th Party Congress

Incorporation period* Liberals’ back lash
1998 (1997 - 1999) Liberals’ dilemma (efficiency/equality)
Ideological realignment Reconciliation period*
Ideological reconciliation, homogenization (1998 – 1999)
1999 Incorporation of private economy in the system Ideological reconciliation
- More accommodations of private enterprises Conservatives’ concessions
- Party control, education of private enterprises The end of SHS debate, the Securities Law (1999)
The end of the ownership debates The pursuit of China model, national confidence
2000 Consolidation period Internationalization period
(2000 - 2002) (2000 – 2002)
Growing internationalization, WTO membership Growing internationalization
2001 Developmental efforts of private enterprises WTO membership (2001)
The rise of fear and nationalism State share reduction debate
Anti state-monopoly, private bank issues The failure of the “Method” (2001)
2002 Re-ideologization? Emotional government blames
- “Three Represents” Rising fear of market disorder and nationalism
- “Minben” (people-based) economy Growing influence of public opinion
16th Party Congress The 16th Party Congress, “Three Represents”
* The period in which ideological debates occurred.

161
Table 5.2 shows a chronological order of the periods observed in OSYS and SH
articles in the Jiang Zemin era (1993 - 2002). According to the table, the most heated
ideological debate over the private economy—the so-called, “capitalist-socialist” debate—
ended in OSYS in 1996. Then, the OSYS debate process entered the “empirical period,” in
which the policy makers started collecting local information on private enterprises and SH
firms in preparation for the 15
th
Party Congress. A year later, at Jiang Zemin’s
“breakthrough” address at the People’s Congress, the status of private enterprises, which had
been considered as an “outside of the system element” by then, was elevated to equal with
public firms. Jiang’s address triggered an “ideological realignment,” and the incorporation
of the private economy into the socialist system began.

Does this near coincidence—the drastic decrease in SH articles and the “ideological
realignment” that occurred in the OSYS debate process—suggest a relationship between the
two debate processes? Does this mean that the more ideology-driven OSYS debate process
influenced the SH debate? Or were the SH agenda and debate process driven more by local
market conditions? By mid-1995 most ideological issues disappeared in the SH process and
the “state’s marketization period” started. During this period, a setback of liberal opinions
and strengthening government control over enterprises were observed. Was this sudden
change of trend observed in the SH debate process solely local condition driven? Or was it
derived more from ideological reasons? If local market conditions are equally important,
what kind of negotiation or interaction did occur between local market conditions (market
principles) and ideology (socialist principles)? To answer these questions, major ideological
debates over ownership issues in OSYS and SH articles are compared and analyzed in the
next section, and the relationship between the OSYS and SH debate processes is examined.

162
Comparison

Detection of ideological debates, constraints and reconciliation

The detection of ideological debates is conducted through the two coding measures:
“contradictory arguments” and “lip-service conservatism.”

1) “Contradictory arguments”
The “contradictory arguments” are coded if an author makes both liberal and
conservative arguments in the same article. A larger percentage of the item suggests the
existence of ideological debates. However, contradictory arguments are more likely to be
observed in ideological reconciliation process when liberals attempt to incorporate
conservative arguments into their own in order to advance their reformist agenda with
minimum resistance from conservatives. This means that the item’s percentage decreases
when ideological division is very deep even if heated ideological debates are going on
because in such occasions there is little room for compromise. Therefore, a smaller
percentage or non-existence of the item does not always mean the absence of ideological
debate or constraints. Figure 5.2 below shows the percentage of the OSYS and SH articles
in which “market/public ownership” contradiction appear. “Market/public ownership”
contradiction is coded if an author recommends or argues for more market reform (i.e.,
expansion of private economy) while defending a dominance or superiority of public
ownership.

163
Figure 5.2: “Market/public ownership” contradiction observed in OSYS and SH articles

Incorporation period (1997 – 1999)

0%
5%
10%
15%
20%
25%
30%
35%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
OSYS
SH

Except for the period from 1993 to 1995, the percentages are larger in OSYS articles
throughout the research period. This suggests that the public ownership issue was more
central in the OSYS debate than in the SH. The zero percentages of the item in OSYS
articles from 1993 to 1995, despite an occurrence of the most heated debate over the private
economy, indicate a deep liberal-conservative division in the OSYS debate process. Since
the private economy had not yet established an equal status to the public economy in this
period, the conservatives argued that private enterprises were “capitalistic” and placed them
outside the socialist system. The dichotomy of “private” and “public” ownership was
corresponding to that of “capitalism” and “socialism” and no compromise was made during
the debate.
On the other hand, the item maintained larger percentages in SH articles in the same
period. This suggests that the ideological division between the liberals and the conservatives
was not as deep in the SH as was in the OSYS, even though ideological debates occurred.
There are two reasons for a less deep ideological division in SH. First, SH articles discuss
more of technical or legal issues than ideological issues, and, therefore, the SH authors
maintained a more practical and realistic attitude toward the coexistence of the public and
private economies or ownership forms. Second, SH firms are in many cases made up with a

164
mixed ownership form of private and public, and therefore, a clear dichotomy of public and
private did not develop during the debates over SH reform issues.
Still, ideological constraints and debates were observed in SH articles during this
period. The major issue from 1993 to 1995 was the state asset drain problem caused by
unregulated share trading or property rights trade. The central policy makers were
concerned that further loss of state assets would threaten the dominance of the public
ownership system. The clarification of the government’s ownership rights over state assets
and SOE’s property rights seemed to be a solution to the problem. Who legally owns, who
legally represents or who manages state assets in SOEs were extensively debated from 1994
to 1995, which soon triggered ideological debates. However, the liberals’ proposals, such as
giving enterprise full ownership rights, caused conservatives’ fear of privatization.
Renouncing the unified state ownership rights—all SOE assets are owned by the state—was
an ideologically very sensitive and challenging issue due to its strong association with
socialism. Because of these strong ideological constraints, the liberals’ arguments during
this period are largely contradictory. While proposing a partial or full transfer of the state’s
ownership rights to enterprises, which technically means privatization, the liberals also
showed their support for the dominance or superiority of the public ownership.
Except for the 1993-1995 period, the OSYS and SH lines in Figure 5.2 show similar
overall patterns. The percentages for both debate processes peaked in the same year in
1997—the year of the 15th Party Congress—and nearly disappeared by 2000. This suggests
that major ideological debates and compromises occurred from 1997 to 2000. In OSYS,
Jiang Zemin’s address at the 15th Party Congress in 1997 produced an “ideological
realignment.” Due to Jiang’s “middle ground” approach that accommodated both the public
and private economies as important elements of China’s economy, a majority of the former
conservatives joined “market reformers” (liberals) camp and “reformers” became a majority

165
of the debating circle. In the following “incorporation period,” the former liberals and
conservatives began to compromise and negotiate with each other and the incorporation of
the private economy accelerated. By 1999, the “ideological homogenization” of the political
space, at least on the ownership reform issue, was observed and to distinguish liberal
arguments from conservative ones became increasingly difficult because the former liberals
and the “marketized” conservatives began to make very similar arguments. Ideologically
contradictory arguments increased as the ideological reconciliation of market and socialist
principles was successful.
Basically a similar situation is observed in SH articles, although the item’s
percentages are smaller and the peak period is shorter in the SH process. From 1997 to
1998, the ideological debates over the definition of the shareholding system (SHS) and
governance of SH firms occurred. The 15
th
Party Congress was held in the middle of this
debate, and Jiang’s address turned the ideologically divisive debate to a reconciliatory one.
After the address, the conservatives loosened their “cooperative” model, which is
characterized as workers’ collective ownership of SH firms through collective employee
shareholding, and began to show an understanding to the liberals’ “shareholder” model. The
liberal side also started incorporating the conservatives’ workers-centered and equality-based
definitions. The debate ended by mid-1998. By then, some conservative authors had
marketized themselves enough to argue like liberals. This reconciliation process is well
reflected in the peak of the contradictory arguments of the SH process in Figure 5.2.
After 1999, SH percentages reached zero and OSYS percentages also rapidly
decreased. This is corresponding to the findings of the descriptive accounts in the previous
chapters that both the OSYS and SH processes experienced the end of major ideological
debates concerning ownership issues around 1999. Therefore, smaller or nearly zero

166
percentages after 2000 indicate an absence or near disappearance of ideological debate over
ownership issues.

2) “Lip-service conservatism”
“Lip-service conservatism” is another measure of ideological constraints and
debates. The item is coded if liberals pay lip service in an attempt to alleviate conservatives’
criticism or accusation. Although this item basically measures the same thing as the
“contradictory arguments,” “lip-service conservatism” could remedy the problem of the
“contradictory arguments” that often fails to distinguish a period of deep ideological division
from a non-ideological period. There are two differences between the two items. First, “lip-
service conservatism” is only made by liberals, while contradictory arguments are made by
both liberals and conservatives during a period of ideological reconciliation. Second, “lip-
service conservatism” indicates more superficial contradiction made by liberals, such as
citing party slogans outside of the contexts while predominantly engaging in reformist
arguments. The main purpose for liberals to do this is to maintain an ideological
appropriateness, especially when ideological constraints are strong, rather than to seriously
engage in negotiations with conservatives to advance their reformist agenda.
The two lines in Figure 5.3 indicate the percentages of the OSYS and SH articles in
which “lip-service conservatism” appeared. As expected, during the period of deep
ideological division from 1993 to 1995, the OSYS line marks relatively larger percentages,
which is not captured by “contradictory arguments.”

167
Figure 5.3: “Lip-service conservatism” observed in OSYS and SH articles

Ideologically divisive period in the OSYS (1993-1995)

0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
OSYS
SH

Other than this point, Figure 5.3 mostly replicates the pattern of the “contradictory
arguments.” Both OSYS and SH percentages have peaks during a period of ideological
reconciliation in the late 1990s. However, OSYS percentages have two peaks in 1996 and
1998. The second peak in 1998 mainly drives from the increased use of Jiang’s words in the
address, “maintaining the public ownership system as the principal system.” This phrase
was frequently quoted by the liberals during the incorporation process of the private
economy as a lip-service, in order to alleviate conservatives’ suspicion over private
ownership.
The first peak in 1996, however, needs attention because it was before Jiang’s
“breakthrough” address and the OSYS process was in the “empirical period.” This period
was characterized as non-ideological and marked with an increase in survey, statistical or
seminar reports from local levels or foreign countries. Why did lip-service increase in such
a neutral period? A possible explanation is that the increase in neutrality in this period was,
in fact, the reformists’ effort to “correct” conservatives’ misperception—especially their fear
of privatization—by showing more realities at local levels. The liberals in this period grew
tired of endless ideological debates over the private economy and wanted to finish them by
alleviating conservatives’ fear. The liberals presented the “facts” in order to show the

168
conservatives that their fear largely derived from their misperception or misunderstanding of
the realities, and that even if the private economy is allowed to expand, it would not threaten
the public ownership system. Lip-service was largely made in such a context.

Ideological dynamics
The number of articles categorized as liberal or conservative is one of the good
indicators of changing ideological climate or liberal-conservative dynamics during the
research period. Figures 5.4 and 5.5 show the percentages of the OSYS and SH articles
categorized as liberal or conservative each year. The liberal and conservative categorization
is based on the overall tone and arguments in each article.

Figure 5.4: OSYS articles categorized as liberal or conservative

Jiang’s address
OSYS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
93 94 95 96 97 98 99 00 01 02
Articles categorized
as liberal (%)
Articles categorized
as conservative (%)

169
Figure 5.5: SH articles categorized as liberal or conservative

Jiang’s address
SH
0%
10%
20%
30%
40%
50%
60%
70%
80%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Articles categorized
as liberal (%)
Articles categorized
as conservative (%)

The two figures show the dominance of liberal articles after 1998 in both the OSYS
and the SH, although SH percentages show more ups and downs throughout the research
period. The establishment of liberal dominance around 1999 in both figures is consistent
with the end of major ideological debates over ownership reform issues. For the OSYS, a
larger number of both liberal and conservative articles in the mid-1990s in Figure 5.4,
especially in 1994, capture the most heated ideological debate over the treatment of the
private economy during 1994 and 1995. The gap between liberal and conservative
percentages, however, narrowed in the OSYS from 1996 to 1998 with the decrease in liberal
articles, while conservative articles stayed nearly the same percentages. The narrowing gap
before the 15
th
Party Congress suggests that confrontational ideological debates were over by
1996 and the OSYS debate process entered the non-ideological “empirical period.”
Ideological arguments decreased from 1996 to mid-1997, but the decrease was only on the
liberal side. Some conservatives during this period still expressed suspicion over the private
economy, and the number of conservative articles stayed nearly the same.
The narrowing gap after the Party Congress, on the other hand, derives from the
“ideological realignment” set off by Jiang’s speech at the Party Congress. The former

170
conservatives joined the market reformers’ (liberals) camp and the reformists became a
dominant force in the debating circle. The incorporation effort of the private economy into
the socialist system accelerated during the following “incorporation period” between 1997
and 1999. With a near completion of the incorporation of the private economy around 1999,
liberal articles started increasing and established their dominance by 2000.
What happened in the late 1990s was, however, not as straightforward as a simple
victory of the reformists and market principles. The effect of the ideological realignment
was paradoxical. Although it is true that marketization accelerated and the private economy
was successfully incorporated into the system, the incorporation process was a
compromising process between the liberals and the conservatives, in which the two sides
engaged in ideological negotiations in an attempt to merge the public and private elements—
or socialist and market principles—in the name of “socialist market economy” (SME).
Whereas the conservatives marketized themselves and recognized the importance of market
principles, the liberals loosened their simple-minded pursuit of economic efficiency and
began to express more concern for social equality or the welfare of workers. The negotiation
process, therefore, made the liberals’ arguments more socialistic. Therefore, the “liberal”
arguments after the realignment are different from the ones made before in terms of their
“liberalness,” even if both are categorized as “liberal” because of a high-level of market-
orientation. This suggests that the realignment changed the liberal-conservative criteria that
controlled the ideological dynamics in the previous period.

As observed in Figure 5.5, the ideological dynamics of SH articles show a similar
overall pattern to those of OSYS articles, but their percentage changes are unstable. The SH
debate process experienced a reversal of the number of liberal and conservative articles in
1998. The main reason for the reversal is, however, for the same reason as the one observed

171
in the OSYS process. From 1997 to 1998, ideological debates over the definition of
shareholding system (SHS) occurred in the SH debate process. However, the 15
th
Party
Congress was held in the middle of this debate and Jiang’s speech turned the ideologically
divisive debate to a reconciliatory one. As a result, a significant number of concessions were
made by conservative authors on their SHS definitions. This can be considered the SH
version of “ideological realignment.” Even if “conservative” articles temporarily increased
and their percentages marked a peak in 1998, a majority of these “conservative” articles are
reconciliatory ones and support more marketization. On the other hand, the liberals began to
realize that their exclusive pursuit of economic efficiency increases social inequality, and
began to recommend a more workers-centered, welfare-focused and equality-based
corporate governance model of SH firms. As the reconciliation went successfully, some
conservatives began to argue like the liberals, and their “market-orientedness” increased.
This led to the dominance of liberal articles after 1999. Therefore, a similar paradoxical
effect of the “ideological realignment” and a change in the ideological criteria found in the
OSYS are also observed in the SH process: “Liberal” arguments, despite their established
dominance, became more socialistic, or less liberal, after the reconciliation period.
The changing ideological criteria, however, do not mean that ideology lost its
influence. The ideological reconciliation and homogenization trends were only applied to
the debates over ownership or private economy issues that this research mainly focuses
on.
172
The change in ideological criteria can be interpreted as a replacement of one core

172
To distinguish liberal articles from conservative ones for coding was relatively easy even after the
ideological homogenization because the coding sheet includes a variety of conservative and liberal
measures. Other than an anti-private economy attitude or support for the superiority of the public
ownership system over the private, there are several other items measuring conservative perception,
such as a worker-centered stance, including support for collective employee shareholding and its
majority control, support for government’s protection and guidance of SOEs, and anti-foreign view.
These items were important to detect new ideological principles that separate the liberals and
conservatives in the later years.

172
ideological principle such as the one supporting for public ownership with a new one, such
as social equality. As the public-private dichotomy was no longer an ideological principle
that separates the liberals and the conservatives in the late 1990s, new dichotomies that
distinguish the two camps, such as economic efficiency versus social equality or pro-WTO
(or globalization) versus anti-WTO, emerged and replaced the old principle.
Despite the established dominance of liberal articles in 2000, in 2002, the year that
the 16
th
Party Congress was held, a decrease in liberal articles and a concurrent increase in
conservative articles are observed in both the OSYS and the SH debate processes. This
could be an indication of the development of a new ideological and social division or a turn
of the tide of the political climate toward a more socialistic direction. In case of the OSYS,
the reversal of this ideological trend is primarily related to the collective characterization of
private firms. As the 16
th
Party Congress drew closer, many OSYS articles began to
characterize private enterprises as collective firms owned and managed by “people” rather
than by private individuals. In the SH, the reversal occurred in a larger scale and a drastic
increase in conservative articles is observed. This derives from the rise of nationalism and
government criticism after the failure of the state share reduction “method.” According to
Fewsmith, the government criticism and anti-globalization attitude were largely expressed
by conservative forces such as the New Left, who linked its anti-globalization stance with
the criticism of domestic social problems such as rising social and regional inequality.
173

Fewsmith argues that “Three Represents” was Jiang’s response to these social
criticisms and his attempt to stabilize the situation by adjusting the party ideology and
policies to the changes then occurring in Chinese society.
174
If so, Jiang, again, attempted to
intervene in an emerging social—and possibly ideological—division by re-defining

173
Fewsmith, Joseph. 2001. China since Tiananmen: The Politics of Transition. Pp.229-30.
(Cambridge University Press).

174
Ibid.

173
ideological principles. Even if Jiang’s “Three Represents” theoretically justified the role
played by the private sector for China’s development and consolidated private entrepreneurs’
political status, his theory also emphasizes the importance of “people’s initiative” and social
equality. The collective characterization observed in the OSYS as well as “Three
Represents” could be a shift of the ideological climates toward a more socialistic or
conservative direction, which emphasizes more of social equality, stability and a “well-being
of the masses.”

Why is the SH debate process less stable?

Despite the overall similarity in ideological dynamics, there is a notable difference
between the OSYS and the SH debate processes. The ideological dynamics of SH articles
experienced repeated peaks until 2000 and are less stable than the OSYS’s dynamics. Once
the percentages of the articles engaging in ownership debates
175
are added to the ideological
dynamics lines shown in Figure 5.4 and 5.5, the contrast between the two debate processes is
more clearly observed. Figure 5.6 shows OSYS percentages and Figure 5.7 shows SH
percentages.

175
Although OSYS articles are the articles that specifically discuss ownership reform and the private
economy issues, it does not mean that all OSYS articles engage in debates. Some of them are the
description of local situations or making normative statements without engaging in debates.
Similarly, SH articles are the articles that specifically discuss SH and property rights (PR) reform
issues, but a considerable portion of the SH articles engage in ownership debates due to the PR/SH
reforms’ close relevance to ownership changes.

174
Figure 5.6: OSYS articles categorized as liberal or conservative, and engaging in ownership
debates

OSYS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
93 94 95 96 97 98 99 00 01 02
Articles categorized
as liberal (%)
Articles categorized
as conservative (%)
Articles engaging in
ownership debate (%)

Figure 5.7: SH articles categorized as liberal or conservative, and engaging in ownership
debates

SH
0%
10%
20%
30%
40%
50%
60%
70%
80%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Articles categorized as
liberal (%)
Articles categorized as
conservative (%)
Articles engaging in
ow nership debate (%)

The ideological dynamics of OSYS articles shown in Figure 5.6 are not only stable
but also consistent with the ownership debate line (the percentages of the articles engaging
in ownership debates). The debate line maintains a relatively higher level until the
dominance of liberal articles was established around 1999, then starts decreasing, and finally
disappears in 2002. This suggests that the ownership debates in the OSYS ended as the
liberal-conservative division decreased through ideological realignment and homogenization
in the late 1990s. On the other hand, the ideological dynamics of the SH is not only unstable

175
but also inconsistent with the ownership debate line. All of the three lines in Figure 5.7 are
fluid and go through many ups and downs until 2000.

What accounts for the instability of the SH debate process? Why are the ideological
dynamics inconsistent with an occurrence of ownership debates in the SH? In order to
clarify the difference between the OSYS and the SH debate processes and analyze the
relationship between the two, a detailed examination of the content analysis data is
conducted below, focusing on the two points: 1) What type of local issues entered the OSYS
and the SH agenda and how? and 2) What kind of ideological constraints are placed on each
debate process? These two points represent the two major factors that this research assumes
as a driving force of the entire “privatization” debate process: namely, the factor of ideology
and of local market conditions. The influence of “local market conditions” is examined
through the analysis of local issues that entered the OSYS and the SH agenda, and the
influence of ideology is examined through the analysis of the ideological constraints placed
on the debates. After the analysis, a hypothesis test on the relationship between the two
debate processes is conducted, in order to determine which factor’s influence is stronger on
the debate process.

1) Influence of local market conditions: The responsiveness to local conditions
As noted above, OSYS articles mainly deal with theoretical or ideological issues
concerning the Chinese political or economic system, such as the appropriate portion of the
private economy in the socialist system. Therefore, the arguments observed in OSYS
articles are more normative in nature. In contrast, SH articles are concerned more with
technical or legal issues arising from local levels, and, therefore, SH arguments are more
realistic and specific in nature.

176
Table 5.3 shows the differences in the structures of the OSYS and the SH agenda.
The first row shows the total frequency of the appearance of the standard issues listed on the
coding sheet (29 issues) during the research period. In the ten year period, the 29 standard
issues appeared in SH articles 932 times, while they appeared only 465 times in OSYS
articles. This means that a larger number of issues—nearly twice—are in the SH agenda at
any given time, and the SH agenda is “more crowded” than the OSYS agenda. As the
second row shows, one SH article on average discusses 5.9 issues, while one OSYS article
discusses 4.5 issues.
Table 5.3: Agenda structure of the OSYS and SH debates
OSYS SH
The total frequency of standard issue appearance 465 932
The average number of issues discussed in an article 4.51 5.90
The total frequency of broad issue appearance 334 496
The percentage of the broad issues 71.8% 53.2%

The 29 standard issues are, then, divided into two categories: broad and narrow (or
technical) issues. Broad issues are more theoretical and ideological in nature and deal with
broader or more widespread phenomena such as the status of the private economy,
corruption, government-enterprise relationship, party control, or legal rights. As listed in
Table 5.4, 16 issues are categorized as broad issues. The total frequency of the appearance
of these broader issues and their percentages accounting for the total number of articles are
shown in the third and fourth rows in Table 5.3. The percentage of broad issue appearance
in OSYS articles is 71.8%, which is 20% higher than the percentage of SH articles (53.2%).
This is because, as noted above, OSYS articles mainly discuss already developed
phenomena that have been practiced on a nationwide basis, regardless of whether they are
legal or illegal. Many of these practices had been routinized in the absence of a formal
regulatory framework or official endorsement, and a considerable portion of the OSYS
articles engage in theoretical or ideological justification of these practices for the

177
establishment of regulations. This means that in order for local issues to enter the OSYS
debate agenda, a relatively long-term accumulation of local market conditions or
ideologically threatening conditions are necessary, such as the development of the private
economy since the 1980s, which took more than a decade to threaten the state-owned
economy and raised the central policy makers’ serious ideological concerns.
On the other hand, SH articles focus more on current and narrower issues and
discuss specific technical, legal or regulatory problems that arise from local levels.
Especially during the test period in the mid 1990s, local SH experiments raised new issues
one after another as property rights trading increased and stock markets rapidly developed.
Moreover, in the “internationalization period” after 2000, the influence of globalization was
more strongly felt in the SH than in the OSYS, and the number of issues each article
discussed rapidly increased in the SH. Overall, a relatively larger number of local issues
enter the SH agenda faster. This suggests that the SH agenda is more responsive to local
market conditions than the OSYS agenda is.

Table 5. 4: Standard issues listed in the coding sheet
Liberal issues
• More listing of state shares, more property rights trade
• More private capital investment, involvement**
• More support for private and SH firms**
• Capitalist/Western model adoption
• A separation of government and enterprises, concerns over bureaucratic control**
• More reform perception, knowledge**
• Anti-state monopoly**
• More competitive SOEs, industrial policies, large SOE reform
• Anti-collective share, majority control, more labor mobility
• More clarification of property rights
• Set up new property rights

Conservative issues
• Maintain public ownership as the principal system**
• No listing, trade or transfer of state/collective shares
• More SOE protection, subsidy, guidance**
• Prevent state asset drain**

Regulatory issues
• Need for universal regulations for fair market competition**
• Insufficiency of existing regulations
• Corporate management rules

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Table 5. 4 continued

• Party control of private firms**
• Stock market regulation, macro economy control
• Legal protection (e.g., shareholder's rights, private property)**
• State asset management (e.g., holding company)
• Local government negligence, corruption**
• Local protectionism, a divided China market**
• Center-local government relations**
• Illegal, criminal activities (e.g., black market)**
• Audit

Welfare issues
• More collective employee share, workers’ well-being and protection
• Unemployment, social security**
** Broad issues

The level of responsiveness to actual market conditions, in turn, affects the length of
issue attention cycle and the level of agenda control. In the OSYS, issues tend to stay
relatively longer on the OSYS agenda because a smaller number of issues attract the policy
makers’ attention at any given time. OSYS authors, therefore, could engage in debates over
relatively familiar issues, such as the status of the private economy, based on their
ideological conviction or preference. OSYS authors even could “pick” issues based on their
ideological preference. For example, one of the most salient issues in the OSYS, the status
of private economy in the socialist system, was largely produced by the conservatives’
concern that further “capitalist” development would jeopardize the socialist system and was
intolerable. This allows OSYS authors a relatively higher level of control in issue selections,
and contributes to the stability of ideological dynamics and debate process in the OSYS, as
shown in Figure 5.7. A higher level of issue control means that the policy makers’
ideological preference, rather than issues arising from local levels, control the OSYS debate
process, which suggests that the OSYS debate process is more ideology-driven.
On the other hand, an issue attention cycle of the SH debate process tends to be
shorter because a larger number of issues was on the SH agenda at any given time. The SH

179
agenda was constantly overwhelmed by issues arising from local levels. Therefore, SH
authors do not have a high level of freedom to select issues based on their ideological
preference, which results in a lower level of agenda control, or more a local market
condition-driven agenda setting. These factors explain why coherent or long-lasting
ideological dynamics are difficult to be formed in the SH debate process. Even if a liberal-
conservative dynamic is formed on one issue, new issues constantly enter the SH agenda,
trigger new ideological debates, and form new dynamics on these new issues. The
differences between the OSYS and the SH debate processes are summarized in the diagram
below (Figure 5.8):
Figure 5.8: Comparison of the agenda structures of the OSYS and SH

Broader, ideological issues
Low responsiveness to local issues
SH debate process OSYS debate process
A smaller number of issues,
A longer issue attention cycle
A higher level of agenda control
Stable ideological
dynamics
and the
debate process
Narrower, technical issues
High responsiveness to local issues
A lower level of agenda control
A larger number of issues,
A shorter issue attention cycle
Unstable ideological
dynamics
and the
debate process

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2) Influence of ideology: Ideological constraints placed on the SH debates
Although the level of responsiveness to local market conditions is an important
factor, it alone does not sufficiently explain the unstable ideological dynamics and debate
process found in the SH. The SH debate process was also influenced by ideology. Due to
the SH reforms’ close relevance to the issue of ownership change, nearly every new SH
issue raised a wide range of ideological concerns or questions and triggered ideological
debates. These debates, however, are constrained by the ideological dynamics or climates
that dominated the broader policy community. Even if local experiments were conducted
relatively freely, policy debates over major SH issues could not go beyond the boundary set
by the ideologically appropriate limit at any given time and, therefore, many of SH debates
abruptly ended without reaching any agreement between the liberals and the conservatives or
failed to formulate regulations. In terms of this, the stable ideological dynamics found in the
OSYS better represents that of the broader policy community.
Due to this ideological constraint, debates on major SH issues, such as the division
of the ownership rights between the government and enterprises or the tradability of state
shares, ended and disappeared before a durable liberal-conservative ideological dynamic was
formed on these issues. This pattern was especially prevalent before the 15
th
Party Congress.
The state asset management issue and the controversy over enterprises’ ownership rights are
typical examples of these unsolved issues. The ideological constraints placed on the SH
agenda and the SH debate process also led to a sudden change in trend. As shown in Table
5.2, the SH debate process experienced five different periods from 1993 to 1999, while the
OSYS debate process only experienced three periods. Each of these periods is characterized
with different ideological climates. The sudden changes in trend often came with a setback
of the reformist arguments. The end of the “clarification debate period” and its replacement
by the “state’s marketization period” in 1995 was a typical example. The two periods do not

181
have any common characteristics. In the “clarification period,” the liberals’ voice was loud
and some reformists openly argued for, based on a separation of government and enterprises,
granting full ownership to enterprises, and the end of sole proprietorship. By mid-1995,
however, such liberal arguments completely disappeared and holding company became a
dominant issue in the SH. During the “state’s marketization period,” the government’s
involvement in enterprise affairs was strengthened and governments at all levels increased
their control over SOE assets and management by establishing holding companies.
However, once the ideological constraints placed on the private economy—as well
as SH firms—were removed by Jiang’s address at the 15
th
Party Congress in 1997, many SH
issues started “moving.” The conservatives began to make important concessions after
Jiang’s speech, and the issues of employee shares and legal person shares soon disappeared
from the SH agenda. After 1997 they were no longer issues that caused ideological
controversies. The adoption of the Securities Law and the tradability of part of the state
shares also became possible after 1999 without ideological debates. In sum, at least by
Jiang’s speech in 1997, the unstable ideological dynamics found in SH articles mainly
derives from the interplay of two factors: a higher responsiveness to local conditions and the
ideological constraints placed on private ownership. New local issues entered the SH
agenda one after another and often triggered ideological debates, but the policy making and
the debate process were in many cases constrained or blocked by the ideological constraints
and failed to produce solutions or universal regulations. Jiang’s address in 1997 changed
this pattern by removing the ideological constraints on private ownership. This suggests the
top leaders’ political power in setting a new ideological line and ideology’s strong influence
on the reform policy debates as well as the policy making process. Within two years from
Jiang’s speech, the ideological reconciliation was successfully completed, the Securities Law
was implemented, and the dominance of liberal articles was established.

182
Even after the major ideological constraints were removed, however, the SH
agenda’s higher responsiveness to local market conditions did not change. The SH debate
process continued to be driven by local conditions, especially by global market conditions
after 2000. As China’s stock market developed and linked with the global financial market,
an average number of issues discussed in SH article increased. And the high responsiveness
of the SH agenda to local conditions again caused the unstable ideological dynamics in the
SH. The government criticisms and the concern over the rising social inequality were
expressed immediately after the failure of the state share reduction “methods” in late 2001.
These issues were linked with nationalism and resulted in the reversal of the ideological
climate, which is characterized with a drastic decrease in liberal articles and a concurrent
increase in conservative articles in 2002.

Relationship

The above examination tells us that both the OSYS and SH debate processes are
influenced by the two factors, ideology and local market conditions. OSYS and SH articles
similarly have a high empirical orientation (See Table 5.1) and discuss problems arising
from local levels. However, the SH debate process is more strongly influenced by the two
factors. The OSYS process is less market condition-driven (a lower responsiveness to local
realities), and maintains a higher level of agenda control and the stable ideological dynamics
in relation to the SH. What does this difference tell us about the relationship between the
two debate processes? Does this mean that the stable ideological dynamics found in the
OSYS influenced the SH debate process in a form of ideological constraints? Or did local
market conditions of the SH reforms have a stronger influence on the reform debate process
and controlled the formation of the ideological dynamics of the OSYS debate process?

183
Analyzing how the two debate processes influenced each other is helpful to
understand which factor—socialist ideology or market conditions—was stronger in
controlling the entire debate processes in the Jiang Zemin era. Two possible scenarios are
considered on the relationship between the OSYS and the SH debate processes. The first
scenario is that the ideology-driven OSYS process had influence on the market condition-
driven SH process. The stable ideological dynamics in the OSYS relatively well represented
the ideological climate of a broader policy community and influenced the SH debate process,
placing ideological constraints on it. In this case, ideology as a factor is stronger than local
market conditions in deciding the course of the internal debate process, and the
“privatization debate” process (both the OSYS and the SH debate processes) was more
ideology-driven than market condition-driven. In this case, the ideological dynamics in the
OSYS was formed independently from local market conditions of the SH reforms and
controls the debate process.
In the second scenario, the direction of influence is reversed. The more market
condition-driven SH debate—due to its high level of responsiveness to local market
conditions—influenced the ideology-driven OSYS debate process. In this scenario, what
actually happened during the course of the SH reforms influenced the ideological dynamics
of the OSYS debate. Technically, the SH reform process was a process leading to
privatization and increasing a portion of private ownership at the expense of public
ownership. Nearly all SH issues are, therefore, relevant to ownership or private economy
issues that OSYS articles mainly discuss. Therefore, what happened at local levels during
the SH reform process (local market conditions) influenced the formation of the ideological
dynamics of the OSYS, and to a certain degree, of a broader policy community. This
reasoning is plausible, considering the incremental nature of China’s economic reform.

184
Hypotheses on the Relationship

Based on the above two scenarios, two competing hypotheses concerning the
relationship between the two debate processes are submitted below:

Ideology-driven hypothesis (H1):

Ideological constraints
PR/SH
debate
process
OSYS
ideological
dynamics

Ideology as a factor is stronger than market conditions in controlling the internal debate
process. Therefore, China’s reform debate process in the Jiang Zemin era was more
ideology-driven than market-condition driven. The hypothesis is confirmed if the ideological
dynamics found in the OSYS debate process (ideology-driven) had influence on SH reform
agenda or the SH debate process (market condition-driven). In this case, the ideological
dynamics found in the OSYS process is formed independently from what happened during
the course of the PR/SH reforms and act as ideological constraints on the PR/SH reform
debates.

Market condition-driven hypothesis (H2):

Market pressure
OSYS
Ideological
dynamics
PR/SH
debate
agenda

Local market condition as a factor is stronger than ideology in controlling the internal debate
process. Therefore, China’s reform debate process in the Jiang Zemin era was more market
condition-driven than ideology-driven. This hypothesis is confirmed if the SH debate agenda
influenced the OSYS’s ideological dynamics. In this case, what actually happened during
the course of the PR/SH reforms (local market conditions) shaped the ideological dynamics
found in the OSYS debate process.

185
These two hypotheses are not mutually exclusive. Obviously, various factors
influenced each debate process, and also the two debate processes mutually influenced each
other. The primary purpose of the hypothesis test is, as noted earlier, to analyze which of the
influences—of socialist ideology or market conditions—was stronger as a factor that
controlled the “privatization” debates in the Jiang era. If the influence exerted on the SH by
the OSYS is stronger than the influence exerted on the OSYS by the SH, ideology is a more
important driving factor of the reform debate process in the Jiang Zemin era.
To test these hypotheses, a cross examination of shareholding reform issues
appeared in OSYS articles and ownership issues appeared in SH articles is conducted. The
focus of the analysis is to compare the importance of ownership issues for the SH process
with the importance of shareholding issues for the OSYS process. Through this, a degree of
influence that one debate process exerted on the other is compared.

Testing the Relationship: Cross Examinations

1) Ownership debates/issues that appeared in SH articles

Figure 5.9 shows the percentages of the SH articles that mention or debate
ownership issues each year. The line marks repeated peaks in 1995, 1997 and 1999. A close
examination of the content analysis data shows what kind of ownership debates occurred
during these peaks.

186
Figure 5.9: Ownership issues/debates observed in SH

0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

At the first peak in 1995, the private economy had not yet established an equal
political status to the public economy, and the major ideological constraint placed on the SH
debates was conservatives’ fear of privatization. As local SH experiments went on, the drain
of state assets became a serious problem in the SH reforms. Without the clarification of the
state’s ownership rights over SOE assets, the drain problem would soon start threatening the
dominant status of the public economy and, therefore, the foundation for socialism. This
concern triggered ideological debates over the government’s ownership rights over state
assets in 1994 and 1995. The liberals argued that the legal clarification of the government’s
ownership rights over state assets and the division of the property rights over SOE assets
between the government and enterprises were necessary to stop the drain. The liberals
argued that a root cause of the legal ambiguity surrounding the ownership rights of state
assets is sole proprietorship and demanded the abolition of such an obsolete system. For the
conservatives, however, renouncing the unified state ownership was nearly unthinkable
because of its strong association with socialism. The conservatives’ resistance was strong
and the two sides could not find any common ground. By mid-1995, the debate ended
without producing any solutions or regulations.
The ideological constraint was one of the primary factors that caused the sudden end
of the debate and the sudden change in the trend in mid-1995. The liberals’ proposal of

187
restricting the government’s ownership rights and of granting full ownership rights to
enterprises was not ideologically acceptable in the mid 1990s. During the same period, the
“capitalist-socialist” debate over the private economy’s status occurred in the OSYS, and a
deep ideological division between the liberals and the conservatives in the SH is nearly
corresponding to the one found in the OSYS.
The second peak in 1997 drives form the debate over the definitions of the
shareholding system (SHS). The ideological climate this time, however, was different from
the first peak. Jiang’s address in 1997 encouraged further SH reforms and set off ideological
reconciliation between the liberals and the conservatives. Quoting Jiang’s words such as
“the collaboration between capital and labor” or “the union of workers,” the liberals began to
define the SHS as a collective ownership system or “the existing form of the public
ownership system,” in an attempt to lure the conservatives into further SH reforms. On the
other hand, some conservatives started loosening their conservative (socialistic) definitions
of the SHS, and made concessions. Although the ideological difference still caused
disagreements over technical or managerial matters, fewer ideological constraints were
placed on the SH debate process in 1997, and the liberal-conservative division was not as
deep as in 1995. During the same period, the “ideological realignment” occurred in the
OSYS process and a similar reconciliation trend was observed.
Although the ownership line in Figure 5.9 marks the third peak in 1999, no
ownership debate is observed in SH articles at this peak. By 1999, major ownership debates
had ended and the total number of SH articles started decreasing. Only a few articles
expressed concerns over individual employee shares or over the opening of state monopoly
areas to private enterprises. These sporadically raised ownership issues raise the percentage
because of a decrease in the number of SH articles. In the OSYS, with the success in the

188
incorporation effort of the private economy, the major ideological debate over ownership
issues ended by 1999 and “ideological homogenization” occurred.
Overall, the ideological dynamics found in OSYS articles are reflected in the SH
debates as ideological constraints. When the most heated debate over private economy
occurred in the OSYS in 1994 and 1995, the strongest ideological constraints were placed on
the SH debate over the clarification of ownership rights. After the 15
th
Party Congress in
1997, the “ideological realignment” and “homogenization” observed in the OSYS are also
reflected in the reconciliation mood in the SH debates’ over SHS definitions. Once the
major ideological debate ended in the OSYS and the ideological incorporation of the private
economy nearly was completed by 1999, ownership issues decreased in the SH and
disappeared by 2001.
Figure 5.10 below shows the two percentage lines: One indicates the occurrence of
ownership debates in the SH and the other is that of the OSYS. Although the two lines do
not exactly fit each other, a relatively consistent relationship between the two is observed.
The two peaks of the OSYS line in 1994 and in 1998 are largely corresponding to the first
two peaks of the SH lines in 1995 and 1997. Since an occurrence of ownership debates in
the OSYS is relatively consistent with its ideological dynamics, this comparison suggests
that the OSYS’s ideological dynamics and the SH agenda are also relatively consistent each
other.
Figure 5.10: Ownership issues/debates observed in OSYS and SH
0%
10%
20%
30%
40%
50%
60%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
SH
OSYS

189
2) Shareholding reform debates/issues that appeared in OSYS articles

Figure 5.11: SH reform issues/debates and ownership issues/debates observed in OSYS
0%
10%
20%
30%
40%
50%
60%
70%
80%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Shareholding issues in the
OSYS
Ownership issues/debates
in the OSYS (correlated with
ideological dynamics)

The upper line in Figure 5.11 shows the percentages of the OSYS articles
discussing—not necessarily debating—SH reform issues. The line shows a strange pattern
throughout the research period. It marks a peak in 1996, decreases in 1998 and 1999, and,
then, increases toward the end of the Jiang Zemin era. The lower line in the figure is the
percentage of the articles engaging in ownership debates (the same line appeared in Figure
5.10). The two lines are not related each other. Since the ownership debate line (the lower
line) is relatively consistent with the OSYS’s ideological dynamics, the inconsistency
between the two lines in Figure 5.11 suggests that the appearance of SH issues in OSYS
articles are not related to its own ideological dynamics.
An examination of the content analysis data and OSYS articles show what kind of
shareholding reform issues were on the OSYS agenda at each peak. A relatively high
percentage in 1993 is due to the increase in statistical reporting on shareholding experiments
and no debate over the SH reforms is observed. From 1994 to 1995, the appearance of SH
issues even decreased despite the occurrence of the most heated debate over the private
economy. This suggests that SH issues did not strongly affect the “capitalist-socialist”
debate, despite SH reforms’ close relevance to ownership issues. This also suggests that the

190
OSYS debate process and its agenda is not driven by the local market conditions of the SH
reforms. One reason for the OSYS authors’ indifference to SH issues is that the private
economy and private ownership were perceived by the OSYS authors, especially by the
conservatives, as a more serious and ideologically threatening problem in the mid 1990s,
while SH firms were not perceived as threatening because of their mixed ownership
structure. The SH reform was considered as part of the SOE reforms, the official purpose of
which was to strengthen the public ownership system.
Interestingly, the articles discussing SH reform issues peaked after the end of the
“capitalist-socialist” debate over the private economy. During 1996, the SH issues
mentioned were largely descriptive and did not involve debates. However, as the 15
th
Party
Congress came closer, an ideological framing of SH issues began and SOEs’ ownership or
property rights became one of the major issues. This suggests that a time lag exists between
when the same SH issues enter the OSYS agenda and the SH agenda. The issue of SOE’s
ownership rights was extensively debated in SH articles already in 1994 and 1995, but nearly
two years later the issue began to be discussed in OSYS articles. This time lag partly derives
from OSYS and the SH agenda’s different levels of responsiveness to local issues.
After Jiang’s address in 1997, encouraging remarks or favorable arguments
concerning the SH reforms increased. The rise of the support for SH reforms was related to
the incorporation effort of the private economy. During this process, the liberals used a
“middle ground” characteristic of SH firms—that is, they were considered neither capitalist
nor socialist due to their mixed ownership structure—to reduce the conservatives’ resistance
to the incorporation effort of the private economy and to the legitimation of private
ownership. Even after Jiang’s speech, some conservatives still expressed their suspicion
over private ownership. The liberals, therefore, defined the SH firms as the collective
ownership system that promotes the “union of labor and capital,” and attempted to show the

191
conservatives that the coexistence of the public and private economies had already been
realized in SH firms but their ownership system was still characterized as “collective.”
This finding suggests that some OSYS authors “picked” or strategically “used” SH
issues in order to advance their agenda, which in this case was the incorporation of the
private economy. As expected, with a near completion of the ideological incorporation of
the private economy around 1998, the OSYS articles that mentioned SH reform issues began
to decrease. This suggests a relatively higher level of agenda control in the OSYS. The
OSYS agenda was not strongly influenced by what actually happened in the SH reform
process at local levels or what was debated in SH articles. The SH agenda from 1996 to
1997 was dominated by the holding company issue and the SHS definition debate but none
of these issues appeared in the OSYS agenda.
A similar “pick” is observed after 2000. SH issues again became important in
OSYS articles and experienced another peak in 2002, despite the fact that the major
ideological debates over the private economy had already ended by then. The main reason
for the re-appearance of SH issues in 2002 is the forthcoming 16
th
Party Congress. Prior to
the 16
th
Party Congress held that year, many OSYS articles began to characterize the private
economy as the collective system managed by the “people” rather than by private
individuals. This was part of the consolidation effort of the private economy’s political
status in the socialist system. The Chinese term that refers to the private economy, “siyou
jingji” (individual/private ownership-based economy) had been replaced by “minying jingji”
(the economy managed by people) or “minben jingji” (people-based economy) by then. As
part of this collective characterization that tried to de-emphasize the “private” or
“individual” characteristics of private enterprises, SH issues were, again, “picked” and used
by the OSYS authors. SH firms were, for example, defined as an “efficient existing form of
the public ownership system” that contributed to the “socialization” of capital, by uniting

192
individually-owned capital through shareholding or share trading (therefore, private capital
or ownership will eventually disappear.)
176

3) Findings
Throughout the research period, the relatively independent nature of the OSYS
debate process from the SH agenda is observed. The diagram below (Figure 5.12)
summarizes the relationship between the two debate processes found in the cross
examination. The relationship is not a simple and direct causal relationship. There is no
relation between the OSYS and SH agendas. New local issues of the SH reforms enter the
SH agenda and often trigger ideological debates. However, none of these SH issues
influenced the OSYS agenda. The OSYS debate process has its own, ideology-driven logic,
and the OSYS authors freely picked preferable SH issues depending on their needs in order
to advance their agenda. On the other hand, at least by the end of the 1990s, the ideological
dynamics found in the OSYS debate process were well reflected in the SH debate process
and imposed the ideological constraints on the SH debate process.

Figure 5.12: The relationship between the OSYS and the SH debate process
Ideological constraints
OSYS
Ideological
dynamics
OSYS agenda
SH agenda
SH
Ideological constraints
Ideological
dynamics
OSYS
Debate process
SH
Debate process

176
Gao Shanguan, “Zai lun dali fazhan minben jingji” (Discuss again the promotion of the minben
economy), Gaige Neican (Internal Reference on Reform), vol.7 (2002), pp. 2-4.

193
Figure 5.13 explains how the ideological constraints placed on the SH process are
produced. The different level of responsiveness to local conditions between the OSYS and
SH produce time lags that the same local issues enter the OSYS and SH agendas. New local
issues, especially the ones closely related to private ownership, enter the SH agenda faster
and earlier than enter the OSYS agenda and often trigger ideological debates. However,
those issues are still not politicized enough when they became major issues in the SH
process, or the surrounding ideological climate is still ideologically “immature” and
“behind” for the solution of these issues. The “ideology lag” between the SH agenda and the
broader ideological climate—which is relatively well represented by OSYS’s ideological
dynamics—acts as ideological constraints placed on the SH debate process. As a result, the
SH issues in many cases failed to develop into regulations or policies.
Figure 5.13: How ideological constraints are produced

Ideological constraint
SH agenda
Lower responsiveness Higher responsiveness
OSYS agenda
Ideology lag
OSYS
ideological
dynamics
Time lag
Local issues

194
In sum, the direction of influence is from the OSYS to the SH debate process. As
Hypothesis 1 states, the ideological dynamics found in the OSYS influenced the SH agenda
and its debate process. Therefore, the privatization debates in the Jiang Zemin era turned out
to be more ideology-driven than local market condition-driven, and hypothesis 2, the market
condition-driven hypothesis, is rejected. As noted above, however, the findings by no means
reject the influence of local market conditions on the reform debate process. The influence
of socialist ideology on the reform debate process in the Jiang Zemin era is stronger in
relation to that of local market conditions.
The finding is counter-intuitive. Considering OSYS articles’ high empirical
orientation and the SH reforms’ close relevance to ownership issues, it is plausible that what
occurred at local levels during the SH reform process (local market conditions) sets OSYS’s
agenda as well as its ideological dynamics. The direction of influence, however, turned out
to be the other way around.

195
Chapter 6: Conclusion

This research found that socialist ideology was stronger than local market conditions
as a controlling factor of the reform debate process in the Jiang Zemin era. Ideology nearly
controlled the debate process, especially in the 1990s when the ideological constraints placed
on private ownership often blocked agreement between liberal and conservative forces and
delayed the formation of regulations. Although new reform practices were introduced
relatively freely at local levels, and new market conditions constantly raised regulatory
questions, nearly every new market practice had to go through an ideological legitimation
process. During the debate, liberals made forceful efforts to justify new market conditions
through the reinterpretation of socialist theories, and through the employment of a variety of
tools and slogans, such as “production criterion,” “start from reality,” or “seeking truth from
facts.” However, such justification attempts were in many cases inhibited by conservative
forces, and the deep ideological division between the two sides delayed the formulation of
national-level regulations. As was seen in the property rights reform debate, the ideological
constraints placed on private ownership resulted in unintended consequences, such as
strengthening government control over enterprises and hybrid enterprise property rights.
Unless the top leaders remove these constraints, the central policy makers could not
formulate universal regulations. The findings from this research could be applicable to other
components of the SOE reforms, such as enterprise reform, bank reform, financial reform or
bankruptcy.
Although ideology’s influence turned out to be stronger, the intrusion of market
principles—or the marketization of ideology—during the 10 year period was also
remarkable. The constant interaction and reconciliation between market and socialist

196
principles was observed during the research period. The CCP drastically marketized itself in
the mid to late 1990s, to the degree that some market principles became part of the official
slogans of the party. And with the relatively successful ideological reconciliation and
“homogenization” that occurred between the liberals and the conservatives in the late 1990s,
the former “capitalists” became nearly a dominant force of China’s economy by the end of
the Jiang era, and the construction of a “socialist market economy” also went successfully.
The ideological reconciliation or interaction also involved changes in some core socialist
principles. The observed shift from the “capitalist versus socialist” dichotomy to a more
ideologically lenient one—economic efficiency versus social equality—is evidence that
socialist principles are also influenced by market conditions and principles.
However, the end of the major ownership debates and the successful incorporation
of the private economy do not mean that ideology lost its influence. Ideology continued to
influence the debate process, and a cycle of “relaxation” and “ideologization”
177
was
observed during the research period. The time period from the start of the Jiang era (1993)
to the 15
th
Party Congress in 1997 is considered a period of relaxation. Although the private
economy’s status was unclear and strong ideological constraints were placed on private
ownership, the liberals and the conservatives engaged relatively freely in the debates
according to their ideological beliefs, so that an element of pluralism existed. Jiang’s
address at the 15
th
Party Congress changed this trend. The “incorporation” period after the
Party Congress until 1999 can be called an “ideologization” period—or a “shou” phase of
Baum’s “fang/shou” cycle.
178
Although during this period the “capitalists” began to
establish their political status and become more accommodated in the socialist system, the

177
For the definitions of these terms, see, SunYan, The Chinese Reassessment of Socialism, 1976-
1992. Pp. 260-72.

178
See Richard Baum, Burying Mao.

197
incorporation also resulted in the strengthening of party control over private firms and the
socialist indoctrination of private entrepreneurs. In the sense that a significant degree of
reconciliation between socialist and market principles occurred, the reconciliation can be
considered the “ideologization” of market principles as well as the marketization of
ideology.
With the near completion of the incorporation of the private economy around 1999
and 2000, a period of relaxation returned. After 2000, broader structural changes occurred in
Chinese politics during the wave of internationalization. The reform policy making process
was increasingly intertwined with foreign policies as China’s economy was integrated into
the global economy, and rising bureaucratic interests and conflicts were also observed.
Moreover, public opinion began to influence the debate process. A major part of public
opinion supported the anti-US and anti-globalization sentiment, which was raised by new
conservative forces such as the “New Left,” and criticized the government for growing
social inequality. In 2002, the final year of Jiang’s rule and the year of the 16
th
Party
Congress, these new political developments met with a “re-ideologization” trend. The
collective characterization of private firms was observed prior to the 16
th
Party Congress in
the ownership articles. A new word, “minben jingji” (the people-based economy) appeared,
which emphasizes “people’s initiative” in economic activities. Despite the fact that Jiang’s
“Three Represents” theoretically justified the roles played by the private economy and
consolidated private entrepreneurs’ political status by labeling them as one of the “advanced
social forces,” the theory also emphasized people’s initiative and the importance of
satisfying the basic needs of the masses. According to Fewsmith, the “Three Represents”
was Jiang’s response to the public’s criticisms over the growing social inequality.
179
Jiang,
therefore, attempted to re-adjust the ideological line in a more equality-oriented and

179
See, Fewsmith, Joseph. 2001. China since Tiananmen: The Politics of Transition. Pp. 229-33.

198
socialistic direction. The new line was inherited by Hu Jintao’s reform policies, such as
“harmonious society.”

This research also illuminated the political power, influence and role of the top
leader in controlling the policy debate process, using ideology as a controlling device. One
of the most important roles of the top leader is to intervene in ideological debates and to
“homogenize” the political universe when ideological debates or divisions start blocking the
policy making process. This is mainly done by re-defining ideological lines and principles.
Jiang did this with his “breakthrough” address at the 15
th
Party Congress and intervened in
the private economy debates. This address was the breaking point of the “privatization”
debates: Jiang removed the ideological constraints placed on private ownership and changed
the course of the debate process. The following “ideological realignment” made the
previously ideologically impossible things possible, not only on the private economy issue
but also on the property rights and shareholding reform issues. New shareholding reform
laws and regulations were promulgated, housing ownership became possible, and a portion
of the public shares became officially tradable. Five years later, at the 16
th
Party Congress,
Jiang again attempted to adjust the ideological line, with the formulation of the “Three
Represents,” in order to deal with the social and political disharmony, marked by rising
nationalism, government criticisms, and growing social and regional inequalities that
developed after 2000.
The top leader’s interventions are necessary to maintain the system that requires an
ideological agreement of the entire political universe to proceed with further reforms.
However, further reforms produce new ideological contradictions and set off new debates.
As long as China attempts to build a hybrid system of socialism and market while
maintaining one-party rule, the system cannot possibly avoid going through the cyclical

199
pattern of a relatively pluralistic period of ideological debates and an ideologized period
characterized by a unity of voices in the political universe. In this way, the Chinese political
system is unlikely to develop toward pluralism or democracy but rather go back and forth
between a nascent rise of pluralism and an abrupt end of it.
This cyclical rise of pluralistic debates (or the ideological cycling) could be one of
the major characteristics of the political system called “socialism with Chinese
characteristics,” and can be generalized beyond the research period.

Figure 6.1: The cycle of pluralistic debates and ideological homogenization

Ideological homogenization
(“Ideologization” / “Shou”)

-Ideological reconciliation
-Harmony
Ideological debates
(“Relaxation” / “Fang”)

-Pluralistic
-Disharmony
New reform issues
The top leaders’
intervention
(Redefining
ideological lines)

As Figure 6.1 shows, the cycle consists of a pluralistic relaxation phase of debates
and an ideologization phase marked by ideological reconciliation and homogenization of the
political space under new ideological principles. A relatively pluralistic debate (relaxation)
phase is replaced by an ideologization phase with the top leader’s intervention or re-
definition of ideological principles. Yet, the ideologization phase eventually is broken with

200
the rise of new debates triggered by new reform issues and will return to a relaxation period.
If the Chinese political system is repeating this process, ideology continues to play an
important role as the top leader’s control device for the maintenance of the cycle.
Even though a similar ideological cycling was observed in the Jiang era, it does not
mean that the system is simply repeating the same process. Each cycle is different and could
be changing over time, depending on broader political conditions, actors involved, issues
debated and the top leader’s ruling style. As was observed in this research, in the second
debate phase after 2000, more actors were involved in the debate process than in the first
debate phase in the mid 1990s. Since the late 1990s, new voices that express a nationalistic
or mercantilist stance appeared as the internationalization of China’s economy accelerated.
These new voices often cut across the ideological division between the liberals and the
conservatives that had been prevalent in previous years. The pluralization of voices further
accelerated after 2000, and, as a result, drawing a clear line between liberals and
conservatives became increasingly difficult. New positions or voices were often formed as
new issues emerged, particularly so in the issues concerning the global economy.
Nationalistic populist groups, such as the New Left, and other groups that took a pessimistic
or even paranoiac attitude toward the future of the global economy, foreign capital, and the
international system, appeared in the second phase of debate. Although it is possible to
categorize these new groups as part of a broadly-defined conservative force due to their anti-
foreign stances, nationalistic or pessimistic attitudes were also taken by some liberal authors
who advocated the tradability of public shares or the protection of small shareholders’
interests. In addition, bureaucratic interests, consumer interests, business interests,
shareholders’ interests, as well as foreign actors, such as foreign investors and multi-national
corporations, began to participate in or influence the debate process toward the end of
Jiang’s rule. Although how these pluralistic voices played out in the Hu Jintao era is beyond

201
the scope of this research, the increase in new actors and voices that cut across the existing
ideological cleavage might have caused a decreasing influence of ideology as well as a
weakening of the top leader’s authority to define or re-define ideological lines.
The findings from this research, in fact, suggest that the top leaders’ roles,
commitment, and influence are changing as broader, structural political conditions change.
As noted in the introduction, Sun Yan argues that Deng Xiaoping, with his “middle course”
approach, encouraged the debates over economic reform while restricting such debates in
political realms, and that this active control and stimulation of debates caused an ideological
cycle of relaxation and ideologization.
180
If so, the top leaders supposedly have two
contradictory roles. The top leaders intervene into ideological debates with new ideological
definitions and “homogenize” the political universe on one hand, but they also stimulate and
encourage debates, on the other hand. And with the responsibility of these two roles, the top
leaders could control the start and end of debates or the “fang/shou” cycle
181
itself.
It is clear from this analysis that Jiang inherited Deng’s “middle course” approach
and encouraged, or at least tolerated, ideological debates. Jiang’s toleration or
encouragement of the reassessment of socialist theory is well observed in the reformists’
arguments as well as in his speeches. During the “open debate period,” the liberals,
employing slogans such as “three benefits” or “seeking truth from facts,” attempted to
redefine socialism in order to justify the existence of the capitalist elements in the system.
Jiang himself used Deng’s “production criterion”—whatever develops productivity is a good
economic system—in his breakthrough address for the justification of the private economy.
The “middle course” approach, however, is broadly defined and covers a wide range
of strategies, policies or stances. There are conflicting indications on whether Jiang took the

180
See SunYan, The Chinese Reassessment of Socialism, 1976-1992.

181
See, Richard Baum, Burying Mao.

202
middle course as a strategic approach to actively promote more reforms or took it as a
defensive measure to balance the liberal and conservative forces simply to maintain political
stability. Since the top leaders’ commitment to ideological debates has important
implications for the workings of the Chinese political system, the generalization of the top
leaders’ roles has to proceed carefully.
With regards to Jiang Zemin’s approach and commitment, some evidence supports
the view that Jiang was, like Deng, actively controlling debates, often setting their guidelines
or limits. Deng encouraged ideological debates for the justification of economic reform but
prohibited such debates in political or ideological realms.
182
Jiang also imposed a similar
control, by providing limited political openings like the “Beijing Spring” for a brief period
after the 15
th
Party Congress, but, on the other hand, he often acted decisively to silence or
contain potentially destabilizing ideological forces, as was seen in his banning of
conservative journals.
183
With this interpretation, the top leaders can be considered very
powerful and influential in deciding the direction of the reform through the control of
ideology and ideological debates. In this case, China’s pluralism, if any, can be strictly
limited or controlled by the top leaders.
On the other hand, there also are indications that Jiang’s middle course approach
merely attempted to control a too rapid intrusion of market forces that might have caused
political conflict and instability. In this case, Jiang’s approach could rather be a reactive,
defensive act of balancing market and socialist principles—or liberal and conservative
forces. The findings from this research support this view that Jiang’s main role in the debate
process was a balancing one rather than the active stimulation and control of debates. There
is little evidence from this analysis that Jiang actively stimulated debates as Deng did.

182
See SunYan, The Chinese Reassessment of Socialism, 1976-1992.

183
See, Fewsmith, Joseph. 2001. China since Tiananmen: The Politics of Transition. P. 195.

203
Although cyclical debates were observed in the Jiang period, the second wave of the debate
observed in the property rights/shareholding reform articles after 2000—the nationalism and
government criticisms over social inequalities—was largely triggered by the accelerated
internationalization and marketization of the economy rather than by Jiang’s encouragement.
Furthermore, there were already enough ideological contradictions and seeds of ideological
debates that existed from the start of the Jiang era. The rapidly expanding private economy
was a typical example. In this environment, Jiang needed to restrict debates rather than
stimulate them.
It is also difficult to argue that Jiang was a unilateral, ultimate setter of ideological
criteria or the ideological climate. As observed in the analysis, Jiang mainly acted as a
balancer or endorser of the ideological climates found in the policy community rather than
unilaterally setting ideological criteria of his own. A considerable portion of Jiang’s
breakthrough address in 1997 summarized the arguments made by both liberal and
conservative authors during the debate period prior to the 15
th
Party Congress. This is the
main reason for the ideologically contradictory comments found in his address. If the top
leader is a balancer or an endorser of existing ideological climates, China’s policy making
process could be considered more pluralistic than normally assumed because broader
ideological dynamics are largely formed through debates among policy elites. The increase
in bureaucratic conflicts in economic policy making and the growing influence of public
opinion and internationalization—factors that began to appear at the end of Jiang’s rule—
may push Chinese politics toward a more pluralistic direction. And the top leaders’ role
could also be changing from the active control of debates to the balancing or endorsing of
existing ideological climates as political or reform conditions change.
It is still undeniable that maintaining political stability is the primary and common
goal of the top leaders because their political power and legitimacy rest on political stability.

204
Sun noted that Deng’s “middle course” approach—intended or not—contributed to the
success of China’s economic reform by maintaining stability and saved China from falling
into the same fate as the former Soviet Union.
184
Similarly, Jiang’s “policy of strategic
ambiguity”
185
—his middle course approach—turned out to be successful. Because of the
contradictory and ambiguous positions taken by Jiang, the private economy—the
incorporation of which was the ideologically most sensitive issue for the CCP in the mid-
1990s and the mismanagement of which could have caused political turmoil—was
successfully incorporated into the system and China has been enjoying continuous economic
growth ever since. Allowing ideological cycling or a certain number of debates could be one
of the best ways to maintain political stability, as long as the top leaders are equipped with
controlling methods of political debates, notably, the authority to define new ideological
lines.

In sum, this research clarified the relationship between the top leaders’ role and the
function of ideology in the reform debate process and their importance for the maintenance
of China’s political system. It also found that the ideological cycling was one of the
characteristics of Chinese politics in the Jiang era. This research, however, only focuses on
the reform debates in the Jiang Zemin era and examines Jiang’s style of ruling, in
comparison with Deng’s style found in the existing literatures. Examining how the top
leaders’ role, the function of ideology, and the ideological cycles are changing in the Hu
Jintao era is an important subject for future research. As a continuation of this research,
further inquiries must start by examining how Jiang Zemin’s re-definition effort at the end of
his rule—notably, his “Three Represents” and his speech at the 16
th
Party Congress that

184
See Sun Yan, The Chinese Reassessment of Socialism, 1976-1992.

185
Lam, Willy, Wo-lap, The Era of Jiang Zemin. Pp43-46.

205
claimed the establishment of a “well-off society” (Xiaokang shehui)—influenced the reform
debates after Jiang officially retired. Did Jiang’s redefinition successfully bring a harmony
to the political space and initiate reconciliations among the pluralistic voices that emerged
after 2000? How did Hu Jintao manage the debate process and the political space crowded
with new voices and new actors? Is Hu’s role and style different from Jiang’s in terms of
controlling reform debates using ideology as a political resource? If so, how different Hu’s
role and style are from his predecessors? Is Hu’s political authority weakened with the rise
of new voices and actors and the growing influence of public opinion on the reform debate
process? Does this “pluralization” influence the function of ideology in the political system?
Is the importance of ideology declining in the Hu Jintao era? If so, can we still observe a
similar ideological cycle in the Hu era? If Hu’s role and authority are declining compared
with those of his predecessors, is this an indication that the Chinese political system is
moving further toward pluralism?
The comparisons of the top leaders’ roles in relation to societal changes and the
changes in the function of ideology will contribute to further clarifying the Chinese political
system and its policy making mechanism. For further research on China’s policy process,
approaches that consider these changes—the growing influence of public opinion and the
pluralization of the policy making process—are necessary. An analysis of debate can no
longer be limited to elite discussions, but must include the opinions of the general public,
bureaucratic interests or business interests.
186
Civic engagement in community projects,
such as home owners’ association, has been tolerated and encouraged under Hu Jintao’s
“harmonious society” (hexie shehui) even though some of these activities are often the
government-led, and the degree of legal consciousness held among the general public
significantly heightened in recent years, as was seen in the popular debates prior to the

186
For the rise of business interests, see, for example, Kennedy, Scott. 2005. The Business of
Lobbying in China. (Harvard University Press).

206
implementation of the Property Law in 2007. In addition, the government’s recurrent
attempts to mobilize popular support using nationalism and a populist style increasingly
taken by Chinese politicians are new trends that emerged since the end of the Jiang Zemin
era.
187
Therefore, the incorporation of an analysis of blogs, popular magazine articles, and
public opinion surveys into the research is crucial to understanding the policy making
process in the Hu Jintao era.
Finally, if China’s political process and the political system are increasingly
pluralistic, the comparison with the US system could also be useful to understand the
changing system. This research applied the theory of party politics explaining the US
system to China’s debate process. Similar applications of American politics theories
concerning presidency, political power, interest group politics, public policy, or public
opinion, could also be beneficial to the study of Chinese politics in the 21
st
century,
considering the growing pluralization of the public policy making process in China. Such
comparisons might indeed illuminate a distinctive aspect of the Chinese system rather than
similarities between the US and China.

187
See, for example, Joseph Fewsmith and Stanley Rosen. “The Domestic Context of Chinese Foreign
Policy: Does ‘Public Opinion’ Matter?” 151-187. In The Making of Chinese Foreign and Security
Policy in the Era of Reform, 1978-2000, ed. David Lampton (Stanford University Press, 2001).

207
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Appendix A:
Coding Process and Coding Sheet

The coding result can be replicable if it is conducted with appropriate instructions
and explanations of the coding items by the author. To conduct a coding for this research,
however, requires extensive background knowledge of Chinese politics, economics, history,
tradition, language, philosophy, as well as Chinese argumentation styles in general. In
particular, the coding of ideological arguments requires a familiarity with Communist Party
propaganda, party theories, and political argumentation under political or ideological
constraints. For example, the detection of one of the coding items, “lip-service
conservatism,” which measures an existence of ideological division or constraints, could be
difficult unless coders have experiences in reading and analyzing communist propaganda
and Chinese official documents, and are able to sense the political and ideological context in
which the articles are written. Lip-service conservatism is liberal authors’ strategic
argumentation effort when strong ideological constraints exist. While predominantly
engaging in reformist arguments, liberal authors pay lip service to conservatives in order to
prevent or minimize their counter-criticism or accusations. Since the primary purpose of lip
service is to appease conservatives and maintain ideological appropriateness, the item is
normally detected with frequent quotes or use of socialist or party slogans, such as “public
ownership as the principal system” (gongyouzhi wei zhuti), or encouraging remarks on the
state-owned economy, such as that “the public economy is continuously strengthened
through market competition” or that “the state-owned economy became a ‘life line’
(mingmai) of the national economy.”
188
However, the item also takes a variety of other
forms. Coders often have to judge its existence from the context and relation to other
arguments found in the same article. Since lip service conservatism is employed only by
liberal authors, a majority of the arguments found in the article must be reformist or liberal
arguments. Lip service is also detected in liberals’ accusation of private enterprises. For
example, some liberal authors often argue that “some” private enterprise owners—not all of
them (“bushi quanbu”)—engage in illegal activities such as “red hat” (a private enterprise
registered as a collective enterprise) or profiteering, while a majority of firms contribute to

188
Zhang Houyi, “Dui siying jingji diwei he zuoyong de zai renshi” (Re-examine the private economy’s status
and function), Gaige Neican (Internal Reference on Reform), vol. 18 (1994), pp. 29-32.

211
China’s economic development.
189
By illuminating the wrongdoings of “some” private
entrepreneurs and accusing them, the liberal authors attempted to satisfy the conservatives
who were suspicious of the private economy in general. The primary purpose of this
argument, however, was to show the conservatives that problematic firms are only a small
portion of the private enterprises, and most of the private firms contribute to China’s
economic growth; therefore, the private economy should be incorporated into the system.
Criticizing the state economy’s inefficiency in behalf of a well being of the masses is also
considered a lip-service. As long as a well-being of the masses is a primary concern, the
conservatives cannot criticize reformist arguments, even if liberals’ arguments show an
apparent support for the private economy. Some authors stated that without the private
economy’s assistance, the inefficient state-sector alone is unable to raise people’s living
standard.
Other than the difficulties in coding ideological arguments, frequent use of rhetoric,
metaphors and proverbs, “tortuous” argumentation styles, and many authors’ tendency to
avoid assertive tones, were the major difficulties that the author encountered during the
coding process. Many authors—regardless of whether they are liberals or conservatives—
deliberately make their arguments ambiguous or express them in a way that could be
interpreted in a variety of ways, depending on readers’ ideological beliefs or preferences.
This tendency reflects the political constraints surrounding China’s political debates in
general; however, it also derives from Chinese tradition and style of writing. Many articles
lack a standard structure that begins with introductory comments and ends with conclusion,
the main point of the essay is not specified at the beginning, new issues are abruptly raised in
the middle of the essays, and conclusion remarks are not found.
For the analysis of the articles for the property rights and shareholding reform
debates, the coding requires knowledge of legal terms and concepts relevant to corporate
laws, corporate governance and personal finance, such as stock investment and trading, as
well as Western economics and political science theories concerning property rights reforms,
market transition, and international political economy. The coding difficulty increased for
the analysis of the articles published in the mid 1990s. Most of the important ideological
debates and reconciliation between socialist and capitalist principles occurred during this
transition period; however, some authors of the articles lacked a clear understanding and

189
He Wei, “Dui Minying jingji de kanfa he zhengce jianyi” (Different perspectives and policy recommendations
of the private economy), Gaige Neican (Internal Reference on Reform), vol. 22 (1993), pp. 17-19.

212
legal knowledge concerning property rights transfer, shareholding, or incorporation, and
often committed to a subjective interpretation or misunderstanding of Western academic
theories.
Finally, it should be indicated that subtle nuance or political sensitivity surrounding
some Chinese words or socialist slogans was often lost when these words were translated
into English. In many cases, finding equivalent English words that convey such nuance or
sensitivity was difficult. For example, “minying” and “siying” normally indicate the private
economy or private enterprises and were translated as such, but “minying” literally means
“non-governmental management” as opposed to siying’s “private management.” The
distinction of these two words became very important with the acceleration of the
incorporation of the private economy in the mid 1990s. To judge a separate use of these two
words required a consideration of the authors’ ideological positions, broader political and
ideological climates, and the changing status of the private economy. Part of the translation
for this research was assisted by native speakers of Chinese and English who have extensive
knowledge of Chinese politics.

213
Coding Sheet:

ID Date:
Title (English):
Author 1:
Author 2:
Author 3:
Author’s institutional affiliation (if available):
Year:
Issue:

Abbreviations: PR (property rights), pvt (private), SH (shareholding), gvnt (government), mrkt (market), SOE (state owned
enterprises), mgmt (management), SS (social security).

Issues (problems/solutions) (Coded 1 if mentioned or discussed; otherwise 0)

Liberal issues
More listing of state shares, more PR/share trading
More pvt capital investment, involvement
More support for pvt, SH firms
Capitalist/Western model adoption
A separation of government and enterprises, concerns over bureaucratic ctrl
More reform perception, knowledge
Anti-state monopoly
More competitive SOEs, industrial policies, large SOE reform
Anti-collective share, majority control, more labor mobility
More clarification of PR
Set up new PR
Other (liberal)

Conservative issues
Maintain public ownership as the principal system (gongyouzhi wei zhu)
No listing, trade or transfer of state/collective shares
More SOE protection, subsidy, guidance
Prevent state asset drain
Other (conservative)

Regulatory issues
Need for universal regulations for fair market competition
Insufficiency of existing regulations
What regulation (specify)?
Corporate governance, management rules
Party control of pvt firms
Stock market regulation, macro economy control
Legal protection (e.g., shareholders’ rights, private property)
State asset mgmt (e.g., holding company)
Local gvnt negligence, corruption
Local protectionism, a divided China market
Center-local gvnt relations
Illegal, criminal activities (e.g., black market)
Audit
Other (regulatory)

Welfare issues
More collective employee share, workers’ well-being and protection
Unemployment, social security
Other (welfare)

214
Ideological perception
(1=normal, 2=high)

Liberal
Legal rights consciousness
Support for capitalist mrkt principles
No gvnt ctrl, enterprise independence, individual responsibility
Pro-international view, support for international norms
Support for government’s regulatory role

Conservative
Fear of privatization, capitalism
Fear of state asset drain
Fear of mrkt disorder
Anti-foreign, anti-globalization view
Gvnt’s ctrl or guidance for development

Support for the private economy
(Yes=1, No=0, otherwise indicated)
More expansion of the pvt economy supported?
Percentage (approximately) of the pvt economy discussion: %
Tones used to describe the pvt economy: Describe in one word (e.g., supportive, suspicious) _______

Chinese terms referring to private enterprise/economy: _______________, ____________,
_____________

(For OSYS articles, Yes=1, No=0, otherwise indicated)
The private economy support scale (higher numbers represents higher support): 1, 2, 3, 4, 5
The discrimination of the pvt economy mentioned?
Suspicions over the pvt economy expressed?
The pvt economy blamed? (specify reasons) Reasons:
The “party build-up mission” mentioned?

Argument specification
(Describe the authors’ main arguments in a brief sentence. Maximum of 10 arguments)

Argument 1:
Argument 2:
Argument 3:
Argument 4:
Argument 5:
Argument 6:
Argument 7:
Argument 8:
Argument 9:
Argument 10:
Contradictory argument 1 (if any):
Contradictory argument 2 (if any):

215
Debate detection
Debate detected (yes/no)?

If yes, describe the issue:

Author’s view, position (describe):

Is the debate political/economic/ideological? (political, economic, ideological)
Is the debate over ownership issues? (yes=1)

Discussion style
Empirical or normative orientation? (E=empirical, N=normative, B=both, X=neither)
Mentioned local market conditions? (Specify localities)

Lip-service conservatism? (Yes=1, No=0)
Emphasis level of arguments (1-5, with 3=normal)
Neutral, descriptive reporting? (Yes=1, No=0)

International factor
Does the author refer to foreign or international situations (yes/no)?

If referred (Yes=1, No=0, otherwise indicated),
Good foreign model mentioned? (specify)
Bad foreign model mentioned? (specify)
The pursuit of a model distinctively Chinese, foreign model not applicable to China
Global view development observed?
The adoption of international norms recommended?
More opening of the domestic market recommended?
National confidence (low - normal - superior)

Fear of international financial crisis, global economic disorder
Security, hegemony concerns
Anti-foreign, anti-US, anti-West sentiment

Overall categorization
Overall: liberal or conservative? (Choose one: liberal / conservative / neutral)
Pro or anti-pvt economy?
Mentioned PR/SH reform issues? (For OSYS articles)

New term appeared (Chinese):__________, ____________, ____________

Quotation/citation (if any, specify sources):

Comments:

216
Note on System Reform Commission and Internal Reference on Reform:

The Economic System Reform Commission (Guojia jingji tizhi gaige weiyuanhui)
was established in 1982 as a bureau under the State Council. Its primary missions were to
organize research on market reforms, to provide information and policy recommendations to
the State Council and the Central Committee, and to facilitate reform discussions. Zhao
Ziyang, then Premier, served as a director and economists such as Gao Shangquan and An
Shiwen, served as vice directors of the Commission. After Zhao’s removal for the
Tiananmen uprising, the commission was taken over by Li Peng, who served as a director
from 1988 to 1990. Although a majority of the members of the System Reform Commission
were the advocates of Western economic principles, theories and methodologies, the
Commission did not enjoy complete autonomy from political and ideological climates.
During the 1990s, the Commission continued to take a reformist line and engaged in
research on political reform and the impact of reform on Chinese society, but avoided openly
challenging the government on the issues of government legitimacy or ideology.
190
After Li
Peng, Li Tieying served as a director until the termination of the Commission in 1998.
During the restructuring effort of bureaucracy under the State Council, the Commission was
renamed as the State Council Office for Restructuring the Economic System (SCORES,
Guowuyuan jingji tizhi gaige bangongshi), and transferred part of its authorities to the State
Council, the State Economic and Trade Commission and other bureaus. In 2003, the
SCORES merged with the State Development Planning Commission and the SETC, which
became the current National Development and Reform Commission (NDRC, Guojia fazhan
gaige weiyuanhui).
The journal used for the content analysis, Internal Reference on Reform, or Gaige
Neican, is an internally circulated journal read by policy elites (neibu). The first edition of
the journal was published in 1986. The journal was edited by the System Reform
Commission during the 1990s, and is currently supervised by the NDRC and sponsored by
China Society of Economic Reform (CSER, jingji tizhi gaige yanjiuhui). Renowned
reformists such as Wu Jianlian or Wen Tiejun have been in its editorial board. CSER’s
mission is, according to their website, to conduct bold research on economic reform, to
provide policy recommendations to government officials or large corporations, and to
promote reform discussions and international collaborations of research. CSER’s policy that
upholds “seeking truth from facts” (“Shishi qiushi”), scientific objectivity and liberal
thought, has been reflected in the journal. Its website states that the journal’s credibility and
importance have been recognized by past and present national leaders, such as Deng
Xiaoping, Hu Yaobang, Zhu Rongji and Wen Jiabao.

190
Keyser, Catherine. 2003. Professionalizing Research in Post-Mao China: The System Reform Institute and
Policy Making, M.E.Sharpe.

217
Appendix B:
Abbreviations

CASS Chinese Academy of Social Sciences
CCP Chinese Communist Party
CES Collective employee shares
CSER China Society of Economic Reform (Jingji tizhi gaige yanjiuhui)
CSRC China Securities Regulatory Commission
LPAR Legal person asset right (Faren quan)
NDRC National Development and Reform Commission (Guojia fazhan gaige
weiyuanhui)
NPC National People's Congress (NPC)
OSYS Ownership system (reforms)
PR Property rights (reforms)
RMB Remminbi (Chinese Yuan)
SCORES State Council Office for Restructuring the Economic System
(Guowuyuan jingji tizhi gaige bangongshi)
SETC State Economic and Trade Commission
SH Shareholding (reforms)
SHS Shareholding system
SME Socialist market economy
SOE State-owned enterprises
WTO World Trade Organization

218
Appendix C:
Key Events in the Jiang Zemin Era (1993-2002)

1993
Jiang Zemin becomes China’s president, replacing Yang Shangkun.

Three Gorges Dam project begins.

President Clinton visits China and meets Jiang Zemin.

1994
China connects to the Internet.

China abolishes the official Renminbi (RMB) exchange rate and fixes its first floating rate since 1949.

The Company Law promulgated.

President Clinton delinks human rights from the annual extension of MNF.

1995
Overheating of China’s economy with 17% inflation rate.

President Lee Teng-hui of Taiwan visits the US.

China tests missiles and holds military exercises in the Taiwan Strait during Taiwan’s presidential
elections.

1996
China acquires missile technology from two American companies: Hughes and Loral.

1997
Deng Xiaoping dies, aged 92.

China gets control over Hong Kong's sovereignty.

The Asian Financial Crisis begins in Thailand.

The 15th Party Congress held.

Jiang Zemin visits the US.

1998
Zhu Rongji succeeds Li Peng as premier, announces the acceleration of SOE reforms.

Large-scale flooding of the Yangtze, Songhua and Nenjiang rivers.

219

220
President Clinton visits China.

Slow-down of the Chinese economy, partly due to the Asian Financial Crisis.

1999
The Securities Law promulgated.

Zhu Rongji visits the US.

NATO bombs the Chinese embassy in Belgrade, Yugoslavia, souring of US-China relations.

The Cox Committee accuses China of using espionage to steal neutron-bomb technology.

The Falun Gong movement declared illegal in China and a threat to national security.

Fiftieth anniversary of People's Republic of China on 1st October.

Macao reverts to Chinese rule.

2000
Crackdown on official corruption intensifies, the execution a former deputy chairman of the NPC.

President Clinton sends Congress a bill that would usher China into the WTO.

2001
Beijing awarded the 2008 Olympic Games.

Falun Gong members stage mass demonstrations in Beijing.

Major diplomatic crisis after US spy plane collides with Chinese fighter jet.

Growing tension across the Taiwan Strait.

Jiang Zemin’s “7.1 Important Address,” at which “Three Represents” addressed.

China joins the WTO.

2002
President George W. Bush visits China on the 30th anniversary of President Nixon's visit.

The 16th Party Congress held, “Three Represents” becomes a guiding ideology of the CCP.

Hu Jintao replaces Jiang Zemin as a head of the Politburo Standing Committee of the CCP.

Abstract (if available)

Abstract This dissertation examines the role of ideology and its interaction with market principles in China's reform policy making process. Through the content analysis of internal publications, this research analyzes the policy debates over the treatment of the private economy (the ownership reform) and the property rights/shareholding reforms during the Jiang Zemin era from 1993 to 2002. The emphasis of the analysis lies on how the central policy makers adjusted socialist ideology according to the changing market conditions at local levels, such as the emergence and expansion of the private economy and private ownership. The 10 years of the reform debates reveal a painful process during which the Chinese state slowly -- and often reluctantly -- relinquished its control over economic affairs, leaving their management in the hands of private entities and market forces. After the chronological descriptions of the debate process of each reform issue area, the dissertation determines which of the two factors -- socialist ideology or market principles -- was more important in deciding the direction of these "privatization" debate processes. The two competing hypotheses—the ideology-driven and market condition-driven debates -- are tested with the content analysis data. This research also examines the top leaders' role in controlling the reform debate as well as the reform process itself using ideology as a political resource, and illuminates ideology's enduring importance, its changing core principles, and its function for the reform process and the maintenance of the political system. Through these examinations, this dissertation research attempts to understand some of the key mechanisms of China's political and economic system called "socialist market economy" or "socialism with Chinese characteristics."

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Asset Metadata

Creator Kato, Yayoi (author)

Core Title Reconciling socialism with the market: the "privatization" debates in China (1993-2002)

School College of Letters, Arts and Sciences

Degree Doctor of Philosophy

Degree Program Political Science

Publication Date 12/06/2008

Defense Date 09/12/2008

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Chinese politics,market transition,OAI-PMH Harvest,private economy,private enterprises,privatization,property rights reform,reform debate,socialism with Chinese characteristic,socialist market economy

Place Name China (countries)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Rosen, Stanley (committee chair), Crigler, Ann N. (committee member), Lynch, Daniel C. (committee member)

Creator Email k_yayoi@yahoo.com,kato@usc.edu

Permanent Link (DOI) https://doi.org/10.25549/usctheses-m1882

Unique identifier UC1428824

Identifier etd-Kato-2483 (filename),usctheses-m40 (legacy collection record id),usctheses-c127-134121 (legacy record id),usctheses-m1882 (legacy record id)

Legacy Identifier etd-Kato-2483.pdf

Dmrecord 134121

Document Type Dissertation

Rights Kato, Yayoi

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Repository Name Libraries, University of Southern California

Repository Location Los Angeles, California

Repository Email cisadmin@lib.usc.edu