Abstract
Are the local state–business relationships collusive or collaborative? Using the method of agreement to study several regions, this chapter argues that the under-institutionalized taxation institution plays an important role in making the local state–business relationships more collusive than collaborative in China. The taxation administration is under-institutionalized; it imposes high nominal tax rates, gives tax officers broad discretional power, and uses a target system. This lack of a-rule-by-law tax administration deprives the local government of autonomy and weakens private enterprises’ bargaining power, which results in the collusive nature of local state–business relationships. By analyzing the effects of taxation politics, this chapter contributes to the literature on state business and on taxation politics in China, as well as contributes to the theory of general state–business relationships.
This is a preview of subscription content, log in via an institution to check access.
Notes
- 1.
Xinhua News Agency, “Xi Jinping: The government office should keep distance from the business and have a clear boundary between public and private,” http://www.china.com.cn/news/2013lianghui/2013-03/09/content_28181490_4.htm, accessed on September 1, 2015.
- 2.
See Kennedy (2005) for a good example.
- 3.
See Kang (2002) for a good example.
- 4.
As this chapter will discuss in detail, the network/connectedness can be collusive or collaborative, and associational governance represents collaborative network through collective action.
- 5.
There are many literatures on this topic; for a classic explanation, see Evans (1979). For comparative studies of state–business relationships in developed countries, borrowing some concepts from the historical institutionalism generated the varieties of capitalism debate in the last decade; see Hall and Soskice (2001).
- 6.
Given the method diversity, some scholars do not use institutional argument. Network or Guanxi is used to analyze economic development under a society that lacks rule of law. For example, see Walder (1996).
- 7.
Intermediate state has limited degree of autonomy and connectedness (Evans 1995).
- 8.
For China’s failure to build a regulatory state, see Pearson (2005).
- 9.
Maxfield and Schneider (1997) put state characteristics and collective business action as two conditions for collaborative state–business relationships . Evans argues the latter is partially influenced by the former. Also collective business actions are shaped by the structural factors. See Evans (1995, 1997). Also see Kohli (2004).
- 10.
- 11.
Schumpeter called for treating tax policy as both a symptom and a cause of large-scale changes in the economy and society. But most scholars “with rare exception” heeded only on the symptom. See Martin et al. (2009: 2). This chapter takes taxation as the causes.
- 12.
Coercive taxation “appears to be associated with the following combination of factors: (a) poor agrarian environments; (b) revenue raising for local governments ; (c) the existence on paper of a wide variety of potential taxes charges; and (d) the lack of any effective regulation of the process by higher levels of government” (Moore 2008) .
- 13.
Taxation is a sensitive topic, for both government officials and private entrepreneurs , which meant that valid information and reliable access required a good deal of patience and persistence.
- 14.
Some media reports actually provide more thorough reports, with broader coverage and deeper investigation, than an academic can conduct, given time, fiscal, and access constraints and training. In recent years, as public budget and taxation reform become a more important public topic, there has been a corresponding increase in the number of in-depth reports on this issue in media in China.
- 15.
The literature provides only very limited introductions and analysis of China taxation system, especially its practice, in the Chinese or English language. OECD (2013) has a chapter on China’s taxation system, which describes some of its important characteristics. This chapter enriches important details as well as finds some new practical aspects of the taxation system.
- 16.
Only three types of tax (out of 18) were approved by the NPC and its standing committee. See “No Time-table for Getting Taxation Legislation Power back to NPC,” http://news.xinhuanet.com/politics/2013-03/10/c_114969944.htm?prolongation=1
- 17.
Tax policy-making was a highly politicized issue in the 1950s, and at the early stage of the “anti-right” movement, Mao Zedong described the strife as a symbol of “class struggle within the Party.”
- 18.
Author’s Interview, June 13, 2010, Hunan. Interviewees were promised anonymity.
- 19.
Before the 1994 Tax Share Reform , the Tax Administration Bureaus, under the direct leadership of local government , at the corresponding level, were in charge of collecting most taxes in their jurisdiction.
- 20.
The province government manages the province-level LTB directors and organization.
- 21.
Author’s interview, July 13, 2010, Hunan.
- 22.
My informants told me that the LTB and SAT offices are the “best” government bureaus to work for, as they provide high salaries and good benefits (including housing, kids’ education, bonus for holidays). A 2007 report by the National Audit Office, which included an audit of the costs of taxation for 236 tax bureaus, across 18 provinces, also pointed to excessive spending. See Liu, Jiayi, “Audit report on the central government budget implementation and other fiscal income and expenditure of year 2007,” report on the NPC standing committee, August 27, 2008.
- 23.
Skocpol defines state autonomy by two characteristics: independent from social forces and inner coherence; see Skocpol 1985. Besides the reasons relating to embedding I discuss here, grassroots tax officials have very limited chances of promotion, which typically does not depend on merit or performance.
- 24.
If they do keep records, they keep it for their own reference and have a fake one for the tax officer ; tax officers know this and the enterprises know that the tax officers know it.
- 25.
Assessing through estimation applies to the small enterprises that lack accounting systems or for which it is difficult to calculate the profit and costs. Thus, there are no reliable records to assess tax liability.
- 26.
Assessing through auditing is a more advanced method, but it can only be applied to the large- and medium-sized enterprises that have good accounting systems. Different types of taxes, that is, the VAT, enterprise income tax, individual income tax, business tax, are collected based on accounting information.
- 27.
The growth rate of national tax revenue has been much higher than the economy in recent years.
- 28.
Rong (1998).
- 29.
Tian and Zhao (2008) provide many details as to local governments ’ tax pressure and their crazy coping strategies, including tax purchasing.
- 30.
Author’s interviews: July 13, 2010, Hunan; June 13, 2010, Shanxi; February 21, 2013, Zhejiang.
- 31.
For the importance of tax revenue growth for local government , see Landry and Lu (2014).
- 32.
See Whiting (2001) for how the local government intentionally set low tax rates to encourage development of private enterprises in Wenzhou municipal of south Zhejiang province .
- 33.
“The tax audit storm in Wenzhou, where the private enterprises were originated the earliest, may lead to another wave of enterprise moving out,” Jingji Guancha (The Economic Observation), September 11, 2009.
- 34.
Author’s interview B, April 23, Zhejiang; June 22, 2010, Shanxi; June 23, 2010, Shanxi.
- 35.
See a report in Huaxia Times (Huaxia Shibao), “Local Non-tax Revenue Increases Significantly against the Economy Decline, Chaos Fees Reappear” (defang feishui shouru nishi gao zengzhang, luanshoufei chongxin taitou), http://finance.qq.com/a/20121027/001582.htm, accessed October 28, 2012. Another way to meet the target is through fees and fines.
- 36.
Author’s interview A, June, 11, 2010, Shanxi; June 20, Shanxi.
- 37.
Author’s interview A, June 11, Shanxi.
- 38.
Author’s interview, June 13, 2010, Hunan.
- 39.
As discussed above, Haggard et al. (1997) describe two competing state–business relationships : business as association or network.
- 40.
The original statute specified the amount incurring the strongest punishments to be RMB 0.1 million Yuan; in 2008 it was revised and no specific amount was listed in the revised tax law.
- 41.
Since there are no statistics for how many deputies are private entrepreneurs in LPCs , it is hard to decipher accurate numbers and percentages. In the LPCs , private entrepreneurs have no specific category and are categorized into other “social groups,” like workers, peasants, intellectuals, and cadres . The LPPCC has a category called economical group (Jingji jie), but there are still many private entrepreneurs who get their position in other groups (like technology, cadre, etc.).
- 42.
Author’s interview, April 27, 2010, Zhejiang.
- 43.
Author’s interview, March 11, 2011, Zhejiang
- 44.
Author’s interview, March, 18, 2010, Zhejiang.
- 45.
Author’s interview, July 14, 2010, Shanxi .
- 46.
In March 2011, hundreds of people gathered in front of the county government buildings and demanded that the government halt the implementation of a new taxation policy, designed to collect taxes from the factories and family workshops producing handcrafts.
- 47.
The Zhili anti-tax riot evolved into a violent conflict and got extensive media attention; it ended with stopping the implementation of tax policy. For English media reports, a good example is “Chinese Town Cancels Tax That Sparked Riots”, Wall Street Journal, http://online.wsj.com/article/SB10001424052970204505304577003503223216724.html, accessed December 3, 2011.
- 48.
Author’s interview, August 27, 2011, Zhejiang.
- 49.
Hard but not impossible to achieve, there are many successful as well as failed cases of state–business collaborations.
- 50.
The National Office of Audit Report, 2008.
- 51.
Another feature of the current tax system that empowers the state against the capitalists is that tax revenue only provides part local government’s total fiscal revenue. Besides various types of fees and fines, another big share is land transfer fees which comprise one-third to one-half of local government revenue . For a discussion of the evolution of the extra-budgetary fund and land transfer fees as a major source of local government , see Whiting (2011).
- 52.
While catching many important aspects of the local state–business relationships , Ong neglects other important facts. For example, many local governments monopolize the supply of land (an important input) and still have good access to bank system through the financing platform (Rongzi Pingtai), and, therefore, the local governments still have enough resources to keep autonomy or leading power of regional economic development (jingji fazhan zhudaoquan), as Cao and Shi (2009) find.
References
Acemoglu, D., Johnson, S., & Robinson, J. (2002). Reversal of fortune: Geography and institutions in the making of the modern world income distribution. Quarterly Journal of Economics, 117(4), 1231–1294.
Alpermann, B. (2006). ‘Wrapped up in cotton wool’: Political integration of private entrepreneurs in rural China. The China Journal, 56, 33–61.
Amsden, A. H. (1989). Asia’s next giant: South Korea and late industrialization. New York: Oxford University Press.
Bellin, E. R. (2000). Contingent democrats: Industrialists, labor, and democratization in late-developing countries. World Politics, 52(2), 175–205.
Bernstein, T. P., & Lü, X. (2003). Taxation without representation in contemporary rural China. Cambridge/New York: Cambridge University Press.
Besley, T. J., & Persson, T. (2009). The origins of state capacity: Property rights, taxation, and politics. American Economic Review, 99(4), 1218–1244.
Besley, T., & Persson, T. (2011). Pillars of prosperity: The political economics of development clusters. Princeton: Princeton University Press.
Blecher, M., & Shue, V. (1996). Tethered deer: Government and economy in a Chinese county. Stanford: Stanford University Press.
Brautigam, D., Fjeldstad, O., & Moore, M. (Eds.). (2008). Taxation and state-building in developing countries: Capacity and consent. Cambridge/New York: Cambridge University Press.
Brys, B. et al. (2013). Tax policy and tax reform in the People’s Republic of China (OECD taxation working papers, no. 18). Paris: OECD Publishing.
Campbell, J. (1993). The state and fiscal sociology. Annual Review of Sociology, 19, 163–185.
Cao, Z., & Shi, J. (2009). Seizing the initiative in economic growth: A theoretical hypothesis and case study of the Chinese local governments strategies responding to the reformation of market economy (in Chinese). Shehuexue Yanjiu (Chinese Sociology Review), 4, 1–27.
Chen, A. (2002). Capitalist development, entrepreneurial class, and democratization in China. Political Science Quarterly, 117(3), 401–422.
Chen, L. (2014). Varieties of global capital and the paradox of local upgrading in China. Politics & Society, 42(2), 223–252.
Chen, J., & Dickson, B. (2008). Allies of the state: Democratic support and regime support among China’s private entrepreneurs. The China Quarterly, 196, 780–804.
Dickson, B. (2008). Wealth into power: The Communist Party’s embrace of China’s private sector. Cambridge/New York: Cambridge University Press.
Duara, P. (1988). Culture, power, and the state: Rural North China, 1900–1942. Stanford: Stanford University Press.
Duckett, J. (1998). The entrepreneurial state in China: Real estate and commerce departments in reform-era Tianjin. London/New York: Routledge.
Edin, M. (2003). State capacity and local agent control in China: CCP cadre management from a township perspective. The China Quarterly, 173, 35–52.
Ertman, T. (1997). Birth of the leviathan: Building states and regimes in medieval and early modern Europe. Cambridge/New York: Cambridge University Press.
Evans, P. (1979). Dependent development: The alliance of multinational, state, and local capital in Brazil. Princeton: Princeton University Press.
Evans, P. (1995). Embedded autonomy: States and industrial transformation. Princeton: Princeton University Press.
Evans, P. (1997). State structures, government-business relations and economic transformation. In S. Maxfield & B. Schneider (Eds.), Business and the state in developing countries. Ithaca: Cornell University Press.
Gehlbach, S. (2008). Representation through taxation: Revenue, politics, and development in postcommunist states. Cambridge/New York: Cambridge University Press.
Gerschenkron, A. (1962). Economic backwardness in historical perspective, a book of essays. Cambridge: Belknap Press of Harvard University Press.
Haggard, S., Maxfield, S., & Schineider, B. R. (1997). Theories of business and business-state relations. In S. Maxfiel & B. R. Schneider (Eds.), Business and the state in developing countries. Ithaca: Cornell University Press.
Hall, P., & Soskice, D. (2001). Varieties of capitalism : The institutional foundations of comparative advantage. New York: Oxford University Press.
Hamilton, G. G. (Ed.). (1996). Asian business networks. Berlin: Walter de Gruyter.
Huang, Y. (1996). Inflation and investment controls in China : The political economy of central-local relations during the reform era. Cambridge/New York: Cambridge University Press.
Johnson, C. (1982). MITI and the Japanese miracle: The growth of industrial policy, 1925–1975. Stanford: Stanford University Press.
Kang, D. C. (2002). Crony capitalism: Corruption and development in South Korea and the Philippines, Cambridge studies in comparative politics. Cambridge/New York: Cambridge University Press.
Kennedy, S. (2005). The business of lobbying in China. Cambridge: Harvard University Press.
Kohli, A. (2004). State-directed development: Political power and industrialization in the global periphery. Cambridge/New York: Cambridge University Press.
Landry, P. F. (2008). Decentralized authoritarianism in China: The Communist Party’s control of local elites in the post-Mao era. Cambridge/New York: Cambridge University Press.
Lee, C. K., & Zhang, H. (2013). The power of instability: Unraveling the microfoundations of bargained authoritarianism in China. American Journal of Sociology, 118(6), 1475–1508.
Levi, M. (1988). Of rule and revenue. Berkeley: University of California Press.
Liberthal, K. (1992). Fragmented authority (chapter 2). In K. Lieberthal & D. Lampton (Eds.), Bureaucracy, politics, and decision making in post-Mao China. Berkeley: University of California Press.
Lo, M., & Otis, E. (2003). Guanxi civility: Processes, potentials, and contingencies. Politics & Society, 31(1), 131–162.
LÜ, X., & Landry, P. (2014). Show me the money: Interjurisdiction political competition and fiscal extraction in China. American Political Science Review, 108(3), 706–722.
Mann, M. (1993). The sources of social power (Vol. 2). Cambridge/New York: Cambridge University Press.
Martin, I. W., Mehrotra, A. K., & Prasad, M. (2009). The new fiscal sociology: Taxation in comparative and historical perspective. Cambridge/New York: Cambridge University Press.
Maxfield, S., & Schneider, B. (1997). Business and the state in developing countries. Ithaca: Cornell University Press.
McNally, C. A. (2012). Sino capitalism: China’s reemergence and the international political economy. World Politics, 64(4), 741–776.
Migdal, J. S. (2009). Researching the state. In M. I. Lichbach & A. S. Zuckerman (Eds.), Comparative politics: Rationality, culture, and structure (2nd ed.). Cambridge/New York: Cambridge University Press.
Montinola, G., Qian, Y., & Weingast, B. (1996). Federalism, Chinese style: The political basis for economic success. World Politics, 48(1), 50–81.
Moore, M. (2008). Between coercion and contract. In D. Brautigam, O.-H. Fjeldstad, & M. Moore (Eds.), Taxation and state-building in developing countries: Capacity and consent. Cambridge/New York: Cambridge University Press.
North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge/New York: Cambridge University Press.
North, D. C., & Thomas, R. P. (1974). The rise of the western world: A new economic history. Cambridge: Cambridge University Press.
Oi, J. C. (1992). Fiscal reform and the economic foundations of local state corporatism in China. World Politics, 45(1), 99–126.
Oi, J. C. (1999). Rural China takes off: Institutional foundations of economic reform. Berkeley: University of California Press.
Ong, L. H. (2012). Between developmental and Clientelist states: Local state-business relationships in China. Comparative Politics, 44(2), 191–209.
Pearson, M. (2005). The business of governing business in China: Institutions and norms of the emerging regulatory state. World Politics, 57(2), 296–322.
Rong, J. (Ed.). (1998). From the pressure-based system to democratic cooperative system: Political reform at the county and township level (in Chinese). Beijing: Zhongyang Bianyi Press.
Ross, M. (2004). Does taxation lead to representation? British Journal of Political Science, 34(2), 229–249.
Schumpeter, J. A. (1991 [1919]). The crisis of the tax state. In J. A. Schumpeter & R. Swedberg (Eds.), The economics and sociology of capitalism. Princeton: Princeton University Press.
Shih, V., Adolph, C., & Liu, M. (2012). Getting ahead in the Communist Party: Explaining the advancement of central committee members in China. American Political Science Review, 106(1), 166–187.
Skocpol, T. (1985). Bringing the state back in: Strategies of analysis in current research. In P. Evans, D. Rueschemeyer, & T. Skocpol (Eds.), Bringing the state back in. Cambridge/New York: Cambridge University Press.
Steinmo, S. (1993). Taxation and democracy: Swedish, British, and American approaches to financing the modern state. New Haven: Yale University Press.
Sun, X., Zhu, J., & Wu, Y. (2014). Organizational clientelism: An analysis of private entrepreneurs in Chinese local legislatures. Journal of East Asian Studies, 14(1), 1–29.
Tian, Y., & Zhao, X. (2008). Taxiang zhi Shui: Yige Xiangzhen de Sanshinian, yige Guojia de ‘Yinmi’ Caizhengshi (in Chinese). Beijing: Zhongxin Chubanshe.
Tilly, C. (1990). Coercion, capital, and European states, ad 990–1990. Cambridge, MA: Blackwell.
Timmons, J. (2005). The fiscal contract: States, taxes and public services. World Politics, 15(4), 530–567.
Wade, R. (1990). Governing the market: Economic theory and the role of government in east Asian industrialization. Princeton: Princeton University Press.
Walder, A. (1996). Introduction. In A. Walder (Ed.), China’s transitional economy (pp. 1–17). Oxford: Oxford University Pres.
Wank, D. L. (1999). Commodifying communism: Business, trust, and politics in a Chinese city. Cambridge/New York: Cambridge University Press.
Waterbury, J. (1997). Fortuitous by-products. Comparative Politics, 29(3), 383–402.
White, G., & Gray, J. (1988). Developmental states in East Asia. New York: St. Martin’s Press.
Whiting, S. H. (2001). Power and wealth in rural China: The political economy of institutional change. New York: Cambridge University Press.
Whiting, S. H. (2004). The cadre evaluation system at the grassroots: The paradox of party rule. In B. Naughton & D. Yang (Eds.), Holding China together. New York: Cambridge University Press.
Whiting, S. (2011). Values in land: Fiscal pressures, land disputes, and justice claims in rural and Peri-urban China. Urban Studies, 48(3), 569–587.
Wong, C. (2009). Rebuilding government for the 21st century: Can China incrementally reform the public sector? The China Quarterly, 200, 929–952.
Woo, M. (1991). Race to the swift: State and finance in Korean industrialization. New York: Columbia University Press.
Yu, H. (2007). From Zhuanguanyuan to Shuiguanyuan: The evolution of China’s tax administration (in Chinese). China Taxation (zhongguo shuiwu), 4, 15–16.
Zhang, C. (2017). A fiscal sociological theory of authoritarian resilience: Developing theory through China case studies. Sociological Theory, 35(1), 39–63.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2018 The Author(s)
About this chapter
Cite this chapter
Zhang, C. (2018). Trapped into Collusion: The Under-Institutionalized Taxation System and Local Business–State Relations in China. In: Zhang, X., Zhu, T. (eds) Business, Government and Economic Institutions in China. International Political Economy Series. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-64486-8_5
Download citation
DOI: https://doi.org/10.1007/978-3-319-64486-8_5
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-64485-1
Online ISBN: 978-3-319-64486-8
eBook Packages: Political Science and International StudiesPolitical Science and International Studies (R0)