The transforming party state and uneven overheating in China during the global crisis

Abstract

In this paper, we scrutinize the systemic consequences of state intervention triggered by external shocks in the transforming Chinese economy. Our analysis focuses on the period before and after the global crisis. We regard the analysis of investment dynamics in China as a new opportunity to empirically test the applicability of the system paradigm defined in Csanádi’s Interactive Party-State (IPS) model been developed since the 1970s. It describes the power network produced by the institutionalized entanglement of political and economic decisions in communist systems, its individual components, overall structure, the connecting and operating principles and the structural background of the network’s different dynamics of operation and transformation.

First, we point out that overinvestment is an outcome of the party-state power consisting of relations of dependency and interest promotion between party, state and economic decision-makers and the emerging structural motivations within the network. The investments fluctuation is the network’s internal mechanism to reproduce itself. Second, the model also explains that both the units and the connecting and operating principles of the power network are fractal-like, that is, they are self-similar in space, time and at various levels of aggregation. In consequence, overinvestment occurs at different locations, in different time periods, and at different scales. Both features are general characteristics of communist systems, and thus, of the Chinese party-state.

Besides theoretically deriving both theses from the above model, we also prove them statistically. As we underline, the frequency of investment swings is a function of the power distribution’s specificities presented by the party-state network. Overinvestment temporarily increases during external shocks and adapts to the differences of power distribution manifesting in the structure of the network. We present empirically that in the decentralized power network of the Chinese party-state overinvestment by local governments is more intensive than at the national level. We also reveal that the party-state network’s adaptation to external shocks intensifies the system-characteristic behavior of the actors and thereby the level of economic overheating. The intensity of economic overheating is uneven in space and corresponds to the regional and ownership type priorities of state intervention. It is the strongest in regions and enterprise ownership types preferred by state intervention. We prove statistically that these features of the Chinese party-state system prevail during economic transformation, and that they also get more intensified during external shocks, for market actors adapt to priorities of resource allocation within the network. We also scrutinize the transformation of the party-state network, that is, its retreat (contraction), both in absolute (compared to previous dates) and relative terms (compared to the sphere outside the network). Here we point out that temporary fluctuations of economic overheating interrelate with the temporary expansions and contractions of the network. We also reveal that the swings of investment, both ups, and downs, hide various patterns of behavior for different enterprise ownership types.