Preface

When mentioning rent seeking, conventional wisdom believes that rent seeking is nothing but a pathological phenomenon because rent seeking constitutes a type of unproductive activity which results in social loss and is thus growth-retarding. Recent study, however, shows a different story. It is said that rents are ubiquitous and of different types; rents are able to be created and allocated in many ways; rent seeking has complicated and profound implications to economic growth.

Rather than conventional rent-seeking approach from methodological individualism, this book applies a much more far-reaching approach from an institutional perspective. Following the approach advanced by Boyd and Ngo among many others, this book puts forward an analytical model of rent-utilization and identifies it into three phases, i.e. rent creation, rent allocation and rent-seeking, extending the application of classical rent-seeking approach towards Chinas auto industry in a plan-based economic system.

The central purpose of this book is to discuss the rent utilization in Chinas auto industry, to explain how it shapes, if not totally, at least partly, the development of the auto industry, focusing on the types of rents, and on the actors, both individual and institutional, and on the related outcomes, both the economic and political, and on the influential factors, both formally and informally institutional, in the different development stages.

Chinas auto industry has experienced over 60-year development since the early 1950s, which is roughly divided into two halves in this book. The first half (the mid-1950s through 1978) in the centrally planned economy is termed as Before Reformstage, and the second half (1979 through the mid-2000s) in the transitional economy asAfter Reformstage.

The study in this book showed some findings conflicting with existing conclusions. The mainstream literature denies that the existence of rent-seeking activities, even the existence of rents, in the centrally planned economy, but this study found that institutional rent created by central government through price control was the main sources of rent before Reform, and this type of rent endogenously originated from the planned economic system per se and lasted for a long time.

Rent-seeking activities appeared along the whole development process of Chinas auto industry, whether before or after the Reform. Rent-seeking by local governments was a common phenomenon in both stages. The sharp difference between before Reform and after Reform was that the enterprises, especially the State-Owned Enterprises (SOEs) that gained some autonomy from the governments became another main actor of rent-seeking with many means. Besides, non-state owned enterprises, such as foreign enterprises and private enterprises also began to enter the rent-seeking game after Reform.

Rent-seeking per se in Chinas auto industry could be identified as a means of destroying the monopoly of the state. In the plan-based economy, the state taking the central government as its first-level agent was the unique legitimate owner of all the rents. The central government attempted to strengthen its authority by re-centralization but failed every time. Although the ostensible target of rent-seeking by local governments and enterprises was the rents of all types created by the state, what they really attempted to change was the institutional arrangements inside the multilayered and fragmented structure of rent allocation. In other words, centrally tight control was impossible without the change of that existed multilayered and fragmented structure. Therefore, the widespread rent-seeking activities by local governments conspired with enterprises could be considered as one of the critical factors that push the market-oriented reform to come true.

In the plan-based economy, the state was an elaborate but imperfect device of rent utilization. The central government created substantial rents to develop the auto industry as one of pillar industries. It established corresponding institutional arrangements in order to attain the goal of this industrial policy. As the monopolistic owner of these rents, it allocated them to local governments with multi-levels of hierarchies and to some SOEs. In the process, substantial autonomy with oversight authority was transferred to local governments.The M-form hierarchical structure, formal decentralizations, information asymmetry and geographical remoteness caused the relationship between central and local governments to form multiple principal-agent situations. Thus, a structure of rent utilization for the auto industry was fragmented in the central government agencies and multi-layered among the central-local governments from the day of its birth. The administrative decentralization that transferred authority from the central to local governments before and after Reform strengthened this multi-layered nature while the economic decentralization that transferred authority from governments to enterprises and families made the whole structure more fragmented and divided, and finally the resultant force of them ended it in the early 2000s.

In other words, the rent utilization was embedded in the regulatory framework which governs industrial and economic developments at the national level as well as the local level. To a great extent, rent utilization in China was institutionalized as the constitutive part of economic governance through intimately connecting to the political system.

Rent-seeking in plan-based economies has been out of research focus area for a long time. The model of rent-utilization in this book does not reject or deny the wisdom of classical rent-seeking theory. Rather, this model complements and supports it.

This book is a revised and updated version of my doctoral dissertation Rent Utilization in a Plan-based Economy: Extension of Rent-seeking Theory towards Chinas Auto Industry. I would like to express my sincere gratitude to the following people among many others who supported me during the writing of my doctoral dissertation and the publication of this book.

To my supervisor, Professor Kim Haengbum, for his friendly encouragement, his academic rigor and his patient guidance in supervisions, for his tolerance in personality, and his fatherly selfless help in my everyday life. Honestly, my doctoral dissertation could not have been completed and this book could not have been published without Professor Kims assistance and guidance.

To the Committee Members for my doctoral dissertation, Professor Kang Yunho, Professor Park Minjeong, Profesor Kim Insin, especially the Chair, Professor Hahn Inkeun, who read the text for several times and gave me specific advice, for their constructive suggestions.

To the two anonymous referees and Professor Lee Seong-gyu for their professional suggestions on the early version of my doctoral dissertation.

To Professor Kang, Professor Park, and Assistant Lee, and all the other professors in Public Administration Department of Pusan National University, for their sincerely help.

To my colleagues both at International College of University of Suwon and School of Political Science and Law College of Pingdingshan University for their friendly help.

To Ms. Yang Xiaohong, the Deputy Director, and Ms. Lantao, the Copyeditor both from Intellectual Property Publishing House Co., Ltd. for their patient help and professional service. If there are any errors, they are not theirs, but all mine.

Finally I would like to thank all my family for their love and support. Thank my dear wife, Zhang Shu, who has been and will always go to the end of the world together with me, for her sincere trust, her affectionate companionship, her pure love and her sacrifice for our family. Thank my lovely daughter, Gao Shalang(Sharon), for the supreme surprise and joy she has brought to me. Sharon is an angel and a mascot, whom God sent to me in the middle of my second and third round dissertation defense to let me accomplish mymission A doctoral candidate has to pass at least three round dissertation defenses before earning a Ph.D. in Pusan National University. Her lovely face, and even her occasional cry brought me great pleasure to my nervons writing life.

I would like to express my heartfelt thanks to my Parents-in-law, Zhang Fang and Shu Yulan, for their tolerance and confidence in me, for their painstaking care for all of us.

I owe a real debt to my parents, Gao Zhenyun and Zhang Guifang, who now live in the heaven without pain and worry, for their endless love and selfless support. Without them, I could not have come so far in my life. I owed them so much that I could not pay them back forever. I hope that I could meet them again and be reborn as their son in the heaven. I dedicate this book to my parents.

Gao Jianyi

March 4th, 2019