In an interview on the Chinese Economy

What about Susan Shirk’s The Political Logic of Economic Reform in China? This came out in 1993 but I gather it’s still relevant.

It remains a classic work on contemporary political economy. It’s amazing to me that, almost two decades after the book’s publication, you still have policymakers with naive notions that the Chinese leadership is unified and wants what’s best for China. That’s certainly not true in the United States so why should it be true in China?

Susan Shirk’s pioneering book focuses on the role of interest-group politics in economic decision-making. Even though Deng wanted to implement reforms, he couldn’t accomplish them by command due to powerful interest-group resistance. He had to circumvent these interests by forming alliances with the coastal provinces, where the relative size of the state sector was smaller. The book really brings to life the political dynamic at the very highest level that allowed Deng to carry out these reforms.

One thing lacking in Yasheng’s book is a political explanation as to why there was so much private entrepreneurialism in the 80s followed by a high concentration of state assets in the 90s and beyond. You can infer what happened by reading Shirk’s book. To pass reforms, Deng had to make deals. The largest central SOEs were told: ‘If you forego the planned economy and control over your smaller subsidiaries, we will give you financial resources so you still have a soft-budget constraint.’ These trade-offs in the late 80s and early 90s continue to cast a long shadow over China’s economic evolution today. It’s a very important book.