INFORMAL POLITICAL COALITIONS AND PRIVATE INVESTMENT IN CHINA

Abstract

AbstractThis article attempts to estimate the effects of informal political coalitions on China's private investment. Theoretically, the party-state clients of China's supreme leaders are expected to have stronger incentives to foster economic growth. One way of doing so is to encourage private investment by reducing its political risks. Analysis of provincial-level panel data from 1993 to 2017 shows that personal connections—based on shared experience in the same work unit—between provincial leaders and the Chinese Communist Party's incumbent supreme leader significantly increase the growth rate of private investment. This suggests that informal institutional relations may assist the development of China's private economy by partially compensating for the weaknesses of formal rule-of-law institutions.