Banks vs. budgets: Credit allocation in the People's Republic of China, 1984-1997

The analysis of fiscal systems has provided political scientists with a rich empirical base from which to draw conclusions about political outcomes. The need of the ruler for revenue has been used to explain the emergence of parliamentary democracy, to show the evolution of property rights, to assess in more general terms the “capacities” of the state as well as to examine relative power distributions in multi-tiered national or regional settings. I argue that state access to alternative sources of capital, such as through the domestic banking system, leads to different conclusions about political outcomes. More specifically, issues of state capacity, as they impact “state-society relations” and the relationship between central and local governments are distinctly different when analyzed in the context of domestic banking rather than taxation.; In China, a state-controlled banking system channels far more resources into the economy than are (re)distributed via the state budget. Since the late 1980's the ratio of capital mobilized by financial institutions versus the state budget is approximately 4:1. Consequently I argue that what matters in assessing the relative power of governments at different administrative levels is not so much who controls the tax collector but who controls the bank official.; The dissertation analyzes the ways in which governments exercise control over the domestic banking system. In China's transition economy they rely in part on levers that are remnants of the planned economy and in part on new policy instruments available to policymakers in market economies. Following a review of the legacies of banking in the planned economy, I discuss the ability of the state to influence the operations of the banking system with regard to ownership and licensing of financial institutions, central bank re-lending and monitoring of bank behavior.; Contrary to current explanations, I argue that control over the domestic banking system, not exclusively budgetary revenue, determines a state's ability to structure the allocation of economic resources. This is relevant to understanding the politics of economic transitions and financial deepening in a variety of other national settings.