Controlling Corporate Power in China: Case Studies of Seed Companies and Water Distribution

• Published date: 01 March 2018
• Author: Huili He,Guanqi Li,Lanying Zhang
• DOI: http://doi.org/10.1111/ajes.12210
• Date: 01 March 2018

Controlling Corporate Power in China:

Case Studies of Seed Companies

and Water Distribution

By LANYING ZHANG,* GUANQI LI,† and HUILI HE‡

ABSTRACT. In the course of China’s economic transition, the

government set up a policy goal to gradually withdraw from the market,

while, at the same time, increasing the intensity of anti-corruption

actions. This article reviews the development of Chinese modern

corporations and corresponding policy chang es. The development and

expansion of modern corporations as a result of reforms that occurred

after 1978 reveals the government’s decision not t o fully withdraw from

the market. When private companies are allowed to pursue maximum

profits, especially in areas of public resources and services, society and

the environment suffer severe negative consequences. Case studies of

corporate control of seed companies and water utilities demonstrate in

detail the damage caused by privatization. In order to protect the

interests of society from corruption, government must concentrate

on reducing the rent-seeking behavior of corporations and

collusion between businesses and government officials. The Chinese

government’s fight against corruption in recent years has been based on

its market involvement, as well as on its determination to con fine the

power of corporations, which is a tough game.

Introduction

Private corporations are powerful institutions that are designed to be nefit

their stockholders, not consumers or the public. The profit-maximizing

purpose of corporations automatically puts their interests in potential

*Associate Professor at the Institute of Rural Reconstruction at Southwest University,

Chongqing, China.

†Research Coordinator, Liangshuming Rural Reconstruction Center.

‡Corresponding author: Professor, College of Humanities and Development Studies,

China Agriculture University.

American Journal of Economics and Sociology, Vol. 77, No. 2 (March, 2018).

DOI: 10.1111/ajes.12210

V

C2018 American Journal of Economics and Sociology, Inc.

conflict with government policy, which is supposed to serve the entire

population. Nevertheless, corporations can be powerful engines of eco-

nomic development, so governments allow them to operate.

Those conflicting forces are at work, even in China, where the gov-

ernment has adapted its Marxist ideology to allow certain features of

private markets to function. As a result of reforms in China,modern cor-

porations have developed in China. After 1978, government continued

to maintain some involvement in key sectors of the economy, but

decade by decade, the government has withdrawn from the market.

The initial purpose of government involvement was to control rent

seeking by private companies and to prevent collusion between

business and government, both of which may be considered forms of

corruption that have a negative impact on society, the natural environ-

ment, and government.

To examine how this process occurred over the past several decades,

we shall consider two case studies: seed companies and water compa-

nies. Corporations involved in the saleof seeds and water are distinctive

because their product comes from nature. They do not have to make

their products inthe same way that a company making clothing or elec-

tronics does. As a result, companies that sell products from nature are

particularly prone to forms of corruption because they devote their

attention to political influence rather than product development.

Before we examine these two specific types of companies, we first

review the macro-historical development of China’s policy toward cor-

porations in general. This will provide some insight into the concerns

of the Chinese government and policy tools available to it to control

corruption.

Recent Government Efforts to Control Corruption

At the 2015 World Economic Forum in Davos, Chinese Premier Li

Keqiang presented a “double engine” concept for boosting the econ-

omy, by building a new ec onomic engine and upgra ding the traditional

one. The second goal, upgrading the traditional sources of economic

growth entailed increasing the supply of public goods, which are nec-

essary complements to goods and services produced for private con-

sumption. The government proposed to use public-private

The American Journal of Economics and Sociology512