Johns Hopkins University School of Advanced International Studies
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What gave birth to the interests and strategies of the capitalists in China, and how has the state managed such capitalism in the past few decades? This paper examines these important questions by tracing the origins of urban entrepreneurs since the 1990s and the “rule by capitalism” strategy adopted by the Chinese state. Although most attention was devoted to rural China during its early reform period, I argue that the incipient capitalism in urban China was crucial. Most of the ambitious urban entrepreneurs who were disillusioned with the SOEs they worked in managed to carve out a window of capitalism inside state sector spin-off firms. Then they “liberated” themselves (but did not liberalize in the western sense or in terms of property rights) by establishing their own businesses. Although not the original intention of China’s reform policy, the state and local governments have actively mobilized and endorsed the creation of such urban capitalism, utilizing capitalism as a “safety valve” to channel public energy towards successful profit-seeking activities and away from political discussion. This “rule by capitalism” strategy also created a de facto space for economic liberalization that was separate from political control, which has prevailed for two decades. However, the Xi regime has started to turn away from this strategy. As the state seeks to incorporate capitalist actors back into the state’s political coalition and as party branches penetrate private enterprises, the economic and political spheres are much more intermingled, with political control encroaching on capitalism.