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² Lipset, Seymour Martin, “Some Social Requisites of Democracy: Economic Development and Political Legitimacy,” American Political Science Review 53 (March 1959)CrossRefGoogle Scholar.

³ For a recent review and in-depth analysis of the relationship between democracy and development, see Przeworski, Adam and Limongi, Fernando, “Modernization: Theories and Facts,” World Politics 49 (January 1997)CrossRefGoogle Scholar; and Przeworski, Adam, Alvarez, Michael, Cheibub, Jose Antonio, and Limongi, Fernando, Democracy and Development: Political Institutions and Well-Being in the World, 1950—1990 (Cambridge and New York: Cambridge University Press, 2000)CrossRefGoogle Scholar. Przeworski et al. find that the causal link posited by modernization theories is not strongly supported by the empirical evidence.

⁴ Held et al. divide this “hyperglobalist” thesis into neoliberal and radical/neo-Marxist camps. There is of course much disagreement on the normative implications of convergence, particularly the debates on the fate of the social welfare state and the environmental and labor implications of globalization. Held, David, McGrew, Anthony, Goldblatt, David, and Perraton, Jonathan, Global Transformations: Politics, Economics, and Culture (Stanford, Calif.: Stanford University Press, 1999), 3–5.Google Scholar

⁵ Strange, SusanThe Retreat of the State: The Diffusion of Power in the World Economy (Cambridge: Cambridge University Press, 1996)CrossRefGoogle Scholar.

⁶ Lardy, Nicholas“Economic Engine? Foreign Trade and Investment in China,” Brookings Review 14 (Winter 1996)CrossRefGoogle Scholar; Wu, Yanrui, ed., Foreign Direct Investment and Economic Growth in China (Cheltenham, U.K.: Edward Elgar, 1999)Google Scholar. Lardy found that while foreign-invested enterprises contributed greatly to China's export boom, they did not provide many backward linkages to the domestic economy; nor did the presence of foreign-invested enterprises contribute to the reform of SOEs given their still-continuing protection. His FDI data for the article end in 1994, so the analysis misses the later boom years in FDI and their effects. Yanrui Wu and others find links between FDI and economic growth but show that the linkage is not a one-way causal relationship between FDI and GDP. See especially Jordan Shan, Gary Tian, and Fiona Sun, “Causality between FDI and Economic Growth,” in Yanrui Wu.

⁷ This argument is promoted by policy analysts, business executives, and academics who argue that greater engagement with the outside world, mainly through trade and economic investment, has a liberalizing effect on Chinese domestic politics. While most treatments of this question readily admit the presence of negative effects, the overwhelming conclusion is that interaction with global capitalism has liberalizing effects on politics and society. See, for example, Guthrie, Douglas, Dragon in a Three-Piece Suit: The Emergence of Capitalism in China (Princeton: Princeton University Press, 1998)Google Scholar; and idem, “Transition to a Market Economy: The Transformation of Labor Relations in China's Global Economy” (Paper presented at the annual conference of the Association of Asian Studies, Chicago, March 2001). Michael Santoro addresses the positive and negative effects of MNC investment in China while trying to lay out a way for investment to have “moral integrity”; see Santoro, , Profits and Principles: Global Capitalism and Human Rights in China (Ithaca, N.Y.: Cornell University Press, 2000)Google Scholar.

⁸ Chan, AnitaChinese Workers under Assault: The Exploitation of Labor in a Globalizing Economy (New York: M. E. Sharpe, 2001)Google Scholar; O'Leary, Greg, Adjusting to Capitalism: Chinese Workers and the State (New York: M. E. Sharpe, 1997)Google Scholar.

⁹ This is not the criticism that it may seem to be. China is a large and complicated country, so for research to be good and careful, it must be limited. The criticism leveled here is at broad generalizations based on narrow empirical foundations. Guthrie's positive conclusions on the effects of FDI and marketization in general are drawn from research in Shanghai. Chan's analysis of labor exploitation looks mainly at industries that are labor intensive, export oriented, very cost sensitive, and located in China's southeastern coastal regions, where overseas Chinese investors are dominant. Shanghai, by contrast, attracts FDI from a more diverse group of investors, including Japanese, Americans, and Europeans.

¹⁰ McKinnon, Ronald, “Gradual versus Rapid Liberalization in Socialist Economies: The Problems of Macroeconomic Control,” in Bruno, Michael and Pleskovic, Boris, eds., Proceedings of the World Bank Annual Conference on Development Economics, 1993 (Washington, D.C.: World Bank, 1994)Google Scholar; McMillan, John and Naughton, Barry, “How to Reform a Planned Economy: Lessons from China,” Oxford Review of Economic Policy 8 (Spring 1992)CrossRefGoogle Scholar. Anders Aslund lists several reasons for the difference between Soviet and Chinese reforms. He includes the role of FDI, in particular, overseas Chinese capital, as crucial to China's economic success. He notes that “in a way, overseas Chinese represented an emigre civil society, making up for the lack of one within Chinese itself”; Aslund, , How Russia Became a Market Economy (Washington, D.C.: Brookings Institution, 1995), 16.Google Scholar The analysis here presents a much different role for FDI and overseas Chinese capital.

¹¹ Lau, Lawrence, Qian, Yingyi, and Roland, Gerald, “Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition,” Journal of'Political Economy 108 (February 2000)CrossRefGoogle Scholar.

¹² Some notable exceptions include Bellin, Eva, “Contingent Democrats: Industrialists, Labor, and Democratization in Late-Developing Countries,” World Politics 52 (January 2000)CrossRefGoogle Scholar; Collier, Ruth, Paths toward Democracy: The Working Class and Elites in Western Europe and South America (Cambridge: Cambridge University Press, 1999)CrossRefGoogle Scholar; Anderson, Lisa, ed., Transitions to Democracy (New York: Columbia University Press, 1999)CrossRefGoogle Scholar.

¹³ The generalizations derived from this research attest to the tendency to focus temporally on the transitional moment and after, with the exception of some of the research by Przeworksi et al. (fn. 3) on the link between economic growth and democracy. See Bunce, Valerie, “Comparative Democratization: Big and Bounded Generalizations,” Comparative Political Studies 33 (August-September 2000)CrossRefGoogle Scholar.

¹⁴ Global Development Finance: Analysis and Summary Tables, 1999 (Washington, D.C.: International Bank for Reconstruction and Development/World Bank, 2000), 51Google Scholar.

¹⁵ Yasheng Huang, “Internal and External Reforms: Experiences and Lessons from China, Part I,” Chinaonline (www.chinaonline.com, accessed September 22,2000).

¹⁶ This dynamic perspective on reform is seen in many important works on China's political economy, yet most of these works were either written too early to incorporate the boom in FDI in the mid-to late 1990s or focused on domestic examples of dynamism. Naughton's work is the best example of this line of argument, covering both urban and rural phenomena. Because it was published in 1995, Naughton just misses the FDI boom and subsequent domestic reforms, although he does briefly note the increasing importance of the foreign sector. See Naughton, Barry, Growing Out of the Plan: Chinese Economic Reform, 1978-1993 (New York: Cambridge University Press, 1995), 302–4;CrossRefGoogle Scholar and Zhou, Kate Xiao, How the Farmers Changed China: Power of the People (Boulder, Colo.: Westview Press, 1996)Google Scholar.

¹⁷ Sino-Foreign Equity Joint Venture Law, adopted at the Second Session of the Fifth National People's Congress, July 1,1979, and revised April 4, 1990. Herald Translation Services, Chinalaw Web (www.qisnet/chinalaw/prclaw, accessed April 18,1997).

¹⁸ Naughton (fn. 16), 11.

¹⁹ Ibid.

²⁰ Naughton, Barry, “Economic Policy Reform in the PRC and Taiwan,” in Naughton, , ed., The China Circle: Economics and Technology in the PRC, Taiwan, and Hong Kong (Washington, D.C.: Brook-ings Institution Press, 1997), 93.Google Scholar

²¹ Ibid., 97.

²² Shirk, SusanThe Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993), 50.Google Scholar

²³ Ibid., 48.

²⁴ Yang notes that by the end of 1991 China had only 111 development zones, including 27 approved by the central government. But by the end of September 1992 there were 1,951 such zones. A later report estimated that by 1993 there were 8,700 zones nationwide, including development zones set up at the township level. Yang, Dali, Beyond Beijing: Liberalization and the Regions in China (New York: Routledge Press, 1997), 56Google Scholar.

²⁵ This phrase and analysis of reform dynamics was developed by Yang (fn. 24).

²⁶ Zhang, Dong Dong, “Negotiating for a Liberal Economic Regime: The Case of Japanese FDI in China,” Pacific Review 11, no. 1 (1998).CrossRefGoogle Scholar

²⁷ Zhu Rongji gave a speech at the Congress later excerpted in the domestic media. Rongji, Zhu, “Cut Staff, Increase Profits, Distribute the Laid-Off Workers, Standardize Bankruptcy, Encourage Mergers” (Jianyuan zengxiao, xiagangfenliu, guifanpochan, gulijianbing), reprinted in Wenzhai, Jingji Guanli (March 1997)Google Scholar; Chen, Kathy, “Chinese President Ratchets Up Reforms,” Wall Street Journal, April 7, 1997,Google Scholar A11.

²⁸ If fully implemented this would affect over one hundred thousand small and medium-size state enterprises. Huchet, Jean-Francois, “The Fifteenth Congress and the Reform of Ownership: A Decisive Stage for Chinese State Enterprises,” China Perspectives 14 (November—December 1997), 17.Google Scholar

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³⁰ Ibid., 18.

³¹ Chen, Kathy, “Orient Express: China's Businesses Push for Faster Economic Reform,” Wall Street Journal, October, 16,1997.Google Scholar

³² A few examples include Dongshui Su et al., eds., Zhongguo Sanzi Qiye Yanjiu (Research on China's foreign-invested enterprises) (Shanghai: Fudan University Press, 1997)Google Scholar; Zhang, Haitao et al. , eds., Waizi Nengfou Tunbing Zhongguo: Minzuqiyeying xiang hechuqu? (Will foreign capital swallow up China? Where should national industry go?) (Beijing: Qiye Guanli Chuban She, 1997)Google Scholar; and Lisheng, Liu et al. , eds., Waizi Binggou Guoyou Qiye: Shizhengfenxi yu duke yanjiu (Foreign capitals acquistion of state-owned enterprises: Analysis and countermeasures) (Beijing: Zhongguo Jingji Chubanshe, 1997)Google Scholar.

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³⁵ Reforming China's Enterprises (Paris: OECD, 2000), 19Google Scholar. The foreign-invested sector contributes 15 percent to gross industrial output. The remaining 18 percent comes from private enterprises, individually owned enterprises (geti), and share-holding enterprises in which the state does not hold a controlling share.

³⁶ “State Enterprise Reform,” China Economy and Business: Issues, and Briefings, Chinaonline; (www.chinaonline.com/features/chinaonline2/research/entref.htm, accessed August 6, 2001).

³⁷ “Development of Private Enterprise,” China Economy and Business: Issues and Briefings, China-online (www.chinaonline.com/features/chinaonline2/research/entref.htm, accessed August 6,2001).

³⁸ Linn, Gene, “China's Sanction of Private Sector Opens Doors for Investment, Trade”, Journal of Commerce, May 12, 1999;Google Scholaridem, , “China's Private Surprise,” Economist, June 19,1999.Google Scholar

³⁹ Kwang, Mary, “CCP Welcomes Private-Sector Members,” Straits Times, July 2, 2001;Google ScholarCheong, Ching, “Opening the Doors to the Capitalists,” Straits Times, July 15, 2001.Google Scholar

⁴⁰ “More Private Banks Could Stimulate Chinese Economy,” Chinaonline (www.chinaonline.com, accessed December 30,1998).

⁴¹ “China Economist to Government: Give Private Investment a Chance—and Soon,” Chinaonline (www.chinaonline.com, accessed July 12, 2000); Smith, Craig, “Private Business in China: A Tough, Tortuous Road,” New York Times, July 12, 2000,Google Scholar A1.

⁴² “MOFTEC Grants Foreign Trade Rights to Private Enterprises,” Chinaonline (www.chinaonline.com, accessed December 19,2000).

⁴³ Smith (fn. 41).

⁴⁴ Hellman, Joel S., “Winners Take All: The Politics of Partial Reform in Postcommunist Transitions,” World Politics 50 (January 1998).CrossRefGoogle Scholar

⁴⁵ These statements are based on the author's observations during field research in foreign-funded and rural collective firms in 1997, 1999, and 2001. Management positions were often filled by former SOE employees (often the partner of the foreign firm), but production positions werefilledalmost exclusively by young urban residents or young rural migrants. Women make up the vast majority of the workforce in the electronics industry and other relatively labor-intensive industries. See Lee, Ching Kwan, Gender and the South China Miracle: Two Worlds of Factory Women (Berkeley: University of Cali fornia Press, 1998), 68–70.Google Scholar

⁴⁶ In a speech at the National Conference of Labor Dispute Resolution, an SOE manager complained of the inability of SOEs to retain workers, who were leaving in droves for the private and foreign sectors. Chen Quansheng stated: “Presently SOE workers fire the enterprise more than SOEs fire workers.” Speech of Chen Quansheng at the National Conference of Labor Dispute Resolution, “Laodong zhengyi chuli yu yanjiu” (Handling and research of labor disputes) (January 1996); Lee, Carrie, “Industry Frustrated by Job-Hopping,” South China Morning Post, August 9,1997.Google Scholar

⁴⁷ Yang (fn. 24).

⁴⁸ Li, Shaomin, Li, Shuhe, and Zhang, Weiying, “The Road to Capitalism: Competition and Institutional Change in China,” Journal of Comparative Economics 28 (June 2000)CrossRefGoogle Scholar. This article includes a large quantitative study of firms using China's industrial census. Although it does not focus on the particular effects of foreign-invested firms, it generally finds that cross-regional competition leads to market-conforming behavior by managers of SOEs and collectives.

⁴⁹ Articles in the national media as well as more scholarly articles on the problems of reform hammered away at this point of the absence of a level playing field between SOEs and FIEs. These articles focused on the heavy employment burden, the gap in managers' salaries, and the inability of SOEs to retain skilled workers. “Shubaiwanyuan nianxin gaibugai na?” (Should one take a yearly salary of hundreds of thousand RMB?”), Nanfang Zhoumo, December 20, 1996, 2Google Scholar; “Guoqi zenyang liuzhuren?” (How can SOEs retain people?”), Renmin Ribao, November 19, 1996, 10Google Scholar; “Shulirencaiyishi jianquan liangge jizhi” (Establish a consciousness of talent, perfect the two mechanisms), Workers Daily, April 8, 1997, 7Google Scholar. The two mechanisms include the collective contract system (to make it more difficult for workers to leave) and the incentive wage system (to improve skilled workers' wages). “Jishugongren huhuan zhengce fuzhu” (Skilled workers call for policy help), Workers Daily, December 13, 1996, 3Google Scholar; “Wan-shanqiyegerenshouru fenpei tiaokongjizhi” (Perfect the adjustment mechanism for the distribution of individual salaries), Zhongguo Gongshang Shibao, May 5, 1997, 3Google Scholar; “Qiyequanyi yebixu weihu” (The rights and interests of enterprises must also be protected), Jingji Ribao, October 9, 1996.Google Scholar

⁵⁰ Gallagher, Mary, “Why Labor Laws Fail to Protect Workers,” China Rights Forum (Summer 1997).Google Scholar

⁵¹ This schematic depiction of legal convergence is borrowed from an article explaining how to reduce staff in Japanese-invested enterprises in China. In a 1999 interview one of the authors described the importance of the convergence of labor laws for determining changes in enterprise behavior. Tsukamoto, Hiroaki et al. , “Chugoku niokeru gaisho taishi kigyo no resutora oyobi” (Restructuring FIEs in China and procedures to cut staff), Kokusai Shoji Ho 27, no. 5 (1999)Google Scholar; author's interviews with one of the authors, Tatsuo Murao, Shanghai, July 1999.

⁵² Kornai, JanosThe Socialist System: The Political Economy of Communism (Princeton: Princeton University Press, 1992), 433.CrossRefGoogle Scholar

⁵³ Aslund argues that Russia's mistake was not in diverging from the Chinese path butfromfollow-ing it too closely when their objective differences (in the labor supply, level of industrialization, length of time under communism, and so on) were so stark; Aslund, Anders, How Russia Became a Market Economy (Washington, D.C.: Brookings Institution, 1995), 13–17.Google Scholar

⁵⁴ Aslund, AndersGorbachev's Struggle for Economic Reform (London: Pinter Publishers, 1991).Google Scholar

⁵⁵ Zhou, Xueguang“Unorganized Interests and Collective Action in Communist China,” American Sociological Review 58 (February 1993)CrossRefGoogle Scholar. Zhou argues that under state socialism “state monopoly of the public sphere fosters and reproduces large numbers of individual behaviors with similar claims, patterns, and targets.” Extending this argument to all state socialist countries, it is plausible that exclusive and primary reform of the state sector would intensify the reactions of urban workers affected by such reforms, leading to greater likelihood of mobilization and resistance.

⁵⁶ Rona-Tas, Akos, “The Second Economy as a Subversive Force,” in Walder, Andrew, ed., The Waning of the Communist State: Economic Origins of Political Decline in China and Hungary (Berkeley: University of California Press, 1995), 79Google Scholar.

⁵⁷ Ibid., 78.

⁵⁸ Hungary's reforms in the early 1980s led to the gradual loss of control over enterprises as managers grew more powerful and, with the help of the growing private economy, spun off state assets into privately controlled commercial entities. Frydman, Roman, Rapaczynski, Andrzej, and Turkewitz, Joel, “Transition to a Private Property Regime in the Czech Republic and Hungary,” in Woo, Wing Thye, Parker, Stephen, and Sachs, Jeffrey, eds., Economies in Transition: Comparing Asia and Eastern Europe (Cambridge: MIT Press, 1997), 53.Google Scholar

⁵⁹ Ibid., 51.

⁶⁰ For example, McCormick, Barrett and Unger, Jonathan, eds., China after Socialism: In the Footsteps of Eastern Europe or East Asia (New York: M. E. Sharpe, 1996)Google Scholar.

⁶¹ The top ten firms in Korea account for 63.5 percent of the country's GDP in 1987, showing the very large dominance of the chaebols within the Korean economy. In Taiwan, however, the ten largest firms, four of which were state owned, made up only 14.3 percent of GDP. Most of Taiwan's growth came from the small-medium size, ethnically Taiwanese private firms. Gereffi, Gary, “Big Business and the State,” in Gereffi, Gary and Wyman, Donald, eds., Manufacturing Miracles: Paths of Industrialization in Latin America and East Asia (Princeton: Princeton University Press, 1990), 92–96.Google Scholar

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⁶⁵ Chu, Yin-Wah, “Labor and Democratization in South Korea and Taiwan,” Journal of Contemporary Asia 28. no. 2 (1998).CrossRefGoogle Scholar

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⁶⁸ Fields, “Strong States and Business Organization in Korea and Taiwan,” in Maxfield, Sylvia and Schneider, Ben, eds., Business and the State in Developing Countries (Ithaca, N. Y.: Cornell University Press, 1997), 146.Google Scholar

⁶⁹ Willy Wo-Lap Lam, “China's Struggle for 'Democracy'” (www.cnn.com/world, accessed August 7, 2001).

⁷⁰ I am not weighing the relative benefits and disadvantages of continued authoritarianism. In fact, I am overlooking the costs of continued authoritarianism (political repression, human rights violations, arbitrary punishment, torture, and lack of freedom of speech and religion, and so on). The focus here is on what may in fact be happening below the surface of continued political authoritarianism.

⁷¹ Many scholars of China's legal development have noted the reliance on foreign laws for the creation of China's domestic laws. Seidman, Ann, Seidman, Robert, and Payne, Janice, Legislative Drafting for Market Reform: Some Lessonsfrom China (New York: St. Martin's Press, 1997).CrossRefGoogle Scholar

⁷² Kent, Ann, “China, International Organizations and Regimes: The ILO as a Case Study in Organizational Learning,” Pacific Affairs 70 (Winter 1997-98)Google Scholar; Pearson, Margaret, “The Major Multilateral Economic Institutions Engage China,” in Johnston, Alastair Iain and Ross, Robert S., eds., Engaging China: The Management of an Emerging Power (London and New York: Routledge, 1999).Google Scholar