Political Status and the Performance of Private Enterprises in China

Abstract

This paper examines the role of political status in entrepreneurial success in China. The evidence from a nationwide survey on Chinese entrepreneurs in 2006 shows that the firm owner’s political status (i.e., the membership of China’s ruling party, the Chinese Communist Party) significantly improves the performance of private enterprises in China. Specifically, the owners’ affiliation with China’s ruling party is found to increase the private firms’ sales by around 14.4% and profits by around 16.8%. Two mechanisms emerge as suggesting that the effect operates through political connection: enterprises with owners affiliated with the CCP pay fewer fees to local governments and the owners have access to higher-rank political networking platforms such as the People’s Congress and the Chinese People’s Political Consultative Conference (CPPCC). The main findings remain robust to a number of additional tests, while the effect is found to be moderated by the provincial chiefs’ (CCP party secretary) promotion patt...