Firms as Revenue Safety Nets: Political Connections and Returns to the Chinese State

Abstract The political connection between the state and firms in context of China's corporate restructuring has been little explored. Using clientelist framework unpacking incentives both state, we analyse connections as repeated patron–client exchanges where politically connected can help fulfil its revenue imperative, serving a failsafe for local authorities to ensure that upper-level tax quotas are met. Leveraging original surveys same Chinese over an 11-year period variations their post-restructuring board composition, find restructured state-owned enterprises (SOEs) with pay more than assessed amount, independent profits, exchange preferential access key inputs policy opportunities controlled by state. Examining taxes rather profits also offers new interpretation why China continues favour remaining SOEs even when they less profitable.