Introduction

      China’s private sector economy is in transition, as is the Chinese economy as a whole. The success of the officially pursued objective to change from an export- and investment-driven growth model to a development strategy based on domestic consumption, underpinned by a parallel drive for technological innovation in China’s manufacturing and service industries, will not only decide about the future of the country’s economic trajectory but also of its political system. The ambitious goal of becoming a leading world power and modern economic entity by 2050 was announced at the 19th Party Congress of the Chinese Communist Party (CCP) in October 2017. To do so requires an innovative and flexible private sector. Structural change within the Chinese economy is of paramount importance to regime survival. This implies that the private sector will become increasingly important for sustaining growth, even though the central government under Xi Jinping has made it clear that it will protect and develop the state sector as well. China’s state-owned enterprises (SOEs), particularly those destined to become ‘national champions’, have already made considerable headway to become powerful players in the global economy. Despite this, the Chinese Communist Party (CCP) needs to support even a strong public sector to drive home the argument that China is (still) socialist.

      Nevertheless, when Xi Jinping came to power in 2012 (and this project started), the party state embarked on a program of reform to strengthen the private sector economy. Private sector reform was not explicitly mentioned in the ‘Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform’, adopted at the 3rd Plenum of the 18th CCP Congress in November 2013,¹ the central policy document of the Xi Jinping era between the 18th and the 19th Party Congresses. However, in the immediate aftermath of the 3rd Plenum, three reform packages were introduced to strengthen the economic system: a program for streamlining local government finances by divorcing them from corporate ‘local government funding vehicles’; a program for institutionalizing transferable land management rights; and a program for new Pilot Free Trade Zones (shiyan ziyou maoyiqu) — initially set up in Tianjin, Shanghai, Guangdong, and Fujian — to spur high technology and service sector development (Naughton, 2015). When the central government introduced so-called ‘supply-side structural reforms’ in late 2015 — an attempt by the central government to streamline its policy approach to economic refurbishment — measures were brought on track to cut excess capacity in the industrial and real estate sectors, restructure public debt, reform the credit sector, and ‘reduce costs’ by lowering taxes and expenses for public services (Naughton, 2016a, 2016b). ‘Supply-side structural reforms’ have also been designed to boost state enterprise reform, since the curtailing of overcapacity and public-corporate debt is clearly linked to the further transformation of SOEs via ‘mixed ownership’ and ‘investment funds’, hence opening them up for more private capital. Each of these reforms is highly relevant to private sector development.² Moreover, on many occasions since the 3rd Plenum, the Chinese leadership has publicly reassured private entrepreneurs that it would further support the private sector, by expanding its position in the Chinese economy and improving its efficiency and international competitiveness.³ This confirms the fact that the future of ‘Socialism with Chinese characteristics’ depends on the economic success of China’s private entrepreneurs in domestic and global markets. Against this background, the quest for ensuring both cooperation and control of their private entrepreneurs forces China’s leaders to walk a tightrope, arguably making state–business relations politically more sensitive than they have been at any point in the last two decades of reform.

      In his seminal book Weapons of the Weak, James C. Scott analyzes everyday forms of resistance by socially weak groups and argues that a history of the Weapons of the Rich remains to be written (1985: 172). With this book, we want to re-stimulate the debate on China’s private entrepreneurs⁴ by making the argument that they have sharpened their weapons over the last decade and become influential political players — we call them a ‘strategic group’ (see below) — within the Chinese polity. Hence, our study is about the political consequences of current structural and institutional change in the Chinese economy and polity for state–business relations, or more precisely, for relations between the state and China’s private entrepreneurs. As political scientists, we are interested in the question if, and to what extent, China’s rising dependence on a flourishing private sector translates into maneuvering space for private entrepreneurs to strategically safeguard and expand their interests vis-à-vis the party state and to trigger institutional change. While they do not openly challenge the current regime, their weapons have altered the power balance within the current regime coalition, which connects private entrepreneurs to the party state at all administrative levels. It is hard to predict what will come of this ‘hidden horizontalization’ of power relations within the coalition. Obviously, the specter of ‘crony capitalism’ looms already large in contemporary China (Pei, 2016), and entrepreneurial