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Review of "Back-Alley Banking: Private Entrepreneurs in China"
By John W. Welborn
Introduction
Back-Alley Banking: Private Entrepreneurs in China
Kellee S. Tsai
Ithaca, N.Y.: Cornell University Press, 2002, 316 pp.
There is a popular saying in China: "Whenever there are policies from the top, the bottom produces counterstrategies" (shangyou zhengce, xiayou duice). According to Kellee Tsai, that has certainly been true of China's informal network for private-sector capital. In response to discriminatory government policies, private entrepreneurs throughout China have created an intricate system of "back-alley banking" to finance household- and firm-level ventures. Tsai, a political scientist at The Johns Hopkins University, tells the story of that informal economy in her fascinating new book Back-Alley Banking: Private Entrepreneurs in China.
Private entrepreneurship is the driving force behind China's new economy. Since the start of the reform era in 1978, the private sector has grown at an annual rate of 20 percent, far above the economy's 8 percent average growth for the same period. More than 30 million private businesses have been established as well, which now contribute a significant share of tax revenue to the government and employ millions of people laid-off from failed state-owned enterprises (SOEs). The nonstate sector in China now accounts for two-thirds of total productivity and GDP.
Private-sector growth in China has taken place in an environment that is openly hostile to entrepreneurs and private businesses. Until recently, official state banks mainly extended credit to state and collective enterprises, not private ones. As of the end of 2000, less than 1 percent of loans from the entire national banking system had gone to the private sector. Furthermore, informal transactions are only weakly protected by the rule of law, and are often technically illegal. Despite those difficulties, China's private sector has thrived.
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