Bridging State and Business: How Political Connections Affect Intergenerational Succession of Family Enterprises in China

With the first generation of private entrepreneurs since the policy of reform and opening gradually approaching the age of retirement, China's private economy has entered the peak of intergenerational succession, and many family enterprises are facing the challenge of intergenerational succession. With its focus on the personal characteristics of business owners and the economic conditions of family businesses, the existing literature has generally overlooked the potential influence of government factors on business succession. However, in China's political-economic environment whereby government controls many critical resources, almost all business activities are influenced by government factors. Therefore, this article examines whether and how the political connections of enterprises affect intergenerational transfers.

Drawing upon nationwide survey data (CPES-2016), this article finds that political connections, measured by business owners' membership on People's Congresses (PC) and People's Political Consultative Conferences (PPCC), play a significant role in the process of business succession. Specifically, in China's state-dominated political-economic environment, political connections, an important bond between family business and the state, are a key factor affecting business owners' succession decisions. Political connections not only significantly improve the social status and security perceptions of business owners but also help enterprises obtain strategic economic resources, thereby increasing the willingness of business owners to transfer family enterprises to the next generation. Meanwhile, as a compensatory mechanism, political connections have a stronger effect on intergenerational succession when entrepreneurs have weaker family values and the external market is not regulated.

This article has several theoretical and practical implications. First, the article highlights the importance of non-material capital, especially political capital, in business succession. That is, intergenerational successions of family businesses are not only about the transmission of material capital but also about the transmission of social relationships and political networks. Aging business owners should plan as early as possible to avoid chaotic successions. Second, this article deepens our understanding of the nature of contemporary Chinese state-business relations. By analyzing the political dynamics of intergenerational succession, the article decodes the complex mechanisms through which political connections work in China. Given that China is still undergoing the transition to a market economy, it is highly likely that the influence of political connections will continue to be important for a long time in the future.