This thesis argues that there exists a social contract between the Chinese Communist Party (CCP) and the Chinese people. The contract states that the Communist Party will deliver economic growth and in return the people will not rebel. This relationship is examined through a game theoretical setting. First, I present the basic Acemoglu and Robinson (2000) model and it's main insight; that democratization is a consequence of the elite's inability to commit to future transfers unless they give away de facto power to the people by introducing democracy. This dynamic is fueled by the elite's fear of revolution from the poor.
Second, I expand this basic model by using durable investments instead of lump sum transfers. This increases the ability of the elite to commit to redistribution over time, increasing the probability that the elite manage to use investments to prevent democratization, and making it less likely that the elite will choose to repress the populace.
The thesis then goes on to present a quick overview of Chinese history, where the main point is to show that China is far behind its potential. It was the worlds leading economy in 1820, and I argue that it was the institutional framework within China, a lack of focus on technology, and Mao's reforms that lead to two `lost centuries' of growth. This history is important because it a ects the perceptions of China's leaders today, and the turmoils of the past have made social stability one of the main goals of Chinese policy, furtherincreasing the likelihood of the existence of a social contract.
I then apply the expanded model to the institutional framework of the Chinese state in the period from after the cultural revolution until today, and argue that the expanded model gives a good description of the structure of the social contract between the Communist Party and the citizens. By focusing on investments the CCP increases the productivity of the workers, create economic growth, and promotes social stability. All of this allows the elite to stay in power. The ability of the elite to do this is more prominent within the expanded model than within the base model, and the expanded model might therefore give a better explanation of current Chinese politics.