Broken “Iron Rice Bowls” and Shattered Communist Fairy Tales SOE Privatization, Political Distrust and Social Conflicts in China ∗

We study the effects of state-owned enterprise (SOE) privatization on political distrust and social unrest in China. Exploiting variations in geography, time, and life-cycle stage induced by the influential 1998-2002 SOE reform and instrumental variable estimation, we document that working-age cohorts show more distrust toward local government due to a novel mechanism: the state’s breach in social contracts regarding job security and associated welfare. The distrust persists even when economic outcomes are good, but insurances, higher re-employment probability, and strong media propaganda mitigate the distrust. The SOE reform also leads to increases in social unrest