Foreign Direct Investment and the Restructuring of Chinese State-Owned Enterprises (1992–1995): A New Institutionalist Perspective

China Information

Volumn 12, Issue 3, 1997, Pages 46-71

  Gu, Edward X ^a  

^a LEIDEN UNIVERSITY   (Netherlands)

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[No Author keywords available]

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EID: 84992903577     PISSN: 0920203X     EISSN: 1741590X     Source Type: Journal    
DOI: 10.1177/0920203X9701200303     Document Type: Article

References (58)

1. Dr. Edward X. Gu was, until recently, attached to the Sinological Institute, Leiden University. He wishes to thank Dr. Sun Laixiang and an anonymous referee for China Information for their helpful comments on an earlier draft of this article.
2. See Shyam J. Kamath, “Foreign Direct Investment in a Centrally Developing Economy: The Chinese Case”, Economic Development and Cultural Change, Vol. 39, No. 1 (October 1990), pp. 107-130; Richard Pomfret, “Foreign Direct Investment in a Centrally Developing Economy: Lessons from China: Comments on Kamath”, Economic Development and Cultural Change, Vol. 42, No. 2 (January 1994), pp. 413418; and Y. Y. Kueh, “Foreign Investment and Economic Change in China”, The China Quarterly, No. 131 (September 1992), pp. 637690.
3. See Pitman Potter, Foreign Business Law in China: Past Progress and Future Challenge (San Francisco: The 1990 Institute 1995), pp. 22-37.
4. See Yingyi Qian, “Reforming Corporate Governance and Finance in China”, in Masahiko Aoki and Hyung-ki Kin (Eds.), Corporate Governance in Transitional Economies: Insider Control and the Role of Banks (Washington, D.C.: The World Bank 1995), p. 239.
5. E.g., Bruce Kogut, “Direct Investment, Experimentation, and Corporate Governance in Transition Economies”, in Roman Frydman, Cheryl W. Gray, and Andrzej Rapaczynski (Eds.), Corporate Governance in Central Europe and Russia, Vol. 1 (Budapest and London: Central European University Press 1996), pp. 293-332.
6. Neibu documents are based upon confidential policy-making, unavailable to foreigners and sometimes to Chinese citizens who are not members of the Party. They play a more important role in the political, economic, and social life in China than the laws and regulations which are publicly promulgated.
7. The State Planning Commission's Investigation Team, “Guoyou qiye liyong waizi jiajie gaizao qingkuang de diaocha baogao” (An Investigation of the Restructuring of State-owned Enterprises by Utilizing Foreign Investment), Guanli shijie (Management World), No. 56 (September 1994), pp. 11-12.
8. See Bi Jiyao, “Fuzhoushi laoqiye jiajie waizi de zhuyao xingshi” (The Main Forms of Old Chinese Enterprises Grafting on to Foreign Capital), Jingjiyanjiu cankao (Reference Material for Economic Research), No. 531 (26 August 1994), p. 33.
9. See Center for Economic Studies at the State Planning Commission, “Woguo liyong waiguo zhijie touzi wenti de yanjiu baogao” (A Research Report on Our Country's Utilization of PD1), Jingjiyanjiu cankao, No. 556-557 (12 October 1994), p. 27.
10. Hu Shuli, “Zhongce xianxiang: Guanyu yinzigaizao de jiexi yu sikao” (The China Strategy Phenomenon: An Analysis of and Reflection on the Restructuring of Chinese SOEs by Introducing Foreign Investments), Gaige (Reforms), No. 65 (May 1994), p. 74.
11. E.g., Roman Frydman and Andrzej Rapaczynski. Privatization in Eastern Europe: Is the State Withering Away? (Budapest and London: Central European University Press 1994), pp. 107112.
12. Li Dongshan, “Biitong fanxiang de ‘Zhongce zhilu’: Xianggang Zhongce touzi youxian gongsi zaihua touzi chenggong tanyin” (The Extraordinary Road of China Strategy: Why Has the Hong Kong-based China Strategy Co. Ltd. Been Successful in Investing in China?), Gaige yuebao (Reform Monthly), No. 130 (March 1994), p. 54.
13. See Alfred D. Chandler, Jr., The Visible Hand (Cambridge, Mass.: Harvard University Press 1977), pp. 1-4.
14. Cai Ronghuo and Xie Lixin, “Fujian Quanzhoushi guoyouqiye jiajie waizi de shijian yu sikao” (An Analysis of the Formation of GJVs in Quanzhou, Fujian), Jingji yanjiu cankao. No. 531 (26 August 1994), p. 40.
15. See Armen A. Alchian, “Forward”, in Erik G. Furubotn and Svetozar Pejovich (Eds.), The Economics of Property Rights (Cambridge, MA.: Ballinger 1974), pp. i-xiii.
16. Douglass North and Robert Thomas, The Rise of the Western World: A New Economic History (Cambridge: Cambridge University Press 1973).
17. See Janos Kornai, Contradictions and Dilemmas: Studies on the Socialist Economy and Society (Cambridge, MA.: The MIT Press 1986), pp. 12-15, 33-51; IMF, IBRD, OECD, and World Bank, The Economy of USSR: Summary and Recommendations (Washington, D.C.: The World Bank 1990); and Kornai, The Road to a Free Economy (New York: W. W. Norton 1990), pp. 49, 62.
18. North, Institutions, p. 3.
19. See L. E. Davis and Douglass C. North, Institutional Change and American Economic Growth (Cambridge: Cambridge University Press 1971), p. 39; North and Thomas, op. tit.; Justin Y. Lin, “An Economic Theory of Institutional Change: Induced and Imposed Change”, The Cato Journal, Vol. 9, No. 1 (Spring/Summer 1989), pp. 14-22.
20. See Vernon W. Ruttan, “Induced Institutional Change”, in Hans P. Binswanger and Vernon W. Ruttan (Eds.), Induced Innovation: Technology, Institutions and Development (Baltimore: John Hopkins University Press 1978), pp. 333-341; and David Feeny, “The Demand for and Supply of Institutional Arrangements”, in Vincent Ostrom, David Feeny and Hartmut Picht (Eds.), Rethinking Institutional Analysis and Development (San Francisco: International Center for Economic Growth 1988), p. 162.
21. See Douglass North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press 1990), p. 7.
22. See Paul J. DiMaggio and Walter W. Powell, “Introduction” in DiMaggio and Powell (Eds.), The New Institutionalism in Organizational Analysis (Chicago: The University of Chicago Press, 1991), p. 13.
23. See Kathleen Thelen and Sven Steinmo, “Historical Institutionalism in Comparative Politics”, in Sven Steinmo, Kathleen Thelen and Frank Longstreth (Eds.), Structuring Politics: Historical Institutionalism in Comparative Analysis (Cambridge: Cambridge University Press 1992), pp. 1-7.
24. See Theda Skocpol, Protecting Soldiers and Mothers: The Political Origins of Social Policy in the United States (Cambridge, Mass.: Harvard University Press 1992), pp. 41-42.
25. Theda Skocpol and Edwin Amenta, “States and Social Policies”, Annual Review of Sociology, Vol. 12 (1986), p. 136.
26. Xiao Liang,” Waishang gaizao guoqi chengwei xin redian” (Foreign Businessmen Participating in the Restructuring of SOEs Has Become a New Fever), China Times Business Weekly, No. 131 (3-9 July 1994). p. 26.
27. See Lok Sang Ho, “Central-provincial Fiscal Relations”, in Joseph Chen Yu-shek and Maurice Brosseau (Eds.), China Review 1993 (Hong Kong: The Chinese University Press 1993), pp. 2-23; Christine P. Wong, “Central-local Relations in an Era of Fiscal Decline: The Paradox of Fiscal Decentralization in Post-Mao China”, The China Quarterly, No. 128 (December 1991), pp. 691-715; and Michel Oksenberg and James Tong, “The Evolution of Central-provincial Fiscal Relations in China, 1971-1984: The Formal System,” The China Quarterly, No. 125 (March, 1991), pp. 1-32.
28. Jae Ho Chung, “Beijing Confronting the Provinces: The 1994 Tax-sharing Reform and its Implications for Central-provincial Relations in China”, China Information, Vol. 9, Nos. 2-3 (Winter 1995), pp. 1-23.
29. For a discussion of ihe role of institutional inertia in institutional change, see R.C.O. Matthews, “The Economics of Institutions and the Sources of Growth”, Economic Journal, Vol. 96, No. 4 (December 1986), pp. 903-18.
30. See Andrew G. Walder, “Local Governments as Industrial Firms: An Organizational Analysis of China's Transitional Economy”. American Journal of Sociology, Vol. 10, No. 2 (September 1995), pp. 263-301; Victor Nee, “Organizational Dynamics of Market Transition: Hybrid Forms, Property Rights, and Mixed Economy in China”, Administrative Science Quarterly. Vol. 37, No. 1 (Spring, 1992), pp. 1-27; and Jean Oi, “Fiscal Reform and the Economic Foundations of Local State Corporatism in China”, World Politics. Vol. 45, No. 1 (October, 1992), pp. 99-126.
31. See Janos Kornai, Economics of Shortage, Vol. 1 (Amsterdam: North-Holland Publishing Co. 1980), pp. 191-195; and The Socialist System: The Political Economy of Communism (Oxford: Clarendon Press 1992), pp. 160-163.
32. For discussions of the rent-seeking phenomenon, see Charles K. Rowley, Ribert D. Tollison andGordonTul!ock(Eds.), The Political Economy of Rent-Seeking (Boston: Kluwer Academic Publishers 1988).
33. See Lu Jia, “Zhongyang yu difang huzheng guoyou zichan” (The Scramble For State-owned Assets Between Central and Local Governments), and “Chanquan da juezhan” (A Decisive Battle for Property Rights), Zhongshi zhoukan (China Times Business Weekly), No. 131 (3-9 July 1994) pp. 6-9; and Danming Lin, “Hong Kong's China-Invested Companies and Their Reverse Investment in China”, in John Child and Yuan Liu, Management Issues in China: International Enterprises, Vol. 2 (London: Routledge 1996), pp. 165-181.
34. See Alexander Gerschenkron, “History of Economic Doctrines and Economic History”, The American Economic Review, Vol. 59, No. 2 (May 1969), pp. 1-17.
35. For a study of formalized language in contemporary Chinese politics, see Michael Schoenhals, Doing Things with Words in Chinese Politics (Berkeley: Institute of East Asian Studies, University of California 1992).
36. Mayfair Mei-hui Yang, Gifts, Favors and Banquets: The Art of Social Relationships in China (Ithaca: Cornell University Press 1994).
37. For a study of this campaign, see Thomas Bernstein, Up to the Mountains and Down to the Villages: The Transfer of Youth from Urban to Rural China (New Haven: Yale University Press 1977).
38. The system of economic organization in China is described by Yingyi Qian and Chenggang Xu as an “M-form hierarchy”. See Yingyi Qian and Chenggang Xu, “Why China's Economic Reforms Differ: The M-Form Hierarchy and Entry-expansion of the Non-state Sector”, Discussion Paper, No. 154 (The Center for Economic Performance, The London School of Economics and Political Science), June 1993. In their view, “the Chinese economy is organized into a multi-layer-multi-regional form mainly according to territorial principle, in which each region at each layer can be regarded as an operating unit. Each unit is further divided along geographic lines and at the same time the unit controls its own enterprises along functional and specialization lines. Regions are relatively self-contained: that is, they are selfsufficient in terms of functions and supplies in production” (p. 17). It seems to me that, while correctly highlighting the increasing importance of regions, Qian and Xu underestimate the political power of the state's functional organs in interfering in economic affairs.
39. See Qin Hai, “Zhongce xianxiang: Youdai gengchongfen de pouxi” (The China Strategy Phenomenon: Pending Further Analysis), Gaige, No. 66 (2 July 1994), pp. 95-102.
40. See Liu Guoguang. “Gaizao guoyouqiye de yizhong tansuo” (An Exploration of the State Enterprise Reform), Gaige yuebao. No. 134 (July 1994), p. 5.
41. According to some Chinese economists, who are used to the planned economy, assets have - or should have - an ‘objective price” which can be determined by means of “scientific” methods.
42. See The Office of the Editor-in-chief of Guangming Daily, “Huafeng jituan gongsi kongguquan yishou” (The Shareholder Controlling the Huafeng Group Co. Has Been Changed), in Qingkuang Fanying (Report of the Current Situation), No. 252 (16 September 1994), pp. 1-3.
43. See John M. Stopford and Louis T. Wells, Jr., Managing the Multinational Enterprise: Organization of the Firm and the Ownership of the Subsidiaries (London: Longman 1972).
44. See, for example, Peter Evans, Dependent Development: The Alliance of Multinational, State, and Local Capital in Brazil (Princeton: Princeton University Press 1978); Gary Gereffi, The Pharmaceutical Industry and Dependency in the Third World (Princeton: Princeton University Press 1983); Douglas Bennet and Kenneth E. Sharpe, Transnational Corporation versus the State: The Political Economy of the Mexican Automobile Industry (Princeton: Princeton University Press 1985); Thomas Biersteker, Multinationals, the Slate, and Control of the Nigerian Economy (Princeton: Princeton University Press 1987).
45. Janos Kornai, Highway and Byways: Studies on Reform and Post-Communist Transition (London: The MIT Press 1995), pp. 103-104.
46. For a detailed analyses of foreign investment regulations and policies in Canada, Mexico, and the United States, see Barbara Jenkins, The Paradox of Continental Production: National Investment Policies in North America (Ithaca and London: Cornell University Press 1992).
47. That foreign investment and products should be given national treatment is stipulated in Article 3 of the General Agreement on Tariffs and Trade (GATT).
48. Author's personal conversation with an official of the Corporation.
49. See Anne Carver, “Open and Secret Regulations and Their Implication for Foreign Investment”, in John Child and Yuan Lu (Eds.), Management Issues in China: Volume II, International Enterprises (London: Routledge 1996), pp. 11-29.
50. See Chen Bingcai, “Zhongguo buxuyao ruci daguimo de waici” (China Does Not Need Such Large-scale Foreign Investment), Jingji yanjiu cankao, No. 753 (4 October 1995), pp. 2-8.
51. Jerry F. Hough, The Soviet Union and Social Science Theory (Cambridge, Mass.: Harvard University Press 1977), pp. 22-24.
52. See Fan Gang, “Incremental Changes and Dual-track Transition: Understanding the Case of China”, Economic Policy, supplement to issue 19 (December 1994), pp. 100-122.
53. For a systematic examination of this trend, see Shu-yun Ma, “Foreign Participation in China's Privatization”, Communist Economies and Economic Transformation, Vol. 8, No. 4 (1996), pp. 529-547.
54. Countries under post-Communist transition have faced the same problems. For more details, see Morris Bomstein, “Privatization in Central and Eastern Europe: Techniques, Policy Options and Economic Consequences”, in Laszlo Csaba (Ed.), Privatization, Liberalization and Destruction: Recreating the Market in Central and Eastern Europe (Aldershot: Dartmouth 1994), p. 242.
55. See The European Daily, 17 October 1995, p. 8.
56. See Gu Tinggang and Ding Kangquan, “Zhuzhong yinzi jiajie, tansuo fazhan xinlu” (Stress the Establishment of Grafted Joint Ventures and Explore the New Way of Development), Zhongguo gaige (China's Reforms), No. 120 (December, 1995), pp. 28-29.
57. See The European Daily, 7 May 1996, p. 8; 15 May 1996, p. 8.
58. Gao Jingde (Gao Gun Ter), “Liyong guoji jingrong ziben jiajie gaizao guoyou dazhongxing qiye” (Restructuring Large and Medium-sized SOEs by Utilizing International Financial Capital), Zhongguo keji luntan (Forum on Science and Technology in China), No. 62 (January 1996), pp. 20-24.