Uneven institutional configurations and sectoral variation in China's socialist market economy: a comparative study of three pillar industries

ABSTRACT

By comparing three Chinese pillar industries, automobile, petroleum, and machinery, this paper analyzes how the development of uneven institutional configurations bred sectoral variation in transitional China. In 1994, at the dawn of the Chinese socialist market economy, the State Council issued guidelines for national industrial policy and proposed the enactment of similar growth-promoting policies for all pillar industries. The level of policy enactment and the resulting outcomes, however, vary significantly across the industries. Previous literature on China's rapid industrialization has sought to build a single model encompassing China as a whole, and has emphasized either the state's institutional capacity or China's unique governance mechanisms. This study investigates China's industrialization by taking account of the uneven development of institutional capacity amid macro institutional reforms. Every idea and institution evolved at a different pace in these reforms, and the incremental nature of the reforms further deepened the gaps between sectors. This paper argues that, due to this uneven development, the Chinese state was not strong enough to be considered a developmental state until at least the early 2000s.

KEYWORDS:

• Institution
• sectoral variation
• state capacity
• industrial policy
• China

Acknowledgments

The author would like to thank Sankaran Krishna, Hagen Koo, Ehito Kimura, Myungji Yang, Colin Moore, and two anonymous reviewers for their helpful comments and suggestions. The author also expresses gratitude to Zhu Guanglei, Zhang Zhihong, Li Xiufeng for their supports during the field research in China.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Dividing China's reform into two periods, the official endorsement of the SME in 1993 opened the second period. If the first (1978–1993) was a period of ad hoc ‘Hayekian experimentalism,’ then the second period required ‘Polanyian programmatic reform’ (D. L. Yang, 2004).

2. For the Chinese text, see: http://guoqing.china.com.cn/2012-09/11/content_26748063.htm. This paper uses the term ‘industrial policy’ (chanye zhengce) quite restrictively, to refer not to various forms of state intervention in economy, but to the specific type of policy the Guidelines suggested.

3. Many economists also have tried to explain China's rapid growth by highlighting, for example: (1) the incremental approach to reform and the flexibility of China's administrative organization (Qian & Xu, 1993), (2) dual-track marketization (Naughton, 1995), (3) fiscal decentralization and incentives for bureaucrats (Qian & Weingast, 1997), and (4) meritocracy and yardstick competition in the Chinese administration (Li & Zhou, 2005). This paper limits its scope to the state-centric institutionalist literature.

4. The strategy of establishing ACs is still used to separate business from the state. For instance, in 2013, as the Ministry of Railways was dismantled, government regulatory power was transferred to the Ministry of Transport, the mandate of railway administration to the National Railway Administration (Guojia tieluju), and the business enterprise to an AC, China Railway (Zhongguo tielu zonggongsi).

5. The state does not currently treat the strategic value of all the pillar industries as equal. Nevertheless, while the petroleum sector is now recognized as a more important industry than the machinery sector, the central government placed the same strategic value on all the pillar industries when the 1990s Guidelines were promulgated. The current difference of strategic values is the result of central leaders’ changed priorities.

6. On how the banking reform contributed to loosening relations between local governments and SOEs, see D. L. Yang, 2004 and Lin, Liu, & Tao, 2013.

7. Local governments’ deepened fiscal dependence on business tax created a ‘land finance’ development model (Sun & Zhou, 2014). Beginning on May 1 2016, the central government implemented a new nationwide policy of converting business tax to VAT (yinggaizeng), which was aimed at curbing excessive land development.

8. Local government officials also care about employment, but because it is not sustainable to keep money-losing industries for the sake of employment, generating taxes and profits is still the priority (Bai, Du, Tao, & Tong, 2004, p. 402). Regarding the impact of economic performance, measured by GDP growth, on the promotion of local government officials, see Li & Zhou, 2005.

9. The minimum economy of scale in the auto industry is usually considered ‘around 250,000 units at the plant level and for a single basic model type’ (Huang, 2002, p. 543).

10. As of 2010, CNPC, Sinopec Group, and CNOOC recorded net profits of 85.227 billion CNY, 12.418 billion CNY, and 7.212 billion CNY, respectively, out of a total 160.135 billion CNY. These data come from the SASAC homepage, which no longer allows public access.

11. These two State Council circulars, so-called Documents No. 38 and No. 72, granted exclusive rights to the CNPC and Sinopec in the name of responding to shocks caused by the WTO entry: ‘Circular on the Clean-up and Rectification of Small Refineries and Regulation of the Distribution Order of the Crude and Refined Oil Product Market,’ May 6 1999 and ‘Circular on Further Rectification and Regulation of the Rectified Oil Product Market,’ August 31 2001.

12. For a more detailed analysis of centralization efforts in 1993, see Lin, 2008 (pp. 58–67).

13. For example, large-scale generator, power transmission and transformation equipment, high-end computer numerical control machine tools, drilling equipment, industrial robots, high-end automatic control equipment, rail transportation equipment, and petrochemical setup equipment.

Additional information

Notes on contributors

Yongshin Kim

Yongshin Kim is Assistant Professor in the Department of Chinese Trade and Commerce, Division of International Studies, at Sejong University, South Korea. He received his PhD in political science from the University of Hawai'i at Mānoa. His research interests include political economy of China, international relations of East Asian countries, and social science research methods.