From Fiefs to Clans and Network Capitalism: Explaining China's Emerging Economic Order

Article excerpt

China has sustained a rapid rate of economic growth since the inauguration of its economic reform in 1979, with only short-lived interruptions. This success contrasts favorably with most other developing countries (Economist, 1995b) and prompts enquiry into the kind of economic organization that is facilitating such an impressive performance. China's growth has been stimulated by two main developments. The first is a shift in industrial ownership and property rights, with the state playing a diminishing role. The second is the increasing part played by market transactions, including a growing integration with the world economy. These developments would appear prima facie to be moving China's economic system toward market capitalism. China has distinctive political, institutional, and cultural characteristics, however, and it is recognized that such factors can give rise to different modes of economic organization (Hamilton and Biggart, 1988; Whitley, 1994). Two broad questions therefore arise. The first is what kind of economic order is emerging in China, an answer to which is complicated by the country's size and heterogeneity and by the uneven spread of its economic reform (Tu, 1993; Ungar and Chan, 1995). The second is how far China's emerging economic order can be analyzed in conventional Western terms. The ability of Western neoclassical economic theory to account for the nature and success of other Asian business systems has already been put in doubt (e.g., Biggart and Hamilton, 1992).

These broad questions subsume a number of more specific issues that this paper addresses. The first concerns the type of business system now operating in China. If, as Nee (1992) suggested, there is a newer system of marketized transactions in addition to state-dominated nonmarket firms, does this merit special attention as the Chinese economic system of the future (cf. Qian and Xu, 1993)? Second, do the arrangements through which the marketized sector operates conform to the Western model? Third, and notwithstanding protestations by the Chinese leadership to the contrary, is the economic order that is emerging in China from the dismantling of the socialist system a capitalist one - as understood by Western observers and as judged by the criteria of ownership and property rights - or does it require its own specific designation? Fourth, if a distinctive economic system is emerging in China, what part does government play in its operation and does this require an elaboration of our conventional theories about the role of the state in economic life? Answers to these questions would be of considerable moment for Western academics and business people. A good understanding of Chinese economic organization would bear on Western discussions of modernization, many of which assume that this requires the building of market, property rights, and other institutional systems of essentially the same kind that supported earlier instances of industrialization. Such answers would also carry useful implications for foreign investors and business people. Better knowledge of the Chinese business system would help foreign companies enter the system and point to where power and decision making are located within it.

In this paper, we argue that China is treading a path toward modernization that differs from Western experience and that the essence of this can be analyzed in institutional terms. We then tentatively identify the distinctive characteristics of China's emerging economic order, by reference to China's business system and markets, capitalism, and government within that system. The paper as a whole should be read as a prolegomenon to the research that its subject richly deserves, its purpose at this stage being to elaborate relevant questions rather than to offer adequate answers.

In theoretical terms, the paper extends the markets and hierarchies debate initiated by Williamson (1975) in a new direction. As it evolved, the markets and hierarchies formulation established a unidimensional continuum, with market coordination at one end and hierarchical coordination at the other. …