Corporatizing China: Reinventing state control for the market

A central debate about post-socialist transition focuses on whether and how the central state could facilitate the emergence of the market economy. I argue that there exists two distinct phases of transition, defined by variations in the state's approach to institutionalizing its regulatory and ownership roles in relation to the market. In the first phase, state withdrawal leads to market expansion; hence the primary institutional strategy is the administrative decentralization of the plan. In the second phase, the central state invests in capacity building that would allow it to govern the market by liberal price and competitive policies rather than fiats and plans, and to establish effective ownership of state-owned industries that would sustain the central treasury. In China, Phase One spanned from 1983 to 1997, and Phase Two has been unfolding since 1998. My dissertation explains the political economic processes underlying each phase and the transformative momentum from one to the next.; I provide an "institutional disequilibrium" perspective based on a two-part analysis. First, I explain the change and continuity in industrial governance structures by identifying factors leading to central state institutional entrepreneurship. I argue that exogenous shocks and domestic macroeconomic and financial market conditions have shaped the motivation and capacity for reform of the central state and key sub-national players. In 1998, the central state seized an opportunity to overcome immobilized local state and industrial interests, imposing its conception of "strategic industries" as governed by oligopolistic competition and centralized corporate hierarchies. These organizational choices mainly reflected central reformers' negative experience under decentralization, as well as an elite political agenda to position the central state as a primary beneficiary of the growing market. The second part of my analysis exposes structural weaknesses in the corporate hierarchical approach to organizing the market economy. Specifically, I examine sources of institutional disequilibrium deriving from formal-informal dynamics, an efficiency-motivation tradeoff in centralization, and social processes of consent and voluntary compliance. I find these dynamics disruptive of the critical process of initial price formation in the market, triggering social and political mobilization that undermines the state-building agenda. My hypotheses find empirical demonstration through a sectoral study of Chinese oil and petrochemical industries.