The Making of the State Enterprise System in Modern China: The Dynamics of Institutional Change (review)

Although it has been generally recognized that industrial and economic expansion in China can be traced from the early years of the nineteenth century, the conventional view is that the development of the modern state enterprise system dates from the setting up of the People's Republic of China in 1949. According to most commentators, the Chinese almost universally adopted Stalinist industrial and economic systems in the early years of the postrevolutionary period without much by way of adaptation, thus creating what has become a system of large state-owned enterprises and associated institutions. The influence of Soviet systems affected not only the setting up of these enterprises, but also, inter alia, structure and command systems, working practices, and the social services provided for their workforces. By the late 1950s, the state enterprise system had expanded to include the whole of the Chinese industrial sector.

In his book Morris Bian presents a convincing analysis that suggests that the conventional view of the postrevolutionary state enterprise system's being largely based on the Soviet system is no longer tenable. Utilizing evidence the author suggests was not generally available until comparatively recently, he describes the development of large enterprises in the munitions and steel industries in detail. He argues that the antecedents of much of postrevolutionary Chinese industrialization and the consequent expansion of industrial systems and institutions was based on developments begun in the 1930s and in many cases before that. The evolution of modern Chinese industry therefore can only be explained by assessing developments before 1949.

According to the author, the defining characteristics of the state enterprise system—a bureaucratic governance structure, management systems, and the provision of social and welfare facilities—have their roots in the 1920s and 1930s. Basing his argument on a changing mental model of industrial practices on the part of influential industrialists, he sets out in some detail the development of governance, of health and welfare systems, and of various systems of incentives that have become an essential part of current industrial practices. The author places the main catalysts for change in the immediate period before and during the early stages of the Sino-Japanese War. During this prolonged period of crisis and disruption, both the Chinese government and industrialists were forced to develop new organizational structures and working procedures to meet the threat of increasing hostilities within the country. The resultant decision making led, among other actions, to the relocation of manufacturing facilities, the innovation of new command and working practices, and increasing social and welfare provision within the enterprises for workers.

The book contains in a detailed introduction a convincing overview of industrial change and the mental models and various drivers involved. Bian demonstrates how officials instigated changes owing to pragmatic need rather than ideological drivers. In subsequent chapters he examines the evolving characteristics of the state-owned enterprises and their governance structures before embarking on a discussion of what forced changes in management and incentive systems. This is followed by an evaluation of the evolution of social systems and welfare within these enterprises. The final chapter contains conclusions, their implications, and suggestions for further research.

The author concludes that the institutional basis of China's state-owned enterprises, governance, management structures, and the provision of social services within state-owned enterprises largely took shape in the 1930s and provided the foundations of the modern state enterprise system. The context of evolution, the author argues, was a set of crises and a pragmatic response on the part of various people involving the changing of mental models and by association enterprise structures and organization. This, in turn, led to a rapid industrial expansion in a time of severe disruption and conflict, which called for new ways of organizing; at the same time there was a need to develop more relevant social systems to support a growing workforce. The...