Regional Institutions, Ownership Transformation, and Migration of Industrial Leadership in China: The Case of the Chinese Synthetic Dye Industry, 1978-2008

Abstract

Scholars have emphasized the gradual ownership transformation of enterprises as a key driver of the Chinese economy’s unprecedented growth. However, little work has been done on the issue of whether this transformation process takes place evenly across the various regions in China. This paper describes the important role of regional institutions in shaping the ownership-based competitiveness of local enterprises and the migration of industries across regions. In the case of the Chinese synthetic dye industry, the passing of leadership from state-owned enterprises (SOEs) to collectively owned enterprises (COEs) and then to private enterprises (PEs) was accompanied by a concurrent leadership migration from one region to another. The paper contends that this simultaneous occurrence was not accidental. Four institutional constraints - the degree of central supervision, the local labor arrangements, the local social welfare provision, and the degree of ambiguity in property rights - retarded the rise of new ownership forms in the previously dominant regions. This gave other regions the opening to take over leadership positions by providing a more favorable institutional context for new ownership forms. These findings are likely to apply to all of the Chinese manufacturing industries that existed prior to 1978 and that subsequently did not experience significant technological changes and were not highly protected by the government.

Keywords: Institutions, Ownership Reform, Regional Economics