OWNERSHIP IN CHINA'S TRANSITIONAL ECONOMY The Limitations of Conventional Property Rights Theory Yang Chen With a Foreword by Richard Sanders The Edwin Mellen Press Lewiston # Queenston # Lampeter
TABLE OF CONTENTS List of Figures List of Tables Foreword (Dr Richard Sanders) Acknowledgements Abbreviations i iii v ix xi INTRODUCTION 1 The Context of the Problems: China's Unique Experience? 1 The Objectives of this Book 5 Relevance of this Research in Relation to the Current Debate on Further Reform 10 CHAPTER 1 The Changing Nature of Ownership and Property Rights in the Context of China in Transition 15 The Changing Nature of Enterprise in the Mao Era 16 Dominant state ownership 16 'Danweilised' enterprises under the Party/State Maoist regime 17 Diversification of Ownership of Enterprises in Post-Mao China 18 The lifting of ideological constraints and the dilution of state ownership 18 a. The lifting of ideological constraints 18 b. Diversification of state ownership 22 The hidden privatisation ofsoes: the key link between ideological constraints and enterprise reform 24
Evolution of New Agency Problems Associated with Gradual Enterprise Reform of the State Sector in the 1980s 30 The problem of incentives 30 Predatory behaviour 34 Diversification of Ownership and the Question of Corporate Governance 37 Clearly defined property rights and the question of corporate governance 38 The embedded conflicts of adopting corporate governance in a transitional economy 40 Transitional Enterprise System with Chinese Characteristics 43 Cooperative shareholding an institutional innovation 43 The practical outcomes of the co-operative shareholding system 47 Shareholding Restructuring and Modern Enterprise System - Another Chinese Characteristic of Ownership Reform 54 The failure of the transformation of large SOEs into publicly listed companies 54 Conclusion: Privatisation Past the Point of No Return 60 CHAPTER 2 On Conventional Property Rights Theory 65 Conventional Property Rights Theory 66 The Coase Theorem 66 The 'circularity problem' and other critiques 69 Applications of the Coase Theorem in research on China's transitional economy 71 Conventional property rights theory and empirical evidence 72 A case in point: China's Township and Village Enterprises (TVEs) 74 Reconciliation models 75 A Review of Privatisation in Transitional Economies 78 Empirical evidence of privatisation in transitional economies other than China 79 Conclusion 83 CHAPTER 3 From Marxism-Leninism to Neo-Classical Doctrine: The Dominant Neo-Classical Presence 87 The Methodology Adopted in Research on the Chinese Transitional Economy 87 Academic opportunism 87 From Marxism-Leninism to neo-classical doctrine 89 The dominant neo-classical presence 91
Chapter 4 The Adoption of an Institutional Approach 92 The need to balance analytical vigour with contextual circumstances 92 Adoption ofnon-teleological openness 93 An Institutional Approach to Property Rights 97 The property s rights school': the basic and most widely accepted notion of institutional change 97 Variants of the property rights approach to institutional change 98 a. Induced institutional innovation 98 b. A mismatch theory of institutional change 99 Douglass North's approach 100 a. North's model of institutional change 100 b. Approaches adopted 102 Case Study Methods 103 Building explanation: analytic generalisation 103 Problems of doing fieldwork in China 104 The Evolution of High-Tech Industry in the Context of China in Transition 107 The Development of the High-Tech Sector 108 The Evolution of China's High-Tech Sector 112 Institutional evolution 112 a. The theory of reconstitutive downward causation 112 b. Downward reconstructive entrepreneurship from the collective legacy 114 c. Government's role in the development of science and technology 116 The National High-Technology Research and Development Program of China - the 863 Program 119 a. Policymaking and management of the 863 Program 119 b. Success of the 863 Program 121 The Torch Program and the introduction of High-Tech Development Zones (HTDZs) 123 a. Characteristics of the Torch Program 124 b. The semi-authority, semi-entrepreneurial institutions - HTDZs 126 The Evolution of the Government-Industry-University Partnership in China 128 Diversified ownership structure of high-tech enterprises 128 Characteristics of university spin-offs 132
Chapter 5 Property Rights Arrangements of High-Tech Spin-Offs at the Start-Up Stage (1980-92) 135 The Formation of Property Rights and the Ownership of New High-Tech Spin-Offs at the Start-Up Stage 137 Forms of 'spinning-off' in China 137 Two-type format 139 Hypothesis 141 The problems of Type I spinning-off 141 The problem of Type II spinning-off 144 Spinning-Off: The Case of Beijing High-Tech Test Zone 146 Two stages of spinning-off-from commercialisation to industrialisation: mid 1980s -1992 149 a. The case of 'Secondary R & D' in computing science NTEs in the Beijing Zone 154 Organisational features and the development of ownership of high-tech spin-off in the Beijing Test Zone - a process of 'embedded arbitrage' 156 a. The framework of analysis of embedded arbitrage 156 b. The analysis of state-owned NTEs 162 i) The case of the Taichi Computing Co.: 'One Institution, Two Mechanisms' 163 ii) The case of the New Special Vacuum Technology Development Co. 167 c. The analysis of collectively owned NTEs 168 iii) The case of Huahai Co.: combining the strength of resources 169 iv) The case of Zhonghuan Bidding Technology Co. 170 v) The case of Haidian District 171 The 'bottleneck effect' associated with the question of productive factors and resource allocation 174 Interpretation 176 A summary of the identified phenomena 176 Interpretation: institutional arbitrage of At facto control 179 Chapter 6 High-Tech Spin-Offs of Leading Universities at the Start-Up Stage (1980-92) 181 The Key High-Tech Spin-Offs of Leading Universities 181 The development of Science and Technology Development Companies (keji kaifa gongsi) in leading universities 182 a. 'Science and Technology Development Companies' at the start-up stage 183 Property rights arrangements of key spin-offs 186
Chapter 7 Huazhong University of Science and Technology - A University Developed Out of the Plan: A Historical Review 187 A state nurtured university 18 7 Historical background: the new mechanism 189 'Jumping into the sea of business' 195 Policy matters 198 The property rights arrangement of the 'department business' (xiji jingji) and the early development of spin-offs at HUST 200 Laser Technology Spin-Offs of HUST 203 The legacy of collective intellectual property rights and the development of laser industry in the reform era 203 a. The review of laser technology development in China 203 b. The development of laser industry - technology diffusion 'with Chinese characteristics' 206 Laser spin-offs of HUST 210 A different path - the experience of other laser high-tech companies 215 a. The experience of Chutian Laser 216 b. Ambiguity of intellectual property rights - a double-edged issue 218 Individualism Growing out of a Collective Legacy 221 Criticism of the conventional wisdom 222 a. The conventional private property myth 222 b. Diversified entrepreneurship theories 223 Public entrepreneurship for the collective good 225 a. The lack of absolute property rights and of an individualistic culture in China 225 b. Public entrepreneurship - a stepping stone 226 c. Fuzzy property rights another stepping stone 229 Transitional Property Rights and Ownership of High-Tech Spin-Offs (1992 Onwards) 233 Institutional Constraints on Changes in Ownership and Control within Publicly Listed Companies 233 The stock mechanism: beleaguered policy choice 233 Institutional analysis 238 a. Institutional arrangements of the Chinese Stock Market 238 i) Restructuring of Semi-Official Institutions into PLCs - the Transformation of a High-Tech Management Committee: The Case of East Lake High-Tech PLC 241 ii) Ceding Ownership for Business Growth: Trading of Ownership and Control Rights between East Lake High-Tech and Private Enterprises 242 b. Institutional dilemma - failed attempts at clarifying property rights through shareholding restructuring in the stock market 247 iii) Strengthened or Weakened? Rights of Control with Huagong High-Tech PLC 251
Chapter 8 Case Study of High-Tech Shareholding Corporations 256 The background of university high-tech publicly listed companies 256 Agreements between Huagong High-Tech and HUST 259 Key findings 263 Question of Corporate Governance within PLCs 269 The absence of the ultimate principle and the formation of networking executives 269 Leadership and management issues within university high-tech PLCs 276 Corporate governance structure within Huagong High-Tech 277 Ownership structure of sample university PLCs - a new paradigm? 280 Conclusion 285 The Path-Dependence Features and Consequences Associated with High-Tech Spin-Offs 285 The strong presence of the state 285 Fuzzy property rights - a stepping stone 287 Public entrepreneurship - another stepping stone 289 Consequence of 'path dependence' - the potential costs of further change 290 Challenge to the Neo-Classical Property Rights Perspective 291 Implications for the Development of Research on Property Rights in China 294 Bibliography 299 Index 321