Adam Segal, Digital Dragon. High-Technology Enterprises in China, and Kellee S. Tsai, Back-Alley Banking, Private entrepreneurs in China

IN MANY respects, the dynamism of China’s economic growth
represents a huge challenge for the social sciences. Unlike Western capitalism,
the economy and in particular the private sector over the last ten years have
developed in the absence of a coherent corpus of laws regulating the systems and
transfers of property ownership. In another paradox, some analysts have held the
view that China has followed a development model inspired by the experiences of
its Japanese, Korean and Taiwanese neighbours, but the hypothesis of a “developmentalist”
central Chinese state is contradicted by the variety of local situations and the
distance that separates them from the directives formulated at the central level.
The works of Adam Segal and Kellee S. Tsai both offer important responses to the
challenge presented by the Chinese case to classical analyses of economic development.

The object of Adam Segal’s study is the high-technology
enterprises under private management (the minban or minying kejiqiye).
These enterprises, neither public nor private, in fact come under various systems
of property ownership: they are sometimes state enterprises, sometimes collective
enterprises, sometimes private enterprises(1).
The goal of the author is not only to show that the policies implemented to promote
the development of these enterprises have differed from one place to another in
China, but also to explain why. To do this, he examines four big cities: Peking,
Shanghai, Xi’an and Guangzhou. He has hunted through the local press, read
the administrative reports or the development plans for this sector of activity,
and conducted over a hundred meetings with entrepreneurs as well as representatives
of the administrative departments concerned.

To understand the variety of strategic choices operated by
the authorities, Segal places them in the framework of local economic systems
that he characterises by four elements: the technological and scientific resources
available, the balance of power between the different administrative departments,
the relations between the local government and the central authorities, and local
traditions in the field of economic policy. These four elements define an institutional
configuration specific to the area under consideration, which, he concludes, has
fashioned the local path that has been taken when it comes to the promotion of
the high-tech enterprises. The heart of the work is thus formed by the chapters
in which the author reconstitutes these local trajectories. Each time, the author
directs his questions at three aspects: the legal form (the system of property)
adopted by the enterprises, the type of financing that has been implemented, and
the relationship between the local government and the enterprises. Studying the
emergence of the same sector of activity at several points on Chinese soil, the
author logically associates the characteristics of the local system with the success
or failure of the promotion of the high-tech industries.

Some of the results of the survey may well come as a surprise.
For example, contrary to the received idea that the government is omnipresent
in Peking, Segal reveals that the high-tech enterprises have developed in a way
that has been largely independent of the central authorities. It is only in a
second phase, after their initial success, that the local government and the State
Council have set up a zone at Zhongguancun where these enterprises are given a
privileged welcome. This trajectory is very obviously to be placed in the context
of the characteristics of the local economic system. Peking benefits from the
largest concentration of universities and other public research institutes, yet
at the same time the tools of industrial planning are less developed here than
in other cities such as Shanghai. In that city, the development of the high-tech
industries has been concentrated around the large state enterprises. The situation
is comparable in Xi’an, where the local economy is dominated by state enterprises
and the defence industries. For its part, Guangzhou has logically appealed to
foreign capital, in particular to entrepreneurs from Hong Kong.

In her work, Kellee S. Tsai examines the contribution made
by informal financing to China’s growth (70% of the enterprises at which
she conducted surveys have resorted to one form or another of informal financing:
collateral loans, tontine schemes, loans from family or friends, etc.). The three
questions at the core of the work are: how can the wide dissemination of informal
modes of financing be explained while they are actually illegal? Why does the
informal financing on offer vary from one place to another in China? Why, in the
same local area, do private entrepreneurs have different ways of accessing this
financing? Tsai looks not only at the diversity of the local situations, but also
at the varying usage that private entrepreneurs make of the same financing resources
available within a given territory.

The argument is supported by a work that covers a considerable
amount of terrain and involves more than twenty months of research conducted between
1994 and 2001 (which gives Tsai the authority to comment on developments(2),
three hundred interviews with private entrepreneurs, executive officers of banks
and administrative departments, in eighteen different locations in the provinces
of Fujian, Zhejiang and Henan. The scope of the sampling allows certain hypotheses
to be verified statistically (correlation tests). Thus, in sixteen of the eighteen
localities investigated, the attitude of the local government towards the private
sector (repressive or favourable) explains the degree of institutional diversity
when it comes to informal financing.

The data also reveals that the strategy of individual entrepreneurs
where financing is concerned depends on the length of their experience, the scope
of their political relations, their residential origins as well as their sex.
Tsai thus also stresses the diversity of the private entrepreneurs themselves.
If, under given conditions, they make different use of the modes of financing
available, it is because each one is characterised by a different political and
social identity. Thus, an entrepreneur who enjoys solid political relations will
be more disposed to mobilise the formal credit system than a migrant woman possessing
few points of contact in the local society.

The response that Tsai gives to the hypothesis of a “developmentalist”
Chinese state, even local, consists in what she calls the “the local logics
of economic possibility”. The author emphasises both the importance of the
heritage of the Maoist period (the presence of state enterprises or powerful collective
institutions) and the initiative of the entrepreneurs who, though certainly embedded
in the given local structures, nevertheless possess capacities for innovation
in the use of the available resources. What matters for the understanding of the
processes underway are thus less the impulses given by the central government
than the local configurations that are in place.

Naturally enough, the two works share the same comparative
method, which stresses the break-up of Chinese territory into several parts. This
choice allows two dangers to be avoided, one being abstract and misleading generalisations
on the scale of a country that contains so many contrasts, the other the impasses
of a pure monograph. The chosen method is extremely fruitful here and allows both
authors to construct a number of typologies: four modes of development for the
high-tech enterprises for Adam Segal (p. 18); and three development models in
the informal financial sector for Kellee Tsai (p. 256).

The authors also insist on the necessity of deconstructing
the central state as well as the local governments. The Chinese state is not to
be considered as a coherent machine that marches to the beat of the same drum.
One would search in vain for a central Chinese administration that would be the
equivalent of Japan’s MITI or Singapore’s EPD. In China, it is necessary
to envisage the state as a decentralised structure, yet “embedded” in
specific institutional, political and social configurations. Adam Segal is interested
precisely in the interactions between the local and central echelons. Kellee Tsai
clearly demonstrates that at the level of the same city the Bank of China and
the Bureau of Industry and Commerce can have divergent interests (while the former
wishes to suppress the informal types of credit, the latter may actively support
them, as collateral loan agencies or credit co-operatives are sources of revenue).
At each level – national, provincial, municipal, district or village –
the party-state is composed of administrative and political organs that work in
co-operation with but are simultaneously rivals to each other.

Another conclusion common to the two works is the weight exerted
by the past. Adam Segal evokes the “traditional patterns of industrial policy”
which vary from one area to another and help to explain the capacity of local
governments to formulate and implement an industrial policy. Kellee Tsai stresses
the Maoist heritage, a factor that structures local logics. Where the state did
not organise economic development during the Maoist period, the private economy
is active (as in Wenzhou) and the local authorities are agreeable to the creation
of new forms of financing(3).

Certainly, the reading of the two works leaves something to
be desired. Adam Segal does not furnish, for example, any indices of the economic
or technological performance of the enterprises under consideration. To what extent
are these Chinese high-tech companies genuinely innovative? Do a number of them
not merely content themselves with assembling parts, extensively imported, and
are they thus not simple manufacturing enterprises? Has China not planted its
territory with technology parks (gaokexue yuan) that, when they are not
deserted, primarily welcome enterprises on the look-out for tax exemptions and
easy access to credit? Is the comparison between Zhongguancun and Silicon Valley
in California relevant (the thought here is in particular directed at the question
of the circulation of information between enterprises with links to universities
or contributing research centres)? Kellee Tsai, for her part, sometimes tries
her reader’s patience with the immensity of the literature of sociology,
economics, anthropology and political science that she draws on (is the reference
to the habitus of Pierre Bourdieu, p. 259, really necessary?). Despite
these comments, the two authors offer a considerable wealth of results and open
up a path that is full of promise.

Translated from the French original by Nick

Back to top