The Industrial Dynamics of China's State Capitalism: The Biopharmaceutical Industry and the Chinese State

Friday, June 24, 2016: 4:15 PM-5:45 PM
251 Dwinelle (Dwinelle Hall)
Marcus Conle, University of Duisburg-Essen, Duisburg, Germany
Many characterizations of China’s capitalism are still caught in a transition narrative that is firmly grounded on a public/private dichotomy. According to the narrative, the Chinese economy is basically formed by two distinct organizational populations, state and private firms. These populations are supposed to constitute two disparate sectors of the economy as the populations are supported by fundamentally different sources and forms of institutional resources, while the firms of each population are located in different industry and market niches. Indeed, the description of two disparate sectors fits the facts of a circumscribed number of industries with high infrastructural and military importance ranging from power supply to telecom services, in which the large traditional state-owned enterprises are by themselves, as well as a large number of low-technology industries ranging from apparel to fireworks, all of which are almost exclusively populated by crowds of small private enterprises. However, the clean distinction between the two sectors is much less convincing with a view to a further range of industries that are likely the most significant in explaining the nature of China’s capitalism. The collection of industries specifically includes those that are deemed strategic by the Chinese leadership for their strong technological opportunities. As regards these industries, the dualist conception is arguably not only detrimental for making sense of the sectoral development paths and the role(s) of the Chinese state in competitive selection but it also interferes with attempts of systematic comparison of the country's organizational trajectories with that of other (non-transition) economies. Rather than conceptualizing organizational dynamics with a view to competition within and (indirectly) between the two mentioned populations, the paper proposes a framework that focuses on processes of change within industrial ecologies. The framework conceives industry sectors as a set of fields that are more or less related due to the particulars of technology (and demand). Focusing on the effects of a technological shock, the analysis first seeks to grasp the changes in the forms of organization resulting from two processes: the entry into (new) fields and the organizational integration of activities relating to (various) fields. The examination of the organizational dynamics within the sector provides the basis for an investigation of the institutional environment that affects, and adapts to, the identified processes of entry and integration. It consists of the (domestic) market institutions that shape the barriers to entry to and the value of the fields as well as the common institutional resources that support the firms' capability building. Applying this framework to China’s biopharmaceutical industry, the analysis highlights the peculiar response of incumbent firms and the unusually integrated strategy of entrants in comparison with other countries, the ease of entry due to low barriers, the strong state support of entry both in terms of the scope and the redundancy of programs, evidence of a Matthew effect in state support, the investor role of the state and its effect on the sector's ownership structure, and the significant role of institutional outsourcing, specifically the raising of financial capital, for organizational expansion.