Between Markets and Politics: Organizational Responses to Reform in China

In China's economic transition, firms diversify assets through investments in the rapidly expanding service sector in response to organizational uncertainty. Using data from a random sample of firms in Shanghai, the author shows that there are two situations that cause this uncertainty: economic instability, where weak firms struggle to survive in the rapidly changing market system, and administrative instability, where large firms that were the most protected are now being forced to handle the responsibilities that were previously handled by the state. The result is that both types of firm seek stability by spreading out risk through investment in low‐risk, fast‐return markets, revealing much about the economic reforms.The overall strategy of a firm reflects, at any given point in time, important organizational facts…. Any decision to fundamentally alter the deployment of internal resources represents a major structural change. These kinds of changes do not occur often; when they do, they provide us with an opportunity to examine the conditions under which actors can alter their social structures. (Neil Fligstein)