In Institutional Change and the Development of Industrial Clusters in China, Jinmin Wang focuses on the institutional dimension of SME cluster development in East China, and examines how institutional change affects the formation and development of textile and clothing clusters in Zhejiang Province through three case studies – the Ningbo clothing cluster, Shaoxing textile cluster, and Yiwu socks cluster. The author distinguishes between informal, formal and international institutions, and argues that “the evolution of political and economic institutions determine the economic performance of transitional economies eventually because they create an incentive structure of the whole society. The evolution of the institutional matrix has had great impact on the formation and growth of industrial clusters in the course of regional development in rural China in transition” (p. 6). To analyse industrial cluster development in China through an institutional dimension is indeed a fresh angle and is one of the key contributions of this book.
Since the start of reform and open-door policy in 1978, China has opened up to the foreign market and undertaken many market-oriented reforms, such as ownership structure change, land reform, price reform and labour market reform. Wang's book highlights two unique institutional factors: institutional entrepreneurship and the commodity trading market. Indeed, dynamic and entrepreneurial local government is very important for the success of numerous industrial clusters in China because it helps to address the key market failures at initial stages. This has been described as “local state corporatism” by Jianniu Xu in his paper “Post local state corporatism: a case study of local government's role in the development of industrial clusters after privatization” in Asian Industrial Clusters, Global Competitiveness and New Policy Initiatives (World Scientific, 2009). The commodity trading market is also critical since it helps to link the producers, suppliers, wholesalers, retailers and buyers, which helps to save time and costs, access timely information, and nurture informal networks and trust. All these are very important for the success of the clustered firms (mostly SMEs). However, some significant institutional factors behind institutional entrepreneurship are not mentioned, such as fiscal decentralization and the GDP-centred government evaluation system, which provide strong institutional inspiration for local government to promote economic growth, and a freer labour market, which allows workers to move more freely (including from government or SOEs to private firms). Beyond the local government, it's not clear whether other formal institutions such as training institutes, technical schools, colleges and R&D institutes, or less formal or informal institutions such as cluster associations, chambers or “underground” financial cooperatives played some role in the development of these clusters. In the case of Wenzhou, “underground” financial cooperatives and industrial associations are well known for their important contributions to the local clusters.
The study also mentions the role of economic and technological development zones (ETDZs) and industrial parks in the cluster development. This may create some confusion. According to a World Bank study – Building Engines for Growth and Competitiveness in China (World Bank, 2010) – the ETDZs and industrial parks were all developed through a top-down approach, and their development trajectory is quite different from most industrial clusters, which were developed through a bottom-up approach. Although there are some cases of clusters being developed through zones in recent years, they are few and certainly not those mentioned in the book.
The three case studies are all relevant and fit well with the framework used in the book; however, it would be useful if there were more information on the profile of each cluster, such as the number of firms, employees, export volumes and skills level. In the study, the information is mostly on the city level, and draws on existing sources such as statistical yearbooks, published research, news media and anecdotes; there are no survey data or empirical analyses, so the cases are mostly descriptive.
In addition, the book rightly emphasizes the roles of local governments in supporting technology innovation, business diversification and internationalization of the local clusters, but not much information on how they did it. Therefore it's hard to derive concrete policy implications beyond an active local state and commodity trading market. Also, how did the FDIs help local cluster development in terms of technology, marketing and skills?
Despite the few caveats mentioned above, this study provides a rich understanding of the correlations between cluster development and dynamic institutional change through co-evolution of the public and private sectors, and makes a useful contribution to the literature on industrial clusters in transitional economies within an institutional approach. It will be a good reference for academic researchers on cluster development in China and interesting reading material for college students, especially those majoring business and economics.
