Why have private enterprises in China flourished when the country's reform policies remain within the institutional framework of state socialism and the enterprises are discriminated against in financial and regulatory terms? This is the question Victor Nee and Sonja Opper seek to address in their book. Arguing against state-centered explanations and relying on new institutionalism, they contend that an account of China's capitalist development should focus on the “endogenous emergence of economic institutions” where “mechanisms embedded in social networks” occupy a central position (p. 9).

In their view, China's marketization presented incentives that were readily grasped by economic actors who experimented with practices of raising capital, hiring workers, collaborating with suppliers and distributors, and engaging in innovation, among others. Uncertainty and related collective action problems, while not tackled by formal market institutions, were overcome by these entrepreneurs and “like-minded economic actors” who, motivated by cost-benefit calculation, exercised mutual surveillance and enforced the norms in cross-cutting networks. These norms and practices were then diffused within the region and beyond through isomorphism. Only eventually were they ratified by the accommodating state with legal enactments (pp. 20–21).

Nee and Opper put forth their arguments through an empirical study of the Yangtze delta region, a location deprived of economic activity and infrastructural development during the Maoist era and, in their view, a “natural laboratory to study the formation of capitalist economic institutions” (p. 9). In 2006 and 2009 they surveyed 700-plus private enterprises of various sizes in five industries, asked 200 interviewees to participate in an experiment, and interviewed 111 entrepreneurs, government bureaucrats, and scholars. Among other issues, they studied the emergence of entrepreneurship, the adoption of new organizational forms, the formation of industrial clusters, the emergence of the labor market, efforts of technological innovation, and the significance of political connections. Each of these dimensions was examined in depth in a substantive chapter of their book.

While sharing some insights with the works of David WankFootnote ³ and Doug Guthrie,Footnote ⁴ Nee and Opper's book differs radically from those questioning the significance of private enterprisesFootnote ⁵ or those emphasizing the role of the stateFootnote ⁶ and the capitalist world economy.Footnote ⁷ This thought-provoking book has a wealth of ideas, the central line of which has been argued robustly and supported by the findings of superbly executed research. It is a valuable contribution to the study of Chinese capitalist enterprises and will remain a key reference for a long time to come.

Having said so, it remains important to highlight a few issues that call for further consideration. In particular, the notion that the Yangtze delta region is a “natural laboratory” that witnessed the “endogenous emergence of economic institutions” may be somewhat misleading. Chinese private enterprises have not emerged in a vacuum and, even though the economic actors have to be credited for their initiatives, they have hardly invented the capitalist institutions. Due consideration has to be given to the global diffusion of capitalism, the role of the Chinese state, and other sociocultural factors.

As an example, the limited liability company is an important institution of Western capitalism. Only after it had been introduced by China's central government to privatize state-owned enterprises were the economic actors able to appropriate and adapt this organizational form to suit their purpose of gaining legitimacy. As another example, although private enterprises played a pivotal role in shaping China's newly formed labor market, the latter emerged in the context of a strict distinction between urban and rural residency enforced by the state. It would be an overstatement to claim that China's economic institutions emerged entirely from the bottom up.

Related to the above are the striking similarities between the Chinese private enterprises studied by Nee and Opper and those from Taiwan, Hong Kong, and Singapore, which have been studied extensively in the last two decades.Footnote ⁸ The importance of social networks and the tendency to adapt Western capitalist institutions and merge them with Chinese practices are unmistakable in all the cases. There is clearly room for more systematic comparison. Above all, if Nee and Opper have not submitted entirely to a utilitarian view of economic actions and emphasized exceedingly the Yangtze delta region's relative neglect during the Maoist era, they might have attached greater significance to the region's long history of artisanal and commercial activities and Shanghai's position as a burgeoning capitalist center during the Republican era. In so doing, they might have given more weight to the preexisting though latent enterprise culture and played down their claim of the endogenous emergence of economic institutions.