Having officially abandoned the principle of a centrally planned economy in 1993, China now embraces a “socialist market economy.” As part of the economic reforms, state-owned enterprises (SOEs), the basic unit of implementing production plans and providing social welfare in the centrally planned economy, are being gradually transformed into modern corporations, the dominant vehicle for conducting businesses in a market economy. This corporatization reform is a process in which official ideologies, national policies, and the interests of the involved parties have intertwined and interacted in complex and dynamic ways. Yong Zhang's book attempts to enrich our understanding of China's large SOEs' corporatization reform in three important aspects: the actual implementation of the reform at corporate level, the impact of the reform on corporate strategy formulation and strategy implementation, and the roles that networks play in the reform.
The book's principal strength lies in the solid empirical data obtained from the six case companies, all transformed from large SOEs with different and distinct geographical locations and administrative affiliations. Of particular significance are the author's methodologically rigorous interviews with the case companies' senior executives, which give readers rich and valuable “insider information.” Drawing upon empirical evidence gathered, the book confirms and further extends findings from previous studies on China's corporatization reform. For example, while echoing the observation that corporatization is mainly a top-down process orchestrated by the state, the author highlights the variations in the pace and extent of corporatization in individual SOEs. Such variations, as the author rightly points out, are determined by local factors, among which are the seriousness of employment issues, the level of economic development and the degree of competition. The book's overall assessment of corporatization reform is consistent with many earlier studies: the reform has yet to transform in a fundamental manner the way in which state-controlled companies are governed and in which corporate strategies are made and implemented.
The book's key contribution to the existing literature is the introduction of the network perspective in understanding the nature – and, in many individual cases, the failure – of corporatization reform. The author argues, convincingly, that the strong tradition of personal network building has survived significant changes in the formal structures of SOEs. The author insightfully shows that network interests of corporatized SOEs' top executives always take precedence over organizational interests, if the two clash. The operation of personal networks may even paralyze regular functioning of legal and other formal institutions.
As thorough as the book is, there are some minor omissions. Firstly, on the issue of the parent–child relationships between the corporatized SOE and its subsidiaries, the book's nuanced account might have been more engaging if an inquiry had been made into how the relationships are translated into corporate governance of the listed “child” companies. The principal governance issue in the Chinese state-controlled listed companies has been the expropriation of minority shareholders by the majority shareholders (many are corporatized parent SOEs). Anecdotal evidence has shown that “tunnelling” of the controlled listed subsidiaries is a convenient method by which parent SOEs increase revenue and fund expansion. While some case companies have demonstrated improved financial performance, has that improvement been achieved, at least in part, at the expense of “child” companies' minority shareholders? Do the different forms of enterprise groups observed by the author affect the way in which the parent SOEs exercise control over their listed “child” companies?
Second, readers may be interested in knowing to what extent, if at all, the performance-based assessment schemes introduced and implemented by the SASAC (State-owned Assets Supervision and Administration Commission of the State Council) since 2006 has undermined the strong hold of personal networks over the affairs of corporatized SOEs.
Having said this, the book is a welcome addition to our understanding of large SOEs' corporatization reform in China. It is a very useful reference for academics, researchers and advanced students of Chinese enterprise reform, business and management, and corporate governance.
