SYDNEY: 16 May 2013 - In 1993, the PRC enacted a formal Company Law for the first time.  This paper seeks to locate the tradition of corporation law in the PRC within the larger context of the Chinese political economy and a longer history, going back to the so-called Township and Village Enterprises (TVE’s) which were the chief engine of growth in China through the 1980’s and into the early 1990’s—indeed up to the enactment of the Company Law.  The reason, I suggest, that the governance of TVE’s does not look like corporation law to most observers lies in the distinctive political economy of reform-era China that makes it hard to miss it.

The scholarship on TVE’s is voluminous, yet observers have had a great deal of difficulty even determining whether they are a public or private form of enterprise, given their intimate connection with local rural officials.   I analyse the TVE’s as a somewhat unintended consequence of the fiscal re-structuring of the state, as a result of which local governments took on an economic life of their own, which in turn gave them an incentive to generate local growth. 

Sometimes, the enterprises under their jurisdiction were run by the local governments directly, sometimes they hired managers from the community, and sometimes they leased the enterprises to a local citizen.  Although the enterprises took diverse forms and at least initially  opeated in absence of formal regulation, remarkably enough the TVEs generally did not end up looted either by officials who oversaw them or the managers they hired: rather, the TVEs’ returns were generally re-invested in the enterprises themselves or in a host of socially desirable local welfare functions. 

Sociologists have characterised this phenomenon as a kind of redistributive 'local state corporatism.'  I analyse it as a kind of local, rural corporation law instead—or rather as an instance where local government law performed many of the functions ordinarily performed by formally enacted corporation law.  I do so with the aid of institutional economists’ theory of the firm as an institutional hierarchy designed to reduce transaction costs.  In the context of China in the 1980s, it was the local state that represented the hierarchical institution best adapted for that task.

I next extend my analysis to the re-structuring and corporatization of urban State Owned Enterprises (SOEs) in the 1990s, examining the ways in which the political institutions of the state, the economic institutions of the market, and even kinship structures have continued to inform the operation and legal regulation of economic enterprise in the PRC. Finally, I contest the narrative of 'transition' in which Chinese development is conventionally analysed. 

The unstated assumption of the transition discourse is that any changes in China have a pre-determined goal and their direction that can be known in advance.  I suggest that the changes taking place in China today are best regarded, not as a transition to anything (whether ideal-typical capitalism or something else), but simply as an ongoing transformation—the end goal of which is not known to anyone, and the determination of which is ultimately a political question.