Modes of state intervention and business group performance in China's transitional economy

Abstract

This paper examines the contingent nature of state intervention affecting business group performance in the context of a transition economy by identifying different modes of state intervention in China's transitional economy. Using data on China's 76 business groups collected in 2006, I find that, at the group level, modes of state intervention have different economic effects on business group performance, depending on the specific modes of intervention and the context of the institutional environment in China's transitional economy. Through direct intervention – such as ownership, officials, and Chinese Communist Party members at the group level – the Chinese state failed to provide positive economic effects. However, the result demonstrates the state's ability to provide positive economic effects by matching the functional demands of the emerging market, such as loans from state-controlled banks as financial support.