The New Whole State System: State-led Financialization, State-Private Fusion, and China’s Innovation Policies after 2008

Abstract

This article joins ongoing efforts to reconceptualize the role of the state in capitalism through the experiences of China. Using tech companies owned by Tsinghua University as a case study, we offer a novel perspective on China’s post-2008 innovation system and the renewed significance of the state in economic restructuring. Drawing on existing research about the history of capitalism and China, we contextualize China’s innovation system within its own history of interacting with global capitalism and identify five distinct new features at the conjuncture of post-2008 macroeconomic and geopolitical transformation: mixed-ownership reform, Government Guided Investment Funds, local government financing platforms, transnational investments, and (re)consolidation of party-state leadership. These new features, we argue, are defining elements of the “new whole state system” (NWSS), an emerging innovation system that deploys new market-driven financial tools to reinvent China’s socialist “whole state system”. Through historically informed multilevel empirical research, this article problematizes the state-market dichotomy to show how the Chinese state has proactively cultivated, restructured, and participated in the market to promote indigenous innovation (i.e. innovation that depends on domestic research capacity). It also situates China’s post-2008 economic reform within the global financialization trend and presents the NWSS as a spatiotemporally specific response to the shared problems of technological dependency and slowing economic growth. China’s response offers important policy lessons for other countries about the possibilities and limitations of using financial tools to restructure market institutions and direct excess liquidity to promote indigenous innovation.