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The networks of interfirm relations that developed in business groups during China's economic transition have been an important part of the country's economic transition. This article examines the process by which interfirm lending and trade ties emerged and evolved in the business groups in the early stages of reform. It studies the effect of business group structure on firm financial performance in the early stages of reform (1988-1990) and later in development (1994-1999). Initially, firms resorted to external resources (e.g., prior connections) to develop alliances. With time, they began to draw on internal resources (e.g., experience) to identify partners. Some business group structures improve member firm performance early in reform, but group membership reduces performance as markets stabilize. The findings underscore the changing significance of interfirm alliances at various stages of economic development. The findings are relevant for both developing countries and countries that developed in previous eras. [ABSTRACT FROM AUTHOR]

During an economic transition from socialism, market exchange replaces redistribution. We study firm decisions to enter product markets to understand the factors that influence this process. Managers in Chinese State Owned Enterprises operated within institutional constraints to make strategic decisions, and state intervention shaped which factors were salient. Firms financed through central government and bond issues relied less on markets. Firms funded through local government moved into markets faster; firms funded by banks were initially faster to markets but slower to markets after bank reform shifted lending policies. Thus, the accessibility, flexibility, and stability of financing shaped decisions about market entrance. [ABSTRACT FROM AUTHOR]