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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]

The networks of interfirm relations that developed in business groups during economic transition are central to China's reform and are becoming an important part of the country's emergent economic structure. Using a recent and original data set that includes direct observations of economic choices made by firms, the process by which these interfirm lending and trade ties emerged and evolved in the early stages of reform is explored. Initially, information from sources external to the network dominated the formation and direction of exchange relations. Firms turned to their prior connections, took advantage of market position, and drew on bureaucratic power to develop alliances. Over time, internal influences gained importance, and managers increasingly drew on internal nontrade relations and other indicators inside the business group to identify lending and trade partners. The results demonstrate the central but changing role that social relations and environmental cues played in the creation of economic structure during China's transition. This study also contributes to an understanding of the processes of organizational adaptation to a major economic transition and interfirm alliance formation more generally. The findings reveal that firms select exchange partners of known reputation and solicit relations that reduce uncertainty, even when there is a cost involved. [ABSTRACT FROM AUTHOR]

A central component of economic development is the reallocation of household labor, typically from subsistence agriculture to non-farm employment. This occurred in the advanced market economies, during the Industrial Revolution, contributing to increases in agrarian and industrial productivity and raising standards of living dramatically. A similar process began in China in the first decade of economic reform and has been central to the development of China's rural and urban economies. Despite its broad social implications, the process by which rural households allocate labor is not well understood. In this paper, we examine the strategies rural households used in the early stages of China's economic reform as they adapted to fundamental changes in the institutional structures of the nation's agrarian economy. Using a large, national sample, we explore the degree to which households diversified labor efforts across types of non-farm work. We find that peasant households allocated labor to non-farm work only after subsistence needs were met. We also observe that peasants generally responded to local and regional opportunities but that political capital, human capital, and cohort effects accounted for differences in household responses. [ABSTRACT FROM AUTHOR]