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Paper Tigers, Hidden Dragons

Paper Tigers, Hidden

Dragons
Firms and the Political Economy
of China’s Technological
Development
Douglas B. Fuller
1
3
Great Clarendon Street, Oxford, OX2 6DP,
United Kingdom
Oxford University Press is a department of the University of Oxford.
It furthers the University’s objective of excellence in research, scholarship,
and education by publishing worldwide. Oxford is a registered trade mark of
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© Douglas B. Fuller 2016
The moral rights of the author have been asserted
First Edition published in 2016
Impression: 1
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a retrieval system, or transmitted, in any form or by any means, without the
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for information only. Oxford disclaims any responsibility for the materials
contained in any third party website referenced in this work.
To my parents, Kathleen B. and Richard K. Fuller

Acknowledgments
I am incredibly grateful to have had the help of so many gifted people along
the way to the completion of this book. First and foremost, I wish to thank
Suzanne Berger and Richard Samuels for all their guidance and patience as my
dissertation supervisors at MIT’s Department of Political Science. Whatever
else I’ve accomplished as an academic is in no small part the result of those
years learning from them. I would also like to thank my first PhD supervisor at
MIT, Cui Zhiyuan, who has always been both a gentleman and a scholar.
I remain forever indebted to Tayo Akinwande and Charlie Sodini for teaching
me all two electrical engineering professors could possibly teach a distressingly
non-technical social scientist like myself about the electronics industry and
for our wonderful times conducting research together in Asia. Richard Lester
as director of the Industrial Performance Center (IPC) dispensed good humor
and even better advice to all the graduate students working there. I would also
like to thank a number of classmates and colleagues from MIT: David Art, Dan
Breznitz, Ed Cunningham, Erica Fuchs, Wenkai He, Sara Jane McCaffrey, Dane
Morgan, Apiwat Ratanawaraha, Amos Zehavi, and most especially, Yutaka
Kashiwabara and Jiyoon Kim.
Prior to MIT, John Zysman and Lillian M. Li inspired me to pursue an
academic career involving comparative political economy and China.
In my academic career, I’ve been blessed with supportive colleagues includ-
ing Henry Rowen, Marguerite Hancock Gong, William Miller, Michelle Hsieh,
Rafiq Dossani, Iris Xiaohong Quan, and Yo Yamaguchi at Stanford APARC,
Nanette Levinson at American University, Chung-Ming Lau, Shige Makino,
Kevin Au, Daphne Yiu, Gongming Qian, and John Lai at Chinese University of
Hong Kong, and Dean Wu Xiaobo, Chen Ling, Wei Jiang, Chen Zongshi,
Wu Aiqi, Dong Xusheng, Zhang Zhongyuan, and Mark Greeven at Zhejiang
University. At King’s College London, Olivier Butzbach, Ginny Doellgast,
Tony Edwards, Howard Gospel, Aditi Gupta, Gregory Jackson, Finola Kerrigan,
Peter Kingstone, Hyunji Kwon, Gretchen Larsen, Dirk vom Lehn, Gerhard
Schnyder, Matt Vidal, and Cagri Yalkin offered a wonderful mix of friendship
and intellectual stimulation.
I’ve benefited greatly from Tom Gold, Bill Hurst, Kun-Chin Lin, Adam Segal,
Victor Shih, Eric Thun, Kellee Tsai, and, particularly, Matt Ferchen (who read
Acknowledgments
much of the manuscript), sharing their insights on Chinese politics and

political economy. My ongoing discussions about the political economy of
development with Caroline Arnold, Dann Naseemullah, and Joe Wong have
also proven invaluable to me.
In Taiwan, I would like to thank Chen Shin-Horng, Huang Chang-Ling,
Hsu Szu-Chien, Hu Mei-Chih, Lee Chuan-Kai, Lü Kuei-yun, Sheng Chien,
Shih Chin-Tay, Su Rong, Tao Yi-Feng, Wang Jenn-Huan, Yi Meiqin, and
Zhan Yaojun. In China, Dong Zhenghua, Li Yansong, Li Lihua, He Yan,
Xia Jianzhong, Zhu Ming, the inimitable self-proclaimed “gourmet club of
Beijing” (Cen Hong, Chen Lu, Wang Shengjun, Feng Yali, Ke Yinbin, Kang
Rongping, Liu Yuanchun, and Sun Tao), Coco and Steve Terry, and, last but far
from least, Liu Dong provided friendship and so much more. In Hong Kong,
thanks goes to Doris Kwan, Edwin Lee, Basti Bujnoch, and Peng Zhengmin.
I remain deeply grateful to David Musson and Clare Kennedy at Oxford
University Press for all their hard work as editors for this book.
Finally, I would like to thank my family. My wife, Wu Chun, and our
children, Katherine and Madeline, have given me great support and demon-
strated even greater patience during my long slog to finish this book. My
in-laws, Yan Xueyun and Xu Wenjin, have helped us with childcare and so
many other things in the UK and China. The Nakayamas ( Julie, Yaz, Emily,
and Natalie) have been unfailingly supportive and ensured that at least one
child (and one set of grandchildren) remained close to home for my parents
while I’ve been abroad. I dedicate this book to my parents, Kathleen B. and
Richard K. Fuller, to whom I owe simply everything.
viii
Contents
List of Figures xi
List of Tables xiii
List of Abbreviations xv
Part I. Setting the Stage

Introduction 3
1. The Framework 12
Part II. State Policy, Firms, and Upgrading Outcomes

2. California (and Hsinchu) Dreaming: China’s Flailing Efforts
to Replicate Technology Clusters 43
3. Paper Tigers: The Weakness of China’s National Champions 65
4. State-Driven Technology Commercialization versus the

Globalization of R&D 94
Part III. The Integrated Circuit Industry

Introduction to Part III 113
5. IC Fabrication 117
6. IC Design: From Reverse Engineering to Innovation 156
Part IV. China in Comparative Perspective

7. China’s Global Hybrid Model for Development under Globalization 189
8. Importing Institutions and Comparative Capitalism 209

Contents
Conclusion: China’s Economic Future and the Future

Role of Hybrids 224
Appendix: Interview List 231

Bibliography 241
Index 271
x
List of Figures
1.1 Causal chain 24

4.1 US utility lead inventor patents by firm type 108
III.1 Integrated circuit value chain 115
List of Tables
1.1 China’s NPLs in comparative perspective: NPLs as a portion of GDP (%) 21

1.2 Typology of firms, causal factors, and development outcomes 27
2.1 Suppliers for Taiwanese IT manufacturers in the PRC 59
3.1 Production shares of IT end products in China, 2002 and 2012 66
3.2 PC market share (by units sold) in China 68
3.3 Identifiable state procurement as share of Lenovo’s sales 71
3.4 Subsidies for appliances to the countryside program recipients, 2009 76
3.5 China’s major telecommunications infrastructure vendors 82
3.6 Global wireless infrastructure market share (revenue), 2002
and 2010–2013 (%) 84
3.7 China smartphone sales (%) by price segment, 2012–2013 92
4.1 Fixed asset investments and R&D by firm type (%) 108
5.1 China’s gap with leading international IC fabrication 122
5.2 SMIC’s localization of engineering talent 135
5.3 SMIC shareholders, 2004–2012 141
5.4 SMIC board of directors, 2004–2011 142
6.1 Top ten fabless firms and state procurement, 2011 160
6.2 IC industry promotion policies 162
6.3 National IC design bases 165
6.4 Contributors to upgrading by firm type, 2001–2005 and 2007–2011 174
7.1 The four paths of development 200
8.1 Representative scholarship of the robust and fragile scenarios 218
List of Abbreviations
AMB advanced memory buffer

AMC asset management company
CAD computer aided design
CCP Chinese Communist Party
CME coordinated market economy
CMOS complementary metallic oxide silicon
CPU central processing unit
DRAM dynamic random access memory
DSP digital signal processor
DTV digital television
EBIT earnings before interest and taxes
ECE ethnic Chinese economies
ECF ethnic Chinese foreign
EDA electronic design automation
EPZ export-process zone
ETDZ Economic and Technology Development Zones
FDI foreign direct investment
FIEs foreign-invested enterprises
FYP Five-Year Plan
GPN global production network
HTDZ high-technology development zones
IC integrated circuit
IDM integrated device manufacturer
IFI international financial institution
IP intellectual property
IPO initial public offering
IPR intellectual property rights
ISI import-substitution industrialization
IT information technology
JV joint venture
LCD liquid crystal display
LGFV local government financing vehicle
LLP limited liability partner
LME liberal market economy
MNC multinational corporation
MPW multi-product wafer
NPLs non-performing loans
OBM original brand manufacturer
ODM original design manufacturer
OEM original equipment manufacturer
OS operational strategy
PRD Pearl River Delta
R&D research and development
S&T science and technology
SEI strategic emerging industry
SEZ special economic zone
SOE state-owned enterprise
SOHO small office and home office
SPC State Planning Commission or stored program control
STB set-top box
TTC transnational technology community
TVE township and village enterprise
VC venture capital/capitalist
VIE variable interest entity
VoC varieties of capitalism
WFOE wholly foreign-owned enterprise
YRD Yangtze River Delta
Source abbreviations
AFP Agence France-Presse

AWSJ Asian Wall Street Journal
DT Digitimes
xvi
DYBG Diaoyan Baogao [Ministry of Science and Technology’s Investigation

Reports]
DYCJRB Di Yi Caijing Ribao [First Financial Daily]
EET Electrical Engineering Times (online version)
ESJJBD Ershiyi Shiji Jingji Baodao [The Twenty-first Century Economic Herald]
FT Financial Times
JJGC Jingji Guancha [The Economic Observer]
Marbridge Marbridge Daily
NFZM Nanfang Zhoumo [Southern Weekend]
NYT New York Times
SS Silicon Strategies
SST Solid State Technology (online version)
TCNA Taiwan Central News Agency
TENS Taiwan Economic News Service
TT Taipei Times
USPTO United States Patent and Trademark Office
WSJ Wall Street Journal
XSJ Caixin Zhoukan (formerly Xin Shiji) [Caixin Weekly]
xvii
Part I
Setting the Stage
Introduction
On a very hot and humid day in July of 1998, I, a naïve first-year doctoral
student, unwittingly imitated those celebrated British companions of mad
dogs under Hong Kong’s noon sun by making the then three and a half
hour train trip from Shanghai to Wuxi in Jiangsu Province clad in coat and
tie. My mission was to see first-hand the fruits of China’s efforts to leapfrog
into advanced semiconductor technologies. I had been forewarned by two
different sources about what to expect. Some Massachusetts Institute of Tech-
nology engineering professors had made the same trip six months earlier only
to find an operation where the new fab (the fabrication facility or, in layman’s
terms, computer chip-making plant) remained empty because the state-
owned firm charged with operating it, Huajing, had no idea what products
to turn out for the market. Later, a Lucent employee, a Chinese returnee (a
term used for expatriate technologists who return home, see Saxenian 2006)
involved in technology transfer from Lucent to Huajing, reported much the
same. Nevertheless, the Lucent employee invited me out to see the infamous
state-run 908 Project for myself. I left Wuxi that evening with two convic-
tions: I would never be able to remove the ring-around-the-collar from the
shirt I was wearing and China’s technology sector was stillborn.
As it turned out, only one of my two convictions proved true. My shirt was
ruined. As for China, its perceived technological rise now causes concerns
about economic and technological competitiveness, not to mention national
security, in many quarters. This book, based on more than a dozen years of
research, explains how China’s technological development transformed the
country from an also-ran to a competitor to be reckoned with in technology-
intensive industries. However, the story is not so thoroughly triumphant.
China’s technological development is uneven and fragile. Moreover, the
firms driving China’s development are not purely Chinese.
The argument in this book is that China has undertaken a path of techno-
logical development quite different from previous late developers. Whereas
state policy and market institution-building are the main explanations offered
for the success of past developers, China has had poorly developed, if perhaps
improving, market institutions and a state that is quite ill equipped to foster
and guide (let alone build) the industrial firms that have driven development
in late developers, such as Japan and Korea.1 In place of building robust
market institutions and implementing effective industrial policy, China has
instead allowed the space for a certain type of foreign firm to drive techno-
logical development in China.
While foreign firms have played a constructive role in economic develop-
ment in a number of late developers in the post-World War II era, they have
generally done so under one of two types of state-structured parameters. In the
first model, the state lured multinational corporations (MNCs) with incentives
and then encouraged them to progressively build up local competencies and
capabilities through upgrading each MNC’s own internal activities in the host
economy. Singapore is the foremost example of this model. Other states
concentrated on fostering the internal capabilities of their own domestic
enterprises and then encouraged (Taiwan) or coerced MNCs using market
access as leverage (Japan and Korea) to transfer capabilities to these local
firms. The deployment of a vigilant and capable host government that
could identify and punish MNC non-compliance was necessary in both of
these models.
In China, by contrast, the transnational, ethnic Chinese, technology com-
munity2 has served as the glue to bind foreign firms to China, working in the
place of effective state industrial policy. Put simply, shared ethnic ties have
provided the incentives to encourage ethnic Chinese foreign technology firms
to locate core technology activities in China. In contrast, other foreign firms
have tended to be slow to commit significant resources to the developing
world when left to their own devices.
Nevertheless, these shared ethnic ties alone are not enough to produce
technological development.3 The story of China’s technological development
is not simply one in which transnational ethnic Chinese technology networks
overcome all obstacles to development. Domestic and foreign institutions
external to these networks play an equally important role because these
networks do not operate in an institutional vacuum in China or elsewhere.
The institutions of foreign finance to which these foreign-invested firms are
linked are as important as the transnational networks into which they are
embedded. The importance of these foreign institutions is most clearly seen
1
See Moore (2002), Tylecote (2009), Tylecote et al. (2010), and Pettis (2013) on problems of
China’s state capacity for industrial policy, particularly in the area of finance.
2
Saxenian’s (2006) work documents how the ethnic Chinese transnational technology
community is just one of several of these ethnic transnational technology communities.
3
Hsu and Zhou (2010) and Kenney et al. (2013) offer critical assessments of the contribution of
returnees in various countries.
4
Introduction
by looking at the domestic firms that have links to the transnational ethnic
Chinese technology community via returnees working for these domestic
firms. Despite these transnational links, these domestic firms have conspicu-
ously failed to advance China’s technological development because they lack
robust linkages to foreign financial institutions.
The ethnic Chinese, foreign-invested firms (called hybrid foreign-invested
enterprises or hybrids for short) are the hidden dragons driving China’s
technological development. They are hidden because they are not widely
recognized as a distinct category of firms by the Chinese state and foreign
and domestic analysts of China’s economy. Standing in sad contrast to
them, China’s domestic firms are paper tigers. They have been the
targets of the government’s industrial policies, and celebrated and feared in
equal measure by foreign analysts.4 Yet the images of these firms’ techno-
logical prowess are by and large more fiction than fact, as this book will
demonstrate.
Beyond the domestic firms and hybrids, there is another set of foreign-
invested enterprises (FIEs) operating in China, the multinational corporations
(MNCs). The MNCs are those FIEs that either do not have ethnic links to
China or, if they do, eschew utilizing China as an extensive base for their
firm’s core competencies. The MNCs are neither hidden dragons driving
technological development nor paper tigers failing to deliver on their hype.
Some of these firms have contributed to China’s technological development,
but their commitment to China is generally weak so China’s development
would be much slower if it relied upon the MNCs to drive technological
progress. Chapter 1 explains in detail the differences between hybrids and
MNCs.
The combination of foreign institutions and the ethnic Chinese trans-
national technology network that has propelled China’s technological devel-
opment has important implications for three key concerns: (1) what will be
China’s near-to-medium term development trajectory; (2) how we conceive of
the political economy of development under globalization; and (3) how the
comparative capitalism literature conceives of the integrity of national insti-
tutional arrangements.
This introduction will now turn to examine each of these three subjects in
turn. Following the discussion of the themes, this chapter will examine the
information technology (IT)5 industry as a case and outline the organization
of the rest of the book.
4
Zeng and Williamson (2008), Breznitz and Murphree (2011), and Lee (2013) are examples.
5
The IT industry comprises computing, communications, software and consumer electronics
products, as well as the software and hardware subsystems and components that go into these
products.
5
1. Whither China?
Whether China will become an economic superpower is a question that

interests many. The key to answering this question is the nature and sustain-
ability of China’s route to development. This book finds wanting and provides
evidence against the arguments of the China growth optimists6 that generally
center on expansion of just good enough market institutions or clever state
policies or a mixture of both, but it is also critical of some of the assumptions
and arguments of the pessimists.
While this book concurs with many of the China growth pessimists’ compel-
ling arguments about China’s weak market foundations and the unsustainability
of China’s hyper-investment-driven growth, the book also directly challenges
key arguments and assumptions of some of the pessimists, even going so far as to
use the evidence they offer against them. Several commentators point to the
prominent role of foreign investment in China and see weakness (Nolan 2001;
Huang 2003; Huang and Khanna 2003). In this book, foreign involvement in
China’s economy will be shown to be a strength rather than a weakness.
Other pessimists point to China’s frail institutions to forecast economic
weakness or even failure (Bird 2008; Tylecote 2009; Unirule 2011; Wong and
Pettis 2013). The analysis offered here builds on these insights concerning
China’s institutional weaknesses, but argues that an alternative set of institu-
tions active in China, but located abroad, fill some of the institutional voids
that could otherwise drag China down.7
Ironically, given how much China has gained from its openness, one of the
major threats to embracing a mutually advantageous view of China’s eco-
nomic rise is China’s own economic and techno-nationalism. However, as
the subsequent chapters in this book will demonstrate, the Chinese state’s
techno-nationalist gambits have thus far been constrained by certain state
actors’ own interests in maintaining extensive international linkages. Thus,
China’s global economic ties have continued to keep its economy on a very
open path, despite the state’s sporadic efforts to scuttle them. In the last few
years, however, disturbing signs of increased resistance to openness have
emerged in China, from the state increasing its role at the expense of private
6
Optimist commentators, such as Dragonomics’ Arthur Kroeber and Goldman Sachs’ Jim
O’Neil, tend to focus on just good enough market mechanisms and downplay concerns about
overinvestment. Optimists in the scholarly community provide pro-state and pro-market
arguments. Heilmann (2008) believes in the Chinese state’s flexible, experimentalist economic
development capabilities. McNally (2012) celebrates a distinct Sino-capitalism featuring a capable
state and a vibrant entrepreneurial economy. Nee and Opper (2012) see market institutions
growing up from below. Lardy (2014) believes China’s bias towards state-owned firms has
diminished as the private sector has grown and economic policies have reformed.
7
The book acknowledges and indeed details how these foreign links are a point of contestation
and thus the continuation of these links cannot be assumed.
6
Introduction
enterprises (the guojin mintui phenomenon8) to what foreign businesses per-

ceive as increased protectionism.
Ultimately, politics will determine whether the hybrid model can be pre-
served or if adequate domestic institutional alternatives can replace it. The
conclusion of the book will revisit the question of China’s economic future
through exploring various scenarios and the role hybrids may play in them.
What is not in dispute is the positive role played by foreign institutions as an
institutional stopgap, a development underappreciated by both sides of the
whither China debate.
2. Beyond the State–Market Divide in Political Economy

of Development
In terms of development, the prescriptions offered by both mainstream

economists and revisionist political economists have proven hard for most
developing countries to put into practice. Mainstream economists have advo-
cated the magic of the market, focusing on getting the prices right and eliminat-
ing government “interference.” The revisionists have advocated an active state
role to foster, or even guide, development. The former prescription has run afoul
of the fact that market failures abound in the developing world and market-
building has proven quite difficult. The latter prescription has run afoul of the
fact that government failure has often proven almost as abundant in the devel-
oping world as market failure. As Stephan Haggard (2004) has observed, the
number of states that have effectively pursued state-led development in its classic
developmental state form are so few that it suggests that this route to develop-
ment cannot serve as a realistic blueprint for the rest of the developing world.
When considering economic globalization, the economists tend to be more
optimistic about development. Economists view globalization as an expansion
of markets whereas many revisionists fear that globalization as currently con-
stituted undermines state capacity to foster development. China’s combination
of foreign institutions and transnational networks suggests that there are alter-
native routes to development under globalization than the standard market and
state-oriented ones. Chapter 7 will discuss this issue in depth.
3. Foreign Institutions and Comparative Capitalism
Comparative political economy over the post-World War II era has principally
concerned itself with the institutional arrangements of distinct national
8
The literal translation is “the state advances, the private (sector) retreats.”
7
capitalisms; foreign institutions were only considered important when impli-

cated in the failure of national capitalisms. In other words, robust and healthy
national capitalist systems were nearly impervious to effective intrusion of
foreign institutions. In those nations where the local institutional arrange-
ments were so weak as to allow foreign institutions to gain sway, the foreign
institutions were regarded as complicit in the very weakness of the national
systems of capitalism. The dependencia school had just such a diagnosis for the
ills availing Latin American national economies.
One new approach to comparative political economy that incorporates an
important and potentially constructive role for foreign institutions in national
systems of capitalism is the internationalization of institutions approach
(Ahrweiler et al. 2006; Herrmann 2008; Lange 2009). This approach argues
that firms in nations without comparative institutional advantage for their
particular sectors can access institutions based abroad. The role of foreign
finance in spurring China’s development is similar to the internationalization
of institutions approach, but goes beyond it in two key ways. First, the
internationalization approach argues only that actors involved in economic
activities not related to a country’s comparative institutional advantage
would seek to draw on foreign institutions. This implies that outside insti-
tutions will support only those activities marginal to the core economic
activities of a given nation. This book presents evidence that outside insti-
tutions can support core economic activities. Second, the internationaliza-
tion of institutions approach assumes the existence of a comparative
institutional advantage. For many developing and transitional economies,
assuming such a comparative institutional advantage makes little sense
as the process of development is partly a process of creating such robust
economic institutions. Chapter 8 will explore the full theoretical implica-
tions of China’s reliance on foreign institutions for the field of comparative
political economy.
4. The IT Industry as a Case
This book focuses on the Chinese IT industry while also examining a broader
swath of industries in Chapters 4 and 7. There are several reasons for selecting
the IT industry as a case. The IT industry is both a representative case and a
critical case. Representative cases are those that potentially represent a wider
number of similar cases. Critical cases are those that have important broad
implications despite not necessarily being representative. A critical case can be
one in which the previous theories predict the polar opposite outcome from
the actual one. Or a critical case can be one in which the case itself is of such
great import that its singularity by no means diminishes its importance.
8
Introduction
The IT industry is representative of a growing number of industries that

have fragmented production chains, in which the production chain is seg-
mented into narrow functions carried out by different firms, as well as
rapid technical change, a common feature of technology-intensive industries
(Langlois 2003). There is growing evidence that firms in the developing world
can take advantage of these industry attributes to become important players in
these modularized or fragmented industrial production chains. These oppor-
tunities to become major firms within industrial production chains, in turn,
offer developing countries possibilities for economic development (Ernst and
Kim 2002; Lester and Sturgeon 2003). Thus, if China can develop the IT
industry in this manner, perhaps China and other developing countries can
develop a number of other high-tech industries in the same way.
The IT industry also closely approximates the ideal-typical globalized indus-
try with few trade barriers, so it can serve as a representative case of the
opportunities for development under globalization. This industry has rela-
tively low tariff barriers due to the World Trade Organization’s Information
Technology Agreement (ITA). By 2000, the ITA had eliminated tariffs and
duties in signatory nations for many IT products,9 which by the terms of
the agreement comprised over 90 percent of the world’s IT trade in 1997
when the ITA went into effect.10 There are also other international bodies
in the IT sector pushing for open trade, such as the World Semiconductor
Council (WSC), which has succeeded in reducing tariffs to zero in the dom-
inant semiconductor-producing and consuming economies, the European
Union (EU), Taiwan, Korea, Japan, and the United States. China joined the
WSC in 2006.
The IT industry is also a critical case for two reasons. First, the IT industry is
considered one of the critical technologies or general-purpose technologies of
the current era (Dahlman and Aubert 2001; Yusuf and Evenett 2002; Steil et al.
2002) and a crucial one for the development of future technology areas based
in part on IT technology (Anton et al. 2001; Trajtenberg 2002). Second, it is
also a critical case because the Chinese state prioritizes this sector. The IT
industry is one of the Chinese state’s pillar industries, industries the state
considers most important to develop, and an industry that Korea, Taiwan,
and Japan—the Asian neighbors China usually looks to emulate—have
9
The developing nations signing the agreement are allowed longer periods of time to adjust
their tariff schedules. What is more, the nations that are WTO members but not signatories of the
ITA still enjoy the tariff benefits from the lowering of tariffs by ITA signatories, which include the
triad of advanced economies: the EU, the United States, and Japan. Thus, this adjustment
mechanism actually works in favor of the developing world contrary to the predictions of the
globalization pessimists. In July 2015, fifty-four countries, including China, Japan, the United
States, and the twenty-eight European Union states, agreed to extend the ITA to include new
categories of products, primarily products not yet invented in 1997.
10
China became a member of the ITA following its WTO accession.
9
developed successfully. The development of technology has been a priority for

decades as enunciated in the Four Modernizations11 and IT has been con-
sidered a key part of technological as well as industrial modernization.12
Examining this sector therefore reveals much about how Chinese state policy
affects industry. The following chapters will demonstrate the state’s stark
failure in industrial policymaking in this sector. Given its priority status
assigned by the state, state neglect of this sector cannot plausibly be the
cause of this failed industrial policy. China’s IT sector developed despite
state failure. This fact demands an explanation.
5. The Organization of the Book
The book will address the themes and issues highlighted above across the
following chapters.
Chapter 1 will present the overall framework and causal mechanisms by
which ethnic Chinese hybrid firms linked to foreign institutions drive techno-
logical development in China’s high-technology industry.
Following the first part of the book introducing and framing the argument,
the next three chapters (comprising Part II) will address aspects of Chinese
state policy to induce technological development and contrast them with the
successes linked to foreign finance and hybrids. At the broadest level, there are
two main paths to technological upgrading and innovation. One is through
vibrant clusters of often initially small firms along the lines of Taiwan’s
Hsinchu and Silicon Valley in the United States. The other is upgrading and
innovation pursued through large firms along the lines of the Korean chaebol,
Japanese keiretsu, and Western conglomerates. Chapters 2 and 3 each address
one of these two broad paths to upgrading and innovation.
Chapter 2 explores China’s efforts to foster clusters of upgrading and innov-
ation through the promotion of development zones and venture capital,
i.e. efforts to mimic Taiwan and Singapore’s model of upgrading as well as
Silicon Valley’s model of innovation. The success of foreign venture capital,
particularly foreign venture capital embedded in ethnic Chinese networks,
contrasts with the meager outcomes of the domestic efforts in development
zones and venture capital.
11
The Four Modernizations are the modernizations of agriculture, industry, defense, and
science and technology (S&T). They were proclaimed on the eve of the Cultural Revolution,
during which they were temporarily shelved only to be reaffirmed at the Fourth National
People’s Congress in January of 1975 (MacFarquhar and Schoenhals 2006: 380). In 1991, S&T
was moved up from third to first position in ranking of importance of the Four Modernizations
(Fewsmith 2001: 47).
12
Various subsectors of the IT industry have been considered critical priority industries under
every one of China’s five-year plans (FYP) going back at least to the Seventh FYP (1986 to 1990).
10
Introduction
Chapter 3 looks at the Chinese state’s attempts to create national cham-

pions in a manner more akin to Japan or Korea than Silicon Valley. This
chapter evaluates the historical evolution and actual technological outcomes
of China’s national champions to document how the state’s embrace has
stifled those firms nominated to the guojia dui (the national team) more
than it has fostered them.
Chapter 4 delineates state policies to support research and development
(R&D) efforts in both small and large Chinese firms. It contrasts their prob-
lematic implementation with the R&D activities undertaken in China by
hybrids and MNCs. The chapter demonstrates through interview and patent
data that the real force behind R&D in China are the hybrids and, secondarily,
the MNCs, despite the state efforts described here and in Chapters 2 and 3.
Part III is a case study of one of the main technological drivers of the IT
sector, the integrated circuit or semiconductor13 (or, more colloquially, the
computer chip) industry. Chapters 5 and 6 examine the two most technology-
intensive segments of the semiconductor production chain, the fabrication
and design segments, respectively. An explicit comparison of the hybrids,
MNCs, and domestic firms’ technological development efforts and outcomes
demonstrates the superior developmental contribution of the hybrids in both
fabrications and design.
Part IV draws out the broader comparative lessons from the case of hybrid-
led technological development in China. Chapter 7 considers the lessons for
development under globalization that China’s technological development in
high-technology has to offer. The chapter delineates both sectoral and other
limitations of China’s hybrid-led development while arguing for its broader
applicability.
Chapter 8 tackles the theoretical implications of this study for the wider
field of comparative political economy. China’s engagement with foreign
institutions challenges some deep-seated assumptions about the role of for-
eign institutions in comparative political economy and adds to our under-
standing of the institutional arrangements of national capitalisms.
The Conclusion discusses China’s economic future and the related issue of
the political sustainability of China’s reliance on hybrid firms and, conse-
quently, on foreign institutions going forward.
13
Technically speaking, the semiconductor industry is broader than integrated circuits, but
these two terms are often used interchangeably even in policy and industry analysis discourse.
Part III will focus on integrated circuits and thus not include discrete semiconductors, which are
relatively low-tech.
11
The Framework
This chapter will provide a more detailed account of the causal mechanisms
that explain the outsized contribution of the hybrids, the moderate contribu-
tions of the MNCs, and the much smaller contributions of domestic firms to
China’s technological development. The argument connects the outcomes in
technological development in China back to the specific institutional arrange-
ments of finance.1 The failures of technological upgrading are largely tied to
the weaknesses of the Chinese financial system. The successes are largely due
to firms that draw upon foreign sources of finance outside of China but
maintain an abiding commitment to China’s development.
Section 1.1 will provide an overview of the argument. Section 1.2 will
examine how technological development, the outcome or dependent variable
of this study, is measured. Section 1.3 will describe the methodology and data
collection of the book. Section 1.4 will examine the problems with China’s
industrial policymaking. Section 1.5 will rebut alternative explanations for the
varying technological development contributions that this book documents.
1.1 Overview of the Argument

1.1.1 The Argument in Brief
Over the last decade and a half, China has achieved remarkable technological
and economic development success following a new path unknown, or at
least unarticulated, by scholars and policymakers alike. I call this developmen-
tal path the global hybrid model. The global hybrid route relies on the insti-
tutions of global capital, defined here as the financial institutions of the
advanced economies, and a set of firms established by ethnic Chinese
1
The argument thus builds on the insights of scholars such as Michael Pettis, Yasheng Huang,
Andrew Tylecote, and Victor Shih who have documented China’s problematic political economy
of finance.
The Framework
entrepreneurs that I dub hybrid FIEs. Global capital serves to offset the
inefficiencies of China’s financial sector. Hybrid FIEs combine foreign
finance with a strategic commitment to develop core technological activ-
ities in China. The hybrids take the best of both worlds of foreign and
domestic firms. Hybrids, as foreign firms, receive finance and the concomi-
tant financial discipline from global capital, an option that remains gener-
ally unavailable to Chinese domestic firms. At the same time, hybrids’
ethnic ties to China often encourage commitment to local development
more commonly associated with domestic firms than with MNCs. Due to
this combination of foreign finance and strategic commitment to China,
hybrids contribute much more to its technological development than
any other type of technology enterprise operating in China’s high-
tech industry. They are the hidden dragons behind China’s technological
development.
Regarding the overall topography of China’s technology sector, this book
finds that there are four distinct types of firms in China’s technology sector
with three distinct patterns of technological upgrading. There are two types of
domestic firms: favored domestic firms and neglected domestic firms. Simi-
larly, there are two types of FIEs: hybrid FIEs and MNCs, the latter of which are
the FIEs with stereotypically weak ties to the host economy. The three out-
comes of technological upgrading are high, moderate, and low levels of con-
tribution to technological upgrading. The hybrids contribute high levels of
upgrading earning them the hidden dragon sobriquet. The MNCs contribute
moderate levels of upgrading and the two types of domestic firms provide low
levels of upgrading. Driving these different patterns of technological upgrad-
ing are two factors: the source of finance in China and operational strategies
(also referred to in the book as OS) of the respective firms. The OS variable in
turn is influenced by the presence or absence of ethnic ties to the Chinese
economy.
Source of finance is a binary variable with a firm either being linked to
domestic or foreign financial sources. The OS of the firm is also a binary
variable, with firms possessing either a commitment to basing core corporate
activities in China, which we dub the China-based strategy, or a strategy
where firms do not have such commitment to China, which we call the
foreign OS. Ethnic ties to the local economy explain the propensity of some
firms to adopt China-based operational strategies.
In China, the relationship of firms to the state determines their sources of
finance (Gregory et al. 2000; Huang 2003, 2008) and these in turn impact their
ability to upgrade. Firms have hard budget constraints when they do not
receive free financial help. With hard budget constraints firms have to remain
competitive to survive. By definition, a critical part of the competitiveness of
technology firms is their technology so they have every incentive to improve
13
their technology to keep pace with competitors. Soft budget constraints

deprive firms of the incentives and even the capabilities to upgrade (Kornai
et al. 2003). Firms have soft budget constraints when they can rationally
expect to survive even when not competitive because others are willing to
bail them out. Thus, they lack incentives to upgrade. Worse, the absence of the
threat of extinction encourages them to become lax, so their capabilities
suffer. A third possibility is no source of external finance. Firms without
financing will not be able to invest in technological development.
OS is a mix of interests and ideational factors that causes firms to perceive
China either as the vital center of their operations (the China-based OS) or
as just another location among many (the foreign OS). For technology
firms, one core activity is corporate R&D. Thus, firms with a China-based
OS will be more likely to pursue their core R&D activities in China. Beyond
formal R&D, one would expect firms with a China-based OS to put greater
emphasis on building up a variety of corporate technological capabilities
within China. This book measures the outcome at the firm-level in terms
of upgrading that is effectively embedded in the Chinese economy (see
Section 1.2). The more a firm upgrades its own capabilities within
China ceteris paribus the greater its contribution to China’s technological
development.
The two types of FIEs are more likely to contribute to technological upgrad-
ing than the two types of domestic firms. Among the FIEs, the hybrid FIEs are
more likely to contribute than the MNCs. The hybrids are the most successful
technology upgraders because they have both disciplined finance (i.e. credit
with relatively hard budget constraints) from foreign financial institutions
and the motivation to upgrade in China due to their China-based OS. This
access to foreign finance is the result of the arrangement between the Chinese
state and FIEs to allow both types of FIEs to invest in China while limiting
their access to the Chinese state financial system.
While successful upgraders, primarily FIEs, often obtain technology from
returnees that personify the ethnic Chinese transnational technology net-
works, so too do many firms, primarily domestic ones, that have failed to
upgrade.2 Thus, technology flows from the developed world are necessary but
not sufficient to explain upgrading. The unsuccessful domestic upgraders lack
finance (neglected domestic firms) or financial discipline (the favored domes-
tic firms) due to their particular relationships to the state. These financial
problems trump any upgrading benefits of domestic firms’ natural orientation
towards China-based strategies.
2
X. Liu’s (2001: 204) surveys indicate that domestic firms were actually favored over foreign
firms as the destination for returning Chinese technologists for most of the 1990s. Subsequent
chapters will discuss a number of case studies where returnees failed to turn around domestic firms.
14
The Framework
This book has two core propositions:
Proposition 1:
FIEs contribute more to China’s technological development than domestic
firms.
Proposition 2:
Hybrid FIEs contribute more to China’s technological development than
MNCs.
The next two subsections will examine the two causal or independent variables.
1.1.2 Finance
Favored firms have a close relationship to the Chinese state, which provides
them with finance and procurement without any effective monitoring
(Huang 2003, 2008; Unirule 2011; Pettis 2013). Favored domestic firms have
generous access to China’s state-run financial system that undermines both
firm capabilities and incentives for upgrading. In the past, the favored firms
were almost exclusively formally designated state-owned firms, but as the
categorization of firms as state-owned becomes increasingly difficult due to
corporatization and partial privatization of state-owned enterprises (SOEs)
(Guiheux 2002; Huang 2008), the mix of ownership types (i.e. state-owned
and other) in the favored category has expanded. This book will document
that firms that clearly are not SOEs leverage the right connections to enjoy the
state’s lavish patronage including soft loans and government procurement.3
Neglected domestic firms are those that do not have access to the state
financial system and other perquisites of state patronage. They are almost
exclusively private firms with a distant relationship with the state. Cut off
from credit, they are unable to afford the costs of upgrading (Gregory et al.
2000; Tylecote et al. 2010). MNCs can upgrade due to their financial discip-
line, but undertake less of it in China than hybrids because they lack the
China-based OS.
The FIEs’ ability to access foreign finance is as much a result of politics as of
the domestic firms’ financial arrangements. The Chinese state has generally
not allowed foreign firms to utilize its financial system (Lardy 1998; Pettis
2013).4 At the same time, the Chinese state opened up China to investment in
3
Here government procurement means all state purchases not just those processed under the
government procurement law, which are a small fraction of government procurement. Opening
government procurement to foreigners has not progressed very far in China as the system of state
purchases remains very opaque and decentralized (Chou 2006). Furthermore, the National
Development and Reform Commission (NDRC) and the State Council issued a directive on
May 26, 2009, that stresses the imperative to buy Chinese goods in state procurement.
4
As late as 2012, foreign loans constituted only 3 percent of total enterprises loans (Lardy 2014).
15
a manner that put few barriers or restrictions to foreign firms’ access to

overseas capital (Zweig 2002).
DIFFERENTIATING FIE S FROM DOMESTIC FIRMS

The standard depiction of the relation of domestic firms to China’s formal
financial system is one of a system that grants state-owned firms preferential
access to credit while discriminating against private firms (Lardy 1998, 2014;
Gregory et al. 2000; Huang 20035). While the standard depiction has been and
remains true (as this section will discuss further on), some analysts have
mistaken many effectively state-owned or controlled firms for private firms
or at least non-state-owned firms because they do not bear the official SOE
designation. Building on Huang’s (2008) work, this volume offers a more
nuanced approach to categorizing firms within China’s political economy.
Often all firms that were not formally designated as SOEs (guoyou qiye) or state-
controlled shareholding companies6 (guoyou konggu qiye)—the non-state
firms—or a very substantial portion of these firms were treated as private
firms (Lin et al. 1996; Allen et al. 2008). This approach is highly problematic
because China has a wide variety of corporate mechanisms outside of the
formal SOEs including collective enterprises, shareholding enterprises, joint
ventures (JVs) and FIEs in addition to those firms officially designated as
private firms (siying qiye). Yasheng Huang’s (2008) approach of using control
rights to determine the extent of private ownership and state ownership in the
Chinese economy is the most sophisticated and arguably accurate approach
thus far. Using Dougherty and Herd’s (2005) work as a foundation, Huang’s
main insight is that some control rights that appear to be private, such as legal
person shares, more often than not are actually shares owned by a state entity.
Therefore, many more companies outside of the formally designated state-
owned firms are actually state-owned when control rights are brought into
consideration.
While this book accepts Huang’s basic premise of how to determine which
firms are effectively state-owned, it further contributes two insights. First, state
ownership is not completely coterminous with being the object of state favor.
There are firms not controlled, even indirectly, by the state that have become
state champions because of their size or perceived potential. Second, Huang
treats some entities listed offshore as being foreign controlled even though
state-linked, domestic Chinese holding companies effectively exercise control
over these offshore entities. This book does not assume listing overseas
5
Even Lardy’s optimistic account of the rise of private enterprise in China does not deny that
there is continued discrimination against the private firms as state firms enjoy a disproportionate
share of the loans.
6
This non-traditional translation follows Lardy (2014) because this translation better captures
what these entities actually are.
16
The Framework
automatically means foreign control over the listed entity. Instead, it exam-
ines what entities actually exercise effective control over a given firm listed
offshore.
This book distinguishes FIEs from domestic firms using two sequential
metrics. The first metric is share ownership. To be considered a foreign
(domestic) company, foreign (domestic) entities cumulatively had to own
more than 50 percent of the firm’s shares.7 This is different from the Chinese
statutory definition of FIEs where such enterprises only have to be 25 percent
foreign-owned to be considered foreign enterprises. The second metric is
company control. Foreign (domestic) firms are those firms where foreign
(domestic) entities exercise majority control. For companies where a board
of directors exists and the board participants are made public, this study uses
control of the board to determine control.8 For companies with less than
transparent governance structures, further research into what entities have
sizeable stakes in the firm has been necessary to determine the control.
In any case, share ownership and effective control of the firm (foreign versus
domestic) is only important insofar as it indicates the source of financing. In
order to determine which domestic firms are state-favored as opposed to state-
neglected, we add a third metric of the actual financial support in terms of
loans and state procurement from the Chinese state to determine which non-
state-owned or controlled firms are in fact state-favored. Given the over-
whelming preponderance of evidence that indicates the state-owned sector
receives the majority of the loans from the state banking system (Lardy 1998;
OECD 2002; Huang 2003, 2008; Shih 2004, 2007, 2008; Hope and Hu 2006;
Allen et al. 2008, 2013; Unirule 2011; Pettis 2013),9 it is safe to assume that
those firms majority owned by the state have access to the state banking
system. For domestic firms which were not majority owned or controlled by
state entities, this study collected further evidence of firms’ sources of finance
and procurement to determine whether they were state-favored or state-
neglected domestic firms. Chapters 3, 5, and 6 will document in detail the
7
The OECD uses this definition of 50 percent control (Huang 2008: 18).
8
By board we are referring to the board of directors rather than the supervisory board within
China’s two-tiered board structure. Research has shown the latter board has little power or
influence (Teng 2010).
9
Lardy (2014) argues that private firms have received the majority of new loans since 2011, but
there are reasons to think that the China Banking Society data he uses still underestimates state
control and overestimates private control among enterprises (email correspondence with Victor
Shih on August 25, 2015) even while recognizing that Lardy is probably correct in pointing out a
lessening in lending discrimination towards private enterprise over the reform decades. Elsewhere
in his book, he mislabels state-owned firms as private in a manner suggesting a cognitive bias
towards seeing private firms where none exist. For example, Lardy refers to Lenovo as a private firm
at the time of its acquisition of IBM’s PC division when in fact Lenovo was still majority owned by
state entities at that time.
17
state favor received by those non-state-owned/controlled firms that have still

gained the state’s favor.
SOFT BUDGETS AND THE STRATEGIES OF FAVORED DOMESTIC FIRMS

Technological upgrading entails high risks and high costs. The risk is high
because learning or developing new technologies is difficult and the costs are
high because a firm must invest human and financial resources. Larger profits
than the firm would enjoy in the absence of upgrading provide the incentive
to upgrade (Khan 2000a).
Why are favored domestic firms, showered with easy credit and procure-
ment from the state, less likely to upgrade? Upgrading is inherently risky, but
one could plausibly argue that softening of budget constraints would free
firms to take greater risks. However, evidence from other studies (Kornai
1995; Liu 2001; Kornai et al. 2003), and this one, suggests that even when
such firms are willing to embark on technological activities under soft budget
constraints, they will not conduct these technology activities in an effective
manner. This is a probabilistic judgment rather than an absolute one. They do
not completely lack the capabilities to upgrade, but the likelihood of their
upgrading is low because of the curse of state favor. The state undermines
favored firms’ ability to upgrade in three ways: bureaucratic goals, firm incap-
acity, and disincentives to upgrade.
The bureaucratic goals mechanism applies only to those favored firms that
are SOEs or otherwise directly controlled by state agencies. Officials higher up
the hierarchy set the many goals beyond profitability by which the
bureaucrats-as-managers will be judged (Kornai 1995; Huang 2003). Among
them are preserving the SOE and increasing the scale and perceived techno-
logical prowess of the firm. Preserving the firm mitigates the desire to under-
take anything risky, such as learning new technical skills. Increasing the scale
and perceived technological intensity of the firm induces the bureaucrat-as-
manager to buy expensive capital equipment that makes the firm appear
cutting edge in one fell swoop. The bureaucrat-manager thus prefers this
quick fix of purchasing bundles of technology to the longer-term, more
difficult work of building internal firm competencies, worker skills, and valu-
able cooperation with external partners (Tylecote et al. 2010).
These investments and increasing scale also promote the survival of the
bureaucrat’s domain, the SOE, because the firm becomes either too large or too
important in the eyes of the state to fail. China did go through a process
starting in the wake of the Fifteenth Party Congress in the autumn of 1997 of
supporting the large SOEs while letting go of the small- and medium-sized
SOEs (the “grasp the large release the small” policy or zhua da fang xiao). The
campaign served only to convince SOE managers that their firms should look
big, although these incentives were implicit in the system earlier (Teng 2010;
18
The Framework
Wu 2011). In sum, bureaucratic goals induce a policy of capital investment by

SOEs without sufficient levels of skill and capability investment as docu-
mented by a number of scholars over the last two decades (Wu 1996;
Jefferson et al. 1999; Huang 2003; Tylecote et al. 2010).
Soft budgets also lead to firm-level incapacity. Easy access to state finance
and procurement encourages all sorts of inefficiencies in favored firms that
prevent them from doing much of anything well. They may attempt techno-
logical upgrading, but their general inefficiency in operations makes it diffi-
cult for them to do so effectively. Liu (2001) and Kornai and his colleagues
(2003) note this problem of soft budget constraints undermining upgrading.
This problem applies to favored firms whether or not they are state-owned.10
Procurement by the state plays a critical role in creating disincentives to
upgrading. State procurement encourages firms to forgo high risk, high reward
upgrading for the less risky, if potentially smaller, profits to be made from
feeding at the state’s trough. These firms lack incentives to upgrade their skill
set to be competitive in the marketplace. The literature on China’s industrial
policy demonstrates that the Chinese state does not monitor firms effectively
(Perkins 2001; Moore 2002; Huang 2003). Without effective monitoring,
favored firms can simply enjoy the state’s bounty without enhancing their
performance in return. Later chapters will present evidence of how procure-
ment undermines the incentives to upgrade in domestic firms. This problem
can affect state and non-state-owned firms alike, although the state firms also
suffer from problems of bureaucratic goals and firm incapacitation.
Just as the state has showered financial favor on some firms, it has neglected
many other firms. This neglect creates a two-tiered structure of firms in China.
Domestic firms that are not favored by the state have difficulty acquiring loans
from the state banking system (Huang 2003, 2008; Nee and Opper 2012).11
This scarcity of capital prevents them from embarking on technological
upgrading because they do not have the means to do so despite whatever ex
post rewards for technological advancement they might enjoy. China has a
wide variety of informal financial mechanisms (Tsai 2002), but informal
financial mechanisms offer too little credit at too high a price for firms trying
to compete in technology-intensive sectors (Gregory et al. 2000; Allen et al.
10
This book departs from the excellent work of Tylecote and his colleagues (2010), who argue
that China’s financial bias towards state-owned firms and against private firms hurts the latter, by
emphasizing the disastrous effects of China’s financial system on the very firms favored by it.
Tylecote and his colleagues believe corporate governance changes in SOEs are enough to transform
them into vehicles for technological upgrading. This book provides evidence that even those firms
with more long-term top management teams (the main corporate governance adjustment
advocated by Tylecote) have trouble staving off the inefficiencies and disincentives to perform
that soft budgets create.
11
Nee and Opper (2012) point out that private firms are reliant on the profits they generate for
future investments because of lack of access to the formal financial system. Lardy (2014) also points
out that private firms mainly rely on retained earnings for investment.
19
2008; Tylecote et al. 2010). China conspicuously lacks the deep stock markets
and venture capital and private equity that are most effective in developing
new industries (Allen et al. 2008).12
COMPARATIVE METRICS ON CHINA’S FINANCIAL MALADIES

China’s state-owned formal financial system is widely recognized for provid-
ing certain firms favored by the state with very soft budget constraints.13 The
large body of research (OECD 2002; Huang 2003; Shih 2004, 2007, 2008;
Hope and Hu 2006; Unirule 2011; Pettis 2013) on the excessive lending to
favored enterprises in China that results in the maladies of soft budget con-
straints (Kornai 1995) has assumed a standard of comparison of the wider
world of financial systems beyond China. Foreign financial systems, while not
providing perfect allocation of credit, offer far harder budget constraints than
China’s state-run system does.
China’s foreign finance overwhelming comes from OECD countries,
the three ethnic Chinese economies (ECEs) of Taiwan, Macau, and Hong
Kong,14 and the tax haven economies, primarily the Cayman Islands and
the British Virgin Islands.15 The claim here is only that these financial
systems distribute credit more efficiently than the egregiously inefficient
Chinese system.
To prove that China’s system is strikingly inefficient, two sets of data will be
used. The first compares China to sets of other countries using several
accepted metrics for financial systems developed by La Porta and others (La
Porta et al. 1997, 1998; Levine 2002). The second compares China’s level of
non-performing loans (NPLs) to other countries. Both sets of data provide
evidence that China’s financial system performs poorly not just against OECD
countries but even when compared to other developing countries.
The Chinese financial system has two well-known features. It is bank-
centric and strikingly inefficient at financial intermediation (Hope and Hu
2006; Shih 2007; Naughton 2007; Allen et al. 2008). This can be seen by
12
Indeed, the retained earnings approach to investing also does not suffice to invest in these
high-technology activities as Allen et al. (2008) and the history of high-technology investment in
ethnic Chinese, high-technology Taiwan point out so Lardy’s (2014) celebration of the ability of
Chinese private firms to retain earnings to invest does not really help such firms enter technology-
intensive industries. Nee and Opper’s (2012) examination of private firms in the “advanced”
Yangzi River Delta also provides evidence for this lack of technology-intensive investment.
13
This subsection draws on Fuller (2013). Revised and reproduced with permission from Journal
of Development Studies (tandfonline.com).
14
While Hong Kong and Macau are Special Administrative Regions of the People’s Republic of
China, their financial systems are distinct and much more market-based.
15
Cumulatively, the ECEs and tax havens contributed 60 percent of China’s foreign direct
investment (FDI) from 1985 to 2005. A large portion, possibly even a large majority, of the tax
haven FDI is from Hong Kong and Taiwan (Naughton 2007: 413) and offshore investors who want
to invest in technology start-ups in China often choose the tax havens as well. The United States,
Canada, Japan, and the EU countries, the core countries of the OECD, account for another 25 percent.
20
The Framework
Table 1.1 China’s NPLs in comparative perspective: NPLs as a portion of GDP (%)
Year China* US Japan South Korea India Indonesia Taiwan
1997 0.8 5.1 3.1 0.1 6.5

1998** 4.0 0.8 12.7 6.7 3.1 5.2 7.9
1999** 19.4 0.8 12.6 12.2 3.2 3.8 9.1
2000 45.0 0.8 11.1 6.9 2.8 2.7 10.3
2001 40.0 0.9 15.6 2.5 2.8 1.7 13.0
2002 26.0 1.1 14.1 1.8 3.0 2.0 10.4
2003 22.0 1.0 11.3 1.9 2.5 1.5 7.7
2004 21.4 1.0 7.3 1.5 2.2 2.1 5.1
2005 14.6 0.7 4.0 1.0 1.7 1.5 3.2
2009 3.0 3.3 3.6 1.5 1.3 1.0 1.8
2013 8–40**** 2.9*** 3.8*** 2.6*** 1.2*** 0.6*** 0.9***
Sources: Allen et al. (2008, 2011); Davies (2013); and March 2013 email correspondence with an investment bank
analyst.
* The figures here for China are double the nominal rate provided the Chinese government and listed in Allen et al.
(2008: 523) and Allen et al. (2013: 64). The nominal rate among other things does not include the NPLs already taken off
the banks’ books by the state’s AMCs and loans that have been rolled over when they should have been declared non-
performing. The figures are double the nominal rate because scholars generally believe these government figures to be
far too low and probably understate the NPL problem by at least half (see Shih 2007; Allen et al. 2008: 525 ). Allen et al.
(2013) actually use double the nominal NPLs in their Table 3C.
** Allen et al. (2008: 523) also note that the Chinese authorities understated the size of the NPLs during 1998 and 1999
even more than they did for the later years.
*** The figures for 2013 are the 2010 figures for these countries as 2013 figures were not available.
**** The investment analyst cited the low estimate of NPLs to be Goldman Sachs’ at 8 percent and Paul Davies cited
estimates ranging from just under 20 to 40 percent of GDP.
comparing data on China’s financial system to data on other financial

systems drawing on the classification of systems and data from Levine
(2002) and La Porta et al. (1997, 1998). While China’s bank credit is much
higher relative to its gross domestic product (GDP) than any of the other
groups of countries, it is four times more costly to manage assets in Chinese
banks than the average of the other systems, i.e. the banking system is very
inefficient. Finally, the financial efficiency metric [log of (total floating
supply/GDP/overhead costs)] is lower, meaning much less inefficient, than
any of the other groups. Indeed, the sample average is 2.01 whereas China’s
is –0.60 (Allen et al. 2008: 513).
As a consequence of the lending bias towards favored firms, China has built
up a large quantity of NPLs. The size of these NPLs relative to GDP has been
much larger in China than in other countries, developing and developed, and
points again to the inefficiency of China’s banking sector (Table 1.1). Since
1999, China has set up state-run asset management companies (AMCs) to buy
a large amount of NPLs from the banks at face value. While this maneuver has
temporarily improved the financial state of the banks by relieving them of the
burden of bad debts (shown in the declines in NPLs starting in 2002), the
underlying cause of this high level of NPLs, the poor performance in allocat-
ing credit on the part of the banks, has not been resolved (Naughton 2007;
Shih 2007; Allen et al. 2008; Pettis 2013). Thus, the NPL problem continues.
21
Indeed, recent estimates suggest that the number of recognized NPLs probably
ranges from 20 to 40 percent of GDP (Davies 2013).16
The current global financial crisis, as bad as it is, does not really challenge
the notion of China’s comparatively greater financial inefficiency for two
reasons. First, the global crisis did not grow out of banks’ inability to distribute
loans to creditworthy borrowers in commercial enterprises while continuing
to lend to bankrupt or poorly performing ones. Rather, some large financial
institutions began to make highly leveraged bets on new types of financial
instruments that they did not fully understand; this brought the healthy
functioning parts of the banking system down with the rest (Blair 2008).
Second, even in the United States, the epicenter of the crisis, NPLs as a
percentage of GDP are still far lower than China’s have been over an extended
period of time. At the height of America’s recent financial crisis, the NPLs were
3.3 percent of GDP (Allen et al. 2013).
Two important trends potentially challenge business as usual in China’s
financial system. First, over the last several years as growth has slowed down,
the very low and even negative real interest rates enjoyed by state-favored firms
in the past are not as favorable as they were. Another important change is the
gradual deregulation of interest rates over the last several years.17 However,
both of these movements themselves face countervailing currents in the form
of continued state support for propping up the bad debt already out there (FT
5.15.2015) and continued interference by the People’s Bank of China in banks’
interest rates (WSJ 5.14.2015). Nevertheless, if these trends gather steam, then
the cheaper cost of capital state-favored firms have enjoyed through their better
access to the banking system may come to an end. This issue will be revisited in
the conclusion of this book given its import for the allocation of capital.
1.1.3 Explaining Operational Strategies

OS derives from a mix of interests and ideational factors that causes these
firms to perceive China either as the vital center of their operations (the
16
Author’s email correspondence on March 13, 2013, with an investment bank analyst whose
job it is to follow the health of the Chinese banking system stated that the lowest reasonable
estimate for then current spring 2013 NPLs was Goldman Sachs’ estimate of 8 percent. He thought,
however, that this estimate was much too low and NPLs would grow to be much higher from an
even higher base than Goldman’s estimate. Bloomberg News (April 13, 2011) was already
predicting in 2011 a surge to between 15 and 30 percent of GDP over the next few years as the
government once again began belatedly to recognize NPLs as NPLs.
17
The liberalization of lending rates was announced in July 2013. Following some initial moves
on long-term deposit rate liberalization in August 2015, the People’s Bank of China announced
much broader liberalization of the deposit rates in October 2015 although there will still be some
regulation to prevent excessive competition (see this October 23, 2015, statement from the People’s
Bank of China, downloaded on October 27, 2015: <http://www.pbc.gov.cn/goutongjiaoliu/113456/
113469/2968751/index.html>).
22
The Framework
China-based OS) or as just another location among many (the foreign OS). OS
is a measure of a firm’s determination to place core corporate activities,
activities that the corporation relies upon for its competitiveness, in a particu-
lar location or locations. Thus, the China-based OS is a commitment to base
these core corporate activities in China.
Why would any foreign firms embrace a China-based OS, as the hybrid FIEs
have? Hybrids share a common feature that explains their propensity to adopt
a China-based OS: they all have ethnic Chinese management.18 The research
for this study did not start out with the objective of examining ethnicity as a
factor in explaining firm strategy or technological development. Only in the
course of conducting research did it become obvious that certain foreign-
invested firms shared a China-based OS and empirically all of these firms
had ethnic Chinese management. Moreover, I structure the definition of the
China-based OS in such a way to allow for the possibility of non-ethnic
Chinese firms adopting a China-based OS (see Appendix A). I need to stress
that the connection between Chinese ethnicity and adoption of the China-
based OS is probabilistic rather than deterministic, and while all the causal
links are probabilistic rather than deterministic, the probability of Chinese
ethnic management embracing a China-based OS is lower than the relevant
cause and effects in the other causal links in Figure 1.1.
With these caveats in mind, insights borrowed from the nationality of
multinationals literature help to explain the propensity for firms with ethnic
Chinese management to adopt a China-based OS. This literature, based on
empirical observations of MNCs’19 behavior, argues that firms concentrate
core resources in their home bases. This research gives lie to the idea of the
truly multinational enterprise (Hu 1992; Wade 1996; Doremus et al. 1998;
Hirst and Thompson 1999; Cohen et al. 2009).
Explanations for the continuation of this practice vary. Some argue that firms
have developed competitive strengths that rely on the specific institutions of the
home economy (Hall and Soskice 2001).20 An alternative interest-based
18
I use management because part of the ownership of these firms is from foreign financial
institutions, which may or may not be ethnic Chinese. Nevertheless, even in the case of start-ups
where the majority of shareholders (the venture capitalists) are often not ethnic Chinese, the teams
of managers in charge of running these firms are ethnic Chinese and have significant equity stakes
and board representation. The managers sold investment stakes of their firm on the basis of their
China-based strategy so there is no reason to think that the non-ethnic Chinese foreign finance
will try to change the strategic orientation towards China of these hybrids. I uncovered no
instances of this and I heard reports of just the opposite, foreign venture firms attracted to invest
in hybrid firms precisely because these firms were “China plays.” See Grimes (2004: B1).
19
In this subsection, MNCs refer to the general category of multinationals rather than the
specific subcategory of FIEs in this study.
20
The varieties of capitalism literature (Hall and Soskice 2001) is not very applicable to the case of
hybrid FIEs in China because this literature assumes, at least implicitly, that domestic corporations’
utilization of the strengths of the home economy is a product of a long historical co-evolution. The
hybrids and China’s institutions simply have not had the time to co-evolve in this manner.
23
Ethnicity
Dotted line indicates less
deterministic relationship
Operational
Strategy
State-Firm Sources of Incentives Technology Upgrading

Relations Finance and and Strategy Outcome in
Markets Capabilities China
for
Upgrading
Technology
Inputs
(follow the
finance)
Figure 1.1 Causal chain
argument would be the limited information available to firms about foreign

economies. Firms generally know more about how to operate at home than they
do abroad (Dunning 1988).
An ideational argument could be centered simply on patriotism. Firms are
more often than not run by managers of the same nationality and these
managers do not simply make firm decisions based on cold profit-maximizing
principles if the decisions adversely affect the home economy. Another idea-
tional argument is that firms believe that their competitive advantages are
linked to distinct features of the home economy even if that belief is not
necessarily correct. A third would be that they have certain ideas about the just
distribution of resources within their home economy that dictate what activ-
ities should be kept at home. Doremus et al. (1998) combine ideational and
interest aspects in their arguments of nationality of MNCs.
The connection between these ideas about the nationality of firms and the
hybrids’ China-based OS is not a simple assertion that ethnic Chinese firms
will act as national Chinese firms. Indeed, there is evidence that some ethnic
Chinese firms forcefully reject a China-based OS. Taiwan’s TSMC has been
quite hostile to China and is not any less of an ethnic Chinese firm because of
this anti-China sentiment. As discussed further in Appendix A of this chapter,
this book categorizes firms like TSMC that eschew a China-based strategy as
MNCs rather than hybrids. Instead of assuming all ethnic Chinese will
embrace a China-based OS, the literature informs us of the ways socio-cultural
knowledge and ideas possessed by ethnic Chinese are conducive to adopting a
China-based OS.
24
The Framework
By drawing on their socio-cultural knowledge, ethnic Chinese firms have

some of the same informational advantages in China that MNCs have in their
respective home countries because these ethnic Chinese firms have lower infor-
mation barriers in understanding and operating in China. Socio-culturally
informed ideas influence their behavior as well. There is a nationalist/parochial
component for some ethnic Chinese, just as there are nationalist/parochial
motivations that encourage MNCs to favor their home base.21 Finally, there is
an element of ideas influencing interests. These ethnic Chinese (perhaps due to
ethno-nationalist pride) may believe there are benefits to being China-based
even when these advantages do not actually exist. MNCs exhibit the same
attitude when they insist that certain activities must be done in the home
country even when these supposed advantages are not realizable. Here, it is
not necessary to decide whether it is interest or ideas shaping interest that lead
some ethnic Chinese firms to adopt a China-based OS. It is sufficient that either
motive encourages them to adopt this strategy.
I should stress that the OS argument does not privilege the ideological
reasons for a China-based strategy over the instrumental ones. The firms
that adopt China-based OS attempt to maximize their utilization of China’s
resources because they believe this provides a competitive advantage. The
hybrid firms do not maximize the Chinese resources directly and solely out
of a desire to help China. However, such a strategy makes more sense for those
attuned to the local culture. Furthermore, it would be foolish to ignore
nationalism as part of the motivation to embark on a China-based strategy
because many ethnic Chinese say that they returned to help build a prosper-
ous and strong China.22
Appendix A of this chapter delineates how this book measures whether or
not a firm has a China-based OS.
1.1.4 Summary of the Causal Argument

In summary, the Chinese state’s relationship to firms determines their sources
of financing. In turn, the sources of financing determine the technological
upgrading efforts of the firms. Different sources of finance provide distinct
21
For some countries, one could argue that immigrants also adopt a nationalist bias towards
their adopted country, but China is not an immigrant country so the chance of this happening
among non-ethnic Chinese foreigners is quite low. For ethnic Chinese, it is a different matter.
There is an ideology in China regarding ethnic Chinese foreigners, so-called Overseas Chinese
(Huaqiao), as fellow Chinese rather than as foreigners. Sun Yat-sen, the founding father of modern
China revered on both sides of the Taiwan Strait, was a US citizen who learned about the Chinese
revolution he supposedly started while taking a train in the middle of the United States.
22
I did not bring up the nationalist motivation proactively in interviews due to the sensitive
nature of talking about such topics with a foreigner, but some of the interview subjects still stated
that this factor was part of the motivation. Segal (2003) also found nationalism a motivation for
local Chinese entrepreneurs.
25
incentives/disincentives for upgrading and provide or deprive firms of the

financing needed to obtain the necessary technology inputs in terms of
human capital, capital equipment, and technical knowledge. While the for-
eign sources of financing apply to both types of FIEs, hybrids and MNCs, it is
the hybrids’ China-based OS that encourages hybrid firms to utilize the incen-
tives, finance, and concomitant capabilities bestowed upon them by foreign
finance and its relatively hard budget constraints to intensively pursue tech-
nology activities in China. The combination of the sources of financing and
the operational strategy of the firm together determine the firm’s technology
strategy (see Figure 1.1 and Table 1.2), which in turn determines the upgrad-
ing outcomes in China. This book maintains that greater corporate techno-
logical efforts in China will, on average, lead to higher technological
contributions to China, and the research found much evidence to support
this contention. State–firm financial relations explain why domestic firms fail to
contribute to upgrading as much as foreign firms (Proposition 1). The China-
based OS of hybrid firms explains why hybrids contribute more than MNCs
(Proposition 2). The causal explanation uses deterministic language, but the
argument recognizes that the causal chain is probabilistic rather than determin-
istic, i.e. the independent or causal variables will increase the odds of the predicted
outcomes occurring but do not guarantee that they will occur in every case.
1.2 The Dependent Variable: Contributions to Technological

Development
Technological upgrading encompasses two analytically distinct types of

upgrading: learning and innovation. Technological learning means advan-
cing into more technically difficult production activities without reaching
the technology frontier. Technological innovation means advancing into
more technically difficult activities that advance the technological frontier.
The technological frontier is the most advanced technical knowledge in the
world for one particular activity. For example, 38 nanometers (the lower the
number of nanometers the more advanced the technology in this case) was
the technological frontier of manufacturing-ready semiconductor lithography
process technology for logic chips in 2011 according to the International
Technology Roadmap of Semiconductors (ITRS). Firms that advanced from
500-nanometer process technology to 180-nanometer technology in 2011
were conducting technological learning. Firms that would reach 20 nano-
meters soon after 2011 were engaged in technological innovation as they
pushed forward the technological frontier.
Technological upgrading incorporates both learning and innovation. We
do not assume that one or the other is the key to economic development. By
26
Another random document with
no related content on Scribd:
Kmicic katsoi poispäin peittääkseen hämminkinsä.
— Kenties joillakin herrainpäivillä. Isävainaja otti usein minut

mukaansa, jotta näkisin julkista elämää.
— Mahdollista… Kasvonne ovat varmasti tutut minulle, vaikka

piirteet ovat muuttuneet. Mutta vaikka memoria fragil is est, niin
minusta vain tuntuu, että teillä silloin oli toinen nimi.
— Ah, te varmaan sekoitatte minua johonkin toiseen, — vastasi

Andrzej.
He olivat tällä välin saapuneet toiseen huoneeseen. Hetken

kuluttua
Tiesenhausen palasi kuninkaan luo.
— Kärvennetty, teidän majesteettinne, kuin vartaassa! — sanoi

hän. —
Koko kylki on poltettu!
Kun samassa Kmicic astui huoneeseen, nousi kuningas

seisomaan, syleili häntä ja sanoi:
— Emme hetkeäkään uskoneet muuta, kuin että puhuitte totta,

emmekä jätä kärsimystä palkitsematta.
Kuningatar ojensi hänelle kätensä. Andrzej notkisti toisen

polvensa ja suuteli kunnioittavasti kuningattaren kättä, joka vielä
silitti äidillisesti hänen päätään.
— Älkää olko vihainen herra kanslerille! — sanoi kuningas. —

Totta on, että tänne on saapunut paljon pettureita tahi semmoisia,
jotka ovat puhelleet hölynpölyä, ja kanslerin tehtäviin kuuluu ottaa
selville totuus de publicis.
— Mitäpä minun vähäpätöisen viha merkitsisi niin ylhäiselle

henkilölle! — vastasi Andrzej. — Enkä uskaltaisikaan sanoa mitään
kunnioitetusta senaattorista, joka on kaikille esimerkkinä
uskollisuudessa ja isänmaanrakkaudessa.
Kansleri hymähti hyväntahtoisesti ja ojensi kätensä:
— No niin, sovitaan pois! Puhuitte hieman kärkevästi musteesta,

mutta tietäkää, että Korycińskit ovat usein vuodattaneet vertansakin
eikä vain mustetta.
Kuningas oli hyvin iloinen.
— Meitä miellyttää tämä Babinicz! — sanoi hän senaattoreille. —

Niin hän on meille mieleen kuin aniharvat… Emme päästä häntä
enää luotamme ja toivomme Jumalan avulla pian pääsevämme
yhdessä palaamaan rakkaaseen isänmaahan.
— Oi, armollisin kuningas! — huudahti Kmicic innostuneena. —

Vaikka olen ollut suljettuna linnoitukseen, tiedän kuitenkin, että
aateli, sotajoukko, vieläpä nekin, jotka palvelevat Zbrozekin ja
Kalińskin johdossa piirittäen Częstochowoa, odottavat teidän
paluutanne. Näyttäytykää vain, teidän majesteettinne, niin samana
päivänä koko valtakunta asettuu yhtenä miehenä puolellenne
Nousee aateli ja nousevat talonpojat. Hetmanien joukot ovat
äärimmäisiin asti kyllästyneet ruotsalaisiin… Tiedän senkin, että
Częstochowon edustalle saapui lähetystöjä hetmanien sotajoukoista
kiihoittamaan Zbrozekia, Kalińskia ja Kuklinowskia ruotsalaisia
vastaan. Astukaa, teidän majesteettinne, tänään rajan yli, niin
kuukauden kuluttua ei koko Puolassa ole yhtään ruotsalaista!
Kmicicin silmät säkenöivät hänen puhuessaan, ja hän oli niin

innoissaan, että polvistui keskelle salia. Hänen innostuksensa tarttui
kuningattareenkin, joka oli rohkea ja oli jo kauan kehoittanut
kuningasta palaamaan.
Kääntyen Jan Kasimirin puoleen kuningatar sanoi tarmokkaasti:
— Koko kansan ääni puhuu tämän aatelismiehen suun kautta!
— Aina, — sanoi kuningas, — olemme olleet valmis uhraamaan

henkemme ja elämämme emmekä tähän saakka ole odottaneet
muuta kuin alamaistemme parantumista.
— Se parantuminen on jo tapahtunut, — sanoi Maria Ludwika.
— Majestas infracta malis! — sanoi pappi Wydzga katsoen

ihailevasti kuningattareen.
— Nämä ovat tärkeitä asioita! — sanoi arkkipiispa Leszczynski. —

Onko todellakin lähetystöjä hetmanien sotajoukoista käynyt
Częstochowon luona?
— Sen olen kuullut omilta miehiltäni, noilta Kiemliczeiltä, —

vastasi Andrzej. — Zbrozekin ja Kalińskin joukoissa puhuivat kaikki
siitä ääneen välittämättä Mülleristä ja ruotsalaisista. Nuo Kiemliczit
eivät olleet muuriensa sisäpuolelle suljettuina, vaan tekemisissä
maailman kanssa, keskusteluissa aatelin ja sotamiesten kera… Voin
heidät toimittaa teidän eteenne, niin he saavat itse kertoa, kuinka
koko maa kuohuu. Hetmanit yhtyivät pakosta ruotsalaisiin, sillä paha
henki oli riivannut sotajoukon, mutta nyt tuo sama sotajoukko
päinvastoin tahtoo palata kuuliaisuuteen.
— Meidän tietomme käyvät yhteen sen kanssa, mitä tämä ritari

kertoo, — sanoi kansleri. — Ja jos lähetystöjä jo liikkuu rykmenttien
keskuudessa, niin se on huomattava seikka, sillä se osoittaa, että
hedelmä jo on kypsä ja aika tullut…
— Entä Koniecpolski? — sanoi kuningas. —
Ja monet muut, jotka vielä ovat vihollisen puolella, katsovat hänen

silmiinsä ja vakuuttavat hänelle uskollisuuttaan?
Ei kukaan vastannut tähän mitään. Kuningas tuli alakuloiseksi, ja

hänen kasvonsa synkistyivät.
Vähän ajaa kuluttua hän puhui:
— Jumala näkee sydämeemme ja tietää, että olemme valmis

lähtemään liikkeelle vaikka tänä päivänä, eikä meitä pidätä
ruotsalaisten mahti, vaan kansamme onneton häilyväisyys, kun se
aivan kuin Proteus alati muuttaa muotoaan. Voimmeko luottaa
siihen, että tuo mielenmuutos on vilpitön ja pysyväinen? Voimmeko
uskoa tätä kansaa, joka niin äskettäin meidät hylkäsi ja niin kevyin
mielin liittyi vihamieheen omaa kuningastaan, omaa isänmaataan ja
omaa vapauttaan vastaan? Suru ja häpeä ahdistavat sydäntämme
alamaistemme tähden. Onko historiassa missään esimerkkejä
tämmöisestä? Mikä kuningas on nähnyt niin paljon petturuutta, kenet
on sillä tavoin hylätty? Muistakaa, hyvät herrat, vain sitä, että me
sotajoukkomme keskuudessa, niiden keskuudessa, joiden
velvollisuus oli puolustaa meitä, emme voineet olla turvassa, vieläpä
— se on katkeraa sanoa! — suorastaan henkemme oli vaarassa.
Jos meidän piti jättää isänmaamme ja etsiä täältä turvaa, niin ei se
tapahtunut sen vuoksi, että pelkäsimme vihollistamme ruotsalaista,
vaan koska tahdoimme säästää omia alamaisiamme, omia
lapsiamme, kuninkaanmurhasta ja isänmurhasta.
— Armollinen kuningas! — huudahti Kmicic. — Raskaasti on

kansamme rikkonut, ja syystä sitä lyö Jumalan käsi, mutta — kautta
Kristuksen! — tämän kansan keskuudesta ei olisi löytynyt
semmoista, joka olisi nostanut kätensä Herran voidellun pyhää
persoonaa vastaan!
— Te ette semmoista usko, koska olette kunnon mies, — vastasi

kuningas, — mutta meillä on kirjeitä ja todistuksia. Katkerasti
maksoivat meille Radziwillit ne hyvät työt, joita heille teimme, mutta
sittenkin Boguslawissa, vaikka hän on petturi, heräsi omatunto, eikä
hän tahtonut olla vehkeilemässä henkeämme vastaan, vaan
ensimmäisenä meille siitä ilmoitti.
— Mistä vehkeilystä? — kysyi Kmicic hämmästyen.
— Hän ilmoitti meille, — sanoi kuningas, — että eräs mies oli

tarjoutunut hänelle sadasta tshervonetsista toimittamaan meidät
elävänä tahi kuolleena ruotsalaisten käsiin.
Väristys kulki läpi koko kuninkaan seurueen, ja Kmicic sai vaivoin

änkyttäneeksi kysymyksen:
— Kuka oli semmoinen mies?… Kuka?…
— Joku Kmicic — vastasi kuningas.
Veri syöksähti Andrzejn päähän, maailma musteni hänen

silmissään, ja hän huusi peloittavalla, mielettömällä äänellä:
— Se on valhe! Ruhtinas Boguslaw valehtelee kuin koira!
Armollinen kuningas, teidän majesteettinne, älkää uskoko tuota
petturia! Hän on sen tehnyt tahallaan häväistäkseen vihamiestään ja
peloittaakseen teitä, kuninkaani ja herrani!… Tuo petturi!… Kmicic ei
olisi uskaltanut sitä!…
Andrzej alkoi äkkiä huojua. Hänen voimansa, joita piiritys, retki

ruotsalaisten leiriin ja Kuklinowskin kidutuskeinot olivat vähentäneet,
pettivät nyt kokonaan, ja hän kaatui tiedottomana kuninkaan
jalkoihin.
Hänet nostettiin maasta ja vietiin toiseen huoneeseen, jossa

kuninkaan lääkäri ryhtyi häntä tutkimaan. Ylhäiset herrat eivät
voineet käsittää, miksi kuninkaan sanat niin suuresti olivat
järkyttäneet tuota aatelismiestä.
— Joko hän on niin uskollinen, että pelkkä tuollaisen rikoksen

mainitseminen sai hänet pyörtymään, tahi hän on tuon Kmicicin
sukulainen, — sanoi Krakovan kastellaani.
— Täytyy häntä kuulustella, — sanoi kansleri Koryciński. — Ne

siellä Liettuassa ovat kaikki sukua toisilleen, niinkuin muuten on
asian laita meilläkin.
Tiesenhausen sanoi:
— Teidän majesteettinne! Jumala varjelkoon minua sanomasta

mitään pahaa tuosta aatelismiehestä… mutta ei pidä vielä liiaksi
luottaa häneen… Varmaa on, että hän on palvellut Częstochowossa.
Hänen kylkensä on poltettu, eivätkä munkit ole sitä missään
tapauksessa tehneet, sillä Jumalan palvelijoina he eivät saa
pettureitakaan eikä vakoojia niin kohdella. Mutta jotakin pyörii
päässäni, mikä vie minulta luottamuksen häneen… Katsokaahan,
olen tavannut hänet Liettuassa jossakin… kasvavana poikana vielä,
kenties joillakin herrainpäivillä tahi jossakin juhlassa, en voi muistaa
missä…
— No, ja mitä siitä sitten? — kysyi kuningas.
— Hän… minusta tuntuu siltä… hänen nimensä ei ollut Babinicz.
— Olkaa varovainen! — sanoi kuningas. — Olette nuori ja

epätarkka havainnoissanne ja olette helposti voinut sekoittaa asioita.
Olipa hän Babinicz tahi ei, niin miksi emme luottaisi häneen?
Vilpittömyys ja totuus näkyvät hänen muodostaan ja sydän on
ilmeisesti kultainen. Emme voisi luottaa itseemmekään, jos emme
luottaisi sotilaaseen, joka on vuodattanut verta meidän ja isänmaan
puolesta.
— Enemmän hän ansaitsee luottamusta kuin ruhtinas Boguslawin

kirje, — sanoi äkkiä kuningatar. — Kiinnitän teidän majesteettinne
huomiota siihen, että tuossa kirjeessä ei voi olla sanaakaan totta.
Radziwilleille oli tärkeätä, että menettäisimme rohkeutemme, ja
saattaa helposti ajatella, että ruhtinas Boguslaw samalla tahtoi
tuhota jonkun vihollisensa ja jättää itselleen jonkin peräytymistien
sen varalta, että onni kääntyisi.
— Jos en olisi tottunut siihen, — sanoi arkkipiispa, — että hänen

majesteettinsa kuningattaren suusta puhuu itse viisaus, niin
hämmästyisin noitten sanojen sattuvaisuutta, jotka ovat syvälle
näkevän valtiomiehen arvoiset.
— »… curasque gerens, animosque viriles», — sanoi pappi

Wydzga.
Innostuneena nousi kuningatar seisomaan ja puhui:
— En puhu Radziwilleista enkä ruhtinas Boguslawin kirjeestä, joka

kenties ajaa yksityisiä pyyteitään. Enemmän minuun koskevat ne
toivottomat sanat, jotka kuningas, minun mieheni ja valtakunnan
hallitsija, lausui kansastaan. Kuka sitä säälisi, jos siitä luopuu sen
oma kuningas? On totta, että tämä kansa on suuresti syyllinen,
kevytmielisyydessään ja omavaltaisuudessaan se on raskaasti
rikkonut. Mutta mistä löytyy kansa, joka ei koskaan olisi hairahtunut,
ja mistä löytyy sellainen, joka niin pian olisi ymmärtänyt
syyllisyytensä, katunut ja tehnyt parannuksen? He tulevat jo
rintaansa lyöden hallitsijansa luo. He ovat jo valmiit vuodattamaan
vertaan, uhraamaan henkensä ja omaisuutensa kuninkaansa takia…
Sysäättekö te heidät luotanne? Ettekö anna katuville anteeksi,
parannuksen tehneille luottamustanne? Ettekö tahdo taas olla
rakastava isä erehtyneille lapsille? Luottakaa heihin, teidän
majesteettinne, sillä he ikävöivät hallitsijaansa, Jagiellon jälkeläistä,
ja teidän isällistä hallitustanne!… Menkää heidän pariinsa!… Minä,
vaikka olen nainen, en pelkää petosta, sillä näen rakkautta, näen
katumusta, näen uudistuvan sen kuningasvallan, johon teidät on
kutsuttu isänne ja veljenne jälkeen. Ja mahdottomalta minusta
tuntuu, että Jumala tahtoisi tuhota niin mainehikkaan valtion, jossa
loistaa oikean uskon valo. Lyhyen ajan vain kohtasi Jumalan
oikeamielinen rangaistus hänen lapsiaan, ei tuhotakseen heitä, vaan
parantaakseen, ja kohta taas taivaallinen isä suo heille rakkautensa.
Älkää tekään, teidän majesteettinne, heitä hylätkö, vaan luottakaa
heidän lapselliseen alttiuteensa, sillä vain siten muuttuu paha
hyväksi, kärsimykset iloksi, tappiot voitoksi!
Kuningatar istuutui, hänen silmänsä paloivat ja rinta kohoili. Kaikki

katselivat häntä ihaillen, ja pappi Wydzga lausui:
— Nulla sors longa est, dolor et voluptas
Invicem cedunt.
Ima permutat brevis hora summis.
Mutta kukaan ei häntä kuunnellut, sillä sankarillisen kuningattaren

innostus siirtyi kaikkien sydämiin. Itse kuningas nousi paikaltaan ja
huudahti puna poskillaan:
— En ole menettänyt vielä valtakuntaa, kun minulla on tämmöinen

kuningatar. Tapahtukoon hänen tahtonsa, sillä hän on puhunut
profeetallisen innoituksen vallassa. Niin pian kuin suinkin lähden ja
asetun inter regna. Se on parasta!
— Minä en tahdo sanoa mitään teidän majesteettienne tahtoa

vastaan, — sanoi arvokkaasti primas, — enkä neuvoa luopumaan
yrityksestä, joka saattaa olla uskallettu, mutta saattaa tuottaa
pelastuksenkin. Pitäisin kuitenkin tärkeänä, että vielä kerran
kokoontuisimme Opoliin, jossa suurin osa senaattoreja on, ja
kuulisimme kokoontuneitten mielipiteitä. He voivat vielä paremmin
asiaan syventyä ja antaa hyvän neuvon.
— Opoliin siis! — huudahti kuningas. — Mutta sitten matkaan, ja

tulkoon mitä Jumala suo.
— Jumala suo onnellisen paluun ja voiton! — sanoi kuningatar.
— Amen! — lausui primas.

KOLMAS LUKU.
Andrzej käveli huoneessaan kuin haavoitettu ilves. Boguslaw

Radziwillin pirullinen kosto oli vähältä viedä hänen järkensä. Ei siinä
kyllin, että tuo ruhtinas oli päässyt hänen käsistään, voittanut hänen
miehensä ja ollut vähältä viedä häneltä hengen, vaan sen lisäksi hän
oli peittänyt hänet sellaisella häpeällä, jommoisen alaisena ei
yksikään puolalainen koskaan ollut huokaillut.
Oli hetkiä, jolloin Kmicic tahtoi jättää kaikki — kunnian, joka oli
hänen saavutettavissaan, ja kuninkaan palveluksen — ja rientää
kostamaan tuolle ylimykselle. Mutta toiselta puolen hän, niin
raivostunut kuin olikin, ajatteli, että kostoon on tilaisuutta niin kauan
kuin ruhtinas on elossa, mutta paras keino ja ainoa tapa osoittaa
hänen katalasti valehdelleen oli palvella uskollisesti kuningasta.
Kuitenkin hän kiristeli hampaitaan, oli kuohuissaan eikä pitkään

aikaan rauhoittunut. Hän nautti ajatellessaan kostoa. Hän näki, että
ruhtinas taas oli hänen käsissään, vannoi isänsä muiston kautta, että
hänen oli saatava ruhtinas valtaansa miten suurin ponnistuksin ja
kärsimyksin tahansa. Ja vaikka ruhtinas Boguslaw olikin mahtava
herra, jota ei edes kuninkaankaan saati sitten tavallisen
aatelismiehen kosto voinut helposti kohdata, niin hän ei olisi
nukkunut rauhallisesti, jos olisi paremmin tuntenut vihamiehen
lannistumattoman tarmon.
Ei tietänyt vielä Andrzej, että ruhtinas oli tehnyt hänelle muutakin

kuin vienyt kunnian.
Kuningas palasi Opolista Glogowaan iloisena ja tyytyväisenä. Hän

kutsui huoneeseensa muutamia luotettavia upseereita, niitten
joukossa Kmicicin, ja sanoi heille:
— Olemme jo kyllästyneet oloon tässä maassa ja olisimme valmiit

vaikka jo huomenna lähtemään. Senvuoksi olemme kutsunut teidät,
että te sota-asioita ymmärtävinä ja kokeneina miehinä keksisitte
nopeimman menettelytavan. Vahinko on tuhlata aikaa, kun meidän
läsnäolomme voi huomattavasti jouduttaa sodan syttymistä.
— Aivan niin! On toimittava nopeasti, ennenkuin vihollinen saa

tiedon asiasta ja tulee kahta vertaa valppaammaksi! — sanoi eversti
Wolf.
— Vihollinen on jo varuillaan ja on parhaansa mukaan

varustautunut! — sanoi Kmicic.
— Kuinka niin? — kysyi kuningas.
— Teidän majesteettinne aikomus palata maahan ei ole mikään

uutinen ruotsalaisille! Melkein joka päivä kulkee huhuja koko
valtakunnassa, että teidän majesteettinne on jo tulossa tahi jo on
inter regna. On senvuoksi noudatettava mitä suurinta varovaisuutta
ja hiivittävä vuorensolien kautta, sillä tiet ovat Douglasin
vartiojoukkojen vallassa.
— Paras varokeino, — sanoi Tiesenhausen katsoen Kmiciciin, —
on kolmesataa luotettavaa sapelia, ja jos teidän majesteettinne
uskoo minulle niiden päällikkyyden, niin vien teidän majesteettinne
onnellisesti perille vaikka Douglasin vartiojoukkojen ruumiiden yli. —
— Viette kyllä, jos kohtaatte kolmesataa vihollista, tahi vaikkapa

tuhatkin, mutta entä jos väijyksissä ja vastassa on suurempi voima?
— Sanoin kolmesataa, — vastasi Tiesenhausen, — koska se

ensin tuli mieleeni. Mutta jos se ei riitä, niin voi ottaa viisisataa ja
enemmänkin.
— Hyväinen aika! Mitä suurempi joukko, sitä helpommin siitä

leviää tieto! — sanoi Kmicic.
— Luulen, että kruunun marsalkka ennättää joukkoineen meitä

vastaanottamaan! — sanoi kuningas.
— Hän ei ennätä! — sanoi Kmicic. — Hän ei tiedä päivää eikä

hetkeä, ja vaikka tietäisikin, voi häntä matkalla jokin pidättää, jokin
yllätys kohdata, ei voi koskaan varmasti tietää…
— Noin puhuu oikea sotilas! — sanoi kuningas. — Huomaa, että

olette ollut sodassa.
Kmicic naurahti, sillä hän muisti retkensä Chowańskia vastaan.

Kukapa olisi paremmin kuin hän perehtynyt sellaisiin hommiin!
Kenelle olisi sen paremmin voinut uskoa kuninkaan saattamisen?
Mutta Tiesenhausen oli ilmeisesti toista mieltä kuin kuningas, sillä

hän rypisti kulmiaan ja sanoi ivallisesti Kmicicille:
— Odotamme teidän kokenutta neuvoanne! Kmicic tunsi
kysymyksessä piilevän epäsuopeuden, katsoi Tiesenhauseniin ja
sanoi:
— Mielipiteeni on, että kuta pienempi on kuningasta saattava

joukko, sitä helpommin se pääsee perille.
— Selittäkää tarkemmin!
— Teidän majesteettinne! Menköön herra Tiesenhausen edellä

rakuunain kanssa antaen tahallaan levitä tiedon, että saattaa
kuningasta, ja kiinnittäen sillä tavoin vihollisten huomion itseensä.
Me taasen, pieni joukko teidän majesteettinne saattajina, lähdemme
päivää tahi paria myöhemmin ja tulemme vaikeuksitta perille, kun
vihollisen valppaus suuntautuu toisaalle.
Kuningas taputti ihastuneena käsiään.
— Jumala on meille lähettänyt tämän soturin! — huudahti hän. —

Ei Salomo olisi puhunut viisaammin! Olemme täydelleen samaa
mieltä, ja niin tehdään! He etsivät kuningasta rakuunain joukosta,
mutta kuningas ajaa heidän nenänsä ohi! Totisesti, ei voi tehdä
paremmin!
— Teidän majesteettinne! Tuommoinenhan on ilveilyä! — huudahti

Tiesenhausen.
— Sotilaallista ilveilyä! — vastasi kuningas. — Kävi miten kävi,

mutta tästä tuumasta emme luovu!
Kmicicin silmät säteilivät ilosta, kun hänen mielipiteensä voitti,

mutta Tiesenhausen hypähti pystyyn.
— Teidän majesteettinne! -. sanoi hän.
Kieltäydyn rakuunain päällikkyydestä. Johtakoon heitä joku muu!
— Miksi? — kysyi kuningas.
— Jos teidän majesteettinne lähtee ilman turvaa, alttiina kaikille

sattumille ja vaaroille, jotka voivat kohdata, niin minä tahdon olla
mukana, puolustaa hallitsijaani omalla ruumiillani ja tarvittaessa
kaatua.
— Kiitos vilpittömästä alttiudesta! — huudahti Jan Kasimir. —

Mutta rauhoittukaa, juuri herra Babiniczin neuvoa noudattaen
vältämme vaarat.
— Ottakoon herra… Babinicz, tai mikä hänen nimensä lienee,

neuvonsa omalle vastuulleen! Kenties hänen tarkoituksensa on, että
teidän majesteettinne ilman turvajoukkoa eksyy vuoristoon… Minä
otan Jumalan ja läsnä olevat toverit todistajiksi, että olen varoittanut
tästä!
Kmicic nousi paikaltaan ja asettuen Tiesenhausenin eteen kysyi:
— Mitä tarkoitatte noilla sanoilla?
Mutta Tiesenhausen katseli häntä halveksivasti kiireestä

kantapäähän.
— Älkää tuppautuko liian lähelle, hyvä herra, sillä voi käydä

huonosti! — sanoi hän.
— Olkaa vaiti! — sanoi äkkiä kuningas rypistäen kulmiaan. —

Älkää ruvetko tässä riitelemään!
Kuningas teki niin arvokkaan vaikutuksen kaikkiin läsnäolijoihin,
että molemmat nuoret miehet joutuivat hämilleen ja vaikenivat
ymmärtäen käyttäytyneensä sopimattomasti kuninkaan saapuvilla
ollessa.
Jan Kasimir taas sanoi:
— Tälle ritarille, joka on räjähdyttänyt kolubriinin ja selviytynyt

ruotsalaisten käsistä, ei kukaan ole oikeutettu suurentelemaan,
vaikkapa hänen isänsä olisi ollut syrjäkylän asukas, mikä ilmeisesti
ei ole asian laita, sillä niinkuin lintu tunnetaan helposti höyhenistään,
niin veri ilmaisee itsensä teoilla.
Te, Tiesenhausen, haluatte olla meidän läheisyydessämme

matkalla. Sitä meidän ei sovi teiltä kieltää. Johtakoon rakuunoita
Wolf tahi Denhoff. Mutta myös Babinicz jää läheisyyteemme, ja
hänen neuvonsa mukaisesti lähdemme, sillä se on meille hyvin
mieleen.
— Minä pesen käteni! — sanoi Tiesenhausen.
— Pitäkää vain suunnitelma salassa. Lähtekööt rakuunat tänään

Raciborziin… ja laskettakoon liikkeelle huhu, että mekin olemme
heidän mukanaan… Ja olkaa sitten valmiina lähtemään milloin
tahansa… Herra Tiesenhausen! Menkää antamaan käsky rakuunain
kapteenille!
Tiesenhausen lähti väännellen käsiään vihastuksesta, ja hänen

jälkeensä erkanivat muutkin upseerit.
Samana päivänä levisi huhu kaikkialle Glogowassa, että hänen

majesteettinsa kuningas Jan Kasimir oli lähtenyt Puolan rajaa kohti.
Useat huomattavat senaattoritkin luulivat lähdön todella
tapahtuneen. Vartavasten lähetetyt sanansaattajat veivät tämän
uutisen Opoliin ja lähiseuduille.
NELJÄS LUKU.
Raciborziin pysähdyttiin vain hevosia syöttämään. Ei kukaan

tuntenut kuningasta, ei kukaan kiinnittänyt joukkoon huomiota, sillä
kaikkien mieliä askarruttivat aikaisemmin ohi kulkeneet rakuunat,
joiden joukossa yleisen käsityksen mukaan oli myös Puolan
kuningas. Saattuetta oli kuitenkin noin viisikymmentä henkeä, koska
kuninkaan mukana oli useita arvohenkilöitä, viisi piispaakin ja näiden
joukossa myös paavin lähettiläs. Keisarikunnan rajojen sisällä ei ollut
mitään pelättävää. Olderbergissa mentiin Mährin alueelle.
Päivä oli pilvinen ja lunta sateli niin sakeaan, että muutaman

askelen päässä ei nähnyt tietä edessään. Mutta kuningas oli iloinen
ja toivehikas, sillä oli sattunut tapaus, jonka kaikki olivat selittäneet
hyväksi enteeksi ja jonka historioitsijat sittemmin panivat
aikakirjoihinkin. Juuri kun kuningas oli lähdössä Glogowasta, ilmestyi
hänen hevosensa eteen valkoinen lintu ja alkoi iloisesti viserrellen
kierrellä hänen päänsä yllä. Muistettiin, että samanlainen lintu, mutta
musta, oli kierrellyt kuninkaan yläpuolella silloin, kun hän lähti
Varsovasta ruotsalaisten tullessa.
Jo matkan alussa nähtiin, miten hyvä oli ollut Kmicicin neuvo, että
matkustettaisiin erikseen. Kaikkialla Mährissä puhuttiin Puolan
kuninkaan äskeisestä käynnistä. Muutamat vakuuttivat nähneensä
hänet omin silmin haarniska yllä, miekka kädessä ja kruunu päässä.
— No? — kysyi kuningas Tiesenhausenilta. —
Eikö Babinicz ollut oikeassa?
— Emme vielä ole perillä, teidän majesteettinne! — vastasi nuori

ylimys.
Mutta Babinicz oli tyytyväinen itseensä ja matkaan. Enimmäkseen

hän kolmen Kiemliczin kanssa kulki edellä tutkimassa tietä. Väliin
hän yhtyi toisiin ja huvitti kuningasta kertomalla yksityistapauksia
Częstochowon piirityksestä, joita Jan Kasimir oli väsymätön
kuulemaan. Ja yhä enemmän miellytti kuningasta tuo nuori mies,
joka oli iloinen, reipas, nuoren kotkan kaltainen. Aikaansa kuningas
käytti rukoilemiseen ja hurskaisiin mietiskelyihin tulevasta elämästä
tai keskusteluihin tulevasta sodasta ja keisarilta odotettavasta
avusta, taikka hän katseli aseleikkejä, joilla sotamiehet matkan
varrella kuluttivat aikaansa. Jan Kasimirin luonteeseen kuului, että
hän helposti siirtyi arvokkuudesta vähäpätöisiin harrastuksiin ja
raskaasta työstä ilon pitoon, johon hän saattoi antautua niin
kokonaan, kuin eivät mitkään huolet koskaan olisi häntä painaneet.
Sotamiehet näyttivät taitoaan kukin parhaansa mukaan. Nuoret

Kiemliczit, Kosma ja Damian, huvittivat kuningasta taittamalla
hevosenkenkiä kuin tikkuja, ja hän käski antamaan heille taalerin
jokaisesta, vaikka kuninkaan rahakukkaro olikin jokseenkin tyhjä,
sillä kaikki rahat ja kalleudetkin oli niellyt sotajoukko.
Andrzej herätti huomiota heittämällä raskaan kirveen niin korkealle

ilmaan, että se melkein katosi näkyvistä, ja sieppaamalla sen sitten
ratsastaessaan ilmasta. Kuningas taputti käsiään tätä katsellessaan.
— Missä olette saanut tuon arven kasvoihin? — kysyi kerran

kuningas
Kmiciciltä. — Joku lienee sivaltanut teitä kelpo lailla sapelilla!
— Se ei ole sapelin jälki, teidän majesteettinne, vaan kuulan.

Minua ammuttiin niin, että melkein hana oli kiinni kasvoissani.
— Vihollinenko ampui vai oma mies?
— Oma mies, joka on viholliseni ja jolle vielä tämän maksan

takaisin, mutta ennenkuin se tapahtuu, ei siitä sovi puhua.
— Niinkö pitkävihainen olette?
— En ole ollenkaan pitkävihainen, teidän majesteettinne! Minulla

on otsassani paljon pahempi arpi sapelin jäljeltä, ja senkin saanti oli
maksaa minulle hengen, mutta koska sen teki kelpo mies, niin en
kanna hänelle ollenkaan vihaa.
Näin sanoen Kmicic otti hatun päästään ja näytti kuninkaalle syvän

arven, jonka valkeammat reunat saattoi selvästi erottaa.
— En häpeä tätä haavaa, — sanoi hän, — sillä sen antoi minulle

sellainen mestari, että ei ole hänen vertaistaan koko valtakunnassa.
— Kuka se oli?
— Herra Wolodyjowski.
— Niinkö? Hänet minä tunnen. Hän teki ihmeitä Zbarazin luona.

Olin sitten hänen toverinsa Skrzetuskin häissä, joka minulle
ensimmäisenä toi sanomia piiritetystä Zbarazista. Uljaita ritareita! Oli
niiden mukana kolmaskin, jota koko sotajoukko ylisti parhaaksi
ritariksi. Paksu aatelismies ja niin lystikäs, että olimme häissä
katketa nauruun.
— Se oli herra Zagloba, arvaan minä! — sanoi Kmicic. — Hän on

sekä miehuullinen mies että älyniekka.
— Mitä he nyt tekevät, tiedättekö?
— Wolodyjowski oli Vilnon hetmanin rakuunain päällikkö.
Kuningas tuli synkän näköiseksi.
— Ja palvelee nyt vojevoda-ruhtinaan kanssa ruotsalaisia?
— Hänkö? Ruotsalaisia? Hän on herra Sapiehan joukossa. Näin

itse, miten hän ruhtinas vojevodan petoksen jälkeen paiskasi
hetmanin sauvan hänen jalkojensa eteen.
— Oi, hän on kelpo soturi! — sanoi kuningas. — Herra Sapiehalta

olemme saaneet tietoja Tykocinista, jonne hän on saartanut
ruhtinaan. Jumala auttakoon häntä! Jos kaikki olisivat hänen
kaltaisiaan, niin eivät ruotsalaiset meillä isännöisi!
Tiesenhausen, joka oli kuullut koko keskustelun, kysyi äkkiä:
— Te siis olitte Kiejdanyssa Radziwillin luona? Kmicic joutui hiukan

hämilleen ja alkoi viskellä kirvestään.
— Olin! — vastasi hän.
— Antakaa kirveenne olla rauhassa! — jatkoi Tiesenhausen. —

Mitä te teitte ruhtinaan hovissa?

Paper Tigers Hidden Dragons Firms and The Political Economy of China S Technological Development 1st Edition Douglas B Fuller

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Paper Tigers Hidden Dragons Firms

and the Political Economy of China s

The Political Economy of Housing Financialization

The Political Economy of China-Myanmar Relations

The Political Economy of Development Norman T. Uphoff

The Gaza Strip The Political Economy of De development

The Political Economy of China US Relations Digital

Development Capitalism and Rent The Political Economy

Reconfiguring the China-Pakistan Economic Corridor

Toward a Political Economy of Development Robert H.

Paper Tigers, Hidden Dragons

Paper Tigers, Hidden

To my parents, Kathleen B. and Richard K. Fuller

much of the manuscript), sharing their insights on Chinese politics and

Part I. Setting the Stage

Part II. State Policy, Firms, and Upgrading Outcomes

3. Paper Tigers: The Weakness of China’s National Champions 65

4. State-Driven Technology Commercialization versus the

Part III. The Integrated Circuit Industry

6. IC Design: From Reverse Engineering to Innovation 156

Part IV. China in Comparative Perspective

8. Importing Institutions and Comparative Capitalism 209

Conclusion: China’s Economic Future and the Future

Appendix: Interview List 231

1.1 Causal chain 24

1.1 China’s NPLs in comparative perspective: NPLs as a portion of GDP (%) 21

AMB advanced memory buffer

AFP Agence France-Presse

DYBG Diaoyan Baogao [Ministry of Science and Technology’s Investigation

Paper Tigers, Hidden Dragons

Paper Tigers, Hidden Dragons

Whether China will become an economic superpower is a question that

enterprises (the guojin mintui phenomenon8) to what foreign businesses per-

2. Beyond the State–Market Divide in Political Economy

In terms of development, the prescriptions offered by both mainstream

3. Foreign Institutions and Comparative Capitalism

Paper Tigers, Hidden Dragons

capitalisms; foreign institutions were only considered important when impli-

4. The IT Industry as a Case

The IT industry is representative of a growing number of industries that

Paper Tigers, Hidden Dragons

developed successfully. The development of technology has been a priority for

5. The Organization of the Book

Chapter 3 looks at the Chinese state’s attempts to create national cham-

1.1 Overview of the Argument

Paper Tigers, Hidden Dragons

their technology to keep pace with competitors. Soft budget constraints

This book has two core propositions:

Paper Tigers, Hidden Dragons

a manner that put few barriers or restrictions to foreign ﬁrms’ access to

DIFFERENTIATING FIE S FROM DOMESTIC FIRMS

Paper Tigers, Hidden Dragons

state favor received by those non-state-owned/controlled ﬁrms that have still

SOFT BUDGETS AND THE STRATEGIES OF FAVORED DOMESTIC FIRMS

Wu 2011). In sum, bureaucratic goals induce a policy of capital investment by

Paper Tigers, Hidden Dragons

COMPARATIVE METRICS ON CHINA’S FINANCIAL MALADIES

Year China* US Japan South Korea India Indonesia Taiwan