The expansion of China’s market margins: Navigating contingencies and conjunctures

In this exchange piece, I engage with Weber’s critical analysis, destabilizing the ideological dichotomy of the big bang approach versus experimental gradualism. I suggest that China’s past decades of conspicuous economic success are attributed to the political tactics of navigating the variegated sociospatial contingencies, as well as the conjunctures of new rounds of spatial division of labor globally in the 1980s. In sum, I point to the role of the arts of governmentality in reconfiguring domestic economic geography to sustain and facilitate the expansion of market margins for the growth of state power.

In the late 20th century, China achieved unprecedented growth in productivity and improvements in the quality of life.In this context, the strategic and difficult decisions made by Chinese communist leaders at the crossroads of reform are not to be undervalued.In How China Escaped Shock Therapy, Weber meticulously describes a veritable kaleidoscope of the intellectual and policy debates during the 1980s, provoking deep reflections about how China was able to achieve a developmental level to which other transition economies could only aspire.Rather than reading it with a presupposition of the dominance of the dual-track system over the big bang approach, I suggest that readers embrace the rich historic-geographical conjunctures that constitute the reform processes, letting Weber's encompassing analysis prompt interest in those concrete reform figures and their struggles and debates regarding the reform directions and measures.

Debunking the market
A dichotomous mindset (i.e., state vs market) does not hold ground in the reading of this book.In the first part of the book, the market is debunked in an evolutionary and comparative manner.Rather than treating the market as an economic ideology vis-à-vis the planned system, the first three chapters attend to marketization as a process that "unfolded slowly as the institutions facilitating market exchange were being built up" (p. 6).These institutions in China, heavily influenced by the ancient wisdom that traced far back to the Warring States Period ca.300 BC, are fundamentally different to Western market institutions, in which the state governs indirectly by rule of law, featuring a direct participation of the state agencies in the market.In the interest of the people's material wellbeing in an agricultural society, the ancient Chinese state judged what was heavy and what was light and built institutions, such as the Ever Normal Granary (常平仓), not only to regulate but also to balance and create the market.
These economic governance legacies, in which the state directly participates in the market by sensing and governing its fluctuations, are revisited in Chapter 3 to underscore the significance of state trading agencies led by communist revolutionaries.These agencies played a pivotal role in stabilizing the rampantly escalating price of essential goods in the late 1940s, ultimately contributing to their victory over the Nationalist government.The revolutionary economists, including Chen Yun and Xue Muqiao, served as critical forces in the 1980s, swinging the pendulum from package reform toward experimental gradualism.Furthermore, first-hand interviews with some of the "forgotten" gradualist reformers throughout this book, some of them barely remembered in the Chinese-speaking world today, provide valuable insights, not least serving to debunk the conventional reading of reform politics in (post)socialist economies as a dialectical battle between conservatives and liberals.Ironically, the economists who facilitated gradual reform by inductive experimentation lost on the political battlefield against the old-generation revolutionary economists despite their credit in helping China escape shock therapy.Given the two groups' similar Polanyian perspective toward the market as not self-regulating but rather tools of social engineering and mass mobilization, economic reform is presented in the book as a muddled field with not only distinctive theoretical approaches and empirical understandings of China's developmental realities but also power struggles among the top leadership.

The market margins as the foundation of reform
A riveting analysis of socialist transition economics is presented in Chapter 2, contrasted with the experience of the dual-track system in the United States in the mid 20th century.In unpacking these debates around price controls, Weber digs down to the microfoundations, including the firms' responses to price ceilings and the economic behavior of workers and consumers.In this regard, both this chapter and the subsequent sections of the book lack clarity in terms of the unique microfoundations that distinguish 1980s China from postwar United States.This is particularly evident given the markedly disparate developmental stages of Chinese firms, which possessed limited ability to effectively and adequately respond to price changes.The undue attention to highlight the contextual differences may be confusing, as it is precisely the historical and geographical contingencies that underlie the functioning of a dual-track system.
Indeed, the essential ingredient in China's dual-track system is to nurture an industrial sector to be able to increase production in response to price signals.China's approach to nurturing the marketization of the margins is twofold.First, the central state fostered fiscal decentralization in the 1980s, ushering in local state corporatism (Nee, 1992;Oi, 1995) in which competition between local governments drove the reform of local state-owned enterprise, and most important of all, the collectively owned enterprises at the township level or below.Privatization was hardly on the agenda in the 1980s, yet grassroots production units were nevertheless afforded sufficient autonomy to accumulate and expand.Apart from the support from the local governments, the significant expansion of the markettracked margins, as argued by Johnson (1994) in comparison to Russia's context, benefitted from the postcolonial legacies: the wealthy overseas Chinese community from Hong Kong and Taiwan brought not only capital, but also market channels to mainland China.Cementing this overseas linkage is the historical-geographical nexus in certain coastal locations.In parallel with the top-down allocated Special Economic Zones (e.g., the Shenzhen model), the growth model of Four Little Tigers of Guangdong suggests that overseas Chinese investors also relied heavily on informal kinship and clanship networks in their hometowns to hedge against investment risks (Fu et al., 2012;Yang, 2012).Variegated sociospatial contingencies provided positive experimental dynamism to the dual-track system, which later fed into the macro-level policy-making processes of state spatial strategies.
Hence, eliminating the price signals, and thereafter the agency of economic actors, in the context of a rigid central planning system as described in Chapter 4, goes against the Chinese ancient ruler's governing wisdom to "use the individual pursuit of profit and self-interest to enrich the state" (p.24).Similar notions have been raised by Weiss (2006), who frames this as governed interdependence using empirical insights from Asian developmental states, carving out an interest community in which the nation state grows its noncoercive power by being able to "extract and exchange vital information with producers" and "stimulate private-sector participation in economic projects" (Weiss, 2006: 168).Co-opting and motivating the private sector are indeed vital to enlarging the scope of the market "from the margins," a process key to subsidizing the state sector in a dual-track system.
Weber's interrogation of the how question of reform casts new light on the puzzle that has long confronted development scholars: why has the neoliberal recipe, in its pure form transplanted from the Western experience, caused such chaos and damage in the developing world, for all of the support from orthodox economics and the good intentions of reformers?The advocates of big bang approaches were so obsessed with price liberalization (discussed in detail in Chapter 5) that they paid insufficient attention to many other aspects of the economic system, such as ownership reform, assuming that competition and prosperity would follow once the price mechanism was in place.The price mechanism may retain its functionality, but within an economy controlled by oligarchs, such as in Russia during the early 1990s, it is observed how this mechanism resulted in reforms that did not favor the economic development.Certainly, it is no denying that prices are fundamental in establishing the signals to allocate resources and incentivize productivity, but the sequence and priority of the specific areas needing reform were at the center of the debates in 1980 (see Chapter 5).It is hinted at in various places that émigré economists from Eastern Europe were aware of how the political superstructure and economic base are interdependent, yet their suggestions on package reform overwhelmingly concentrated on price liberalization and monetary discipline.
Liberalizing prices doesn't guarantee the reversal of economic imbalances and unequal power dynamics; instead, in many circumstances, it tends to reinforce them.China's gradualist reformers in China presciently understood the damaging effects of price fluctuations, especially to emergent enterprises at grassroots level and rural collectives.Chapter 6 crystallizes the discussion on the inductive approach taken by the intellectuals in China's System Reform Commission in the 1980s, vividly encapsulated as "letting the masses decide for themselves in which way they want to organize the organization" (p.162).These gradualist reformers, including Li Yining, Chen Yizi, and Wang Xiaoqiang, placed priority on reforming the microeconomic base, including (a) nurturing horizontal links between enterprises, (b) hardening the budget constraints by not only fiscal and financial discipline but also via pressure from market actors, and (c) introducing the labor market and capital market to combat inflation incurred by investment expansion and wage spiral (see Chapter 7).All three measures were committed to cultivating and consolidating the foundation of reform, while it was argued that the package reform led by radical and wholesale price liberalization would undermine it.

The path ahead: From state versus market debates to state-market hybrid
Does How China Escaped Shock Therapy suggest that the dual track system is superior to the big bang approach?A slight worry is the book's ambiguity and incompleteness in this regard.There are citations of certain works (e.g., discussions citing Hua et al., 1993in Weber, 2021: 239) that suggest we should be cautious in concluding this, yet the book might have gone further in its discussions of the contextual contingencies of the Chinese reform processes as well as its historical periodization.Had China not been successfully integrated into global capitalism, its economic success would surely not have been so conspicuous, especially in relation to the fortunes of shock-treatment economies like Russia.Even today, China's economy remains highly dependent on export and infrastructural investment, while the dynamics of domestic consumption remain sluggish.Weber did devote some attention in the last chapter to a discussion of the "coastal development strategy" enacted by Zhao Ziyang in 1987, and she aptly suggests that it was "an internationalization of the gradual dual-track marketization."In my view, the conjunctural opportunities that permitted the internationalization of the dual-track system, in combination with the enormous potential of China's domestic market and its latecomer advantages in technological development, are the factors that ultimately explain the country's miraculous economic growth.
To extend this crucial spatial strategy, it is worth adding that the policy documents relating to the "coastal development strategy" stated outright that the intention was to compel the emerging private sector, primarily the mushrooming township and village enterprises benefiting from specific historical-geographical circumstances (Fu et al., 2012), to concede the domestic market of raw materials and final products-albeit not verbatim-to the state-owned sector (Wen, 2012).It then became clear that the party state reinstated this spatial strategy in the early 1990s, along with measures that radically devalued the RMB by 33% overnight (Reuters, 2010).In effect, the state acted decisively to reconfigure the Chinese economy (including its geography), expanding marketization at the margins and taking steps to rebalance economic development.Perhaps the main lessons from China's reform story concern those arts of governmentality that facilitated the pragmatic and prudent navigation of the reform process, which enabled the country to exploit conjunctural opportunities rendered by new rounds of the spatial division of labor.
Gradual reform continues in today's China, and it still remains to be seen whether marketization from the margins will eventually predominate over the planned system.The ultimate goal may not be full liberalization; instead, the profit margins from export-driven markets contribute to the state's ability to permeate society.China has grown into a global economic power, and so too have its state institutions.In Harvey's (2007) account of neoliberalism with Chinese characteristics, severe crises of overaccumulation replaced the inflation crisis in the 1980s, and since the 2000s debt-financed infrastructural investment became a principal means to manage social unrest linked to massive labor surpluses.In the next critical juncture, some of the key debates will likely concern the forms and effects of state-market hybrids, and their wider role in recombinant forms of state capitalism (see Alami and Dixon, 2023).This may go beyond the scope of Weber's book, but I believe that How China Escaped Shock Therapy serves as a sophisticated study of economic history we could turn to for enlightenment on how the path is set.

Declaration of conflicting interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.