New Roads to Capitalism: China and Global Value Chains by Mark Peter Dallas A dissertation submitted in partial satisfaction of the requirements for the degree of Doctor of Philosophy in Political Science in the Graduate Division of the University of California, Berkeley Committee in charge: Professor Kiren Chaudhry, Chair Professor Thomas Gold Professor Kevin O’Brien Professor T.J. Pempel Professor Steven Vogel Fall 2010 New Roads to Capitalism: China and Global Value Chains © 2010 by Mark Peter Dallas Abstract New Roads to Capitalism: China and Global Value Chains by Mark Peter Dallas Doctor of Philosophy in Political Science University of California, Berkeley Professor Kiren Chaudhry, Chair The creation of markets in China has been most commonly analyzed through the lens and vocabulary of the new institutional economics in which broad, national-level institutional reforms are seen to be effective because they altered the incentive structures of farmers, local government officials, or factory managers. Drawing from literature on comparative capitalism which focuses on the processes of production, this dissertation examines markets through deconstructing production to the level of specific commodities. It utilizes a value chain framework by beginning with the cultivation of cotton, wool and silk agricultural commodities, and tracing them through China’s textile and garment industries and into domestic and foreign trade. It considers each of these links along the chain as a locus of conflict between China’s many ministries, local governments and economic actors, highlighting the political contestation and the complexity of state policy underlying the institutionalization of markets. By tracing how the terms of trade become structured along the chain over time, it details the re-creation of economic order and the distribution of resources among different producer groups. This approach is employed to construct a comparative historical narrative of China’s textile agro-industries, starting from the domestic market reforms in the 1980s through to China’s international integration in the 1990s, a period which coincided with major transformations in global manufacturing. In terms of domestic market reforms in the 1980s, it first shows that an institutional economics perspective mistakenly draws too clear a line between China’s planned economy and the market reforms over the 1980s. By examining reforms at the level of concrete commodities and along the value chain, the planned economy and market reforms are re-conceptualized as being deeply interpenetrated such that the vitality of China’s nascent market economy grew not simply from the liberation of economic interests through institutional re-engineering, but from the structure of China’s version of a planned economy. Second, it examines China’s international integration over the 1990s by analyzing the impact of the contemporary transformations in global manufacturing, in which vertically integrated production along the value chain has been sliced up and re-integrated through cross-national networks of production. This fragmentation of production introduced a new form of capitalist development in China in terms of the organization and regulation of industry and the composition of its labor force. 1 Finally, the dissertation’s approach offers new insights into the study of China’s rapid rise in regional inequality. Instead of explaining regional inequality through differences in location advantages, it finds that regional inequalities arose more from changes in regulation between direct producers along the production chain. The dissertation employs a variety of data sources, including fieldwork interviews, Chinese newspapers and trade journals, internal government documents and statistics, yearbooks and local gazetteers, industrial and population censuses and digital mapping techniques. 2 Table of Contents Abbreviations ii Acknowledgements iii Chapter One. Introduction: Constructing Markets in China 1 Chapter Two. The Agriculture Boom 1978-85: The Changing Context of Household Farming and Markets 43 Chapter Three. States, Markets and Three Paths to the Commodity Wars 1985-1994 91 Chapter Four. The Aftermath of the Wars: Technological Renovation and Global Integration 140 Chapter Five. Global Production, Labor and Regional Inequality 185 Chapter Six. Conclusion 221 Appendix I. List of Informants 233 Appendix II. Usage of Chinese Statistical Materials 236 References. 239 i Abbreviations ABC Agriculture Bank of China ATC Agreement on Textiles and Clothing EU European Union GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product GVA Gross Value of Agricultural Output IMF International Monetary Fund MFA Multi-Fiber Agreement MOA Ministry of Agriculture MOC Ministry of Commerce MOF Ministry of Finance MOFERT Ministry of Foreign Economic Relations and Trade MOG Ministry of Grain MOLI Ministry of Light Industry MOTI Ministry of Textile Industry NASMC National Association of Supply and Marketing Cooperatives NPB National Price Bureau PRC People’s Republic of China RMB Renminbi (Chinese currency) SMC Supply and Marketing Cooperative SOE State-owned Enterprises SPC State Planning Commission TNC Transnational Corporation TVE Township and Village Enterprises UN United Nations UNCTAD United Nations Commission on Trade and Development UNIDO United Nations Industrial Development Organization US United States WTO World Trade Organization ii Acknowledgments I finish this dissertation with more unanswered questions than when I began. There are many to blame for this, but a few stand out for their continued guidance and inspiration. Foremost among them, Kiren Chaudhry has been unwavering in her support and dedication. Quite simply, this dissertation would not have come to fruition without her. Many of its ideas derive from her pedagogy in two exceptional courses at Berkeley, endless conversations with her over the years, and her willingness to take risks and experiment with new ideas. Although it is becoming less common in the discipline, Kiren firmly believes in graduate education as a high-skilled craft, and I am extremely grateful for this. Other committee members have contributed in diverse and crucial ways. Tom Gold and Kevin O’Brien have very ably contributed essential China expertise. Tom was supportive of the project since it was a prospectus and used his prodigious skills in linking people together to introduce me to individuals in China during fieldwork. He also unselfishly gave of his time, for instance by attending regular meetings of a China dissertation writing group with doctoral students from across three disciplines, only a few of whom he formally advised. Kevin provided a crucial outsider’s perspective on the project. Despite his protestations that he was not a political economist, his commentary on my work was invariably insightful and probing. He remained the constant voice in the back of my head reminding me that I ought to strive to touch a broader audience beyond fellow political economists. T.J. Pempel and Steve Vogel contributed substantially both as keen observers of political economy and in terms of guiding dissertation research. If Kevin remained the voice for broadening my appeal, Steve was the voice urging me to strive for greater clarity, economy of words, and for striking a balance between comparative, qualitative research and generalizability. He was also very generous with his time in helping me as the project evolved. T.J. always contributed whenever I asked, even when he was about to fly off to Asia. I firmly believe there are two T.J.s at Berkeley, because just one person could not read and comment on drafts with such alacrity and skill while engaged with so many other pursuits. His influence was particularly helpful when planning my project, in which he (perhaps unwittingly) turned me away from studying both China and Japan in the same project, insisting that I not spread myself too thin, since ‘China is big and complex enough, and worth delving deep to understand.’ This advice proved sound, except for the unfortunate consequence that by removing Japan from the project, my interactions with him were curtailed, though I hope to return to my study of Japan in the future. Substantial financial support for fieldwork and writing the dissertation came from a Fulbright Fieldwork Dissertation Fellowship through the Department of Education, a Harvard-Yenching Fellowship for Advanced Research on China, and a National Security Education Program Boren Graduate Student Fellowship. In my final year of dissertation writing, I was also supported by a Chiang Ching-Kuo Foundation Doctoral Dissertation Grant. Shorter summer research trips were funded by a Liu Graduate Research Fellowship in Chinese Studies from the Center for Chinese Studies at UC Berkeley and an Association of Asian Studies Research Grant. Prior to the dissertation, I was iii generously supported by Foreign Language and Area Studies Fellowship in both the Chinese and Japanese languages, which also enabled me to take business Chinese in Taiwan as part of UC Berkeley’s excellent Chinese language programs. Institutional support was no less important. For my time in China, I was fortunate to be associated with two fine institutions: the School of Government at Beijing University and the Shandong Institute of East Asian Studies in Jinan, whose director, Lin Hong, was exceptionally competent in arranging interviews. Furthermore, I wish to express my thanks to Moriki Ohara of the Institute of Developing