Institutional Rebound: Why Reforming China’s State-Owned Enterprises Is so Difficult

Abstract

Why are perennially entrenched institutions so hard to reform? This article proposes a theory of institutional rebound based on China's reforms to break the three "iron-institutions" in state-owned enterprises (SOEs). I argue that reforms triggered the rise of informal institutions, which impeded further reforms and made old rules rebound. When SOE cadres had denser political connections, they actively manipulated the rules to maintain privileges. When managers and workers had fewer political resources, they used performative resistance to delay reforms and penalize reform advocates. The pressure to complete reforms drove cadres to first target the powerless, replacing them with cronies, before having to move to the more powerful. The article combines in-depth interviews, secondary sources, and topical modeling of newspaper and journal articles across three decades.