State-building as market-building in China

By examining the history of the development of the tobacco industry, a key state industrial sector in China\u27s reform era, this article shows how market-building processes and state-building processes have produced and reproduced each other in economic transitions from planned toward market economies. First, the market competition between state-owned tobacco firms and non-state tobacco firms in the early 1980s resulted in the establishment of a vertical bureaucracy, through a statemonopoly institution. Second, new market dynamics resulted in the transfer of monopoly power from the central government to the local governments. During this process the horizontal bureaucracies governing the tobacco industry in localities were driven into market competitors, while the vertical bureaucracy was greatly undermined. The evidence from the Chinese tobacco industry shows that the project of market-building for postcommunist countries is not a unilateral process. To obtain a complete understanding of transitional economies of postcommunist countries, I suggest that the key is the interaction between state-building and market-building, with a focus on how the specific market dynamics have rebuilt the state structures. © 2006 A.E.S