Forthcoming in Critical Perspectives on Accounting.

Financialisation as a Strategic Action Field:

An Historically Informed Field Study of Governance

Reforms in Chinese State-Owned Enterprises

Sven Modell*

Alliance Manchester Business School

University of Manchester

NHH – Norwegian School of Economics, Bergen

and

Turku School of Economics, Turku

ChunLei Yang

Alliance Manchester Business School

University of Manchester

*Corresponding author

Address:

Alliance Manchester Business School, University of Manchester

Booth Street West, Manchester M15 6PB, United Kingdom

E-mail: Sven.Modell@mbs.ac.uk

Acknowledgements: Earlier versions of this paper were presented at the 8 th Asian Pacific Interdisciplinary Research in Accounting (APIRA) conference, Melbourne (2016), the 10th Management Accounnting as Social and Organisational Practice (MASOP) workshop, Windsor (2017), and research seminars at Alliance Manchester Business School, National University of Ireland Galway and the University of Burgos. We are particularly grateful for the comments received from Thomas Ahrens, Max Baker, Trevor Hopper and Eija Vinnari on earlier drafts and the guidance provided by Jane Andrew (Associate Editor for CPA) throughout the review process. The authors have benefitted from financial support granted by the Academy of Finland to the project “Balancing Tensions between the Global and the Local through Management Accounting and Control” led by Professor Kari Lukka (decision no. 258224).

1

Financialisation as a Strategic Action Field:

An Historically Informed Field Study of Governance Reforms in

Chinese State-Owned Enterprises

Abstract

This paper extends extant research on financialisation, which has mainly evolved in advanced

capitalist economies, through an historically informed field study of governance reforms in Chinese

state-owned enterprises (SOEs). Mobilising the theory of strategic action fields (SAFs), we

conceptualise the evolution of such reforms as a protracted framing process where different actors

sought to influence the meanings attributed to shareholder-focussed governance practices. We

examine how challengers of extant governance practices, such as the World Bank, and

incumbent actors representing the interests of the Chinese state vied for influence over

governance reforms and how various regulatory bodies, assuming the role of internal

governance units (IGUs), enjoyed varying degrees of success in advancing context-specific

governance practices. Shareholder-focussed accounting techniques, such as Economic Value

Added (EVATM), played an increasingly salient role in this process. Yet, emerging

governance practices primarily came to reflect the interests of the Chinese state in

maintaining and increasing the value of state assets whilst preserving its political control of

SOEs. We contribute to the literature on financialisation by showing how pressures for

shareholder value creation can be channelled into governance practices which attenuate the

pervasive effects of financialisation in contemporary society. We also contribute to research

on accounting in emerging economies by exploring the under-researched role of IGUs in the

local adaptation of “Western” governance practices. We discuss how future studies can bring

these bodies of research closer together and extend research on financialisation to a wider

range of institutional contexts.

Key words – China; Financialisation, Governance Reforms; Institutionalisation; State-Owned

Enterprises; Strategic Action Fields.

2

Financialisation as a Strategic Action Field:

An Historically Informed Field Study of Governance Reforms in

Chinese State-Owned Enterprises

1. Introduction

The financialisation of contemporary business practices has attracted considerable attention

across a broad range of disciplines. Accounting scholars have made important contributions

to this body of research and have especially demonstrated how accounting plays a key role in

institutionalising notions of shareholder value creation as a basis for corporate governance

and control (e.g., Carter and Mueller, 2006; Ezzamel et al., 2008; Froud et al., 2000, 2006;

Gleadle and Cornelius, 2008; Newberry and Robb, 2008; Roberts et al., 2006). The majority

of this research has focussed on the diffusion of Anglo-American governance practices across

advanced capitalist economies (see Siepel and Nightingale, 2014). There is now ample

evidence of how such diffusion processes give rise to context-specific adaptations of

shareholder-focussed governance practices (e.g., Bezemer et al., 2015; Fiss and Zajac 2004,

2006; Jürgens et al., 2000; Meyer and Höllerer, 2010, 2016; Morgan and Takahashi, 2002;

Yoshikawa et al., 2007). Yet, in a broadly based review of research on financialisation, van

der Zwan (2014) called for greater attention to the complex processes of transformation

which underpin the tendencies towards financialisation across a wider range of institutional

contexts. Similarly, in a recent commentary on how accounting is implicated in

financialisation, Müller (2014) called for more research into the countertendencies that

increased pressures for financialisation set in motion and how such countertendencies prevent

economies from becoming fully financialised. Further research into how such

countertendencies emerge is warranted to nuance the hitherto dominant view of

financialisation as a highly pervasive phenomenon in contemporary society and to enhance

our understanding of how accounting is implicated in the shaping of context-specific

governance practices (Müller, 2014; van der Zwan, 2014).

Research on how accounting is implicated in the process of financialisation is particularly

sparse in the context of emerging economies. Even though research on accounting in

emerging economies has paid ample attention to broader, but related phenomena, such as the

spread of neo-liberal ideologies (see Ezzamel and Xiao, 2011; Hopper et al., 2009, 2017; van

3

Helden and Uddin, 2016), little of this research has forged explicit connections to the

literature on financialisation. Yet, there is evidence of discourses associated with

financialisation, such as the emphasis on shareholder-focussed governance reforms, diffusing

to emerging economies (Young et al., 2004, 2008) and novel accounting practices, posing

under the banner of value-based management, being adopted to buttress such reforms

(Chiwamit et al., 2014, 2017; Stern, 2011). This underlines the need for greater attention to

how such reforms evolve in emerging economies and imbue governance practices with

context-specific meanings. Understanding how such meanings take shape is vital for

explaining how shareholder-focussed governance practices are institutionalised and influence

economic and social development (Meyer and Höllerer, 2010, 2016; Yoshikawa et al., 2007).

In the present paper, we extend this line of inquiry and ask how accounting is implicated in

governance reforms in emerging economies and how this imbues shareholder-focussed

governance practices with context-specific meanings. We address these research questions

through an historically informed field study of governance reforms in state-owned enterprises

(SOEs) in China. The Chinese SOE sector provides an interesting setting for exploring

questions about how tendencies towards financialisation have evolved over time. Over the

past decades, governance reforms, ostensibly aimed at transforming SOEs into more

shareholder-focussed corporations, have constituted one of the cornerstones of the country’s

transition towards a socialist market economy (Lau et al., 2007; Xu and Uddin, 2008).

However, prior research gives a somewhat mixed picture of how these reforms have affected

governance practices. Whilst some observers argue that such reforms have accelerated the

process of financialisation (Wang, 2015; Wong, 2005), others suggest that this has been a

contested process which has been fraught with institutional obstacles (Chiwamit et al., 2014;

Dai et al., 2017; Yang and Modell, 2015). Hence, there would seem to be a need for deeper

inquiries into how the tendencies towards financialisation have given rise to

countertendencies and how the interplay between such tendencies have imbued emerging

governance practices with context-specific meanings.

To make theoretical sense of how governance reforms unfolded we mobilise the theory of

strategic action fields (SAFs) (Fligstein and McAdam, 2011, 2012), which has recently

emerged as a variant of institutional research on organisations. The concept of SAFs denotes

the socially constructed space where different actors develop more or less shared

understandings of particular issues whilst vying for power over the ideas that constitute such

understandings. As such, it is centrally concerned with the evolution of new meanings around

4

contested social phenomena and would seem appropriate for addressing questions about how

shareholder-focussed governance practices evolve in particular institutional contexts. In

contrast to conventional, capitalist notions of financialisation, centred on the maximisation of

shareholder value, we find that the institutional processes surrounding the governance

reforms gradually led emerging governance practices to primarily reflect the interests of the

Chinese state in maintaining and increasing the value of state assets whilst preserving its

political control of SOEs. We examine how such context-specific understandings emerged

through a process where challengers, such as the World Bank, propagating the use of

“Western”, shareholder-focussed governance practices and incumbent actors, representing the

interests of the Chinese state, vied for power over the meanings attributed to reforms. Our

analysis draws attention to how this struggle over meanings was ultimately settled by a

regulatory body with a strong mandate to advance context-specific governance practices. Our

findings stress the importance of understanding the agency exercised by such bodies, who

assume the role of internal governance units (IGUs) (Fligstein and McAdam, 2011, 2012), in

the institutionalisation of shareholder-focussed governance practices. We discuss the

implications of these findings for future studies of financialisation and research on accounting

in emerging economies.

The paper unfolds as follows. We start by outlining the theory of SAFs and how it can be

reconciled with prior research on shareholder-focussed governance practices. We then

account for the research methods employed before offering a longitudinal, historically

informed analysis of the evolution of governance reforms in Chinese SOEs. The concluding

discussion summarises our main findings and reflects on the implications for future research.

2. Theoretical Framework

The theory of SAFs is fundamentally concerned with the formation of templates for

collective action among groups of socially embedded actors with more or less competing

interests, values and beliefs. Strategic action fields entail specific, socially constructed orders

which are reproduced or transformed through individual and collective agency (Fligstein and

McAdam, 2011, 2012). As such, the notion of SAFs resembles the concept of organisational

fields in neo-institutional sociology (DiMaggio and Powell, 1983; Wooten and Hoffman,

2008). The two theories share an interest in how social orders are established and maintained

and how such orders condition action. But in contrast to conventional institutional

5

conceptions of fields, research on SAFs has paid more focussed attention to how new fields

are created and how they evolve over time depending on shifting conceptions of the issues at

stake (Fligstein, 2013). Most institutional research has concentrated on relatively mature and

stable fields, which are inhabited by a fixed constellation of actors and held together by

established rules and norms (Wooten and Hoffman, 2008). By contrast, the theory of SAFs is

primarily concerned with how social conflicts are played out as radically new issues emerge

and new actors, who have previously not been part of the field, challenge extant social orders.

However, it recognises that the fields that evolve around such issues are embedded in

proximate fields where broader, but related, issues are at stake (Fligstein and McAdam, 2011,

2012). This resonates with more recent institutional conceptions of fields as evolving around

contested issues (e.g., Hoffman, 1999; Meyer and Höllerer, 2010; O’Sullivan and O’Dwyer,

2015; Yoshikawa et al., 2007), whilst being embedded in nested systems of partly

overlapping fields (e.g., Holm, 1995; Humphrey et al., 2017; Lawrence and Suddaby, 2006).

Hence, there is considerable affinity between emerging institutional research, stressing the

contested and dynamic nature of organisational fields (see also Greenwood et al., 2011), and

the theory of SAFs. However, the theory of SAFs offers a distinct framework for examining

the socio-political dynamics through which social conflicts emerge and are settled and how

this contributes to collective action in emerging fields (Fligstein, 2013).

Depending on the specific issues at stake, SAFs can emerge within broader state and non-

state fields as well as at the intersections between such fields. As Fligstein and McAdam

(2011, p. 8) observe, modern states are constituted by “dense collections of fields, whose

relations can be described as distant or proximate”. Accordingly, it is erroneous to conceive

of states as monolithic actors and state administration as a unified field. Rather, states are

made up of diverse actors who may straddle multiple fields or be entirely internal to a

particular field. Hence, the SAFs emerging within states will encompass varying

constellations of state actors, some of whom are also embedded in surrounding state fields

(Fligstein and McAdam, 2012). Moreover, SAFs often evolve in close interaction between

state and non-state fields. Non-state fields are not, in themselves, part of specific state

structures, but contain actors who may become part of the focal SAF and play a more or less

salient role, even though the focal field is dominated by state actors (Fligstein and McAdam,

2012; Spence et al., 2017).

Conceptually, the actors who make up SAFs are divided into incumbents, challengers and,

occasionally, IGUs (Fligstein and McAdam, 2011, 2012). Incumbents are the actors whose

6

interests have historically shaped the social context where new issues emerge and who come

to dominate the SAFs which evolve around such issues. In this capacity, they tend to have a

long-lasting influence on the evolution of SAFs, which ensures that the field is shaped in

favour of their interests. Challengers, on the other hand, are less influential actors, who are

often embedded in fields which are more distant from the focal SAF and whose primary role

is that of proponents of ideas that deviate from extant social orders (see e.g., Modell, 2005;

Spence et al., 2017; Suddaby et al., 2016). Challengers are similar to institutional

entrepreneurs (Battilana et al., 2009; DiMaggio, 1988) who seek to re-shape social orders.

However, in contrast to much research on institutional entrepreneurship, challengers are not

necessarily seen as actors who are in open opposition to extant social orders, but often seek to

engage incumbents in dialogues concerning the need for change and how it may be

accomplished (Fligstein and McAdam, 2012). Consistent with the view of SAFs as evolving

entities, the positions of incumbents and challengers in relation to the issues at stake can also

change over time (see e.g., Hensmans, 2003; Modell, 2005; Suddaby et al., 2016).

To ensure the smooth functioning of SAFs many fields contain IGUs. The defining

characteristic of IGUs is that they are “internal to the field and distinct from external state

structures that hold jurisdiction over all, or some aspects of, the SAF” (Fligstein & McAdam,

2011, p. 6, emphasis in original). The main, or even sole, purpose of such units is to devise

and oversee compliance with new field rules, defined as the templates which govern the

issues around which specific SAFs evolve and which guide collective action within such

fields (Fligstein and McAdam, 2012). However, the conception of IGUs as internal to

particular SAFs does not mean that they are independent of other actors. Rather, IGUs tend to

be heavily dependent on the incumbents, who dominate SAFs, and the rules which they

devise ultimately tend to favour the interests of such incumbents (Fligstein and McAdam,

2011, 2012). This is especially the case where IGUs are embedded in broader state structures

or where such units are imposed on SAFs by incumbent state actors (Fligstein and McAdam,

2012). Rather than serving as neutral arbiters between competing interests, IGUs therefore

tend to have a stabilising effect on SAFs and emerging field rules (Fligstein and McAdam,

2012).

The emergence of collective action in SAFs is conditioned by the notion of social skill, or the

ability of various actors “to induce cooperation by appealing to and helping to create shared

meanings and collective identities” (Fligstein and McAdam, 2012, p. 46). The list of specific

social skills can be very extensive (see Fligstein, 1997, 2001), but often boils down to the

7

ability of various actors to frame the issues at stake in such a way that they appeal to other

actors and create a degree of consensus around emerging field rules (Fligstein, 2013;

Fligstein and McAdam, 2011). Drawing on research on social movement organisations (see

Benford and Snow, 2000; Snow et al., 1986), Fligstein and McAdam (2011, 2012) attach

significant weight to framing as a means of imbuing emerging field rules with shared

meanings. In doing so, they draw attention to how the prevalence of competing frames,

denoting the concepts and theoretical perspectives which shape meanings, can give rise to

protracted framing contests. Such framing contests often form an integral part of the process

through which SAFs emerge and may cause fields to either converge around new field rules

or evolve into more fragmented and fragile entities characterised by less widespread

consensus around such rules (e.g., Ansari et al., 2013; Jonsson and Lounsbury, 2017;

Lounsbury et al., 2003; Meyer and Höllerer, 2010).

According to Fligstein and McAdam (2012), different types of actors may be expected to

engage in different kinds of framing. Challengers with an interest in radically transforming

social contexts are likely to engage in what Werner and Cornelissen (2014) refer to as frame

shifting. Frame shifting is defined as the mobilisation of “an alternative frame that

restructures expectations and experiences and suggests different inferences” (Werner and

Cornelissen, 2014, p. 1456) to those reinforced by extant frames. Discursive strategies

dominated by frame shifting often aim at wholesale replacement of one set of meanings by

another. Where such strategies gain traction, we may expect radically new field rules and

modes of collective action to emerge (see e.g., Lounsbury et al., 2003). By contrast, actors

with an interest in maintaining a degree of stability or favouring a more incremental path of

transformation, such as incumbents and IGUs, often mobilise discourses dominated by frame

blending (Werner and Cornelissen, 2014). Frame blending “is defined as the discursive

combination of two separate schemas” (Werner and Cornelissen, 2014, p. 1456) and typically

entails attempts to reconcile extant and emerging frames. This signifies less disruptive change

in meanings and the emergence of hybrid field rules. However, frame blending does not

necessarily resolve all conflicts between extant and emerging frames and any consensus

around emerging field rules may be a fragile and contestable outcome (see e.g., Ansari et al.,

2013; Meyer and Höllerer, 2010).

To reconcile the theory of SAFs with extant research on the emergence of shareholder-

focussed governance practices, it is helpful to consider how such tendencies towards

financialisation have been framed and how different framing strategies produce new field

8

rules across various institutional contexts. Of particular relevance in this regard is the framing

of governance practices as primarily a matter of maximising shareholder value, which has

come to permeate contemporary corporate governance discourse (Collison et al. 2014; Davis

and Thompson, 1994; Lazonick and O’Sullivan, 2000; Zajac and Westphal, 2004). Such

understandings of governance are embedded in broader, neo-liberal ideals of reducing state

intervention in economic life and were originally propagated by challengers, such as financial

economists and influential consulting firms, in non-state fields in advanced capitalist

economies (see Clarke, 2014; Froud et al., 2000, 2006). However, they have also diffused to

state fields in emerging economies, partly under the influence of international donor

organisations, such as the World Bank and the International Monetary Fund, sponsoring far-

reaching privatisation programmes (Annisette, 2004; Hopper et al., 2017). Arguments for

prioritising shareholder value creation over other organisational objectives have often been

framed in terms of economics-based conceptions of the firm inspired by agency theory. This

has arguably legitimised a conception of the goal conflicts detracting from shareholder value

creation as “agency problems”, attributable to the pursuit of managerial self-interests in the

presence of information asymmetries and weak mechanisms of performance monitoring

(Clarke, 2014; Dobbin and Jung, 2010; Erturk et al., 2007; Zajac and Westphal, 2004). In the

context of emerging economies, agency theory has also been mobilised to propagate the idea

that there are “principal-principal problems” associated with diverging interests between

various shareholders and that this leads majority shareholders, such as the State, to

expropriate minority shareholder interests (Dharwadkar et al., 2000; Young et al., 2008).

Such problems have led to demands for relatively radical governance reforms, inspired by

“Western” governance practices, to improve the protection of minority shareholder rights,

reduce state intervention and privilege financial returns to shareholders over competing

political and social objectives (see Young et al., 2008).

The forceful mobilisation of novel, economics-based conceptions of the firm to challenge

extant governance practices may be seen as an indication of frame shifting, aimed at

transforming corporations into more shareholder-focussed entities. However, empirical

inquiries into how governance practices, centred on the idea of shareholder value creation,

evolve across different institutional contexts suggest that such frame shifting does not always

result in firmly established field rules and that a significant degree of frame blending is often

required to this end. Several studies show that the discourse surrounding the idea of

shareholder value creation effectively produces hybrids between emerging frames,

9

propagated by challengers, and extant frames, espoused by incumbent actors in particular

fields (Fiss and Zajac, 2006; Meyer and Höllerer, 2010; Yoshikawa et al., 2007; Young et al.,

2004). Accounting scholars have also shown that the extent to which the field rules, emerging

from the process of financialisation, become institutionalised can vary across different

contexts. On the one hand, several studies show that novel accounting practices, representing

the interests of shareholders, have rather pervasive effects on managerial mind-sets (e.g.,

Alvehus and Spicer, 2012; Ezzamel et al., 2008; Kraus and Strömsten, 2012; Roberts et al.

2006). This suggests that a relatively high degree of consensus has been established around

new field rules which favour shareholder value creation. On the other hand, some studies

show that shareholder-focussed accounting practices encounter resistance (e.g., Cushen,

2013; Ezzamel and Burns, 2005) and that they need to be adapted to extant governance

practices to gain traction (e.g., Chiwamit et al., 2017; Gleadle and Cornelius, 2008; Malmi

and Ikäheimo, 2003).1 This is indicative of emerging field rules being more contested and

requiring reconciliation with extant frames to take hold. However, little attention has been

paid to how IGUs, with a mandate to advance accounting practices that combine extant and

emerging notions of governance, frame changes in governance and how this shapes emerging

field rules. Addressing this gap is important for advancing our understanding of

financialisation as an SAF. The ensuing empirical analysis sheds light on these issues by

tracking the evolution of governance reforms in Chinese SOEs over three decades.

3. Research Setting and Methods

Governance reforms which gradually introduced tendencies towards financialisation in

Chinese SOEs can be traced back to the mid-1980s. Our chief, overriding concern is to map

out how this reform process came to entail an increasing emphasis on shareholder-focussed

governance practices and the role that the field rules, which are specific to central SOEs2,

played in this process. Following the definitional distinctions advanced by Fligstein and

McAdam (2011, 2012), we identified relevant incumbents, challengers and IGUs in relation

to this substantive research focus. The SAF under investigation is the one which evolved at

1 See Blume (2016) for a more comprehensive literature review of how value-based management practices are adapted to specific contexts.2 Central SOEs denote the enterprises which, as a result of the governance reforms, are directly controlled by central government. These enterprises are distinct from local SOEs, which are governed by local and regional authorities and which are not part of our analysis. The number of central SOEs has declined over time as a result of the ongoing process of consolidating them into larger entities and, in 2016, there were 102 enterprises of this kind.

10

the intersection between a state field, centred on central SOEs, and a non-state field,

underpinned by the diffusion of “Western”, shareholder-focussed governance practices.3

Besides individual SOEs, the key incumbent actors, exercising a dominant influence on this

field, are the Chinese Communist Party (CCP) and central government (henceforth the

Party/Government4), whose interests are primarily represented by the State Council5 and the

Ministry of Finance. A key exponent of the non-state field, from which challenges to extant

governance practices emerged, was the World Bank whilst other actors, such as Chinese

policy advisors and researchers, played a complementary role as disseminators of “Western”

governance practices in the earlier stages of the reform process. We primarily focus on the

actions of the World Bank, which assumed the most public role as a challenger with a direct

stake in the development of governance reforms in Chinese SOEs throughout the period

under examination. However, our main analytical focus is on the role of IGUs, which is one

of the most distinctive features of the theory of SAFs (Fligstein and McAdam, 2012), in the

process of transforming central SOEs into more shareholder-focussed corporations. We pay

particular attention to the National Administrative Bureau for State-Owned Property

(NABSOP) and the State-Owned Assets Supervision and Administration Commission

(SASAC). Whilst these actors have operated under the direct jurisdiction of the

Party/Government, they are distinct from other state actors in that they have primarily been

charged with the development of new field rules, which are specific to central SOEs. In

contrast to the other actors under examination, this makes them entirely internal to the SAF

under investigation (cf. Fligstein and McAdam, 2011, 2012). However, the NABSOP and the

SASAC enjoyed very different degrees of success in transforming central SOEs into more

shareholder-focussed corporations. We examine the reasons for these differences and how

accounting played a more or less salient role as a basis for context-specific governance

practices.

Inquiring into how SAFs emerge and are stabilised typically requires rich, longitudinal data

covering extended periods of time (Fligstein and McAdam, 2012). Similar to much

institutional research on accounting (e.g., Covaleski and Dirsmith, 1988; Covaleski et al.,

2014; Modell, 2003), we adopt an historically informed field study approach relying on

3 This definition of the SAF under consideration excludes actors with a more general influence on capital markets reforms and governance practices which were not specific to central SOEs, such as the China Securities Regulatory Commission, and other state-controlled capital markets actors (see Wang, 2015, for a more broadly based analysis of such actors). 4 Due to the very close intertwining of the interests of the CCP and central government, we treat the two as one throughout the empirical analysis. 5 The State Council is equivalent to the central government cabinet.

11

primary documentary evidence, extant academic research and interviews. Documentary

material, such as World Bank reports and other policy reports issued by the actors under

examination, was used to trace the evolution of governance reforms over time. In

combination with official statements in the form of communiqués and press material, these

data sources provide valuable insights into how various actors have framed reforms at

different points in time. Our efforts to reconstruct the history of governance reforms were

facilitated by the availability of prior research on such reforms by Chinese as well as Western

scholars. Where appropriate such research was used as a source of triangulation to verify and

complement the picture emerging from more policy-orientated documents and interviews.

The interviews were carried out between 2009 and 2015 and coincided with a particularly

intensive period of governance reforms, pivoting on the adoption of Economic Value Added

(EVATM6) to compel SOEs to prioritise returns on capital. The interviews aimed at soliciting

retrospective accounts of the development of governance reforms as well as accounts of more

contemporary and ongoing developments. Most of our interviewees have extensive

experience of SOE reforms since they have occupied various positions in the

Party/Government bureaucracy and currently represent key actors, such as the Ministry of

Finance, various policy institutes and the SASAC. Given our specific interest in the role of

IGUs in the evolution of governance reforms, the majority of our interviews were

concentrated to the SASAC. Some SASAC officials also have a background as former

employees of its predecessor – the NABSOP – and we were able to solicit retrospective

accounts from a number of our interviewees about its role as an IGU. However, due to the

time that has passed since the dissolution of the NABSOP in 1998, we were not able to probe

into this issue in the same level of detail as in the case of the SASAC. The views of the

incumbents are primarily reflected in our interviews within the Ministry of Finance, although

other interviewees were also able to shed light on these views due to their professional

background. Identifying relevant interviewees, representing the challengers concerned,

proved difficult due to the time that has passed since their key initiatives unfolded. However,

we believe the rich availability of documentary evidence, in the form of World Bank reports,

and prior research partly compensates for this limitation. For instance, the roles played by

Chinese policy advisors and researchers in the early stages of the governance reforms are

6 EVATM is similar to the more long-standing concept of residual income and is one of the foremost value-based management techniques emerging since the late 1980s (Froud et al., 2000). It was initially developed and popularised by the US-based consulting firm Stern Stewart & Co and has diffused to a broad range of socio-economic contexts (see Blume, 2016).

12

well-documented by Wang (2015) and her study complements our focus on the World Bank

as a key challenger.

All interviews were of a semi-structured nature and were sometimes complemented with field

observations and day-long visits to the research sites (see Appendix). In total, 33 interviews

were undertaken with 16 individuals by one of the authors (who is a native Chinese). To

follow the development of unfolding governance reforms, seven of our informants were

interviewed on more than one occasion. This also provided ample opportunities for

respondent validation aimed at corroborating and complementing emerging interpretations.

Due to the politically sensitive nature of some of the topics covered in the interviews, we

refrained from audio recording them and rather took extensive interview notes which were

transcribed as soon as possible after each interview.

The analysis of data proceeded along the following lines. Throughout our field work we

continuously coded the interview data, using a relatively open-ended coding scheme, and

constantly compared our findings with documentary evidence and extant research. This

inductive analysis resulted in the compilation of an extensive, but largely “un-theorised”,

chronological description of the evolution of governance reforms. For the purpose of the

present paper, we then re-examined this draft and our “raw” data through the analytical lens

provided by the theory of SAFs. This resulted in a more thematic ordering of data centred on

the evolving relationships between the actors under examination. Particular attention was

paid to how these actors jockeyed for position and sought to influence evolving governance

practices over time. This part of the analysis benefitted from having one member of the

research team with a profound, emic understanding of the often subtle, context-specific

meanings attributed to evolving governance practices whilst the other assumed the role of a

theoretically informed “outsider” interrogating these interpretations from a more etic

perspective (cf. Lukka and Modell, 2010, 2017).

Through this essentially abductive analysis (Lukka and Modell, 2010; Timmermans and

Tavory, 2012), we began to order our observations along the distinct phases that are typically

involved in the evolution of SAFs (see Fligstein and McAdam, 2011, 2012). The emergence

of SAFs often originates in destabilising changes in the wider social context in which such

fields are embedded. This may take the form of exogenous shocks, such as economic or

social crises, but may also occur through more incremental change processes whereby novel

issues emerge and require attention. Such destabilising changes gradually feed into episodes

13

of contention, where incumbents and challengers vie more openly for influence over field

rules whilst IGUs are relatively inconsequential. However, as IGUs start to advance new field

rules, the field will gradually approach a state of stability, or institutional settlement. Table 1

provides a summary of key events, the strategies of frame shifting and frame blending, and

the shareholder-focussed field rules evolving across the three analytical phases.

_________________

Insert Table 1 here.

_________________

4. Financialisation and Governance Reforms in Chinese SOEs

4.1 Initial Destabilising Changes: Early Governance Reforms in Chinese SOEs (1978-

1993)

The foundations of an SAF, centred on shareholder-focussed governance practices, were laid

in an institutional context that was long dominated by the system of central planning

underpinning Maoist ideology and modes of production. Throughout the Maoist era (1949-

1976), SOEs were subject to the party-led matrix system which contained a complex web of

vertical commands from line ministries as well as horizontal commands from regional

government authorities (Lin et al., 2001; Nee, 1992), whilst the role of accounting was

subservient to the ideological and political project of achieving Mao’s version of

Communism (cf. Ezzamel et al., 2007; Zhou, 1988). The dominant frame that emerged within

this governance structure established a shared understanding of control as centred on the

Party/Government’s political control of the centrally planned economy. The conception of

SOEs was dominated by a view of them as a collective of political entities for mass

mobilisation, the production arm of the state bureaucracy and social welfare providers for

local communities. The “responsible persons”7 of SOEs carried multiple identities as Party

members, state bureaucrats as well as factory managers accountable to a multitude of

constituencies such as industry-specific line ministries, the State Council, the popular masses

and, ultimately, the CCP. Due to the fragmented nature of the matrix system, the governance

7 “Responsible person” refers to the individuals (e.g., Chairman or Chief Executive Officer) who are charged with the overall responsibility for running SOEs and who are held accountable for its performance.

14

of SOEs primarily relied on political mechanisms, such as the CCP’s tight control over the

appointment and promotion of senior SOE executives, and the pervasive use of moral

persuasion, following the Maoist discourse of class struggle, mass mobilisation and

voluntarism, rather than clearly defined structures of authority and financial incentives. To

the present day, the long-term promotion prospects of senior SOE executives within the

Party/Government bureaucracy have relied heavily on their ability to meet political

objectives. Hence, their roles have traditionally been framed in terms of government officials

and party members, rather than independent corporate executives (Hassard et al., 2007;

Steinfeld, 1998).

A first destabilising change, which sowed the seeds of subsequent challenges to this

incumbent frame, occurred with the rise to power of Deng Xiaoping in 1978 and the initiation

of nascent, market-based reforms aimed at liberalising selected parts of the Chinese economy.

In contrast to the orthodox Maoist discourse of class struggle and maintenance of the

centrally planned economy, Deng preferred a sense of pragmatism and sought to avoid

overtly ideological debates about the course of reforms. To support the movement towards

liberalisation and gain insights into “Western” governance practices, the World Bank was

first invited in 1983. Over the following years, it produced a small number of reports based

on case studies of SOEs experimenting with market-based reforms in collaboration with the

Chinese Academy of Social Sciences (World Bank, 1984, 1987). The research underpinning

these reports was commissioned and coordinated by the State Economic Commission and

aimed at “integrating theory and practice” and “solv[ing] the problem of how to establish a

socialist economic system that is Chinese and full of energy and vitality” (World Bank, 1987,

p. 134). The close collaboration with Chinese policy-makers constrained the ability of the

World Bank to advance more forceful criticisms of extant governance practices. Even though

it questioned the merits of the matrix system, it carefully framed the need for governance

reforms by using politically acceptable phrases and stressing the need to resolve governance

problems within China’s socialist regime. In doing so, it entertained a notably open-ended

view as to how the financial performance of SOEs might be enhanced. Summarising the

views emerging at the conference accompanying the publication of one of its report, the

World Bank concluded that:

“The issue of financial discipline and accountability leads to the issue of ownership […]. Is it possible to harden

the budget constraint of enterprises without altering in some way the structure of ownership? Some participants

argued that Western corporations, where management is often separate from ownership, and efficient public

15

enterprises in some non-socialist countries show that ownership is not the issue. Generally, however, it was felt

that China's system of ministerial or regional control of enterprises weakened enterprise accountability and

financial discipline. Conference participants had many suggestions for changing the structure of ownership in a

socialist framework.” (World Bank, 1987, p. 9)

This careful framing of the need for reforms, which was devoid of any radical attempts at

frame shifting, might be explained by the World Bank’s relatively peripheral position in a

field that was not yet in an outright state of crisis (cf. Fligstein and McAdam, 2012). The

social skills required to influence such fields are typically geared towards reaching

compromises with, rather than overtly challenging, extant meanings (Fligstein, 2001;

Fligstein and McAdam, 2011). Deng’s pragmatic approach to economic reforms also paved

the way for an incremental reform agenda, where emerging governance reforms were framed

as essentially indigenous initiatives free from any “Western” influence. A notable

manifestation of this ambition to domesticate reforms was the so-called Contract

Responsibility System (CRS), which was launched in the mid-1980s. The CRS reform marked

a first step towards transforming SOEs into independent legal entities and entailed relatively

far-reaching decentralisation of decision-making rights coupled with a system of profit-

sharing which entitled SOEs to retain parts of their surplus (Hassard et al., 1999; Steinfeld,

1998). The reform was followed by experiments with a range of private ownership forms

alongside the dominant role of the State (Hussain and Jian, 1999). Several observers have

noted how these reforms created a space where SOEs could experiment with “Western”

accounting practices (e.g., Firth, 1996; Scapens and Hou, 1995; Skousen and Yang, 1988).

However, since the reforms were politically sensitive, the word “privatisation” was carefully

avoided (Hussain and Jian, 1999) and the CRS reform was framed as a wholly Chinese idea

which had previously been pioneered in the agricultural sector (Ezzamel et al., 2007; Scapens

and Hou, 1995).

Whilst these initial efforts to reconcile private ownership forms with extant, socialist notions

of governance may be seen as form of frame blending, the attempts to distance such frame

blending from any ostensible “Western” influence have formed a consistent theme

throughout the process of SOE governance reforms. Another early manifestation of this

pattern was the establishment of the first IGU to represent the interests of the State as

shareholder. In 1988, the State Council created a new regulatory body - the NABSOP - in

charge of state asset administration and the development of new accounting practices aimed

at buttressing governance reforms. Even though this initiative was consistent with the World

16

Bank’s advice to separate ownership from management (see World Bank, 1987), it was

presented as an indigenous idea grounded in an award-winning article by academics from the

Chinese Academy of Social Science and the State Council (Hua et al., 1986). Indeed, Hua et

al. (1986) made few references to “Western” economic theories although the theme of the

article was in line with the World Bank’s recommendations. The official mission of the

NABSOP was to “represent the State as the investor to supervise and manage state assets”

and to develop measures to enhance the financial accountability of SOEs. This may be seen

as an attempt to create a separate state actor, mainly concerned with the establishment of new

field rules for the governance of SOEs, and supports our view of the NABSOP as an IGU (cf.

Fligstein and McAdam, 2011. 2012).

However, despite its high official rank, a young and inexperienced NABSOP had to confront

a range of powerful, vested interests embedded in the matrix system and navigate in an

ideologically ambiguous space. According to our interviewees, this rendered the NABSOP

largely paralysed and, in practice, charged with little more than performing simple clerical

tasks such as state assets registration. Mobilising the metaphor of “nine dragons governing

one river”8, one of our interviewees explained how the many actors involved in the

governance of SOEs circumscribed the NABSOP’s mandate to develop new field rules:

“None of them would listen to the NABSOP or let go even of the slightest control over the SOEs under their

jurisdiction. When the reform was experimented in ShenZhen, it failed completely because the branches of line

ministries turned really nasty and aggressive. The ShenZhen NABSOP ended up being a mere decoration of the

local government. Later, the NABSOP was set up in the central bureaucracy, only to repeat the same failure.

The reason is obvious. It couldn't even stand up to the local government, let alone powerful central ministries.”

(Interview, Anonymous Observer, Ministry of Finance, 2015)

Overall, the governance reforms initiated in the 1980s were characterised by efforts to

enhance the financial viability of SOEs without far-reaching institutional changes supporting

the development of more robust field rules to this effect. A system of accountability and

incentives compelling SOEs to prioritise long-term, financial returns over broader political

and social objectives largely failed to materialise. The underlying reasons for these problems

were the very substantial social welfare obligations of many SOEs and the enduring

government restrictions on their ability to reduce costs by laying off staff. In combination

with the effective bankruptcy protection still enjoyed by many SOEs, this weakened their

incentives to pursue financial performance improvements (Hassard et al., 1999; Hussain and

8 In ancient Chinese mythology, each river is governed by a dragon.

17

Zhuang, 1997; Steinfeld, 1998). The weak de-facto mandate of the NABSOP to develop field

rules, supporting the prioritisation of financial performance, exacerbated these problems and

from the late 1980s SOE losses increased steadily (Hussain and Zhuang, 1997; Nee, 1992).

As explained below, this led to an escalating sense of crisis, which evolved into a more

notable episode of contention.

4.2 Episode of Contention: Continued Governance Reforms and Growing Challenges

(1993-2003)

The growing performance problems in individual SOEs coincided with a number of other

significant changes in their wider institutional environment. Having resolved the lingering

ideological divide over the pursuit of market-based reforms within the CCP in the early

1990s9, the 14th Party Congress officially announced its decision to establish a “socialist

market economy” in 1993. The notion of the socialist market economy embodies the

continued ambition of the Party/Government to retain firm political control of society whilst

giving market forces fuller sway across large parts of the economy. A key manifestation of

this increasing reliance on market forces was the establishment of two domestic stock

markets in the early 1990s, which enabled SOEs to take advantage of initial public offerings

to raise much needed capital. The establishment of the socialist market economy also reduced

the conception of “Western” accounting practices as ideologically and politically alien to

China, as long as they were imbued with distinctly Chinese characteristics (Ezzamel and

Xiao, 2015; Ezzamel et al., 2007).

The advent of the socialist market economy and the concomitant attempts to reconcile

China’s socialist governance regime with capitalist forms of ownership and “Western”

accounting concepts can be seen as a form of frame blending and established a broad

framework for subsequent governance reforms. The escalating performance problems of

SOEs fostered a growing sense of crisis within the Party/Government elite (Hassard et al.,

1999; Steinfeld, 1998) and opened up a discursive space where the World Bank could assume

a more salient role as a propagator of reforms. However, as is often the case with challengers

(Fligstein and McAdam, 2012), the World Bank did not position itself in outright opposition

to the Party/Government, but rather established collaborative relationships with influential,

domestic policy advisors to exert influence on governance reforms. The reforms were also 9 This divide was gradually overcome as leading members of the conservative faction of the CCP either passed away or allied themselves with reform advocates.

18

supported by a broader network of researchers and junior government officials who were

versed in agency theory, whilst demonstrating an acute awareness of the need to adapt

“Western” governance practices to the socialist market economy (Wang, 2015). A key event,

through which “Western” governance practices were more widely disseminated, was the

organisation of an international conference in Beijing in 1995, to discuss policy options for

the SOE sector. The conference, which was co-sponsored by the Ministry of Finance and the

World Bank, acknowledged the virtue of continuing to pursue reforms on an incremental

basis. However, unlike the very cautious framing of reforms in the 1980s, the conference

proceedings provided explicit policy recommendations which resonated with the neo-liberal

agenda guiding the World Bank’s work as a policy advisor at the time (cf. Annisette, 2004).

Liberal references were made to the “Western”, agency theoretic frame to rationalise the

failure of the CRS reform and to justify the need for continued reforms. In concluding the

conference, a senior World Bank representative proclaimed that:

“The problem of ensuring that managers work in the interest of the owners was found to be particularly acute in

SOEs because many bureaucratic layers - with distinct interests - separate the population (owners) from SOE

managers. Although there is no easy solution to this principal-agent problem, two conclusions did emerge in the

last two days: First, the fewer intervening layers that separate owners from managers, the less likely it is that

management will operate with a purpose different from owners. […] Second, our discussion in the last two days

has also made clear that SOE reform should focus on not only refining organizational structures, through

improved internal governance systems, but also on promoting ownership diversification.” (World Bank, 1995,

pp. 225-226).

The World Bank also drew attention to the underlying reasons for the lack of prioritisation of

financial performance improvements by describing them as the result of the “heavy social

burdens” (World Bank, 1995, p. 23) detracting from profit maximisation. The conference

reached some consensus about the need to address such problems and establish a “modern

enterprise system” by reforming managerial incentives, diversify ownership and enhance the

capacity of the State to monitor SOE performance through the use of shareholder-focussed

performance metrics.

At one level, the explicit use of economics-based arguments, grounded in agency theory, to

justify changes in ownership and governance practices may be seen as an instance of frame

shifting, denoting a clear break with the previous ambition to resolve governance problems

without extensive ownership reforms. Over the following years, the World Bank continued to

rehearse such arguments in a series of reports (e.g., World Bank, 1996, 1997a, 1997b). Whilst

19

much of this work continued to rely on collaboration with Chinese policy advisors, the World

Bank gradually began to levy more serious criticisms at extant governance practices. In 1997,

the World Bank issued a report specifically targeting the role of the State as shareholder,

which categorised a raft of prevailing problems such as insider control, asset stripping, wage

diversion and tax avoidance as “principal-agent problems” and attributed them to the dual

role of the State as owner as well as regulator of SOEs (World Bank, 1997a). The report also

criticised the slow pace of the Party/Government’s privatisation efforts and the NABSOP’s

weak mandate to develop appropriate governance mechanisms supporting such a

development.

Whilst it is difficult to pinpoint the direct influence of the World Bank on the

Party/Government’s unfolding reform agenda, the ideas that it was propagating had a notable

impact on the intellectual climate surrounding the reforms. The World Bank’s collaboration

with Chinese policy advisors arguably contributed to entrench “Western” governance

concepts in the policy discourse (Nolan, 2005) and the broader network of researchers and

government officials, inspired by such concepts, filled an important role in persuading

leading politicians of the need for continued governance reforms (Wang, 2015). However, in

initiating more far-reaching governance reforms, the Party/Government adopted a strategy of

selective accommodation of “Western” ideas and engaged in an element of frame blending.

The frame blending was especially notable in the Party/Government’s efforts to render the

accelerated process of SOE consolidation and stock market listings compatible with key

principles of the socialist market economy, such as the maintenance of political control of

state assets. In 1997, the 15th Party Congress adopted a policy of “keeping the large, letting go

of the small”. This was followed by a period of significant restructuring, whereby small and

medium-sized SOEs were exposed to a wave of cut-backs and bankruptcies whilst many

large and strategically important SOEs were transformed into legally independent, listed

companies with the State as a majority shareholder. However, the Party/Government framed

the change in terms of “corporatisation” or “commercialisation” (Morris et al., 2002; Xu and

Uddin, 2008), rather than capitalist notions of privatisation, to avoid ideologically charged

debates about the meanings of stock market listings.

Similar to the governance reforms in the 1980s, the Party/Government’s frame blending was

combined with concerted efforts to uphold the impression that the reforms were not

influenced by “Western” governance practices. In introducing the ownership reforms to the

public, the Party/Government presented the consolidation and listing of SOEs as an initiative

20

that was firmly grounded in Chinese values and traditions but in tune with the principles of

the socialist market economy. This continued tendency to distance reforms from any

ostensible, “Western” influence was also manifest in our interviews. One of our interviewees

insisted that SOE reforms “had always been an endogenous process unfolding through

onerous trial and error”.10 This sentiment was made especially plain in our interviews within

the Ministry of Finance, where the suggestion that the World Bank might have contributed to

shape the early path of reforms was dismissed as “naive”:

“What a question ...The Western influence, or the World Bank influence, is negligible, especially with relation

to the SOE governance reform. Do you imagine China would ever allow the non-Chinese to affect such

important decisions? I am surprised that this question is ever asked.” (Interview, Deputy Minister, Ministry of

Finance, 2011)

Nevertheless, in a later interview, the same person conceded that the reforms unfolding in the

late 1990s did entail an element of selective borrowing of “Western” ideas, although he

effectively sought to avoid discussing the matter in any greater detail:

“Have we ever borrowed Western ideas? Yes. Have we ever let foreign institutions or individuals shape our

decision-making and paths of reform? No. No more questions.” (Interview, Deputy Minister, Ministry of

Finance, 2015)

Moreover, despite the efforts to distance reforms from any ostensible, “Western” influence,

the Party/Government combined the diversification of ownership with new governance

practices which, in many cases, were in line with the World Bank’s recommendations. For

instance, steps were taken to improve the financial performance of SOEs by linking

managerial incentives to financial performance indicators, enforcing accountability through

replacements and legal actions and improving auditing practices. To curb the continuing

decline in the value of state assets, the Ministry of Finance started to hold the “responsible

persons” of central SOEs accountable for safeguarding and increasing the value of state

equity and evaluate their performance with the aid of a new equity growth ratio (calculated as

state equity at the end of the year in relation to state equity at the beginning of the year). 11

However, the Party/Government did not create an IGU with a more powerful mandate to

represent the State as shareholder. Instead, in 1998, the NABSOP was declared a failure and

dissolved, whereupon the task of governing Chinese SOEs was dispersed across various

government offices in charge of specific operational and financial aspects. Hence, the

10 Interview, Chairman A of Supervisory Board, SASAC, 2015.11 Other financial performance indicators used around the turn of the millennium included Return on Investment and Bad Assets Ratio.

21

governance of central SOEs remained highly fragmented and continued to detract from more

forceful collective action aimed at prioritising financial performance improvements over

broader political and social objectives (Clarke, 2003; Chen et al., 2006). The situation around

the turn of the millennium was one where, as one of our interviewees put it, “most SOEs

[were] still loss making; the profitability of the SOEs [was] uneven, most profits [were] made

by a few large SOE [and] SOEs in competitive industries [were] very unprofitable”.12 The

interviewee also explained how the failure to advance effective systems of performance

monitoring contributed to these problems:

“SOEs’ responsible persons had no time limit to their tenure, no performance targets, no evaluation of

performance, their performance bore no personal consequences and resulted in a lack of responsibility and poor

performance.” (Interview, Deputy Head of Performance Review Division 2, SASAC, 2012)

The lack of powerful field rules, reinforcing financial control, prompted the World Bank to

more forcefully challenge the reform process. In doing so, it continued its strategy of frame

shifting and began to use key signifiers of financialisation, such as the need for shareholder

value creation, to justify reforms. In a comprehensive report outlining the need for further

governance reforms, the World Bank described the maximisation of shareholder value as the

very essence of a well-functioning corporate governance system and drew attention to how

the evolving governance practices failed to live up to this ideal (World Bank, 2002).

Mobilising the now routinely rehearsed references to agency theory, it suggested that:

“ ... two main corporate governance problems arise from the current ownership structure of listed companies in

China. One, the agency costs of the controlling shareholder, is related to the concentration of ownership. The

other, the Government's poor capacity to maximize shareholder value, is related to the identity of owners.”

(World Bank, 2002, p. 101)

Echoing other agency theoretic notions, such as the prevalence of “principal-principal

problems” (Dharwadkar et al., 2000; Young et al., 2008), the criticisms of the lack of

attention to shareholder value creation were intimately linked to growing concerns about how

the Party/Government’s continuing use of SOEs as vehicles for political control and social

welfare provision detracted from the interests of minority shareholders. As a remedy to such

problems, the World Bank proposed the development of governance practices prevailing in

many capitalist countries, such as regular annual general meetings, the appointment of

independent directors on SOE boards and the alignment of managerial incentives with the

interests of minority shareholders through the use of stock options. It also repeated its

12 Interview, Deputy Head of Performance Review Division 2, SASAC, 2012.

22

recommendations for the State to reduce its ownership stake in listed SOEs and to initiate

capital markets reforms strengthening the position of institutional investors (World Bank,

2002). However, this attempt at frame shifting largely failed to resonate with Chinese policy

makers and some observers have noted how the World Bank’s increasingly forceful

mobilisation of economics-based arguments, grounded in agency theory, effectively reduced

its influence over time (e.g., Nolan, 2005). Whilst this is indicative of a lack of adequate

social skills, enabling the World Bank to play a more salient role as a challenger (Fligstein

and McAdam, 2011, 2012), it is important to note that the bank never had the power to

impose more far-reaching demands for reforms. Unlike its interventions in other emerging

economies, where extensive governance reforms have often formed a precondition for the

provision of financial support under structural adjustment programmes (Hopper et al., 2009,

2017), the World Bank merely assumed an advisory role. However, as explained below, this

did not stop the bank from continuing to challenge the unfolding reforms of Chinese SOEs

over the following decade.

4.3 Towards Institutional Settlement: The Entrenchment of Context-Specific

Governance Practices (2003-2015)

A new phase in the reforms of Chinese SOEs, characterised by more concerted efforts to

transform them into shareholder-focussed corporations, began in 2003. This phase saw the

dismantling of the matrix system and the formation of the SASAC as a regulatory body with

a clear mandate to represent the interests of the State as shareholder. Commencing operations

in early 2003, the SASAC was entrusted with developing a system of performance

monitoring and managerial incentives to support the continued consolidation and

development of central SOEs into internationally competitive corporations and to promote

their listing on overseas stock markets. In contrast to the NABSOP, the SASAC enjoyed

much stronger support from the Party/Government to devise accounting practices aimed at

transforming SOEs into financially viable and accountable entities.. Staff who had previously

been employed by the Ministry of Finance were transferred to the SASAC and most of the

governance tasks, that had previously been dispersed across the Ministry of Finance and

various line ministries, were gathered under its remit. The SASAC was granted considerable

powers to approve major strategic decisions of SOEs, such as mergers and acquisitions,

bankruptcies and the issuing of securities, although the Ministry of Finance retained direct

23

control over key personnel decisions, such as the appointment of boards of directors and

senior executives in the most important SOEs. As such, the SASAC obtained a relatively

clearly defined role vis-à-vis other state actors and a strong mandate to develop new field

rules, as is typical of IGUs (Fligstein and McAdam, 2011, 2012).

The formation of the SASAC implied a considerable strengthening of the domestic,

institutional capacity to transform SOEs into more shareholder-focussed entities (Nolan,

2005; Wang, 2015) and it gradually took over many of the roles previously served by

researchers and policy advisors in adapting “Western” governance practices to the Chinese

context. Shortly after its formation, the SASAC began to experiment with value-based

management techniques, such as EVATM, to re-direct the strategies of SOEs from an emphasis

on growth in size and profitability towards a greater focus on so-called “high quality growth”,

or return on capital. The first Secretary-General of the SASAC took a keen interest in EVATM

and study trips to other Asian countries, such as Singapore, were undertaken to learn about

how they used it for governing SOEs. Our interviewees also drew attention to the technical

advice and training provided by “Western” consulting firms, such as Stern Stewart & Co, in

the initial development of EVATM:

“Stern Stewart played an important role in staff training and in helping us to develop the initial formula for

calculating SOE EVAs.” (Interview, Head of Performance Review Division 2, SASAC, 2012)

However, the subsequent development of the system unfolded without much involvement of

external consultants. The scepticism against reliance on “Western” consultants, aggressively

pursuing the objective of shareholder value creation, partly seems to have been fuelled by

concerns that the majority of the SOEs were not yet ready for such a move. A SASAC

official extensively involved in the development of EVATM recalled:

“The total EVA was a huge negative figure [in 2003]. It was simply out of the question to roll it out. To begin

with, the responsible persons would not have it. Besides, back then we had more pressing matters at hand: we

had yet to create a regulatory framework from scratch to establish the SASAC as the acting shareholder

evaluating the performance of central SOE responsible persons. Since the infrastructure was not there, EVA

remained an unofficial experiment.” (Interview, Deputy Head of Performance Review Division 2, SASAC,

2012)

Hence, the formation of the SASAC did not immediately lead to a development whereby

SOEs were transformed into more shareholder-focussed corporations. A contributing factor

behind this inertia, was that the SASAC was expected to balance the pursuit of financial

24

performance improvements with broader political and social objectives. The SASAC devised

a performance monitoring and incentive system based on annual league tables, which initially

ranked SOEs in terms of profits after tax, return on equity and a range of operating-level

measures. However, league table scores are routinely adjusted to ensure that financial

performance improvements are not pursued through overly aggressive means, such as radical

staff reductions or cuts in social welfare provision. Individual SOEs face severe penalties if

the pursuit of financial performance is seen as leading to social unrest or other outcomes

threatening the interests of the Party/Government in maintaining political stability and

control. To mitigate such tendencies, the league table scores of each SOE is multiplied with

an “operational difficulty index” based on total and net assets, sales, total profits, total

headcount and the proportion of retired staff to total headcount. As demonstrated by Du et al.

(2012), the adjustments of league table scores also entail a high degree of subjectivity and

SOEs often receive favourable treatment to facilitate the balancing between financial and

broader performance aspects of political significance.

The initially limited impetus behind the transformation of SOEs into more shareholder-

focussed corporations continued to draw criticisms from the World Bank. In a report

evaluating the unfolding governance reforms, the bank drew attention to how this detracted

from a stronger focus on shareholder value creation benefitting a broader range of

shareholders:

“In short, so long as the Chinese state insists on preserving the “dominance of socialist public ownership” […]

when it reforms SOEs, the capacity of the boards of directors to serve investors’ interests is definitely limited.

This partially vitiates one of the gains from ownership reforms, which is to drive firms to maximize shareholder

value and, by assuring the accountability of management, to broader participation in financial markets” (World

Bank, 2006, p. 235)

On the face of it, such criticisms, denoting a continued strategy of frame shifting challenging

the role of the State as a shareholder, had little influence on the SASAC’s work on

developing new field rules. The SASAC had little direct contact with the World Bank and

was in a position where it could largely ignore its criticisms. This enabled the SASAC to

extend the efforts to distance governance practices from any ostensible “Western” influence

whilst pursuing a relatively cautious reform path. Whilst most of our interviewees within the

SASAC demonstrated a thorough understanding of “Western” governance concepts, they

took pride in having developed their “own” versions of such concepts. This sentiment was

especially notable with respect to EVATM:

25

“Our EVA is not your EVA. Our EVA tackles our context-specific problems, and your EVA tackles your

context-specific problems. There is not much point in comparing the superficial similarities and differences. …

What matters is how EVA addresses our unique governance problems.” (Interview, Deputy Director

Supervision Bureau, SASAC 2012).

The SASAC also had to tread very carefully in implementing EVATM to avoid resistance from

SOEs, or as one of our interviewees explained:

“Central SOEs are a very unique context where, for EVA or any reform to take root, you need the support of the

vast majority [of central SOE responsible persons]. By vast majority I do not mean 80 per cent of the

population. I am talking about 95 per cent and higher. These companies are so powerful that even the small

minority can be strong enough to topple the reform. That is why we undertook careful and patient preparations.”

(Interview, Head of Performance Review Division 2, SASAC, 2012)

In response to such obstacles, the SASAC engaged in extensive consultations and

negotiations with individual SOEs when rolling out the EVATM system. From 2007, EVATM

was introduced on an incremental basis and over the two following years it was adopted on a

voluntary basis by about two thirds of all central SOEs. However, it was not until 2010 that

the adoption of EVATM became a compulsory requirement for all SOEs and that it replaced

return on equity as a performance metric in the league tables administered by the SASAC.

The weight attached to EVATM in the league tables was 40 per cent and SOEs were required

to gradually increase its weight in internal league tables from five to 30 per cent. These steps

formed an integral part of the five-year plan for SOEs for 2010-15 and were heralded as a

means of bringing them into the so-called “EVA era”.

The implementation of EVATM coincided with broader reforms through which other

accounting practices associated with the movement towards financialisation, such as fair

value accounting, were legalised in China. Some commentators have interpreted this as

evidence of increasing acceptance of “Western”, capitalist accounting concepts (Zhang and

Andrew, 2016; Zhang et al., 2012). The SASAC also encouraged SOEs to learn from

“Western” experiences and, around the time that EVATM was introduced, it proclaimed:

“Our global strategy requires SOEs to compare with the West, with multinationals rather than compare with the

domestic … Comparing central SOEs with local companies in terms of market share, sales, or profitability is

like comparing an adult with an infant for height, body weight and strength. The comparison is not meaningful.

A meaningful comparison is against the World’s best in terms of key financial indicators adopted by them.

Central SOEs need to deepen the reform, create a reasonable value chain, avoid low level repetition and

competition, enhance the notion of return on investment, improve the quality of merger and acquisitions, refrain

26

from blind expansion and avoid loss-making image projects.” (Official statement, Deputy Secretary-General of

the SASAC, 2007)

However, similar to the approach adopted by the Party/Government, the SASAC continued to

engage in an intricate form of frame blending aimed at imbuing the efforts to increase the

value of SOEs with meanings which are consistent with the principles of the socialist market

economy. About a year into the “EVA era” the Secretary-General of the SASAC announced:

“A strong China needs strong SOEs. Central SOEs must be armed with the advanced correct thinking around a

socialist market economy with Chinese characteristics and become the driving force and the role model of the

core value of the socialist market economy. […] We have every reason to feel confident and proud, as we have

successfully built a model of SOE reform and management suited to the Chinese context and we have

successfully created a unique brand and SOE value. We are capable of developing our own theories.”

(Secretary-General of the SASAC quoted in People’s Daily, 2011-12-26,)

References to the need to imbue evolving governance practices with “correct thinking”,

which feature in this statement, were a recurring theme in the SASAC’s framing of EVA TM in

its communication with individual SOEs and epitomise its efforts to reconcile the emphasis

on returns on capital with meanings originating in China’s socialist governance regime. The

concept of “correct thinking” stems from the Maoist era and denotes any policy or reform

initiatives that have been sanctioned by the Party/Government. Compliance with such notions

is of central importance for the appointment and promotion prospects of senior SOE

executives. In the “EVA era”, “correct thinking” became synonymous with taking innovative

and pro-active measures to enhance the value of state assets whilst following the directives

issued by the SASAC. For instance, the Secretary-General of the SASAC proclaimed:

“EVA is of signal importance in our [five-year] plan. We expect nothing short of the highest level of political

commitment. [...] The key to our success is that leaders of central SOEs unite in their thinking around the

SASAC. Internal training must cover three levels down the managerial ranks. All central SOEs must incorporate

EVA for internal performance management in a manner that suggests an appropriate understanding of the spirit

of EVA, rather than simply copy-pasting the SASAC instruction. We encourage creative and context-specific

solutions to implementation problems. For example, individual SOEs could establish more specific and more

challenging cost of capital for internal performance management and link rewards/sanctions to EVA

performance.” (Secretary-General of the SASAC, speech at Annual Performance Conference, 2011)

The SASAC made concerted efforts to reinforce this framing of reforms and extended its

strategy of frame blending to the implementation of EVATM within individual SOEs. Rather

27

than relying on financial incentives to create large pay gaps between SOE executives 13 the

implementation process was accompanied by traditional Maoist methods, such as the

organisation of regular “learning seminars” to buttress mass mobilisation and to ensure that

the use of EVATM was imbued with meanings that are consistent with the socialist market

economy. The SASAC also applied more coercive measures to compel SOE managers to take

the emerging reform agenda to heart. Once EVATM was made a compulsory requirement for

all SOEs, any opposition or signs of deviation from the SASAC’s guidelines were typically

dismissed as “incorrect thinking” and accompanied by reprimands for failing to take

appropriate actions. However, according to our interviewees, such negative measures were

relatively rare and the SASAC preferred to use successful SOEs as positive role models and

publicise their achievements as a means of legitimising the use of EVATM. The SASAC has

also tended to ensure that most SOEs are placed in the higher ranks of its league table and it

has sometimes avoided publicising the whole league table to avoid exposing under-

performers. Moreover, the SASAC has set relatively achievable EVATM targets to avoid

resistance to the reform. The cost of capital, denoting the minimal returns that SOEs must

earn to avoid reporting negative EVATM results, was initially 5.5 per cent for most

enterprises, which reportedly constitutes a relatively modest level of return:

“We do not deny that 5.5 per cent is too low. Therefore, one of the things we have planned for the future is to

gradually raise the cost of capital from 5.5 to somewhere between 7 and 10, which would be more like it. For

various reasons 5.5 is the best we can do now.” (Interview, Deputy Director of Supervision Bureau, SASAC,

2012)

The framing of EVATM as the epitome of “correct thinking” seems to have given it a certain

degree of traction as a field rule. Even though several SOEs have struggled to reconcile the

enhanced emphasis on returns on capital with embedded control practices (Bhimani et al.,

2013: Dai et al., 2017; Yang and Modell, 2015), this framing has created an environment

where it is difficult, if not impossible, for them to mount overt resistance to reforms.

Throughout our field work, we found little evidence of SOEs openly objecting to the use of

EVATM or the SASAC’s mission to safeguard and increase the value of state assets.

Individual SOEs have also started to frame their external reporting in ways which support the

blending of shareholder-focussed concerns with continued political control (Gong and

Cortese, 2017). The introduction of a stronger emphasis on the interests of the State as 13 The introduction of EVATM was not accompanied by any major changes in the nature of executive compensation linked to league table performance. The SASAC has also taken a conservative approach to the use of managerial incentives linked to stock market performance by limiting the value of stock option schemes in SOEs to 30 per cent of annual remuneration if they are listed in China and 40 percent if they are listed overseas.

28

shareholder was facilitated by the introduction of financial support schemes enabling them to

lay off redundant staff (Hassard et al., 2010). However, the SASAC’s demands for return on

capital have remained relatively modest due to its reluctance to single out under-performers

and cause “responsible persons” to lose face. The importance of saving face to avoid a

backlash from powerful SOEs was repeatedly emphasised by SASAC staff:

“A lot of [responsible persons] value their faces more than their lives. A slight misuse of words can offend

them deeply … Besides, there is no use in offending these people since you have no idea how they are

connected.” (Interview, Chairman A of the Supervisory Board, SASAC, 2012)

Hence, following the recent slow-down in the Chinese economy, the SASAC has refrained

from raising the cost of capital above 5.5 per cent and its governance of SOEs continues to be

characterised by a certain leniency. One of our interviewees explained:

“Although the SASAC speaks like a harsh mother-in-law, it acts more like a caring mother towards the central

SOEs. […] It is not unusual that it moderates the comments and critiques from the [Supervisory] Board before

sending them to the State Council. I have the feeling that deep inside the SASAC wants to present SOEs in the

best possible light and to help them gain recognition and respect. It can be very protective when necessary.”

(Interview, Chairman A of the Supervisory Board, SASAC, 2015)

The governance practices devised by the SASAC have arguably perpetuated a situation where

the interests of the Chinese state take precedence over those of minority shareholders

(Szamosszegi and Kyle, 2011). Most of our interviewees also agreed that the process of

transforming SOEs into more conventional, shareholder-focussed corporations without

jeopardising the interests of the State as a major shareholder was set to continue. In contrast

to prior research, showing that extensive frame blending can create fragile fields (Ansari et

al., 2013; Meyer and Höllerer, 2010), this suggests that a relatively stable state of institutional

settlement has been achieved (cf. Fligstein and McAdam, 2011, 2012). These differences can

partly be explained by the SASAC’s continued efforts to distance governance reforms from

any ostensible “Western” influence and protect SOEs from disruptive demands for more

radical reforms. Whilst the SASAC’s official posture was long to ignore such demands, this

changed with the compilation of the World Bank’s country report for China in 2012 (World

Bank, 2012). The draft version of the report contained a section on SOEs which made far-

reaching recommendations for accelerating the privatisation of state assets and increasing the

emphasis on shareholder value creation. Fearing that the report might fuel emerging, private

sector criticisms of SOEs, the SASAC protested to the State Council after which it was

29

substantially re-written. This caused a significant delay in its publication and was

accompanied by a strong public denunciation of the World Bank:

“The Bank used to think favourably of our SOE reform. Now it changed its tone of voice and tried to tell us

what we did not do right and what we should do because it noticed how strong we have become and it felt a bit

paranoid. […] The report was motivated by a growing sense of fear of our outstanding performance in the

international capital market. As such the recommendations must be examined with considerable care and

caution. Central SOEs are instrumental to China’s economic development. Together we generated 20 trillion

sales in 2011, 1 trillion profit, providing 16.25 per cent of national fiscal income. […] What do these numbers

tell you? Seeking truth from [these] facts, we have already carved out a successful model of reform and we must

continue doing what we know is right, rather than being swayed by politically motivated ideas such as

privatization/ marketization […] I fundamentally disagree with what was said in the report. He [the Head of the

World Bank] should try to learn from us. […] Why did so many American firms collapse? What made you think

you can lecture us?” (Statement by former Secretary-General of the SASAC in response to question at a press

conference, 5 March 2012).

This incident shows that the roles of IGUs, enjoying strong support from key incumbents, are

not confined to transforming pressures for financialisation into context-specific governance

practices, but that they can also shelter SAFs from more forceful challenges. By the time our

study ended, the World Bank had been largely neutralised as a challenger, pressing for far-

reaching reforms of Chinese SOEs. This reinforces our conclusion that a reasonably stable

field, centred on the interests of the Chinese state in maintaining and increasing the value of

state assets whilst preserving its political control of SOEs, has been established.

5. Concluding Discussion

This paper has responded to emerging calls for research into how the increasingly global

tendencies towards financialisation give rise to countertendencies and how the interplay

between such tendencies shapes context-specific governance practices (Müller, 2014; van der

Zwan, 2014). Extending this line of inquiry to an emerging economy context, we have asked

how accounting is implicated in governance reforms and how this imbues shareholder-

focussed governance practices with context-specific meanings. Perhaps the most striking

observation in this regard is the relatively limited role played by international donor

organisations, such as the World Bank, as a challenger of extant governance practices. Whilst

prior research on accounting reforms in emerging economies has drawn attention to the

pervasive and often detrimental influence of such organisations (see Hopper et al., 2009,

30

2017; van Helden and Uddin, 2016), the World Bank’s increasingly radical frame shifting

largely failed to resonate with Chinese policy-makers. However, this does not mean that

“Western” accounting practices, such as EVATM, were inconsequential in transforming

Chinese SOEs into more shareholder-focussed corporations. Rather, through a protracted

framing process, entailing a significant amount of frame blending, accounting assumed an

increasingly prominent role. Whilst playing a relatively subservient role in the governance of

SOEs in the Maoist era and struggling to gain traction as a field rule in the earlier phases of

the governance reforms, novel accounting practices, centred on EVATM, were an integral part

of the framing of governance reforms after the turn of the millennium. We have drawn

attention to the varying roles played by IGUs, such as the NABSOP and the SASAC, in

imbuing such practices with context-specific meanings. In particular, we have shown how the

latter body contributed to institutionalising a view of governance as a matter of serving the

interests of the Chinese state in maintaining and increasing the value of state assets whilst

preserving its political control of SOEs.

These observations are largely consistent with the theory of SAFs (cf. Fligstein and

McAdam, 2011, 2012) and resonate with prior research on Chinese accounting reforms

showing that such reforms have consistently aimed at imbuing “Western” accounting

practices with distinctly Chinese characteristics (e.g., Ezzamel and Xiao, 2015; Ezzamel et

al., 2007; Gong and Cortese, 2017). However, our findings extend Fligstein and McAdam’s

(2011, 2012) conception of framing as a vehicle for establishing new field rules by drawing

attention to how the attempts at frame blending were combined with sustained, discursive

efforts to distance governance reforms from any ostensible “Western” influence. This

decoupling of the efforts to imbue shareholder-focussed governance practices with context-

specific meanings from the frames in which such practices originate formed a consistent

theme throughout the process of governance reforms. The theory of SAFs has paid little

attention to such attempts to decouple diverse framing tasks, possibly due to its view of

framing as a social skill which is primarily geared towards creating shared meanings and

inducing cooperation among social actors (see Fligstein, 2001, 2013). However, where

remnants of disagreement between incumbents and challengers continue to prevail and

threaten to disrupt emerging fields, a strategy of frame decoupling, defined as the discursive

separation of diverse frames (cf. Fiss and Zajac, 2006; George et al., 2006), may be a

necessary complement to the framing efforts aimed at entrenching emerging field rules. Our

findings underline the central role which IGUs can play in pursuing such a two-pronged

31

framing strategy. In particular, we have demonstrated how the SASAC was able to entrench

field rules which combined “Western” governance practices with more long-standing, Maoist

notions of governance, pivoting on the concept of “correct thinking”, whilst sheltering SOEs

from more radical demands for reform. However, our findings also suggest that the ability of

IGUs to play such a pro-active role in the shaping of SAFs is conditioned by the broader

institutional structures in which they are embedded. In contrast to the very complex

governance structure surrounding the NABSOP, the SASAC’s mandate to advance new field

rules was buttressed by the dismantling of the matrix system and it enjoyed stronger support

from the Party/Government for increasing the emphasis on accounting as a basis for the

governance of SOEs. These contrasts remind us of Power’s (2016) recent observation that, in

fields where reliance on accounting is a relatively new phenomenon, it needs to be

accompanied by the accretion of appropriate institutional infrastructures to become truly

consequential as a governance mechanism.

Our findings extend existing research on how accounting is implicated in the

institutionalisation of shareholder-focussed governance practices. Much prior research on this

topic suggests that the accounting practices devised to align managerial interests with those

of shareholders are nearly totalising (e.g., Alvehus and Spicer, 2012; Ezzamel et al., 2008;

Kraus and Strömsten, 2012; Roberts et al. 2006) and that they therefore have strongly

constraining effects on the possibilities of resistance. Such observations typically originate in

contexts where capital markets exercise a direct, or largely unmediated, influence on listed

corporations. By contrast, our findings draw attention to the pivotal role played by IGUs in

moderating the demands for shareholder value creation which emerge from capital markets.

This complements prior, field-level research into how institutionalised governance practices

in various countries reduce the pressures for shareholder value creation. Most of this research

has focussed on how structural characteristics, such as differences in regulatory frameworks

and ownership structures, influence the adaptation of Anglo-American governance practices

(e.g., Bezemer et al., 2015; Fiss and Zajac 2004, 2006; Jürgens et al., 2000; Morgan and

Takahashi, 2002). Whilst such structural characteristics can be important determinants of the

extent to which tendencies towards financialisation take hold, our findings add to a small

body of field-level research which has begun to examine the skilful agency that is implicated

in imbuing shareholder-focussed governance practices with context-specific meanings

(Meyer and Höllerer, 2010, 2016; Yoshikawa et al., 2007). In particular, our observation that

an IGU’s combination of frame blending and frame decoupling can serve to stabilise an SAF

32

points to a need for more careful attention to the roles of such units in the institutionalisation

of context-specific governance practices. At the same time, we recognise that the agency

exercised by IGUs is conditioned by the broader institutional structures in which they are

embedded. We call for further empirical research into how the interplay between such

structures and IGUs influences the institutionalisation of shareholder-focussed governance

practices. Future research could also extend our findings to pay closer attention to the

responses of individual organisations, which need to comply with the field rules established

by IGUs. As we have shown, the establishment of shareholder-focussed governance practices

entailed extensive consultations and negotiations between the SASAC and individual SOEs

and this seems to have contributed to create a degree of consensus around emerging field

rules. Deeper inquiries into how such exchanges evolve could help in nurturing a more

pronounced, multi-level perspective and can extend our understanding of financialisation as

an SAF (cf. Chiwamit et al., 2017).

Such multi-level analyses may yield particularly valuable insights into how tendencies

towards financialisation evolve in emerging economies. The relevance of such research is

underscored by Hopper et al.’s (2017) observation that there is scant research on how various

regulatory bodies, which may assume the role of IGUs, contribute to the evolution of

accounting in emerging economies although their significance is often emphasised by

international donor organisations. Inquiring into how IGUs evolve and interact with other

actors and how this contributes to the adaptation of “Western” governance practices can

enhance our understanding of the extensively researched topic of whether such practices

obstruct or enable economic and social development in emerging economies. Although we

are not arguing that IGUs have a universally benign influence on economic and social

development, we have shown that they can fill an important role in diverting more radical

demands for reform which might jeopardise wider political and social objectives. However,

considerable caution is required when extending our insights to other emerging economies.

Although the field of Chinese SOEs shares many features with similar fields in other

emerging economies, such as extensive state intervention and the prevalence of competing

economic, political and social objectives, it has been characterised by a greater degree of

political stability and more limited dependence on international donor organisations (cf.

Hopper et al., 2009, 2017; van Helden and Uddin, 2016). These similarities and differences

can be expected to have a significant impact on the ability of IGUs to transform “Western”

notions of governance into context-specific governance practices and require careful attention

33

in future, comparative research into the roles of such actors in the development of governance

reforms.

The discussion above provides some clues to how studies of financialisation and research on

accounting in emerging economies can begin to speak to each other and what the

contributions of the theory of SAFs may be in this regard. Extending such research across a

broader range of emerging economies would seem highly relevant, since such economies are

now becoming an integrated part of the global financial system and are increasingly exposed

to governance reforms similar to those evolving in advanced capitalist economies (Young et

al., 2004, 2008). Research into how such global developments interact with more long-

standing, local governance practices is especially topical in the light of emerging discourses

around how economic and social development in emerging economies may be furthered. As

noted by van Helden and Uddin (2016), the development discourse mobilised by international

donor organisations has recently shifted from an emphasis on the diffusion of “Western”

governance practices to greater concerns with the need to support local development

initiatives inspired by such practices. Yet, little accounting research has explored the

consequences of this shift towards localisation and the role of international donor

organisations arguably remains contested (van Helden and Uddin, 2016). Research following

an approach similar to ours can provide important insights into how local actors grapple with

the task of advancing context-specific accounting and governance practices in the face of

such contestation. We therefore urge future research to explore the usefulness of the theory of

SAFs and, in particular, the role of IGUs in relation to a broader range of accounting issues in

emerging economies. Such studies could also engage with more general calls for extending

research on corporate governance beyond the economics-based approaches that have long

dominated such research and for exploring how context-specific governance practices take

shape across a wider range of institutional settings (e.g., Aguilera and Jackson, 2010; Ahrens

et al., 2011).

34

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Analytical phase Initial destabilising changes

Episode of contention Institutional settlement

Time period 1978-93 1993-2003 2003-15

Key events 1978: Start of market-based reforms.

1983: Invitation of the World Bank

Mid-1980s onwards: Implementation of the Contract Responsibility System and experiments with private ownership forms.

1988: Formation of the NABSOP.

Late 1980s onwards: Escalating financial performance problems in SOEs.

1993: The 14th Party Congress officially announcing socialist market economy.

Early 1990s: Formation of Chinese stock markets and initial SOE listings.

1995: International conference, co-sponsored by the Ministry of Finance and the World Bank.

1997: The 15th Party Congress enacting a policy of “corporatisation”.

1998-2000: Period of radical restructuring of SOEs and increased stock market listings.

1998: Dissolution of the NABSOP.

2003: Formation of the SASAC in 2003 and dismantling of the matrix system.

2003-06 The SASAC developing shareholder-focussed accounting practices, such as EVATM.

2007-09: EVATM

gradually introduced in individual SOEs.

2010; EVATM a compulsory requirement for SOEs.

2012: World Bank country report generating considerable controversy regarding SOE governance reforms.

Frame shifting No ostensible frame shifting.

The World Bank engaging in frame shifting by mobilising the “Western”, agency-theoretic frame.

The World Bank continuing to engage in frame shifting by mobilising the agency-theoretic frame.

Frame blending The Party/Government engaging in frame blending by combining socialist notions of governance with new ownership forms, but distancing reforms from any ostensible “Western” influence.

The Party/Government engaging in frame blending by imbuing governance practices with meanings consistent with the socialist market economy, whilst distancing reforms from any ostensible “Western” influence.

The SASAC extending the Party/Government’s strategy of frame blending, aimed at imbuing EVATM with “correct thinking”, whilst distancing reforms from any ostensible “Western” influence

Field rules No powerful field rules, compelling SOEs to prioritise financial performance.

New governance practices emerging, but no powerful field rules compelling SOEs to prioritise financial performance.

New field rules, pivoting on EVATM, gaining traction across SOEs whilst being balanced with broader political and social objectives.

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Table 1. The evolution of shareholder-focussed governance practices in Chinese SOEs.

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Appendix. Overview of interviews and field observations.

Interviewee Duration (min.)Date

2009 2010 2011 2012 2013 2015

Deputy Minister, Ministry of Finance 120 4/9

30 5/8

90 23/9

20 28/9

30 30/7

30 26/9

Observer (Anonymous), Ministry of Finance 20 23/9

Professor, policy advisor, University of Beijing Full day 26/9

Senior fellow, Research centre, Ministry of Finance

60(phone) 30/7

Deputy Head of Performance Review Division 1 , SASAC 60 11/8

45 4/9

45 6/8

60 5/9

60 24/9

40 6/8

Officer, Performance Review Division 1, Financial Monitoring,, Assessment and Appraisal Bureau, SASAC,

30 24/9

Head of Performance Review Division 2, Financial Monitoring,, Assessment and Appraisal Bureau, SASAC

Full day (interview/ observations)

5/116/11

120 (interview/ observations)

6/8

Deputy Head of Performance Review Division 2, Financial Monitoring,, Assessment and Appraisal Bureau, SASAC

Full day (interview/ observations)

5/116/11

60 6/8

Officer, Performance Review Division 2, Financial Monitoring,, Assessment and Appraisal Bureau, SASAC

Full day (interview/ observations)

5/116/11

Officer, Performance Review Division 2, Financial Monitoring,, Assessment and Appraisal Bureau, SASAC

Full day (interview/ observations)

5/116/11

Officer, Performance Review Division 2, Financial Monitoring,, Assessment and Appraisal Bureau, SASAC

Full day (interview/ observations)

5/116/11

Deputy Director, Supervision Bureau., SASAC 20 6/8

30 5/9

90 1/11

30 23/9

Chairman A, Supervisory Board, SASAC 30 1/11

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60 26 /9

Chairman B, Supervisory Board, SASAC 60 25/9

Secretary, General Office, SASAC 20 5/11

50 5/8

Strategy Development Bureau, SASAC 120 21/9

Sub-total: 3 3 7 9 5 6

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