Between markets and politics: Organizational responses to reform in China

In China's economic transition, firms diversify assets through investments in the rapidly expanding service sector in response to organizational uncertainty. Using data from a random sample of firms in Shanghai, the author shows that there are two situations that cause this uncertainty: economic instability, where weak firms struggle to survive in the rapidly changing market system, and administrative instability, where large firms that were the most protected are now being forced to handle the responsibilities that were previously handled by the state. The result is that both types of firm seek stability by spreading out risk through investment in low-risk, fast-return markets, revealing much about the economic reforms.