The purpose of the NWO project ‘Shifts in Governance’ is to gain understanding of economic actors, their behaviour and the processes that underlie China’s transformation process. The NWO Conference ‘Shift in governance and the emergence of a Chinese Business System’, that was held in Hangzhou (July 23-28, 2006), was based on this theme. The rationale behind the conference was to bring together experts from a range of (political) economic, sociological and business backgrounds to discuss and suggest concepts and empirical methods to upgrade the existing knowledge base. Perhaps three main issues underlie the range of questions discussed during the conference: who are the economic actors? What does the economic- and political process look like? How can we apply sound methodological methods to help gain evidence?

The conference was structured around the seven sub-projects and reviewers were assigned to each sub-project. The setup of the conference was somewhat unusual by not letting the authors present their stories but asking the reviewers to first summarize and then comment on the papers. The big advantage of this approach was that it led to highly comprehensive discussions of the papers, from various points of view and diverse backgrounds.

‘Networks’ by Hans Hendrischke was the first sub-project to be discussed. The paper ‘Networks as Business Networks’ was discussed by John Child and Bart Nooteboom. In this paper Hans argues for an economic view of business networks in contrast to the ruling notion of traditional family networks. Aside the highly informative and detailed analysis of networks in China, this paper introduced lenses and theories that originate in network research done in advanced economies. One of the major steps forward in network research in a Chinese context is this incorporation of exiting network theory knowledge, a point stressed by Bart Nooteboom.

‘Multinationals’ by Xueyuan Zhang and Patrick Reinmoeller was reviewed by Max Boisot, Gordon Redding, and Jieqiu Wan. The project focuses on the dynamic interaction between multinational firm strategy and country – China – context. In a range of papers the authors explored the historical roots of FDI in China, the role of institutional forces in determining homo- versus heterogeneity of the market and MNC entry decision processes. The session was supplemented by a short presentation of a comparative study on FDI inflow in Jiangsu and Zhejiang province by Professor Yongda Yu of Tsinghua University.

‘Innovation’ by Mark Greeven was reviewed by Steve Casper and Andrew Tylecote. The research in this sub-project ask for explanations how Chinese SMEs can develop innovative competences in an institutional environment characterised by high levels of uncertainty. In the first paper the author seeks to explain the growth of China’s ICT industry. The second paper deals with the challenges of innovating firms in China’s emerging economy, relying on firm level interview data. The discussions in this session focused on measurement issues, the concept of innovation, the role of IPRs, the development of the selection environment, the link between firm, industry and institutions and how China’s institutional environment allows certain competences to be credible.

‘Entrepreneurship’ by Barbara Krug was reviewed by John Child and Margit Osterloh. The project focuses on which new institutions and organisations (type of firm) emerged in China caused by which factors and to which effect and relies on an extensive data set of firm level interviews. The author adopted a special method – the analytic narrative – to interpret and analyse interviews and life history information of firms. The discussion focused on local embeddedness, property rights, and social capital as a governance mechanism either via local autonomy or networking. In general, networking was one of the key issues discussed during the conference.

‘Taxation’ by Ze Zhu was reviewed by Bruno Frey and Lars Feld. In a series of papers, the author seeks to understand China’s complicated tax system. The author explains how local tax farming and a central tax bureaucracy can co-exist and determine China’s emerging tax regime. Furthermore, the negotiation process and decision making between firms and local governments is explored. The discussions focused on how the tax system in China is really different and what the implications are for both domestic and foreign firms. Furthermore, the issues of informal networking and the use of econometric methods were discussed.

‘Culture and heterogeneity’ by David Goodman was reviewed by Gordon Redding and Stephan Rothlin. The sub-project deals with the diversity and heterogeneity of China from a cultural perspective. In one of the papers, the author explores culture and local economic development. By relying on local studies in three provinces he argues that local culture not only is a significant factor of production but also explains aspects of business development. Furthermore, issues such as the uniqueness of Chinese culture, the relationship with political factors and economic development in general are discussed. The diversity of China’s cultures and local development paths asks for more comparative studies within China.

The last sessions ‘Diversity in organisational forms and business systems’ by Jeroen Kuilman and Barbara Krug was reviewed by Bruno Frey and Richard Whitley. Starting from the assumption that any attempt to analyse the emerging business sector in China, starts with first collecting firm-level data and then understanding the diversity of organizational forms that do not fit the general existing descriptions. It is proposed to use two theoretical approaches to categorize organisational forms in China: transaction cost economics and organizational ecology. The overall discussions during this session focused on defining organizational forms in China and changes in organizational forms. Limits and advantages of the theoretical perspectives were shortly discussed. Here again the discussions quickly turned to the concept of networking and how it could help to understand the diverse organizational forms.

In general the conference focused on several issues. Networks in China and the use of existing network theory and methods were extensively discussed. In relation to this we talked a lot about methodology; how to approach the research problems at hand and which methods and techniques are appropriate. The research so far is dominated by qualitative research based on interviews but the question is if it is time to explore the possibilities of quantitative research methods such as surveys and econometric studies.

The conference was unique in a lot of ways. First, due to the mix of Chinese and non-Chinese experts we were able to have a discussion about topics that puzzle both researchers in China and outside. The participation of Chinese experts was extremely valuable and led to new insights. Second, the variety of sub-projects and themes in discussions resulted in an assessment of both specific and more general issues that puzzle China researchers. Especially the diversity of backgrounds of the participants – economics, business, culture, sociology – allowed fruitful discussions that led to new insights for all sub projects.

The next step for the project is to process the new ideas and incorporate the knowledge to advance the understanding of China’s business sectors. It seems that a deep understanding of China and its history is a prerequisite for good research. Considering the diversity of China, there is a need for more local knowledge to explain such diversity. Cooperation with local experts is key to understanding and carrying out insightful local research projects. Furthermore, there is a need for comparative studies, both between China’s provinces and between China and other emerging economies. Another step forward would be a systematic approach to Chinese networks, incorporating China-specific elements and existing knowledge from network theory. The political-economic link is one of the major factors to be analysed. Last, research on China might result in rethinking of existing concepts and methods to better understand the phenomena at hand.