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This article examines the formation of China's state enterprise system, using the case of the Dadukou Iron and Steel Works (DISW). I argue that the basic institutional arrangement of the DISW, and by extension other state-owned enterprises, consisted of a bureaucratic governance structure, distinctive management and incentive mechanisms, and the provision of social services and welfare. This arrangement took shape during the Sino-Japanese War, with the sustained systemic crisis and the nature and character of the institutional endowments leading to the formation of China's state enterprise system. In considering implications for understanding institutional change, I suggest that crisis shapes radical institutional change and that both path dependence and path independence characterize such change.

This article surveys the recent literature on China's political economy during the Sino-Japanese War . This literature reveals that the war-triggered sustained systemic crisis brought about the most intensive Nationalist statebuilding efforts, the danwei designation of political, economic, and administrative organizations, the expansion of state-owned industries and the decline of the private sector, the creation of a state enterprise system, and the formation of an ideology of developmental state. This literature suggests that the elements of post-1949 institutional and structural arrangements and ideological systems developed well before 1949. Therefore, the critical issue is no longer that of establishing institutional, structural, and ideological continuity between the Nationalist and Communist eras; instead, it rests in understanding why and how the Chinese Communists kept intact, built on, and expanded existing institutions, structures, and ideologies in certain key areas of political, economic, and administrative life.Scholars of modern China have long appreciated the critical importance of the Sino-Japanese War in key historical developments. As many studies have shown, the war fostered the development of Chinese nationalism, hastened the collapse of the Nationalist regime, and accelerated the Communists' rise to power. Nevertheless, only recently have scholars begun to understand fully the war's profound impact on China as they explain how the war-triggered crisis shaped Nationalist state-building efforts, contributed to the formation of China's danwei (unit) system, 2 wrought fundamental changes to Chinese industry, brought about new economic institutions, and gave rise to new ideologies. Although some scholars argue for the notion of radical change after 1949, this growing literature points to the existence of significant continuities between the Nationalist and Communist eras. The objective of this article, then, is to summarize key issues and arguments of this literature and suggest new directions for research. 3

In recent years, China scholars have often debated the meaning and definition of the Chinese Revolution. While some studies reveal discontinuity or radical and transformative change, others show continuity or gradual and evolutionary change. This article contributes to the debate by examining how the connective tissues in Guizhou’s regional economic institutions—the regional economic bureaucracy and regional state enterprises as well as enterprise organization, management, and incentive structures and mechanisms—emerged, grew, broke down, and were replaced over the period 1937 to 1957. Specifically, it focuses on the creation and expansion of Guizhou’s regional state enterprises, the transformation of enterprise authority structure, the transplantation of the Soviet economic accounting system, the appropriation of the Western accounting system, and the development of social service and welfare institutions. Drawing extensively on heretofore unavailable archival and published material, this study demonstrates that the changes in Guizhou’s regional economic institutions were both radical and transformative and gradual and evolutionary. In the process, Guizhou’s regional state enterprises came to be defined by bureaucratic enterprise governance, Chinese Communist Party control over enterprise employees, and distinctive enterprise management and incentive mechanisms.