Transitional Trap and SOE Reform in Northeast China in the 1990s

Wen Xie, Peking University

China’s transition to a market-oriented economy in the 1990s is often celebrated for its gradualist reforms and the avoidance of “shock therapy.” This gradualism is often regarded as a crucial reason in China's subsequent economic success, especially when contrasted with the economic turmoil experienced by post-Soviet Russia. Yet the experience of Northeast China—the socialist industrial heartland—presents a striking anomaly. Rather than sharing in the widely celebrated “economic miracle,” the region fell behind during the reform era and has often been criticized for possessing a culture allegedly incompatible with market development. This paper argues that such interpretations overlook a deeper institutional dilemma embedded in the reform process itself. To account for this anomaly, it proposes the concept of a “transitional trap,” referring to the institutional and structural predicament faced by both enterprises and local governments in Northeast China during the reform era. State-owned enterprises could not achieve profitability without transferring their heavy pension and welfare obligations to a broader social security system, while local governments lacked the fiscal and institutional capacity to establish such a system amid mounting fiscal pressure and enterprise losses. At the same time, bankruptcy and exit channels remained limited, creating a stalemate that hindered both enterprise restructuring and labor mobility. Drawing on archival records, enterprise case studies, and labor statistics from Liaoning Province, this paper traces how the uneven pace of economic and social reforms produced overlapping temporalities of crisis and inertia. By situating the SOE reforms of the 1990s within a broader temporal and institutional framework, the study challenges celebratory narratives of China’s smooth transition and highlights the interdependence of economic and social restructuring in shaping reform outcomes.

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 Presented in Session 166. The Chinese Reform as Social Science History (II): Temporality and Contingency