The firm – state nexus in the digital sphere

Two weeks ago I was interviewed by LUM (Lund universitets magasin). One of the questions asked was how the state and firms interact in the digital sphere. The political embeddedness of Chinese ICT firms is an interesting issue. Looking back at the development for the last decade it is obvious that China has experienced an unparalleled growth in the digital space. Today over 40% of the Chinese population has access to Internet, and there are over 1 billion mobile phones in use. These numbers make China, by far, a world leader in absolute terms. The potential for growth, however, is still substantial. The Internet penetration rate of 40% is low compared to for example Scandinavian countries that have a penetration rate of over 90% ( Moreover, the difference in Internet diffusion between the developed coastal parts and the inland, or between rural and urban China is quite noticeable. For example the China Internet Network Information Center reported that 72% of Beijing residents have Internet access, while the corresponding figure for the Jiangxi province was only 30%. To put these numbers in a perspective Beijing is comparable to the United States and Jiangxi to Kenya. In the long run such divides can create problems with social cohesion and eventually cause a legitimacy problem for the ruling regime. Hence it has been in the interest of the central government to seek further digitalization of both the developed and developed regions of China for continued political stability. This endeavour is of course a joint project between a number of different state, business and non business actors.

Firms have major economic incentives to participate in China’s digitalization. For example in the case of telecom the latest statistics, from the Ministry of Industry and Information Technology (MII), showed that business revenues in the telecom sector were just marginally short of 1 trillion yuan last year ( The market is expected to continue to grow strongly as it has been doing for the past two decades. To achieve such an impressive development several major reforms have restructured the Chinese telecom sector. In the late 1990s the MII broke up an in-efficient state monopoly and created new state owned enterprises that specialized in different business areas of telecom, later a division also came through geographical specialization. Another important transformation occurred with China’s accession into the WTO, which led to an increase of foreign equity and technology. Lately a Chinese telecom standard, TD-SCDMA has been launched to avoid too much of a reliance on foreign technology. The changes have aimed to transform the telecom sector from centrally controlled to quasi-capitalist, and from relying on foreign technology to promote indigenous innovation.

The Chinese state’s concern over loosing control of nationally strategic sectors and vested interests creates an environment that is highly ambiguous. Sometimes policies adhere to a capitalist logic and at other times they follow an authoritarian ideology. For firms, the balance between exploiting entrepreneurial opportunities in the market and seeking legitimacy in the current political system is therefore quite a delicate act. A recent article (Olsen, 2013), describes how Internet companies in China need to enforce the strict censorship laws, and at the same time also please the increasingly creative and demanding users (and their desire for more freedom). The failure to follow censorship directives from higher authority could lead to firms being reprimanded by the state and even taken out of business. Thus, the interaction between firms and the state is quite complex. On the one hand there is considerable state control with censorship and lack of freedom of expression. On the other hand the market development shows that there is quite some flexibility for firms to pursue entrepreneurial opportunities and find innovative solutions. Ultimately the state does, however, not create digitalization autonomously rather it interacts with other actors through a web of different actions and reactions. Firms hold quite an important position in this interdependent web of activities. Although the freedom of expression is consistently stifled by the state, Internet and telecom firms have expanded the borders of what used to be tolerable and continues to do so.

Olsen, R (2013) China’s shifting censorship regime puts squeeze on internet giants, Forbes magazine, viewed March 15, 2013,

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