The Disintegration of Production

The Disintegration of Production

Firm Strategy and Industrial Development in China

Edited by Mariko Watanabe

In the past two decades, China has experienced rapid industrial and economic growth. This fascinating book explores the unique Chinese business strategy of vigorous market entry and low prices, which has been the key feature of this accelerated industrial growth.

Chapter 6: The specialized market system: the market exploration of small businesses

Ke Ding

Subjects: asian studies, asian development, asian economics, development studies, asian development, development economics, economics and finance, asian economics, development economics, industrial organisation, institutional economics


Since the 1980s, a new distribution system, the specialized market system, has made its appearance in China. As a device that reduces the high fixed costs of marketing, the specialized market system has helped an increasing number of China’s small-and medium-sized enterprises (SMEs) to explore potential demand in emerging markets. The purpose of this chapter is to indicate precisely the real situation of the specialized market system, clarifying its impact on China’s manufacturing sector. It is well known that commercial capitals were nurtured in most developed countries during the pre-industrialization era. Once industrialization started, newly emerged manufacturers were able to sell their goods to distant markets smoothly by making use of these pre-existing commercial resources. The history of industrialization in developed countries can be explained as a history of alliance (or opposition) between manufacturers and powerful merchants. In China, however, the situation was different. During the process of socialist transformation, the traditional commercial capitals were completely expunged. Instead, a state-owned distribution system was built. However, it was rigid and inefficient, and it never dealt with products made by the private sector. This system soon collapsed during the process of transition to a market economy. Therefore, in the reform era, China’s private manufacturing sector had to grow up without any alliances with powerful commercial capitals. In this situation, the most primitive distribution system, the marketplace, emerged and began to play an important role in China’s domestic distribution.

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