Different paths to economic reform in Russia and China: Causes and consequences

Economic reform in Russia has been described as 'shock therapy' because rap id industrial privatization, price liberalization and democratic reforms of the political system were introduced simultaneously. However, shock therap y led to insider control of most manufacturing firms, with important conseq uences for foreign investment. In contrast, China's 'gradualist' reforms, w ithout privatization or significant democratization, facilitated foreign jo int ventures as the dominant means of reforming State-owned enterprises inc rementally. This paper proposes an explanation for these contrasting reform paths in Russia and China and then traces their consequences for inward fo reign domestic investment (FDI), exporting and for corporate governance in the short and long term. The impact of national level policies on enterpris es is demonstrated in a marched pair of cases in Russia and China. Conclusi ons are drawn for policy, for practice and for future research.