How Institutions Rebound : Untangling Difficult Reforms in China’s State-Owned Enterprises

Why are perennially entrenched institutions so hard to reform? This paper proposes a theory of institutional rebound when implementing difficult changes. It untangles reforms in China's state-owned enterprises, which aimed to break the three "iron institutions" in leadership (iron chair), employment (iron bowl), and wages (iron wage) so as to introduce competition and raise efficiency. I argue that under the guise of new institutions, informal institutions emerge to fight back against reforms and let old rules rebound. When actors had denser political connections, their active manipulation helped re-design rules and maintain privileges. When they had fewer political resources, they used performative resistance to delay reforms and penalize reform advocates. Implementing reforms to the former group requires tougher political battles, while the latter can be dealt with by replacing employees. The pressure of completing reforms drove SOE leaders and state cadres to initially target the latter (lower tier workers and nonstrategic sectors), who have fewer political resources. However, because of institutional rebound, the vacancies were soon replaced with the cronies of the powerful, which ironically shrank the pool of personnel that could be targeted. Over time, reforms moved to target higher-level cadres and strategic sectors. In contrast to institutional stagnation, the paper identifies the dynamic process of institutional rebound. It also goes beyond seeing institutions in the public sector as only a matter of ownership and highlights the tenacious roots of internal rules. The paper triangulates data by combining in-depth interviews, secondary sources, and topical modeling of newspaper and journal articles across three decades