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Inspired by Douglass North’s work on the role of institutions in economic structure and
change and in particular the role of state institutions, this thesis attempts to explore the
process of economic transformation through analyzing state-business community
relations in the city of Kunshan, Jiangsu, China. The author uses primary data from
Kunshan to demonstrate how the open-door policy of China has led to changes in the
institutional environment parallel to the economic transformation. Kunshan’s institutional
development is analyzed in terms of two factors. First is ‘autonomy’ as in the ability and
capacity of the local state to define and pursue its own development strategy. Second is
‘embeddedness’ as in the local state developing a regular relationship with economic
elites that share its goals of economic transformation. These two are seen as
complementary necessities for economic transformation. This thesis shows how the local
state in Kunshan has strengthened both its capacity and integrity to pursue economic
transformation and the actual pursuit of it through closer and more institutionalized
relations with the business community.

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