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AbstractThis article contributes to our understanding of Chinese corporate expansion into developed economies by using Australia as a case study of how, in the 2010s, Chinese firms began transiting from government-driven resource investment to entrepreneurial expansion in new industries and markets. We contextualize this process by demonstrating how changing market demand and institutional evolutions at home and in the host country created new motivations for Chinese investors. In particular, the decline of active government control in China over the overseas operations of Chinese firms and the more business-oriented regulatory regime in Australia empowered local subsidiaries of Chinese firms to become more entrepreneurial and explorative in their attempts to compensate for their lack of competitiveness and weak organizational capabilities. Consequently, Chinese firms brought their domestic experience and modus operandi to the Australian host market and collectively adapted and deployed dynamic capabilities such as the use of network linkages, experiential learning and corporate reconfiguration. We find that this transfer of capabilities was facilitated by the co-evolution of the Chinese and Australian institutional and market environments and has maintained Australia's position as one of the major recipient countries of Chinese outbound investment, opening the Australian economy to ongoing expansion and disruption.

We start our exploration of China's institutional change by asking what the China experience can tell us about institutional economics and organization theory. We point to under-researched areas such as the formation of firms and the interplay between firms and local politics. Our findings support the dynamic capability approach which concentrates on activities rather than on pre-defined groups and models institution building as a co-operative game between the local business community and local government agencies. We find that the analysis of firms has to set in before they are formed by entrepreneurs and networks and we identify political management as a core competence of these two groups. While this contradicts the conventional view of clientelism or principle agent relations as institutional building blocks, we don't propose competing models. Instead, we suggest focusing on a dynamic process in which the role of players can change. Faced with the spontaneous emergence of institutions, our concept of institutional architecture captures the fact that the two models can co-exist side by side and that, once the dichotomy between formal and informal institutions is given up, there can be a transition from local patron-client relations to local business-state coordination.