Title: The Multitask Theory of State Enterprise Reform: Empirical Evidence from China
Reference Number: 1153
Publication Date: January 2006
JEL Classifcation:
Author(s):

Chong-En Bai
Tsinghua University and The University of Hong Kong

Jiangyong Lu
Tsinghua University

Zhigang Tao
The University of Hong Kong

Abstract:

The reform of China's state-owned enterprises (SOEs) has been characterized by a gradual and selective approach. In fact there was no privatization at all until mid 1990s, some fifteen years after China started its economic reform. Despite of years of economic reform, state ownership remains significant in the economy. Most of the SOEs are money losing, and the few exceptional ones tend to be sheltered by government protection in selected industries. Yet China has been enjoying one of the most spectacular growth experiences in the world history, and much of the growth is driven by non-state-owned enterprises (non-SOEs), including foreign invested enterprises operating in China and China's own private enterprises. Given the poor financial performance of SOEs, the co-existence of state ownership and private ownership in China is a puzzling phenomenon. Does state ownership exist solely for the benefit of politicians, as is modeled by Andrei Shleifer and Robert W. Vishny (1994), or has state ownership played any role in China's spectacular growth? Is there any rationale behind China's gradual and selective approach towards privatizing its SOEs? What types of SOEs does the Chinese government choose to privatize? What are the consequences of privatization? In this paper, we offer a theory of SOE reform in the context of China, which has predictions on the types of SOEs to be chosen for privatization and the results of privatization. We then present empirical evidence supporting the basic premise of the theory and its theoretical predictions.

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Published in American Economic Review 96:2 (2006), pp. 353-357.

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Last modified: 01/25/2007