Abstract
After three decades of reform, state ownership still plays a significant if diminishing role in China's industrial sector. We survey studies that focus on the impact of reform on China's SOEs both during the early reform years from 1979 to 1992 and during the years of privatisation and corporatisation since 1993. Most studies find evidence that reforms led to productivity growth in both periods, with both the performance gap and the formal distinction between SOEs and non-SOEs appearing to narrow since the late 1990s.
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Notes
The estimated 12-fold increase in GDP plus Naughton's constant price estimates of industry's output shares at the beginning and end of the period implies that industrial output grew 19-fold. Note that the data indicate far less structural change if current prices, which were artificially high for industry and low for agriculture in 1978, are used.
China Statistical Yearbook 2006, Chapter 5. An incomplete and subsequently discontinued series shows that manufacturing workforce increased from 53 million in 1978 to 83 million in 2002.
A caveat is that, as pointed out by Jefferson and Su (2006), just as many enterprises no longer called state-owned have the state as their largest or majority shareholder, so too some enterprises officially classified as state-owned have only a minority of assets owned by the state. To quote Jefferson and Su (p. 148): ‘The association between formal ownership classification and the ownership structure of the assets has become increasingly fluid.’
If non-circulating shares are included and assumed to be of equal value, the companies traded would have been valued at closer to 18% of GDP in that year.
Yusuf et al., p. 89.
On the application of the ‘market socialist’ concept to China, see Kornai and Qian, eds. (2008). Ironically, the Chinese government itself did not adopt the term ‘socialist market economy’ until after this period had ended and policies were shifting in the direction of still more private ownership.
As an example of the phasing out of planned allocation, Naughton (2007, p. 93) reports that in the steel industry, the proportion of output allocated by the central government fell to 50% in 1984 and to 7% in 1995.
A total of 70.6% in 1995, of which 34.0% was due to state enterprises, and 36.6% to collective ones (including TVEs).
Commentaries along the lines mentioned include Weitzman and Xu (1994), and Ellerman and Stiglitz (2001). For an interpretive essay on why China experimented with ‘market socialist’ forms before moving further toward private property rights, see Putterman (2008).
Share Right Split refers to a process of negotiation between tradable shareholders and the holders of non-tradable shares to set rates of parity between newly released and already traded shares, or to provide alternative forms of compensation, so as to protect incumbent shareholders from suffering declines in wealth as new shares come on the market. On the predicted time-line of transition to full tradability, see Ahn and Cogman (2007).
Interestingly, they also show productivity to be growing rapidly (at between 3.3% and 5.1%) during 1953–1957, the years of China's Soviet-style and Soviet-aided First Five-Year Plan. Much the same paradox exists for China's agricultural performance data, where the fastest growth rates are registered during 1953–1957, years of gradual collectivisation and imposition of state agricultural procurement, and 1978–1984, years of market liberalisation and decollectivisation of farm production.
This survey was conducted by the Economic Research Institute of the Chinese Academy of Social Science. It covers 769 state-owned enterprises over the years 1980–1989. The central government directly managed 9% of the sample enterprises, provincial governments 10%, municipal governments 72%, and county governments the remaining 9%. Firms were surveyed in four provinces – Jiangsu, Jilin, Shanxi, and Sichuan – that together contributed over 20% of China's industrial output at the time.
Although the years in question fall in the second stage of our reform periodisation, the reported profits are nevertheless indicative of the trends that motivated changes that began to be adopted in 1994 but the effects of which would not be felt until the late 1990s.
The SOE share of total industrial output had declined from 77% in 1978 to 33% in 1996; see Naughton (2007, p. 300).
While reliable estimates for the mid-1990s are hard to come by, a careful estimate of the total non-performing loans of China's main banks, including loans already taken off the books of the banks and given over to asset management companies tasked with cleaning up the problem, equaled about 42% of outstanding bank loans or 35% of GDP in 2001. See Ma and Fung (2002).
Holz (2003, p. 194) argues that once one controls for higher capital intensity and taxes, SOE profitability actually exceeded that of non-SOEs.
The starting point of the sample used differs from that of Jefferson and Su in that it includes all SOEs and all non-SOEs with over five million RMB in annual sales, a somewhat larger category than the set of medium and large enterprises.
Hu et al. (2004) also study the 736 enterprise data set, examining the determinants of total factor productivity, value-added, sales, profits, and employment. They find that SOE classification and a low proportion of privately owned shares negatively affect performance, and that operating in a more competitive industry positively affects performance among SOEs but has a weaker or no effect for non-SOEs.
That is having the state as largest shareholder.
Owing to this focus, she discards firms that undertook more than one change of ownership form during the sample period, some 20% of the sample.
Estimated by the authors from Wind Info China Financial Database and China Statistical Yearbook 2005, Chapter 14. Here, state-controlled means having the state as largest shareholder, and designated size means having annual sales above five million RMB.
Foreign-owned tradable shares as of 2002 consisted of those traded in China's B share market and those traded in Hong Kong, known as H shares.
Although observers have often suggested that the vast majority of participants are uninformed ‘retail’ investors and have compared the markets to casinos, Li (2008b) finds stock prices to be highly responsive to information, in particular promptly upgrading performance expectations upon publication of news that shares of a company's stock had been purchased by a foreign-owned qualified institutional investor.
Calculations based on the estimates of the log of MFP by sector shown in their Table 5.
Most of these profits were attributable to the 176 large SOEs run by the Central SASAC. (Calculations from China Statistical Yearbook 2006, Chapter 14 with additional information on large SOEs from Xinhua News Agency (2005).) ‘Grasping the large’ has turned out, thus far, to mean holding on to the goose that lays the golden eggs.
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Acknowledgements
We are extremely grateful to Barry Naughton, Carsten Holz, Gary Jefferson, Xiao-Yuan Dong and Yao Yang for reading a draft full of what for them is old news, and for pointing out errors and providing wise counsel. The usual disclaimer applies.