Recasting the Iron Rice Bowl: The Reform of China's State-Owned Enterprises

Daniel Berkowitz, Hong Ma, Shuichiro Nishioka
2017 Review of Economics and Statistics  
The pro...tability of China's state owned enterprises (SOEs) sharply increased following the enactment of reforms in the mid-1990s. Rapid growth in pro...tability could indicate that SOEs restructured; however, it might also indicate that the state used its standard tools including product market protections, input subsidies and ...nancial bailouts for its SOEs that in fact enable SOEs to avoid restructuring (Kornai, 1990; and 1992, Part III). This paper shows that SOE pro...tability grew for
more » ... tability grew for two reasons. First, the elasticity of substitution between capital and labor in 136 3-digit Chinese manufacturing sectors is generally estimated at above unity: thus, as the cost of capital for SOEs fell, the capital-intensity and pro...tability of SOEs dramatically increased. Second, our estimates show that over time SOEs were under less political pressure to hire excess labor. While the productivity of SOEs improved due to the policy of "grasping" the big ones and "letting go" of the small ones, it still lagged foreign and private ...rms. Overall, our results indicate that SOE restructuring was limited. Word count: 9607 words. We have bene...tted from discussions with
doi:10.1162/rest_a_00637 fatcat:ibhiosy3lrfv5f3eeiev4d34vu