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Special Deals from Special Investors: The Rise of State-Connected Private Owners in China

Author

Listed:
  • Chong-En Bai

    (Tsinghua University - School of Economics & Management)

  • Chang-Tai Hsieh

    (University of Chicago - Booth School of Business; NBER)

  • Zheng Song

    (City University of Hong Kong)

  • Xin Wang

    (The Chinese University of Hong Kong - Department of Economics)

Abstract

We use administrative registration records with information on the owners of all Chinese firms to document the importance of “connected†investors, defined as state-owned firms or private owners with equity ties with state-owned firms, in the businesses of private owners. We document a hierarchy of private owners: the largest private owners have direct investments from state-owned firms, the next largest private owners have equity investments from private owners that themselves have equity ties with state owners, and the smallest private owners do not have any ties with state owners. The network of connected private owners has expanded over the last two decades. The share of registered capital of connected private owners increased by almost 20 percentage points between 2000 and 2019, driven by two trends. First, state owned firms have increased their investments in joint ventures with private owners. Second, private owners with equity ties to state owners also increasingly invest in joint ventures with other (smaller) private owners. The expansion in the “span†of connected owners from these investments with private owners may have increased aggregate output of the private sector by 4.2% a year between 2000 and 2019.

Suggested Citation

  • Chong-En Bai & Chang-Tai Hsieh & Zheng Song & Xin Wang, 2020. "Special Deals from Special Investors: The Rise of State-Connected Private Owners in China," Working Papers 2020-170, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2020-170
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    File URL: https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020170.pdf
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    References listed on IDEAS

    as
    1. Ruochen Dai & Dilip Mookherjee & Kaivan Munshi & Xiaobo Zhang, 2019. "The Community Origins of Private Enterprise in China," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-320, Boston University - Department of Economics.
    2. Chang-Tai Hsieh & Esteban Rossi-Hansberg, 2023. "The Industrial Revolution in Services," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(1), pages 3-42.
    3. Chong-en Bai & Chang-Tai Hsieh & Zheng Song, 2020. "Special Deals with Chinese Characteristics," NBER Macroeconomics Annual, University of Chicago Press, vol. 34(1), pages 341-379.
    4. Huang,Yasheng, 2008. "Capitalism with Chinese Characteristics," Cambridge Books, Cambridge University Press, number 9780521898102.
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    2. Han, Xuehui & Epetia, Ma. Christina F. & Cheng, Yuan, 2021. "“Subsidies” or “taxes”? Corporate credit misallocation induced by the nexus of state-owned enterprises and state-owned banks," Journal of Asian Economics, Elsevier, vol. 76(C).
    3. Ridley, William & Devadoss, Stephen, 2024. "Determinants of Policy Responses in the US–China Tit-for-Tat Trade War," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 0(Preprint), January.
    4. Cai, Guowei & Zhang, Xuejiao & Yang, Hao, 2022. "Fiscal stress and the formation of zombie firms: Evidence from China," China Economic Review, Elsevier, vol. 71(C).

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