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Soft Budget Constraints: An Analysis Based on a Survey of Chinese Township Enterprises


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  • Sjöberg, Örjan

    (Stockholm Institute of East European Economics)

  • Gang, Zhang

    (Department of Economics)

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    The reduced influence of soft budget constrints is often seen as an explanation for the successful growth of China's non-state sector. Views differ, however, as to whether collectively owned rural enterprise are in fact subject to hard financial discipline. This paper reports an inquiry into the issue. The study examines the financial behaviour of REs, particularly that of loss-making enterprises, by scrutinising a set of survey data of 630 rural enterprises in Sichuan and Zhejiang (China), Being primarily explorative and conceptual in nature, our study reveals that soft budget constraints can still be observed to be enjoyed by many rural enterprises, in particular among those collectively owned. As the budget constraints do appear to become more rigid, however, enterprises look for other opportunities to ease the financial dixcipline forced upon them by the market and by increasingly illiquid local governments. Accumulating inter-enterprise arrears, as well as withholding wage payments, are identified as means frequently used towards this end by REs in transitional Chinese economy.

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 93.

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    Length: 35 pages
    Date of creation: Jan 1996
    Date of revision:
    Handle: RePEc:hhs:hastef:0093

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    Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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    Keywords: Soft budget constraints; economic transition; China; rural industry; township and village enterprises; inter-enterprise arrears;

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    Cited by:
    1. Janos Kornai & Eric Maskin & Gerard Roland, 2002. "Understanding the Soft Budget Constraint," Economics Working Papers 0019, Institute for Advanced Study, School of Social Science.
    2. Kornai, János, 2000. "A költségvetési korlát megkeményítése a posztszocialista országokban
      [Hardening of the budget constraint in the post-socialist countries]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 1-22.
    3. Li, Lixing, 2008. "Employment burden, government ownership and soft budget constraints: Evidence from a Chinese enterprise survey," China Economic Review, Elsevier, vol. 19(2), pages 215-229, June.


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