Soft Budget Constraints: An Analysis Based on a Survey of Chinese Township Enterprises
AbstractThe 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 InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 93.
Length: 35 pages
Date of creation: Jan 1996
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Soft budget constraints; economic transition; China; rural industry; township and village enterprises; inter-enterprise arrears;
Find related papers by JEL classification:
- P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
- P32 - Economic Systems - - Socialist Institutions and Their Transitions - - - Collectives; Communes; Agricultural Institutions
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