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How Uncompetitive is the State-Owned Industrial Sector in China

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  • Sebastián Claro

    ()
    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

The profitability gap between state-owned enterprises and the non-state industrial sector in China is significant. Using a highly-disaggregated database of China’s industry in 2003, we estimate an average return to capital in state-owned enterprises about 9% that of foreign-invested firms, and about 59% of the return to capital in all non-state-owned industrial enterprises. Capital return differences are mainly driven by productivity differences, but the negative impact on SOEs’ rental rates of a relatively integrated labor market is not negligible. The rental rate gap is much higher in sectors that represent a small share in SOEs’ output and assets, meaning that the capital subsidies granted by the government have not biased SOEs’ production structure toward industries with greatest profitability gap. The inefficiency cost of distortions in relative factor prices is estimated between 5% and 8% of total industrial output.

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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 305.

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Date of creation: 2005
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Handle: RePEc:ioe:doctra:305

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Keywords: China; SOEs profitability; rental rate gap; productivity differences;

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  1. Gordon H. Hanson & Robert C. Feenstra, 2001. "Intermediaries in Entrepot Trade: Hong Kong Re-Exports of Chinese Goods," NBER Working Papers 8088, National Bureau of Economic Research, Inc.
  2. Jefferson, Gary & Hu, Albert G. Z. & Guan, Xiaojing & Yu, Xiaoyun, 2003. "Ownership, performance, and innovation in China's large- and medium-size industrial enterprise sector," China Economic Review, Elsevier, vol. 14(1), pages 89-113.
  3. Hans-Werner Sinn, 2000. "Germany's Economic Unification: An Assessment after Ten Years," NBER Working Papers 7586, National Bureau of Economic Research, Inc.
  4. Sebastián Claro, 2006. "Why does China protect its labour-intensive industries more? -super-," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(2), pages 289-319, 04.
  5. Zheng, Jinghai & Liu, Xiaxuan & Bigsten, Arne, 2000. "Efficiency, Technical Progress, and Best Practice in Chinese State Enterprises (1980-1994)," Working Papers in Economics 30, University of Gothenburg, Department of Economics.
  6. Lin, Justin Yifu & Cai, Fang & Li, Zhou, 1998. "Competition, Policy Burdens, and State-Owned Enterprise Reform," American Economic Review, American Economic Association, vol. 88(2), pages 422-27, May.
  7. Jefferson, Gary H. & Rawski, Thomas G. & Li, Wang & Yuxin, Zheng, 2000. "Ownership, Productivity Change, and Financial Performance in Chinese Industry," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 786-813, December.
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