The Impact of Ownership Reform in Chinese Industry, 1995-2001

During the 1980s, the restructuring of Chinese industry was driven principally by the entry of new enterprises into the enterprise system and by the restructuring of managerial incentives. In 1993, China???s leadership formally inaugurated the shareholding experiment. This paper examines the impact on eight performance measures of the conversion of both state- and collective-owned enterprises to shareholding enterprises. The analysis distinguishes between the direct effect of conversion and the induced effect, involving the attraction of non-state investment, which reduces the proportion of state assets and state control rights. We find evidence for SOEs that both conversion and a decline in the share of state-owned assets motivate rising productivity and R&D intensity. While rising proportions of non-state assets motive lower employment and rising wages, the initial conversion effect is associated with higher employment and lower wages. These latter impacts may result from agreements with workers as part of the conversion process. The SOE conversion process exhibits selection bias in which SOEs with high rates of capital productivity and profitability, high tax burdens, and comparatively low wages and smaller labor forces are more likely to be selected for conversion. No similar selection bias is evident in the collective sector.