In 1994 China began a profound reform of its state-owned enterprises. We first describe and characterize this progress in two areas: privatization of small state-owned enterprises at the county level and mass layoffs of excess state workers at the city level. Local governments have initiated these reforms, which are proceeding in economically and politically sensible ways. We then argue that privatization, Chinese style, rests on an adequate economic and political foundation -- federalism, Chinese style. We suggest a range of incentives that propel local governments toward SOE reform, including their harder budget constraints and increased competition from the non-state sector. In this sense, federalism, Chinese style, has induced privatization, Chinese style.

Key Words: Privatization, Restructuring, Federalism, Local Governments, China

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 97049.

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Date of creation: Dec 1997
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Handle: RePEc:wop:stanec:97049

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Keywords: Privatization; Restructuring; Federalism; Local Governments; China;

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1. Yingyi Qian, 1996. "Enterprise reform in China: agency problems and political control," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 427-447, October. [Downloadable!] (restricted)

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