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From federalism, Chinese style to privatization, Chinese style


  • Yuanzheng Cao
  • Yingyi Qian
  • Barry R. Weingast


In 1995, 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 lay‐offs 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 state‐owned enterprise 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. JEL classification: H7, L30, P3.

Suggested Citation

  • Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1999. "From federalism, Chinese style to privatization, Chinese style," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 103-131, March.
  • Handle: RePEc:bla:etrans:v:7:y:1999:i:1:p:103-131
    DOI: 10.1111/1468-0351.00006

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    References listed on IDEAS

    1. Yingyi Qian & Barry R. Weingast, 1996. "China's transition to markets: market-preserving federalism, chinese style," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 149-185.
    2. 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.
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    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems


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