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The state advances, the private sector retreats? Firm effects of China’s great stimulus programme

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  • Anders C. Johansson
  • Xunan Feng

Abstract

It has been argued that the state sector is advancing at the cost of the private sector in China. To examine this issue, we conduct an empirical analysis in which we exploit the launch of a large stimulus programme in the autumn of 2008. We find that state-owned enterprises (SOEs) are better able to maintain their leverage levels and have better access to both short- and long-term debt compared with private firms after the introduction of the stimulus programme. We also find that preferential access to debt financing does not help SOEs improve their performance. Instead, SOEs perform significantly worse than private firms after the introduction of the stimulus programme. Moreover, political connections obtained through political participation help mitigate the discrimination that private firms face from Chinese banks and help improve firm performance. These results support the conjecture that China’s state sector is advancing, with negative consequences for aggregate performance in the economy.

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  • Anders C. Johansson & Xunan Feng, 2016. "The state advances, the private sector retreats? Firm effects of China’s great stimulus programme," Cambridge Journal of Economics, Oxford University Press, vol. 40(6), pages 1635-1668.
  • Handle: RePEc:oup:cambje:v:40:y:2016:i:6:p:1635-1668.
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    8. Anders C. Johansson, 2015. "On the challenge to competitive authoritarianism and political patronage in Malaysia," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 29(2), pages 47-67, November.
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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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