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Privatisation in China: softly, softly does it

  • Ram Mohan, T. T.
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    India’s halting attempts at privatisation and its preference, for the most part, for disinvestment have been roundly criticised by many as being inadequate. A more aggressive privatisation drive, it is contended, would make for superior economic performance. In popular discourse, China’s privatisation efforts are often compared favourably with India’s. This paper examines China’s record of privatisation to see whether it accords with popular perceptions. The record shows that China has been proceeded cautiously in its privatisation efforts. It has privatised – that is, sold off to private owners- only the smaller SOEs. The state retains control over the larger SOEs that dominate industrial output and profits. In respect of these, China has opted for gradual disinvestment with disinvested shares residing mostly with state-owned entities. Over a long period, China has pushed through reforms of SOEs, including conferment of greater autonomy on enterprises and introduction of incentives for workers and managers. The empirical evidence is that performance at SOEs has improved consequent to these reforms. It could be argued that full-blooded privatisation might have produced even better results. However, given the possible implications in terms of job losses as well as the absence of effective governance mechanisms in China’s underdeveloped capital market. China’s rulers may well have been justified in hastening slowly with privatisation.

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    Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number WP2004-09-04.

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    Handle: RePEc:iim:iimawp:wp01848
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    1. Groves, Theodore & Yongmiao Hong & John McMillan & Barry Naughton, 1995. "China's Evolving Managerial Labor Market," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 873-92, August.
    2. Qian Sun & Wilson H. S. Tong & Jing Tong, 2002. "How Does Government Ownership Affect Firm Performance? Evidence from China's Privatization Experience," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(1&2), pages 1-27.
    3. Zuobao Wei & Oscar Varela & Juliet D'Souza & M. Kabir Hassan, 2003. "The Financial and Operating Performance of China's Newly Privatized Firms," Financial Management, Financial Management Association, vol. 32(2), Summer.
    4. Wei Li, 1994. "The Impact of Economic Reform on the Performance of Chinese State Enterprises: 1980--1989," Development and Comp Systems 9410001, EconWPA.
    5. Hay, Donald & Morris, Derek & Liu, Guy & Yao, Shujie, 1994. "Economic Reform and State-Owned Enterprises in China 1979-87," OUP Catalogue, Oxford University Press, number 9780198288459, March.
    6. Groves, Theodore, et al, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 183-209, February.
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