The Nature and Performance of China's State Owned Enterprises
|Title:||The Nature and Performance of China's State Owned Enterprises|
Much commentary and analysis conceives of a generic Chinese 'state sector' which is stubbornly inefficient and, sometimes simultaneously, the central pillar of an assertive 'state capitalism'. This thesis argues that the nature and performance of state ownership varies across the Chinese economy in ways that can't be reduced to homogenous 'state' or 'non-state' sectors. The introductory chapter recalls China's transition from a planned industrial state monopoly to a mixed economy in which non-state firms dominate state-owned enterprises' (SOEs') share of activity in competitive sectors. Chapter 2 argues for SOE performance to be assessed according to the sector in which it operates, and the state owner's objectives therein. Where an SOEs is operating in market that depart from conditions of perfect competition, or when the state owner's objectives encompass broader policy goals, the maximisation of profits may not be a good benchmark for an SOE's contribution to the economy, or social welfare more broadly. Chapter 3 surveys the sectoral distribution of state ownership and reveals the diversity of state owners. Projecting from current fixed-asset investment shares, it shows that China's share of state ownership in aggregate is approaching levels similar to OECD mixed economies such as the Netherlands or Sweden. While China's largest corporate conglomerates tend to be controlled by the central government, these prominent 'national champions' are not representative of state ownership more broadly. Ownership rights over most of China's 160,000 SOEs are exercised directly by hundreds of state owners, including at the local level, or indirectly, by other SOEs. Chapter 4 tests the extent of state monopoly within China's vast array of industrial sectors. Monopoly is measured by the Herfindahl-Hirschman Index (HHI) of market concentration in 521 industrial subsectors using enterprise-level data. To account for the SOE conglomerates observed in the previous chapter, a novel adjustment is made to group SOE observations according to their administrative relationship (lishu guanxi). These estimates confirm that large central state monopolies remain in oil (a strategic resource), electricity (a network utility) and tobacco (an administrative monopoly). By contrast, Chinese manufacturing subsectors are mostly unconcentrated, with ownership weighted toward private companies and local SOEs. Chapter 5 compares SOE and non-SOE profit per unit of fixed assets (profitability) within manufacturing, based on regression analysis of enterprise-level data pooled from 2011-2013. While smaller SOEs match non-SOE profitability, profitability of the largest SOEs is one-third lower than large non-SOEs. Because of their sheer size, this drags down the aggregate profitability of SOE manufacturing. SOEs also pay out a higher-than-expected share of value added in wages and taxes - further evidence of SOEs' deviation from profit maximisation, even under competitive market conditions. This likely reflects the different distributional objectives between state and non-state owners. The thesis argues that SOEs' broader contribution to GDP can be better illuminated using a value-added measure rather than profits alone. Poor performance on the value-added measure is limited to certain subsectors (most importantly, steel pressing). The thesis concludes with implications for China's ongoing reforms and suggestions to guide future research.
|Hubbard - Final Thesis 20181111 CLEAN FINAL FOR SUBMISSION.pdf||Thesis Material||4.82 MB||Adobe PDF|
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