Chinese Privatization: Between Plan and Market

Abstract:     
The current state of Chinese privatization remains deeply flawed. While the initial deferral of state-sector privatization in favor of first creating a marketized, non-state sector was, I argue, an economically wise strategy, the government’s current lethargic response toward solving the problems associated with its economically bankrupt state sector, through its insistence on maintaining rigid political control over firms, has created an economically untenable situation. This Article argues that, to the extent that state-sector privatization has been undertaken at all, it has been on the whole uneven, due primarily to the government’s preoccupation with political control at the expense of economic efficiency. Continued subsidization of too many state firms has meant the continuation of political, rather than commercially based, provisions of capital, which has in turn meant too little, if any bankruptcy-induced exits for economically insolvent enterprises. This Article concludes that, unless China takes the necessary actions to move its state sector away from the central plan, towards the market, and creates institutions that are needed to make a market function, it will suffer the costs of deferred privatization and economic distortion. This Article seeks to further demonstrate that the critical view that the Chinese experience is either irrelevant or inconsequential, or that China is but a recalcitrant adherent to the old ways is a grossly incorrect one.

Number of Pages in PDF File: 50

Keywords: Chinese, market, reform, privatization, subsidization, state sector, central plan

JEL Classification: K22, O10, P2, P5

Accepted Paper Series