Have China's Enterprise Reforms Led to Improved Efficiency and Profitability for Privatized Soes?

57 Pages Posted: 5 Feb 2003

See all articles by Oliver M. Rui

Oliver M. Rui

China Europe International Business School (CEIBS)

Michael Firth

Lingnan University - Department of Finance and Insurance

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: September 2002

Abstract

About twenty years ago, China set about reforming its moribund economy by introducing certain elements of free market capitalist economics. One reform was the partial privatization of many State Owned Enterprizes (SOEs) and listing the shares in them on the stock exchanges of Shanghai and Shenzhen. The partial private ownership of these companies was supposed to act as a spur to improve profitability, efficiency, investment, and growth. In contrast to the operating and financial improvements recorded in privatizations in other countries, our study shows that performance deteriorated after the privatization. Profitability and efficiency decline in the five years after privatization. Sales grow, capital investment improves, and debt levels fall after privatization. We argue that the privatizations have been unsuccessful (in terms of profitability and efficiency) because the state continues to hold substantial shareholdings in companies and because the state often controls the make-up of the board of directors. Despite their declared intentions, state shareholders are not fully committed to profitability and efficiency because they have various social and political objectives that hinder economic performance.

Keywords: privatizations, SOEs

JEL Classification: G3, P2

Suggested Citation

Rui, Oliver M. and Firth, Michael and Chen, Gong-meng, Have China's Enterprise Reforms Led to Improved Efficiency and Profitability for Privatized Soes? (September 2002). Available at SSRN: https://ssrn.com/abstract=337820 or http://dx.doi.org/10.2139/ssrn.337820

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
+852 2766 7070 (Phone)

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