Special Deals from Special Investors: The Rise of State-Connected Private Owners in China

39 Pages Posted: 2 Dec 2020

See all articles by Chong-En Bai

Chong-En Bai

Tsinghua University - School of Economics & Management

Chang-Tai Hsieh

University of Chicago - Booth School of Business; University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Zheng (Michael) Song

City University of Hong Kong (CityUHK)

Xin Wang

The Chinese University of Hong Kong (CUHK)

Multiple version iconThere are 2 versions of this paper

Date Written: November 30, 2020

Abstract

We use administrative registration records with information on the owners of all Chinese firms to document the importance of “connected” investors, defined as state-owned firms or private owners with equity ties with state-owned firms, in the businesses of private owners. We document a hierarchy of private owners: the largest private owners have direct investments from state-owned firms, the next largest private owners have equity investments from private owners that themselves have equity ties with state owners, and the smallest private owners do not have any ties with state owners. The network of connected private owners has expanded over the last two decades. The share of registered capital of connected private owners increased by almost 20 percentage points between 2000 and 2019, driven by two trends. First, state owned firms have increased their investments in joint ventures with private owners. Second, private owners with equity ties to state owners also increasingly invest in joint ventures with other (smaller) private owners. The expansion in the “span” of connected owners from these investments with private owners may have increased aggregate output of the private sector by 4.2% a year between 2000 and 2019.

Suggested Citation

Bai, Chong-En and Hsieh, Chang-Tai and Song, Zheng (Michael) and Wang, Xin, Special Deals from Special Investors: The Rise of State-Connected Private Owners in China (November 30, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-170, Available at SSRN: https://ssrn.com/abstract=3740120 or http://dx.doi.org/10.2139/ssrn.3740120

Chong-En Bai

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Chang-Tai Hsieh (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zheng (Michael) Song

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Xin Wang

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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