Centralization or Decentralization? The Evolution of State-Ownership in China

72 Pages Posted: 5 Dec 2022 Last revised: 22 Oct 2024

See all articles by Franklin Allen

Franklin Allen

Imperial College London; European Corporate Governance Institute (ECGI)

Junhui Cai

University of Notre Dame - Mendoza College of Business

Xian Gu

Durham University Business School

Jun "QJ" Qian

Fudan University - International School of Finance (FISF); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Linda Zhao

University of Pennsylvania - Statistics Department

Wu Zhu

Tsinghua University - School of Economics & Management

Date Written: October 20, 2024

Abstract

We re-examine the state sector and its role in the Chinese economy through the equity ownership networks of 40 million firms from 1990 to 2017. Our measure uncovers a broader array of state-owned enterprises (SOEs) than the existing measures. State ownership witnesses dual trends: decentralization—the scale of capital from the central government has been declining—and indirect control—a rising number of SOEs with provincial and city government ownership stakes and increasing hierarchical distance between existing and new SOEs from their ultimate state owners. The increase in hierarchical distance and expansion of SOE networks can be explained by the openings of new high-speed rail routes. Firms with minority state ownership stakes and greater hierarchical distance to the central and provincial government owners have better performance as measured by higher profitability and productivity.

Keywords: state-owned enterprises; state capital; decentralization; ownership network; hierarchical distance.

JEL Classification: G30; L22; P30.

Suggested Citation

Allen, Franklin and Cai, Junhui and Gu, Xian and Qian, Jun and Zhao, Linda and Zhu, Wu, Centralization or Decentralization? The Evolution of State-Ownership in China (October 20, 2024). Available at SSRN: https://ssrn.com/abstract=4283197 or http://dx.doi.org/10.2139/ssrn.4283197

Franklin Allen (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Junhui Cai

University of Notre Dame - Mendoza College of Business

Mendoza college of business
University of Notre Dame
Notre Dame, IN 46556-5646
United States

Xian Gu

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Jun Qian

Fudan University - International School of Finance (FISF) ( email )

220 Handan Road
Shanghai, 200433
China

HOME PAGE: http://fisf.fudan.edu.cn/en_show-112-69.html

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Linda Zhao

University of Pennsylvania - Statistics Department ( email )

Wharton School
Philadelphia, PA 19104
United States

Wu Zhu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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