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

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.