A Survey of Enterprise Reforms in China: The Way Forward

Posted: 5 Jul 2007

See all articles by Tony Naughton (Deceased)

Tony Naughton (Deceased)

RMIT University - School of Economics, Finance and Marketing; Financial Research Network (FIRN)

Martin Hovey

UNE Business School

Abstract

The strategic importance of the state owned enterprise (SOE) sector to the Chinese economy cannot be underestimated, thus the success of SOE reform is a significant factor in China's future economic prosperity. The dilemma facing state authorities is to develop market-orientated corporations while at the same time coping with potentially high unemployment and a range of equity and social justice issues. This paper presents an analysis of the current issues in SOE reform in China, drawing on relevant empirical evidence, and proposes a strategic direction and a framework for reform that challenges the recently announced program of privatization of listed SOEs. The literature indicates that state ownership is generally negatively correlated to performance. Conversely, Legal Person ownership positively influences performance. Other forms of private ownership are generally positively correlated to performance, with institutional ownership showing significant promise. Consequently, the divesture of state ownership is recommended and could be accomplished over three or four tranches. The State could divest its ownership by auction to strategic investors, both domestic and foreign, and in the next tranche an auction to the broad populace through units in mutual funds. The final proposed tranche being a distribution to nationwide pension funds to support retirement schemes, which should be made nationwide. Finally, listed firms should also issue shares as rights issues to offer present shareholders protection from dilution.

Keywords: State-owned enterprises, Privatization, Ownership structures, Corporate governance, Emerging markets, China

JEL Classification: P31, L33, G32, G38, O53

Suggested Citation

Naughton (Deceased), Tony and Hovey, Martin T., A Survey of Enterprise Reforms in China: The Way Forward. Economic Systems, Vol. 31, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=998433

Tony Naughton (Deceased)

RMIT University - School of Economics, Finance and Marketing ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Martin T. Hovey (Contact Author)

UNE Business School ( email )

TRAVENA ROAD
Armidale, NSW 2351
Australia

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