NBR Analysis: Volume 12

3. The Transformation Continues: The Status of Chinese State-Owned Enterprises at the Start of the Millennium

THE NATIONAL BUREAU OF ASIAN RESEARCH NBR ANALYSIS VOLUME 12, NUMBER 3, JUNE 2001 Lisa A. Keister and Jin Lu The Transformation Continues: The Status of Chinese State-Owned Enterprises at the Start of the Millennium [This page intentionally left blank.] Foreword The fate of the Chinese economy is largely in the hands of those reforming China’s stateowned enterprises (SOEs) and financial system. Should the industrial and financial sectors be opened fully to market forces they will eventually become competitive and profitable, but not withoutcontinuinghighratesofunemploymentandrelateddislocationsforsometimetocome. Leaders’ policy choices boil down to these: 1) stay the course of reform and over the short and medium term attempt to survive a cauldron of potentially dangerous political costs; 2) decelerate reform and seek a (perhaps unsustainable) mix of market and governmental control ; or 3) reverse course and risk the evaporation of all of the tremendous economic accomplishments of the past two decades. In this issue of the NBRAnalysis, Lisa Keister, professor of sociology atThe Ohio State University (OSU), and Jin Lu, a PhD candidate in sociology at OSU, examine the reform of industrial enterprises and the current status of China’s state-owned enterprises and non-state firms. The essay reports the preliminary data and findings from extensive interviews and a survey of 800 Chinese companies, including 433 SOEs and 367 non-SOEs, that were conducted in the fall of 2000. The survey was developed by Professor Keister, Barry Naughton, professor of economics and China studies at the University of California-San Diego, David Li, professor of economics at Hong Kong University of Science and Technology, and Mark Frazier, professor of political science at the University of Louisville, as part of NBR’s project “The Politics of State Enterprise Reform and China’s Economic Development.” The project builds on two major efforts completed earlier by Barry Naughton and colleagues, and provides an opportunity to obtain a historical perspective on reform implementation. In their essay, Professor Keister and Ms. Lu provide a remarkable analysis of the variations between SOEs and non-SOEs in ownership structure, responses to reform, legal organization ,firmequity,marketdevelopment,organizationalandmanagementstructure,firmstrategy , government relations, and investment strategies, as well as output, production expenses, 171 Richard J. Ellings President The National Bureau of Asian Research wages and labor, assets and liabilities, profits, and other firm characteristics.Although reform has dramatically altered Chinese firms and business conduct, Professor Keister and Ms. Lu conclude,“thecomingdecadelikelyholdsmorechangeforthefirms,theirmanagers,andtheir workers.” It is, therefore, still too early to declare China’s great experiment a lasting success. In the coming year, NBR’s project on SOE reform will produce additional publications assessing the impact of reforms on the competitiveness and profitability of China’s industrial sector. NBR is grateful to The Henry Luce Foundation, Inc. and the National Science Foundation for their support of this ambitious, extraordinary project. 172 The Transformation Continues: The Status of Chinese State-Owned Enterprises at the Start of the Millennium Lisa A. Keister and Jin Lu Reform of industrial enterprises has been among the most far-reaching components of China’s economic transformation, and questions about the current status of China’s state-owned enterprises (SOEs) are increasingly common both among academics and in the popular press. Yet current, comprehensive data on SOEs are still difficult to find. In this essay, we report preliminary results from a new survey of Chinese companies. These data, collected in 2000, include a wealth of information about the structure and functioning of Chinese companies including firm structure, ownership, management, labor issues, and investment and other financial conditions. We present an overview of the survey, a general description of the firms included in the survey, and a glimpse into the structure and functioning of these firms. We look at the state of labor relations, the nature of corporate equity since reorganization under Company Law, the nature of labor relations, and the degree to which firms are operating on markets rather than relying on central planners. We conclude with a discussion of the profitability of firms more than twenty years after the start of reform. Our results suggest that while the companies included in the sample have changed in many ways as a result of reform and the institutional changes that accompanied reform, they have also retained many traits from the pre-reform era. We also present evidence that SOEs and non-SOEs (e.g., collectives and privately-owned companies) are different both structurally and behaviorally. Lisa...