Cashing Out: Survival Crises Faced by Shareholding Cooperatives in Shanghai

Shanghai, a city with a high concentration of state-owned enterprises (SOEs), had about 11,500 converted shareholding cooperatives by the end of 2003. In recent years, the urban layout of Shanghai has required factories to be relocated in the suburbs to make space for new city development. However, how to use the compensation money triggered severe confrontations between employee shareholders and the management of some urban shareholding cooperatives. This article argues that the shareholding cooperative system does not necessarily clarify individual property rights. Vague property rights and the flaws in institutional designs of shareholding cooperatives alter the incentive structure of shareholders and results in inefficiency and distributional conflicts among current employees, retired shareholders, and management. Local governments, instead of assuming a hands-off stance, need to pay due attention to the development of shareholding cooperatives, especially in regard to the legal environment, guidance for further reforms, and assistance in conflict resolution.