Exit the Dragon? Privatization and State

The Chinese state is withdrawing from industry at speed. A sale of state assets of huge proportions began in the early 1990s. Most small and medium-sized state-owned enterprises (SOEs) have already been sold, the majority to their own staff, as have township and village enterprises. Large firms, particularly in strategic sectors, are being treated differently. The government is selling stakes in some, but the largest and best firms are being retained, and new state agencies and incentive mechanisms are being used to boost their performance. This volume, drawing on the research of ten scholars from around the world, is the first book-length work to examine and evaluate Chinars"s privatization experience. It tackles a number of important questions. What factors determine the decision by government officials to sell or retain their firms? How efficient and fair is the sale process? How credible is the governmentrs"s ambition to create world-class state-owned conglomerates?

Stephen Green is Senior Economist, China, for Standard Chartered Bank, Shanghai, and formerly Head of Asia Programme at Chatham House (the Royal Institute of International Affairs) in London. He holds a First Class Honours degree from Cambridge University and a Ph.D. in Government from the London School of Economics and Political Science. He has also studied in Taiwan, at Fudan University in Shanghai and at Culture and Language University in Beijing. His articles have appeared in the Financial Times, the South China Morning Post, and the Asian Wall Street Journal and he is a regulator commentator on China for CNN and the BBC.

Dr Guy S. Liu obtained his PhD from Oxford University, and specialized in economics of industry with a particular interest to China’s enterprise reform. He is a lecturer at Brunel University and professor of Sichuan University in China. He also lectures on the Chinese economy and industry for the visiting MBA/EMBA programme at Oxford University. He has been invited as a guest editor of a special issue on China’s economy and enterprise reform for a number of journals including China Economic Review, Economics of Planning and Corporate Governance – An International Review. He has also been involved in policy advisory work on Chinese enterprise reform for both the British and the Chinese government. He is a regular commentator on China’s economic affairs for the BBC and Free Asia.

Acknowledgments

ix

Contributors

x

Abbreviations, acronyms and Chinese media sources

xi

Introduction

1

(3)

Stephen Green

Guy S. Liu

Privatization and China: retreat

4

(5)

Privatization and China: retain

9

(1)

Concluding remarks

10

(5)

Part I Retreat: Privatization Motives and Methods

China's industrial reform strategy: retreat and retain

15

(27)

Stephen Green

Guy S. Liu

State-owned enterprise reform

16

(11)

How well are the SOEs doing?

27

(5)

How should the government push forward with privatization?

32

(2)

Concluding remarks

34

(1)

Notes

34

(5)

References

39

(3)

Privatization in the former Soviet bloc: has China learned the lessons?

42

(18)

Stephen Green

Privatization in the FSB

42

(5)

The lessons of privatization in the FSB

47

(3)

Privatization in China and the FSB

50

(4)

Concluding remarks

54

(1)

Notes

55

(3)

References

58

(2)

Chinese-style privatization: motives and constraints

60

(19)

Guy S. Liu

Sun Pei

Wing T. Woo

The ownership of capital in China's industrial sector

62

(1)

Privatization of small and medium-sized SOEs

63

(6)

The changing incentives of local officials

69

(3)

Meeting the constraints on the privatization process

72

(3)

What motivates privatization?

75

(1)

Concluding remarks

76

(1)

Notes

77

(1)

References

77

(2)

The effects of privatization on China's industrial performance

79

(11)

Liu Xiaoxuan

Different types of firm and their capital structures

80

(5)

The effects of different types of capital on industrial efficiency

85

(4)

Concluding remarks

89

(1)

Notes

89

(1)

Ownership reform in China's township and village enterprises

90

(21)

Sun Laixiang

The dominance of local government ownership in TVE development in the 1980s

94

(3)

Explaining the change in TVE ownership

97

(5)

The desire for recapitalization

97

(2)

The desire to promote human capital and attract outside investment

99

(1)

The degeneration of the TVE `mechanism'

100

(2)

TVE ownership reform: from government to the private sector

102

(1)

`Privatization with a tail' as a screening mechanism

103

(1)

Remaining challenges to TVE development

104

(2)

Concluding remarks

106

(1)

Notes

107

(1)

References

108

(3)

China's public firms: how much privatization?

111

(14)

Guy S. Liu

Sun Pei

Types of ownership

113

(7)

How far has China privatized its public corporations?

120

(2)

Concluding remarks

122

(1)

Notes

122

(1)

References

123

(2)

The privatization two-step at China's listed firms

125

(20)

Stephen Green

Non-tradable shares: history and problems

126

(1)

The LP share market

127

(10)

Transfer methods

133

(1)

Pricing of deals

134

(1)

Regulatory framework

135

(2)

The impact on corporate performance of two-thirds privatization

137

(1)

Improving the LP share market

138

(2)

Lessons for the state share sell-off

140

(1)

Notes

141

(2)

References

143

(2)

Urban housing privatization

145

(24)

Li Bingqin

The roles of the state and the market in housing provision

145

(2)

Mixed provision and China's economic transition

147

(5)

1986--90 -- Rent increases with subsidies

148

(2)

1991--3 -- New policy for new houses

150

(1)

1994--8 -- Comprehensive reform

150

(1)

1998 to the present -- from direct housing allocation to financial allocation

151

(1)

The changing role of employers

152

(9)

The pre-1998 reforms

152

(6)

Reform after 1998

158

(3)

Concluding remarks

161

(1)

Notes

162

(2)

References

164

(5)

Part II Retain: Non-privatization Industrial Reforms

China's privatization ministry? The State-owned Assets Supervision and Administration Commission

169

(27)

Stephen Green

He Ming

Relations between the state and its firms: a brief history

170

(4)

The State-owned Assets Supervision and Administration Commission

174

(7)

What does the SASAC own and not own?

175

(6)

Will the SASAC facilitate or hold up privatization?

181

(3)

The Property Rights Trading Centres

184

(5)

Concluding remarks

189

(1)

Notes

190

(5)

References

195

(1)

Prospects for privatization in China's energy sector

196

(18)

Philip Andrews-Speed

Cao Zhenning

Why energy is different

196

(1)

The risks associated with energy-sector privatization

197

(1)

The restructuring of China's energy industry

198

(5)

The petroleum industry

199

(1)

The electric power industry

200

(1)

The coal industry

201

(2)

The partial privatization of China's energy industry

203

(3)

The financial performance of the listed companies

206

(4)

Concluding remarks

210

(2)

Notes

212

(1)

References

212

(2)

Private investment in China's telecommunications sector: no Chinese, no foreigners allowed?

214

(19)

Marc Laperrouza

The privatization of telecommunications

215

(2)

China's model of telecommunications privatization: incorporation and IPO

217

(5)

Alternatives to IPO

222

(1)

Lessons from China's experience and open issues

223

(3)

Concluding remarks

226

(1)

Notes

226

(3)

References

229

(4)

Index

233

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Exit the Dragon? Privatization and State Control in China

Summary

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