A survey of enterprise reforms in China: the way forward

Article


Hovey, Martin and Naughton, Tony. 2007. "A survey of enterprise reforms in China: the way forward." Economic Systems. 31 (2), pp. 138-156. https://doi.org/10.1016/j.ecosys.2006.09.001
Article Title

A survey of enterprise reforms in China: the way forward

ERA Journal ID18346
Article CategoryArticle
AuthorsHovey, Martin (Author) and Naughton, Tony (Author)
Journal TitleEconomic Systems
Journal Citation31 (2), pp. 138-156
Number of Pages19
Year2007
Place of PublicationAmsterdam, Netherlands
ISSN0939-3625
1878-5433
Digital Object Identifier (DOI)https://doi.org/10.1016/j.ecosys.2006.09.001
Web Address (URL)https://www.sciencedirect.com/science/article/abs/pii/S0939362507000192
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.

Keywordsstate-owned enterprises; privatization; ownership structures; corporate governance; emerging markets; China
ANZSRC Field of Research 2020380109. Industry economics and industrial organisation
380304. Microeconomic theory
380107. Financial economics
Public Notes

© 2007 Elsevier B.V. All rights reserved.
Deposited in accordance with the copyright policy of the publisher.

Byline AffiliationsDepartment of Finance and Banking
Royal Melbourne Institute of Technology (RMIT)
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