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

Lisa A. Keister and Jin Lu


As a new millennium begins and China approaches the twenty–fifth anniversary of the start of economic reform, a close look at the status of state–owned enterprises is in order. Researchers across the social sciences and in other disciplines have become increasingly interested in understanding how China's state–owned enterprises (SOEs) have responded to the country's economic transition. Consequently, a great deal of research has begun to emerge that debates the structure, financial performance, and other behaviors of China's SOEs. Questions about the degree to which SOEs have changed, who is managing them, how many workers have been retained, what has happened to the workers who have been terminated, the types of financial arrangements the enterprises have, and related issues have increasingly found their way into both mainstream academic journals and the popular press. Yet most data on China's reform still come from official sources and seldom do researchers have access to up–to–date data gathered from the companies themselves.

To fill this gap and to provide an updated look at the status of Chinese companies, a group of researchers, backed by The National Bureau of Asian Research (NBR), the Luce Foundation, and the National Science Foundation, joined forces to conduct a survey of SOEs and their managers at the end of the twentieth century. [1] In fall 2000, the Chinese Academy of Social Sciences administered the survey to 800 companies, including 433 SOEs and 367 firms with other ownership structures (e.g., collectives, stock–owned, joint ventures, and privately owned companies). The survey gathered information about a wide range of issues including firm structure, ownership, management, labor issues, and investment and other financial conditions. [2] In the following sections of this paper, we provide a brief synopsis of the nature of enterprises prior to reform, provide an overview of the survey, and then present preliminary results from the survey. In presenting the results, we focus on how the adoption of enterprise reform impacted firms, the nature of the problems that managers continue to face, the development of key markets, and, finally, the financial performance and profitability of state–owned enterprises at the end of the twentieth century.

Enterprises Prior to Reform

Prior to the start of economic reform in 1978, Chinese firms were all state owned and were part of an immense system of redistribution and central planning. In many ways, individual firms were branch plants of a single, albeit very large, enterprise. The hierarchical planning...

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[1] Principal Investigators were Mark Frazier, University of Louisville, Lisa Keister, The Ohio State University (OSU), David Li, Hong Kong University of Science and Technology, and Barry Naughton, University of California-San Diego. Donald Clarke, University of Washington, Jin Lu, OSU, and Meira Meek, NBR, also made significant contributions to the data collection effort. Wang Hongling headed the team of researchers at the Chinese Academy of Social Sciences who administered the survey.

[2] One purpose of the survey was to continue to follow firms studied in earlier surveys of stateowned enterprises conducted by Barry Naughton and colleagues. For a more detailed description of the earlier surveys, see Theodore Groves, Yongmiao Hong, John McMillan, and Barry Naughton, "China’s Evolving Managerial Labor Market,” Journal of Political Economy, vol. 103 (1995), pp. 873–91.