Week 5-2 Urban Reform (3)

Week 5-2 Urban Reform (3) - Problems Close Relationship b/w...

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Problems Close Relationship b/w Managers and Local Officials Mangers negotiating profit contracts with local officials Source of corruption No effective oversight mechanism The Decrease of SOE’s Profitability The entry of new forms of firms created competition, and the profits of SOEs that lost competitiveness decreased. By 1996, profits of SOEs were almost zero.
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Problems Bank: Non-Performing Loans The decline in budgetary finance forced SOEs to fina a new source of financing Bank Banks did not have an effective means to monitor the SOE management. The increase of the debt-equity ratio SOEs’ insolvency and the increase of NPLs
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Enterprise Reform: 1996 - present Corporatization (Company Law, 1994) To convert traditional SOEs into the legal form of the corporation Providing a vehicle for the diversification of ownership, including partial or complete privatization To solve the soft budget constraints Improving governance in SOEs
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Week 5-2 Urban Reform (3) - Problems Close Relationship b/w...

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