21 - Economics 162 The Economy of China Topic 7 – State...

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Unformatted text preview: Economics 162 The Economy of China Topic 7 – State Owned Enterprises Professor David Roland-Holst Department of Agricultural and Resource Economics Tuesday and Thursday, 11-1230PM, 10 Evans Hall Roland-Holst 2 Economics 162 Economics 162 State Firms in Transition • The state sector was the “commanding height” of the planned economy • The state sector continues to be the “pillar” of the economy Dominates in strategic industries Pays more taxes Gets more bank loans and stock market finance • State-owned enterprises are unfortunately the root of the labor and financial sector problems • C a u t i o n s : Their roles in the economy have been declining because of the rise of the private sector But they are more significant than some statistics show, for example, most listed companies are controlled by the state Roland-Holst 3 Economics 162 Economics 162 Varieties of State Firms: By Level of Control • Four levels of government control Central Provincial Municipality County • About ¼ of SOEs are directly controlled by the central government, and the rest by local governments (mostly by municipal governments) • Implications Diverse local government policies on SOE reform Local interests may differ from national interests, for example, local protectionism in automobile industry Roland-Holst 4 Economics 162 Economics 162 Varieties of State Firms: By Firm Size • Large vs. small SOEs: Two different worlds Industrial SOE distribution by size (2003) number output employ ment assets Taxes and profits Large 5% 53% 41% 58% 73% Small 95% 47% 59% 42% 27% Roland-Holst 5 Economics 162 Economics 162 Varieties of State Firms: By Region • Northe ast • Soviet type industrial base • Many large and old SOEs • High proportion of state firms • Coasta l • Fewer state firms (such as Guangdong, Fujian, Zhejiang) for historical reasons • Closer ties to overseas firms • Inland • Transportation problems • Many defense industries Roland-Holst 6 Economics 162 Economics 162 SOEs: Changing Pattern of Finance • SOEs financing sources: From the government budget to bank loans • Implications: • Heavily rely on indirect financing (bank financing) • Very high debt-equity ratios Roland-Holst 7 SOEs: Bank Loan Financing 1978 1991 Budgetary capital expenditure/GDP 15% 5% Share of fiscal budget in financing 61% 27% Share of bank loans in financing 39% 73% Roland-Holst 8 SOEs: High Debt-Equity Ratios (1998) Tangible assets only With intangible assets SOEs 3.20 1.62 Foreign firms in China 1.77 1.28 HK, Taiwan firms in China 1.93 1.43 Roland-Holst 9 Profitability of Industrial SOEs Roland-Holst 10 Economics 162 Economics 162 Main Themes of SOE reforms: 1978-1993 • Expanding enterprise autonomy • Production decisions • Marketing decisions • Increasing profit incentives • Workers bonuses • Profit retention for welfare improvement (housing etc.) • “Managerial contract system” • Link manager’s pay to enterprise profit...
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This note was uploaded on 03/18/2011 for the course ECON 196 taught by Professor Pierre during the Spring '10 term at Berkeley.

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21 - Economics 162 The Economy of China Topic 7 – State...

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