share of inputs purchased from each SOEs largest supplier was 60 per cent and

Share of inputs purchased from each soes largest

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share of inputs purchased from each SOE’s largest supplier was 60 per cent, and 78 per cent of the surveyed SOEs said their largest supplier was another SOE. By the same token, the average share of sales made to each of the surveyed SOE’s largest customer was 41 per cent, and 60 per cent of the surveyed SOEs indicated their largest customer was another SOE. 24 Implicit and explicit policy barriers to entry – especially among would-be rivals based in different regions of China – are being reduced, but they are still substantial. Local government business licensing procedures, for example, deter new entrants from ‘foreign’ provinces. In some key industrial sectors, inter- provincial market share patterns have not altered appreciably in the past several years, particularly at the wholesale level; in ‘downstream’ retail sectors, however, cross-market penetration is becoming more pronounced. New private sector entry 24 See World Bank (1996). THE BUSINESS(ES) OF THE CHINESE STATE 869 ß Blackwell Publishers Ltd 2001
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has been made more difficult as a result of the government campaign to reduce excess inventories. Voluntary output restraints and price cartels have been sanctioned by the authorities as a way of rationalising industry structure. For example, eight TV tube producers, accounting for 90 per cent of national output, stopped production in mid-1999 to reduce inventories and price declines. The incidence of such programmes tends to fall most heavily on potential new competitors rather than on inefficient incumbents. Much less progress has been made in fostering exit, bankruptcy and liquidation of commercially non-viable SOEs. On the one hand, this is due to weaknesses in the bankruptcy legal framework: while the insolvency law per se recognises banks and other creditors as high priority claimants – in line with international bankruptcy practice – conflicting regulations issued by the State Council cede priority to pension and social service obligations, thereby undermining the ability of creditors to exercise their rights and weakening the overall bankruptcy policy regime. On the other hand, many governmental authorities, enterprise managers, bankers and workers are unaccustomed to or reluctant to pursue bankruptcy or other competitive forms of exit. Unions and local officials, in particular, lack faith in job creation through the disposal and reallocation of assets. Instead, guided mergers and acquisitions are the preferred routes for dealing with money-losing SOEs. Within 56 ‘experimental reform cities’ there were 472 industrial SOEs identified for bankruptcy in 1997, but procedures had begun for only 161 of them, and only 58 firms had been declared bankrupt. More generally the picture that emerges is that exit of money-losing SOEs is not widely practised in China, except in cases of small or (to a lesser extent) medium-size SOEs.
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