The Colour of the Cats

Abstract

China has experimented with two strategies of reform of its state-owned enterprises (SOE). One is diversification of SOEs’ ownership through introducing non-state sources of investment. Another is to improve the management of SOEs by granting SOEs’ managers autonomy and their employees profit incentives. Utilising a data set on 680 SOEs over 1980-94, we tested the relative effectiveness of two kinds of reform measures. Our results show that ownership diversification had a significant impact on the performance of SOEs while efforts to improve SOE’s management had very little effect. Moreover, the impact of ownership diversification on SOE’s economic performance was as strong as that of enhancing product market competition.