Chapter 2: Shareholding System Reform as the Chinese Way of Privatization
In the early 1990s, almost immediately following the collapse of socialist regimes in Central and Eastern Europe, privatization became one of the most important themes of post-communist transformation in this area. It is argued that restoration of a private sector is the only way through which the economies can be revitalized and political freedom guaranteed. While the necessity of the change has been widely acknowledged, there have been intense debates on what is the optimal speed and method of privatization, resulting in a mushrooming literature on the subject.1 Apparently, the issue of privatization is not as hot in China as in the former Soviet bloc countries. While privatization laws have been passed in a number of Central and East European economies, no similar legislation has been introduced in China (Chai, 1994, p. 237). Although the post-Mao reform had resulted in significant changes in China’s economic system, in the early 1990s the ideological supremacy of public ownership still remained. However, as a matter of fact, as early as the mid-1980s China had already launched trial privatization measures, under the camouflage of ‘shareholding economic reform’. The experiment was interrupted by political conservatism following the summer 1989 Tiananmen demonstrations. Yet the shareholding system not only survived but became so popular that a large number of Chinese state enterprises were lining up to convert into shareholding companies. This wave of reform has hastened the shrinking of the state sector in the economy. Most importantly, it represented the Chinese path to privatization. In this chapter,...
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