Financial Reform and Economic Development in China
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Financial Reform and Economic Development in China

James Laurenceson and Joseph C.H. Chai

This book is a comprehensive, balanced and realistic assessment of China’s financial reform program and future direction. Covering not only the banking sector but also non-bank financial institutions, stock market development and external financial liberalization, the authors examine the impact of financial reform on economic development in China during the reform period. This volume will facilitate a more accurate assessment of the Chinese approach to financial reform, and will therefore, allow more informed future policy choices for both China and other developing and transitional countries.
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Chapter 3: The Performance of China's State-owned Industrial Enterprises

James Laurenceson and Joseph C.H. Chai


3. The performance of China’s stateowned industrial enterprises INTRODUCTION Given that the SOBs lending to SOEs is a basic stylized fact in China’s financial sector, understanding the performance of these groups is fundamental to evaluating the efficiency of the Chinese approach to financial reform. Chapter 3 considers the issue from the perspective of the SOEs. If it can be shown that the internal efficiency of SOEs has improved/worsened, then the implications of SOBs lending to SOEs can be viewed in a more/less favorable light. For reasons of data availability, the experience of China’s state-owned industrial enterprises (SOIEs) is examined as a case study and the time period is restricted to 1980–1997.1 Industry is a useful focal point for the research because it is the largest sector in the Chinese economy and one in which state-owned units continue to play an important role. In 1997, SOIEs produced 41 percent of gross industrial output value, controlled 64 percent of fixed assets used in industrial production and employed 65 percent of all industrial workers (SSB, 1998, pp. 432, 444, 448). The experience of SOIEs is also illustrative because while they have experienced a substantial decline in their financial performance during the reform period (Table 3.1, column 1), the share of total SOB credit allocated to them has not declined (Table 3.2). Given that declining profitability is often taken to be evidence of worsening internal efficiency, it is such a combination of factors that typically underlies the standard view...

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