Chapter 3: The Performance of China's State-owned Industrial Enterprises
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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