Privatisation in China: softly, softly does it

Abstract

This paper examines China s record of privatisation to see whether it accords with popular perceptions. The record shows that China has been proceeded cautiously in its privatisation efforts. It has privatised that is, sold off to private owners- only the smaller SOEs. The state retains control over the larger SOEs that dominate industrial output and profits. In respect of these, China has opted for gradual disinvestment with disinvested shares residing mostly with state-owned entities. Over a long period, China has pushed through reforms of SOEs, including conferment of greater autonomy on enterprises and introduction of incentives for workers and managers. The empirical evidence is that performance at SOEs has improved consequent to these reforms. It could be argued that full-blooded privatisation might have produced even better results. However, given the possible implications in terms of job losses as well as the absence of effective governance mechanisms in China s underdeveloped capital market. China s rulers may well have been justified in hastening slowly with privatisation.