A survey of enterprise reforms in China: the way forward

Hovey, Martin and Naughton, Tony (2007) A survey of enterprise reforms in China: the way forward. Economic Systems, 31 (2). pp. 138-156. ISSN 0939-3625

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Abstract

The strategic importance of the state owned enterprise (SOE) sector to the Chinese economy cannot be underestimated, thus the success of SOE reform is a significant factor in China's future economic prosperity. The dilemma facing state authorities is to develop market-orientated corporations while at the same time coping with potentially high unemployment and a range of equity and social justice issues. This paper presents an analysis of the current issues in SOE reform in China, drawing on relevant empirical evidence, and proposes a strategic direction and a framework for reform that challenges the recently announced program of privatization of listed SOEs. The literature indicates that state ownership is generally negatively correlated to performance. Conversely, Legal Person ownership positively influences performance. Other forms of private ownership are generally positively correlated to performance, with institutional ownership showing significant promise. Consequently, the divesture of state ownership is recommended and could be accomplished over three or four tranches. The State could divest its ownership by auction to strategic investors, both domestic and foreign, and in the next tranche an auction to the broad populace through units in mutual funds. The final proposed tranche being a distribution to nationwide pension funds to support retirement schemes, which should be made nationwide. Finally, listed firms should also issue shares as rights issues to offer present shareholders protection from dilution.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: © 2007 Elsevier B.V. All rights reserved. Deposited in accordance with the copyright policy of the publisher.
Depositing User: Dr Martin Hovey
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 11 Oct 2007 01:08
Last Modified: 02 Dec 2013 05:58
Uncontrolled Keywords: state-owned enterprises; privatization; ownership structures; corporate governance; emerging markets; China
Fields of Research (FOR2008): 14 Economics > 1402 Applied Economics > 140209 Industry Economics and Industrial Organisation
14 Economics > 1401 Economic Theory > 140104 Microeconomic Theory
14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective (SEO2008): E Expanding Knowledge > 97 Expanding Knowledge > 970114 Expanding Knowledge in Economics
Identification Number or DOI: doi: 10.1016/j.ecosys.2006.09.001
URI: http://eprints.usq.edu.au/id/eprint/2504

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