Social Science Research Council

"Privatization of Small and Medium SOEs in China"

Although the word "privatization" is still taboo in China, about 85% of small and medium state-owned enterprises (SOEs) had already been restructured by the end of 2003. This transformation in economic ownership has profound impacts not only on China's transition from a planned to a market economy and the sustainability of China's economic growth, but also on the livelihood of millions of SOE workers. How did de facto privatization occur on such a large scale in China? And why did privatization generate growth in some cases, while in other cases turn out to be a free banquet for local officials and managers? The goals of my dissertation are to analyze the political and institutional factors that lead to the choice of specific privatization strategies across China's SOEs, to assess the impacts of such strategies on ownership structure and corporate governance, and to evaluate privatization outcomes-in terms of both economic efficiency and social justice. To carry out the research, I will analyze the interactions between local governments and SOEs, examine the preferences of local officials in different institutional contexts, and discusses the choice of a privatization strategy through the lens of institutional change. The two major hypotheses to be tested are as follows: first, the choice of a specific privatization strategy is a consequence of the bargaining between local governments and SOEs under local budget constraints and institutional contexts; and second, compared with privatization through private negotiations, privatization through market mechanisms may be more likely to bring about economic efficiency, but may have deleterious consequences for social justice. To test these hypotheses, I will conduct a comparative study on the de facto privatization of small and medium SOEs in five Chinese cities (Chongqing, Wuhan, Shanghai, Shenyang, and Shenzhen) between July 2005 and March 2006.