Firm dynamics and SOE transformation during China’s Economic Reform

Shijun Gu and Chengcheng Jia

Journal of International Money and Finance, 2022, vol. 127, issue C

Abstract: We study the reform of China’s state-owned enterprises (SOE) with a focus on the corporatization of SOEs. We first document the empirical patterns of the “grasp the large and let go of the small” policy. To quantify the implications of the reform for aggregate output and TFP, we build a three-sector firm dynamics model featuring financial frictions and endogenous firm-type choices. Our calibrated model shows that the SOE reform can increase long-run TFP by encouraging the exit of the least efficient firms in the state sector, but the magnitude of TFP growth also depends on the efficiency in capital reallocation. In the short run, corporatization increases aggregate output and TFP because it allows the most productive SOEs to have a higher borrowing capacity than they would under privatization.

Keywords: Firm dynamics; Economic reform; Chinese economy; Capital misallocation (search for similar items in EconPapers)
JEL-codes: E65 O16 O43 O47 O53 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:127:y:2022:i:c:s0261560622000754

DOI: 10.1016/j.jimonfin.2022.102672

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