Rise of ‘Red Zaibatsu’ in China: entrenchment and expansion of large state-owned enterprises, 1990-2016

Jim Huangnan Shen, Lei Fang and Kent Deng

Economic History Working Papers from London School of Economics and Political Science, Department of Economic History

Abstract: Ever since Deng Xiaoping’s reforms commencing in the 1980s, how to improve efficiency of state-owned enterprises has been on the government agenda. Progress has been made but more slowly than one expects in the decade. Even worse, against all the odds, China’s large state-owned firms, mega-SOEs, the backbone of Maoist economy previously, have gained exponential growth in the past decade. Reforms of that part of the economy have stalled. Why? To reveal the rationale and mechanisms of the rise of mega-SOEs, this study establishes a two-stage game model for an ‘authoritarian market economy’ (or a ‘market-Leninist economy’) where market monopoly and rent-seeking by state-owned conglomerates is firmly entrenched. Our findings confirm a ‘subgame perfect Nash equilibrium’ in China’s authoritarian market economy that has led the state (the owner or ‘principal’) and the large state-owned firms (the manager or the ‘agent’) to a paradox which prevents continuous reforms towards a Pareto solution for efficiency improvement.

Keywords: authoritarian market economy; rent-seeking; subgame perfect Nash equilibrium; SOEs; economic reforms; economic efficiency (search for similar items in EconPapers)
JEL-codes: D86 L13 P20 P26 P31 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-cna and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:wpaper:75214

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