Firm Dynamics and SOE Transformation During China’s Economic Reform

Shijun Gu () and Chengcheng Jia

No 21-24R, Working Papers from Federal Reserve Bank of Cleveland

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 (search for similar items in EconPapers)
JEL-codes: E23 E44 O16 O41 O43 O53 (search for similar items in EconPapers)
Pages: 43
Date: 2021-10-19, Revised 2022-04-18
New Economics Papers: this item is included in nep-bec, nep-cna, nep-ent, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Firm dynamics and SOE transformation during China’s Economic Reform (2022)
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DOI: 10.26509/frbc-wp-202124r

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