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The State Advances, the Private Sector Retreats: Firm Effects of China’s Great Stimulus Program

Anders Johansson () and Xunan Feng

No 2013-25, Stockholm School of Economics Asia Working Paper Series from Stockholm School of Economics, Stockholm China Economic Research Institute

Abstract: It has been argued that the Chinese state sector is advancing at the cost of the private sector. Focusing on publicly listed firms which are divided into state- and private-controlled firms, we investigate preferential access to debt and effects on firm performance. Focusing on the large stimulus program launched in the fall of 2008, we show that state-owned enterprises (SOEs) were better able to maintain their leverage levels and had better access to debt of both short and long maturities compared to privately controlled firms. Furthermore, we show that political connections obtained through political participation help mitigate the discrimination private firms faces in a transition economy where the state controls capital allocation. We also find that preferential access to debt financing does not help SOEs improve firm performance relative to that of private firms. Political participation does however help improve private firms’ performance. These results lend support to the argument that the state is indeed advancing at the cost of the private sector and that SOEs still face a broader set of goals than just profit maximization and/or are less efficient than private firms.

Keywords: State-owned enterprises; private enterprises; fiscal and monetary stimulus; firm performance; capital structure; debt financing; political participation; political connections; China (search for similar items in EconPapers)
JEL-codes: G30 G32 L33 P20 P26 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2013-08-22
New Economics Papers: this item is included in nep-cdm, nep-nps and nep-tra
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Journal Article: The state advances, the private sector retreats? Firm effects of China’s great stimulus programme (2016) Downloads
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Handle: RePEc:hhs:hascer:2013-025