Causes for Changing Performance of Firms with Diverse Types of Ownership in China

Hyun-Tai Lee

Research Fellow, China Team, Department of Northeast Asian Economies, Korea Institute for International Economic Policy, Korea, Tel: +82-44-414-1022, Fax: +82-44-414-1162 htlee@kiep.go.kr

JEL Classification: D24, F23, L25, G32

Abstract

We analyze the longitudinal changes in the performance of firms with different ownership types using the China enterprises database for the period 2000 to 2009. The results reveal an upward trend in the relative performance of private firms in China. These firms have caught up with foreign-invested rivals in terms of labor productivity and even surpassed them after the mid-2000s. More importantly, private enterprises (PEs) have a higher propensity to invest than firms with other ownership types, and such investment preference leads to the faster labor productivity growth of PEs compared with foreign-invested enterprises (FIEs) and state-owned enterprises (SOEs). The size effect from “economies of growth” in the later period primarily contributes to the increasing productivity of PEs. By contrast, FIEs neither have an active investment activity nor an increase in size effect, thereby resulting in stagnant labor productivity. State-owned enterprises have enjoyed increasing size effect and productivity in the later period. However, such improvement comes from the government policy and not from economies of growth because the government has weeded out small and inefficient SOEs during this period.

Keywords:

Chinese economy, Firm performance, Investment, Labor Productivity, Ownership

Acknowledgments

The author acknowledges the helpful comments of the participants of the 2015 SJE International Symposium “Firms and Innovation in Asia” (October 30 and 31, 2015 at Seoul), particularly the discussants of my paper, Sungho Rho (Prof., Sejong University) and Sun Ok Kim (Ph.D. Candidate, Sogang University).

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