The performance of the state-owned enterprises in China: An assessment of the economic reforms

Date of Completion

January 2004


Economics, General




Since China launched the economic reform in 1978, the production efficiency and financial performance of state-owned enterprises (SOEs) have been a focus of interest in both the academic community and popular press. Many studies have concluded that SOEs improved their production efficiency under reform while others have disagreed. In the dissertation, theoretical and empirical methods are used to formally address these issues. ^ The first two essays focus on production efficiencies, estimating and analyzing technical efficiency and total factor productivity growth, respectively, by applying the nonparametric method of data envelopment analysis (DEA) to a sample of SOEs. In this study, we found that the sample SOEs made impressive progress in both technical efficiency and total factor productivity in the 1980s. Reform measures, such as the bonus system, apparently provided strong incentives to SOEs. ^ However, according to official statistics, the financial performance of China's SOEs was poor from the mid-1980s to 1998. The third essay focuses on the financial performance by examining the impact of the managerial contract responsibility system and the fiscal contract system on the revelation of SOEs' financial information with simple game theoretical models. Our results suggest that while the managerial contract responsibility system and the fiscal contract system successfully motivated local governments and their SOEs to improve their production efficiency, the two systems encouraged them to conceal their true financial information in order to receive taxation and fiscal benefits from the central government. Consequently, the financial performance of SOEs may not have been as poor as the statistics indicate, raising doubts about the accuracy of official measures of financial performance. ^