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Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China

Chang-Tai Hsieh, Zheng (Michael) Song

NBER Working Paper No. 21006
Issued in March 2015
NBER Program(s):Development Economics, Economic Fluctuations and Growth, International Trade and Investment, Productivity, Innovation, and Entrepreneurship

Starting in the late 1990s, China undertook a dramatic transformation of the large number of firms under state control. Small state-owned firms were privatized or closed. Large state-owned firms were corporatized and merged into large industrial groups under the control of the Chinese state. The state also created many new and large firms. We use detailed firm-level data to show that from 1998 to 2007, (i) state-owned firms that were closed were smaller and had low labor and capital productivity; (ii) the labor productivity of state-owned firms converged to that of private firms; (iii) the capital productivity of state-owned firms remained significantly lower than that of private firms; and (iv) total factor productivity (TFP) growth of state-owned firms was faster than that of private firms. We find the reforms of the state sector were responsible for 20 percent of aggregate TFP growth from 1998 to 2007.

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Document Object Identifier (DOI): 10.3386/w21006

Published: Chang-Tai Hsieh & Zheng (Michael) Song, 2016. "Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China," Brookings Papers on Economic Activity, vol 2015(1), pages 295-366.

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