Can a Tiger Change Its Stripes? Reform of Chinese State-Owned Enterprises in the Penumbra of the State

The majority of state-owned enterprises (SOEs) in China were privatized through ownership reforms over the last three decades. Using a comprehensive dataset of all medium and large enterprises in China between 1998 and 2013, we show that privatized SOEs continue to benefit from government support relative to private enterprises. Compared to private firms that were never state-owned, privatized SOEs are favored by lower interest loans and higher government subsidies. Moreover, both SOEs and privatized SOEs significantly underperform relative to private firms, despite some improvements post-privatization. An exception is in improvements in productivity growth, where former SOEs match or exceed their private sector counterparts–results consistent with recent research. We also implement staggered difference-in-differences and matching estimation to account for treatment over multiple periods and selection into privatization. The tiger can change its stripes; however, former SOEs face a more supportive industrial policy regime relative to their private sector counterparts, affecting their performance.