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How Uncompetitive is the State-Owned Industrial Sector in China

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  • Sebastián Claro

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

The profitability gap between state-owned enterprises and the non-state industrial sector in China is significant. Using a highly-disaggregated database of China's industry in 2003, we estimate an average return to capital in state-owned enterprises about 9% that of foreign-invested firms, and about 59% of the return to capital in all non-state-owned industrial enterprises. Capital return differences are mainly driven by productivity differences, but the negative impact on SOEs' rental rates of a relatively integrated labor market is not negligible. The rental rate gap is much higher in sectors that represent a small share in SOEs' output and assets, meaning that the capital subsidies granted by the government have not biased SOEs' production structure toward industries with greatest profitability gap. The inefficiency cost of distortions in relative factor prices is estimated between 5% and 8% of total industrial output.

Suggested Citation

  • Sebastián Claro, 2005. "How Uncompetitive is the State-Owned Industrial Sector in China," Documentos de Trabajo 305, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:305
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    References listed on IDEAS

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    More about this item

    Keywords

    China; SOEs profitability; rental rate gap; productivity differences;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P3 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions
    • P42 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices

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