State Enterprises, Economic Growth, and Distribution

A major criticism of Chinese state enterprises is their poor performance with the solution being privatization and/or liquidation. This view assumes first the superiority of private sector performance and second a clear distinction between public and private enterprise. This chapter argues that these assumptions are incorrect. Instead the state has a vital role to play in the economy, and in any case the distinction between private and private enterprises are not at all sharp. The recounting of state enterprise reforms ends with typologies of state enterprises today. Evidence also shows that reforms have strengthened governance and performance, while divestiture and consolidation has produced fewer but larger and stronger state enterprises. While the enterprise-economic growth link is not easily established, the enterprise-income distribution has been perverse as state enterprises cease providing social protection.