time:2023-06-21
Qing Hu, Wenjing Li, Chen Lin, Lai Wei
This study explores how the Chinese government optimizes the governance structure of state-owned enterprises (SOEs) through privatization in response to increasing market competition. The privatization decisions of government officials are mainly influenced by two factors: first, performance pressure, and second, economic burden. As market competition intensifies, the competitiveness of SOEs declines, leading to reduced contributions to regional economic growth. This prompts government officials to seek ways to enhance enterprise performance, such as introducing private investors. However, the declining profitability of SOEs creates fiscal pressure on the government, pushing them towards privatizing SOEs.
The study uses China's 2001 WTO accession as a quasi-natural experiment and applies a continuous DID model to empirically examine the factors influencing SOE privatization. The findings show that government officials are more likely to privatize SOEs in industries with higher tariffs before China's WTO entry, and the privatization process continued after the WTO accession. Further analysis reveals that: (1) government officials are more inclined to privatize SOEs with lower technology and efficiency; (2) government officials prefer privatizing SOEs impacted by competition to reduce fiscal risks; (3) in regions with better market and legal systems, the privatization process is smoother.
The contribution of this study lies in revealing the influence of market competition on SOE privatization decisions, showing that SOEs facing import competition are more likely to be privatized. The study also points out that a competitive environment alone does not necessarily guarantee the successful transformation of SOEs, as privatization decisions are influenced by various factors, including the market, legal system, and politics. Additionally, this study offers a new perspective on the impact of trade liberalization after China's WTO accession, enriching the relevant literature.