How Does Privatization Work in China?

Although China's state-owned enterprises have beenproven inefficient, China has been slow to move its state-owned ventures towardprivatization.Considering this slow process, this research examines howstate-owned enterprises are impacted during the organizational changesassociated with privatization. A brief review of literature regarding China's enterprises and those ofother communist states is discussed.The data for this panel study arecollected from the National Bureau of Statistics of China from 1998 to2003.The sample enterprises (n=15,496) are comprised of state-owned firmsin the manufacturing (i.e., chemical, pharmaceutical, medical, beverage) andmining industries; of those firms, 2,866 had privatized to an extent during thesample period. The impact of privatization is investigated as based on the two factors ofsocial welfare responsibilities and firm performance. The econometric analysisof the data is described, including the impact upon social welfare and firmprofitability.The findings of the data analysis indicate that China'sfirm privatization occurred with limited compromise of social welfareresponsibilities. However, privatization also had a significant effect on firm performance inthe areas of assets and sales.The factors influencing the increase in theoperating income to sales are considered.The robustness of the findingsis examined, and obstacles to privatization of China's state-owned industriesare evaluated. (AKP)