State control and performance evaluation

Attempts to draw a picture on the current practices of performance evaluation of state‐owned enterprises in China by using a case study in Shanghai. Finds that aggregate firm performance was mainly evaluated through the extent of fulfilment of the terms of a contract between the Government and the enterprise concerned. Although the contract is legally binding, it is difficult to sue the Government for on‐performance, because contract terms are loose and the Government, being the superior authority, can easily replace the enterprise management. However, non‐fulfilment of the contract terms on the part of the enterprise did not lead to severe penalties and the rewards were insufficient to have motivational effects. Overall, the evaluation system could be seen as part of the policy of gradualism towards freeing firms, The loose contract terms and the changing economic environment make this system ineffective. Recommends further relaxation of state control over the enterprises for improvement of the effectiveness of the performance evaluation system.