Enterprise groups in China's industry

"Enterprise groups", the legal entries formed by a group of enterprises under different types of ownership or under different administrative control, appear to be the most important institutional innovation in the process of China's industrial reform so far. They have improved economic efficiency by reallocating the production factors within and between the industrial sectors. Responses of firms to market signals have also improved. In some cases, successfully implemented enterprise groups improve the enterprises' performance. Despite these positive developments, the enterprise groups face the problems of unstable internal structure, unspecified ownership and continuing government intervention. As long as the fundamental issue of ownership is not properly tackled, the enterprise groups face a difficult and tortuous path.The author is grateful to Raymond De Bondt, Peter Noteboom, Ajit Singh, Reinhilde Veugelers, Richard Conroy and the anonymous referees for comments. Financial support from China-Europe Institute and the Research Fund of the K.U. Leuven (OT/89/5) is gratefully acknowledged.