| Abstract: | This paper evaluates Chinese industrial reforms against a background of conflicting evidence for rapid output growth and declining profitability in China's state-owned enterprises (SOEs). Using enterprise level data for various ownership forms from four coastal cities it is shown that the profitability decline in SOEs has little to do with allocative inefficiency such as excess wage payments. Rather, growing competitive pressures on the domestic market are responsible for the erosion of profit rates in Chinese industry. Industrial reforms that lead to an increase in managerial, autonomy and provide material incentives to workers can be shown to have a positive impact on enterprise profit rates. The overall favourable assessment of industrial reforms in China is qualified by substantial regional differences not covered by the sample data. |
