Thursday, September 24, 2009
Posted by D. Daniel Sokol
Qing Gong Yang (New Zealand Commerce Commission) and Paul Temple (University of Surrey) write on Reform and Competitive Selection in China: An Analysis of Firm Exits.
ABSTRACT: This paper considers aspects of the competitive selection process in China - firm entry, survival, and exit - in an important sector of manufacturing, looking in particular for changes resulting from the latest stage of reforms. Using industry survey data from a province in North-East China, we find substantial differences in the process between ownership types. By conducting a simple decomposition of the aggregate productivity growth and exploring the determinants of firm’s exit using a hazard rate model, we observe a substantial rate of churning of enterprises in the sector, and find that the competitive selection processes operate, for small and collectively owned enterprises (COEs), in a manner consistent with a private market economy. In contrast, such processes appear not to be functioning for state owned enterprises (SOEs). We conclude that competitive selection in China is not providing a sufficiently strong su! bstitute for corporate governance based on ownership.