Chinese State-Owned Enterprises: Are They Inefficient?

Using a panel data set of 200,000+ Chinese firms constructed by merging the Chinese census of manufacturing firms for 2000-2005, we compare the performance of Chinese state-owned enterprises (SOEs) and private firms in terms of rates of return, productivity, growth, costs, and investment. Using panel regressions, we find that Chinese industrial state-owned enterprises are, indeed, less efficient than private firms and pay less attention to costs, inventories, accounts receivables, investment, employee welfare, financing, and administration. We find that this adversely affects their performance. The findings are consistent with the soft-budget constraint hypothesis.