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Submitted by Gao Xu on
Unlike in Russia and Central and Eastern European countries, where massive privatization was pushed through by central governments in early 1990s, privatization in China has taken an unique pass since 1990s. Local governments, motivated by getting rid of fiscal burdens – SOEs under their control – sat in the driver’s seat in the privatization process. Back to 1990s, more than 2/3 of SOEs controlled by local governments (mainly small and medium SOEs) were loss makers, with a substantial part of them having negative equity. These SOEs had become burdens of local government financing. Hence, started in early 1990s, privatization as a solution to the SOE problem was pushed forward by local governments. As the privatization was banned by the central government during that time, most of the privatization took the form of insider privatization – selling equities to employees and managers – to circumvent political and ideological obstacles. It was not until mid 1990s that the privatization was finally endorsed by the central government. Since then, it is estimated by some researchers that 2/3 of China’s SOEs with state assets amounting to 11 trillion RMB (1.4 trillion USD) have been privatized. If you want to know more about the privatization in China, I recommend you to a very good research paper called “What Makes Privatization Work? The Case of China.” You can download it at the following web address (http://www.sef.hku.hk/events/conference/jes2010/paper/GGX_China_20privatization_9-24-08.pdf)