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Submitted by Adam Hersh on
Thanks for this great and insightful analysis that answers several questions I have had about SOE profitability. I have a question about the declining profitability of SOEs after 2007, as shown in Figures 1 and 4. The pattern of decline appears to be the same in both figures and is apparently independent from the SOE sectoral concentration. That is, the pattern of declining profitability is the same in both the 3 sectors identified as highly concentrated with SOEs and in the "other" SOEs. What do you think caused the sudden drop in SOE profitability in 2007 that has not similarly affected non-SOEs? Also, regarding Figure 2, I am wondering if the relationship you are detecting between SOE concentration and profitability is being driven by oil extraction, which is a statistical outlier. In 2007, world oil prices were quite high. Even though price controls in China insulated the price to an extent, my understanding is that China too experienced a spike in oil prices. This would help explain the extraordinary profitability of SOEs in the oil extraction sector. If the oil extraction sector were excluded, I would expect the R^2 on your best fit line would drop quite a bit and you might find that SOE concentration/sector monopolies don't explain as much of the variation in profitability.