Causes of the Changing Performance of Firms with Diverse Types of Ownerships in China

Abstract

We analyze the longitudinal changes in the performance of firms with different ownership types using the China enterprises database for the period 2000 to 2009. The results reveal an upward trend in the relative performance of private firms in China. These firms have caught up with foreign-invested rivals in terms of labor productivity and even surpassed them after the mid-2000s. More importantly, private enterprises (PEs) have a higher propensity to invest than firms with other ownership types, and such investment preference leads to the faster labor productivity growth of PEs compared with foreign-invested enterprises (FIEs) and state-owned enterprises (SOEs). The size effect from economies of growth in the later period primarily contributes to the increasing productivity of PEs. By contrast, FIEs neither have an active investment activity nor an increase in size effect, thereby resulting in stagnant labor productivity. State-owned enterprises have enjoyed increasing size effect and productivity in the later period. However, such improvement comes from the government policy and not from economies of growth because the government has weeded out small and inefficient SOEs during this period.