How China's Government and State Enterprises Partitioned Property and Control Rights 1743. During the 1980s, the government experimented with decentralizing state enterprises to boost productivity. By decade's end, China's state enterprises had become more market-oriented, and the structure of enterprise property rights had changed dramatically. One factor in the move toward a more market-oriented system was the use of performance contracts with incentive components to govern state enterprises. Xu examines how China's government and state enterprises partitioned property rights - how the government and enterprises decided about incentives, financial arrangements, and control rights.
Efficient firms are unwilling to reveal their true efficiency.
They pretend to be inefficient by slacking, so they can get more transfers. And the government's desire to control state enterprises prevents many of them from becoming decentralized and improving their productivity. Capital-intensive firms depend more on bank loans and less on retained profits, probably reflecting both their greater need for capital and the banks' role in allocating investment funds. The full report is available in PDF format.