(SOEs) that led to the closing of numerous facilities, the shedding of significant amounts of labor<sup>26</sup> , and the unhitching of SOEs from their social obligations. Corporatization of state owned enterprises was a tangible manifestation of a new industrial policy, “grasping the large, letting go of the small” (Naughton 2007). The policy of “grasping the large” signaled the **national** government’s intent to create a small number of very large enterprises in key industries managed by a new government agency, the State Owned Asset Supervision and Administration Commission (Naughton 2007: 302). The policy of “letting go of the small” gave **local** governments the authority to restructure and close unprofitable TVEs along with other failing local enterprises – though not all governments embraced the use of that authority.

The intent in this new policy was to reduce production costs and increase competitiveness in industries subject to economies of scale, such as cement, iron and steel, aluminum, and pulp and paper, by systematically closing small enterprises using antiquated technologies while supporting the development of enterprises that were large enough to reap economies of scale and scope. The effect of this shift in policies led to massive closing of unprofitable TVEs, some closing of equally unprofitable state owned enterprises, and a rising share of large scale and modern production facilities using state of the art technologies. For example between 1985 and 2010, the share of cement produced in large scale modern rotary kilns rose from 10% to 81% (Rock and Cui 2013). In iron and steel, large modern plants increased their share of production from 72% in 1985 to 84% in 2010 (Rock and Jiang 2013). Similar developments are visible in aluminum<sup>27</sup> (Rock and Song 2013) and pulp and paper<sup>28</sup> (Rock and Song 2013).

As corporatization proceeded, the government built on its new industrial development strategy of ‘grasping the large, letting go of the small’ (Sutherland 2003:10). The more expansive application of the strategy was rooted in an assumption that the government could use large state-owned industries to create East Asian style conglomerates that could compete with OECD multinationals in a wide range of industries. State actors believed that making this transition required both enterprise-level institutional reforms, and promotional policies that would entice reformed enterprises to become more competitive and technologically sophisticated. Following the targeting for promotion of 57 state-owned enterprise groups, or conglomerates, with at least one such group in each of our energy intensive industries,<sup>29</sup> (Sutherland 2003: 46), the core enterprise in each group was (1) granted greater control over state assets in the group; (2) encouraged to develop an internal finance company to mobilize capital; and (3) enticed to annex

> 26 State-owned enterprise workers declined from roughly 75 million in 1994 to under 20 million by 2004 (Naughton 2007:106).

> 27 While primary aluminum production averaged 37,169 metric tons in 1995, the scale of production grew quite dramatically thereafter reaching an average of 331,506 metric tons in 2009 (Wang 2011: 8).

> 28 Average mill size rose from 2,200 metric tons per year in 1994 to nearly 25,000 metric tons per year in 2008 (calculated from annex tables in Rock and Song (2011). At the same time a number of very large modern mills using state of the art technologies emerged. For example, Shandong Chenming owns the largest printing paper line in the world (400,000 tpy capacity); APP Gold East possesses the world’s largest ‘fine’ paper machine (700,000 tpy capacity); UPM Kymmene has the world’s largest uncoated wood free machine (450,000 tpy capacity); and Pan Asia’s Hebei mill has the fastest newsprint machine in the world (2000 m/minute) (Rock and Song 2013).

> 29 Eleven of the 57 promoted groups were in our four industries. Other promoted groups include electricity generation, automobiles, electronics, chemicals, aerospace, and pharmaceuticals (Sutherland 2003: 50).

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