An analysis of Chinese state-owned entities and financial markets: Market versus political incentives

Abstract

This thesis consists of two essays.In the first one, I study the strategies that Chinese government has taken to manage the state ownership in state-owned enterprises (SOEs). With an improved research design I have tried to find out whether economic objectives or political objectives, principally on the employment level, have an effect on the decision of the central government to retain control of SOEs. My results indicate that the central government maintains SOEs whose labour intensity is higher than that of local SOEs.In the second essay, I examine the lending behaviour of a government-controlled commercial bank before and after the passage of the Commercial Bank Act in 1995. The government envisaged that the Act would improve risk management practice among commercial banks, and hence the banks would reduce and ultimately stop policy (local government directed) lending to SOEs. Using a simultaneous equation approach, I find that SOEs are charged a rate of interest higher than that charged to private firms by six basis points after controlling for other factors.