Selection, Staging, and Sequencing in the Recent Chinese Privatization

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Selection in privatization is the decision-making process of choosing state-owned enterprises (SOEs), prioritizing and sequencing privatization events, and determining the extent of private ownership in partial privatization. We investigate this process in the important but rarely studied case of China. Using the SOE population for 1998–2008, we track 49,456 wholly state-owned firms and identify 9,359 privatization cases. Our econometric analysis concludes that privatization selection is a complex decision-making process in which local governments balance various economic, financial, and political objectives. In the recent Chinese privatization, firm performance relates to the selection, staging, and sequencing in privatization in an inverted-U fashion. The worst- and the best-performing SOEs are more likely to remain state owned, more likely to maintain higher levels of state holding when privatized, and less likely to be privatized later. These patterns suggest a privatization reform slowdown and underlying changes in the privatization policy.

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