FDI, Linkages and the Efficiency of State-Owned Enterprises in China

Abstract

As China seeks to consolidate its position as an emerging global economic power, reforming the largely inefficient state-owned enterprises (SOEs) presents a major challenge. Using a comprehensive micro data set, we investigate whether SOEs in China have benefited from the managerial, technical and organisational skills possessed by multinational firms operating in the economy, and conclude that the evidence in favour of positive spillovers is not overwhelming. Limited regional linkages and low level of absorptive capacity are found to be the main reasons for this disappointing performance. Policy makers involved in the reform of SOEs should ensure that managers have the right incentives to make long-term investment in absorptive capacity development.

Credit Constraints and FDI Spillovers in China

“…The lack of evidence of significant spillovers for state-owned firms is consistent with previous findings by Girma and Gong (2008) and Hale and Long (2011). Since we do not find evidence of productivity spillover benefits arising from foreign firms originating from HMT or accruing to state-owned firms, the remaining of the analysis will only focus on how the activity of non-HMT firms and affects the value-added of non-state-owned, domestic Chinese producers.…”

“…of FDI activity (Girma and Gong, 2008;Javorcik and Spatareanu, 2009;Abraham et al, 2010), the use of several arrangements of clustering the standard errors, 11 and the use of production functions estimated separately at the industry-level.…”

“…As a robustness check we also estimate (2) using two different variants of the external finance dependence index, one calculated using U.S. data over the 1970s from Braun (2003) and the second based on data for Canadian firms between 1982 and 1990 from Rajan and Zingales (1998) respectively. We also test 7 See Qian and Xu (1998) for a theoretical analysis of innovation under soft budget constraints and Girma and Gong (2008) for empirical evidence documenting the lack of productivity improvements among Chinese SOEs generated by multinational linkages.…”

“…To take into account the fact that productivity spillovers from FDI are more likely to be quantitatively important for firms operating in close proximity to each other within the same industry and province, we use total value-added by foreign-owned firms within an industry-province pair in a given year, FDI jpt , as our measure of FDI spillovers. This choice is founded on recent work by Girma and Gong (2008) and Abraham et al (2010) who provide evidence that horizontal FDI spillovers are more pronounced for firms within geographical industrial clusters than just 6 Firm-level value-added and our measure of FDI activity are both deflated using a provincial GDP deflator, while capital is deflated using a provincial deflator for fixed capital formation available from China's Statistical Yearbook. 7 across firms within the same region operating across different industries.…”

China's Domestic Transformation in a Global Context

“…Girma and Gong (2008) use data for state-owned enterprises (SOEs) from 1999 to 2002 and find that the activities of foreign firms do not benefit SOEs in other regions. Liu et al (2009) find backward and forward FDI spillovers among firms at the regional level only.…”