Patterns of Corporate Restructuring in China: Political Constraints on Privatization

Journal Articles

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China Journal, page(s): 115-136

January 2005

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This article examines the logic of China's corporate restructuring. It argues that there is a political logic that mediates the pattern of corporate restructuring that has occurred in China since the 1990s. Even though China's officials need not worry about being voted out of office, they must worry about the political fallout from restructuring. Privatization cannot be allowed to proceed unless provisions are made to placate workers who will be affected by the enterprise restructuring. The mixing of political and economic agendas has implications for the sequencing of restructuring and privatization. It affects not only the speed and the nature of the reforms, but also which enterprises can be declared bankrupt or sold. Such constraints explain why some forms of corporate restructuring are preferred over others, why ailing and already dead firms that have stopped production remain open, and why some firms for which there are takers are not privatized. Political constraints in China have resulted in significant restructuring but relatively little genuine privatization. Restructuring and privatization are distinct and separate processes that do not necessarily lead from one to the other. This paper is based on extensive interviewing and supplemented by a survey of over 400 enterprises, with time series information from 1994 to 2000.

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