Causes for Changing Performances of Ownerships in China

we analyze the longitudinal changes in the firm performance by ownership using the China enterprises database for the period from 2000 to 2009. Results show an upward trend in the relative performance of private ownership in China. Private firms have caught up with foreign-invested rivals in terms of labor productivity and even surpassed them after the mid-2000s. More importantly, we confirm that private enterprises have a higher propensity to invest than other ownerships firms. This investment preference leads to rapid growth of the labor productivity of private enterprises compared with those of foreign-invested enterprises and state-owned enterprises. In addition, the size effect from “economies of growth” in the later period is the main contributor to the increasing productivity of private enterprises. In contrast, foreign-invested enterprises have no active investment activity and no increase in size effect, which result in stagnant labor productivity. State-owned enterprises have enjoyed the growing size effect and have improved productivity in the later period. However, the improvement seems to come from the government policy and not from economies of growth because during this period, government policy has weeded out small and inefficient state-owned enterprises.