China's sweeping economic reforms, which have lifted the country to a starring role in the global economy in only a quarter-century, are marked by a more gradual transition from state control to private ownership of firms than in other countries that have also made the transition, according to Wharton faculty. At the same time, a vibrant, entrepreneurial private sector is springing up in China alongside state-controlled firms.
"Privatization in China ... still leaves a huge residual of state influence," says Wharton management professor Marshall Meyer. "The role of the state in China can never be underestimated."
After decades of state control of economies in China and other nations around the world, governments set off a wave of privatizations that began in the late 1970s. Often pressured by the U.S., these governments realized that industries run for political gain were losing ground in the global economy. Economic growth was stalled and living standards were not improving.
The wave of privatization began in Chile and the United Kingdom and spread around the world with major programs in the former Soviet Union, Eastern Europe, Latin America and India.
In China, privatization has come slowly as government officials weighed the prospect of massive layoffs necessary to restructure bloated state-owned enterprises, known as SOEs. Privatization was also met with resistance from influential company managers, many of them Communist party officials.
The number of SOEs has been cut to just 15% of all industrial firms -- from 114,000 in 1996 to 34,000 in 2003 -- with about half of the decline due to privatization. The remaining state-owned firms, however, are among the largest in China and include more than half the country's industrial assets, according to a 2005 report by the International Finance Corporation (IFC) of the World Bank titled, China's Ownership Transformation.
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