SOE Dominance of Financial Capital Takes a Toll on Chinese Economy

SHAO Ting

Employment and Social Security Center, School of Economics of Fudan University

Abstract:

From the perspective of financial distortion and using the statistics of China’s industrial enterprises between 1999 and 2007, this paper examines the relationship between corporate ownership and ROIC (return on invested capital). Our empirical results suggest that SOEs have a far lower ROIC average compared to enterprises of other forms of ownership, and that private enterprises have the highest ROIC. In addition, this paper’s numerical simulation results indicate that if financial distortion is eliminated, so that more financial resources can be redirected to private enterprises with a higher ROIC, China’s GDP growth could be increased by 2 to 8 per cent over the current level.

Key Words:

financial distortion, ownership structure, ROIC

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