Shareholding System Reform in China
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Shareholding System Reform in China

Privatizing by Groping for Stones

Shu-Yun Ma

Since the 1980s, there has been a global wave of transfer of state assets to private hands. China is a relatively late participant of this worldwide trend, yet, in the last decade it has emerged as one of the largest privatizing countries. Shu-Yun Ma argues that China’s privatization is not based on any grand blueprint; rather, it is privatization by ‘groping for stones to cross the river’, a well-known metaphor often attributed to Deng Xiaoping, meaning that the reform simply proceeds on a trial-and-error basis without being guided by any theory.
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Chapter 5: Foreign Participation in China’s Privatization and the Role of the State

Shu-Yun Ma


According to World Bank statistics, during 1988–93, 2655 privatization transactions were recorded in 93 countries. Total sales revenue amounted to US$271 billion. Of this worldwide privatization, developing countries accounted for about 85 per cent of the total number of transactions, and 35 per cent of total sales revenue (Sader, 1995, p. 3). A major constraint of privatization efforts in developing countries has been the lack of domestic capital. This has prompted many developing countries to allow sales of state assets to foreign investors, at the political and economic risk of exposing the national economy to external influence (Harrell, 1993, p. 46; Welfens, 1994, p. 36). World Bank statistics indicate that during 1988–93 about 30 per cent of the total number of privatization transactions in developing countries involved foreign capital; the foreign share amounted to 35 per cent of the revenue generated by privatization (Sader, 1995, p. 13).1 In the light of this global trend, this chapter will examine the role of foreign participation in China’s privatization. The Chinese case is important for several reasons. First, the country possesses one of the largest state-owned sectors in the world. In 1991 Chinese state-owned enterprises (SOEs) accounted for about 20 per cent of the country’s gross domestic product, almost double the average of developing economies.2 Second, in 1980–92 China’s gross domestic product grew by over 9 per cent annually, compared to the world average of 3 per cent (World Bank, 1994, pp. 164–65). This has made the...

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