Topic: Privatization in China: a fiscal perspective 
Lecturer:Dr. Han Chaohua 
Discussants:Prof. SHENG Hong, Prof. Mao Yushi, Prof. Yang Xiaowei, Prof. Ping Xinqiao 
 
 
At the 347th Unirule bi-weekly symposium, Dr. Han Chaohua from CASS (China Academy of Social Science) delivered a speech entitled“Privatization in China: a finance perspective” which was based on a working paper he coauthored with Prof. Jean C. Oi from Stanford University.

In the recent ten years, there are numerous study on privatization in China, mainly focused on two areas, namely the performance of enterprise under different ownerships and what was the cause of the mass privatization happened in the 1990’s. This study belongs to the later category.
Dr. Han first reviewed some key literatures in this field. In Kai Guo and Yang Yao (2005), they found that privatization is positively linked with hardened firm budgets and the extent of market liberalization, but is constrained by excessive debts and worker redundancy. Firm efficiency and state-owned enterprises' financial liabilities imposed on local governments are not factors of influence. These findings match the broad flow of events in China and highlight the role of market building in bringing about efficient institutional changes. Yang Ye et al. (2007) based on the proposition that political patronage theory of public ownership is based on the premise that governments or government of fiscals derive political benefits (local employment, taxes and profits, and private benefits) from the continuing existence of public ownership entities. Using a large sample of China’s collectively owned enterprises from 1998 to 2003; they test the predictions of the political patronage theory regarding the causes of privatization. They find that privatization is less likely for those collectively owned enterprises that offer higher political benefits to government’s officials, have more reliance on governments for inputs and sales, and enjoy relatively higher positions in the local economy.
The data used in this paper were collected by CASS, covering 1022 enterprises from 1994 to 2004. The authors identified 145 firms which had gone through a change in ownership-from state-owned to private. After analyzing the data under different model, the authors found that privatization had significantly increased the taxation government collect from the same firms (previously state-owned, now private). This gave the government strong incentive to privatize the state-owned enterprise, as what happened during the 1990’s in China.