It is generally known that state-owned enterprises (SOEs) in China or most other countries undergoing the transition from command planning tend to perform poorly. In China, however--and in the Chinese steel industry in particular--a group of basically similar, large-scale state firms display a wide range of performance outcomes, and not coincidentally, these firms are governed by widely divergent property rights arrangements. This dissertation uses variation in the Chinese steel industry to explore the general relationship between property rights reform and industrial performance in transitional economies.; The study has two major conclusions. The first is that loss-making in Chinese SOEs is triggered by predatory behavior and other forms of interference on the part of state agencies. With the bureaucratic decentralization produced by China's post-Mao reforms, an increasing number of agencies now claim authority to intervene in--and extract from--the state firm. Accountability on the part of any one agency is nearly non-existent. So much money gets extracted from firms, that nothing is left for reinvestment or even the maintenance of current production.; The second conclusion is that the few firms which actually do display the positive traits usually associated with privatization--hard budget constraints, managerial autonomy, profit-maximization, and higher productivity--happen to be among the least "privatized" in China. In other words, it is not the modern corporatized enterprises that do well, but rather the few firms that have actually been drawn closer to individual state agencies through profit-retention contracts. The reason is that in the poorly-institutionalized Chinese legal environment, modern corporate governance structures simply do not protect the firm from governmental predation. Less glamorous forms of enterprise governance which draw the firm closer to a single, accountable state agency end up according the firm a true property right, and performance shifts accordingly.; This conclusion has important implications both for theories of privatization and for the theoretical literature on the state. While my dissertation does not argue with the goals of privatization theorists--expanded enterprise autonomy, de-politicization of the firm, and increasing market orientation--I contend that in systems lacking established legal institutions, actual privatization is not the way to achieve these goals.
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