Centralization or Decentralization? The Evolution of State-Ownership in China

We re-examine the state sector and its role in the Chinese economy by using the information on the ownership networks of 40 million firms for 1990-2017. We propose a new measure of state-owned enterprises (SOEs) and partial SOEs based on the firm-to-firm equity investment relationships. Our measure captures a significantly larger number of SOEs than the existing measures. The aggregated registered capital of all the SOEs (including partial SOEs) has climbed up to 85%, and the total state capital in all the SOEs has increased to 31%, both over total capital in the economy by the end of 2017. State ownership shows parallel trends of decentralization and indirect control over time. Mixed ownership is associated with higher firm growth and better performance as measured by higher profitability and productivity, while a greater hierarchical distance to the central and provincial governments is associated with better firm performance but lower growth