Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China

 
Author/Editor: Dollar, David ; Wei, Shang-Jin
 
Publication Date: January 01, 2007
 
Electronic Access: Free Full text (PDF file size is 661KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: Based on a survey that we designed and that covers a stratified random sample of 12,400 firms in 120 cities in China with firm-level accounting information for 2002-2004, this paper examines the presence of systematic distortions in capital allocation that result in uneven marginal returns to capital across firm ownership, regions, and sectors. It provides a systematic comparison of investment efficiency among wholly and partially state-owned, wholly and partially foreignowned, and domestic privately owned firms, conditioning on their sector, location, and size characteristics. It finds that even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms. Similarly, certain regions and sectors have consistently lower returns to capital than other regions and sectors. By our calculation, if China succeeds in allocating its capital more efficiently, it could reduce its investment intensity by 5 percent of GDP without sacrificing its economic growth (and hence deliver a greater improvement to its citizens' living standard).
 
Series: Working Paper No. 07/9
Subject(s): Capital | China | Financial systems | Investment | Industry | Resource allocation | Economic reforms | China, People's Republic of

Author's Keyword(s): Returns to capital | financial system | SOEs | economic reforms
 
English
Publication Date: January 01, 2007
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2007009 Pages: 38
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
Please address any questions about this title to publications@imf.org