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

Author/Editor: Dollar, David | Wei, Shang-Jin
Authorized for Distribution: January 1, 2007
Electronic Access: Free Full Text (PDF file size is 677KB)
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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).
 
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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  
    Published:   January 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007009   Pages:   38
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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