By Ligang Song, Ross Garnaut, Stoyan Tenev, Yang Yeo

China's possession Transformation presents a systemic account of firm reforms in China contribution to the striking transition of the financial system, during just a decade or so, from entire reliance on state-owned and collective firms to a combined financial system the place inner most firm performs a number one function.

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And how did the interactions among the main players influence the course of gaizhi? 8 Party Initiating the Last Round of GAIZHI Other Central government 4% 0% Local government 40% Firm management 49% Employees 7% SOURCE: Survey data. Four theories have been advanced to explain the incentives for gaizhi: the efficiency hypothesis, the financial crisis hypothesis, the fiscal decentralization hypothesis, and the market liberalization hypothesis. Efficiency Hypothesis. The efficiency hypothesis asserts that privatization is initiated by the government’s desire to improve firm efficiency.

Although the four major state commercial banks are owned by the central government, they are vulnerable because the firm and the local government often collude to squeeze their interests. Furthermore, the central bank leaves little room for commercial banks to write off loans or renegotiate payments. Banks’ quotas for write-off are therefore a constraint on the pace and scope of gaizhi. The debt problem does not lend itself to a simple solution, such as strengthening the role of the banks during or after gaizhi.

The intention of the survey was to sample current and former industrial SOEs owned by municipal governments; however, because district and county governments were involved in the survey in some cities, some district and county firms, including collectives, were included in the sample. These firms were retained in the sample because many of them employed urban workers and had similar practices to the SOEs in terms of relationship with the local government, internal governance structure, employment, and remuneration.

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