Market entity behavior of Chinese state-owned enterprises

Abstract

As a consequence of the 1978 Chinese economic reforms, there have been a number of changes within China's industry. First, firms have been given limited autonomy in management. Second, firms now have control over the scale of production and production profitability after fulfilling the required plan. Third, some production factors have become firm controllable. Fourth, firms are now faced with a dual price system—a plan price and a market price. Thus, state-owned enterprises are now able to, at least, partially mimic the privately owned market-oriented firms. Given this situation, we examine the effect of economic reforms on the productivity of the Chinese state-owned enterprises within the Iron and Steel Industry using data envelopment analysis (DEA). In the context of a mixture of centrally planned and market economies with both controllable and uncontrollable production factors, we measure the technical efficiency and scale efficiency. The allocative efficiency measure for DEA employs an assurance region (AR) method, which illustrates the potential of AR in evaluating Chinese industrial performance within the reforms. In addition, the current study explores input congestion and scale economies. These two measures provide insight into and lessons for further economic reforms. This paper thus presents an extended use of DEA models in an attempt to improve and monitor firm-level productive efficiency of Chinese industry.