More Estranged Bedfellows: Reform of State-Owned Local Partners and Ownership Realignment

Abstract

The establishment of the State-owned Asset Supervision and Administration Commission (SASAC) was announced in 2003. This increased the pressure of state-owned enterprises (SOEs) to improve performance. How did this influence the dynamics of ownership structure of international joint ventures (IJVs)? We contend that when SOEs are forced to compete for survival they have more incentives to appropriate valuable assets of foreign firms through IJVs. Hence, we believe that upon the rise of SASAC foreign firms have stronger motivation to exclude SOEs from joint ventures to avoid appropriation by increasing equity share while SOEs need to maintain their ownership position to enable appropriation. Overall, these two competing forces may lead to inconclusiveness in the dynamics of equity share. To tease out them and demonstrate the tension, we differentiate between sensitive and non-sensitive industries in terms of foreign ownership and argue that the results of the wrestling between these two forces vary in two types of industries. The results from analyses based on the longitudinal data of Sino-Japan joint ventures in China reveal two opposite impacts of SASAC on foreign equity of SOE-owned IJVs in sensitive and non-sensitive industries, which is also moderated by the level of administrative affiliation of SOEs (i.e., central government or local government).