The Response of State-Owned Enterprises to Import Competition: Evidence from Chinese Manufacturing Firms

Abstract

We examine the wage and employment impact on Chinese firms of an increase in import competition associated with China’s WTO accession in December 2001, with an emphasis on state-owned enterprises (SOEs). We find that both wage and employment are negatively impacted by an increase in import competition, but firms with high state ownership cut employment less and reduce wages more than their private counterparts, suggesting that they prioritize the protection of employment over that of wages. This finding supports the notion that SOEs may have “multitask” responsibilities in terms of protecting employment as well as achieving efficiency. We also find that firms with higher capital intensity reduce their wages less but cut employment more in response to intensified import competition. This provides empirical support for the efficiency wage theory.