Discussion paper

DP11854 China’s Decentralized Privatization and Change of Control Rights

A distinct feature of China’s privatization is that its design and implementation are
decentralized and administered by the local governments. Based on a proprietary survey
dataset containing 3,000 firms in over 200 cities, this paper studies how city governments
choose among various privatization methods, how these methods transfer control rights, and
how they influence privatization outcomes. We find that less political opposition to labor
downsizing and greater fiscal capacity prompt cities to choose direct sales to insiders (MBOs)
as their privatization method. This method transfers the most control rights to private owners,
retains the least government supports and is associated with most hardened budget constraints,
restructure most effectively, and achieves the greatest performance improvement.


Xu, C (2017), ‘DP11854 China’s Decentralized Privatization and Change of Control Rights‘, CEPR Discussion Paper No. 11854. CEPR Press, Paris & London. https://cepr.org/publications/dp11854