Is Big Beautiful?—Restructuring China`s State Sector under the Zhuada Policy

Abstract

In 1995 the Chinese government further elaborated its strategy for reforming the state sector Termed ”zhuada, fangxiao” (to take command of big enterprises and to let go small ones), this policy seeks to split the state sector into two camps: enterprises that are relatively small and over which the state is willing to give up control (fangxiao); and large enterprises that are the object of the government`s efforts to restructure the state sector (zhuada).\nSince it is the policy of zhuada that will decide in large measure the fate of China`s state sector; this article analyzes zhuada`s implementation strategy in China`s largest industrial city-Shanghai. The article elaboChristopher rates that zhuada`s implementation strategy is based on two separate aspects first, the establishment of large state-owned conglomerates to attain economies of scale and better resource allocations; and second, the reform of the state`s ownership institutions. These reforms, especially the latter involve the establishment of a new structure for the management of state assets. However as the article argues, the restructuring of China`s state asset management system is heavily circumscribed by the institutional origins of the ownership structures in China`s state sector Moreover zhuada`s emphasis on establishing large state-owned conglomerates runs the danger of creating unwieldy and monopolistic conglomerates that are dependent on the state for various subsidies and policy benefits.