From Insider-Outsider Collusion to Insider Control in China`s SOEs

Abstract

This paper focuses on three levels of agents involved in the reform and performance of the state-owned enterprises (SOEs) in China: one outsider the supervisory state-party organ(s) at the top, and two insiders: managers in the middle as well as workers at the bottom. The paper identifies four distinct stages in the evolution of the enterprise system. The first stage was the pre-reform period characterized by a strong top and a weak middle and bottom, the period of strong outsider control. The second stage, during the 1980s, was mostly characterized by a weak middle with a strong top and bottom; there emerged in this stage two tiers of collusion involving both insiders and an outside with the upper hand being held by the outsider. The third stage, the 1990s, was characterized by a strong middle and a weak top and bottom; this period was plagued by the problem of insider control, although the insiders still had to collude with the outsiders to a certain extent. Finally we are now observing the transition from de facto insider control to de jure insider control that has occurred over the past few years. We find that over the course of all these changes, while the dual collusion led to expropriation of state incomes (i.e., enterprise profits,), the problem of insider control has led to asset stripping and diversion by the insider agents.