Same Bed, Different Dreams: A Comparative Analysis of the Growth and Performance of SOEs in Northeast and South China

Abstract

The growth and transformation of state-owned enterprises (SOEs) in a changing socialist China has long been a popular focus of scholarly attention. Relatively little has been done to explain the growth dynamics and regional variation of China`s SOEs. This paper investigates the spatial variation of Chinas SOEs through a comparative analysis of SOEs in northeast and south China. A detailed comparison of SOEs in the machinery industry sector located in Shenyang in the northeast and Guangzhou in the south has revealed an interesting pattern in which SOEs in the two locations were positioned in different production environments characterized by different norms of market competition and different types of political ties with the central state. The non-price norm of market competition and a political commitment to a slate strategy of key equipment indigenization have provided incentives for SOEs in Shenyang to adopt a technically-oriented and independent-brand-based growth strategy in their direct engagements with transnational corporations, and these engagements have caused them to pursue the rapid expansion of production capacity and sales income at the expense of capital efficiency and external economies. In contrast, the pressures of market competition plus hardened budget constraints enforced by local governments has forced SOEs in Guangzhou to frill back on externally malleable production linkages and inter-firm networks, which have enabled them to adapt to emerging markets during the economic transition. While SOEs in the two locations share the same public property rights arrangements and operate in the same industrial sector, they are actually ”different dreams” within the ”same bed.”