China’s SOE Reform—The Wrong Path

A key component of China’s SOE reform strategy—mergers of the largest firms in the same industry—seems very unlikely to improve the efficiency of bloated state-owned enterprises. Instead, the government should increase competition by allowing the entry of private firms into sectors where a handful of state firms exercise market power and it should subject money-losing state owned firms to hard budget constraints. These policies offer the best prospect for increasing productivity and sustaining C

Source: Peterson Institute (PIIE)