Abstract
This paper considers evidence on business group productivity performance in China. It also carries out a detailed investigation into China's 50 largest groups to see if pyramidal groups are forming. As such, we further explore what can be considered as some of the positive and negative attributes of Chinese groups. We show that although improvements in productivity have taken place, some Chinese business groups are also taking the first steps towards developing pyramidal structures. This could have important implications for longer-term productivity growth in China's business groups.
Notes
Notes
1. Business group data in this study are taken from various official Chinese statistics. The definition of the business group used includes all groups with sales or assets of over 500 million RMB. Firms are considered business group members in this data if over 50% of their equity is owned by the parent company.
2. In line with this thinking, Jefferson, Rawski, and Zhang (2008) examine the extent to which growth in China has been driven by productivity change. They estimate multi-factor productivity and find results that indicate widespread diffusion of technology and efficiency throughout the industrial sector with significant improvements in labour and capital productivity within their sample of industrial enterprises.
3. Even in both these nations, however, pyramidal groups were also once common and it was only active policies to discourage them that led to their decline. Thus, it has been argued that by the mid 1920s large pyramidal corporate groups ‘were probably the dominant form of large organization throughout the world’ (Morck and Nakamura Citation2007, 16).
4. Keister's study, while very thorough, relegates the question of causality in her estimations to a single footnote. She therefore attributes the good performance of groups to internal institutional features (finance companies and so on) as opposed to the better groups forming such institutions (i.e. the direction of causality reversed). Some of the other quantitative papers suffer from similar problems.
5. The purpose of Liu and Sun's (Citation2005) work on Chinese pyramids is to unmask the ultimate shareholders in Chinese public companies. While they therefore discuss pyramidal groups they do so with reference to a different definition of such groups. Similarly, it is questionable whether Fan, Wong, and Zhang (2006) are exploring the extent to which pyramidal groups exist, as again they appear to be applying a different concept.
6. About 30% of its investments in subsidiaries were in listed companies according to the annual report (Shanghai Electric Group Citation2007, 91). This is a proportion rather close to the national average.
7. During 2006, these subsidiaries converted all unlisted state-owned shares into tradable shares on the stock exchange in accordance with new government regulations, so allowing a further increase in the divergence between ownership and control stakes should it wish.
8. Shanghai Ship-use Crankshaft Co., Ltd. from SE Corporation for 71.4 million RMB. It also acquired Magine Machine Tool Co., Ltd. from SE Corporation for 252.4 million RMB.
9. It transferred 24% shares of Shanghai Yongxin Color Display Tube to SEGC. Yongxin Color Display Tube made a loss of 180 million RMB which would have severely affected investor confidence in the listed arm.