Privatization of State-Controlled Shareholding Companies and the Rise of Corporate Elites in China

Abstract

As the State still controls a large share of China’s economy, the process of privatization of state-owned enterprises and the rise of corporate elites who control them should be traced and examined in a systematic and thorough way. As one of the first efforts to do so, this research collected and analyzed first-hand data on private-takeovers of 341 previously State-controlled listed firms on China’s stock exchanges during the period of 1996-2008. Preliminary results show privatizations have most likely occurred amongst relatively small-sized firms, more prevalently in industries under less state oversight, and more in economically developed provinces. Further analysis reveals that the majority of the new private controlling shareholders are outsiders rather than insiders to the acquired firms, and as a whole they are highly educated, and politically and economically well positioned. This research suggests that a group of capable private entrepreneurs are assuming roles as new corporate elites by taking advantage of emerging merger and acquisition opportunities in China’s stock market. It is the different route of privatization characterized by the above findings that China has embarked upon and is contributing to its relative success in economic reforms compared with its former communist counterparts.