Has a private sector emerged in China's industry? Evidence from a quarter of a million Chinese firms

This paper assesses the progress of China's transition towards a market economy by examining the structure of ownership, productivity, and profitability, as well as the concentration of production across firms, industries, and regions. It does this by analyzing a database of firm microdata of the quarter of a million industrial companies in operation during the 1998-2003 period. Results show that the private sector now accounts for more than half of industrial output, compared with barely more than a quarter of it in 1998, and operates much more efficiently than the public sector. Higher productivity has fed through to improved profitability, motivating greater regional specialization of production. These changes are consistent with what would be expected in a market-based economy and suggest that reforms are making rapid progress.