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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.worlddev.2006.06.001 Byline: Guy S. Liu Keywords: privatization; enterprise reform; political economy; local government; China Abstract: The paper examines how the privatization of Chinese state-owned enterprises (SOEs) can be successfully triggered and completed. By identifying the motives of local government leaders and the constraints that face them during transition, we conclude that: first, whether local governments are motivated to privatize their SOEs, depends on if the ownership transfer is expected to stimulate sufficiently high growth of local tax revenues without sacrificing the bureaucrats private control benefits. Second, a specific privatization program can succeed only if it manages to satisfy the managerial cooperation constraint, the workers compensation constraint, and the bank-debt-servicing constraint. The motives-cum-constraints political economy approach offers an important explanation for the pace and scope of the ongoing Chinese-style privatization. Author Affiliation: Brunel University, UK Article History: Accepted 13 June 2006

Publicly trading companies in the UK indulge in acquisition activities as a means of expansion if they have enough excess funds as well as healthy ratings in the stock market. They evaluate the expected profits from acquisition activities depending on the kind of market they belong. It is deemed desirable when more profitable alternatives are unavailable. However, in markets with stiff competition, the costs of outbidding rivals usually marginalize benefits from the activity.

A study examined the behavior of Chinese state-owned firms in cost setting. Specifically, it aimed to investigate how these firms revised their inputs during the economic reforms of the 1980s as a means to respond to market signals. Data were culled from a sample of 386 manufacturing firms from 1983 to 1987. A total cost function was developed for firms subjected to government control over their total wage bills. Despite these restrictions, the reform was found to enable the firms to react to changes in factor prices in the directions anticipated by cost minimizing behavior. The firms also responded to bonus schemes to motivate more efficient production., 1. Introduction One of the major objectives of the economic reform programme, since it affected Chinese state-owned enterprises in the 1980s, was to improve the productive efficiency of the manufacturing [...]