CAN CHINESE STATE ENTERPRISES PERFORM LIKE MARKET ENTITIES - PRODUCTIVE EFFICIENCY IN THE CHINESE IRON AND STEEL-INDUSTRY

As a consequence of economic reforms in China, firms have been affecte d by three essential changes. First, instead of surrendering all profi ts to the Government, firms now pay tax on their profits according to a contract between them and the Government and retain the balance as t heir own controllable surplus. Second, the central economic plan deter mines only part of firms' production. After fulfilling the command pla n, firms are allowed to adjust their production scale by the availabil ity of inputs and the profitability of production. Third, most consume r and investment goods have two prices, a plan price and a market pric e. As most of the plan prices are always lower than the market prices, the latter play a basic role in determining firms' profits. After a d ecade of economic reforms, the important question is: can Chinese stat e enterprises perform like market entities? The analysis shows that Ch inese firms in transition do mimic the production behaviour of market- based, efficiency-oriented firms.