Do China's state-owned enterprises maximize profit?

China's state enterprise reform is often believed to have made profit the m ost important goal of SOEs. Nonetheless the poor performance of SOEs relati ve to other forms of enterprises remains puzzling. We offer an explanation based on the incentive aspect of the reform, which complements the theory b ased on a soft budget constraint Under certainty, the incentives of enterpr ise managers to maximize their own compensation are consistent with profit maximization with or without a soft budget constraint. Under uncertainty, h owever, the managers' incentives generally deviate from expected profit max imization. This deviation is dampened by, but still exists even without a s oft budget constraint.