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27 Nov 2020

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Chapter 2, “Private ownership versus State Ownership”

Chapter 2, “Private ownership versus State Ownership” 


Private ownership and state ownership are usually discriminated on the bases on the following key point:

Private property maximizes profit for the individual owners, while state ownership has a fair share of the revenue for all the stakeholders. In private sector establishment of the firm is determined by the private stakeholders while in state ownership entry is determined by government officials. Private ownership has all of its financings from private sources, while state ownership has all the funding from government sources. (Private ownership versus State Ownership).

In case of liquidation of the firm private property, the exit is forced by competition while in case of state ownership exit is to be determined by the officials of the government. Private property hires the employees on its while in state ownership employees are hired through the government-approved procedure. In case of the compensation of the management, the manager’s role and progress are determined based on the competitor’s companies. Managers tend to be paid more in private ownership. While in state ownership, manger’s character is determined politically based totally on the sense of fair-mindedness in the eyes of the public.

Today the state-owned companies comprise almost 10 percent of the global GDP. Even in developed countries, they have 5 percent GDP. China, in the past 30 years, has grown the GDP by 9.5 percent. It has increased the international trade volume by 18 percent per year—state-run companies in china form 80 percent of the stock market capitalization. China is not alone in this race, Russia, Brazil and Norway form 62%, 38% and 38% respectively of their stock market capitalization. (Private ownership versus State Ownership).

Private ownership versus State Ownership

Above table shows the contribution of the state-owned companies in generating the revenue for their respective countries.

Comparison of the observable state sector and the private sector:

China’s economy has seen dramatic reforms since the 1970s. The most important and distinct changes have been the introduction of the private sector. Before this, it was entirely dominated by the SOEs. During the 1990s, the focus had shifted to the urban reforms, and they started reconstructing the state-owned business. It included selected privatization of the state-owned companies. This was a significant change in the policies of the government towards the business opportunities of the country. The expansion of the private business in China has been very profitable, and it is undisputed since the 1970s.

size of china private sector

The private sector defined by the Chinese authorities is shown in the above table, but it ignores other enterprises that almost undoubtedly are not state‐owned. The extended individual shares range from 20 to 39 percent. (Private ownership versus State Ownership).

china private sector

The trend of growth in the private sector is continually increasing, as seen in the table.

private sector value
comparison of china

Figure IV‐1 contains CSY data on investment in permanent resources coped by local governments.   Local governments are accountable for responsibility, through SOEs, or supervising and allowing, 95 percent of static investments in engineering industries and the mainstream of investment in maximum other sectors. Notably, lower local stocks tend to parallel the planned industries that are discussed below.

fixed investment by company

Still, saying that China is restructuring its economy and becoming more market leaning is not the same as saying that it is leaving the state sector, or that the private sector is prevailing in China.


  • Andrew Szamosszegi and Cole Kyle, (October 26, 2018), an Analysis of State‐owned Enterprises and State Capitalism in China.
  • Barboza, David, (June 25, 2019) “Bridge Comes to San Francisco With a Made‐in‐China Label.” The New York Times.
  • Agricultural Bank of China (June 11, 2017), ABC Signed the Bank‐Enterprise Comprehensive Strategic Cooperation Agreement with China Southern Airlines. Beijing.
  • Abrami, Regina M., and Weiqi Zhang (2017) China Construction America (A): The Road Ahead. Cambridge: Harvard Business School.

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