At the Third Plenum of the 18th Chinese Communist Party (CCP) Central Committee in November 2013, China’s leaders strongly endorsed the concept of a mixed ownership economy, which the Plenum’s sixty point Decision document defined as “cross holding by, and mutual fusion between, state-owned capital, collective capital, and non-public capital.” China’s leaders hope that mixed ownership can augment the role of state-owned capital by “maintaining and increasing its value and raising competitiveness.”
But in their paper, Meyer and Wu reach a different conclusion. Their analysis of Chinese data suggests that mixed ownership—the joining of non-state and state assets—may yield disappointing results and may not align with top leaders’ articulated objectives. That is because ownership and control do not always correspond in China. And this, in turn, means that the effects of ownership reform may be limited unless the state is willing to cede substantial control of mixed ownership enterprises to private investors.
Meyer and Wu argue that a further problem with the government’s emphasis on mixed, rather than private, ownership is that partial privatization of state-owned enterprises (SOEs) may have unanticipated consequences. The intent of these policies is to bring market discipline to SOEs, thereby improving their overall performance. But perversely, the actual effect may instead be to transfer the best state assets to private owners, resulting in the appearance but not the substance of better performance.
This new Paulson Policy Memorandum concludes that performance improvements will not automatically follow from private investment in state-controlled firms. Ultimately, performance improvements may require changes not contemplated by the Third Plenum. Put as bluntly as possible: the prospects for a mixed ownership economy will ultimately depend on the state’s willingness to cede control—not just ownership—of some of the nation’s largest enterprises to private interests.