Conclusion

Using the annual survey on large and medium-sized industrial enterprises in PRC by the National Bureau of Statistics, this paper examines enterprise performance in North-East PRC. It shows clearly that the privatization of SOEs in the north-east region during 1995- 2002 has been rapid and often more aggressive than in the rest of PRC. The improvement in profitability and productivity of enterprises in the north-east is also as significant as in the rest of PRC.

Reforms in the north-east region have led to dramatic changes in the allocation of capital and labor, largely consistent with the national trend. Using regression analysis on firm-level panel data, the study is able to measure and explain the differences in firm productivity and profitability across time, region, ownership, and market conditions, and to identify the remaining performance gaps that are specific only to the north-east region.

The results of this study indicate that while the north-east region should continue the standard market-oriented reforms, such as privatization, encouraging market competition, and attracting FDI, it should also work hard to catch up in institutional reforms that could improve its local business environment, since the performance gaps that are due specifically to its location are quite large and are the key barrier to the region’s further growth and development.

Some of the location-specific lags in productivity and profitability may be due to purely geographic factors, such as climate and distance from overseas Chinese marketoriented economies, such as Hong Kong, China and Taipei,China. But it seems clear that a significant part of the location-specific performance gaps can be narrowed through reforms that focus on institutional infrastructure. These should aim to improve the quality of bureaucracy, implement the rule of law, control corruption, encourage local financial sector development, and reduce barriers to inter-province trade and investment. This is a large agenda but our results suggest that the returns to such efforts through higher productivity and profitability will be high.

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