Introduction

The north-east region of PRC includes three provinces: Liaoning, Jiling, and Heilongjiang and was the key industrial base for the nation before 1978. The region was famous for its heavy industries and large state-owned enterprises, especially in iron and steel, machinery and petroleum industries. Historically the region was under heavy Russian and Japanese influences before 1949 and had relatively good transportation and industrial infrastructure. During the reform period after 1978, however, the north-east region has been lagging behind the south and east region of PRC in market-oriented industrial development. The north-east has attracted much less foreign direct investment and has had a much higher rate of laid-off workers than the south and east.

The Central Government of PRC has recently paid special attention to the north-east region through budgetary transfers and special economic policies but it is not clear how successful the new policies towards revitalizing the north-east region are. There is an impression from reading media reports that the performance of enterprises in the north-east region is much worse than the national average due to many historical legacies and slow reforms. Few research papers have examined systematically the performance of the north-eastern enterprises relative to the rest and the sources of their performance gap. This paper attempts to fill this gap in the literature by documenting the relative performance of large and medium industrial enterprises in PRC’s north-east region. The paper classifies enterprises by profitability and shows how the north-east enterprises compare with others in the rest of the country. The paper also uses regression analysis to examine profitability and productivity and to separate the regional impact on enterprise performance from the impacts of institutions, technology, and other non-location specific factors.

The results show a comprehensive picture of the relative standing of the north-east region’s large and medium-sized enterprises, giving a detailed profile of performance across major industrial sectors. This systematical empirical investigation of enterprise performance should provide a useful foundation for consideration of future reforms to the north-east region’s industrial sector.

Section 2 provides a brief description of the data sources. Section 3 discusses profitability. Section 4 reports the regression results explaining the profitability and productivity gaps between the north-east and the rest of the nation. Section 5 concludes the paper.

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