Geng Xiao

Managerial autonomy, fringe benefits, and ownership structure: A comparative study of Chinese state and collective enterprises

Abstract This paper presents a property rights analysis about the provision of fringe benefits and the dilemma of managerial autonomy in Chinese industrial enterprises. According to this analysis, because of the ownership differences, the state-owned enterprises may be less efficient in industrial production than the collective enterprises if controlling for economies of scale and the use of fringe benefits. These predictions have been confirmed by the evidence from an econometric production function analysis of the cross-city data of Chinese industrial enterprises in 1985 and 1987. Controlling for economies of scale and current investment in fringe benefits, the state-owned enterprises have not only lower output elasticities of capital and labor but also lower total factor productivity than the collective enterprises. The estimated gaps of the Total Factor Productivity adjusted for economies of scale are 34.8% in 1987 and 23.7% in 1985. During the period from 1985 to 1987, the state sector also maintained a stagnant TFP growth and low allocative efficiency while the collective sector achieved a rapid growth of TFP and high allocative efficiency. The paper suggests that for the state-owned enterprises, the limited partial reforms toward a market-oriented economy have given root to other problems such as the inefficient expansion of fringe benefits and have accomplished little in the late years of the decade-long reforms. However, the reforms have facilitated the development of collectively owned enterprises which demonstrated much greater efficiency than the stateowned enterprises in this period.