HenU/INFER Workshop on Applied Macroeconomics 5.5

Special Deals from Special Investors The Rise of State-Connected Private Owners in China

Chong-En Bai (Tsinghua University) / Chang-Tai Hsieh (University of Chicago and NBER) / Zheng Song (Chinese University of Hong Kong) / Xin Wang (Chinese University of Hong Kong)

Abstract 

We use administrative registration records with information on the owners of all Chinese firms to document their connections through equity investments. We document a hierarchy of private owners: the largest private owners have direct equity investments from state-owned firms, the next largest private owners have equity investments from private owners that themselves have equity ties with state owners, and the smallest private owners do not have any ties with state owners. The network of “state-connected” private owners has expanded over the last two decades. The share of registered capital of private owners with state-connected investors increased by almost 20 percentage points between 2000 and 2019, driven by two trends. First, state owners have increased their investments in joint ventures with private owners. Second, private owners with equity ties to state owners also increasingly invest in joint ventures with other (smaller) private owners. The expansion in the number of state-connected private owners may have increased aggregate output of the private sector by 2.5% a year between 2000 and 2019.