The reform plan unveiled following the Third Plenum has refocused attention on the position of state-owned firms in China’s economy. During the first decade of this century, China’s state sector shrank in size and economic importance while more productive private firms came to account for a growing share of employment and assets. That trend has reversed in the last few years. The Plenum pledge to grant markets a “decisive” role in resource allocation, if followed through, should enable private firms to compete more effectively, by bringing the prices that different firms pay for inputs closer into line and also removing barriers to entry.
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