Limit to Autocracy: An Analysis of China's Renationalization

Abstract

We document large-scale reversal of privatization in China — local governments taking back shares in a quarter of previously privatized firms. Politicians who are not affiliated with any of the dominant political factions are more likely to waver under pressure and adopt renationalization because they are disadvantaged in the promotion process and are more sensitive to unemployment pressure. The failure to adhere to the privatization scheme reduces productivity and raises labor redundancy and firm leverage. The policy reversal casts doubt on the notion that autocracies have advantages in policy implementation.