Are Chinese state-owned enterprises lagging behind in product innovation?

Abstract

Chinese State-Owned Enterprises (SOEs) have been in the spotlight of studies on modern China. Many scholars label the SOEs as low-productivity monopolies with little innovation. After more than 30 years of reform, does the situation remain the same? By measuring the recent new product development in Chinese SOEs and non-SOEs, this paper reveals a comparatively large innovation gap: the quantity and the quality of new products generated from each SOE are higher than those of non-SOEs, although there is no big difference between SOEs and non-SOEs in terms of the total output of new product innovation. It also finds that the gap varies among industries with different degrees of market competition and government intervention. Furthermore, it discovers an inverted 'U'-shaped contribution curve of the SOEs, i.e. SOEs are particularly effective in promoting an industry's innovation, if the number of SOEs accounts for 15-30% in the industry.