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Economics of Transition, 4(2):427-447, October, 1996
The past reform of state-owned enterprises in China has delegated many effective control rights to managers while maintaining ultimate control rights for the Party and government. The result is that either the agency costs are high because managers lack accountability or the political costs are high because the government causes political interference. Reform of state-owned enterprises in China should aim at reducing both political and agency costs, which can be done through depoliticization, effective corporate governance, and desocialization. In particular, China needs an ownership transformation with a combination of privatization, denationalization, and pluralization; a state assets management system to limit political influence from the government; and corporatization to establish effective corporate governance which may take a variety of forms.