A Legal Theory of State-Owned Enterprises: The China Experience
Currently, the dominant explanations for the prevalence of state-owned enterprises (SOEs) in China include the theory of state capture and the theory of political ideology. This book offers a legal theory of SOEs. It argues that the privatization of SOEs is better understood as a process of legalization rather than liberalization, since the state often continues to regulate private enterprises even after privatization. Such a process requires clearly defining the boundaries between public power and private property, which entails significant social costs because of the incompleteness of law. Legislatures and policymakers cannot easily foresee all possible circumstances when enacting the law, leading to possible opportunistic actions by private firms and the necessity of residual state control over emergencies. The continued prevalence of SOEs in China can be partly explained by the difficulty of using law rather than state ownership to govern firms, especially in sectors where the protection of private property conflicts with state priorities. Such sectors include water utilities, coal mining, commercial banking, and infrastructure, where competing state goals complicate the full privatization of the market. Therefore, it is essential to guard against the “legal centrist view,” which assumes that law is inherently superior to state ownership. Privatizing SOEs is not merely the transfer of equity—it demands the establishment of advanced legal and regulatory frameworks, making it a complex and gradual endeavor.
About the Speaker
Associate Professor, Faculty of Law
Discussants
Professor Yuping Lin
Assistant Professor, Faculty of Law, The Chinese University of Hong Kong
Dr. Zhicheng Huang
Research Assistant Professor, Faculty of Law, The University of Hong Kong
Moderator
Professor Weilin Xiao
Assistant Professor and Deputy Director of Philip K. H. Wong Centre for Chinese Law, Faculty of Law, The University of Hong Kong