Degree Of Openness, Market Competition And Privatization Of State-owned Enterprises

Since the year of 1979, China began to enter the time of reform and opening, which are named as "two basic points" by central governments. In economics, reform and opening means economic reform and opening to the outside world. Of course, both of them include many specific aspects. For example, the former involves economic freedom, marketization reform and privatization of the state-owned enterprises; the latter involves extension of the international business and entry of FDI. A great many people, including many economists think that economic reform and opening to the outside world have the mutual influence; one is based on the other. If regarding opening to the outside world as the basis, shall we say it is the cause of economic reform? To be more specific, if privatization of the state-owned enterprises is regarded as the standard of economic reform, and entry of foreign enterprises is regarded as the standard opening to the outside world, then shall we say the latter can promote the former? A standard economic framework is needed to prove it.According to the previous literature, the reasons for privatization of the state-owned enterprises can be concluded into two: One is the limitation of inner-goverment within state-owned enterprises lead to privatization; the other is competition from the outside result in privatization. This thesis follows the latter reason, which is that privatization of state-owned enterprises may originate from entry of the foreign businesses. The monopolization of state-owned enterprises is altered by the entry, which causes the change of market structure, and thus inevitably cause the changes in the profit of state-owned enterprises and the welfare level in the whole society. The final result is the change of the government decision in state-owned enterprises. While non-tax cost and tax cost are changed, the cost of foreign enterprises will be changed accordingly, therefore will affect supply quantity, then further to affect the proportion of privatization of state-owned enterprises.To conclude, under the framework of mixed oligopoly competition in industrial organizational theory, this thesis respectively discusses the influences of change of non-tax cost and the change of tax cost on foreign enterprises and FDI, government decision on privatization of state-owned enterprises, and issues concerned.The thesis is arranged as follows:Chapter one provides a norm framework under closed economic condition, most of which is a simple two-period decision Cournot competition model. Through setting some strict conditions, government decision on privatization of state-owned enterprises is discussed when private enterprises are allowed to enter the industry and when private enterprises are not allowed to enter the industry. The conclusion is that if private enterprises are not allowed to enter the industry, government will not privatize the state-owned enterprises, that is, keep 100% state-owned enterprises. However, if private enterprises are allowed to enter the industry, under certain conditions, government will private state-owned enterprises partly. Finally, this chapter discusses the issues and some results concerned in the model, such as the effects of market capability, cost coefficient in state-owned enterprises, and policy burden coefficient of government.Chapter two broadens the closed model in chapter one, and competition of import enterprises is added. This chapter discusses the effects on government decision on privatization of state-owned enterprises when non-tariff wall decreases. A general conclusion is that the lower cost of state-owned enterprises, the higher proportion of the privatization of state-owned enterprises.Chapter three also add import enterprise competition, but it discusses the effects on government decision on privatization of state-owned enterprises when tariff wall decreases. We find that in two department model, if government decreases tariff rate, government will increase the proportion of stat-owned enterprises, coming from the income of tariff levied on import enterprises into government, which is different from the conclusion in last chapter; while in three department model, we can find that under certain conditions, if government decreases tariff, the proportion of privatization of state-owned enterprises will be increased. General conclusion is that the lower cost of state-owned enterprises, the higher proportion of the privatization of state-owned enterprises. Chapter four adds FDI competition, and it discusses government decision on privatization of state-owned enterprises when facing non-tax cost decrease. Based on this model, concerned theories are discussed. General conclusion is that the lower cost of state-owned enterprises, the higher proportion of the privatization of state-owned enterprises.Chapter five also adds FDI competition, but it discusses government decision on privatization of state-owned enterprises when tax rate decreases in FDI. General conclusion is that the lower cost of state-owned enterprises, the higher proportion of state-owned enterprises. Besides, when private enterprises exist, the proportion of state-owned enterprises will be higher.Finally, a brief conclusion is made on main theories in the thesis. Further research direction is lead in the last part as well.