Chinese State-owned Enterprise Incentive - Constraint Mechanism: The Economic Performance And Institutional Change

lVlanager is one of the most important factors in corporation, whose capability, effort and achievement of management have direct impacts to corporation efficiency. Because of the difference between state owner and managers, there is serious agent problem in State-owned Enterprises (SOEs). As the institutional pivot between corporation interior governance structure and exterior governance environment, the Incentive-constraint System (ICS) is a key to interpret and solve many problems about SOE. Using the method that institution determines action that determines performance, this paper reviews and discusses institutional change and innovation of SOEs in the point of ICS. This thesis has four parts. In Chapter l,after having described the theory about ICS, we put forward and prove briefly an Optimum ICS in which the economic means plays a leading role and there are character of symmetry and compatibility between incentive and constraint. The analysis framework is the theory base of the following part. Chapter 2 has reviewed the institutional arrangement and economic performance of traditional SOE's ICS, which main malpractice is that non-economic means including administration and ideology distorts seriously managers?action and motivation and causes SOE's slow developing and long low-efficiency. Passing a series of transformation, these managers become progressively the controllers of SOEs and enjoy more benefit. But at the same time, SOE's overall position becomes severer and severer, so that the SOE reform finds itself in a woeful predicament. Following the analysis framework, chapter 4 argues that Chinese SOE reform must accomplish institutional innovation. That is, SOEs must build reasonable corporation governance to form interior ICS; and perfect market and institutional environment to form exterior ICS. In the end, this thesis indicate that, although the SOE reform has a long road in the process of market-oriented transform, SOEs should achieve their aim after having perfected ICS.