Why do mainland Chinese firms succeed in some sectors and fail in others? A critical view of the Chinese system of innovation

Andrew Tylecote, Jing Cai, Jiajia Liu

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

Domestically owned firms in mainland China have shown disappointing technological performance in higher-technology sectors. We argue that deficiencies in the systems of finance and corporate governance are largely to blame. Private firms have been starved of financial resources. The key weakness of Chinese State-Owned Enterprises (SOEs), lies in their corporate governance: the officials monitoring them have been 'disengaged', with the consequence that the investment of money and effort, which was low in visibility ('opaque') and/or slow in pay-off, has been discouraged. 'Disengagement' also discourages the development of close interfirm relationships and employee 'inclusion'. We examine a small number of sectors, notably telecoms and motor vehicles, in which Chinese firms appear to be doing well, showing that 'untypical' corporate governance produces untypically good results. We conclude by warning against relying on financial accounting measures in monitoring large SOEs, pointing to the UK example. China should find Chinese ways to achieve engagement and inclusion.
LanguageEnglish
Pages123-144
Number of pages12
JournalInternational Journal of Learning and Intellectual Capital
Volume7
Issue number2
DOIs
Publication statusPublished - 1 Jan 2010
Externally publishedYes

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Monitoring
Chinese firms
State-owned enterprises
Corporate governance
Inclusion
Systems of innovation
Mainland China
Warning
Private firms
Interfirm relationships
Financial resources
High technology
Corporate finance and governance
Visibility
China
Motor vehicles
Employees
Financial accounting

Cite this

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title = "Why do mainland Chinese firms succeed in some sectors and fail in others? A critical view of the Chinese system of innovation",
abstract = "Domestically owned firms in mainland China have shown disappointing technological performance in higher-technology sectors. We argue that deficiencies in the systems of finance and corporate governance are largely to blame. Private firms have been starved of financial resources. The key weakness of Chinese State-Owned Enterprises (SOEs), lies in their corporate governance: the officials monitoring them have been 'disengaged', with the consequence that the investment of money and effort, which was low in visibility ('opaque') and/or slow in pay-off, has been discouraged. 'Disengagement' also discourages the development of close interfirm relationships and employee 'inclusion'. We examine a small number of sectors, notably telecoms and motor vehicles, in which Chinese firms appear to be doing well, showing that 'untypical' corporate governance produces untypically good results. We conclude by warning against relying on financial accounting measures in monitoring large SOEs, pointing to the UK example. China should find Chinese ways to achieve engagement and inclusion.",
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AU - Tylecote, Andrew

AU - Cai, Jing

AU - Liu, Jiajia

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N2 - Domestically owned firms in mainland China have shown disappointing technological performance in higher-technology sectors. We argue that deficiencies in the systems of finance and corporate governance are largely to blame. Private firms have been starved of financial resources. The key weakness of Chinese State-Owned Enterprises (SOEs), lies in their corporate governance: the officials monitoring them have been 'disengaged', with the consequence that the investment of money and effort, which was low in visibility ('opaque') and/or slow in pay-off, has been discouraged. 'Disengagement' also discourages the development of close interfirm relationships and employee 'inclusion'. We examine a small number of sectors, notably telecoms and motor vehicles, in which Chinese firms appear to be doing well, showing that 'untypical' corporate governance produces untypically good results. We conclude by warning against relying on financial accounting measures in monitoring large SOEs, pointing to the UK example. China should find Chinese ways to achieve engagement and inclusion.

AB - Domestically owned firms in mainland China have shown disappointing technological performance in higher-technology sectors. We argue that deficiencies in the systems of finance and corporate governance are largely to blame. Private firms have been starved of financial resources. The key weakness of Chinese State-Owned Enterprises (SOEs), lies in their corporate governance: the officials monitoring them have been 'disengaged', with the consequence that the investment of money and effort, which was low in visibility ('opaque') and/or slow in pay-off, has been discouraged. 'Disengagement' also discourages the development of close interfirm relationships and employee 'inclusion'. We examine a small number of sectors, notably telecoms and motor vehicles, in which Chinese firms appear to be doing well, showing that 'untypical' corporate governance produces untypically good results. We conclude by warning against relying on financial accounting measures in monitoring large SOEs, pointing to the UK example. China should find Chinese ways to achieve engagement and inclusion.

KW - Chinese system of innovation

KW - technological performance

KW - Finance

KW - corporate governance

KW - interfirm relationship

KW - national innovation systems

KW - NIS

KW - China

KW - state-owned enterprises

KW - SOEs

KW - telecommunications

KW - automobile industry

KW - private firms

KW - financial accounting

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DO - 10.1504/IJLIC.2010.030794

M3 - Article

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EP - 144

JO - International Journal of Learning and Intellectual Capital

T2 - International Journal of Learning and Intellectual Capital

JF - International Journal of Learning and Intellectual Capital

SN - 1479-4853

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