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Contents Introduction

The paper evaluates the performance of state-owned enterprises (SOEs) in Chinese iron and steel industry by applying the stochastic frontier approach with panel data. Differences in technical efficiency between various groups of SOEs are examined, with rather a surprising finding that the largest steel producers do not have a significant efficiency advantage over smaller SOEs, even though the former were recently selected by the Chinese authorities to be the core of a vigorous centralized merger campaign. Moreover, even though SOEs experienced a steady upward shift in their production possibility frontier, we found that their technical efficiency did not improve during the examined period. The paper identifies several determinants of SOE inefficiency, and then discusses policy implications of reported findings.