Emergence of Local Competitors

Chapter 3 examines how strong local competitors emerged in China. An important rationale of the Chinese government’s gradual opening was to buy time for local firms to restructure and improve operations before entering head to head competition with multinationals. Thousands of SOEs transformed into limited liability firms or joint stock companies with SASACs assuming ownership. Many of these former-SOEs were listed in the stock exchanges, allowing them to be run as private firms despite de facto state ownership. These newly privatized firms were then able to invest more in fixed and intangible assets and, in turn, increase sales and improve productivity and profitability. In addition, tens of thousands of firms, typically run by private entrepreneurs with superior technology, newly entered the industry, challenging incumbent local and foreign competitors. This chapter begins with a case study of China’s consumer products industry, in which several strong local firms emerged, competing against multinationals.

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