Entry, Exit and the Dynamics of Productivity Growth in Chinese Manufacturing Industry

In this paper we have attempted to examine aspects of the competitive selection process, firms’ entry, survival and exit, in an important sector of Chinese manufacturing, looking in particular for changes resulting from the latest stage of reform, dubbed the transition to the “socialist market economy”. These dynamic processes may be becoming increasingly important for the continuing growth of manufacturing, as the agricultural sector as a source of surplus labour begins to decline. Our analysis suggests that the competitive selection process is taking shape in China, with new firm entries contributing substantially to both output growth and productivity growth, however old firm is still an important stabilizing element in determining the trend of the economy. Our analysis also suggests that it is insufficient to analyse the competitive process from the point of view of new firm entry and incumbent firm growth alone; firms’ exit needs to be examined as well. JEL Codes: D24, L11, O12, P31