Journal of Productivity Analysis, 18, 255–267, 2002  C 2002 Kluwer Academic Publishers. Manufactured in The Netherlands. Efficiency of Chinese Enterprises ALICE SHIU bushiu@inet.polyu.edu.hk Room M818, Department of Business Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong Abstract This paper compares the efficiencies across firm ownership types in China. Empirical results show that the non-state-owned enterprises are more efficient than the state-owned enter- prises, which provides evidence to support the continued shifting of industry structure from state-owned enterprises to non-state-owned enterprises. Also, the economic gap between the western and coastal regions are found to be related to the variations of performances of ownership types in these regions. In addition, the issue of crossing frontiers and two interesting features of the Byrnes (1985) technique on the separation of across-group and within-group technical efficiency measures are evaluated. JEL classification: C4, A1 Keywords: data envelopment analysis (DEA), across-group efficiencies, within-group efficiencies, crossing frontiers, ownership types in China 1. Introduction Differences in production efficiencies across ownership types have been found in various industries due to different management styles and regulations (see Byrnes, 1985; Grosskopf and Valdmanis, 1987; Grosskopf, Margaritis and Valdmanis, 2001). In China, because of the separation of ownership and control and the soft-budget constraint problem, the state- owned firms (SOEs) are usually found to be operating inefficiently as compared to the non- state-owned ones (non-SOEs) (see Lin, Cai and Li, 1998; Huang, Cai and Duncan, 1997; Wu, 1998). In addition, the property rights that constitute ownership play a very important role in explaining why SOEs are relatively inefficient (see Steinfeld, 1999; Lin, Cai and Li, 1999). In China, the control and cash-flow rights for SOEs are typically either misaligned or not properly defined. This ends up giving too many people control over the firm and access to firm-level capital, while no one clearly bears any responsibility. Consequently, over-employment of labour, overproduction of products and misallocation of resources result, which leads to inefficiencies of operation. Unlike the SOEs, the non-SOEs generally have relatively clearly defined property rights. They do not have access to central sources of credit or subsidization and they have hard budget constraints. Many of them behave like free-market producers and respond to the productivity incentives of the market, which probably leads to relatively higher efficiency of operation.