Markups in the Chinese Economy - And the difference between State-Owned Enterprises and Private Publicly Listed Firms

Abstract

The paper examines the markup levels in the Chinese economy to estimate the level of competition present in the economy and the differences between publicly listed firms and the state-owned enterprises. The markups are estimated with a similar framework to that of the production method, utilizing firms’ financial statements. The method estimates the markup by observing revenue from sales divided by the observed cost of the goods sold times the variable output elasticity that is estimated from the data. The results indicate that state-owned enterprises extract lower markups than their private counterparts and that large firms extract lower markups than smaller firms. The overall result is that markups have declined in the Chinese economy over the past three decades. Given a certain set of assumptions the paper recommends further measures to ensure fair competition in the economy.