The double-edged sword of state capitalism: Evidence from labour cost stickiness in Chinese state-owned enterprises
研究中国国有企业中无关联国有非控股股东如何降低劳动力成本粘性，主要通过工资调整而非裁员实现，揭示了国家资本主义在国企治理中的双刃剑效应。
This paper examines the implications of state capitalism for Chinese state-owned enterprises (SOEs) by analysing how unrelated state-owned non-controlling shareholders (NCSs) affect labour cost stickiness. Although state capitalism often leads to government intervention in SOEs’ labour investment decisions, resulting in reluctance to reduce the workforce during sales declines, it can also unintentionally introduce a countervailing monitoring mechanism. Specifically, unrelated state-owned NCSs, defined as those not owned by either the upper-level or lower-level government controlling the firm, can constrain excessive intervention. Using data from Chinese SOEs from 2008 to 2023, we find that SOEs with unrelated state-owned NCSs exhibit significantly lower labour cost stickiness than those without. This effect is stronger when these NCSs hold larger ownership stakes, have shorter ownership durations, are geographically distant from the SOEs, lack co-investment ties, manage smaller investment portfolios, or have close business proximity to the SOEs. We further show that reductions in labour cost stickiness are primarily achieved through wage adjustments rather than workforce reductions. We also rule out the alternative explanation that the observed effect is driven by unrelated state-owned NCSs preferentially investing in SOEs located in more favourable institutional environments. Overall, our findings highlight the double-edged sword nature of state capitalism in SOE governance.