Introduction

Despite sustained efforts to privatize state-owned enterprises (SOEs) across various sectors in China, they continue to play a significant role in certain industries. Existing scholarship has yet to provide a fully satisfactory explanation for the historical development and sectoral distribution of SOEs. Economists frequently argue that SOEs serve as tools for addressing market failures, while others interpret them as outcomes of political decisions shaped by ideology and interest group dynamics. This book advances a legal theory of SOEs, asserting that prevailing accounts are incomplete. Market failures, after all, can also be addressed through regulatory measures. The more pertinent comparison, therefore, is between the use of SOEs and the use of regulation. When regulatory costs are high, SOEs are more likely to arise, endure, and resist privatization.