This study offers empirical evidence about how the structure of government and private ownership affected productivity in Chinese firms. It uses the microdata of China's last decennial industrial census, covering all of the 23,000 large and medium-sized industrial firms operating in China during 1995. The results show that government decentralization – ‘federalism’ – played an important role in improving the performance of not just collective firms, but also state-owned and mixed public/private ownership firms. This result is strongly confirmatory of much of the recent theoretical work on transition economies that posits a key role for government in the efficient operation of markets.
