ABSTRACT
This chapter discusses the characteristics of China's private enterprises (PEs), China's accession to the World Trade Organization (WTO) and the challenges PEs will face, and presents some policy considerations. Liu, Liu, Wang, and Woo develop a market-share-testing principle to assess how WTO accession would impact the evolution of ownership in different industrial sectors. Wang and Chu notes that many PEs in China are family business, which means they are directly controlled and managed by their owners. The moral hazard problems associated with the owners and managers of the large state-owned firms are also lessened since the welfare of the entire family is directly linked to the profitability of the firm. According to the Heckscher-Ohlin factor-endowment theory (HOT), nation's endowments, such as labor, land, and capital, are the key determinants of its comparative advantage. Therefore, according to HOT, under the pressure of the market, developing countries will see their economic institutions develop around their most plentiful endowments.
