Research

Do state-owned enterprises (SOEs) stabilize economies in response to international shocks? Using firm-level data from China during 1998–2013, we show that SOEs responded more strongly to foreign demand during the 2000–2007 boom, but became significantly less sensitive during the 2008 Global Financial Crisis—acting as macroeconomic stabilizers. This asymmetry is linked to soft budget constraints: SOEs face lower financing costs and increased debt capacity during downturns. We develop a model with asymmetric information and government bailout. The model explains how state ownership alters the transmission of international shocks through differential access to credit and learning dynamics.