In this seminar, Paul Hubbard will explore a contradiction in Chinese state-owned enterprise (SOE) reform between market efficiency and making SOEs ‘bigger, better and stronger’. Based on a large-scale survey of manufacturing enterprises from 2011–2013, Paul will show that small SOEs in highly competitive sectors are able to survive without capital subsidies. The bulk of state manufacturing capital is concentrated in very large SOEs, however, and these have an implied cost of capital that is on average 8 percentage points lower than the competitive rate for large non-SOEs. As long as this ‘dual track’ pricing of capital for large SOEs continues, painstaking reforms to improve the performance of thousands of smaller SOEs will make no discernible impact.