Weak productivity
performances during the first decade of the reform period could be attributed to several
factors: First of all, in the beginning of the reform era, in Chinese industry, TFP gains were
hampered by the sluggish economic performances of the state sector. Given soft budget
constraints, in state-owned enterprises (SOEs), there were very few incentives to enhance
productivity. As a consequence, during this period, the Chinese state sector was mainly
characterised by overstaffing, excess investment in fixed capital and poor management.