Using a firm-level dataset of China’s “above designated size” industrial enterprises from 1998 through 2007, this paper investigates the firm turnover and its productivity change effect in China. Dividing the firms into state- controlled enterprises (SCEs) and non-state-controlled enterprises (NSCEs), and also dividing the industries into strategic industries and non-strategic industries, this paper shows some impressive findings. Compared with the SCEs in strategic industries, the SCEs in non-strategic industries show higher survival rate and entry rate and lower privatization rate. Consequently, the SCEs still remain dominant in strategic industries. It is found that the entry of the NSCEs is the most significant factor to improve the productivity of non-strategic industries, while the productivity improvement of the survival NSCEs and the exit of both the NSCEs and the SCEs are also important. However, generally speaking, the productivity of strategic industries are enhanced mostly by the exit of the SCEs, as well as either the productivity improvement or the reallocation of the survival SCEs. It is also confirmed that privatization achieves relatively small productivity improvement effect, compared with other kinds of turnover effects. It is concluded that from a viewpoint of productivity progress, the restructuring of state capital in China has achieved significant success by closing the low-productivity SCEs down and improving the productivity of the survival SCEs. On the other hand, the newly-established SCEs rarely contribute largely to productivity progress in most of the 2-digit industries. The state capital reform is still unfinished.

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