This article utilises economic census microdata to examine the impact of state-owned enterprises (SOEs) on the employment growth of manufacturing industries in Chinese cities between 2004 and 2008. The main findings show that the presence of SOEs inhibits employment growth in the manufacturing industry. Using the historical landscape of SOEs as an instrumental variable, our findings underscore that the overall impact of SOEs remains negative. This study then explores three potential mechanisms underlying this negative relationship. First, SOEs appear to have no significant impact on knowledge spillovers in their own industry. Second, SOEs tend to hinder the entry of new privately-owned enterprises (POEs) into the marketplace. Third, SOEs are generally less productive than POEs. The article also provides new evidence about dynamic externalities theory: the employment growth rate of manufacturing industries is higher in cities, with a substantial number of rivals in their own industry.
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