Abstract: There is no doubt that the Chinese economy grew much faster in the reform era than before; this was true in agriculture as well as in the nation's industrial sector on the whole.however, if we focus on the performance of the state sector, which dominated industrial production in Maoist China, a different picture emerges.during the first two decades of the reform era, the output of the state-owned industry increased from 367.36 billion yuan in 1979 to 3,557.1 billion in 1999 (guojia tongjiju 2005: 64), or 12 percent a year, which was striking.But the record of the Maoist era is no less impressive. in the twenty-five years before the reform, the industrial output of the state sector also grew by 12 percent a year, from 19.37 billion yuan in 1953, the year when Chinese economy was fully recovered from war devastation and when the first five-year plan started, to 328.92 billion in 1978, the last year of the Maoist era (guojia tongjiju 2005: 63-64).needless to say, many factors influenced the performance of state-owned enterprises, and these factors varied before and during the reform; therefore, the growth rate of the state sector alone cannot sufficiently explain the efficiency or inefficiency of the enterprises involved or the effectiveness of industrial institutions in different periods.nevertheless, the fast expansion of the state sector in the Maoist era suggests that the systems and institutions underlying the state firms should not simply be dismissed as a failure, as many have assumed in the past.