China,s Evolving Managerial Labor Market Theodore groves University of California, San Di Yongmiao Hong John Mcmillan and Barry Naughton University of California, San diego Recent reforms of Chinese state-owned enterprises strengthened a nascent managerial labor market by incorporating incentives sugges- tive of competitive Western labor markets. Poorly performing firms were more likely to have a new manager selected by auction be required to post a higher security deposit, and to be subject to more requent review of the manager's contract. Managers could be, and were, fired for poor performance. Managerial pay was linked to the firm's sales and profits, and reform strengthened the profit link and weakened the sales link. Thus the economic reforms helped develop an improved system of managerial resource allocation responsive market forces I. Introduction In this paper we give evidence that the reforms of the 1980s in Chi- nese state-owned enterprises significantly strengthened a nascent e thank the Ford Foundation for research support and Masahiko Aoki, Takeo Hoshi, John Litwack, Mark Machina, Yingyi Qian, Valerie Rar minar participants resere ford onmivesits we athe ackiversie ot Calitornv Slaa Diego, and an anonymous sity and the Economics Research Institute at the Chinese Academy of Social Sciences for their participation in the larger project, of which this paper is but a small part