CHINA S MANAGERIAL LABOR MARKET plans describing investment and product development. In most cases, bidders made commitments to invest a certain minimum of enterprise retained profits in output expansion, and sometimes made commit ments to reach a specified output level as well. Bidders were assessed for reliability and professional skill, sometimes through an explicit point system. The auctioneers then chose the winning bidder on the basis of promised profit delivery, the soundness of the management plan, and the characteristics of the individual bidder Regardless of whether firms were subjected to competitive auction r not, the top manager was generally required to sign a management contract. In many cases, the manager was required to put up a secu- rity deposit, which could be forfeited if the firm failed to perform as omised. This security deposit was substantial: the mean level in our sample was 8, 500 yuan, compared to an annual average wage of 2, 177 that some managers did indeed lose some or all of their security deposit following poor firm per genuinely at risk Like the auctions themselves, the security deposits can be interpreted as substituting for other managerial incentives found in established managerial labor markets. In the West, managers often have a stake in the firm in the form of stockholdings or stock options: security deposits similarly serve to give the manager a stake in the firms per- formance III. Empirical Evidence of the Market Hypothesis A. Manager and Worker Turnover In a well-functioning market, one expects to see a relatively large number of transactions. Thus a first question to ask about the Chinese managerial labor market is whether there is evidence of much turn over. The answer is yes. Only 1l percent of managers serving at the end of the period had been appointed before 1980, and 44 percent had been appointed since 1985. Since less than a quarter(23 percent) of the current managers replaced retiring managers, turnover is oc- urring for other reasons. a clue can be gleaned from the observation that of the remaining group, 38 percent replaced managers who were promoted, 46 percent replaced ones who were moved laterally, and 16 percent replaced ones who were demoted We can compare this turnover in a rough way with average tenure lengths for American and Japanese chief executives. Kato and Rockel (1992, p. 34)report that incumbent chief executives have held their positions in the United States and Japan for an average of 7. I and 7.7