In the 1980s, many firms in China were government-sponsored enterprises that were either owned by the government or received large government subsidies. Since the 1990s, the Chinese government has been selling off many of the companies that it owned and has been reducing the subsidies previously granted to other firms. As a consequence, many former government-sponsored enterprises have had to make long-run adjustments. Most of these adjustments have involved downsizing plant sizes, cutting levels of employment, and reducing rates of output. The payoffs for most companies have been reductions in long-run average total costs ranging from 25 to 50 percent.

Prior to the end of government sponsorship, were Chinese companies experiencing economies of scale or diseconomies of scale?