We investigate the relative performance of state-owned enterprises (SOEs) and privatelycontrolled firms in China,and whether related party transactions (RPTs) add to or subtract from their relative performance.SOEs are firms where the controlling interest can be traced ultimately to the state,and privately-controlled firms are where the controlling interest can be traced to an individual or family.For a sample of 90 firms that were listed in China between 2007 and 2009 (comprising 45 SOEs and 45 privately-controlled firms matched on industry and size),we conclude that SOEs engage in more tunneling,but find no evidence that privately controlled firms engage to a greater degree in either tunneling or propping.During this period,SOEs annually outperformed privately-controlled firms by almost 4.5% in terms of ROA (unadjusted for RPTs),but their performance advantage was completely offset by tunneling by about 6% of ROA,such that they annually underperformed privately-controlled firms by a net 1.5% of ROA.We find that disentangling the relative effects of ownership control and RPTs provides a fuller explanation of the relative performance of Chinese publicly listed firms.The economics of investing in Chinese firms with different controlling interests and RPTs may be of interest not only to investors and other stakeholders in Chinese firms listed domestically,but also to international investors in overseas and cross-listed Chinese firms.