Industrial policy and resource allocation: implications on China's participation in globalization (original) (raw)

China’s Industrial Policy: an Empirical Evaluation

SSRN Electronic Journal, 2019

Industrial policies, broadly defined as policies that shape a country's or region's industry structure by either promoting or limiting certain industries or sectors, have been widely used in developed and developing countries. Despite their importance, few empirical studies directly evaluate the welfare consequences of these policies using micro-level data. This study examines an important industrial policy in China-the policy to develop the country's shipbuilding industry to the largest worldwide in the 2000s. Using comprehensive data on shipyards worldwide, we quantify the magnitude of China's industrial policies in supporting its domestic ship building industry using a dynamic model. Our estimates suggest that the combined policy support exceeded 500 billion RMB from 2006 to 2013, boosted China's domestic investment and entry by 270% and 200%, respectively, and enhanced its world market share by 40%. On the other hand, the policy created sizable distortions and led to increased fragmentation and idleness. Production and investment subsidies can be justified based on market share considerations, but entry subsidies are wasteful. The distortions induced by industrial policy could have been significantly reduced by implementing counter-cyclical policies and by targeting subsidies towards more productive firms. Finally, we find little evidence in support of the traditional justifications for industrial policies. Our results point to the importance of non-economic considerations in contributing to the policy design.

The Global Welfare Impact of China: Trade Integration and Technological Change

SSRN Electronic Journal, 2000

This paper evaluates the global welfare impact of China's trade integration and technological change in a quantitative Ricardian-Heckscher-Ohlin model implemented on 75 countries. We simulate two alternative productivity growth scenarios: a "balanced" one in which China's productivity grows at the same rate in each sector, and an "unbalanced" one in which China's comparative disadvantage sectors catch up disproportionately faster to the world productivity frontier. Contrary to a well-known conjecture (Samuelson 2004), the large majority of countries in the sample, including the developed ones, experience an order of magnitude larger welfare gains when China's productivity growth is biased towards its comparative disadvantage sectors. We demonstrate both analytically and quantitatively that this finding is driven by the inherently multilateral nature of world trade. As a separate but related exercise we quantify the worldwide welfare gains from China's trade integration.

China's industrial sector in an international context

2000

I. Introduction The industrial sector accounts for 40% of global energy use. In 1995, developing countries used an estimated 48 EJ for industrial production, over one-third of world total industrial primary energy use (Price et al., 1998). Industrial output and energy use in developing countries is dominated by China, India, and Brazil. China alone accounts for about 30 EJ (National Bureau of Statistics, 1999), or about 23% of world industrial energy use. China's industrial sector is extremely energy-intensive and accounted for almost 75% of the country's total energy use in 1997. Industrial energy use in China grew an average of 6.6% per year, from 14 EJ in 1985 to 30 EJ in 1997 (Sinton et al., 1996; National Bureau of Statistics, 1999). This growth is more than three times faster than the average growth that took place in the world during the past two decades. The industrial sector can be divided into light and heavy industry, reflecting the relative energy-intensity of the manufacturing processes. In China, about 80% of the energy used in the industrial sector is consumed by heavy industry. Of this, the largest energyconsuming industries are chemicals, ferrous metals, and building materials (Sinton et al., 1996). This paper presents the results of international comparisons of production levels and energy use in six energy-intensive subsectors: iron and steel, aluminum, cement, petroleum refining, ammonia, and ethylene. The sectoral analysis results indicate that energy requirements to produce a unit of raw material in China are often higher than industrialized countries for most of the products analyzed in this paper, reflecting a significant potential to continue to improve energy efficiency in heavy industry. It should be noted however, that data availability limit the ability to conduct in-depth analysis in some sectors. The international comparisons made in this paper follow the methodological recommendations from two workshops and a handbook on international comparisons of industrial energy efficiency (Martin, 1994; Phylipsen et al., 1996; Phylipsen et al, 1998). These comparisons can be used to analyze differences in trends between countries as well as to identify opportunities for efficiency improvement. We first compare physical production levels for the six major commodities produced in the analyzed subsectors. Second, we compare the energy intensity, defined as the energy used per tonne of commodity produced. This measure, which we call the specific energy consumption (SEC), is influenced by the production processes used, the type of product produced, and the energy efficiency of the production process. For sectors for which we have adequate data (iron and steel, pulp and paper, cement), we compare the average SEC in each country to the "best practice" SEC. Best practice SEC is calculated assuming that the same mix of products are produced using existing best practice technology.

Globalization, industrialization and labour markets in China

Journal of the Asia Pacific Economy, 2014

China's experience with globalization is still contested. This paper seeks to examine the impact of global integration and industrialization on labour markets in China. The evidence shows that rising trade and flows of foreign direct investment has not only quickened industrialization and structural change but it has also stimulated a rapid rise in overall and manufacturing real wages. The government's framework of absorbing marketization while maintaining planning control through decentralization has been critical in the development of technological capabilities in manufacturing. Although the nature of economic development after reforms has also widened regional inequalities with the Eastern coastal provinces enjoying higher growth and structural change than the Western and other inland provinces, rising wages suggest that the material conditions of the majority of workers in China have improved.

Trade and Factor Market Reforms in China

Labour, 2002

The benefits of the multi-faceted liberalization of the Chinese economy can be seen in various indicators of economic development. The rate of growth of the economy, the flow of foreign investment in China, and rising quality of life are some of the indicators of gains from the liberalization process. Most of the research has focused on the role of trade reforms on the Chinese economy. There is, however, one unfinished agenda that has not been addressed adequately by policy makers as well as academia, i.e. labor-sector reforms. In this paper, we analyze the effect of labor market liberalization in China using a Computable General Equilibrium (CGE) model. Most CGE models on China using a neoclassical approach assume that there is a single wage rate for the economy. This is a simplifying assumption and has strong implications. Studies show that inter-industry wage differentials persist even after accounting for obvious explanations such as differences in human capital or job hazard. Interindustry structural rigidities in developing countries lead to wage differentials. In China, labor mobility from the rural to the urban sector is restricted. Furthermore, China is on its way to joining the WTO agreement. As a signatory to the WTO agreement, China would be required to reform its trade sector by eliminating tariffs. In this paper, we explicitly model wage differentials in the case of the Chinese economy. Various counterfactual experiments have been conducted to introduce efficiency by the removal of factor market differentials in China in the presence and absence of tariff and non-tariff barriers. Our results indicate that factor market reforms are essential to the realization of full gains from accession to the WTO agreement.

Working Paper No . 2011 / 76 Rethinking China ’ s Path of Industrialization

2011

This study shows that China’s post-1949 state-led industrialization has closely followed an underlying path that began in the late nineteenth century. It was initiated by pressing national defence needs and has since been motivated by the same and strong incentives for a faster catch-up with the West despite radical regime shifts. Government determined or influenced resource allocation benefited selected industries and hence nurtured vested interest groups connecting and integrating with the ruling elite, which have strengthened and sustained the path. This means that the path is inherently inefficient which is evidenced by a newly constructed dataset. Reform measures can only temporarily improve efficiency performance, but are unable to break the path in the absence of a genuine political democracy.

Economic Eects of Liberalization: The Case of China's Accession to the World Trade Organization

Many developing economies have joined or applied to join the WTO as part of their process of transformation to market-oriented economies. Accession to the WTO involves provisions to liberalize capital markets and to signican tly reduce domestic industrial subsidies to the, usually large, state-owned sector. Therefore, any welfare gains derived from such policies are to be considered as part of the welfare gains of trade liberalization. In this paper we develop a dynamic applied general equilibrium model to quantitatively assess the welfare benets of capital market liberalization and domestic industrial policy reform, and we apply it to the case of China's accession to the WTO. We nd that most of China's benets of accessing the WTO are derived from the reduction of the state-owned sector driven by the reform in domestic policy required by the treaty. The highest welfare benets occur when both domestic policy reform and capital market liberalization are jointly implemented. ...

Assessing Gains in Efficient Production among China's Industrial Enterprises

Economic Development and Cultural Change, 1994

China's program of gradual and partial reform has substantially improved economic performance. Despite lingering market rigidities, bargaining, patronage, soft budget constraints, and other phenomena that shield state-owned industrial enterprises from external pressure, industrial managers are economizing more on labor, capital, and materials. Policy Rescarch Working Papers disseminatethefindings of work in progress and encouragetheexchange of ideas amongBank staffand all others interested in developmcnt issues. These papers. distributed by the Research Advisory Staff,carry thenamesoftheauthors,reflect only theirviews, and should be used and cited accordingly. The findings, interpretations, and conclusionx are the authors' own. Theyshould not be attributed to the World Bank, its Board of Directors, its management, or any of its member countries.