Complementary institutions of industrial policy: a quasi-market role of government inspired by the evolutionary China Model

Abstract

China has achieved rapid economic growth over the past four decades, and industrial policy is widely considered an important driving force in the process. This paper traces the evolutionary process of China’s industrial policies in the transition of the economic system, and summarises the complementary institutions behind the successes and failures of using industrial policies. China’s industrial polices evolved through four stages, namely the initial stage, the building stage, the outreach stage and the upgrading stage. Typical sectors – light industry, the automobile industry, the mobile telecommunication industry and the platform industry – are examined. The study finds that although China’s industrial policies have been inefficient or even failed in micro-level interventions for choosing winners, they have achieved success at the macro level such as market shaping and structural adjustment. We conclude that in transition economies with imperfect market mechanisms, the government can act as a ‘quasi-market’ and provide autonomous, competitive and inclusive institutions, thereby giving play to the mechanism of trial and error, discovering knowledge and mutual learning.

Keywords:

• Industrial policy
• complementary institutions
• China Model

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The ‘Three Laws on Foreign Investment’ refers to the three existing laws in the field of foreign investment promulgated between 1979 and 1990, namely, the ‘Law on Sino–Foreign Equity Joint Ventures’, the ‘Law on Sino–Foreign Cooperative Joint Ventures’ and the ‘Law on Foreign-Funded Enterprises’. In 2019, these three laws were replaced by the unified ‘Foreign Investment Law’, which came into effect on 1 January 2020.

2 In 2002, the work report of the 16th National Congress of the Communist Party of China clearly stated that the policy aim was ‘to give full play to the fundamental role of the market in resource allocation to a greater extent, and to improve a unified, open, competitive and orderly modern market system’. In October 2003, the Third Plenary Session of the 16th Central Committee of the Communist Party of China issued the ‘Decision of the Central Committee of the Communist Party of China on Key Issues Concerning the Improvement of the Socialist Market Economic System’, which clearly stated that ‘the fundamental role of the market in resource allocation should be brought into full play, and enterprises should be strengthened, dynamism and competitiveness’.

3 In 2004, the State Council promulgated the ‘Decision on Deepening the Reform and Strict Land Management’, and in 2007, the Ministry of Land and Resources issued the ‘Regulations on the Assignment of State-Owned Construction Land Use Rights by Bidding, Auction, and Listing’ (also known as ‘Order No. 39’), which requires that industrial land should also be up for bidding, auctioning and listing.

Additional information

Funding

This study is funded by China’s National Social Science Fund for the major project ‘Boundaries, Mechanisms and Optimisation of the Government’s Role in a Market-Oriented Innovation System’ (Project No. 18ZDA115).

Notes on contributors

Ling Chen

Chen Ling ([email protected]) is Associate Professor at the School of Public Policy and Management, Tsinghua University. She also serves as Director of the Center for Industrial Development and Environmental Governance (CIDEG) at Tsinghua University. Her research interests focus on industrial policies, innovation policies and policy process.

Buhe Chulu

Buhe Chulu ([email protected]) was a PhD student at the School of Public Policy and Management at Tsinghua University at the time of writing this manuscript. Having graduated from Tsinghua University, he serves as a local official in the Inner Mongolia Autonomous Region, China.