Local Government and Big Business in the People's Republic of China – Case Study Evidence from Shandong Province

Abstract

China has implemented comprehensive industrial policies that originally had their origins in the command economy. It is argued in this case study that one characteristic of industrial policies in China involves government intervention at all levels, namely central, provincial, municipal, county, township and village. This article presents an in-depth examination of the role of provincial government in pursuing industrial polices and in constructing big businesses during the reform period. It draws the conclusion that even in the World Trade Organization (WTO) era, it is still feasible for provincial governments to manage the local economy and promote big businesses by allowing local firms to enjoy both economies of scale and subsidies.

Keywords:

• big business
• China
• developmental state
• industrial policy
• local government
• WTO

Notes

¹ Industrial policy in the article is defined as ‘anything involving direct or indirect government intervention in the market place typically by a range of policy instruments, in order to achieve a different allocation of resources to specially defined priority industries at any point in time than would occur through the normal operation of the market place’ (Patrick, 1997: xiii). A more narrowly defined industrial policy is that ‘policy aimed at particular industries to achieve the outcomes that are perceived by the state to be efficient for the economy as a whole’ (Chang, 1994).

² The privileges included promoting export and foreign direct investment (FDI), delegating more autonomy to local governments to manage economic activities, and fostering favourable foreign exchange retention, taxation, tariff, land use and profit liquidity policies.

³ They were the Haier Group, the Haihua Group, the Langchao Group, the Qingdao Brewery Group, the Qingqi Group, the Shandong Mechanical Engineering Group, the Sanlian Group and the Xinhua Phamaceuticals Group.

⁴ The popular form of financing incentive is enterprise bonds, which central government approves enterprises to issue in order to support infrastructure development. In 2005, the State Council issued RMB60.5 billion bonds

⁵ Interview with the Deputy Director of the Planning Department of the Shandong Development and Reform Committee, in Jinan, June 2001.