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Is an Industrial Policy Possible in China?: The Case of the Automobile Industry

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Authors
Eun, Jong-Hak; Lee, Keun
Issue Date
2002-12
Publisher
서울대학교 국제학연구소
Citation
Journal of International and Area Studies, Vol.9 No.2, pp. 1-21
Keywords
industrial policyautomobilesentry controlcapacity reorganizationM&AChinalocal governmentThe First Auto Works
Abstract
This paper first defines industrial policy as ‘entry control’ and ‘capacity reorganization’, and then evaluates the effectiveness of industrial policy in the automobile sector in China. It argues that the industrial policies declared in ’87 and ’94 in China were not implemented successfully enough to control new entries nor to reorganize capacity among the incumbent companies. Consequently, the industrial organization of the automobile sector was highly fragmented. Concerning the cause of entry control failure, this paper examines the incentive structure of Chinese local governments that exercised de facto property rights over the companies in their jurisdiction throughout the reform period. It shows that local governments have strong incentives to ward off the central government’s entry control, and that local governments were strong enough to resist the center’s order, backed up by their fiscal and administrative capacity. To explain the causes of capacity reorganization failure, this paper looks at the cases of the First Auto Works group’s M&A’s, and argues that these M&A’s did not lead to effective capacity reorganization within the group. The paper concludes that industrial policy has failed in China, and that the central government finds it difficult to conduct effective industrial policy given the strength of local governments. The recent and future development of the Chinese automobile industry seems to be driven by market forces rather than by discretionary industrial policy.
ISSN
1226-8550
Language
English
URI
http://hdl.handle.net/10371/96379
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Graduate School of International Studies (국제대학원)Dept. of International Studies (국제학과)Journal of International and Area StudiesJournal of International and Area Studies vol.09 (2002)
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