The Impact of Chinese Government Policies on Industrial Development: The Case of Iron and Steel Industry
Date Issued
2015
Date
2015
Author(s)
Chang, Chia-Lin
Abstract
The Chinese economy has grown at a high speed since it began its reform in 1978, and has become the second largest economy of the world in 2010. The key reason for China’s fast growth is that not only the central government would implement industrial policies to promote the development of their industries, but fiscal decentralization and the local officials’ merit-based promotion system give the local governments incentives to promote their local economies. Therefore, understanding how the central and local government policies influence the development of China’s industries is important for comprehending the Chinese economy. We choose the iron and steel industry as the object of the study because it is a pillar industry of a country’s economy, especially for developing countries, and the Chinese central and local governments have adopted policies to support its development. In Chapter 1, we explain our research motives, analytical approaches, and the research results of the three essays in the dissertation. We investigate the sources of the recent rapid growth of the Chinese steel industry, the impacts of China’s local protectionism on market competitive mechanism, and the determining factors of the differences between the large and medium Chinese steel enterprises, which are presented in Chapter 2 to 4 respectively. In Chapter 2, we find that during the first decade of the 21th century, China’s steel industry grew more than twice as fast as before, and came to account for nearly half of the global steel output. The level of apparent steel consumption per capita in China also rose much above that of other developing countries at similar income levels. We find that the main sources of growth of the Chinese steel industry in recent years lie in the policies of China’s central and local governments. That is, the policies of the central government to marketize residential housing and expand the housing market in the late 1990s, and those of local governments to attract investment, are mainly responsible for driving the extraordinary growth of the steel industry in the last decade. In Chapter 3, we find that the entry and exit rate of the enterprises in the Chinese iron and steel industry from 1998 to 2007 are much higher than those of other countries. It shows that China’s steel industry is highly competitive. However, we also find that there is an overcapacity problem in China’s steel industry for a long time. Hence, we try to account for the contradiction between the two phenomena. Our research results show that the above situation comes from the way that the Chinese local governments promote the steel industry. That is, the local governments would offer enterprises preferential loans, lands with low price, etc., so the enterprises can enter the steel market easily, especially for smaller and private firms. They would also provide tax favors or subsidized loans to certain targeted firms, usually large-scale firms, so that these firms would be less likely to exit the industry even if they continue to incur losses. This policy tends to raise the exit threshold for the favored firms. Consequently, the way that China’s local officials promote the steel firms leads to higher competitiveness and long-term overcapacity in the Chinese steel market. In the last chapter, we investigate the difference in the performance of the large and medium steel enterprises in terms of ownership and scale, and analyze the causes of the difference in performance from 1998 to 2007. The Chinese central government pushed through a massive reform of the state-owned enterprises (SOEs) in the late 1990s, however, some SOEs still dominate heavy industries, including the iron and steel industry. The SOEs are often considered to suffer from soft-budget problem that may affect the development of industries. Thus, we would like to know whether the SOEs maintain their leading position in the steel industry by their own productive advantage or by receiving support of government policies. Our empirical results reveal that although some leading state-owned steel enterprises in China have higher financial burdens, probably due to their greater social responsibilities. But they still have higher productivity than medium-sized SOEs and large private firms because these leading SOEs have greater advantage of economies of scale and they are more likely to be supported by the central government. And the medium-sized SOEs perform worse than other large and medium steel enterprises because not only don’t they have the advantage of economies of scale, but they have higher financial burdens. In addition, the privatized steel enterprises perform like the private ones because of their similar enterprise characteristics, operating goals and environment.
Subjects
China
industrial development
iron and steel industry
local protectionism
SOEs
market competitive mechanism
enterprise performance
SDGs
Type
thesis
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