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.