Industrial Policy and China’s Economic Development: From the Perspective of New Structural Economics

Abstract

Although industrial policies in many countries have failed, a country’s economic development is bound to be unsuccessful without industrial policy. The responsibility of an economist is not to object to any kind of industrial policy for fear of failure, nor unconditionally support all kinds of industrial policies because industrial policy is a necessary condition for the success of economic development. An economist should explore the causes behind the success or failure of industrial policies so as to help government reduce the chance of failure and improve the probabilities of success in applying industrial policies. This paper analyzes why industrial policy is necessary for successful economic development. This paper notes that synergy of “efficient market” and “facilitating state” is indispensable for economic development, and also analyzes why developed and developing countries failed in applying industrial policies. From the perspective of New Structural Economics, in this paper industries in China are divided into five types: catching-up industries, leading-edge industries, comparative advantage-losing industries, short innovation cycle industries and comparative advantage-defying strategic industries. The paper also analyzes how to formulate effective industrial policy in China. It is noted that, based on the characteristics of each industry, “efficient market” and “facilitating state” should both play their respective roles in promoting China’s industrial transformation and upgrading.