Regulation in the Upstream Sector and Chinese Firm Export：The Position in the Vertical Production Supply Chain Matters

Abstract

With the increasing export scale, the distribution of Chinese export industries has changed significantly. The overall export scale expansion is mainly led by the middle and downstream industries, while the upstream industry lacks obvious export advantages. At the same time, China’s overall market structure has also undergone significant changes, showing an asymmetric state of administrative monopoly in the upstream industry, market competition in the downstream industry”. Given the importance of input-output linkages between industries, China’s current market structure has motivated this study, namely, as market competition intensifies in the middle and downstream industries, does maintaining the administrative control in the upstream industry hinder the Chinese firm export? Based on the data of micro-enterprises from 1998 to 2013, this paper first estimates the production location of each industry from the perspective of vertical production supply chain, and defines the upstream administrative control based on the proportion of state-owned enterprises in the industry and the evolution trend. On this basis, based on the input-output relationship between industries, we measure the degree of the upstream administrative control that each industry faces, and then identify the impact on China’s firm export. In addition, this paper also tests the differences of its effects based on the enterprise ownership, trade pattern, industry competition degree and regional development. This paper finds that: Firstly, the upstream administrative control with state-owned enterprises does not include every industry, mainly referring to the capital-intensive industries such as coal mining washing and dressing industry, oil and natural gas mining industry, and the production and supply of electric power and heat. Secondly, with the continuous deepening of China’s market-oriented reform, the degree of the upstream administrative control decreased significantly from 1998 to 2007, but it was reversed and strengthened year by year from 2007 to 2013. Finally, since 2007, the enhancement of the upstream administrative control has significantly inhibited the export of Chinese manufacturing enterprises, and this negative impact is mainly reflected in private enterprises, ordinary trading firms, highly competitive industries and eastern regions. This paper has important policy implications: Firstly, we should lower the market entry regulation of the upstream regulated industry and the loan discrimination against non-state-owned enterprises, so as to enhance the market competition of the upstream administrative control industry. Secondly, the innovation incentive mechanism of the upstream regulated industry should be established to improve the technical content and product quality of upstream intermediate inputs, and the growth effect of export trade should be continued to exert. This paper contributes to the existing research mainly from two aspects: Firstly, the perspective based on the vertical production supply chain defines the scope of the administrative control in the upstream industry, and the indirect effects of input-output relation between industries are considered, which improves the measuring errors of the issue. Secondly, the evolution of the upstream administrative control degree is described by the Chinese industrial enterprise database from 1998 to 2013, which can evaluate the policy effects more accurately and make up for the deficiencies of the existing research.