Protectionism In China Research Articles

Is promotion competition responsible for local protectionism in China?

This study investigates the promotion competition for local protectionism in China. Since the personnel evaluation criteria in China shifted from political loyalty to economic performance, local governments strive to pursue regional tax benefits and political promotion opportunities, often adopting a range of protective measures to support the economic development of their regions. However, these actions can significantly impede the normal functioning of the market and result in local protectionism. Addressing local protectionism is crucial for accelerating the establishment of a nationally unified market characterized by fair competition and full openness. Overcoming local protectionism necessitates not only an environment conducive to fair competition, but also the active coordination of local officials. This study investigates the factors that influence local protectionism in China using the spatial econometric methods. Applying provincial panel data spanning the years 2003 to 2019, the study focuses on promotion competition among local officials that contributes to local protectionism. The results of an empirical study show that local protectionism is spatially related between regions. This means that when foreign government implements local protection policies, the local government responds with similar measures, and the level of response varies between regions. Additionally, the spatial spillover effect of promotion competition on local protectionism is found to be significant, with the impact displaying variations across different phases. The findings offer a new understanding of the issue of local protectionism.

Protectionism and its Impact on MNC Subsidiaries’ Performance

AbstractThis study investigates the relationship between local protectionism and performance of multinational corporation (MNC) subsidiaries in China. We integrate overarching theories (i.e., institutional theory and extended resource-based view) to investigate a model for identifying whether local protectionism at the subnational level is beneficial or detrimental for foreign subsidiary operations or functions as a double-edged sword. We also examine whether or not internal organizational capabilities and relational capital with government moderate the effects. On the basis of regression analyses, our empirical findings reveal that the positive or negative effects of subnational protectionism in China depend on performance types. Moreover, performance contribution is considerably moderated by various internal capabilities of MNC subsidiaries. Findings offer valuable and practical implications for MNCs intending to invest in emerging economies.

Interplay of Environmental Regulation and Local Protectionism in China.

Environmental regulation (ER) and local protectionism (LP) are important policy tools for Chinese local governments to improve the environment and promote growth, respectively, but we know little about their interplay in dealing with pollution-intensive industries and enterprises. Using spatial correlation analysis and spatial panel simultaneous equations models, we investigated the spatial characteristics and interactions of the ER and LP in China’s 285 prefectural cities. We found that the high-ER-intensity areas were spreading from the eastern to the central and western regions, and the patterns of LP transited from high in the north and low in the south to high in the west and low in the east. There was a negative correlation spatially between ER and LP. LP could inhibit the increase in ER intensity, while the continuously increasing ER intensity could restrict LP through the competitive behavior from the “race to the bottom” to the “race to the top” among local governments. The effect of ER restricting LP was significant from 2008 to 2013 and prominent in the east, which was dominated by “race to the top” competition, while LP had a greater inhibitory effect on ER in the central and western regions, which preferred to obtain tax revenues from pollution-intensive industries. The results imply that removing the roots of local protectionism, improving the environmental governance system, and formulating differentiated regional environmental regulatory measures will help local governments balance economic growth and environmental protection.

Do KIBS facilitate innovation in manufacturing firms in China Evidence on production-based linkages

Drawing on knowledge-based theory and spatial production network, this paper explores how local protectionism in China influences the effect of spatial knowledge spillover from knowledge-intensive business services (KIBS) on manufacturing clients' innovation performance. Using a large panel data set covering 283 Chinese prefecture cities and municipalities from 2003 to 2013, we applied input-output analysis to quantify the spatial knowledge spillover based on production linkages. The empirical results verify a prominent 'border effect' of the spatial knowledge spillover from KIBS in China, which is significantly positive within a limited distance of no more than 250 kilometers. Notably, the spatial knowledge spillover is positively correlated with manufacturing firms' scale, and cross-region KIBS more significantly improves the innovation performance of their manufacturing clients than local KIBS. This paper contributes to a comprehensive understanding of the relationship between KIBS and manufacturing firms in China's specific institutional context.

Central Protectionism in China: The “Central SOE Problem” in Environmental Governance

AbstractThis article examines the so-called “central State Owned Enterprise (SOE) problem” in China's environmental governance system, namely central SOEs' defiance of environmental regulation. We present evidence showing that, in the last decade, central SOEs have been the source of a large number of serious pollution incidents and have often failed to comply with environmental guidelines and regulations. Central SOEs in the electricity generation and oil and gas industries are particularly culpable, with six firms alone accounting for 62 per cent of all 2,370 reported violations (2004–2016). We argue that a combination of “central protectionism” of state-owned national champions and insufficient regulatory capacity in the environmental bureaucracy have provided state firms under central management with both incentives and opportunities to shirk on environmental regulations. Yet, while the institutions of central protectionism are deeply rooted, countervailing forces within the complex Chinese state are also gaining momentum. In spite of the considerable regulatory challenges, officials in the environment bureaucracy display increasing resolve and ingenuity in trying to strengthen their enforcement capacity.

What Shapes Private Securities Enforcement in China? An Empirical Study of Chinese Securities False Statement Civil Compensation Cases

As the significance of private litigation in securities enforcement has become widely recognised, private litigation now serves as an imperative supplement to administrative and criminal sanctions for investor protection in different countries. Chinese securities litigation, featuring heavy dependence on public enforcement, has been criticised for the protection of local listed companies in these lawsuits. This study empirically verifies the issue of local protectionism in China’s securities litigation. The theory that local governments’ fiscal reliance on listed companies motivates courts’ protectionism is evidenced in this study. Local protectionism in China’s securities litigation is found to be severe in the least-developed areas, but economic underdevelopment is only a sufficient condition for local protection. Case studies suggest that personal rent seeking and corruption contribute to local protectionism in China’s securities litigation. The discussion also extends to the examination of the “piggy-back” effect of public enforcement, state ownership and other extra-judicial factors in China’s securities litigation.

Central Protectionism in China: The 'Central SOE Problem' in Environmental Governance

This paper examines the so-called “central State Owned Enterprise (SOE) problem” in China’s environmental governance system, namely central SOEs’ defiance of environmental regulation. We present evidence showing that, in the last decade, central SOEs have been the source of a large number of serious pollution incidents and have often failed to comply with environmental guidelines and regulations. Central SOEs in the electricity generation and oil and gas industries are particularly culpable, with six firms alone accounting for 62 per cent of all 2,370 reported violations (2004-2016). We argue that a combination of “central protectionism” of state-owned national champions and insufficient regulatory capacity in the environmental bureaucracy have provided state firms under central management with both incentives and opportunities to shirk on environmental regulations. Yet, while the institutions of central protectionism are deeply-rooted, countervailing forces within the complex Chinese state are also gaining momentum. In spite of the considerable regulatory challenges, officials in the environment bureaucracy display increasing resolve and ingenuity in trying to strengthen their enforcement capacity.

Political Economy of Cross-Strait Relations: is Beijing’s patronage policy on Taiwanese business sustainable?

Via quantitative analysis and interviews, this article examines the credibility and sustainability of Beijing’s patronage policy towards Taiwanese business. The new finding is that the rise of economic nationalism and local protectionism in China is undermining and constraining Beijing’s patronage policy. Consequently, China’s rising economy does not deepen cross-Strait integration but rather crowds out Taiwanese business. Moreover, considering the growing influence of Chinese domestic constraints, this article attempts to provide a bilateral two-level game to grasp the new dynamics on cross-Strait relations under the new normal.

Revisiting Border Effect: Evidence from Taobao.com in China

ABSTRACTInherent home bias and trade barriers (particularly local protectionism in China), which are difficult to separate, are two main explanations of border effect. We attempt to solve this problem by analyzing online trade. Different from offline trade, inherent home bias is the only cause of online border effect because local governments are usually unable to restrict online trade. Thus, the difference between the border effect in online and offline trade can be reasonably interpreted as the existence of government protectionism in the offline market. We find a statistically significant difference between online and offline border effects in China, which can be interpreted as strong evidence that policy barriers remain significant and hinder interregional trade.

From one to many central plans: Drug advertising inspections and intra-national protectionism in China

This paper provides the first micro-level evidence for the existence and patterns of intra-national protectionism in China. We demonstrate that drug advertising inspections are used by provincial governments to discriminate against firms from outside the province. We further reveal systematic patterns in the degree of discrimination across firms: those from neighboring areas, those from regions with more economic links to the destination province, those from provinces with a stronger presence in the market, and those with political ties to “allied” provincial governments are less likely to be targeted. Our findings highlight the unique politico-economic structure in China and confirm that giving local governments strong incentives to compete with each other may exacerbate the market distortions inherent in a partially reformed economy.

Derivation of relations between city reverse cumulative size and city number

Based on investigating and interpreting the characteristics of the size structure of regional urban system, this paper firstly aims to build a model on analyzing the relationships between reverse urban cumulative size and number of cities. Secondly, based on the sixth national population census data of 2010, traditional rank- size rule and the model of reverse cumulative size proposed in this paper are used to measure the inter-provincial differences and their spatial distribution characteristics of urban size structure in China. Thirdly, the geographic factors which have influence on regional urban system are discussed. The results show that the rank- size rule has few shortcomings in interpreting the characteristics of the size structure of regional urban system, especially for the urban system in which there is the distribution of primary city, two-centre city, or small number of cities. The shortcoming leads to the fact that there is no necessary linkage between the value of Q derived from the rank- size rule and the selected geographic variables. As a result, there are certain limitations in the comparative study between different regional urban system structures. Overall, the fitting provided by the model of reverse cumulative size given in this paper is better than that provided by the rank-size rule.Particularly, when the fitting provided by the rank- size rule is not ideal, the model of reverse cumulative size can overcome this shortcoming, and provides accurate fitting to more realistically and objectively reflect the characteristics of the size and structure of regional urban system. Moreover, the results also show that there is a close statistical relationship between the selected regional variables, such as regional economy, urbanization, population density and the composite index, and the value of β given by the model of reverse cumulative size. In the process of urbanization, path of the urban system coordinated with regional development should be explored in term of the tendency of development and characteristics of different regions. According to the statistics derived from the general regression model and spatial auto regression model, there is a weak spatial linkage between the formation and evolution of the regional urban systems of each province in China. That is to say, the formation and evolution of the regional urban systems of each province is in a close state of isolated development. The reason should be related to the strict administration and policies of household registration and the prevalence of local protectionism in China.

From One to Many Central Plans: Drug Advertising Inspections and Intra-National Protectionism in China

This paper provides the first micro-level evidence for the existence and patterns of intra-national protectionism in China. We demonstrate that drug advertising inspections are used by provincial governments to discriminate against firms from outside the province and document how the degree of discrimination varies across firms: manufacturers with closer ties to rival provinces, from provinces with lower presence in the market, and smaller firms are more likely to be targeted. Our findings confirm that giving local governments strong incentives to compete with each other exacerbates the market distortions inherent in a partially reformed economy.

State and Market Integration in China: A Spatial Econometrics Approach to ‘Local Protectionism’

In the past two decades, controversial evidence has been produced supporting the case for local protectionism in China. This paper overviews the most important contributions and presents a new approach which applies spatial econometrics on prefectural-level data. The main advantage of this method is to rely on a theoretically less biased and internal benchmark for assessing the impact of provincial borders on spatial interdependences, as we compare within province and across province growth spillovers for neighboring prefectures. We show that provincial borders exert a strong impact on spillovers. Further, we also analyze spillovers of local public expenditures, which could be interpreted as proxies for government interventions. Again, provincial borders matter. Yet, we are cautious in interpreting this as evidence for local protectionism, and propose the notion of ‘cellularity’ as an alternative explanantion. Cellularity results from a comfluence of different factors, such as administrative structure, institutional changes and regional culture.

Regional Protectionalism in China: Direct Micro Evidence

Recently researchers have shown strong interests in regional protectionism in China. Due to data limitations, researchers usually have to reply on aggregate data on trade and prices at provincial levels, and often have to focus on particular industries. As a result, they have not been able to reach consensus as to the trends and damage of regional protectionism. Using a new data set specifically addressing the question of regional protectionism, we find that regional protectionism has significantly declined over time. It differs significantly across provinces and across industries, with tobacco and beverage (including alcohol) industries being harmed the most. There is also some evidence that the poor inland region has been hampered the most by regional protectionism. The gains from removing regional protectionism are economically significant (4-9% of total revenue of a typical firm). We also provide evidence that the share of export to other provinces by firms is positively related to a reduction in regional protectionism, higher relative prices in the other provinces, and the relative attractiveness of the business environment of the other provinces.

Interregional protection: Implications of fiscal decentralization and trade liberalization

Empirical studies have shown that regional markets in China are highly fragmented. The observation leads to the conclusion of interregional trade protection. In this paper, we develop a model in which a country has two regions and faces import competition to examine how and when interregional trade protection may arise. We find that domestic fiscal decentralization, particularly tax reform, together with high external trade protection, cause interregional protection. This finding, which is generalizable, not only helps explain the rise of interregional protectionism in China but also predicts that external trade liberalization, particularly the country's WTO accession, can help tear down existing interregional trade barriers.

The Mystery of the Excess Trade (Balances)

Bilateral trade deficits are a perennial policy issue. Former Deputy Assistant U.S. Trade Representative for Japan and China, Merit Janow (1994 p. 55), notes that during the first George Bush administration, “High deficits coupled with the continuing allegations from U.S. business interests about the closed nature of the Japanese market were resulting in serious domestic political pressures for improved access to the Japanese market.” Recently Robert C. Feenstra et al. (1998 p. 1) made similar comments vis-a-vis China: “Some analysts have interpreted the large U.S.–China bilateral trade deficit as prima facie evidence of unacceptably high levels of protectionism in China, and have advocated stringent entry conditions for China’s admission into WTO.” Given the policy salience of bilateral trade deficits, it is peculiar that no one has ever examined them empirically for a broad set of countries. One reason for the scant study is that economists are naturally (and sensibly) loath to accept the terms of the policy debate, which considers bilateral trade deficits ipso facto harmful. A second reason is that economists believe there may be very natural explanations for bilateral imbalances. One such explanation finds its origins in macroeconomic identities that equate current-account deficits to an excess of investment over saving. From this, it may be argued that bilateral imbalances will arise naturally in trade between countries in aggregate surplus and those in aggregate deficit. Indeed, this is the principal explanation that the profession has given policymakers, and it forms the foundation of many U.S. bilateral trade initiatives such as the Structural Impediments Initiative and the Framework talks. Janow (1994 p. 55) observes that “there was (and is) little disagreement among economists that the causes of large aggregate and bilateral deficits are largely attributable to macroeconomic factors” [italics added]. A second account may rely on what may be termed “triangular trade,” in which cross-country differences in the patterns of demand and supply mean that a country will run bilateral deficits with those countries that are unusually important suppliers of the goods for which the deficit country happens to be an unusually strong demander. In this paper, we use the canonical “gravity model” of bilateral trade to form predictions about bilateral trade balances. We develop two key variants of the model, in which bilateral trade imbalances arise due to aggregate macroeconomic imbalances or due to “triangular trade,” and we implement these empirically for a broad set of countries. Our results paint a dismal picture. The central explanations that economists provide to explain bilateral balances perform miserably. There are two key failures. First, actual bilateral trade imbalances are much larger than those predicted; there is a “mystery of excess trade balances.” Second, even after we allow for both macroeconomic imbalances and idiosyncrasies in the structure and levels of demand and production, the models perform poorly in explaining bilateral trade balances. These failures of economists’ standard explanations of bilateral trade imbalances require that we move beyond the simple gravity framework to consider alternative explanations: homogeneous goods, highly specialized intermediates, and the role of policy.

Local Economic Protectionism in China’s Economic Reform

A hallmark of China’s economic reforms since 1979 has been the decentralisation of the use of resources to lower levels of the administrative hierarchy. The central leaders have expected the subnational units, by making greater use of the market, to use the decentralised resources in economically productive areas. Provincial and local authorities are, however, very pragmatic. They miss no opportunity to maximise their control of resources, in order to minimise conflict in their units or localities. In a country with as unfavourable a resource-population ratio as China, local protectionism is not inconceivable, though it is neither inevitable nor desirable. Although it is widely accepted that China’s reforms have achieved notable success in moving towards a market economy, as evidenced in the remarkable reduction in the share of goods allocated through the plan and in the deregulation of price controls (World Bank, 1994: xiii–xiv), progress in the greater integration of the domestic market is less pronounced. Local protectionism or the ‘feudal economy’ principally takes the form of using a restrictive economic blockade by China’s provincial and local governments to prevent the outflow of scarce local raw materials and the sale of non-locally produced goods within their areas. This article addresses the issue of why local economic protectionism has arisen and been sustained in the course of the economic reforms. In the first section of the article, incidents of economic localism in the provinces are presented. The causes of the rise of local economic protectionism will be suggested in section two. It is argued that local protectionism occurs because of the fiscal squeeze experienced by subnational governments in the economic reform period and the use of ‘import’-substitution industrialisation to promote ‘infant’ industries in inland China. Section three examines the effectiveness of the tax-assignment reform, implemented nationwide in 1994, in containing the economic problem.

On Local Protectionism in China's Market Development

This article addresses three issues: (1) why local protectionism was a policy abandoned by capitalist countries in their process of industrialization; (2) analysis of the long-term existence of local protectionism in China's market development; and (3) the harm done by local protectionism and suggested countermeasures.