The Impact of Government Policies on Industrial Evolution: The Case of China's Automotive Industry

International Motor Vechile Program Working Paper

109 Pages Posted: 9 Jul 2009 Last revised: 7 Aug 2009

See all articles by Jianxi Luo

Jianxi Luo

Singapore University of Technology and Design (SUTD)

Daniel Roos

affiliation not provided to SSRN

John Moavenzadeh

affiliation not provided to SSRN

Date Written: August 1, 2006

Abstract

Governmental industrial policies have great influence on industrial performances and evelopment trajectories. The infant industry theory has been the dominating theoretical foundation of the industrial policies in developing countries to protect and foster their immature industries. However, the successful application of infant industry theory is subject to many conditions, such as the economic and political environment in a specific country.

In this thesis, the case of China’s automotive industry under strong industrial policies is used to demonstrate the complex dynamics between policies and industrial development, as well as the interactions between government and industry. Especially, the key factors that determine the success or failure of the infant industry theory are the research focus.

The overall industrial characteristics of China’s automotive industry were overviewed. The industry was protected and fostered in the past two decades with a few policy options, such as trade barriers, joint venture regulation, local content rule, industrial entry limit and etc. However, the indigenous industry became highly fragmented, still lacks independent technological capabilities, and relies on the international automakers which have gradually dominated the passenger car market in China over the time of protection.

Systematic causal analyses are conducted to explore the essential reasons for the distorted policy impacts on industrial evolution. The results indicate the regionalism and departmentalism in China’s government system led to the fragmentation, and the “regulatory capture” between the government and state-owned enterprises is the major reason for the oligopoly of joint ventures and the industry-wide lack of active capability development. The uniqueness of the strong governmental ownership in the market players in the Chinese automotive industry determined the failure of the application of infant industry theory. A further cross-country comparative analysis also supports these major findings.

A few policy recommendations, including ownership reform of state-owned enterprises, centralization of industrial management and etc., are proposed at the end of the thesis.

Suggested Citation

Luo, Jianxi and Roos, Daniel and Moavenzadeh, John, The Impact of Government Policies on Industrial Evolution: The Case of China's Automotive Industry (August 1, 2006). International Motor Vechile Program Working Paper, Available at SSRN: https://ssrn.com/abstract=1431350 or http://dx.doi.org/10.2139/ssrn.1431350

Jianxi Luo (Contact Author)

Singapore University of Technology and Design (SUTD) ( email )

8 Somapah Rd
Singapore, 487372
Singapore

Daniel Roos

affiliation not provided to SSRN

John Moavenzadeh

affiliation not provided to SSRN

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