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Rapid Growth Outside of Policy Intention 5
Rapid Growth Outside of Policy Intention :
Market Transition, Industrial Policy, and the Rise of
China’s Auto Industry*
1
Yongshin Kim**
Abstract
Focusing on China’s auto industry, this paper questions how the central government’s
growth-promoting industrial policies failed to realize their intentions but nonetheless
produced rapid growth outside the scope of the policies. The paper explains how other
macro-institutional reforms that accompanied China’s implementation of the socialist market
economy—central government reshuffles, central–local fiscal reforms, state–business relations
—interacted with the auto industrial policy (AIP) by taking the political process seriously.
Drawing on archival sources and interviews, the study argues that even when the functioning
of state institutions is deficient, industrial policy in a transitional economy can facilitate
rapid growth by relieving the commitment problem and, along with other market-based
institutional reforms, opening up a limited amount of market competition. Although limited,
this market competition had the unintended effect of promoting rapid growth. Therefore,
even with deficient market mechanisms and state institutions, governmental policy
interventions that facilitate limited market competition can give rise to development.
Although such government interventions, fraught with substantial policy failures, would not
work in a developed economy, it is better than no intervention at all in a transitional economy.
Key words:
China, Industrial Policy, Automobile, Socialist Market Economy, Coalition
* This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation
of Korea (NRF-2020S1A3A2A01095177).
** Assistant Professor, Department of China Studies, Inha University.
This research has developed from the author’s Ph.D. dissertation, 2017, “Rapid Growth amid Failed Policies: Market
Transition, Industrial Policy, and the Paradoxical Success of China’s Auto Industry,” Department of Political Science,
the University of Hawai‘i at Mānoa. The author thanks Sankaran Krishna, Hagen Koo, Ehito Kimura, Colin Moore,
Eric Harwit, and three anonymous reviewers for their helpful comments.
https://doi.org/10.18854/kpsr.2021.55.3.001
원고접수일 2021년 04월 05일 | 심사시작일 2021년 04월 15일 | 게재확정일 2021년 05월 17일
Korean Political Science Review, Vol. 55 No. 3 Summer 2021 5-33
Copyright
ⓒ
2021 by the Korean Political Science Association
6 Korean Political Science Review Summer 2021
Ⅰ. Introduction
China’s meteoric rise in the global economy over the past few decades has drawn extensive
attention worldwide. Not only has China overtaken the US as the world’s largest economy as
measured by GDP based on purchasing power parity, but it now leads in many important sectors,
including steel, automobiles, and high-technology exports. In 1984, in the early period of eco-
nomic reform, only 5,207 passenger cars were assembled in China
—
but by 2008, China had be-
come the world’s largest automobile producer. In 2014, over 69 million passenger cars were pro-
duced worldwide, 19.9 million (29.45%) of which were built in China (OICA 2014). From the
late 1980s, and especially after the “socialist market economy” (SME) was officially inaugurated
in 1992-1993, China actively pursued state-led industrial policies toward the “pillar” industries.
The 1994 auto industrial policy (AIP) was the first sector-specific industrial policy in China.
However, despite the auto industry’s long history of intense government intervention and excep-
tionally fast growth, the AIP has been considered one of the worst industrial policy failures in
China (Eun and Lee 2002; Huang 2002; Lu and Feng 2004). This paper explores the paradoxical
success of China’s auto industry amid policy failures by examining how interactions between
market-based transitional reforms and industrial policy shape modes of market competition.
Although this paper discusses how market mechanisms have been introduced in transitional
China, it does not evaluate whether the market or the state is more effective at creating rapid
growth. The paper does not deny the welfare-enhancing functions of market mechanisms but in-
stead demonstrates that in a transitional country like China, even a failed policy intervention
from the state can induce limited market competition by solving a commitment problem.1 In au-
thoritarian China, where the legal protection of private property rights is weak, industrial policy
indirectly signaled that the central government’s unpredictable and predatory behaviors would be
significantly reduced in the designated industries. In addition to blocking the negative actions
1 In their classical study on the “credible commitment problem,” North and Weingast (1989, 808) succinctly presented
why the incumbent regime should be committed or bound by the rules they made for economic growth to occur.
They stressed “This article focuses on political factors underpinning economic growth and the development of markets
—
not simply the rules governing economic exchange, but also the institutions governing how these rules are enforced
and how they may be changed. A critical factor is the degree to which the regime or sovereign is committed to
or bound by these rules. Rules the sovereign can readily revise differ significantly in their implications for performance
from exactly the same rules when not subject to revision. The more likely it is that the sovereign will alter property
rights for his or her own benefit, the lower the expected returns from investment and the lower in turn the incentive
to invest. For economic growth to occur the sovereign or government must not merely establish the relevant set of
rights, but must make a credible commitment to them.” For a review on how authoritarian regimes overcome the
commitment problem, see Zheng 2014, 195
–
197.
Rapid Growth Outside of Policy Intention 7
of the central government, industrial policy also revealed the central government’s support for
industrial promotion.
In neo-classical theory, where Adam Smith’s concept of the Economic Man, who has the in-
nate “propensity to truck, barter and exchange one thing for another” is dominant, the retreat
of the state from economic action is the solution that guarantees the proper functioning of market
mechanisms. Led by Karl Polanyi (2001 [1944]), however, many institutional scholars have thor-
oughly researched the possibility of complementary relations between the state and the market
(Fligstein 2001; Vogel 1996). Much of the resulting work has considered the developmental state
to be the answer to the question of how government intervention contributes to growth; in this
literature, well-functioning state institutions are assumed to be a necessary condition for high
growth.2 According to this view, state intervention is conducive to high growth only when the
state’s macro and micro institutions are at work and culminate in disciplined competition be-
tween private business actors in a coordinated market (Amsden 1989; Evans 1995; Johnson
1982; Wade 1990). In the case of the Chinese auto industry, however, state intervention through
industrial policy severely failed because, as a new tool of macro economic control, industrial
policy was implemented in tandem with macro institutional reforms. Although institutional re-
forms across government organizations, state
–
business, and central
–
local relations were not ma-
ture enough to effectively implement the AIP, these consecutive reforms bestowed much more
autonomy on firms and local governments. This paper argues that even with the deficient func-
tioning of state institutions, industrial policy in a transitional economy can lead to rapid growth
by relieving the commitment problem and, along with other market-based institutional reforms,
can open up a limited amount of market competition.
The findings of this study contribute to understanding what fills the lacunae between industrial
policy failures and high growth. Studies of economic development in market economies have
emphasized the crucial roles of state and state
–
society alliances; many of these studies have also
noted the exogenous challenges that are emerging from processes of globalization that can weak-
en state capability and societal forces (Evans 1997; Milanovic 2003; Strange 1996; Wade 2003).
This study, in contrast, addressed the question of how the endogenous processes of a transition-
ing economic system affect industrial policy implementation and development outcomes.
Furthermore, the study yielded a more nuanced understanding of the working mechanisms of
Chinese “state capitalism.” Countering the conventional understanding of collusive state
–
business
2 For a comprehensive review of institutions and growth in East Asia, see Haggard 2004.
8 Korean Political Science Review Summer 2021
relations in China, this study captured the dynamic coalitional politics surrounding the AIP.
The paper is structured as follows. Section II examines the different views on China’s rapid
auto industrialization. Section III explains the analytical framework, including case selection,
methods, and theoretical framework. In the remaining sections, we examine how government or-
ganizational reforms, fiscal reforms, and state-owned enterprise reforms instituted to build the
socialist market economy derailed the effective implementation of the AIP and created competing
coalitions with regard to the AIP. The final section concludes the paper and discusses its
implications.
Ⅱ. Literature Review
Previous literature has addressed the puzzle of China’s paradoxical success in auto in-
dustrialization by taking one of two main approaches. The first approach denies policy failures,3
considering policy implementation a “learning process.” For instance, Chu (2011, 1267) argued
that the AIP, albeit ineffective at first, has continued to improve via actions by China’s central
state, which has adjusted the policy in response to local feedback. By emphasizing improvements
in policy quality over time, Chu was implying that the Chinese government has been the primary
engine of the auto industry’s fast growth. The problem with this perspective is that no matter
how much better the central government has become at producing high-quality policy, the AIP
is not a “proactive” but rather a “follow-up” industrial policy: New versions of the AIP have
followed the industry’s performance rather than directing its development. The one salient feature
of the AIP has been the deliberately incorrect setting of prices to draw excess investment, which
is then channeled to targeted sectors or firms. Because government selection necessarily results
in winners and losers, strong state institutions that compel the winners to comply with the rules
and keep the losers away from the targeted sectors are necessary (Amsden 1989). Yet this kind
of monitoring capacity is precisely what the Chinese AIP lacks.4 Furthermore, the critical test
3 The major criterion of policy evaluation here is whether or not the original policy intentions have been realized. In
some cases, the policy goals were achieved, but they had no positive impact on industrial development. In these cases,
for the purposes of this study, the policy is considered to have succeeded.
4 The literature on China’s industrial policy demonstrates that the Chinese state does not monitor firms effectively (Huang
2003; Moore 2002; Perkins 2001). A recent study showed that China’s industrial policies tend to be more effective
in newly emerging sectors than in mature ones (Mao et al. 2021).
Rapid Growth Outside of Policy Intention 9
of strong state institutional capacity is whether the government maintains autonomy by insulating
itself from pressures from vested interest groups (Haggard and Moon 1990). The Chinese central
state has not been able to maintain such autonomy but has instead been vulnerable to lobbying
from central ministries and local states (Kennedy 2008). For example, six companies were se-
lected as sedan producers in a “big three and small three” scheme in the late 1980s. Later on,
however, organizations previously engaged in the defense industry, such as the China Ordnance
Industry Corporation and the Guizhou Aviation Industry Corporation, also obtained sedan pro-
duction permission. They were able to do so because fierce lobbying by the defense ministries
and local states had seriously undermined the central government’s capacity to tightly maintain
market entry control (Chu 2011; Ngo 2008).
The second approach acknowledges China’s industrial policy failures. This school of thought
suggests that institutional constraints such as “divided and decentralized bureaucratic arrange-
ments” (Huang 2002), a “unique central-local government relationship” (Eun and Lee 2002),
“China’s loosely coupled system” (Chen 2016), “large information asymmetries,” and rampant
corruption (Fuller 2016) impede effective industrial policy implementation in China. A study of
variations in local auto industrial development across four different Chinese provinces (Thun
2006) applied a similar institutional logic. Huang’s (2002) study employed a comparative method
to identify the most important institutional foundations that can explain the varying economic
performances of China and South Korea, but directly linking institutions to economic perform-
ance can easily lead to the fallacy of second-order causation (Moon and Prasad 1994).
Instead of essentializing institutional characteristics and treating certain institutional aspects as
a recipe that culminates in an inevitable outcome,5 this study considered institutions as “both
a product of particular political coalitions and a structural force in reproducing particular patterns
of political life over time” (Gingrich 2015, 76). While the developmental state literature tends
to give more attention to the role of particular institutions in rapid economic growth (Johnson
1982), the welfare state literature considers the variation among welfare states as the outcome
of different political processes in given societies (Esping-Andersen 1990). Confronting the para-
doxical growth of China’s auto industry, this study applied the political process approach that
dominates welfare state research to a question usually raised in the developmental state literature.
5 Gore (2014) claimed that the “laundry list method,” of which institutional characters are enumerated, is the culprit
for the failure to apply the developmental state concept outside of its origin countries. Furthermore, Haggard (2014)
argued that the strong domestic institutions that are claimed to be necessary for fast economic growth are usually
lacking in developing countries. If certain institutional factors are sufficient conditions for economic growth, then most
developing countries that lack these factors should remain underdeveloped for good.
10 Korean Political Science Review Summer 2021
By taking the political process seriously, the study explicated how other macro institutional re-
forms that accompanied China’s implementation of the socialist market economy
—
central gov-
ernment reshuffles, central
–
local fiscal reforms, state
–
business relations
—
interacted with the AIP.
The political process framework does not posit deterministic theories, however. Rather, it demon-
strates how parts of institutions shape the scope of the political struggles that give form to eco-
nomic life (Moon and Prasad 1994, 377
–
378). This framework opens analytical and empirical
spaces for real politics, but the real stories of political struggles are contingent on the actors’
choices under institutional constraints.
Ⅲ. Analytical Framework
1. Case Selection : China’s Auto Industry and the AIP
While industrial policy deals with varied industry sectors, regional developments, and even
multiple industries, this research focused on the auto industry for its intensive case study. What
made the auto sector a suitable case for the research? When the Chinese central state started
to reform its Soviet-style planning system with economic measures in the early 1980s, the
Chinese central planner designated a few industries as pilot experiment industries for the eco-
nomic system and industry management reform. The auto industry was one of these pilot in-
dustries (Chen 2005, 274; People’s Daily 1987, September 23). Later, in the early 1990s, when
the Chinese central government selected a few sectors to become “pillar industries,” the auto in-
dustry was also chosen to be one of them. The auto industry’s extensive linkages with other
industrial sectors and its symbolic meaning of representing a modern industrialized country add-
ed to its salience. The auto industry was the first sector for which the Chinese state issued an
industrial policy and in which it has intervened most intensively (Eun and Lee 2002; Huang
2002). The long history and intensity of government intervention in the automotive industry
make it one of the best industries to study for the purpose of tracking the interaction between
state intervention in the economic realm and macro institutional reforms.
After the decision to establish the SME had been adopted at the third plenary session of the
14th Chinese Communist Party (CCP) Central Committee on November 14, 1993, the State
Council issued “Guidelines for National Industrial Policy during the 1990s” in April of 1994.
Rapid Growth Outside of Policy Intention 11
As a new macro economic tool, industrial policy targeted both agriculture and industry, but it
gave initial attention to a few “pillar” industries, such as machines, electronics, chemical and
petroleum, auto manufacturing, and construction. The State Planning Commission’s (SPC) “1994
Auto Industrial Policy” (Qiche gongye chanye zhengce)6 was the first sector-specific industrial
policy in statutory form. The National Development and Reform Commission’s (NDRC) “2004
Auto Industry Development Policy” (Qiche gongye fazhan zhengce) was intended to help the in-
dustry accommodate the new policy7 environment that would accompany China’s entry into the
World Trade Organization (WTO) on December 11, 2001. In addition to this particular policy,
which has the official title of “industrial policy” (chanye zhengce), the Chinese central govern-
ment, especially in the capacity of the State Council, irregularly announces notices (tongzi) or
decisions (jueding) on the auto industry. Additionally, the State Council regularly issues five-year
plans or programs,8 each of which also has a particular program for individual sectors. In the
most limited sense, the AIP only includes the two policies mentioned earlier promulgated by the
SPC in 1994 and the NDRC in 2004. Although these are the two most significant statements,
the AIP overall is manifested through all of the diverse forms mentioned above (Anderson 2012,
ch. 3).
The growth of China’s auto industry is impressive, but it was realized entirely outside of the
government’s policy intentions. Since the 1980s, the Chinese government has implemented vari-
ous policies designed to protect the auto industry and enable it to establish itself as an important
pillar industry (zhizhu canye) in the Chinese national economy. While the details of the policy
have changed, the ultimate goal of making the Chinese auto industry large and strong has re-
mained consistent. Two specific characteristics commonly shared by advanced auto manufactur-
ing countries have been the main objectives of Chinese AIP as well. The first was to structure
the auto industry to realize economies of scale. According to the 1994 AIP, the Chinese auto
industry had been afflicted by “scattered investment (san); disordered project approval (luan);
overlapping imports of low-level products (di); and slow construction of designated plants and
technology localization phase (man).” To remedy these problems, the AIP was directed toward
strictly controlling market entry and foreign direct investment and encouraging the designated
6 The full text in Chinese is available at https://business.sohu.com/2004/06/02/31/article220353167.shtml
7 The full text in Chinese is available at https://business.sohu.com/2004/06/02/31/article220353125.shtml
8 From the 11th Five-Year Program (11-5 program), the term “plan” (jihua), which connotes imperative targets, was
replaced by the term “program” (guihua), which has non-imperative and indicative nuances. Besides the weaker level
of obligation, programs from the 11-5 program are intended to include not only economic policies but social policies
as well (“Tenth Five-Year Plan of the CCP Central Committee on National Economic and Social Development,” 2005,
adopted at the fifth plenary session of the 16th CCP Central Committee).
12 Korean Political Science Review Summer 2021
auto manufacturers to form large business groups. The second goal was to participate in interna-
tional competition through the promotion of independent development (zhizhu kaifa), production,
and sales. The 1994 AIP anticipated that the designated auto manufacturers would build their
capacity for independent innovation, which would lead to them to export cars with their own
intellectual property rights and brands.
After more than two decades, even though China has become the world’s largest automobile
manufacturing country, the majority of Chinese auto firms are far from reaching even the mini-
mum economy of scale (MES), which, in automobile manufacturing, is “around 250,000 units
at the plant level and for a single basic model type” (Huang 2002, 543). The AIP prioritized
industrial consolidation but, according to the data reported in the China Automotive Industry
Yearbook, the total number of auto assemblers has stabilized at around 120. The internal data
collected by the China Automotive Technology and Research Center (CATARC), however, re-
vealed that the number of auto firms that assembled more than one vehicle was much larger
than the official number reported in the Automotive Industry Yearbook (Marukawa 2013). In
2009, when China became the world’s largest automobile manufacturer, the average number of
units produced was 98,016 units, less than half of the number required for MES. Only 25 firms
out of the total of 145 produced more than 200,000 vehicles. Even though the number of
loss-making firms has continuously declined, even in 2009, 39 of the 145 (about 37%) firms
are operating in deficit.
The policy also failed to meet the second goal of promoting independent development. The
AIP primarily supported large state-owned enterprises (SOEs), but these beneficiaries relied
heavily on their foreign partners’ technology rather than becoming independent innovators. In
2004, First Auto Works (FAW), one of the largest and oldest central auto SOEs, sold about one
million cars, including sedans and commercial vehicles. Only about half of these were sold with
FAW brands. The other half carried foreign brands, such as Volkswagen, Toyota, and Mazda.
Passenger cars tend to be higher value-added products than commercial vehicles. Even in central
SOEs, such as FAW, such high value-added products mostly relied on foreign technology.
Among all new passenger car products in 2003, more than 70% employed imported foreign
technology. The new cars developed from independent technology are generally low value-added
vehicles (NDRC 2008, 701). Recently, the market shares of domestic brand passenger cars have
increased substantially, but the profit margins are meager compared to those of foreign-brand
cars.
Rapid Growth Outside of Policy Intention 13
2. Methods
This study’s primary research method was comparative-historical analysis (CHA). Three core
defining features of CHA are macro-configurational research, case-based research, and temporally
oriented research (Mahoney and Thelen 2015). First, the macro component involves “concern
with large-scale outcomes” (2015, 5), as in this paper’s analysis regarding macro industrial
changes in China. The configurational component refers to a specific mode of explanation con-
cerning macro outcomes. Rather than determining the effect of X on Y, the configurational ap-
proach explores “how variables work together in combinations or ‘causal packages.’” Other in-
stitutional factors that interact with the AIP in the context of building the SME and the nature
of its effects on auto industrialization were analyzed. Second, case-based research involves a
“focus on real-world puzzles” and the “use of mechanisms-based explanation” (2015, 12). Such
problem-driven research seeks a thorough understanding of actual, not stylized, cases. Furthermore,
it takes a dynamic, process-oriented approach to specifying mechanisms rather than pursuing a
static institutional approach. Finally, CHA also requires a temporal orientation
—
that is, sensitivity
to temporal location and structure. Instead of seeking a universal theory independent of tempo-
rality, this research investigated sequences of unfolding events and gradual changes in in-
stitutions over time. The study employed data collected from a variety of sources through 18
months of field research in China in 2012 and 2013: interviews with major players in the in-
dustry and various kinds of archival research, including internally circulated materials, pub-
lications by government and party economic organizations, memoirs of high-ranking officers,
policy reports, and statistical data.
Previous research on Chinese economic governance has studied single government bureau-
cratic agencies, such as what was once called the “little State Council,” the State Economic and
Trade Commission (SETC 1993
–
2003), and the National Development and Reform Commission
(NDRC 2003 onwards), as a primary level of analysis (Gore 2012; Jung 2008). Even though
these studies have deepened our understanding of China’s top economic management bureauc-
racies, bureaucratic agencies in China have been short-lived. Government agencies can come and
go, but the problems of industrial transformation persist. Once central economic management
agencies have either achieved or demonstrated that they are not likely to achieve their designated
goals, they are demolished or merged with other bureaucratic agencies. Therefore, tracking myri-
ad administrative, state
–
business, and central
–
local reforms relating to certain industries is more
suitable than targeting one central economic bureaucracy as a way to analyze rapid industrializa-
14 Korean Political Science Review Summer 2021
tion amid failed central policy implementations.
3. Theoretical Framework :
Coalitional Politics of AIP amid Macro Institutional Reforms
This study demonstrated how industrial policy and macro institutional reforms intended to
build the SME work together and how their combination can explain the rapid growth of the
Chinese auto industry. The AIP has been devised and implemented in the context of building
the SME, and the complex interactions between industrial policy and macro institutional reforms
have led to varying coalition structures in all of the industries to which government industrial
policy has been applied. Because these coalition structures directly shape the modes of competi-
tion in the given industries, Section IV to VI will explicate the configurational mechanisms of
the auto industry in detail.
No single actor decisively influences the policy process in the modern political system, owing
to the increasing complexity of problems and the growing need for organizational resources.
Hence, scholars studying policy process, especially in Western democratic countries, have devel-
oped theories focusing on coalitions, such as the Advocacy Coalition Framework (ACF), involv-
ing political parties, interest groups, administrative agencies, or subnational actors. Interest in the
role of coalitions in policy processes has been stimulated by the premise that “coalition structure
has consequences on the outcome of a policy process” (Fischer 2015, 245
–
246). While such the-
oretical frameworks were developed in the context of democratic countries, the same premise
is applicable to Chinese institutional contexts. In China, where decision-making and im-
plementation are separate, policy outcomes tend to be more contingent on the coalition structure
in policy subsystems. By considering all of the main actors in the policy process, coalitional pol-
itics is better suited to explaining the linkage between industrial policy and economic
performance.
Rapid Growth Outside of Policy Intention 15
Ⅳ. Government Reshuffling and Its Impacts on Industrial Policy
Implementation
Since China embarked on economic reform, major governmental organizational reforms have
coincided with the new terms of the State Council in 1982, 1988, 1993, 1998, 2003, 2008, and
2013. With 100 ministries and special organizations under the direct supervision of the State
Council before 1982, the simplification (jingjian) of government agencies became an important
agenda item. As Table 1 shows, after various government reshuffles, the overall numbers of cen-
tral organizations and central government employees were reduced by more than half. From the
beginning of the Chinese reform, top planners recognized the necessity of separation between
government and business. On October 20, 1984, the third plenary session of the 12th CCP
Central Committee officially affirmed zhengqi fenkai (separate government and business) as the
direction of future economic system reforms. The separation between government and business
later expanded to separation between “government and assets” (zhengzi) and “government and
society” (zhengshe). Amid repeated rounds of government reshuffling to enact this drastic sim-
plification and separation, the Chinese central state dismantled the organizational capacity of the
agencies responsible for industry administration (gongye xingzheng). By abolishing or merging
the economic agencies directly involved in the management of SOEs, government organization
reforms laid the foundation for “management by industry”
—
but, ironically, by severing its close
connections with SOEs, the central state lost access to information and management capacity re-
garding industry (Amsden 1989; Lu and Cai 2010).
┃Table 1┃ Changes in Numbers of Central Ministries,
State Council Supervising Special Organizations, and Personnel
Year 1982 1988 1993 1998 2003 2008
Number of Before After Before After Before After Before After Before After Before After
Ministries 52 43 45 41 42 41 40 29 29 28 28 27
Special
Organizations 43 15 22 19 19 13 13 17 17 18 18 15
Personnel* 51 39 52 42 37 29 33 16 29 28 28 27
% of Decrease 23.5 19.2 21.6 51.5 3.4 3.6
* Unit: 10,000
Source: Wang ed. (2008, 102
–
3); revised.
16 Korean Political Science Review Summer 2021
In China’s Soviet-style planning period, the central economic agencies were composed of two
different types, comprehensive and specialized. Table 2 captures the changing trajectories of the
comprehensive and specialized economic agencies related to the auto industry from 1982 to
2014. The SPC and the State Economic Commission (SEC) had been two important pivots of
economic policymaking. In the period of Soviet-style administrative resource management, the
SPC set the indicative plans and the SEC was responsible for distributing targets to individual
governments and SOEs through ex ante coordination. After the reforms began, the State
Commission for Restructuring of the Economic System (SCREC) was added as another pivot
to function as a kind of “think tank” to guide the direction of economic reform (Liu 2014, 40
–
44). While these three commissions were comprehensive economic agencies, eight different addi-
tional ministries supervised the machine and electronics, nuclear, aviation, radio electronic, ord-
nance, shipbuilding, aerospace, and agriculture machine industries. Each of these specialized line
ministries directly managed all enterprises and research institutions under their supervision.
┃Table 2┃ Reshuffles of Comprehensive and Specialized Economic Agencies, 1982–2011
Note:
SC RES Office: State Council Restructuring Economic System Office (Guowuyuan jingji tizhi gaige bangongshi)
LEWC: Large Enterprises Working Committee of the CCP Central Committee (Zhongyang daxing qiye gongzuo weiyuan-
hui)
CEWC: Central Committee of the CCP Enterprises Working Committee (Zhonggong zhongyang qiye gongzuo weiyuanhui)
Source: Guojia Renwen Lishi [National Humanity History] (2014, 69
–
72); State Commission Office for Public Sector
Reform (SCOPSR 2011); revised by author.
Rapid Growth Outside of Policy Intention 17
In order to separate government and businesses, both comprehensive and specialized economic
agencies had to change their roles with regard to SOEs. First, the role of the SEC, which had
traditionally worked closely with large SOEs, was reduced as the role of the SPC and succeeding
organizations grew. As shown in Table 2, during the 7th State Council (1988
–
1993), the SEC
disappeared from the government organization chart. The 1988 government reform abolished the
SEC, anticipating that by establishing intermediary and consultative bodies between government
and industry, such as the China Federation of Industrial Economics, the SPC, along with the
newly established Industrial Policy Department in the SPC, would suffice for industrial
management. Yet it soon became clear that the newly established intermediary organizations
were too immature to replace the SEC, and that abolishing the SEC was insufficient to emanci-
pate the SOEs from their bureaucratic patrons (Heilmann and Shih 2013). As a result, some of
the functions that the SEC had exercised were recovered in 1991 as functions of the State
Council Production Office.
The SEC was reorganized in 1993 as the SETC and became the leading organization in then-
Premier Zhu Rongji’s agenda of economic restructuring in the 1998
–
2003 period. Although the
SETC was elevated to an economic pilot agency as a “Chinese MITI” or “little State Council,”
it was intended to be a short-lived organization limited to a special mission. Long-term macro
economic control was left to the newly reorganized SDPC (replacement of the SPC), but most
economic policy mandates, including industrial policy, were handed over to the SETC. The
SETC also absorbed most of the specialized branch ministries under its command as subordinate
bureaus.9 For instance, the Ministry of Machine Industry (MMI) was relegated to the State
Machine Industry Bureau and attached to the SETC. This reform measure was another step for-
ward in separating politics and businesses by weakening and ultimately abolishing the specialized
economic organizations. The MMI’s total number of personnel once reached about 4,600, and
it directly supervised more than 900 SOEs and 60 research institutes. These branch ministries
were relegated to state bureaus under the SETC, which was planned to be abolished after three
years. Thus, the primary task of the bureau was to arrange the reemployment of former cadres.
The MMI’s 308-member staff before the 1998 reform was cut to 105; because the bureau would soon
fade away, only cadres close to retirement remained in the office (Ji 2014). By completely abolish-
9 Namely, the (1) State Internal Trade Bureau, (2) State Coal Industry Bureau, (3) State Machine Industry Bureau,
(4) State Metallurgy Bureau, (5) State Petroleum and Chemical Industry Bureau, (6) State Light Industry Bureau,
(7) State Textile Industry Bureau, (8) State Construction Material Industry Bureau, (9) State Nonferrous Metal Industry
Bureau, and (10) State Tobacco Monopoly Bureau.
18 Korean Political Science Review Summer 2021
ing the line ministries through this reform, the Chinese central state cut another link with SOEs.
Since 2003, the Chinese industry management system has been consolidated to be run by the
NDRC (SPC’s succeeding organization) and the State-owned Assets Supervision and Administration
Commission (SASAC) (Lu and Cai 2010). This reorganization of industrial management pro-
voked new adverse effects on the implementation of industrial policy. As the SPC’s succeeding
organization, the NDRC’s mission centers on the national economy and social development rath-
er than on the development of individual industries. Furthermore, its major counterparts have
been government units, including ministries and local governments. As a result, the NDRC’s pri-
mary concerns are macroeconomic balances and screening projects (xiangmu shenpi). Because
the NDRC manages industrial policy mainly by screening projects, local governments easily by-
pass investment regulation by adjusting the scale of their projects. The SASAC, as a state asset
manager, is also primarily concerned with the asset value of SOEs. In the logic of industrial
policy, enterprises should be considered mediums of organizational capacity, and the major poli-
cy goal should be to develop the capacity of enterprises. However, because the SASAC, along
with the Organizational Department of the CCP, appoints managers to the top positions of large
SOEs, the incumbents at these SOEs are concerned more about financial metrics than capacity
building.10 In the auto manufacturing SOEs that were the principal beneficiaries of the AIP, the
top managers cared mainly about financial statements and their own promotion, and they pre-
ferred to expand joint venture (JV) operations with foreign partners over developing their own
brands and models.
In 2008, the Ministry of Industry and Information Technology (MIIT) reorganized as the ma-
jor organization for industrial management. Although the MIIT merged with other related agen-
cies, it was based on a transformation of the Ministry of Information Industry. The reorganiza-
tion of the MIIT was expected to fill the void left by the abolishment of the SETC. The central
government, however, had already lost organizational capacity and cadres who had decades of
experience interacting with SOEs; thus, establishing the MIIT was not enough to change the
course of reform. Furthermore, the division of labor between the NDRC and the MIIT has not
yet been clarified, so local governments play their own game by selectively utilizing proj-
ect-screening authorities. According to one provincial-level government official at the Economic
and Information Committee, once local governments finalize certain projects, they apply to either
the NDRC or the MIIT to be ratified, choosing whichever one from which they have a better
10 Since 2005, the SASAC started to use “the rate of preserving and appreciating the value of state assets” (baozhi
zhengzhi lv) for measuring the performances of SOEs (Wang 2015, 613).
Rapid Growth Outside of Policy Intention 19
chance of winning permission. Ratification from one organization can be a source of leverage
on the other, so local governments frequently abuse the murky division of labor (Interview, Oct.
10, 2013, Tianjin, China).
Ⅴ. Fiscal Reform and the Rise of Local Corporate States
The Chinese central government initiated reforms to enhance its fiscal capacity as part of the
effort to build the SME from 1994 onward. The 1994 Tax Sharing System (fenshuizhi; TSS)
replaced the previous tax-contracting system, and this fiscal reform changed local governments’
incentive structures and, subsequently, the local development model. Although secure property
rights are traditionally considered to be a necessary condition for high economic growth (North
and Weingast 1989), institutional settings in early reform China were not versed in protecting
property rights at the individual level. The fiscal contracting system before 1994 instead pro-
moted the merger of the state and the economy, with local government officials “acting as the
equivalent of a board of directors” (Oi 1992, 100). Fiscal contracting, according to Oi, “assigned
local governments property rights over increased income and
…
created local officials to pursue
local economic development” (100). Under the fiscal contracting system, local authorities could
hold tax surpluses beyond the contracted “baseline amount” regardless of tax category.
Therefore, local governments had a strong incentive to own and operate collective or state-owned
enterprises to fund them. In contrast, under the TSS, taxes are shared by the central and local
governments according to the tax category. (For details, see Wong and Bird 2008.) The im-
portant thing in the previous system was not what was taken out, but what was remained. Tax
surpluses have had an enormous impact on local authorities. However, under the new fiscal sys-
tem, a development strategy that can selectively increase local tax revenues has become a much
more reasonable strategy for local officials. (Kim 2019, 299)
After the 1994 fiscal reform, a saying that can be translated as “Do not pursue ownership of
the firm, but seek to locate the firm within your boundaries and further strive for development”
was widely circulated among Chinese local officials (Zhang and Yuan 2008, 176). Table 3 shows
how sources of local taxes changed before and after the 1994 tax reform. First, commodity turn-
over taxes (production tax and value-added tax) were abolished or diminishing in importance.
The production tax (chanpinshui) was completely removed in 1994. While the contribution of
20 Korean Political Science Review Summer 2021
value-added tax (VAT) to local taxes peaked in 1994, it then continuously decreased, from
23.28% in 1991 to 15.89% in 2010. The decline of the commodity turnover taxes in local tax
revenues represented the undermined motivation for “pursuing ownership of the firm.” Even
though business tax (yingyeshui) has been one of the largest sources of local tax revenues, it
was not something that local governments could actively intervene and modify. The business tax
was mainly levied on construction and tertiary industries. However, the local government did not
have the authority for construction permits at that time, and the proportion of tertiary industry
was not high enough. (Sun and Zhou 2014, 55). Consequently, a commodity turnover tax be-
came a more viable target for increasing local tax revenues. Turnover tax is levied when a com-
pany starts production, whether the product is profitable or not. For instance, VAT is levied on
the added value between the input of materials and product output. The cost of the final output
is always higher than raw material, because wage costs and equipment depreciation must be add-
ed during the production process. In this context, Shen and Zhou (2014, 52) summarized as fol-
lows: “the combination of a tax system based on turnover tax and a fiscal system with a fixed
turnover base was a strong motivation for local governments to develop local enterprises, espe-
cially township and village enterprises.”
┃Table 3┃ Breakdown of Local Government Taxes in 1991, 1994, and 2010
1991 %1994 %2010 %
Production Tax 473.13 21.41 000
VAT 514.56 23.28 579.98 25.27 5196.27 15.89
Company Income Tax 272.24 12.32 291.51 12.70 5048.37 15.43
Business Tax 526.59 23.83 647.36 28.20 11004.57 33.65
Tax on Resources 18.8 0.85 45.45 1.98 417.57 1.27
Personal Income Tax 0 0 1973.3 6.03
Urban Land Using Tax 15.74 0.71 32.51 1.41 1004.01 3.07
Stamp Tax on Security Exchanges 10.16 0.45 22.66 0.98 16.34 0.04
Other Industrial and Commercial Taxes 156.22 7.06 226.02 9.84 0
Salt Tax 8.37 0.37 00
Agriculture Tax 72.79 3.29 195.02 8.49 0
Urban Maintenance and Construction Tax 97.83 4.42 174.63 7.60 1736.27 5.3
Fixed Assets Investment Adjustment Tax 30.86 1.39 43.3 1.88 0
Tax on the Use of Arable Land 13.33 0.60 36.47 1.58 888.64 2.71
Other Taxes 0 0 5455.15 16.68
Total 2209.62 100 2294.91 100 32701.49 100
Note: Unit: 100 million RMB
Source: Compiled by author from the Finance Yearbook of China (Ministry of Finance 1992, 1995, 2010).
Rapid Growth Outside of Policy Intention 21
Company income tax was another factor that had motivated local governments to pursue own-
ing firms before the fiscal reform. In 1991, for example, company income tax was the fourth
largest source of local tax revenue. Because commodity turnover taxes and company income tax
(boxed in Table 3) directly flow toward the owner according to the “subordinate relation” (lishu
guanxi), these taxes motivated local governments to nurture local enterprises, especially township
and village enterprises (TVEs). If we only count the contribution ratio of commodity turnover
taxes and company income tax, it had already reached more than 56% of local tax revenues in
1991. Because increasing revenue from the business tax was still beyond local governments’ ca-
pacities, nurturing locally owned firms was a reasonable strategy to enhance local budget
conditions.
Another trait that stands out after the 1994 TSS is the rise of business tax’s share of total
local government taxes. The contribution rate of business tax to local revenue was 23.83% in
1991, but increased to 33.65% in 2010. Except for production tax, which was abolished in 1994,
the ranking of the primary sources has been relatively stable. But the importance of business
tax became much greater after 1994. The gap between business tax and VAT was less than 1
percentage point in 1991, but it continuously widened until it was 17.76 percentage points in
2010. After the TSS reform, commodity turnover taxes lost their share of local taxes, and busi-
ness tax filled the void. These changes are the result of the new incentives involved in fiscal
reform. The essential feature of the 1994 tax-sharing reform is that it changed the ways in which
tax revenues were shared between central and local governments by shifting from “a negotiated
system of general revenue sharing to a mix of tax assignments and tax sharing” (Wong and Bird
2008, 434).
VAT was assigned to the shared taxes, with 75% designated to the central government and
only 25% to local governments. Company income tax remained local tax at the beginning of
the TSS, but was added to the shared taxes in 2002. These changes further cooled local interest
in owning enterprises.11 The loosened relations between local governments and SOEs had sev-
eral implications for local development models. First, even after the TSS, the business tax was
entirely local tax; therefore, local governments voluntarily changed their development strategy
to raise more business tax. Among industries, those that had large industrial linkages (Su, Tao,
and Yang 2018) or were related to land development (Sun and Zhou 2014) generated more busi-
ness tax, and hence became preferable targets. Second, the loosened relationships also facilitated
11 In addition to the fiscal reform, banking reform was another factor in loosening relations between local governments
and SOEs (Yang 2004).
22 Korean Political Science Review Summer 2021
ownership transformation for local SOEs and TVEs, as addressed in the next section. The rela-
tive ease of ownership transformation during the period of Zhu Rongji’s administration mainly
resulted from changes in the incentive structures of local governments caused by the TSS.
Finally, the loosening relationships also opened up new chances for private enterprises. Local
governments now started to pursue having any ownership-type businesses located within their
boundaries rather than trying to own the firms.
This new type of local state can be called a “corporate state” (Zhao 2012). Like a corporation,
the priority of local governments became expanding fiscal revenue, such that “inviting business
and attracting investments” (zhaoshang yinzi) became the most important task for local officials.
Hence, local officials fiercely competed by adverting their locales’ “‘low land prices,’ ‘special
taxes,’ ‘low-interest loans,’ and even ‘guarantee for the acquisition of operation permission
(zhunshengzheng)’” (Kim and Kim 2019, 361). In these circumstances, the auto industry became
an attractive target for governments to invite into their local territories.
Ⅵ. State-owned Enterprise Reform and Emerging Bifurcated
Coalitions
The SOE reform before 1993 was intended to motivate the performance of SOEs by changing
the incentive structure without fundamentally changing ownership structures. These partial re-
forms initially seemed successful, but many SOEs were soon at the brink of bankruptcy owing
to “insider control” and the pursuit of short-term profit by contractors. The statistics on the total
debt and deficit ratios of the SOEs confirmed their poor financial health (Zhang and Yuan 2008,
90). The Chinese central government initiated a selective retreat of state ownership from ailing
sectors and a concentration in strategic industries to avoid the mass bankruptcy of SOEs. The
mass restructuring program, called “grasp the large, let go of the small” (zhuada fangxiao), was
aggressively promoted, especially during the administration of Premier Zhu Rongji (1998
–
2003).
According to the China Labour Bulletin (2007), “by the end of 2001, 86 percent of all SOEs
had been restructured, and about 70 percent had been partially or fully privatized.” This selective
retreat and concentration of SOEs set the direction of future SOE reform and is still underway
(Zheng and Chen 2009).
Rapid Growth Outside of Policy Intention 23
The period’s selective withdrawal and concentration of state ownership provoked the formation
of new coalition structures with regard to the AIP. In order to implement the AIP effectively,
active large business groups were indispensable. But the large SOEs were part of the state and
resisted the state’s withdrawal, and the central party-state also did not want to lose control over
important industries. Their shared desire drove a reorganization of the large SOEs into a pyr-
amidal group, with characteristics of divergence between cash-flow rights and control rights. The
strategy of forming a large business group provided the party-state a convenient tool for control-
ling business groups indirectly. A business group headquarters (or parent company, in the
Chinese term), which is solely owned by the SASAC, was placed over numerous subsidiary
companies ex post facto, and was deemed to function as an intermediary organization between
the SASAC and subsidiary companies. A Chinese scholar, Yang Yungao (2008), aptly described
the “parent company” as a “corporate Politburo.” Sutherland and Ning (2015, 140) evaluated this
pyramid group formation strategy as a “desirable option for those accustomed to holding power.”
On the other hand, the selective retreat from direct state ownership in ailing SOEs provided
channels for new actors to enter the previously barred auto industry. The lucrative profit rate,
artificially inflated by the central state’s entry control enforcement, motivated new players to
search for ways to enter the industry. The profit rate for the auto assembly industry was about
10% on average internationally, but 30
–
60% in China (Yu 2006). At the same time, a clear de-
marcation of central and local government ownership started to be created when the Large
Enterprises Working Committee of the CCP Central Committee (LEWC) was established, and
was further institutionalized when the SASAC clarified the ownership of the local states. Because
the “central SASAC has no direct hierarchical authority over local SASACs,” as Naughton
(2006, 17) noted, the local states were able to manage their assets more independently. The local
states’ hard-budget constraints, along with the new developmental incentives provided by the
1994 tax-sharing reform discussed in the previous section, triggered the formation of a new,
challenging coalition.
As Table 4 shows, the total number of auto assemblers remained stable, which means the en-
try control barriers were still enforced. While the total number did not change, the internal com-
position changed dramatically. The number of state-owned auto firms decreased to 12 in 2011
from 66 in 1998, but their total profit values increased to more than 30% of those of the whole
industry. The high-profit share of SOEs is mainly caused by two factors. First, from the very
beginning of SOE reform, these large and profitable SOEs were chosen to maintain unchanged
ownership type. Among small and medium size SOEs, the more profitable firms were transferred
24 Korean Political Science Review Summer 2021
to other quasi-state-owned companies with collective, cooperative, joint ownership, limited-li-
ability, or shareholding arrangements, while the financially poor firms were put on the market
for mergers and acquisitions (Guo 2003). As a result, the eight private companies recorded in
2011 are all former SOEs.
┃Table 4┃ Total Number of Automobile Companies, Number of Deficit Companies, and
Percentage of Total Output Value and Profit by Ownership Types, 1998, 2005, and 2011
Total State Collec
tive
Coopera
tives
Joint
Owner
ship
Limited-
Liability
Shareho
lding Private HMT JV JV
1998
Total # of Companies 115 662212040614
# of Deficit Companies 593721172027
Total Output Value (%) 43.49 0.06 0.21 0.11 22.18 0.38 0 1.45 32.17
Total Profit (%) -16.64 -1.21 -0.29 -0.52 31.31 -2.1 0 -1.52 90.99
2005
Total # of Companies 117 34 0 1 0 41 10 1 4 26
# of Deficit Companies 3514000142113
29.91 41.17 0 0 0 34.14 20 100 25 11.53
Total Output Value (%) 27.49 0 0.1 0 22.31 12.43 0 1.31 36.33
Total Profit (%) 13.72 0 0.05 0 9.64 1.4 -0.02 0.39 74.91
2011
Total # of Companies 115 12 1 1 1 28 17 8 4 43
# of Deficit Companies 18211180203
15.65 16.6 100 100 100 28.57 0 25 0 6.9
Total Output Value (%) 29.62 0.34 0.59 0.89 16.71 11.17 2.94 0.9 36.79
Total Profit (%) 30.14 0.11 0.23 0.34 17.73 12.06 2.95 0.89 36.51
Source: Compiled by author from the China Automotive Industry Yearbook (China Automotive Technology and Research
Center [CATARC], 1999, 2006, 2011).
Note:
Ownership types: (1) Domestic-Funded Corporations: State-owned (guoyou), Collective-owned (jiti), Shareholding
Cooperatives (gufen hezuo), Joint Ownership (lianying), Limited Liability Corporations (youxian zeren gongsi),
Shareholding Corporations Ltd. (gufen youxian gongsi), Private (siying); (2) HMT JV: Corporations with Funds from
Hong Kong, Macao, and Taiwan (Gang Ao Taishanng touzi gongsi); (3) JV: Foreign Funded Enterprises (waishang
touzi qiye)
Second, the enhanced performance of SOEs has a complex background. Since China embarked
on the SEM, “large corporatization and large business group” strategies have been the primary
means of central SOE governance reform. These strategies were aimed at reformulating central
SOEs to be run by the “multilevel corporate body management system” (Jia, Wen, Han, and
Rapid Growth Outside of Policy Intention 25
Liu 2007) or as a “pyramidal structure” (Sutherland and Ning 2015). The most important feature
of this multilevel system is that, while parent and subsidiary companies are vertically integrated,
the ownership structures at the subsidiary level are totally diversified. The SASAC solely owned
the parent companies, but the parent companies had different types and levels of ownership rela-
tions with the subsidiary companies. Also, both the headquarters and the subsidiary companies
are registered as independent legal persons, so one single business group can have multiple num-
bers of the auto companies listed in Table 4. Another notable feature of the group profit structure
is that the most profitable businesses converged in the listed companies and the unprofitable
businesses were transferred to non-listed companies. This profit structure partially explains the
large share of total profit by the SOEs shown in Table 4. After the business groups were estab-
lished, the unprofitable businesses were relocated to non-listed subsidiary companies. These qua-
si-SOEs are mostly subsidiary companies under the command of parent companies. For instance,
among nine central SOEs selected from the airplane, railroad, telegraph, and shipping industries,
which were investigated by the Financial Science Research Institute of the Chinese Ministry of
Finance and Monash University, Australia, more than 90% of total profits of whole business
groups usually came from listed companies (Jia et al. 2007). The parent companies artificially
boosted the financial situation of the listed firms, which are mostly SOEs, to enhance their mar-
ket credibility.
The central government’s weak industrial supervision capability caused by the government or-
ganizational reforms and the transformation of small and medium size SOEs became a rare op-
portunity for non-traditional actors to enter the auto manufacturing industry. The revised fiscal
incentives of tax-sharing reform in 1994 consequently changed the local development model, and
local governments were eager to become sponsors of these new actors. The performance record
of private companies first appeared only in 2005 in the China Automotive Industry Yearbook;
however, efforts by private and subprovincial governments to obtain vehicle production permits,
preferably sedan production licenses, began in the mid-1990s with the endorsement of the SME.
Promulgating the AIP alleviated the commitment problem, and market institutional reforms al-
lowed a new type of business actor and local governments to form a challenging coalition. While
neither market mechanisms nor state institutions are at work, a limited level of competition be-
tween two competing coalitions, centered on the traditional SOEs and the new domestic brands,
resulted in the high growth in China’s auto industry.
26 Korean Political Science Review Summer 2021
Ⅶ. Conclusion
Three decades after its initial implementation, China’s AIP has had mixed results. As a whole,
the auto market avoided encroachment by imported vehicles, but the central state’s intervention
inflated automobile prices, which subsequently stimulated various new actors seeking high-profit
rates to enter the auto sector. Localization requirements with the purpose of achieving import
substitution increased local parts production dramatically, but also drove China’s major auto en-
terprises to focus on developing parts supplies instead of developing independent models. Large
SOEs, which benefited from preferential policies, reaped their profits mainly from joint ventures
(JVs) and were far from realizing the goals set by the industrial policy. Meanwhile, various new
actors were able to enter the auto industry by purchasing non-transferable “production licenses”
from small and medium SOEs that spun off from former SOEs. Ironically, the designated large
SOEs that enjoyed the most preferential policies degenerated into parts producers for their JV
partners, but the fledging domestic actors, which violated industrial policy to access the lucrative
auto sector, eventually became the main force in auto exports with their own brands. In other
words, growth-promoting industrial policies failed to realize the policies’ intentions but nonethe-
less produced rapid industrialization outside the scope of the policies.12
This case study of the Chinese auto industry shows that in a transitional economy in which
the state and the market are forming, and in which the relationship between the two is being
re-established, emphasis on either market efficiency or state capacity can be misleading in an
explanation of industrial development. China’s SEM has never allowed the “spontaneous order”
of the market suggested by Hayek (1973), instead only allowing the market to function where
the public economy is not working. Industrial policy in China’s SME defines the extent to which
the state can allow operations of non-public actors in the pillar industries. The primary rationale
for state ownership in the pillar industries is that a certain amount of economic and material
capacity in the form of SOEs is the base structure that undergirds the socialist superstructure.
But when state-owned auto companies degenerated into parts producers for their JV partners,
fledging domestic firms that held their own intellectual property rights were able to win much
broader public support. In the discussion of development problems, controversy swirls around
12 The direction of growth in the Chinese automobile market has not changed much, and only Geely is included in
the top five by market share in 2019. Foreign brands still dominate the Chinese auto market, and China’s independent
brands are mainly produced by private companies rather than SOEs that were major beneficiaries of the AIP. Bart
Dermandt. “China Car Sales Analysis 2019-Brands.” n.d. https://carsalesbase.com/china-car-sales-analysis-2019-brands/
Rapid Growth Outside of Policy Intention 27
whether government failure or market failure produces the more rampant and critical obstacles.
In the case of the Chinese auto industry, however, both government and market failures were
extensive, despite the rapid growth of the industry. Although the AIP created more government
failure problems by allocating higher rents to a few designated firms, it unintentionally enhanced
market competition to some extent by enabling challenges from the new coalition. When lack
of investment is a major cause of underdevelopment, any state action that can bring in sufficient
investment and market competition can kick off development.
The findings from this study provide useful conceptual and empirical baselines for future stud-
ies of industrial policy in transitional economies. The study does, however, have several limi-
tations that suggest pertinent directions for future research. First, as a transitional economy,
China still has several “tiered economic systems” in its distinct version of a regulatory regime
(Pearson 2011). The middle-tier auto industry was chosen for this in-depth case study because
it has commonalities with both the top and the bottom tiers. A single industry, however, cannot
represent the huge variation across industries. A comparative analysis of the four pillar industries
—
machine and electronics, oil and petroleum, auto manufacturing, and construction
—
would pro-
vide a more nuanced understanding of “Chinese state capitalism.” An equal level of strategic
value is placed on each of these pillar industries, and the same growth-promoting policies, in
theory, have been applied. But in these policies’ enactment, the level of implementation and the
resulting outcomes vary significantly across the industries. This kind of comparative study would
uncover more nuances of the industrial governance mechanisms of Chinese state capitalism.13
Furthermore, while this study focused on the auto assembly industry, globalization tends to have
stronger effects on components industries, which are more likely to become integrated into glob-
al production networks. Most of the world’s leading component suppliers are already operating
in China, and their integration into global production networks will become essential oppor-
tunities, especially for Chinese domestic firms. Understanding the parts industries will enable us
to draw a more complete picture of industrial governance in the era of globalization.
13 For a comparative study in this context, see Kim 2019.
28 Korean Political Science Review Summer 2021
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Rapid Growth Outside of Policy Intention 33
정책 의도를 벗어난 빠른 성장 :
시장 전환, 산업 정책, 그리고 중국 자동차 산업의 성장
김용신
(
인하대학교
)
논문요약
본 논문은 중국의 자동차 산업을 사례로 어떻게 중앙 정부의 성장 주도 산업 정책이 본래의 의도
를 실현시키는 데 실패했음에도 불구하고 정책의 외부에서 빠른 성장을 만들어 내는지 고찰한다
.
본 논문은 산업 정책과 제도 개혁을 둘러싼 정치 과정을 추적하여
,
중국의 사회주의 시장 경제 체제
전환을 위한 거시 제도 개혁
(
중앙정부 개편
,
중앙
-
지방 재정 개혁
,
국가
-
기업 관계 개혁
)
이 어떻게
자동차 산업 정책과 상호 작용했는지 설명한다
.
본고는 문헌 조사 및 인터뷰를 바탕으로 국가 제도
의 기능이 완전하지 않은 상황에서도
,
전환기 경제에서 산업 정책은 정부의 커미트먼트 문제를 완화
시키고
,
다른 시장 제도 개혁과 함께 제한된 범위의 시장 경쟁의 공간을 열어준다고 주장한다
.
이는
비록 제한적이지만 의도치 않게 빠른 성장을 촉진시키는 시장 경쟁을 불러왔다
.
불완전한 시장 기제
나 국가 제도에도 불구하고
,
정부의 정책 개입이 만약 제한적인 시장 경쟁을 불러온다면 산업의 빠
른 성장을 이끌어 낼 수 있다
.
물론 대규모 정책 실패로 점철된 정부의 개입은 경제 선진국에서는
작동하기 어렵겠지만
,
전환기 경제에서는 없는 것보다 낫다고 평가될 수 있다
.
주제어:
중국
,
산업 정책
,
자동차 산업
,
사회주의시장경제
,
연합
