Poster Paper: Alliance, Constraint and the Achievement of Policy Goals——Based on Case Study of Industry Development in China

Friday, November 4, 2016
Columbia Ballroom (Washington Hilton)

*Names in bold indicate Presenter

Fuchen LI, Tsinghua University and Liu Yang, Beijing Customs

Industrial policy is the policy that government utilizes to promote industrial development by creating rent and distributing it. However, similar industrial policies may end with different results. China witnesses a number of examples. For instance, the automobile industry has stuck to the “exchanging market for technology” policy for 30 years, but is still on the periphery of core technology. On the contrary, high speed train industry transferred from technology importer to technology exporter within only five years. The administrative means failed to regulate the real estate price, but succeeded in coping with overcapacity in steel industry. The Chinese telecom giants charge a high price for their services, while the natural gas monopoly offers gas below its costs. No existing theory explains the reasons behind these phenomena. This paper will try to define the key concepts and theoretical framework, and to explore the mechanism that affects the achievement of industrial policy goals by analyzing the cases in the following six industries: automobile, high speed train, steel, real estate, telecommunication and natural gas.  

The first concept to define is alliance. Alliance is a consortium formed by the participating parties based on common interests. It can be established in the forms of enterprise-enterprise, enterprise-local government, enterprise-financial institution, or through the association of the three parties. These alliances can substantially decide the resource allocation. In terms of stability, alliance can be divided into strong alliance and weak alliance. More participants and/or stronger relationships between the participants lead to a strong alliance, while fewer participants and/or weaker relationships make a weak alliance.

The second concept is constraint. Constraint means the controls over certain participants within the alliance. According to its nature, constraint can be divided into political constraint, economic constraint and social constraint. Political constraint is imposed by the central government through political assignment and administrative orders, economic constraint is caused by market competition, and social constraint is the resulted from social environment, such as the CSR for State-owned Enterprises. In terms of coerciveness, constraints can be divided into strong constraint and weak constraint. The stronger the constraint is, the more it costs to disobey it.

In the framework of “alliance-constraint”, the key factor that affects the policy goal achievement is whether the rent user conforms to the rent supplier’s rules. Normally, the rent user (enterprise) is just an alliance rule-follower, while the rent supplier (central government) is the rule-setter. When the goal of the alliance differs from that of the constraint, the realization of the industrial policy goal is decided by the competition between the alliance and the constraint. Only when the constraint power exceeds the alliance power will the rent user follow the rules set by the rent supplier. Therefore, rent supplier (central government) should not only reinforce the political constraint, but make great efforts to reconcile the goals of political constraint, economic constraint and social constraint to generate synergy. In the end, this paper discusses the situation in which the alliance goal is identical with the constraint goal.