2. Industrial Policy Defined
• Industrial Policy (IP) is the broad spectrum of policies that a
government uses to provide support for sectors of the economy where
development is deemed to be in the national interest.
• Internationally, these policies seek to give domestic companies and
industries a competitive advantage abroad
• Domestically, Industrial policies are implemented to protect domestic
companies and industries from foreign competition, often during the
initial development of an industry, when it is not large enough to be
able to compete.
3. Difference Between American and Chinese Industrial Policy
• In China, business exists as a means for the development of the state. In the
United States, the government exists to facilitate the needs of the private
sector
• In the U.S., direct government intervention is used to respond to crisis,
whereas in China, it plays a direct role in long term strategic planning
4. IP Development Timeline
• 1980 – 1984 – Chinese Delegations visit Japan to see how they are
implementing industrial policy – trying to replicate Japan’s high growth rate
• 1988 – State Planning Commission creates Industrial Policy Planning
Division
• 1989 – 1994 – First trial industrial programs (widely seen as a failure due to
a lack of resources)
• 2004 – Advocates of Industrial Policy come into power with Hu Jintao
Source: Sebastion
Heilmann and Lea Shih,
University of Trier
5. How Policies are Implemented
• Catalogues – list encouraged, permitted, restricted, and unwanted
industries
• 5 Year Plans
• Strategic Plans
• Industry Specific Plans
Source: China
Business Review
6. Catalogues
• Encouraged Industries are supported by the government through direct
investment, tax exemptions, cheaper land and utilities, and less bureaucracy
• Permitted Industries are allowed to do business in China, but are given no
benefits. Foreign companies are often put into this category.
• Restricted Industries are sectors that the government considers essential to
the state. These include public utilities, telecom, weapons manufacturing,
and infrastructure. Private companies have very limited roles in these
industries
• To be eliminated industries are industries the government is actively
working to phase out.
Source: China
Business Review
7. The Logic Behind IP Development
• Industrial planning allows
officials to engage in long
term strategic planning,
instead of simply reacting to
the whims of the market
• Putting national investment
into companies that are
acquiring resources abroad
allows them to effectively
compete in international
bidding
• Myth: Industrial Policy means
that there is no competition,
and therefore no incentive to
innovate
8. Drawbacks
• Growth without development
• Preferential treatment for
domestic companies keeps
foreign companies from
entering the Chinese market
• Businesses don’t have a say
in creating the policies that
affect them. Policies often
look good on paper, but don’t
work in practice
9. Conclusion
• Chinese Industrial Policy will serve as a model for developing nations and
eventually force developed western nations to adapt by expanding their own
industrial policies to include cross-sector long-term strategic planning.
10. Reform
• Politically insulated research bodies should be given a formal say in deciding
whether or not industrial policies are adopted by the politburo
• Additional transparency should be provided in the hiring process for
researchers, to ensure that candidates are selected on merit
• Instead of promoting officials based on the growth rate, there should be
anonymous performance reviews by their coworkers and members of the
public in their jurisdictions
11. Works Cited
• U.S. International Trade Commission. (2007). China: Description of Selected
Government Practices and Policies Affecting Decision-Making in the
Economy (USITI Publication No. 3978). Washington, DC: Government
Printing Office
• Sebation Heilmann & Lea Shih. (2013). The Rise of Industrial Policy, 1978-
2012. Harvard-Yenching Institute Working Paper Series
• Exec. Order No. 13534. National Export Initiative (2010). Retrieved from:
whitehouse.gov
• Julie Walton. (2013). "Coming to Terms with Industrial Policy." China
Business Review. US-China Business Council.
