Research On The Performance Of Industrial Policy In Transformation And Upgrading Of China’s Manufacturing Industry

Industrial policy is an important tool of intervening economy generally adopted by market economy countries during the process of industrialization. In the early stage of economic development, it is important in promoting the rapid development of national economy by using industrial policy to protect and support specific industries. After the reform and opening up, Chinese government has issued a large number of industrial policy documents. From the content point of view, industrial policy is mainly distributed in the manufacturing sector. In other words, China’s process of industrialization and transition of manufacturing are guided by industrial policy. There has been considerable controversy on the effectiveness of China industrial policy. Many scholars study the effect of industrial policy from the characteristic aspects of China’s industrial policy. They believe that China’s industrial policy continues the tradition of the planned economy under direct government intervention in the economy, which prevents market competition and restricts the industrial development. Some other scholars believe that industrial policy has an important role to accelerate industrial restructuring and economic development in the economic transition period. This paper argues that it is need to distinguish between different types of industrial policies to analysis the performance of industrial policy. "National Industrial Policy Framework in 1990s" issued by State Council divided the industrial policy into industrial structure policy, industrial organization policy, industrial technology policy and industrial distribution policy. Lall(2003) divided industrial policy into selective industrial policy and functional industrial policy. We define the goals of the industrial policy mainly include structural adjustment, organization optimization, technological progress and social stability. We will use the theoretical and empirical to study the effectiveness of industrial policy. Overall, this paper analyses the performance of industrial policy in four areas of structural adjustment, organization optimization, technological progress and social effect. Based on the empirical results, we pointed out the shortcomings of the traditional selective industry, and advice of industrial policy transformation. The main contents are as follows:First, we analyze the effects of industrial policy in structure adjustment of China’s manufacturing industry with theory and empirical method. According to the theory of dissipative structures, the motivation of industry development originates from the spontaneous evolution of industry network. The transformation of industrial structure is realized spontaneously under the market conditions. The role of industrial policy is based on the normal operation of the market mechanism, and the role of industrial policy is consistent with the law of industry development. China’s traditional selective industrial policy tends to choose the specific industries with large scale and high proportion of state-owned capital. This selective behavior is contrary to the laws of the market. The effect of industrial policy is often invalid. We empirically analyze the impact of industrial policy on industrial structure adjustment using the panel data of China’s 34 industry segments from 2004 to 2014. We take government investment in fixed assets as the capital investment, government investment in R&D as the technical input. We measure industrial policy bias by factor inputs. The results show that:there is a negative relationship between the inclination of fixed assets investment and the growth rate of output. This is because the government tends to invest in the industries with large-scale and high proportion of state-owned capital. The growth rate of these industries is low. The inclination of investment in fixed assets has a significant positive effect on total factor productivity and technological improvement, while it has no significant effect on the technical efficiency. The promotion of China’s total factor productivity is mainly due to technical improvement. The essence of technological improvement refers to the introduction of foreign advanced equipment. This is mainly achieved through fixed asset investment. R&D funds inclination has no significant impact on both output growth rate and total factor productivity. This shows that the efficiency of China’s R&D expenditure is lower.Second, this paper compares the characteristics and performance of industrial policy in China’s iron and steel industry and household electrical appliance industry. We systematically review the Chinese steel industry policy since 1994, and analyze the evolution and characteristics of industrial policy. We find that the biggest characteristic of the steel industry policy is government intervention in the economy using administrative power. By measuring market concentration and productivity of the steel industry, we want to analyze the effect of Chinese steel industry policy. The results show that:market concentration of the steel industry is low, the CR4 and CR10 were only 27% and 45.9% in 2012. The space distribution of iron and steel enterprises is relatively discrete, and the repeated construction in each region is serious. The productivity fell from 0.617 in 2006 to 0.586 in 2012. Reasons that lead to the failure of steel industry policy include two defects of policy formulation and imp lementation.The steel industry policy has continued the traditional methods of planned economy period. Government choice behavior instead of market competition is not conducive to improving productivity. The direct government intervention in enterprise distorts the investment behavior of enterprises, and lead to over investment and excess capacity.As contrast, we analyze the development process of home appliance industry, and discuss the characteristics and performance of household electrical appliances industry policy. The policy of home appliance industry follows the objective law of industrial development. It takes appropriate policy tools according to the characteristics of the industry development. We empirically analyze the market structure and technological progress of household electrical appliance enterprises using the sample data from 18 listing Corporations. First, the new empirical industrial organization method is used to measure the market power. The results show that the market power premium is 0.842, household electrical appliance enterprises do not exist a high level of market power. Secondly, DEA-Malmquist method is used to measure the total productivity. The results show that the total factor productivity of household electrical appliance enterprises is increasing. It is mainly due to technical improvement. Full market competition has promoted the technical level of the whole industry. Appliance industry policy is based on the role of the market mechanism. Both relaxed external environment and effective industrial policies have promoted the rapid development of home appliance industry.Third, based on two aspects of industry and region, we empirically analyze the innovation efficiency of high tech industry in China and the performance of industrial policy in promoting technological innovation. In the perspective of value chain, high-tech industry innovation process can be divided into two stages of technology development and achievement transformation. We use the stochastic frontier production function model (SFA) to calculate R&D and transformation efficiency of Chinese high-tech industry and the performance of industrial policy. First of all, from the industry level, the overall level of innovation efficiency of high-tech industries in the two stages is low from 2000 to 2012. In 2012, the innovation efficiency of the two phases was 0.41 and 0.25 respectively. The development stage of innovation efficiency is relatively high. From the dynamic point of view, the innovation efficiency of the two phases is in a rising trend. From 2000 to 2012, the average growth rate of R&D efficiency reached 8.36%, while that of conversion efficiency is only 0.3%. Secondly, from the regional perspective, the R&D efficiency of 23 provinces in China is generally low from 2000 to 2012, while the conversion efficiency is relatively high. The innovation efficiency of the regional level is quite different from that of the industry level. This shows that high-tech enterprises of most provinces do not have advanced R&D capability. Profit margin of innovative products is low. Enterprises are mainly engaged in assembly work with low technology, relying on resources and labor cost advantage to obtain excess profits. R&D efficiency gap in different provinces is small, but the conversion efficiency gap is big. The transformation efficiency of the eastern developed provinces has a great advantage, such as Beijing, Tianjin, Shanghai, Jiangsu, Fujian, Shandong and Guangdong. High tech industries in these provinces are developing rapidly. Using government R&D spending and intellectual property protection to measure industrial policy, we empirically analyze the impact of industrial policy on innovation efficiency in the two phase of high tech industry. Both government R&D spending and intellectual property protection have a positive impact on the two stages of innovation efficiency. But, effect of government R&D spending is small, and the contribution of intellectual property protection to R&D efficiency is much greater than conversion efficiency. Corporate R&D expenditure and the scale of enterprise have no significant influence on the efficiency of R&D but have a positive effect on transformation efficiency. Market competition has an obviously positive effect on two stage efficiency. Under the market mechanism, enterprise should be the subject of R&D activities. The government should establish incentive mechanism of enterprises R&D to guide and encourage innovation indirectly, rather than leading R&D activities.Fourth, based on the perspective of financial expenditure, we analyze the employment effect of industrial policy in the transformation and upgrading of China’s manufacturing industry. Under the new normal, the effect of economic growth to promote employment is becoming weak. Stabilizing employment will become an important part of industrial policy. As an important tool of government regulation, fiscal expenditure has a significant impact on employment. In this paper, we divide the fiscal expenditure into four categories:economic construction, education, technology and social security, and analyze the impact mechanism of different types of fiscal expenditure on employment. Then we use the panel data of 30 provinces in China from 2007 to 2013 to examine the effects of scale and structure of expenditure on employment. The results show that:there is a lagged effect of fiscal expenditure on employment. The scale of fiscal expenditure lagged one has a positive impact on employment. The effects of four types of expenditure are different. Specifically, the effect of economic construction spending is not significant. Technology spending has a positive impact on employment only in the current period, while both education and social security spending have significant positive impacts in long term.Therefore, the government can adjust the scale and structure of fiscal expenditure to achieve the goal of "stabilizing employment, adjusting structure". The government should increase the proportion of expenditure in fields of education, technology and social security, and improve the expenditure structure of education, incentive mechanism of innovation and social security contributions system.Fifth, based on the analysis of the performance of the industrial policy, we point out the defects of selective industrial policy, as well as the definition of functional industry policy. Selective industrial policy reflects the characteristics of direct intervention in the micro-economy and government choice instead of market competition. With the improvement of market economy, the drawbacks of insufficient incentives, impeding innovation and maintaining administrative monopoly are gradually appearing. They restrict the industrial structure adjustment and economic long-term growth. Therefore, following the promoting of market economy, industrial policy should change from selective industrial policy to functional industrial policy. In new public policy system, competition policy should be first. Industrial policy and competition policy are complementary. Industrial policy is defined in the areas of market failure and social services. Policy instruments should change from direct intervention to market supervision and indirectly leading.