The Effect Of Fiscal Policies In China’s Photovoltaic Industry

The necessity and effectiveness of industrial policy has always been a controversial topic in the academia. The objective existence of market failure is one of the important theoretical bases for the resource allocation function of governments. Meanwhile, government failure makes the legitimacy of governments’intervention in the economy under suspicion. Since the 1980s, the adjustment and optimization of the industrial structure is always the basic task of economic construction in China, and the industry policy has become an important means to achieve the target. However, the transformation of economic development pattern, the adjustment and upgrade of industrial structure, the increasement of economic efficiency does not obtain ideal results over the past 20 years. As a result, the Third Plenary Session of Eighteenth Central Committee restarts the reform, focusing on the reform of economic system. It is required that the market play the decisive role of resource allocation.In practice, countries of the world have used different range and extent of industrial policies to achieve the purpose of government intervention in economic activities in different historical periods. Scholars have been less controversial to the necessity of industrial policy implementation and suggest that industrial policies should remedy the market failure. The main challenge is how to regroup and adjust the existing industrial policies to make it play a better role. Therefore, in the era of economic globalization and post financial crisis, it is worth deep discussing how to make industrial policies work to promote the national competitiveness and keep the economic healthly and sustainably developing.Industrial policies’value and attibutes are reflected by different selections, application degrees and ranges. Therefore, "industrial policy" is an elastic term which could accommodate varieties of different properties. Along with China’s market economy system establishment and constantly improvement, the fiscal policies, tools of industrial policies, gradually replace the dominance of administrative means and has become important means to adjust the industrial structure. Meanwhile, fiscal policies are the most sensitive policy tools to enterprises. Emerging strategic industries are the focus of industrial structure adjustment and they are the objects of fully industrial policies support. The photovoltaic industry is a typical one because solar and other renewable energy technology progress and application could realize the strategic target of energy structure optimization, ecological environment protection and promote economic growth and human society progress. In the process of our photovoltaic industry development, the present problems are closely related to China’s economic development model. Therefore, we choose fiscal policies in China’s photovoltaic industry as a specific research field, analyzing the policies’effect and incentive mechanism to find how to improve the effectiveness of industry policies and how governments could play a better role.Industries development usually requires elements of innovation, factor endowments, demand, instituions and policies etc. However, different elements in different industries play different roles. To evaluate the effect of photovoltaic industry fiscal policies, we should study theories and practice experience first. Then we should identify the constraints of photovoltaic industry development, find out the causes of these constraints and use fiscal policies to eliminate them within the function scope to promote industry development. Therefore, we put forward the analysis framework of promoting the photovoltaic industry development by fiscal policies. The photovoltaic industry chain forms an organic complete based on three key elements of capital, technology and market. Ideally, fiscal policies change the allocation of resources, guide and coordinate all kinds of market participants’behaviors and improve the intensity of their motivations by directly or indirectly influence the three key elements. Thus, we could achieve the goals of industry scales expandation, technology progress promotion and photovoltaic power cost reduction.Firstly, we make the framework operable and use a kind of statistical measurement method to empirical test the effect of fiscal policies in China’s photovoltaic industry. Results show that photovoltaic companies get governments subsidies have a negative impact on their economic performance. Whereas under the influence of fiscal policies, investment, financing, market size and R&D activities respectively have a positive correlation, a negative correlation, a positive correlation and no significant correlation to the economic performance. Secondly, we use case study method, choose two photovoltaic enterprises and observe their production and management behaviors in order to analyze the incentive mechanism of fiscal policies and evaluate the effect. Results show that excessive government involvement in the investment does not aim at the target of improving enterprises’viability. The insufficient public supply of basic research and development and intellectual property protection restricts the innovation ability of enterprises and the formation of fair market environment. Governments are deficient in the abilities of supplying market operational institutions, remedying market failure and coordinating the market participants. The institutional basis of governments’power and the government management systems are defective. The above factors constraint the functions of fiscal policies. On this basis, we refine the applicable conditions of the framework, at the same time, expand and improve it.The defects of market mechanism inevitably require governments to do something. However, in the process of remedying market failures, there are some new problems because governments ignore the construction of institutions and lack power constraints. Government economic functions should be defined as enhancing markets participants’abilities of solving problems, establishing and improving institutions and mechanisms, strengthening the construction of government capacities, reducing direct intervention in the economy, enforcing laws strictly, strengthening market supervision and concentrating on the creation of a fair market competition environment.