An Analysis of China's Industrial Policy and Its Economic Effects

This report provides an in-depth analysis of China's industrial policy, focusing on its strategies to encourage the growth of the manufacturing sector and overall economic development. It examines key aspects such as the role of infrastructure, resource allocation, and the promotion of domestic firms, especially oligopolistic industries, to compete globally. The report also discusses the discouragement of sunset industries and the government's policy of commanding heights of the economy, which involves controlling essential sectors like heavy industries and public utilities. While this approach has driven industrialization and economic growth, the report also highlights potential drawbacks, such as the reliance on state budgets and the challenges of selecting successful industries. The analysis incorporates various sources to provide a comprehensive overview of the subject.

China’s
Industrial
Policy

Industrial Policy
 Industrial policy of any country denotes an
official strategy and efforts that attempt to
encourage the growth of the manufacturing
sector and other sectors related to economy.
 The governments take initiatives to improve
capacities and the competitiveness of the
country’s domestic firms and promote a
structural transformation

Industrial Policy
 The infrastructure of a country mainly depends on the
transportation, energy industries and the
telecommunication system.
 These are directly related to the manufacturing sector and
play important role in forming a successful industrial
policy of the nation1.
 The government basically allocates all the necessary
resources which are important for specific manufacturing
industries.
 1. Chen, Ling and Barry Naughton, "An Institutionalized Policy-
Making Mechanism: China’S Return To Techno-Industrial Policy"
(2016) 45(10) Research Policy

Industrial Policy
 Through the industrial policies the government
creates scope for the industries within the state
to flourish and develop.
 It is the most advantageous method that helps a
landed nation to rise up and compete with
global industries.
 It is based on the perfect freedom of the
national merchants, manufacturers and
artificers to join in the development of economy
of a state.

Industrial organisations
 For making a successful industrial policy for the nations,
the governments usually encourage the domestic firms
especially the oligopolistic industries to take the main
role in facing the global competitions.
 It is due to the fact that this type of industries has unique
feature where the each of the firms produce
differentiated products yet they have interactivity which
they always obey.

Industrial organisations
 In oligopolistic industries, the market has large
numbers of buyers few numbers of sellers
therefore, there is a strong competition within
the domestic market1.
 Therefore, the firms be its small or large try to
provide best quality products and services to
their consumers within limited price.

Industrial organisations
 Oligopolistic industries therefore, enhances the
market power and cost advantage whereas the
foreign firms cannot compete in the market as
the domestic firms produce a variety types of
products in fixed cost.
 Thus, oligopolistic industries create scopes for
advantage over their foreign rivals and
strengthen the economy of the country.

Discouragement of sunset
industries
 As the governments try to bring changes in the
economic policies that aims to bring changes for
profitability and development of the nations, some
industries need to lose their favours with changing time
demand of market.
 Therefore, the governments carefully strategies to
replace the older industries with the new1.
 1. Econlib.org, Industrial Policy, By Richard B. Mckenzie: The Concise
Encyclopedia Of Economics | Library Of Economics And Liberty (2018)
Econlib.org <http://www.econlib.org/library/Enc1/IndustrialPolicy.html>.

Discouragement of sunset
industries
 Older industries which used to be important to
the economy once may lose the favours of the
investors for gradually falling employment
generation capacities as well as profits.
 On the other hand, they may have relatively
higher environmental costs which ultimate lead
them to be discouraged and substituted by new
technologies and efficiencies.

Discouragement of sunset
industries
 Moreover, these sunset industries may slow
down the competition process and hold little
promise to the future development of the
nation.
 Therefore, the governments both explicitly or
implicitly discourage these industries as their
main focus is the economic development
through industrial policies.

China’s policy to command
heights of economy
 The major industrial policies of
China mainly focus to its heavy
industries which are the pillars of
its strong economy, benefiting from
their artificially cheap inputs along
with monopoly prices for the
products1.
1. Kenderdine, Tristan, "China's Industrial Policy, Strategic
Emerging Industries And Space Law" (2017) 4(2) Asia & the

China’s policy to command
heights of economy
 The government of china believes in commanding
height of the economy. It refers to the existing private
industries essential for the state’s economy1.
 Commanding height of the economy controls natural
resources, public utilities, heavy industry, large banks,
as well as transport system of the country. It aims to
control over the foreign along with the domestic trade.
 1. Stiglitz, Joseph E et al, The Industrial Policy
Revolution (Palgrave Macmillan, 2014)