This study examines factors that determine prefectural industrial policies and their impact on firm total factor productivity (TFP), utilizing a natural language processing algorithm and data from the Report on the Work of the Government in China. We find that compliance with upper-level governments is crucial in shaping prefectural industrial policies. When an industry is favored by the upper-level government, the probability of the prefectural government’s favoring that industry increases. However, prefectural policies driven by political compliance have a minimal positive impact on TFP, due to inadequate implementation of policy measures like tax deductions, preferential loans, and land price discounts.

This study examines factors that determine prefectural industrial policies and their impact on firm total factor productivity (TFP), utilizing a natural language processing algorithm and data from the Report on the Work of the Government in China. We find that compliance with upper-level governments is crucial in shaping prefectural industrial policies. When an industry is favored by the upper-level government, the probability of the prefectural government’s favoring that industry increases. However, prefectural policies driven by political compliance have a minimal positive impact on TFP, due to inadequate implementation of policy measures like tax deductions, preferential loans, and land price discounts.

Using proprietary data of all high-tech incubators in China, we study a new approach by government to implement industrial policy through market intermediaries instead of directly allocating resources. Exploiting a highly localized industrial policy that targets different “strategic emerging industries” across provinces, we find that the incubators in policy-targeted industries receive higher government subsidy after the policy relative to their peers in other industries. Moreover, we find evidence that government subsidy to high-tech incubators increases the incubated startups’ innovation activity. Privately owned incubators in targeted industries, relative to their state-owned peers, receive less government subsidy, although they utilize government subsidy much more efficiently than do their state-owned peers.

A relatively mild form of government failure - for example, bureaucrats can count but do not differentiate quality - can significantly affect the efficacy of industrial policy. We investigate this idea in the context of China's largest pro-innovation industrial policy using a structural model. We find that the return to the subsidy program is -19.7\% (but would be 7.8\% if the mild government failure can be removed). Furthermore, the welfare loss is exacerbated by patent trade.

Rising concern over the impact of Chinese industrial policy has led to severe trade tensions between China and some of its major trading partners. In recent years, foreign criticism has increasingly focused on the so-called "Made in China 2025" initiative. In this paper, we use information extracted from Chinese listed firms' financial reports and a difference-in-differences approach to examine how the "Made in China 2025" policy initiative has impacted firms' receipt of subsidies, R&D expenditure, patenting, productivity, and profitability. We find that while more innovation promotion subsidies seem to flow into the listed firms targeted by the policy, we see little statistical evidence of productivity improvement or increases in R&D expenditure, patenting and profitability. This paper suggests that the “Made in China 2025” initiative may have not yet achieved its target goals.

During the reform era, the Chinese government has been carrying out strategic industrial policies modelled on those in post-war Japan and South Korea, in the hope of transforming its highly fragmented manufacturing sector into one that comprises a small number of internationally competitive big businesses. Using the evolution of the Chinese steel industry structure from the late 1980s to the early 2000s as a case in point, this paper finds that the Chinese government's consolidation attempts have, by and large, not been very successful. The disappointing policy outcome is interpreted by a detailed examination of the industry policy mechanism in China. It is concluded that the institutional framework of the Chinese state differs from its counterparts in Korea and Japan in some fundamental aspects. Among these, the fragmented and uncoordinated Chinese bureaucracy contributes significantly to the inefficacy of policy implementation.