In the 1980s, when Chinese government introduced the open door policy, a number of small scale companies came into existence in all industrial sectors of China. Most of them were competing with each other on price rather than on product quality and their lack of resources and competitive advantage, led to the failure of most of these companies. The Chinese large firms were replete with outdated technology, obsolete skills and heavy debts. Owing to the state’s inspiration of growing larger and stronger, even the unrelated businesses merged resulting in unwarranted diversification.

Nature of the industrial policies
Therefore, the Chinese government came up with industrial policies, which have defined the framework for the opening of the sector while influencing at both macro and micro levels. The policies are said to be more open and more market oriented and closer to the Anglo-Saxon model rather than the Japanese-Korean model. The policies aim at launching new industries and make them internationally competitive through entry of FDI, standard setting, export subsidies/loans, and focus on R&D. A comparison of industrial policies for automotive and IT industry, one old/other new and both pillar industries, will explain the influence of the Chinese government in steering the industrial sector and its positive or negative effects.

Automotive sector
In automotive sector, which was mostly having state controlled companies, foreign companies were allowed to have joint ventures with maximum 50% partnership. The auto policy encouraged the technology transfer, growth of domestic parts industry and improvement of the quality as well as quantity of vehicles in China. This also led to the over investment in production capacity and some Sino-foreign JVs failed too. The geographical dispersion, unnecessary government interference and protectionism led to the limited scale of JVs and reduced their scope of synergy.

IT Sector
IT industry was hailed as ‘a driving force for innovation and growth of other industries’. The technological level of this industry has been raised by individual entrepreneurship, entry of leading foreign firms, global expansion of Chinese firms and also by rampant piracy. The state has, turned the ex-SOEs into IT enterprises, given them relative autonomy to manage their affairs, allowed conditional entry of foreign firms and invested heavily in R&D and science parks which continue in 11th five year plan.

Impact
These policies have led to vertical integration in both sectors but stifled the cross-fertilisation. The approach has been interventionist and protectionist which is regarded unsuccessful by some, since no Chinese brand has emerged in auto sector, the R&D level still remains low and the exports are still minuscule. In IT sector, the progress in hardware sector is significant but in softwares, the development has been disappointing. The problems of inter-regional competition, centre-local disputes and SOE legacy persist. Overall, these industrial policies have achieved much yet further territory remains to be covered.

Comments and Questions:

1. Foreign partners of JVs in automobile sector have resisted the idea of sharing technology with their local partners.
2. The development in IT sector was given a strong push by 1986 ‘Torch programme’ which established many NTEs like Stone and Legend group.
3. The industrial policies of China show a strong inclination towards Japanese and Korean development models rather than Anglo-Saxon model.
4. Anglo-Saxon model of development is the not only the best one and China/India can come up with their own contextual models like industrialization with human face or sustainable industrial development.
5. Is the Chinese government trying to take the best models for all successful sectors of different states and copy them or has there been an effort for indigenizing the methods before implementation?
6. How far these industrial policies have tried to follow the sustainable development model? Has China focused on the use of green technology during formulation of these policies?
7. How far open and market oriented these policies are?

Response:

1. The lack of innovation in China is a recent phenomenon. Historically, China has been an innovative state and it has contributed some of the best technologies to the world.
2. The problem of piracy can be seen in the Chinese philosophical context. For Chinese people, as Confucius said, Knowledge is public good and should be shared in society. So many Chinese do not understand the concept of piracy.
3. Chinese government has tried to make these policies market oriented and open.
4. Indian companies have been performing better because India has a long history of entrepreneurship than China.

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