Chinese Government Roles In The Industrial Research (1949 ~ 2010)

This thesis mainly focuses on the role of government in the process ofindustrialization. The whole paper can be divided into two parts. From historicalperspective, Part I gives a retrospect of the revolution of government role in theprocess of industrialization,and concludes the main characteristic of government rolein the process of industrialization. Part II explores the role in the form of threespecial issues: supply, demand and the relationship between central government andlocal government independently.In the historical analysis, the role of government in the process of industrialization isinspected in three stages that are divided according to the different role ofgovernment in the process of industrialization. The first stage is the period1949-1978, in this stage we will study the role of government in the found oftraditional socialism industrialization. The period of1979-1997is the second stageduring which government boosted the whole industrialization. The third stage beginsat1998till now, it’s a new stage that industrialization turns into a new style, andgovernment’s role also turns out to be different from the above two.There are two aims in Part I, first is to discuss government’s role in the successtransition from leaping the poverty trap to marching towards the high incomecountry, which shows a top view of the evolution of the process of industrialization.And the second aim is to summarize the profile of the Chinese industrialization road,build a solid foundation for the economics analysis of Part II.In Part II, the profile of Chinese unique industrialization road are explored based onthe combination of mathematical model and econometrical tool from supply, demandand the relationship between central government and local government three aspects.Government intervenes the supply of industry are discussed in the first portion ofPart II (Chapter5). Current literature, Acemoglu and Guerrier(i2008)explore spreadof capital intensified industry during the capital deepening process based on marketeconomy. Their study can not explain the adjustment of Chinese industrializationafter industry has developed a high level. The dynamic trajectory of industrydevelopment is modeled in which Government boost the industrialization through itsintervention in capital deepening process based on Acemoglu and Guerrieri(2008)in Chapter5. It can be found that there exists a inverse U shape betweengovernment’s subsidy of the capital intensified industry and the development of thecapital intensified industry through simulation. It shows that it is not beneficial forcapital intensified industry if subsidy from government is excessive. The theoreticalmodel is verified through empirical evidence with province level data. Enlightenedfrom government’s catch up idea that is raised by Lin, we construct “quasi-techniquechoice index” and employ province level data to examine the inverse U shape model.Empirical results prove the theoretical model. Government’s role in the process of industrialization is explored from demand sidein the second portion of Part II (Chapter6), mainly with an illumination of the traitsof industry structure change in current industrialization process. There exists a curveof rapid increase and decrease and then increase once again in the development ofindustrialization process since the foundation of People’s Republic of China.Specific, process of industrialization behaved a wide scale increase from1949to1978when Opening Reform Policy began to come into effect, then a decline afterthe Opening Reform Policy, until middle of the ninety of twenty century it started toincrease once more. The unique traits of Chinese industrialization are different fromresearch that based on Engle’s law. In his creative paper, Kousmut(2001)shows adynamic traits of industrial structure: the ratio of industry keeps constant, whileagriculture declines and service goes up. The process of Chinese industrializationhas distinct discrepancy with the prediction of Kousmut. Foellmi(2008) investigatesthe industrial structure in a framework of heterogeneous utility function. Heconcludes with that the ratio of industry increase in an early stage and then decrease.Their research mainly based on Engel’s law, which is insufficient in the investigationof the process of Chinese industrialization. To explore the potential reason of thedynamic transition of Chinese industrialization process, government’s role isindispensable. Chinese government has had a great investment in the process ofindustrialization, which constitutes an enormous demand for the industry, with somepart of resource of government’s investment is from agriculture. On the other hand,government takes some measures to boost the rise of consumption structure. Giventhese facts and based the framework of Foellimi(2008), this thesis brings the effectof government on the consumption structure into economic model. Simulationresult based on the model indicates that the model better explains the traits ofindustrialization process.The relationship between the fiscal decentralization of central government and localgovernment and process of Chinese industrialization is investigated in the thirdpotion of Part II (Chapter7). As a great country, China government implemented afiscal decentralization reform to activation the local government’s initiative in theprocess of industrialization. On the relationship between fiscal decentralization andeconomic growth, there has been a lot of empirical literature since Zhang&Zou(1998). However, the conclusion is controversial. Few literatures examine therelationship between fiscal decentralization and industrialization. This thesiscontributes to the research. Employing long panel data from province level since thefoundation of People’s Republic of China, we find that fiscal decentralization isbeneficial to the industrialization no matter before or after Opening Policy Reform.We also find that the influence level is even greater since2003. In addition, we alsofind influence level in eastern of China is even greater than that of middle andwestern part of China. At the same time, we also find the effect of fiscaldecentralization on wesetern part of China has been increasing in recent years.In the end, there are some basic conclusions. First, industrialization under government’s lead help China out of poverty trap. However, after the stepping intomiddle income level country, this very style industrialization under government’slead is likely getting China into middle income trap. Second, the pattern thatgovernment’s intervene in the capital deepening process to boost the development ofindustry can not sustain. Third, overweight of secondary industry is the reason whygovernment’s stimulation the demand of industrial product. Policy must change inorder to improve the irrational economic structure. Finally, empirical examinationshows that fiscal decentralization is beneficial to the boost of industrialization.Whereas there still needs deep exploration in the relationship between centralgovernment and local government in the new era when the transition of economicdevelopment mode faces an urgent change.