Wu Jinglian: Promoting the transition of industrial policy to competition policy

It is necessary to abandon the traditional industrial policy practices of direct intervention and restricting competition, so that industrial policies become an auxiliary means to promote competition and enhance market functions. This will be a historic shift in China's industrial policy theory and practice. We should work hard to make this transition happen smoothly. First of all, I would like to talk about why we are convening this "industrial policy seminar" and why we should set up a research topic of "industrial policy to competition policy transformation".
The discussion on industrial policy initiated by Professor Lin Yifu and Zhang Weiying has aroused the attention and heated discussion of people from all walks of life. Industrial policy is a central policy tool in the Chinese government's toolbox and has a major impact on China's economic development. Therefore, it is self-evident that it is very important to study and discuss it in both theory and practice.
However, what surprised me is that since the 1970s, Japanese government and industry have reflected on the industrial policies they implemented in the early postwar period, that is, in the 1950s and 1960s. (Academia later called this industrial policy a "vertical industry." "Policy" corresponds to "horizontal industrial policy", "selective industrial policy" corresponds to "functional industrial policy" or "hard industrial policy" corresponds to "soft industrial policy"), international The economics community has conducted a lot of research and in-depth discussion on industrial policy issues.
The focus of the discussion is on the circumstances under which industrial policies are needed, what industrial policies are needed, and what is the relationship with another important policy, competition policy. A search of the relevant literature reveals that this close-knit discussion has yielded many important results that have helped national administrations improve their work. However, in our current discussion, the main spokesperson almost did not mention these discussions and their results, making the discussion a declaration of the respective economic philosophy of affirmation or full denial of industrial policy. In view of this, we hope to conduct more practical discussions based on the achievements of our predecessors in order to promote the deepening of understanding and the improvement of policies.
Another point in the current discussion is that I am surprised that the industrial policies that China is still implementing are introduced from Japan in the 1980s. In fact, they were implemented in the "fifty and sixties". Or "hard" industrial policy. In fact, since the 1970s, criticism of this industrial policy has gradually become mainstream. The Japanese government's industrial policy is also transformed into “horizontal”, “functional” or “soft” industrial policies under pressure from home and abroad.
However, in the recent discussion, almost no one talked about Japan’s industrial policy practice and its evolution (I only saw a question published by a Chinese professor at the National Policy Research University of Japan on the Chinese website of the Financial Times. The essay "Japan is not a superior student of industrial policy"). In order to make up for this shortcoming, we also invited some senior Japanese experts, such as Professor Yasuda Hada, the former president of the National Policy Research University of Japan, and Dr. Jinshang Jun, who worked in the Ministry of Commerce and Industry of the Japanese Government for 20 years.
There are some younger scholars who have also conducted in-depth research on the theory and practice of China's industrial policy in the past years. However, their influence in society is still very small, and we have invited several people to participate in the conference and related research.
As we all know, in the exploration of China's search for a new way to revitalize the economy after the end of the Cultural Revolution, Japan's economic system and development performance have been our important role models and road signs. The same is true of the issue of industrial policy. As early as the early 1980s, China had modelled the practice of “revitalizing the machinery industry” in Japan in the “restructuring and transformation of machinery industry” led by the government, and organized the implementation of technological transformation and professionalism of the machinery industry by administrative means. Reorganization.
The problem is that, as most scholars who studied Japanese economic development after the war pointed out, Japan implemented different types of industrial policies at different times after the war. In general, the first half of the 1970s was the dividing line. In the 1950s and 1960s, it was a “vertical”, “selective” or “hard” industrial policy; after the 1970s, it was implemented as “horizontal”. "Functional" or "soft" industrial policy.
The former type of industrial policy uses fiscal, financial, foreign trade and other policy tools and institutional interventions, "administrative guidance" and other means to selectively promote the production, investment, research and development and industrial restructuring of certain industries, while suppressing the similarity of other industries. Activities" (Professor Ryotaro Komiya of the University of Tokyo). The latter type of industrial policy is characterized by “maximizing the role of market mechanisms”. The role of policy means to protect, foster and strengthen key industries is weakened, and the inductive effect achieved by providing information to society is obtained. Strengthened (Professor Hiroyuki, University of Tokyo).
Professor Zhi Caoyi’s judgment: The “coordination activities” of the Japanese government’s use of industrial policies on the economy have undergone major changes from the hard industrial policy to the soft industrial policy in the 1970s. “As a result, providing a long-term outlook on the industrial structure and international economic information has become a central part of industrial policy.” However, what was widely disseminated in China in the 1980s was the remarks that preached the brilliant achievements of the former industrial policy.
The main promoter of Japan's post-war industrial policy, Marxist economist Aizawa and the Chinese Academy of Social Sciences maintained a close relationship. In 1985, he was also awarded the honorary doctorate by the Chinese Academy of Social Sciences. The "sloping production method" he proposed, that is, the industrial policy that leans toward the heavy chemical industry, is familiar to the Chinese economic community. Some of the works that promoted Japan’s early industrial policy performance and industrial policy, the main implementer of the Ministry of International Trade, such as E. Vogel’s “Japan’s First” (1979) and Johnson’s (C. Johnson)’s The province and the Japanese miracle - the growth of industrial policy (1925-1975) (1982), etc., has become a popular bestseller. In this environment, the Chinese government introduced the former type of industrial policy.
The introduction of Japan’s early post-war industrial policy and the background of China’s own reform process. In 1984, the Third Plenary Session of the 12th CPC Central Committee decided to replace the reform goal of the 12th National Congress of the Communist Party of China with "planned economy as the mainstay and market regulation as the supplement". The proposal of "socialist planned commodity economy" has opened up a certain space for the development of non-state-owned enterprises with relatively vague property rights system. By the mid-1980s, the share of the market-oriented non-state-owned economy in the national economy had already reached about one-third. At this time, the transition to a complete market economy began, and it was put on the agenda of China's reform.
At that time, some people in the political and economic circles and even academic circles at home and abroad had put forward the requirements for establishing a market economy. The market economy means that the price signal guides the allocation of resources. Therefore, in order to establish a market economy, it is necessary to liberalize the price and realize marketization (liberalization).
Although some people, both within the government and in academia, are skeptical and opposed to such reforms, they believe that China should maintain its plans and for a long time, for example, for generations. The state of the market's dual-track operation, but the State Council leaders decided in March 1986 to formulate a reform plan called “price, tax, and financial support reform”, and is preparing to begin implementation in early 1987, so that in the “seventh five-year plan” (1986- 1990) The marketization of prices in the early stage and the establishment of a fair competitive market environment. After the adoption of this reform plan in August 1986, Deng Xiaoping’s own support was obtained. But in October, the State Council leaders changed their minds and decided to terminate implementation.
At a time when the planning system had ceased to exist and market-oriented reforms could not move forward, who became the regulator of the national economy became a problem. At this time, several leading cadres of the State Planning Commission proposed at the National Seminar on Macroeconomic Management Issues convened by the State Planning Commission in September 1986 that China should implement a system combining planning with market, competition and intervention: The state regulates the market, the market guides the enterprise" or "the country controls the market and the market guides the enterprise". This opinion was accepted by the then central leaders and became the keynote of the 13th National Congress of the Communist Party of China in October 1987. The thirteen major political reports wrote: "The new economic operation mechanism of the socialist planned commodity economy, in general, should be the mechanism of 'national regulation of the market, market-oriented enterprises." The state uses economic means, legal means and necessary Administrative means to regulate the relationship between supply and demand in the market and create an appropriate economic and social environment to guide enterprises to make correct business decisions."
So, how does the state, the government, regulate the market? China has found an example that can be used for reference from Japan's industrial policy practice in the early postwar period.
In March 1987, during the drafting of the report of the 13th National Congress, the Development Research Center of the State Council wrote a research report entitled "Preliminary Study of China's Industrial Policy" to the then leaders of the CPC Central Committee, suggesting the introduction of East Asian countries such as Japan. Industrial policies adopted after the war to carry out this task. The research report pointed out: "Industrial policy is a general term for a set of important policies implemented in the process of industrialization in many countries.
Some countries that have implemented effective industrial policies have achieved fruitful results in development and international competition. The target model of China's planned system reform in the future is a model in which the plan and the market are dialectically unified and guided by the plan. It is a Chinese-style economic system combining 'competition' and 'intervention', that is, the state guides the market, The market fosters enterprises and promotes a plan based on the commodity economy. Therefore, "Japan, South Korea and other countries and regions have realized the experience of combining the economic system of 'competition' and 'intervention' through industrial policies."
Similar to the industrial policy implemented by Japan in the 1950s and 1960s, the report proposes that the industrial policy introduced is a comprehensive policy system that coordinates the control measures of price, finance, finance, taxation, foreign trade, and foreign exchange. The government uses the industrial structure policy it contains to “promote the production, investment, research and development, modernization and industrial restructuring of certain industries (some types), and to suppress similar activities in other industries”, specifically Limit the rapid development of the processing industry and promote the advance development of the “basic industry” in order to achieve “higher industrial structure”.
At the same time, the government should also use the industrial organization policies it contains, “establish a high-volume production mechanism based on high technology”. On the one hand, through the merger, expansion and new construction of enterprises, a group of highly concentrated large enterprise groups will be formed. On the other hand, it develops a large number of micro-enterprises that cooperate with large enterprises, and constitutes a "divisional cooperation network with large enterprises as the core."
It may be because such industrial policies provide a powerful policy means for the “national regulation of the market”. The opinions on formulating China's industrial policies are quickly recognized by the leaders and the National Planning Commission is responsible for implementation.
It is worth noting that after the domestic industrial policy in the early post-war period in the 1970s began to reflect, even the guiding principles of the formulation and implementation of industrial policies, including the Ministry of International Trade and Industry, changed under the pressure of domestic and foreign countries. There have been some views in Japan and abroad that look at Japan’s early industrial policies with a critical eye. The idea of ​​denying this industrial policy has gradually become mainstream. Among them, especially worthy of attention is the book "Japan's Industrial Policy" (1984) edited by the famous Japanese economist Komiya Ryotaro, Okuno Masahiro, and Suzumura Hiroshiro.
This book is a compilation of the results of more than 20 Japanese senior economists who have conducted in-depth research by Professor Takayuki Ryotaro. From the height of economics, it conducted a comprehensive examination of the theory and practice of industrial policy in Japan from the 1950s to the 1970s, and put forward reasonable and criticized criticism of the "vertical" or "hard" industrial policies implemented in the 1950s and 1960s. . Professor Komiya is also a friend of the State Council Development Research Center and Ma Hong, president of the Chinese Academy of Social Sciences.
At the Okinawa meeting of the Sino-Japanese academic exchange meeting in 1985, he pointed out to Ma Hong that the popular books introducing Japan's economic development and industrial policies had a bias toward overestimating the actual conditions and effects of Japan's industrial policies. At the same time, he also introduced Ma Hong to the main content of the book "Japan's Industrial Policy." After Mahon returned to China, he invited the Japanese Institute of Chinese Academy of Social Sciences to organize the translation of the book and published it in 1988.
Based on the analytical framework of mainstream economics, Professor Komiya is sure to implement the industrial policy in the event of market failure. However, he also stressed that "although industrial policy is necessary to deal with market failures, there are still several problems: (1) under what circumstances can the market be considered to be malfunctioning; (2) for market failures What kind of policy measures should be adopted for each type; (3) Although the market often fails, policies and government departments may also make mistakes. In almost all cases, measures taken according to industrial policies are always accompanied by financial burdens. There are costs and side effects, so it is necessary to weigh the effects and costs of the policy. We cannot believe that policy intervention is necessary as long as there is a market failure."
After careful examination of Japan’s early industrial policies, Komaki and other economists concluded that such industrial policies formulated by the Japanese government were rejected by the parliament (such as the special industry revitalization led by the Ministry of International Trade and Industry in the early 1960s). The Temporary Measures Act was rejected by the National Assembly in 1963 and became a waste case. It was boycotted by enterprises (such as the 1961 Industrial Rationalization Review Committee proposed to integrate the car industry into three enterprises. This idea was not realized due to opposition from private enterprises), Or it is illegal by the court (such as the so-called "administrative guidance" that explicitly prohibits competition in a judgment of the Tokyo High Court in 1980); even if it is implemented, the result is often negative more than positive.
Most of the industries that have achieved rapid development in Japan, whether it is early sewing machines, cameras, bicycles, motorcycles, zippers, semiconductor industry, or later color TV sets, tape recorders, audio equipment, fishing equipment, watches, desktop computers, CNC Machine tools, ceramics, robots, etc. were all developed without the support of the government's protection and support policies. Many of these companies started at a scale of zero or very small, and developed on their own strength without the preferential treatment of industrial policies.
Another author of Japan's Industrial Policy, Professor Chisui Yi of the University of Tokyo concluded that the rapid development of the Japanese economy after the war can be attributed to two reasons: First, the formation of the anti-monopoly policy under occupation. Under the relatively competitive market structure, private enterprises have launched active investment activities. Second, there are Japanese-style businesses with high savings propensity and labor-management integration that support the above activities.
"After the oil crisis in the early 1970s, the awareness of Japanese companies to improve productivity and product quality has deepened. And because of the participation of many new companies, the concentration of industry has shown a downward trend, and the resulting competitive market mechanism has further promoted the improvement of enterprises. Productivity and product quality. It is this dynamic industrial organization change that has become the foundation of Japan's macroeconomic development, and industrial policy is only a supporting role for Japan's economic development, that is, industrial policy only supports the market mechanism based on the side. Vibrant economic development."
It is regrettable that the book "Japan's Industrial Policy" could have been a useful reference book to help us learn from the lessons of Japan's postwar industrial policy, but it did not play such a role. The book was not widely sold, and it was printed only once, so that it did not attract enough attention to such criticism. This has led to the denial of many years of statements and practices in Japan, such as “preventing excessive competition”, “improving industrial concentration is the main way to improve efficiency”, and “realizing industrial structure (heavy industrialization)” continues in China. The popularity is not bad.
In March 1989, the State Council issued China's first industrial policy and regulation, namely the "Decision of the State Council on the Main Points of Current Industrial Policies." This decision details the industries and products that focus on supporting production and strictly restricting production, and focuses on supporting capital construction and industries or products that strictly limit or strictly restrict infrastructure construction, and focus on product catalogues that support technological transformation and strictly limit technological transformation.
Require planning, finance, finance, taxation, price, foreign trade, industrial and commercial administration and other departments to clearly target and coordinate actions, and use economic, administrative, legal and disciplinary means to “clearly support what and limit what” in order to “compress And control the production and construction of long-term products, increase and expand the production and construction of short-term products, and "gradually ease the contradiction between consumption structure and industrial structure." In contrast to Japan's early post-war practice, this decision and its accompanying "current list of industrial development sequences" can be said to be an enhanced version of Japan's "Special Industry Promotion Law."
After the State Council promulgated the "Outline of the National Industrial Policy in the 1990s" in March 1994, this government continued its tradition of directly intervening in the micro-economy with industrial policies under the name of "macro-control", and by the turn of the century, it formed a "guarantee." Industrial policy guidelines of “pressure, support and control”.
Relevant departments have successively promulgated the "industrial development policy", "industrial structure adjustment regulations" and "product catalogue" of a series of industries such as automobile, steel, cement, coal, aluminum, electric power, shipbuilding, textile, etc., requiring government agencies at all levels to use The market access, project approval, land supply trial, loan approval, catalogue guidance, mandatory elimination and other means are in the hands to achieve the goal of optimizing product structure and organizational structure in the leadership department.
However, the implementation of this kind of industrial policy that directly intervenes in the market and restricts competition is not good enough, and the industrial structure of China has become more and more distorted in the first decade of the new century. The competitiveness of large-scale enterprise groups formed by administrative forces has declined. An obvious fact, that is, "three to one, one to one, one supplement", that is, "to excess capacity, to real estate inventory, deleverage, cost reduction, supply short supply" has become an urgent and heavy task that must be faced now. See Jiang Feitao and Li Xiaoping (2010): Direct Intervention in the Market and Restricting Competition: The Orientation and Fundamental Defects of China's Industrial Policy.
The situation in the international academic community is different. Since the 1980s, many economists have conducted in-depth research on industrial policies and the role of the government in economic development. For example, D. Rodrik, P. Aghion, and Ohno Kenichi have all made their own contributions. J. Tirole also won the Nobel Prize in Economics for his research. Their research results must be carefully studied and absorbed in the process of promoting supply-side structural reform.
The fundamental way to improve China's economic efficiency is undoubtedly to build a unified, open and competitive market system through reforms, so that the market can play a decisive role in resource allocation. Of course, we must also play a better role in the government than in the past. Combining the above two requirements, an important issue is how to correctly handle the relationship between industrial policy and competition policy.
In 2015, "Several Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Reform of the Price Mechanism" put forward a very important requirement, that is, "gradually establish the basic status of competition policy." This means that traditional industrial policy practices that directly intervene and restrict competition must be abandoned, making industrial policies an auxiliary means of promoting competition and enhancing market functions. This will be a historic shift in China's industrial policy theory and practice. We should work hard to make this transition happen smoothly.
(The author of this article: famous economist, researcher of the Development Research Center of the State Council.)

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