China’s industrial policy and corporate technological innovation

YU Minggui1 FAN Rui1 ZHONG Huijie1

(1.Economics and Management School of Wuhan University, Wuhan , China 430072)

【Abstract】Based on the information about the generally encouraged and emphatically encouraged industry development planning in the “Five-Year Plan” of Chinese central government, we collect the patent data of listed companies and their subsidiaries from 2001 to 2011, and test the impact of industrial policy on corporate technological innovation. The results show that industrial policy significantly increases the technological innovation of encouraged industries. We also find that industrial policy has a greater impact on innovation of private enterprises and enterprises in emphatically encouraged industry. Furthermore, we find that industrial policy improves the technological innovation of private enterprises and enterprises in emphatically encouraged industry by the credit mechanism, tax mechanism, government subsidies mechanism, and market competition mechanism. However, industrial policy promotes the corporate technological innovation in the generally encouraged industry through market competition mechanism, not through the credit mechanism, tax mechanism and government subsidies mechanism. This paper enriches the literature of effectiveness of industrial policy and corporate technological innovation and provides empirical evidence that government can make sound industrial policy and use different methods to promote corporate technological innovation.

【Keywords】 industrial policy; corporate technological innovation; bank loan; fiscal instruments; market competition;


【Funds】 National Natural Science Foundation of China (71672134) National Natural Science Foundation of China (71502161) National Natural Science Foundation of China (71372126)

Download this article


    [1]. ① Different scholars have different definitions of industrial policy. Generally speaking, industrial policy has the broad and narrow senses. The former mainly refers to all the policies of industries implemented by the government, and Atsushi Shimokobe, Agra, and Jian Jiamao are the representative scholars. The latter mainly refers to the policies implemented to specific industries by specific sectors, and representative scholars are Ryutaro Komiya. [^Back]

    [2]. ② At present, the domestic academia launched a heat debate again on advantages and disadvantages of industrial policy. Lin Yifu and Zhang Weiying are the main representatives. With the hot debate about industrial policy in academic circles, the spokesman of National Development and Reform Commission also gave a few formal responses. [^Back]

    [3]. ① The views of supporters and opponents can be found in the open debate on November 9, 2016 on Industrial policy between Lin Yifu and Zhang Weiying ( The representative scholar who holds a third opinion is Nie Huihua ( [^Back]

    [4]. ② Fu et al.[17] took the wind power manufacturing industry of China as a sample, and analyzed the direct impact of the domestic content protection (DCP) policy on independent innovation by utilizing DID estimation and triple difference estimation. Therefore, the research of Fu et al.[17] for specific industries and policies, could not comprehensively investigate the impact of industrial policy incentives on corporate technology innovation. [^Back]

    [5]. ① Taking photovoltaic industry for example, from 2009 to 2013, the government financial subsidy for the “Golden Sun Demonstration Project” in photovoltaic industry amounted up to tens of billions of Chinese yuan.[27] [^Back]

    [6]. ① Some literature defined the industrial policy incentive through interpreting the industrial policy documents released by National Development and Reform Commission [4,13] and Decision of the State Council on Accelerating the Cultivation and Development of Strategic Emerging Industries.[5] [^Back]

    [7]. ② The main reason of selecting the manufacturing industry for planning and adjusting is that innovation levels of different industries vary greatly. For example, companies with industry codes of A, D, F, H, J, K, L and M can also continue running even if they are not engaged in innovation activities.[32] In Model (2), the Ingroup may have endogeneity coming from the industrial planning and adjustment of the state based on the industry characteristics. This paper conducts a DID analysis on the manufacturing industry, which alleviates the endogeneity to some extent. [^Back]

    [8]. ① The result of this paper is different from that of Li and Zheng,[13] mainly because this paper examines the impact of industrial policy incentives on the level of invention patents and R&D investment of enterprises in the next period, while Li and Zheng [13] examined the impact of industrial policies on the patent level of enterprises in the current period. [^Back]

    [9]. ① Due to limited length, the test results above are not reported. [^Back]

    [10]. ② In order to comprehensively analyze the impact mechanism of industrial policies, this paper empirically tests whether the industrial policies can affect the long-term loan increment, government subsidy, actual tax rate and HHI level of encouraged industries. Due to the limited length of this paper, the test results above are not reported. [^Back]


    [1] Robinson, J. A. Industrial Policy and Development: A Political Economy Perspective. The World Bank, 2009.

    [2] Jiang, F. & Li, X. China Industrial Economics (中国工业经济), (9): 26–36 (2010).

    [3] Chen, D., Li, Z. & Xin, F. Proceedings of the International Symposium of Accounting and Financial Research in China, (2010).

    [4] Li, W. & Li, Y. China Industrial Economics (中国工业经济), (5): 122–134 (2014).

    [5] Han, Q. & Hong, Y. Economic Research Journal (经济研究), (12): 143–158 (2014).

    [6] Bi, X., Zhang, J. & Li, H. Accounting Research (会计研究), (3): 57–63 (2015).

    [7] Song, L. & Wang, X. Management World (管理世界), (12): 63–77 (2013).

    [8] Chen, S. Economic Research Journal (经济研究), (3): 129–143 (2010).

    [9] Hsiao, S. H. PTE, Innovation Capital and Firm Value Interactions in the Biotech Medical Industry. Journal of Business Research, 2014, 67(12) 2636–2644.

    [10] Zhang, T. & Gao, T. Economic Research Journal (经济研究), (5): 58–70 (2012).

    [11] Romer, P. M. Endogenous Technological Change. Journal of Political Economy, 1990, 14(3): 71–102.

    [12] China Entrepreneur Survey System. Management World (管理世界), (6): 22–33 (2015).

    [13] Li, W. & Zheng, M. Economic Research Journal (经济研究), (4): 60–73 (2016).

    [14] Cornaggia, J., Y. Mao, X. Tian, and B. Wolfe. Does Banking Competition Affect Innovation. Journal of Financial Economics, 2015, 115(1): 189–209.

    [15] Hsu, P. H., X. Tian, and Y. Xu. Financial Development and Innovation: Cross-Country Evidence. Journal of Financial Economics, 2014, 112(1): 116–135.

    [16] He, J., and X. Tian. The Dark Side of Analyst Coverage: The Case of Innovation. Journal of Financial Economics, 2013, 109 (3): 856–878.

    [17] Fu, M., Ye J. Meng, Y. et al. Economic Research Journal (经济研究), (2): 118–131 (2015).

    [18] Chemmanur, T. J., E. Loutskina, and X. Tian. Corporate Venture Capital, Value Creation, and Innovation. Review of Financial Studies, 2014, 27(8): 2434–2473.

    [19] Manso, G. Motivating Innovation. Journal of Finance, 2011, 66 (5): 1823–1860.

    [20] Jiang, G. & Rao, P. Accounting Research (会计研究), (3): 9–18 (2011).

    [21] Sun, Y. Scientific Management Research (科学管理研究), (17): 7–13 (2015).

    [22] Lin, Z., Lin, H. & Deng, X. China Industrial Economics (中国工业经济), (3): 111–123 (2013).

    [23] Duchin, R., O. Ozbas, and B. A. Sensoy. Costly External Finance, Corporate Investment, and the Subprime Mortgage Credit Crisis. Journal of Financial Economics, 2010, 97(3): 418–435.

    [24] Yang, Y., Wei, J. & Luo, L. Management World (管理世界), (1): 75–86 (2015).

    [25] Bai J. & Li, J. Journal of Financial Research (金融研究), (6): 181–193 (2011).

    [26] Xie, W., Tang, Q. & Lu, S. Journal of Financial Research (金融研究), (6): 86–99 (2009).

    [27] Zhou, Y., Pu, Y., Chen, S. et al. Economic Research Journal (经济研究), (6): 147–161 (2015).

    [28] Brollo, F., T. Nannicini, R. Perotti, and G. Tabellini. The Political Resource Curse. American Economic Review, 2013, 103(5): 783–794.

    [29] Krueger, A. O. The Political Economy of the Rent-Seeking Society. American Economic Review, 1974, 64(3): 291–303.

    [30] Chen, C. J., Z. Li, X. Su, and Z. Sun. Rent-Seeking Incentives, Corporate Political Connections, and the Control Structure of Private Firms: Chinese Evidence. Journal of Corporate Finance, 2011, 17(2): 229–243.

    [31] Yang, Q. Economic Research Journal (经济研究), (10): 54–66 (2011).

    [32] Yuan, J., Hou, Q. & Cheng, C. Management World (管理世界), (1): 139–155 (2015).

    [33] Wang, W., Ming, J. & Yue, C. Management World (管理世界), (10): 17–36 (2014).

    [34] Lin, C., P. Lin, F. M. Song, and C. Li. Managerial Incentives, CEO Characteristics and Corporate technological innovation in Chinas Private Sector. Journal of Comparative Economics, 2011, 39(2): 176–190.

    [35] Allen, F., J. Qian, and M. Qian. Law, Finance, and Economic Growth in China. Journal of Financial Economics, 2005, 77(1):57–116.

    [36] Brandt, L., and H. Li. Bank Discrimination in Transition Economies: Ideology, Information, or Incentives. Journal of Comparative Economics, 2003, 31(3): 387–413.

    [37] Yu, M. & Pan, H. Management World (管理世界), (8): 117-129 (2010).

    [38] Zhu, J. & Lu, Z. Journal of Financial Research (金融研究), (1): 131–148 (2011).

    [39] Lin, J. Y., and Z. Li. Competition, Policy Burdens, and State -Owned Enterprise Reform. American Economic Review, 1998, 88(2): 422–427.

    [40] Lu, Z., Wang, X. & Zhang, P. Economic Research Journal (经济研究), (3): 28–39 (2012).

    [41] Zeng, Q. & Chen, X. Economic Research Journal (经济研究), (5): 74–86 (2006).

    [42] Li, W. & Yu, M. China Industrial Economics (中国工业经济), (12): 115–127 (2012).

    [43] Bertrand, M. How Much Should We Trust Differences-in-Differences Estimates. Risk Management and Insurance Review, 2004, 119(1): 173–199.

    [44] Wu, W., Wu, C. & Rui, M. Management World (管理世界), (3): 134–142 (2009).

This Article


CN: 11-3536/F

Vol , No. 12, Pages 5-22

December 2016


Article Outline



  • 1 Introduction
  • 2 Theoretical framework and research hypothesis
  • 3 Data and methods
  • 4 Results and analysis
  • 5 Test of the impact mechanism
  • 6 Conclusion and implication
  • Footnote