Business environment of China: differences, variations and influence

MA Guangrong1 FAN Gang2 YANG Enyan3 PAN Bin4

(1.China Financial Policy Research Center, Renmin University of China)
(2.National Economic Research Institute, China Reform Foundation)
(3.Post-Doctoral Research Station, Postal Savings Bank of China)
(4.Financial Research Institute, Wenzhou University)

【Abstract】The business environment is the embodiment of the institution at the microscopic level. Due to the difference of the institutions in terms of ex post implementation, the operating environment varies greatly for different types of enterprises within a country. Through using the enterprise survey data of four years in the period from 2006 to 2012, we investigate the factors causing differences and variations in the business environment. The results show that the business environment is worse in the provinces where the government size is larger, there is a higher proportion of state-owned enterprises and the degree of economic openness is lower. Large enterprises, state-owned enterprises and foreign-capital enterprises enjoy better operating environment than small and micro enterprises and private enterprises, so this means discrimination exists based on the enterprise size and ownership. Since the outbreak of the global financial crisis in 2008, the expansion of government, “the state advances, the private sector retreats” and the lower degree of openness during 2008 to 2010 seriously deteriorate the business environment. Using the provincial BEI, we also find that the improvement of business environment can raise the regional TFP and make significant contributions to economic growth.

【Keywords】 business environment; institution; economic growth; total factor productivity (TFP);

【DOI】

【Funds】 the National Natural Science Foundation of China (approval number: 71403278) Beijing Social Science Foundation (approval number: 14JGC120) Key Program of National Social Science Foundation (approval number: 14AZD127)

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(Translated by SUN Yanfei)

    Footnote

    [1]. ① These commonly used indexes include the constraint on executive by Polity IV, the protection against expropriation by Political Risk Services, the corruption perceptions index of Business International, and International Country Risk Guide (ICRG) etc. [^Back]

    [2]. ② Acemoglu and Dell (2010) found that, in Brazil, Mexico, Venezuela, Panama and other Latin American countries, the difference in the level of economic development across regions within a country is greater than the average development level across countries. This is largely due to the institutional differences between various regions within a country. Laeven and Woodruff (2007) also found that the states of Mexico have huge differences in their level of rule of law. [^Back]

    [3]. ③ Due to the particular preferences, arbitrariness, discretion or even capriciousness of government while implementing policies, or active lobbying by entrepreneurs, differences will exist in the ex post implementation of ex ante rules. And bribery, corruption and rent-seeking activities of government can exacerbate this trend. [^Back]

    [4]. ④ The enterprise tax burden is an index newly set in 2012. [^Back]

    [5]. ⑤ Some basic measures are quantitative and divided into five scales either. [^Back]

    [6]. ⑥ The coefficient of variation is the ratio of the mean and standard deviation. [^Back]

    [7]. ⑦ According to the classification in the survey, state-owned enterprises include wholly state-owned enterprises and state controlling enterprises, and non-state-owned enterprises refer to all other enterprises, including private enterprises, non-state-owned holding companies and limited liability companies, collectively owned enterprises, joint-stock cooperative enterprises, other domestic enterprises, as well as Hong Kong, Macao, Taiwan and foreign-invested enterprises. Foreign-capital enterprises refer to the enterprises invested by foreign capitals and Hong Kong, Macao and Taiwan merchants. [^Back]

    [8]. ⑧ In theory, if the resources can flow freely with no distortion, the productivity of all enterprises should be equal because high-productivity enterprises can automatically edge out low-productivity enterprises. [^Back]

    [9]. ⑨ The Hausman test subsequently conducted by us for the regression results also support the fixed effects model rather than the random effects model. [^Back]

    [10]. ⑩ The original data before 2008 come from China compendium of statistics 1949-2008, and the data of the period from 2008 to 2012 come from China Statistical Yearbook released every year. [^Back]

    [11]. 11 Since the growth rate of average education level of workforce in this period is negative, the contribution of education level to economic growth is a negative value. [^Back]

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This Article

ISSN:1002-5502

CN: 11-1235/F

Vol , No. 12, Pages 58-67

December 2015

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Article Outline

Abstract

  • 1 Introduction
  • 2 Literature review
  • 3 Data description
  • 4 Source of difference in business environment
  • 5 Contribution of provincial business environment to the macroeconomic growth
  • 6 Conclusions and implications
  • Footnote

    References