State Versus Market: China’s Infrastructure Investment – VoxChina
“In 2005, the Chinese government launched the landmark “36 Clauses” reform, marking a critical step toward forging a more favorable market environment. Our analysis reveals that after the implementation of the 36 Clauses, the positive effect of infrastructure investment on firm productivity increased by 42.5% for private firms in industries that benefitted from improved market entry opportunities and an even more striking 97.9% in provinces where arbitrary fines were curtailed…
“Collectively, our findings underscore the complementary roles of state-driven infrastructure investments and a conducive market environment in boosting the productivity of private firms, affirming our central hypothesis. Our results demonstrate that government interventions, through infrastructure investments, and the enhancement of marketization levels, as evidenced by a more favorable business environment for the private sector, act in a complementary fashion. This complementary interaction substantially boosts firm productivity and performance, highlighting the comprehensive advantages of synchronized policy measures in fostering economic development. This analysis becomes especially pertinent given China’s recent policy shift from prioritizing market mechanisms to a stronger emphasis on assertive state interventions.”