The Limits of Liberalization

The Limits of Liberalization: Sub-National Government Autonomy and the Auto Industry in Post-WTO Era China

How does an emerging economy like China resolve the conflict between its long legacy of heavy state intervention with the strictures of the WTO? To what extent is the Chinese central government willing and able to create a rule-based economy? How effective are international agreements and multinational corporations in promoting liberalization in emerging economies such as China? What does this tell us about emerging economies’ level of compliance with international legal agreements amidst their fragmented economic structures?

My book explores the effects of international linkages on regional economic development in China, with a specific focus on China’s burgeoning automotive industry. Whereas most scholars predicted that China’s entry into the WTO would accelerate economic liberalization, I first argue that China’s WTO entry enabled local governments to gain increased authority to undermine domestic competition through protectionist measures. China’s entry into the WTO has resulted in a process, which this talk describes as “fragmented liberalization,” whereby sub-national governments selectively adopt measures of liberalization and protectionism rather than wholly adopting liberalizing measures imposed by the WTO on the central government. Second, I contend that multinational corporations are not necessarily the main drivers of liberalization, as often assumed in the literature, in that the foreign partners within sub-national joint ventures also foster fragmented liberalization in China. Third, I note that while China has increasingly integrated its economy into the global economy, it has been using state-owned enterprises to promote economic development and industrial upgrading, and this research finds a great deal of variation in the extent to which state-owned enterprises have been able to promote industrial upgrading of indigenous companies by drawing on their global automaker partners.

These research findings are based on a structured comparative case study of four auto joint ventures (Shanghai GM, Guangzhou Honda, Beijing Hyundai, and First Auto Works-Tianjin Toyota). The data collection involved the use of secondary sources and 18 months of fieldwork in China where the author conducted 112 in-depth interviews in Chinese, English, Korean and Japanese. Interviewees included executives and managers of JV assemblers and their supplier firms. I also interviewed professors, local scholars, and auto consulting companies to supplement interviews with businessmen and secondary sources.

Although my study focuses on a cross-provincial comparison within a single country, its implications extend beyond the national borders of China. As a latecomer to global auto markets, China provides an interesting venue to examine the interplay of rules at the international, national and regional levels. Moreover, examining Chinese state-owned enterprise’s interaction global automakers from different countries and their subsequent development of indigenous suppliers affords us insights about the role of state-owned enterprises in mediating global and local economic forces in emerging economies. It also speaks to the impact of external actors on developing corporate and economic governance in the host region.