chapter  9
26 Pages

Rent production and industrial governance in the auto industry

ByTAK-WING NGO AND YILIN CHEN

Rent production in present-day China is intimately connected to industrial policies of the state. Rents and rent-like transfers are created by state policies and allocated to state-sanctioned monopolies and selected market players. In essence, governments at various levels have made extensive use of multiple forms of rent creation and allocation as policy instruments in undertaking industrial planning and assigning development priorities. When Public Choice economists tell us that artificially contrived rents are created and distributed by the state during market regulation, credit rationing, creation of tariffs, and allocation of raw materials, their focus of attention is on restricting government intervention thereby reducing or minimizing rent seeking.1 What has been overlooked is that the creation and distribution of rents are in fact one of the major policy instruments that can be deployed by any state to advance its developmental strategies and industrial policies. As a matter of fact, the Chinese state is not unique in utilizing rent creation and rent allocation as an active policy instrument. Many other East Asian states have followed a dirigiste strategy in their pro-active stance to promote industrial development.2