Abstract
Author: Yunzhe Nie
2025 Policy Analysis Exercise prepared for Yao Yang, President of the National Economics Foundation, Professor and Director of the China Center for Economic Research, National School of Development, Peking University
Executive Summary
China’s municipal industrial policies have played a crucial role in shaping the country's economic landscape, driving industrial growth and technological upgrades. However, questions remain regarding the distributional effects of these policies, particularly their impact on household income inequality. While existing research highlights industrial policy’s role in productivity and innovation, there is less attention on how these policies interact with market forces and inter-city competition, and how they influence income disparities.
This report, prepared for Professor Yao Yang, President of the National Economics Foundation (NEF) and Director of the China Center for Economic Research at Peking University, aims to address two key gaps in the literature:
1. A case study on the role of state support in China’s electric vehicle (EV) industry, showing how industrial policies have facilitated sectoral growth and internal competition.
2. An empirical analysis of the effect of city-level industrial policies on household-level economic inequality, offering recommendations for enhancing policy effectiveness and inclusiveness.
To this end, the report addresses four central questions:
1. How does China’s industrial policy operate at the municipal level?
2. What are the key empirical patterns of city-level industrial policy in China?
3. What is the impact of city-level industrial policy on household-level inequality in China? How does it differ by demographics, sectors, and regions?
4. How can industrial policies be improved to better enhance their effectiveness while mitigating its potential effect on inequalities?