The New Face of Chinese Industrial Policy: Making Sense of Antidumping Cases in the Petrochemical and Steel Industries

Article excerpt

Why have China's petrochemical and steel industries behaved so differently in seeking trade protection through antidumping measures, especially given that both industries face the full force of the global economy? We argue that the patterning of antidumping actions is best explained in terms of industrial structures, inclusive of degrees of horizontal concentration and vertical integration. These structures determine a firm's motivation to seek protection as well as its capacity to overcome collective action problems within its industry. In the petrochemical industry, the shift toward greater horizontal consolidation and vertical integration reduces the collective action problems associated with antidumping petitions among upstream companies. It also weakens downstream companies lobbying in favor of the general protection of highly integrated conglomerates. In the steel industry, by contrast, national industrial policy fails to weaken local state interests sufficiently. Fragmented upstream and downstream channels instead persist, with strong odds against upstream suppliers waging a successful defense of material interests. Such distinctive industrial structures, we show, were a direct result of whether the central government could restructure these designated priority industries in its preferred direction. We find that exogenous price shocks proved particularly helpful in this regard.

KEYWORDS: China, industrial policy, political economy, steel, petrochemicals, antidumping, trade policy, government-business relations, emerging market, authoritarianism

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ECONOMIC GLOBALIZATION HAS CHANGED THE NATURE OF INDUSTRIAL policies in many developing countries. Rather than using direct regulatory policies to "pick winners" and protect infant industries, governments have increasingly relied on indirect trade policy tools to ensure that the interests of favorable domestic industries are not compromised through the unfair trade actions of international competitors. Antidumping (AD) measures thus become a critical arena for such government advocacy. Now operating within the framework of the World Trade Organization (WTO) and national law, such measures begin with the initiating petition of firms alleged to be injured. Worldwide, the steel and petrochemical sectors continue to be primary targets, accounting for 29 percent and 20 percent of total AD investigations, respectively, between 1995 and 2009.

Since the creation of the WTO in 1995, China has been the top target of AD measures worldwide with 761 Chinese products being investigated between 1995 and 2009. Consistent with the global trend, China's steel and petrochemical products are also the top two targets of AD investigation. They account for 23 percent and 20 percent, respectively, of total AD investigations initiated by other countries (WTO 2010).

Developing countries, especially India, have initiated the majority of cases. China's own use of AD investigation against imports has been relatively modest until recently. As the second largest import market, China is only the fifth most frequent user of AD tools with 178 investigations being initiated and 130 measures being imposed between 1998 and 2009 (WTO 2010). While tempting to believe that China is using AD tools solely for strategic purposes, including retaliation against countries taking AD actions against its own exports, the actual pattern of China's AD investigations against imports begs for a different explanation. A stunning 66 percent of China's AD investigations were directed against petrochemical imports. The steel industry, in contrast, initiated only 5 percent of AD investigations during this period (Bown 2010).

Given this pattern, the use of AD tools in China seems driven by something other than retaliation or even national industrial strategy. After all, the Chinese government identifies both the petrochemical and the steel sectors as "pillar" industries or key sources of economic growth-industries that are strategic to competitiveness and therefore equally worthy of protection (Lin 2008; Sun 2007). …