Government subsidies, state ownership, regulatory infrastructure, and the import of strategic resources: Evidence from China

Although there has been much research on government support for export in China and other emerging economies, considerably less attention has been given to government subsidy-related importing activity in China. This study aims to propose that the government subsidies as the source of financial resources produce a significant increase of imports, as the firms are more likely to engage actively in importing technology-related products which are conducive for China’s future innovation. However, state ownership in firms negatively moderates this relationship and holds back technology imports. Improved formal regulatory institutions do not help to improve but rather weaken this relationship.

To investigate how government policy affects imports of strategic resources in China, all of the listed firms on Chinese stock markets (from 2008 to 2014) have been selected, the firms that are engaged in exporting and importing activities. The data from the China Stock Market & Accounting Research database have been selected and merged with those of the General Administration Customs in China. A panel analysis has been done with several robustiness tests.

First, the study indicates that government subsidies are a driving force for the development of importing activities. Second, it finds conflicts of interests between government subsidies and state ownership of a firm, as increased ownership will weaken and even negate the positive effect of a government policy, thus negatively affecting the national competitiveness in the long run. Third, it is important to take into account the issue on different levels of institutional development, even allowing for the fact that a nationwide government policy is applied to the firms located in all corners of the country.

The authors suggested a regional difference in regulatory development but did not find the proposed direction. In their future study, the authors will validate and generalize this intriguing substitutional effect. They expect the results will help the government to ensure that it can fulfill a policy (e.g. regulation) down to every gross-roots organization so the development of regulatory infrastructure will help the firm to obtain and accumulate strategic resources through increased imports of them. Another direction of their future study will explore how government policy will prompt the firms to increase their spending so that they can possess plenty of “stamina” for their future development.

Different levels of institutional development exist in China even allowing for the fact that a nationwide government policy should be applied to all firms within the territory. This certainly has impacts on technology imports and thus creates difficulties for firms located in the western parts of China about which the government is particularly concerned. The government needs to ensure that its policies (laws and regulations) can be fulfilled down to every gross-roots organization so that the development of regulatory infrastructure can be inclusive and pervasive, given its influence on technology importation and indigenization.

Both of the theoretical and empirical work centered on policy initiatives and particularly government subsidies in emerging economies that significantly influence imports of strategic resources, a means with which the firm is better able to maintain and develop its competitive advantages, particularly in an economy with institutional void. Relatedly, the results on a causal relationship help envision a transcending trajectory of China’s economy, suggesting that businesspeople should capitalize on the policy advantage so that they are better able to sustain their long-term development. The results also present implications for policymakers to encourage and support strategic move toward such import endeavors.