Local Government and Firm Innovation in China’s Clean Energy Sector
By Margaret M. Pearson
As other chapters in this volume illustrate, it is clear that in some respects new energy industries in China have successfully upgraded, in terms of both cost and process, and perhaps product. Yet new energy industries also exhibit substantial variation across the sector. This chapter illustrates the path by which upgrading has occurred, most notably in the niche sector of low-speed electric vehicles (EVs). Development of this sector, interestingly, occurred with the strong support of subnational governments, but in contravention to explicit central government preferences. At the same time, the discussion illustrates that even when local officials foster upgrading, this effort can involve considerable waste. Waste is seen in the excessive entry of new firms (over-investment) in which firms gain government-delivered benefits, and local cadres hope to be rewarded for quick results. It is also seen in inadequate exit when firms fail and yet remain protected by local governments. These dynamics are illustrated in this chapter by the solar PV case. Waste occurs in all innovating systems, including advanced industrial economies (e.g. Lerner 2009), and in significant ways China is not unique. The underlying point is that problems – and prospects – for upgrading and innovation in China are in important ways a function of the deeply rooted systemic incentives local officials face in the context set by China’s industrial policy system. (p. 98)
In Policy, Regulation and Innovation in China’s Electricity and Telecom Industries. Loren Brandt and Thomas G. Rawski, eds. Cambridge University Press, 2019.