Thursday, January 15, 2009

All Politics is Local in China Too

Well, the market was quite unimpressed with yesterday's announcement by the State Council of support for auto firms. This will probably result in yet another plan from the State Council a few months down the road, and/or local governments will have to come up with their own measures to support their local auto firms.

There was a time when local authorities would simply pick up the phone and order the local branch manager of one of China's state-owned banks to make loans to favored industries, but Zhu Rongji supposedly put an end to that by centralizing lending authority in the late 1990s.

Another measure that local governments have traditionally taken is to order other locally-owned or -regulated businesses to offer discounts to favored industries. For example, they may order the local power company to knock a few zeros off a certain firm's energy bill.

Unfortunately for local governments, now the central government isn't too keen on energy discounts either, as the NDRC and State Electricity Regulatory Commission jointly announced today. "NDRC price regulators ... expressed concerns those incentives would negate Beijing's previous policy to phase out inefficient and pollution-prone plants by raising their power prices..." (SCMP, 16 Jan 2008)

So what's a worried local government to do? Local leaders are faced with mandates from the top to tamp down social unrest -- this is built into their incentives -- and one of the best (i.e. cleanest) ways to do that is to ensure that everyone has a job. Even if the NDRC is successful in getting local governments to stop energy subsidies to their local industries (and that's a big IF), local leaders will simply find other ways to keep their factories humming and their citizens happily employed.

Getting to the top of China's political ladder must be well worth the aggravation of trying to implement conflicting policies from above.