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Why does China protect its labour‐intensive industries more?

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  • Sebastián Claro

Abstract

China's tariff structure favours labour‐intensive sectors, and this is at odds with traditional theory of comparative advantage. The paper argues that tariffs in China are a mechanism for protecting technology‐backward domestic – especially state‐owned enterprises (SOEs) from competition technology‐advanced foreign enterprises producing in China. With relatively integrated labour markets and cross‐firm technology differences, SOEs’ subsistence is supported by subsidized credit and limited access of foreign firms’ local production to tariff‐protected domestic markets. Labour market integration and capital subsidies increase the relative cost of labour in SOEs compared to their foreign competitors, hurting more domestic firms in industries that use labour more intensively. Restrictions to FIEs’ (foreign‐invested enterprises) access to tariff‐protected product markets, which protect more labour‐intensive industries, compensate for the greater cost disadvantage of SOEs in labour‐intensive sectors.

Suggested Citation

  • Sebastián Claro, 2006. "Why does China protect its labour‐intensive industries more?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(2), pages 289-319, April.
    • Handle: RePEc:bla:etrans:v:14:y:2006:i:2:p:289-319
    DOI: 10.1111/j.1468-0351.2006.00258.x
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    References listed on IDEAS

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    1. Daniel H. Rosen, 1999. "Behind the Open Door: Foreign Enterprises in the Chinese Marketplace," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 23, April.
    2. Claro, Sebastian, 2006. "Supporting inefficient firms with capital subsidies: China and Germany in the 1990s," Journal of Comparative Economics, Elsevier, vol. 34(2), pages 377-401, June.
    3. Corden, W. M., 1971. "The substitution problem in the theory of effective protection," Journal of International Economics, Elsevier, vol. 1(1), pages 37-57, February.
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    Cited by:

    1. Shuai Liu & Xiao-Yu Xu & Kai Zhao & Li-Ming Xiao & Qi Li, 2021. "Understanding the Complexity of Regional Innovation Capacity Dynamics in China: From the Perspective of Hidden Markov Model," Sustainability, MDPI, vol. 13(4), pages 1-22, February.
    2. Sebastián Claro, 2005. "How Uncompetitive is the State-Owned Industrial Sector in China," Documentos de Trabajo 305, Instituto de Economia. Pontificia Universidad Católica de Chile..
    3. Sebastian Claro, 2009. "FDI Liberalization as a Source of Comparative Advantage in China," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 740-753, November.

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