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Subsidy competition, industrial land price distortions and overinvestment: empirical evidence from China’s manufacturing enterprises

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  • Zhen Xu
  • Jianbai Huang
  • Feitao Jiang

Abstract

In China, offering inexpensive industrial land is a major means for local governments to participate in interregional subsidy competition, which caused regional industrial land price distortions. This article examines the effect of regional industrial land price distortions on the overinvestment of Chinese manufacturing enterprises. Chinese industrial enterprises data and land price monitoring data of 49 major cities in China between 1998 and 2007 are employed. This article has found that industrial land price distortions will significantly stimulate the overinvestment of manufacturing enterprises. Such a promoting effect varies among manufacturing enterprises of different ownership and industry attributes. Industrial land price distortions have the most significant promoting effect on the overinvestment of foreign-invested firms, followed by private firms, while state-owned enterprises are the least affected. Compared with private heavy-industry firms, industrial land price distortions have a more significant effect on the overinvestment of private light-industry firms. Compared with foreign-invested heavy-industry firms, industrial land price distortions have a more significant effect on the overinvestment of foreign-invested light-industry firms. This study represents a positive exploration and supplement to the existing studies on the effects of subsidy competition on corporate investment behaviours and the studies on Chinese-style subsidy competition.

Suggested Citation

  • Zhen Xu & Jianbai Huang & Feitao Jiang, 2017. "Subsidy competition, industrial land price distortions and overinvestment: empirical evidence from China’s manufacturing enterprises," Applied Economics, Taylor & Francis Journals, vol. 49(48), pages 4851-4870, October.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:48:p:4851-4870
    DOI: 10.1080/00036846.2017.1296547
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    Cited by:

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    3. Feng Yuan & Weiye Xiao & Yehua Dennis Wei, 2023. "Heterogeneous mechanisms of urban land price in China: a perspective of natural restrictions and strategic supply," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.
    4. Song, Malin & Xie, Qianjiao & Chen, Jiandong, 2022. "Effects of government competition on land prices under opening up conditions: A case study of the Huaihe River ecological economic belt," Land Use Policy, Elsevier, vol. 113(C).
    5. Li, Wenlan & Cheng, Yuxiang & Fang, Qiang, 2020. "Forecast on silver futures linked with structural breaks and day-of-the-week effect," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    6. Fangtao Liu & Yong Ding & Jia Gao & Pu Gong, 2017. "Effects of Cost Factors on National Manufacturing Based on Global Perspectives," Economies, MDPI, vol. 5(4), pages 1-16, November.
    7. Fugang Gao & Huub Ploegmakers & Erwin van der Krabben & Xiaoping Shi, 2022. "Impacts of the political incentive for environmental protection on industrial land supply: Evidence from the cadre evaluation system reform in China," Papers in Regional Science, Wiley Blackwell, vol. 101(4), pages 1001-1025, August.
    8. Gyourko, Joseph & Shen, Yang & Wu, Jing & Zhang, Rongjie, 2022. "Land finance in China: Analysis and review," China Economic Review, Elsevier, vol. 76(C).
    9. Li, Hanteng & Qin, Yun, 2024. "Land financialization and regional innovation dynamics: Evidence from China," Finance Research Letters, Elsevier, vol. 64(C).
    10. Jianshu Duan & Zhengxu Zhao & Youheng Xu & Xiangting You & Feifan Yang & Gang Chen, 2024. "Spatial Distribution Characteristics and Driving Factors of Little Giant Enterprises in China’s Megacity Clusters Based on Random Forest and MGWR," Land, MDPI, vol. 13(7), pages 1-25, July.
    11. Yu, Xiaojun & Yao, Yao & Zheng, Huanhuan & Zhang, Lin, 2020. "The role of political connection on overinvestment of Chinese energy firms," Energy Economics, Elsevier, vol. 85(C).
    12. Kong, Dongmin & Liu, Chenhao & Ye, Wenxu, 2023. "Randomized inspection and firm's government subsidies: A natural experiment in China," China Economic Review, Elsevier, vol. 82(C).
    13. Wanfu Jin & Chunshan Zhou, 2022. "Effect of Land Marketization Level and Land Prices on Foreign Direct Investment in China," Land, MDPI, vol. 11(9), pages 1-20, August.
    14. Xia, Fang & Lu, Xi & Song, Feng, 2020. "The role of feed-in tariff in the curtailment of wind power in China," Energy Economics, Elsevier, vol. 86(C).
    15. Lin Zhang & Yiting Zhao & Yuan Liu & Jinfang Qian, 2021. "Does the Land Price Subsidy Still Exist against the Background of Market Reform of Industrial Land?," Land, MDPI, vol. 10(9), pages 1-31, September.
    16. Yang, Yong-cong & Nie, Pu-yan & Liu, Hui-ting & Shen, Ming-hao, 2018. "On the welfare effects of subsidy game for renewable energy investment: Toward a dynamic equilibrium model," Renewable Energy, Elsevier, vol. 121(C), pages 420-428.
    17. Gao, Fugang & Ma, Xianlei & van der Krabben, Erwin & Ploegmakers, Huub & Shi, Xiaoping, 2022. "Causes of industrial land-use regulations in China: A share tenancy perspective," Land Use Policy, Elsevier, vol. 122(C).
    18. Lin, Yatang & Qin, Yu & Yang, Yang & Zhu, Hongjia, 2020. "Can price regulation increase land-use intensity? Evidence from China's industrial land market," Regional Science and Urban Economics, Elsevier, vol. 81(C).
    19. Wang, Qian & Wang, Yanan & Chen, Wei & Zhou, Xue & Zhao, Minjuan & Zhang, Bangbang, 2020. "Do land price variation and environmental regulation improve chemical industrial agglomeration? A regional analysis in China," Land Use Policy, Elsevier, vol. 94(C).

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