Problems Related to China's Local Protectionism

This account may seem to start out as a simple case of local protectionism in China, but it goes beyond that.

For taxis within Shanghai, authorities had apparently adopted technical standards that would eliminate all cars other than those produced in a joint venture by the Shanghai Automotive Industry Corporations. Something that most other cities would do likewise to protect their own local industries.

But according to Kenneth Lieberthal in his book Governing China From Revolution Through Reform, this had the effect of creating major internal trade barriers in China.

He added: "One result is that many Chinese firms cannot hope to achieve real economies of scale and become globally competitive."

In addition, companies also incur high costs in paying tolls as goods cross administrative boundaries within the country. And again, this leads to a situation where developing regionwide or nationwide capacity becomes very difficult, as well as the duplication of production facilities in various parts of the country.

Lieberthal added: "China has, for example, well over 100 automotive assembly plants, most of which produce only a few thousand cars apiece per year. Local officials have successfully resisted all attempts by Beijing to consolidate this key industry into a few major assemblers."