Chinese Decentralization System and the Implementation Effect of Industrial Policies: Theoretical and Empirical Evidence

As a tool for the government to achieve the development goals on a specific industry, the implementation effect of industrial policies closely depends on industrial characteristics and the institutional environment. Taking the Chinese decentralization system as the background, this paper studies the influence of economic decentralization on the implementation effect of industrial policies. Theoretical research shows that the relative economic decentralization has a negative impact on the implementation of industrial policies, but the relative centralized power in politics weakens the negative effect of economic decentralization. The effect of industrial policies depends on the coordination and balance of political centralization and economic decentralization between different levels of governments.Using the empirical data from China’s industrial enterprises, it is found that for each unit increase of fiscal decentralization between the central government and local governments, government subsidies reduce 11.1%-31.2% and tax deductions reduce 8.7%-29.3% in the promotion of TFP. The change from inclining to growth” to focusing on upgrading” in the assessment content of the central government to local governments can reduce the negative impact of fiscal decentralization on the implementation of industrial policies, and reduce the negative impact of fiscal decentralization on the implementation of government subsidies by 2.4% and tax deductions by 7.7% respectively.The policy implications of this study are: Firstly, to optimize the implementation effect of industrial policies, it is necessary to ensure a certain degree of political centralization accompanying with economic decentralization. Under the Chinese decentralization system, the realization of the coordination and balance of political centralization and economic decentralization on the top-level design is the inherent requirement and institutional guarantee to achieve the industrial policy objectives of the central government. Secondly, while local governments facing with multiple development tasks, the central government should strengthen the assessment requirements for local governments to promote industrial upgrading, so as to enhance the incentives for local governments to achieve high-quality economic development.