Spring, 2023

April 7 (Friday), 2023, 12-1 PM CST

“Rule by Market: The Chinese State in Factor Markets”

Meg Rithmire (Harvard)

Abstract: For generations, political economy on China and beyond has been premised on a trade-off between state and market power. In the context of China’s reforms, markets and market mechanisms were hypothesized to replace state power in allocating important economic resources. Yet, even as market mechanisms have been introduced in important realms, the state appears to retain power over supply and demand, and, by extension, prices. This paper examines the introduction, and eventual adjustment and constraint, of markets in two important arenas: land and finance. Through process tracing and by analyzing a large body of policy documents from various levels of government in both arenas, I uncover a cycle by which the Chinese state embraced market mechanisms to address problems of misallocation, met uncomfortable outcomes of instability and “bubble” behavior during partial liberalization, and reconfigured state control over supply and demand of land and capital while retaining market mechanisms to facilitate competition but not set prices. In both arenas, the Chinese state “rules by market,” by which market mechanisms facilitate, rather than replace, state control over allocation of resources. Rule by market is characterized by the presence of numerical red lines to structure exchange, the rise of novel institutional enforcers of red lines, the use of markets to reveal information about competitive behaviors, and the use of the state’s coercive apparatus to discipline economic agents and facilitate market exit. Rule by market helps make sense of a number of empirical puzzles in China’s political economy, such as bubbles that never seem to pop and cycles of liberalization and crackdown, and theoretical problems, such as how market power interacts with monopolized political power.

Discussants: TBD

April 21 (Friday), 2023, 12-1 PM CST

“Playing Catch-up: How Authoritarian Courts Handle Transnational IP Litigation”

Lizhi Liu (Georgetown) and Jian Xu (National University of Singapore)

Abstract: Intellectual property rights (IPRs) have become a key concern for multinational corporations investing in weak-rule-of-law countries. Yet, we still have limited understandings of whether these countries are incentivized to protect the IPRs of foreign investors, and if so, under what conditions. We argue that, even in countries without a strong rule of law and judicial independence, a limited degree of IPR protection in courts can emerge as a result of the country’s innovation strategy. For a latecomer country in innovation, it has to balance two competing incentives to play innovation catch-up. On the one hand, strengthening IPR protection for foreign investors attracts investments, enables international technology transfer, and creates knowledge spillovers to local firms. On the other hand, if such protection is too strong, foreign incumbent firms may heavily use IP as a barrier to entry and hurt the competitiveness of indigenous firms.

We test the argument by studying China, an authoritarian state where courts are still subject to political influence and a rising venue for transnational IP disputes. We exploit a newly constructed dataset, covering the universe of all IP litigations published by Chinese courts between 2016 and 2019. This gives us 825,397 cases, of which 19,511 cases are transnational litigations, defined as litigations that involve a non-Chinese firm as either the plaintiff or the defendant.

Utilizing rich information at the lawsuit level, we find evidence for the catch-up strategy. Contrary to the common perception that China provides little IP protection for foreign firms, the win rates of foreign firms are not significantly lower than those of Chinese indigenous firms. However, this general finding masks cross-case heterogeneity that indicates potential adjudicative biases against foreign firms. We find that the litigation outcomes are contingent on the economic resources of foreign firms, the competitiveness of local firms, and the strategic importance of IP assets in question. For casual identification, we further leverage the U.S. ban on Huawei in 2018 as an external shock to China’s policy priorities to explain the changes in judicial outcomes. To our knowledge, by using lawsuit-level data, this paper provides the first comprehensive analysis of transnational IP litigation in Chinese courts.

Discussants: Rachel Wellhausen (University of Texas at Austin) and Quan Li (Texas A&M University)

May 5 (Friday), 2023, 12-1 PM CST

“The Local Political Economy of Firm Exit: Industrial Policy and Investment Networks in the US-China Trade War”

Samantha Vortherms (UC, Irvine), Jiakun Jack Zhang (University of Kansas), and Rigao Liu (University of Kansas)

Abstract: As the business environment sours in China, why do some foreign investors decide to exit while others choose to stay? While international factors such as international agreements buffer firms from increased political risks in a trade war, how does the local political-economic context affect firms’ decisions to exit? Vortherms and Zhang (2021) show that the US-China trade war broadly elevated political risks for multinational corporations (MNCs) operating in China, increasing firm exit overall but not necessarily in sectors facing higher tariffs. In this paper, we investigate the impact of the domestic political economy on MNC exits after the outbreak of the trade war. Specifically, we test two concurrent hypotheses: local industrial policies and investment agglomeration. We argue that local officials use protective policies to undercut the costs introduced by the trade war to maintain existing foreign contracts decreases the costs of weathering the costs of the trade war. Simultaneously, networked agglomeration of foreign capital, where foreign firms are integrated in a local market of foreign capital, increases the costs of exiting. Firms both located in districts with preferential policies, such as economic development zones, and integrated with locally-networked foreign capital will be the least likely to exit. We add to existing studies of comparative political economy of foreign investment by adding highly detailed political geography variables to understand the spatial variation in firm exits during the unprecedented trade war between the US and China.

Discussants: TBD

Please email us if you would like to present in this workshop and indicate your desired date.