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UC Berkeley Electronic Theses and Dissertations UC Berkeley UC Berkeley Electronic Theses and Dissertations Title THE LIMITS OF LIBERALIZATION: SUB-NATIONAL GOVERNMENT AUTONOMY AND THE AUTO INDUSTRY IN POST-WTO ERA CHINA Permalink https://escholarship.org/uc/item/3df085d9 Author Oh, Seung-Youn Publication Date 2012 Peer reviewed|Thesis/dissertation eScholarship.org Powered by the California Digital Library University of California THE LIMITS OF LIBERALIZATION: SUB-NATIONAL GOVERNMENT AUTONOMY AND THE AUTO INDUSTRY IN POST-WTO ERA CHINA By Seung-Youn Oh A dissertation submitted in partial satisfaction of the requirements for the degree of Doctor of Philosophy in Political Science in the Graduate Division of the University of California, Berkeley Committee in Charge: Professor Vinod K. Aggarwal, Chair Professor T.J.Pempel Professor Hong Yung Lee Professor Lowell Dittmer Professor You-Tien Hsing (Geography) Fall 2012 THE LIMITS OF LIBERALIZATION: SUB-NATIONAL GOVERNMENT AUTONOMY AND THE AUTO INDUSTRY IN POST-WTO ERA CHINA © 2012 By: Seung-Youn Oh ABSTRACT The Limits of Liberalization: Sub-National Government Autonomy and the Auto Industry in Post-WTO Era China by Seung-Youn Oh Doctor of Philosophy in Political Science University of California, Berkeley Professor Vinod K. Aggarwal, Chair This dissertation investigates the effects of international linkages on regional economic development in China, with a specific focus on China’s burgeoning automotive industry. Whereas most scholars predicted that China’s entry into the WTO would increase economic liberalization, I argue that China’s WTO entry ironically enabled local governments to gain increased authority and incentives to undermine domestic competition by restricting the Chinese Central government’s ability to monitor and control local protectionism. In order to enter the Chinese automotive industry, foreign corporations must form JVs with local governments. These governments frequently manipulate public policy to favor their JV partners over those of neighboring regions. Therefore, China’s entry into the WTO has only resulted in what I call “fragmented liberalization,” whereby sub-national governments selectively adopt measures of liberalization and protectionism rather than wholly adopt liberalizing measures imposed by the WTO on the Chinese Central government. Second, I also contend that multinational corporations are not necessarily the main drivers of liberalization as often assumed in the literature, in that the foreign partners within sub-national JVs foster fragmented liberalization in China. Third, while China has increasingly integrated its economy into the global economy, it has been using state-owned enterprises to promote economic development and industrial upgrading. Yet I find a great deal of variations in the extent to which state-owned enterprises have been able to engage in backward and forward linkages by drawing on their global automaker partners. Thus, understanding the micro-foundations of industrial policy is critical to understanding its impact on the global economy and international institutions. To show this, I conducted a structured comparative case study of three automotive JVs (Shanghai GM, Beijing Hyundai, and First Auto Works-Tianjin Toyota). I collected data through in-depth interviews and the analysis of secondary publications, primary documents and archival materials. I spent 18 months in China and conducted 112 in-depth interviews in Chinese, English, Korean and Japanese. My research highlights the importance of considering industrial policy at the sub-national level precisely because this is the level at which nation-to-nation agreements and national regulations are implemented and reinterpreted on the ground. By examining the interplay of international, national and sub-national politics, I show that international agreements like the WTO have complex effects that are both counterintuitive and heavily dependent on the local context. 1 TABLE OF CONTENTS Table of Contents i List of Abbreviations ii List of Figures iii List of Tables iv Acknowledgments v Chapter 1 Industrial Upgrading with Chinese Characteristics 1 Chapter 2 Industrial Policy beyond the Nation State 18 Chapter 3 Varieties of Glocalization in Supplier Network Formation 43 Chapter 4 Beijing: Bandwagoning with a Foreign Partner 72 Chapter 5 Tianjin: Pre-emptive Clustering in Supplier Networks 101 Chapter 6 Shanghai: Creating Obligated Embeddedness 122 Chapter 7 Fragmented Liberalization: Sub-National State Capitalism in Post-WTO China 142 Bibliography 157 i LIST OF ABBREVIATIONS AMC American Motor Company BAIC Beijing Automotive Industry Company BJC Beijing Jeep Corporation BHMC Beijing Hyundai Motor Company DSB Dispute Settlement Body FAW First Auto Works FDI Foreign Direct Investment GPN Global Production Network JV Joint Venture MNC Multi-national Company OEM Original Equipment Manufacturer SAIC Shanghai Automotive Industry Company SASAC State-owned Asset Management Commission SOE State Owned Enterprise TAW Tianjin Auto Works TRIMs Trade-Related Investment Measures WTO World Trade Organization ii LIST OF FIGURES Figure 1.1 Global Auto Market Share by Country in 2009 Figure 1.2 Automaker Composition in China in 2009 Figure 1.3 Comparison of Market Share of the Leading Auto Manufacturer in 2009 Figure 1.4 Conceptualizing SOEs’ Dual Dependency in Supplier Network Development Figure 2.1 Global Auto Market Share by Country in 2009 Figure 2.2 Automaker Composition in China in 2009 Figure 2.3 Comparison of Market Share of the Leading Auto Manufacturer in 2009 Figure 2.4 Investments in the Auto Sector (1986-2009) Figure 2.5 Output and Growth Rate of Automotive Industry (1991-2007) Figure 2.6 Interplay of Rules at the International, National, and Sub-national Levels Figure 3.1 The Institutional Structures in the Auto Sector of Shanghai and Beijing Figure 3.2 Independent Variables Affecting JV’s Supplier Network Development Figure 3.3 Fragmented Liberalization Figure 3.4 China’s Local Protectionism since Joining the WTO Figure 4.1 Governing Institution and Firm structure in Beijing’s Auto Industry Figure 4.2 BHMC’s Market Share and Rank in the Chinese Automotive Market Figure 4.3 Relative Market Share between Beijing Jeep and Beijing Hyundai Figure 4.4 Passenger Car Price Change (2005-2011) Figure 5.1 TAIC’s Administrative and Ownership Structure (1982-1996) Figure 5.2 TAIC’s Ownership Structure (1996-2002) Figure 5.3 Daihatsu’s Market Share and Output (1994-2008) Figure 5.4 Toyota’s Market Share Figure 5.5 Administrative Structure after the Merge with FAW Figure 6.1 Shanghai Volkswagen’s Localization Rate (1985-1997) Figure 6.2 Government Institutions in the Auto Sector in Shanghai Since 1987 Figure 6.3 The Use of Vehicle Purchase (1996-2006) Figure 6.4 Institutional Structures in the Auto Sector of Shanghai Figure 6.5 Development of Active Suppliers at Shanghai Volkswagen Figure 6.6 Shanghai GM’ Market Share Figure 6.7 2001-2004 Major Auto Components R&D Achievement by Areas Figure 6.8 Taxi Model in Shanghai Figure 6.9 Categorization of Auto Sales in Shanghai Figure 6.10 GM’s Operation in China iii LIST OF TABLES Table 1.1 Variations in Supply Network Composition of Automotive JVs Table 1.2 Different Models of Supplier Network Development Table 1.3 Summary of Overall Findings Table 2.1 Varieties of Development Modes: Cross National Comparison Table 2.2 China’s Major JV Automotive Assemblers Table 2.3 Big Three, Small Three, Tiny Two Policy in 1987 Table 2.4 Summary of the Automotive Industry Policy 1994 Table 2.5 International Context-Chinese Automotive Market Before and After the WTO Entry Table 2.6 Summary of the Automotive Industry Policy 2004 Table 2.7 Conceptualizing the Mechanisms of Value Creation Table 3.1 Variation of Supplier Network Composition within Automotive JVs Table 3.2 Three Actors Involved in Parts Localization Table 3.3 Varying Mode of Supplier Network Development Table 3.4 MNCs’ Mode of Engagement in Entering Foreign Countries Table 3.5 Different Pathways to Supplier Network Development Table 4.1 China’s Major JV Automotive Assemblers in 2007 Table 4.2 Beijing Municipal Government and the Auto Sector as of 2009 Table 4.3 Beijing Hyundai Motor Company Table 4.4 MNC-led Supplier Network Development in Beijing Table 4.5 Fragmented Liberalization and BHMC Table 5.1 Daihatsu’s Market Share in the 1990s Table 5.2 History of Toyota Group in China Table 5.3 Selected Toyota’s Major Parts Subsidiaries with TAIC Table 5.4 MNC-led, High Local Supplier Network Development in Tianjin Table 6.1 State-led Supplier Network Development in Shanghai Table 7.1 Mode of Liberalization iv ACKNOWLEDEGMENTS I am extremely grateful and fortunate to have been guided by my committee members—Vinod Aggarwal, T.J. Pempel, Hong Yung Lee, Lowell Dittmer, and You- Tien Hsing. Their comments, suggestions, and encouragement were invaluable at every stage of the project. I am deeply indebted to Vinnie for his clear, incisive, and patient feedback. He read most of my writings word by word, challenged me to take my scholarship in a fruitful direction, and provided me with great wisdom and insight on becoming a true scholar. I learned a tremendous amount from him and his unparalleled dedication to advising and mentorship. I am thankful to TJ for his big picture perspectives and expertise in East Asian regionalism. I am also greatly appreciative of Hong Yung’s and Lowell’s enthusiasm and support throughout my graduate career. You-Tien’s rich knowledge on Chinese studies and her extensive research experience on the Greater China region were invaluable, and I am thankful for her advice. I also wish to thank many scholars who influenced my own scholarly development in different ways. I owe my interest in East Asian Politics to my undergraduate advisor, Chung-In Moon, who provided a great model for an academically and socially active scholar, and Kijung Kim, Youngjae Jin, Chebong Hahm, Yeon Ho Lee and Yongho Kim for encouraging me to pursue academic routes and reminding me of why I am doing what I am doing.
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