How Foreign-Owned Enterprises Elicit Greater State Regulation and Intervention

• In Event: Political Regimes and Economic Policies

Abstract

What explains the varying levels of state involvement in economic activities? Why do states differ in the intensity of economic intervention and regulation? For centuries, social scientists have debated whether a state-led or market-driven approach is more conducive to development. Few, however, explore the factors that impact the states' choices between these two approaches. In this research, we examine the state regulation of economic activities as dependent variable, and investigate the determinants of local states' different levels of financial regulation. Utilizing automated textual analysis, we collected and coded all the 45,580 administrative penalty cases of banks between 2009 and 2022 publicized by the National Financial Regulatory Administration of China. From this data, we constructed a novel index of state financial regulation intensity for each provinces in China. We discover that, counter-intuitively, the intensity of state regulation in different provinces is positively and significantly associated with the number of local foreign-owned enterprises, particularly in relatively developed regions. This finding suggests that, although commonly deemed as pro-market forces, foreign-owned enterprises may elicit state's unanticipated response of heightened regulation and intervention.

Authors

• Xiaojun Yan, University of Hong Kong

• Yong Hao

• La Li