Download Analysis on the Approaches of Regulation and Control by

Analysis on the Approaches of Regulation and Control by
Governments in Developing the Industry
------Study Based on the Case How Wuhan Municipality Functions in
Its Industry
GU Qiao1, LI Zhihong2
1. Economy and Management Institute, Wuhan Polytechnic University Wuhan, Hubei, P.R.China,
430023
2. Business School, Jianghan University, Wuhan, Hubei, China; &
Key Research Institute of Strategies and Development in Manufacturing Industry in Wuhan of China
[email protected]
Abstract: The market is admittedly important to the development of industry. But it more needs the
regulation and control of the government that the industry functions well. This point of view has been
proved since the global financial crisis happened. So the paper, based on the study of what Wuhan
Municipality has done in the development of its industry, puts forward the detailed approaches of
regulation and control of the government by way of analyzing the relationship between the market and
the government , the connotation of the government regulation and control, and the conditions of
deploying the functions of regulation and control, etc. In the end, the paper draws a conclusion that the
government and the market are correlative and equally important in the development of the industry in a
region or country.
Keywords: regulation and control, industrial development, governments
1. Introduction
Since the tenth Five-Year Plan, the industry of Wuhan has been greatly improved both in the aggregate
and in the increment. Also, the initial success has been made in transforming the increasing means of
economy, adjusting the industrial structure, saving energy and reducing the discharge and constructing
better investment environments, etc. All these have laid a good foundation for carrying out the eleventh
Five-Year Plan, building the “Two-Typed Society” and developing the Wuhan City Circles. Naturally,
the market has played an important role in the success, but the sound development of the market
economy can’t be separated from the control of the government, either.
2. Connotation of the Government Control
The market economy is the one that is based on the price mechanism and regulates the social supplies
and demands so as to realization an effective arrangement. But due to the incompleteness of the market
information, the price signal is often distorted or false in the course of delivery. As a result, it is
inevitable to lose the functions of spotting the value or arranging the resources. The distortion and lose
of the market functions will reduce the efficiency of using the resources. Therefore, as one of the bodies
of the market, the government should fully deploy its role in interfering the market.
In the conditions of the market economy, the interference is mainly reflected in the form of the direct
interference and the indirect regulation.
1 Indirect regulation. It means that the government controls and adjusts the arrangement of the
productive elements in the aggregate and the structure of the market by way of financial policies,
monetary policies, taxation policies and the other relative tools for the aim of influencing the
economical entities.
2 Direct interference. It refers to a direct participation or leading of the market activities by the
government through purchase and investment as a buyer or investor in order to realize its effects on the
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economical entities.
3. Conditions to Deploy the Government’s Functions of Regulation and Control
The government’s regulation and control is important in developing the market economy, but it can’t
replace the market mechanism. Namely, it is limited by the following: the government functions well on
the premise that the market has positioned itself in the resource arrangement. Once this state is
determined, the government and the market will enter into a relatively stable situation. So the
government is obliged to function in certain borders.
4. Approaches of Regulation and Control by the Government in Developing
Industries
In the development of the industry, the government plays its role mainly in the following dimenstions:
reengineering the market function, adjusting the strategy of developing the industry with the fluctuation
of the economical situation both at home and abroad, formulating the concerned laws and rules to
maintain the market orders, directing the industrial investment, building the channel investing and
financing the funds and striving for the financial aids of the higher authorities.
4.1 Reengineering the Market Functions
The important functions of the market consist of the resource arrangement and of the value spotting. The
former aims at advancing the development of economy by effectively arranging the resources and
flexibly adjusting the balance of the social supply and demand while the latter aids the enterprise or the
industry to estimate the production correctly and to regulate the operation targets in time and guide the
investment by appreciating the inner value of the enterprise and by identifying the potential abilities of
the industry. However, sometimes, the market can’t function well or will lose its partial functions. The
government has to interfere. The interference is embodied in the value spotting and the resource
arrangement, too. Take it for example that Wuhan Municipality established and carried out a plan of 30
significant projects for the technology transformation in 2007, which has played an important role in
directing the investment and assuring the efficient use of the funds. These roles were reflected in two
aspects: make the limited funds flow into the enterprise or industry with true investment value to raise
the efficiency of the resources; change the government’s decision behaviour, put in order the disordered
market situation due to the information distortion and keep the market functioning in normal.
4.2 Adjust the Strategy of Developing the Industry
With the global financial crisis being deepened in 2008, the shrinkage of the market demand at home
and abroad has also greatly affected the economy of Wuhan. Therefore, the strategy developing the
industry of Wuhan has been modified correspondently. In the beginning of the year 2008, the strategy
developing Wuhan industry was “Much Attention”. In the middle of the year, it was changed into
“Strengthening Wuhan through Industry”. At the end of the year, it was replaced by “Paying a
Significant Visit to the Hundred Enterprises”. The changes of the strategy for Wuhan industry aim at
adapting to the fluctuating market in order to help the enterprises overcome the difficulties.
4.3 Drawing up Laws and Regulations, Keeping the Market in Order and Normalizing the Market
Environment
In 2007, the Wuhan Municipality established the laws and regulations adapting to the market economy
according to the present situation of the industry in Wuhan on the base of implementing the relative
policies of the higher authorities for the sake of providing the firms and individuals with equal
environments able to deploy their potential to the maximum and to maintain the equity to all the
economical bodies.
In the financial policies, the interest of the important project in Wuhan was deducted, which had the
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functions of promoting the adjustment of the industrial economical structure, accelerating the reform of
the firm’s technology and the direction and encouragement of the special funds from the municipal
finance in the technology reform.
In the industrial policies, in order to meet the need of the land by the manufacturing, Wuhan
Municipality solved the issues by way of the preferential policy, selling, leasing and shares, etc., greatly
speeding up the construction and development of the modern manufacturing industry.
In the infrastructure, the Wuhan Municipality has constructed the metropolis industrial orchards as
“hundred-billion-yuan plates, teen-billion-yuan gardens”, which has offered a better investment
environment to the investors and a comprehensive support to the ongoing development of the economy.
This measures have brought a good result to Wuhan. In 2007, 2848 firms located the metropolis
industrial orchards. The orchards include seven central metropolis gardens and six development zones
around the city. The former realized a total output value of 31.4 billion yuan and a taxation of 1.8 billion
yuan ,increasing 53% and 98% respectively and the latter achieved a total output value of 36.7 billion
yuan and a taxation of 2.8 billion yuan increasing 27% and 15% respectively. These results have pushed
the advancement of Wuhan industry.
At the end of 2008, the influence of the global economic crisis to the industry became more and more
rigorous. Wuhan Municipality formulated series of rules and regulation in connection with the issues
produced in Wuhan industry, combining the policies replying to the crisis from the state and the
province Hubei. Especially in setting up the enterprise-service institutions, supporting the firms’
technical reform, energy saving and discharge reduction, etc., the policies and measures have been
further improved.
4.4 Guiding the Direct Investment
The guiding roles lie in three aspects: one is to keep the total industrial investment increase steadily;
another is to emphasize the centralization of the investment; the third is to attach more attentions to
investing the significant project.
(1) Total industrial investment increasing steadily. In 2007, although the raw materials as iron, oil, etc.
went up in the price and that the state policies as the interest rate and reserves rising were tightened so
that the investment in the industry was remarkably reduced, the investment of the fixed industrial assets
in Wuhan was still kept higher than the previous years. Compared with that of 2006, it reached 45.4
billion yuan and was 3.8% higher, of which 43.4 billion yuan was put into the manufacturing industry,
occupying 95.5% of the total industrial fixed assets invested(see Table 1,Figure 1)[4].
：
Table 1 Investment of Industrial Fixed Assets in Wuhan Unit 100 Million
Industrial
Manufacturing
Year
industry
Manufacturing
increase %
increase %
2002
131.2
120.6
（ ）
（ ）
2003
161.4
35.4
147.8
35.9
2004
218.6
35.4
200.9
35.9
2005
305.8
39.9
280.98
39.9
2006
367
20
335.8
19.5
433.9
29.2
2007
454.2
23.8
Calculate according to the price of the current year
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Increase
%
45
40
35
30
25
20
15
10
5
0
45
40
35
30
25
20
15
10
5
0
2002
2003
2004
2005
2006
industry
manufacture
2007
Year
Figure 1 Industrial Fixed Assets Increasing Rate in Wuhan in Latest 6 Years
(2) Centralization of the industrial investment. The investment of the industrial fixed assets in Wuhan
was mainly centralized in its state-level development zones, the regions around Wuhan and the central
metropolis in 2007: 11.8 billion yuan for the development zones, occupying 39.8% of the total industrial
investment in Wuhan; 11.0 billion yuan for the regions far from the central Wuhan, occupying 36.9% of
the total and 6.9 billion yuan for the central metropolis, occupying 23.3% of the total(see Figure 2). The
development zones, the central metropolis and the regions far from central Wuhan are becoming the
increase poles of the industrial fixed assets in Wuhan.
23%
40%
37%
Development zones
Regions far from central Wuhan
Central metropolis
Figure 2 Investment of Industrial Fixed Assets in Wuhan in 2007(billion yuan)
(3) More attentions to investing the significant project. In 2007, Wuhan invested 19.9 billion yuan to its
54 significant projects with more than 100 million yuan, occupying 67.2% of the total industrial
investment of the city, of which 13.1 billion yuan for the projects of Wuhan Steel Group, 2.4 billion
yuan for those of Dong Feng Peugeot Citroen Company, Ltd, 2.5 billion yuan for the Fox Conn
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Industrial Orchard, 1.9 billion yuan for Zhong Xin International Wuhan, 1.1 billion yuan for Wuhan Oil
Chemicals.
Besides, the construction of the base of the advanced manufacturing industry has been accelerated much.
7 industrial orchards in the central metropolis and 6 economic development zones far from the central
metropolis have been emphasized. In the meanwhile, Wuhan Municipality has helped the enterprises
solve the problems in the constructing the projects and promoted them accomplished favorably. This has
strenghthened the investment confidence of the enterprises. So the total investment was rising. In 2007,
12 billion yuan was planned to be invested in the industry, of which 16.3 billion yuan was achieved,
occupying 36.3% of the total industrial investment of that year.
The construction of these projects has greatly supported the steady increase of the industry investment in
Wuhan.
4.5 Attract the Investment from the Funds Abroad and Set Up the Financing Channel
In 2007, the conference aimed at inviting and introducing the outside investment was held in the fifth
session Wuhan, Hubei-Taiwan Week, when 52 project contracts with a total investment of 8.9 billion
yuan were signed, concerning electron, automobile, medicine, chemicals, food stuff, tourism and real
estate, etc., of which the significant ones included the National Joint Service Center of Taiwan
Enterprises in central China. The Center will become the first local service organization built by the
Taiwan Enterprise Association in China and serve over 20 member enterprises of the Association. Also it
will be an important reception center and service relay of Taiwan entrepreneurs in central China. This
measure has played a role of both attracting the outside investment and providing the outside
entrepreneurs with service of high efficiency and high quality.
In addition, the financing channels have been widened through service innovation in Wuhan. In 2007, in
order to give supports in funds to the industrial enterprises, the financing symposium for the
medium-small firms was held, where 405 projects needing financing were put forward and the financing
total reached 3.58 billion yuan. And series of financing products for the medium-small firms were
supplied by 45 banks or so, the credit cooperative and accounting agents, etc. These countermeasures
have helped them overcome the difficulties of financing, which has accelerated their development.
4.6 Strive for the Finance Aid of the Higher Authorities
The experience of the economic development at home and abroad shows us that the advancement of a
local economy mainly depends on its own competence. But the support of the higher authorities is also
obliged. In 2008, the biggest project of oil refining and chemicals(800 thousand ton ethylene per year) in
central China was won by Wuhan. This project is an important engineering of the national “Eleventh
Five-Year Plan” that will fill in the blank that no big ethylene enterprise existed in central China. It can
improve the whole arrangement of the ethylene industry in China. Its design was finished at the end of
May, 2008. By the end of the first half of 2011, it will have been accomplished and put into test
production. This project is one that promotes central China to rise and coordinates the local economy
development, too. It can do benefits to bettering the layout of the ethylene industry in China, raising the
level of using the oil resources, pressing the upgrading of the relative industry and optimizing the
economic structure of the central part of China.
5. Conclusion
In developing the industry of a certain region, it is true that the market is essential. But the government
is also obliged to reengineer the market function, adjust the strategy of developing the industry with the
fluctuation of the economical situation both at home and abroad, formulate the concerned laws and rules
to maintain the market orders, direct the industrial investment, build the channel investing and finance
the funds and strive for the financial aids of the higher authorities. So the industrial development can’t
be separated from the adjustment of the market and from the regulation and control of the government,
either.
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Author in brief:
Gu Qiao, M, professor of Economy and Management Institute, Wuhan Polytechnic University Wuhan,
has long been engaged in marketing and strategic management research.
E-mail:[email protected]
References
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Industry 2007 (M). Wuhan Press. March, 2008. (in Chinese)
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(in Chinese)
[3]. www. Wuhan Economy Council. com
[4]. Wuhan Economy Council, Wuhan Statistic Bureau. A Statistic Manual of Wuhan Industry
Economy 2007(M). April, 2008. (in Chinese)
[5]. China Enterprise Union, China Enterprise Association. A Report on the Development of Chinese
Enterprises 2005(M). Enterprise Management Publishing House. July, 2005. (in Chinese)
[6]. Paul A. Samuelson, Willian D. Nordhaus. Economics. Sixteenth Edition. China Machine Press.
February, 2003.
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