{
  "title": "Industrial Policy in China: Quantification and Impact on Misallocation",
  "publication": "IMF Working Papers, August 8, 2025",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2025/08/07/industrial-policy-in-china-quantification-and-impact-on-misallocation-568888",
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  "summary": "This paper quantifies the size of the main industrial policy instruments in China and estimates their impact on domestic factor misallocation and aggregate productivity. The quantification of industrial policy instruments leverages data from financial reports of listed firms and the land registry.",
  "sections": [
    {
      "heading": "Quantification of Industrial Policy Instruments",
      "content": "- The paper quantifies the size of the main industrial policy instruments in China using data from financial reports of listed firms and the land registry.\n- The equivalent fiscal cost of industrial policy through cash subsidies, tax benefits, subsidized credit, and subsidized land for favored sectors (including both private and state-owned firms) is estimated at about 4 percent of GDP per year.\n- The share of tax benefits in the total fiscal equivalent is described as growing over time."
    },
    {
      "heading": "Impact on Factor Allocation and Aggregate Productivity",
      "content": "- A structural model is used to estimate the relationship between industrial policies and factor misallocation for a broad sample of firms.\n- Various industrial policy instruments affect factor allocations in different ways:\n  - Subsidies tend to lead to excess production.\n  - Trade and regulatory barriers limit production.\n- Overall effect on productivity:\n  - Factor misallocation from industrial policies is estimated to reduce domestic aggregate TFP by about 1.2 percent."
    },
    {
      "heading": "Key Findings and Statistics",
      "content": "- Equivalent fiscal cost of industrial policy: about 4 percent of GDP per year.\n- Estimated reduction in domestic aggregate TFP from misallocation: about 1.2 percent.\n- Data sources: financial reports of listed firms and the land registry."
    },
    {
      "heading": "Policy Implications and Recommendations",
      "content": "- The results resonate with IMF policy recommendations for China to:\n  - Scale back industrial policy.\n  - Increase transparency of industrial policy measures.\n\nSource: IMF Working Paper \"Industrial Policy in China: Quantification and Impact on Misallocation\" by Daniel Garcia-Macia, Siddharth Kothari, and Yifan Tao, IMF Working Papers 2025, 155 (2025).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2025/08/07/industrial-policy-in-china-quantification-and-impact-on-misallocation-568888"
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    "Authors: Daniel Garcia-Macia, Siddharth Kothari, Yifan Tao",
    "Published: August 8, 2025",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798229017855.001",
    "The paper quantifies the size of the main industrial policy instruments in China using data from financial reports of listed firms and the land registry.",
    "The equivalent fiscal cost of industrial policy through cash subsidies, tax benefits, subsidized credit, and subsidized land for favored sectors (including both private and state-owned firms) is estimated at about 4 percent of GDP per year.",
    "The share of tax benefits in the total fiscal equivalent is described as growing over time.",
    "A structural model is used to estimate the relationship between industrial policies and factor misallocation for a broad sample of firms.",
    "Various industrial policy instruments affect factor allocations in different ways:",
    "Overall effect on productivity:",
    "Equivalent fiscal cost of industrial policy: about 4 percent of GDP per year.",
    "Estimated reduction in domestic aggregate TFP from misallocation: about 1.2 percent.",
    "Data sources: financial reports of listed firms and the land registry.",
    "The results resonate with IMF policy recommendations for China to:",
    "**Working Paper**"
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