This article talks about the regional protectionism in China. In this commentary, I will investigate the cause of such protectionism, the problems provoked and some possible solutions. Protectionism is the act of imposing trade barriers to protect the income of domestic producers. The `inspection fees' and `anti-forgery stickers' are examples of regional protectionism in China. Though the central government reduces protectionist measures like national tariffs, in order to maximize local interest, provinces often charge money with outlandish schemes, hoping to scrape as much oney as possible.
Several problems might occur due to the regional protectionism. First, China would not be able to maximize its productivity. China is a large country with various resources located in different areas. Take the liquor industry from the article for example. The opportunity cost for producing beer might be lower in Beijing than in other provinces, hence Beijing has comparative advantage in producing beer. Yet, regional protective schemes prevented capital of the industry to centralize at one location, like Yanjing Beer Group had to buy local breweries.
This made specialization impossible, and could not enjoy increasing return to scale. As a result, China could not achieve allocative efficiency and prevented the economy to reach its full production capacity. Moreover, foreign firms would be intimidated to invest in China. Although a 1. 3 billion-person market sounds appealing, the regional protectionism set up an extremely high barrier for foreign firms to enter the market. Foreign firms might find it unworthy to spend that much to enter the market.
Since there was little competition in the arket, in the pursuit of profits domestic firms would raise the prices and overlook the quality of products. As a result, people might suffer high price levels and low living standards. Furthermore, China must ensure a certain extent of free trade for its WTO entry. Regional protectionism might risk China's WTO entry, making China an unpopular trading partner. Other countries might impose protectionist measures, such as embargo and quotas, on China in return. Thus, China's exports might decrease. As a result, a current account deficit occurred, hurting its economy eventually.
Although foreign firms may overlook the high costs to enter the market of China, evaluating the problems arisen, I reckon the need of solutions. Apparently, protectionist schemes like requiring all teachers to purchase local liquor are not purely measures to protect local producers' income, but unethical acts to scrape gross profits. Unfortunately, there is no rapid remedy at all. In addition to implementing laws, education should be strengthened to develop a sense of citizenship among people so that they would put more considerations on social benefits than personal benefits.