The Politics of Environmental Regulatory Actions in China

• In Event: Environmental Politics in Developing Countries and Marginalized Societies

Abstract

This paper is part of a larger project that studies how local governments in China enforce environmental regulations at the firm level. The theoretical focus is on the role of fixed asset intensity. On the one hand, high fixed asset intensity makes a firm less mobile. A less mobile firm cannot present a credible exit-threat if its local government targets the firm with stringent enforcement of environmental regulations. On the other hand, high fixed asset intensity creates natural barriers to market entry and opportunities for monopoly rent extraction, therefore empowers existing firms to lobby and pressure for a favorite regulatory treatment. Our analysis of key monitored polluting firms in the Jiangsu province for 2012, 2013, and 2014 shows that a higher level of fixed asset intensity increases a firm’s environmental rating by the government, but at the same time also increases its chances of receiving a government punitive action (e.g., fines, suspension, and rectification) as well as the amount of its pollution levies. It seems that facing severe pollution and pressures from the central government to clean up the environment, local governments are more likely to target firms with high fixed asset intensity, knowing that these firms are much less likely to relocate. However, because high fixed intensity firms also enjoy strong market power, local governments compensate them by offering better environmental ratings, which not only serve as good publicities, but also are linked to preferential government treatments, for instance, in obtaining loans from state-owned banks.

Authors

• Qing Deng, Pennsylvania State University

• Zijie Shao, Sun Yat-Sen University

• Xiaojun Li, University of British Columbia

• Xun Cao, Penn State University