Ruilin Cheng (Peking University) - Industrial Policy through Corporate Control: Local Governments, Refinancing Pressure, and State Acquisitions in China

BOFIT-seminarier

BOFIT Seminar - Ruilin Cheng (Peking University) - Industrial Policy through Corporate Control: Local Governments, Refinancing Pressure, and State Acquisitions in China

Co-authors: Jiaxi Li (University of International Business and Economics), Songrui Liu (Renmin University of China), and Zhuo Nie (University of International Business and Economics)

Abstract
Industrial policy is often understood through subsidies, tax incentives, and directed credit, but governments may also pursue development goals through ownership transactions. This paper studies whether state acquisitions of listed firms can serve as a form of industrial policy in practice. We exploit China's 2018 tightening of share-pledge financing, which created liquidity strain for highly pledged private firms and made corporate control newly contestable. Firms with greater pre-shock pledge exposure became significantly more likely to experience state entry after the reforms. We find that these acquisitions are primarily undertaken by local government-affiliated entities and are concentrated in industries prioritized by local development strategies, with limited support for bailout or financial investment motives. Post-acquisition, firms exhibit improved liquidity, lower leverage, and better operating performance. The findings suggest that when liquidity strain creates opportunities for ownership reallocation, the selective acquisition of corporate control can serve as a channel of industrial policy.

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