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Fair Competition Review System and cross-regional capital flow: Evidence from China

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  • Li, Shuqi
  • Xu, Nuo

Abstract

Breaking local protectionism and market segmentation to promote the free flow of production factors between regions is crucial for building a unified national market in China. Introduced in 2016, the Fair Competition Review System (FCRS) restricts local governments’ abuse of administrative power to limit competition. The system corrects market failures and weakens regional barriers, establishing market competition by evaluating policies and regulations for anti-competitive practices. This study investigated the impact of the FCRS on cross-regional capital flow through subsidiaries in different regions. Using data from Chinese-listed companies between 2011 and 2022, this empirical study found that capital flow significantly increased after the system's implementation. Cross-regional flow was stronger in areas with higher reduced administrative barriers, lower tax burdens, and lower capacity utilization rates. This suggests that the primary mechanisms driving capital flow were expansion and cost-efficiency improvements. Heterogeneity tests indicate that the system exhibited a stronger impact on promoting cross-regional capital flow for private enterprises and those with low investment efficiency and weaker profitability. These findings suggest that the FCRS effectively regulates administrative monopolies, reduces regional barriers, and facilitates freer capital flow between regions, contributing to a unified national market in China.

Suggested Citation

  • Li, Shuqi & Xu, Nuo, 2024. "Fair Competition Review System and cross-regional capital flow: Evidence from China," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013370
    DOI: 10.1016/j.frl.2024.106308
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    More about this item

    Keywords

    Fair Competition Review System; Administrative monopoly; Cross-regional capital flow; Remote investment;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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