Li Shantong, Hou Yongzhi, Liu Yunzhong & Chen Bo

Local protection has been standing out gradually with reform and opening up. In the last two decades and more, this phenomenon has been staying on stubbornly despite stern criticism and severe measures of rectification in certain periods. There have been constant changes in terms of local protection, but those are merely changes in the objects, scope and means of protection. The objects of local protection have changed from the "resource" to "market", the scope has extended from the "product market" to "factor market" and the means of protection has changed from mainly "administrative regulations" to mainly "hidden obstacles". Local protection hampers a rational nationwide movement of commodities and factors, weakens the effectiveness of an optimal resource distribution in the market mechanism, causes increase in transaction costs and reduces the overall effects of resource distribution. Therefore local protection must be eradicated resolutely.

In order to have a comprehensive understanding of the state of local protection and make a deep-going analysis of the causes of it and seek fundamental measures to cope with it, we have conducted a questionnaire survey on obstacles to inter-regional economic exchanges recently. In view of the differences among enterprises and government departments, scientific research institutes and institutions of higher education in their understanding of local protection, we have designed two types of questionnaires to meet the different nature of the survey targets, i.e. the enterprises and non-enterprises. We collected 3,500 questionnaires from enterprises and 1,500 copies from non-enterprises. We have reached the following basic understanding on local protection on the basis of an initial analysis of the questionnaires we have collected.

I. The Central Government Has Made Some Progress in Combating Local Protection

The survey shows that with the continuous improvement of the infrastructure, the deepening of the market-oriented reforms and the rectification of the market order, local protection has been weakened to a certain degree. Among the enterprises being surveyed, 34.4% believe that local protection has been markedly weakened as compared with 20 years ago and 35.4% think that the degree of local protection has been slightly lessened as compared with ten years ago and all express greater satisfaction for the work done made by the central government than that by local governments. Among those non-enterprises surveyed, 70% believe that local protection has been reduced slightly or obviously, about half of the surveyed think it is markedly improved in 20 years and 36% think it is slightly better than ten years ago and 39% think it is markedly improved in the last ten years.

II. Local Protection Still Exists in Various Forms, Open or Hidden, and the Most Serious Form of Local Protection Is Intervention in the Labor Market

The survey sheets list 42 different forms of local protection that fall into eight categories in two fields. The first four categories are related to product trade production: 1. A direct control over the quantity of products from other regions to be sold within the area under local protection; 2. Price restrictions and local subsidies; 3. Discriminative practice in quality tests by local administrative departments in charge of industry and commerce; and 4. Other measures blocking the entry of products from other parts of the country. The other four categories are related to restrictions on business operation and investment: 1. Intervention in outside enterprises in the input of raw and other materials; 2. Intervention in the labor market; 3. Intervention in financing; and 4. Intervention in technology matters.

The survey shows local protection exists in all of the 42 forms of local protection listed in the questionnaires. The questionnaires collected from enterprises show that 59% of those surveyed say local government resorts to local protection on major raw materials and 69% say local governments impose quotas on local enterprises in selling products from other parts of the country.

Returned questionnaires from both enterprises and non-enterprises all show that the two most serious manifestations of local protection are "intervention in the labor market" and the "unofficial, hidden restrictions to the entry into the locality of products from other parts". Other more serious forms of local protection are "discriminative practice by the authorities for industry and commerce in quality inspections and "intervention in matters related to technology".

Specific measures taken by local governments in those categories include: 1. Local governments order local enterprises to give priority to those with local household registration in hiring workers; 2. Higher educational fees are charged on the children of workers from other parts of the country; 3. Higher qualifications for settlement with household registration by workers from other parts; 4. No old pensions, medical care and unemployment insurance for workers from other parts; 5. In inviting bids on construction projects, local enterprises enjoy greater favor; 6. Local manufacturers enjoy priority in local government purchases; 7. When an enterprise of another part sues a local enterprise, it tends to meet lukewarm reception by the local judicial department; 8. There is inaction on the part of the local judicial department in implementing a verdict that is unfavorable to a local enterprise; 9. Local governments refrain from taking severe measures to combat local counterfeits; 10. There are restrictions to the movement of technical personnel, particularly important technical personnel, and a transfer of an important technician or engineer may involve high fees or withholding of personnel archives or household registration files, etc.

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