Machinery and Chinas Trade-Growth Nexus 747 instruments, high precision casting machines, etc. In both cases, promoting policies have included R&D subsidies, exemption of customs tariff for imports of key equipment and instruments, sales tax exemption and income tax reduction. Although dificult to measure, there is evidence indicating that these policies have indeed fostered the formation of competitiveness of the industries concerned, especially in indigenizing imported technology. 4.2 Local Government Intervention and Industrial Restructuring The creation of economies of scale, as noted is as crucial as the indigenization of imported technology in accounting for the competitiveness of Chinas electronics industry. This has been achieved mainly through the wave of mergers and take-overs in 1989-91, as well as the subsequent financial liberalization in 1992-94 Table 8 gives the five-firm concentration ratios(by sales revenue)of the electronics industry and the TV manufacturing sub-sector. In both cases, the decisive twist occurred in 1989 when the trend of decreasing concentration was reversed. Following that, the ratios increased conspicuously. For the electronics industry, the ratio was 9 per cent in 1986. 8 per cent in 1988 and 18 per cent in 1994, while that for the TV sub-sector was 38, 32 and 59 per cent, respectively. Thus, by 1995, there were four Chinese colour TV manufacturers with individual output volume exceeding one million sets, of which the biggest produced more than three million. Again, note that the mergers and take-overs were not confined to the electronics industry, but were rather widespread for the machinery sector. In the case of the automobile industry, to 25 per cent in 1989 and then rebounded to reach a level of 48 per cent by l for example, the five-firm concentration ratio first decreased from 26 per cent in 1 That the mergers and take-overs have taken place largely among enterprises of th same regions reflects the crucial role of the local authorities. Indeed since the retrenchment period of 1989-91, there have been signs of some local authorities striving to emphasize long-term development instead of short-term profits. In addition to the agglomeration activities, they have also initiated various collaborative activities among local enterprises, helping them to survive domestic market competi tion that has become increasingly acute Table 8. Concentration ratios of China's electronics industry(by sales revenue, bn yuan) 1986-96. Sources: Lo(1997, ch 6): ZDB(5 March 1996, p4 (3 May 1996, p 4)and( 8 April 1997, p 2): ZXB, (7 April 1997, p 1: ZDB) (a) Industry (b) Top 5(b)/(a) (c) Top 25 (d) Top 5 (d)/(c) TV firms 5.83 2.24 1987 34.83 52.03 32.38% 49.18 8.52% 35.30% 62.85 12.00% 38.63% 77.50 10.30 49.72% l19.31 12.77% 13.39 49.34% 135.92 24.54 35.54 58.92% 995 31.46 1996 206.94 57.48 55.46% 01998 John Wiley Sons, Ltd J.mnt.Dev.10,733-749(1998)instruments, high precision casting machines, etc. In both cases, promoting policies have included R&D subsidies, exemption of customs tari€ for imports of key equipment and instruments, sales tax exemption and income tax reduction. Although dicult to measure, there is evidence indicating that these policies have indeed fostered the formation of competitiveness of the industries concerned, especially in indigenizing imported technology. 4.2 Local Government Intervention and Industrial Restructuring The creation of economies of scale, as noted, is as crucial as the indigenization of imported technology in accounting for the competitiveness of China's electronics industry. This has been achieved mainly through the wave of mergers and take-overs in 1989±91, as well as the subsequent ®nancial liberalization in 1992±94. Table 8 gives the ®ve-®rm concentration ratios (by sales revenue) of the electronics industry and the TV manufacturing sub-sector. In both cases, the decisive twist occurred in 1989 when the trend of decreasing concentration was reversed. Following that, the ratios increased conspicuously. For the electronics industry, the ratio was 9 per cent in 1986, 8 per cent in 1988 and 18 per cent in 1994, while that for the TV sub-sector was 38, 32 and 59 per cent, respectively. Thus, by 1995, there were four Chinese colour TV manufacturers with individual output volume exceeding one million sets, of which the biggest produced more than three million. Again, note that the mergers and take-overs were not con®ned to the electronics industry, but were rather widespread for the machinery sector. In the case of the automobile industry, for example, the ®ve-®rm concentration ratio ®rst decreased from 26 per cent in 1987 to 25 per cent in 1989 and then rebounded to reach a level of 48 per cent by 1994. That the mergers and take-overs have taken place largely among enterprises of the same regions re¯ects the crucial role of the local authorities. Indeed, since the retrenchment period of 1989±91, there have been signs of some local authorities striving to emphasize long-term development instead of short-term pro®ts. In addition to the agglomeration activities, they have also initiated various collaborative activities among local enterprises, helping them to survive domestic market competi￾tion that has become increasingly acute. Table 8. Concentration ratios of China's electronics industry (by sales revenue, bn yuan), 1986±96. Sources: Lo (1997, ch. 6); ZDB (5 March 1996, p. 4); (3 May 1996, p. 4) and (8 April 1997, p. 2); ZXB, (7 April 1997, p. 1; ZDB). (a) Industry total (b) Top 5 ®rms (b)/(a) (c) Top 25 TV ®rms (d) Top 5 TV ®rms (d)/(c) 1986 24.10 2.24 9.29% 5.83 2.24 38.42% 1987 34.83 2.66 7.64% 6.75 2.66 39.41% 1988 52.03 4.07 7.82% 12.57 4.07 32.38% 1989 49.18 4.19 8.52% 11.53 4.07 35.30% 1990 54.17 5.14 9.49% 13.38 5.02 37.52% 1991 62.85 7.54 12.00% 17.76 6.86 38.63% 1992 77.50 10.30 13.29% 19.83 9.86 49.72% 1993 119.31 15.23 12.77% 27.14 13.39 49.34% 1994 135.92 24.54 18.05% 35.54 20.94 58.92% 1995 170.88 31.46 18.41% 47.48 25.81 54.36% 1996 206.94 36.54 17.66% 57.48 31.88 55.46% #1998 John Wiley & Sons, Ltd. J. Int. Dev. 10, 733±749 (1998) Machinery and China's Trade±Growth Nexus 747