Exploring Business Environment Policy Changes in China Using Quantitative Text Analysis

The term “business environment”, deriving from the World Bank’s Doing Business survey, refers to the regulatory environment connected to business operation, covering the entire life cycle of enterprises. This environment is provided jointly by the government, market, and society [1,2]. The importance of a conducive business environment in creating a sustainable market economy is now widely accepted. A well-functioning regulatory system promotes new firms’ creation and is crucial for the continued dynamism of the modern market [3]. After all, ineffectiveness in the regulatory system creates frictions that inhibit the performance of firms, consequently leading to knock-on effects on investments, productivity, employment, and living standards.

The sustainability and dynamism of the market economy are also vital concerns for policymakers, who, in country after country, are trying to set policies that will optimize the business environment. In China, this issue entered the policy agenda of the central government when the World Bank initiated the Doing Business survey into its two major metropolises, Beijing and Shanghai, in 2004. The earliest national-level policy explicitly mentioning the “business environment” emerged in 2006. When we zoom out and examine the global economy, we observe the years from 2006 to 2023 as an eventful period. Advanced economies suffered their most serious economic and financial crisis, known as the Great Recession [4]. Additionally, the debt crisis in Greece and other parts of Europe threatened the survival of the euro area, while emerging markets, from Argentina to Turkey, experienced strains due to interest rate hikes from the US Federal Reserve. In response to the changing global economic landscape and the corresponding challenges in domestic dynamics, China’s central government has systematically implemented a series of policies to reinforce the stability of the internal business environment for the last two decades.

In general, a policy is a government-sponsored plan characterized by specific targets, measures, and underlying values [5]. The evolution of business environment policy in China, typically occurring in small and discrete increments rather than in abrupt strokes [6], is intricately tied to the shifting landscape of government attention and the dynamic interplay of socio-economic circumstances over time [7]. This nuanced evolution necessitates a comprehensive analysis of the policy change process. Specifically, an examination of how China’s business environment policy is evolving and the underlying logic driving these changes is imperative. Such systematic research holds the potential to provide policymakers with meaningful insights into optimizing the policy system for the future, ensuring the long-term sustainability of the domestic market economy.

The existing literature on business environment policies and their change can be broadly categorized into three main types. Firstly, earlier studies focus on the impact of business environment policies on the sustainable development of the market economy. For instance, Ciccone and Papaioannou [8] associate countries with less burdensome regulations with an increased entry into industries, and those countries benefit more from expansionary global demand and technological shifts. Demirguc-Kunt et al. [9] examine the connection between the higher growth of incorporated businesses in countries with good financial and legal institutions. Secondly, scholars are conducting research on evaluating the effectiveness of business environment policies. Jiang et al. [10], for example, set an evaluation index system for the business environment and empirically analyzed the effectiveness of policy implementation. Babatunde et al. [11] investigate the extent of policy continuity using the ease of doing business index. Vokoun and Aramayo [12] develop a business environment index with indicators that are broadly available for developing countries. Thirdly, our paper is most closely related to the literature examining policy change. For instance, Bernatzki et al. [13] explore how changes in policies impact the business environment and identify their driving causes. Tien and Hung Anh [14] discuss the competitive advantage gained from policy change in the case of foreign corporations. Hrechyshkina and Samakhavets [15] analyze the business environment in the context of socio-economic development and forecast the future path, such as improving property relations.

While many scholars have begun to explore changes in business environment policy, few have thoroughly examined the policy texts themselves. The objective of this paper is to fill this gap by addressing the evolving path of the business environment policies in China based on policy text data. Policies are strategies or plans executed by the government over a given period for specific political, economic, or social targets. This information is conveyed through policy texts [16]. The increasing availability of digitalized policy text data provides scholars with a foundation to examine policy texts quantitatively [17]. Various techniques can be employed to quantify text, each with its strengths, weaknesses, and trade-offs [18]. Our research utilizes an integrated approach involving a social network analysis (SNA) and the latent Dirichlet allocation (LDA) model to conduct a deeper analysis of business environment policy texts.

To provide a more calculable approach to understanding the evolution of China’s business environment policies, a policy text database will be constructed using the precise search term “business environment”. Utilizing SNA, the policy issuing numbers and rhythm, policy issuing entities, and collaborative networks over time will be calculated. This process will facilitate the identification of core policy actors at different times and track their appearance and disappearance. Additionally, the relationships between actors and their changing trends will be scrutinized [19,20]. Furthermore, the LDA model will be employed to uncover policy topics within the texts. These topics will be interpreted and clustered into categories [21,22,23], with policy content provided as supplementary evidence in the Appendix A. The changing path of topics and their categories will then be examined to reveal the evolving trend in policy attention over time. Given the conceptual spread of the business environment beyond business-related policy, the LDA model is recommended to address this issue and ensure a high level of substantive interpretability [24].

The structure of this paper is organized as follows: Section 2 outlines our proposed methods, including the SNA and the LDA topic model for policy evolution analysis, along with the policy text database. Section 3 reports the quantitative analysis results of China’s business environment policy changes using the methods described in the preceding section. Section 4 provides a discussion of the findings within a broader context. Finally, Section 5 concludes our research, noting its limitations, and proposes potential avenues for future investigation.

Narrowly, in terms of the economic development, the world in the early twenty-first century was still in a golden age that had lasted for six decades. For the world as a whole, per capita income has multiplied by a factor of four since the end of World War II. China, in the meantime, has been absorbing foreign capital for industrialization, especially since the 1970s. In 2001, China joined the WTO [38]. Following this, China embarked on a series of economic reform programs aimed at recalibrating market rules and deepening its engagement in international economic cooperation. Triggered by the World Bank’s Doing Business survey, China integrated survey standards into measures regulated by the market and guided by the industry. The initial policy specifically referring to the business environment was issued in 2006, and its main objective was to facilitate reginal economic cooperation and industry chain development. During this period from 2006 to 2011, measures aimed at optimizing the business environment were incorporated into the plans for constructing special economic zones. Among all the special economic zones in China, the Pearl River Delta served as a pioneer for economic reform. In the Pearl River Delta, Hong Kong and Macau acted as bridges linking foreign capital to domestic industry, while mainland cities such as Guangzhou and Shenzhen harbored multiple mature manufacturing chains. It is worth noting that the concept of the business environment was still novel at this time, originating from the international organization, namely the World Bank. Although it entered the central government’s view and agenda, a stable policy framework was yet to be established.

Despite the turbulence buffeting the world starting in 2008, growth and globalization persevered [39]. G20 countries reaffirmed their commitment to free and open trade and avoided adopting beggar-thy-neighbor policies. Governments sought to coordinate their fiscal policies to meet the challenges of the financial crisis. In China, the significance of a favorable business environment gained increasing recognition by the government. A favorable business environment could attract foreign investment and nurture start-ups consistently. Positioned as a crucial component of the national strategy, the NDRC played a leading role in formulating business environment policies. This period witnessed a surge in policy numbers, heightened inter-departmental cooperation, and resulted in the formal acknowledgment of the “business environment” concept. During these years, the policy attention of the business environment shifted towards a convenient administrative approval process, coinciding with two decades of administrative approval reform [40]. Measures such as streamlining procedures, compressing time, and reducing costs were implemented, particularly benefiting small and medium-sized firms [41]. This period saw the emergence of topics related to administrative approval, such as “credit registration”, “multi-license integration”, and “simple deregistration”, in the content of business environment policies.

Moreover, a favorable business environment entails not only opening up to international trade but also fostering favorable conditions for industrial development. Regarding market opening-up, the Pearl River Delta continues to play a crucial role in facilitating the flow of international capital to domestic businesses. Meanwhile, for foreign enterprises, administrative approval procedures are streamlined to facilitate their operations. Another aspect of market opening-up involves implementing new business environment measures, such as streamlining trade procedures, reducing barriers, and enhancing efficiency in pilot free trade zones. These measures, if proven effective in pilot zones, will then be extended beyond pilot free trade zones to other provinces and cities [42]. Regarding the industrial environment after 2011, the central government’s measures shifted from solely strengthening cooperation among enterprises to offering special tax preferences for specific industries. Additionally, intellectual property protection became an essential part of the policy agenda in this period.

From 2017 to 2023 was the period when the business environment policy system comprehensively took shape. The number of policies involving various departments increased sharply. Two major events significantly impacted the economic situation in China: the trade tensions with the US and the global outbreak of the coronavirus. Consequently, the significance of business environment policies evolved in response to these challenges. In 2018, the US imposed tariffs sequentially on “lists” of goods from China, and then in 2019, the tariffs were raised. As China imposed retaliatory tariffs, trade tensions between the two nations escalated. As a result, imports to the US from China declined quite sharply, and exports from the US also declined [43]. Producers of goods affected by the tariffs, as well as those using these goods as intermediate inputs, faced adverse effects [44]. This is one of the main reasons why China’s central government adopted the strategy of enhancing internal circulation, aiming to reorient the country’s economy toward prioritizing domestic consumption. In fact, as a delayed reaction to the Great Recession, de-globalization was a worldwide trend at this time. High-profile government interventions discouraged cross-border investment flows. The Trump administration declined to confirm the appointment of new members to the WTO’s dispute settlement panel, while Berlin thwarted China’s acquisition of the German electricity transmission firm 50 Hertz. In China, the government’s attention shifted from foreign trade to building an internal domestic logistics and transport system. Another important change related to China–US trade tensions is in the high-tech industry. During this time, with the establishment of a relatively integrated industry chain and the technological competition with the US, the essential issue concerning domestic industry shifted to the unbalanced manufacturing structure and the lack of high-tech products. Consequently, the focus of special tax preferences narrowed down to benefit high-tech enterprises specifically.

Furthermore, the outbreak of the pandemic at the end of 2019 precipitated a sharp contraction of economic activity from 2020 to 2022, hindering consumer demand, investment, production, and international trade [45]. The measures taken by the government during the pandemic included restrictions on both international and domestic travelers. International flights largely declined, and freight transport drivers crossing provincial borders were required to declare their health status [46]. As of December 2022, China lifted COVID-era bans. Restrictions for travelers were removed, and the national borders were reopened. This marks the period when China is reconstructing its trade circulation and placing significant emphasis on logistics and transportation. The recovery subsequent to the reopening of China’s economy also demands a more predictable and law-based government. Building a better law-based and stable business environment is an emerging issue, especially crucial for the government [47]. This shift reflects the government’s attention expanding beyond the narrow focus of simplifying administrative approval procedures to the construction of a law-based and transparent governance system.

In conclusion, firstly, after extensive practice, China has developed a mature policy system for the business environment with distinctive characteristics. During this period, both the number and the impact of policies increased. Secondly, as the scope of business environment matters extends to span various practical areas, a governance network has gradually formed with increasing departmental participation, wherein the NDRC plays a central role. On the one hand, through the cooperation of departments with differentiated functions, the strengths of each department are leveraged toward achieving common policy targets; on the other, through the domination of one specific department, clear instructions and efficient collaboration are ensured [48], avoiding the so-called problem of “nine dragons ruling the water” [49]. Thirdly, the attention of the central government, although generally focused on five areas—the foreign trade environment, industrial environment, administrative approval environment, legal environment, and trade circulating environment—has been evolving. As the connotation of the business environment adjusts and the international or domestic socio-economic circumstances change, the attention of business environment policy is shifting from attracting foreign investment and developing the industrial chain towards simplifying bureaucratic approval procedures, smoothing trade circulation, and ensuring legal reliability. However, based on the current realistic issues, the policy system still requires re-examination and adjustments. The first policy limitation is the lack of attention to opening up in recent years. The so-called “economic miracle” of China in recent decades largely results from the incorporation of international economic activities [50], and naturally, the construction of a first-class business environment needs the embrace of the international market. Secondly, the restriction of government power and the establishment of a predictable, law-based government require not only policies from the government’s perspective but also supervision from the market and citizens.

There are still some limitations in this study. Firstly, this study focuses on policy content to analyze the Chinese government’s attitude toward the business environment. Whether the policies would be implemented genuinely or superficially in practice is another issue. It might involve complex negotiations between the central government and a large number of local governments. These potential obstacles have not been included in the main body of this paper, but the real implementation is an extremely important issue that needs to be deeply analyzed and explored in further study. Additionally, conducting an international comparative study on government policies-oriented business environment development is significant. Finally, in terms of methodology, the primary analytical approach of this paper is quantitative, with qualitative policy textual content provided as supplementary evidence in the Appendix A. A prospective avenue for future research involves conducting a qualitative content analysis of business environment policies and making comparisons.