Regulating Conglomerates: Evidence from an Energy Conservation Program in China
Qiaoyi Chen, Zhao Chen, Zhikuo Liu, Juan Carlos Suárez Serrato, Daniel Yi Xu
American Economic Review · 2025 · Volume 115 · Issue 2
Abstract
We study a prominent energy regulation affecting large Chinese manufacturers that are part of broader conglomerates. Using detailed firm-level data and difference-in-differences research designs, we show that regulated firms cut output and shifted some production to unregulated firms within their conglomerate instead of improving their energy efficiency. To account for conglomerate and market spillovers, we interpret these results through the lens of an industry equilibrium model featuring conglomerate production. The policy raises welfare if the per ton benefits of carbon reduction exceed $161. Alternative policies that exploit public information on business networks can increase aggregate energy savings by 10 percent.
Keywords
Firm Behavior: Empirical Analysis, Firm Organization and Market Structure, Economics of Regulation, Industry Studies: Manufacturing: General, Socialist Systems and Transitional Economies: Natural Resources, Energy, Environment, Socialist Enterprises and Their Transitions, Energy: Government Policy
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