American Political Science Review (2018)112.4.954-970 doi:10.1017/S0003055418000242 American Political Science Association 2018 Media Bias against Foreign Firms as a Veiled Trade Barrier: Evidence from Chinese Newspapers SUNG EUN KIM Korea University hile the rules of international trade regimes prevent governments from employing protectionist instruments,governments continue to seek out veiled means of supporting their national indus- tries.This article argues that the news media can serve as one channel for governments to favor domestic industries.Focusing on media coverage of auto recalls in China,I reveal a systematic bias against foreign automakers in those newspapers under strict government control.I further analyze subnational reporting patterns,exploiting variation in the level of regional government interest in the automobile industry.The analysis suggests that the media's home bias is driven by the government's protectionist interests but rules out the alternative hypothesis that home bias simply reflects the nationalist sentiment of readers.I show that this home bias in news coverage has meaningful impact on actual consumer behavior, combining automobile sales data and information on recall-related web searches. INTRODUCTION erage they receive in the local media.The Wall Street Journal,for instance,reported that "companies such n expansion of international trade regimes has as retailer Wal-Mart and energy giant ConocoPhilips increased the cost of employing protectionist face[d]a wave of critical coverage by state media of measures.States have resorted to nontariff bar- grievances against foreign companies."1 A series of em- riers (NTBs)as an alternative to raising tariffs (Mans pirical anecdotes alone,however,neither substantiates field and Busch 1995),but the World Trade Organi- the existence of home bias (i.e.,a systematic tendency zation (WTO)has strengthened its regulations over to favor domestic firms over foreign ones)nor iden- NTBs under the core principle of national treatment tifies whether media bias,if any,is driven by govern- (i.e.,an equal treatment of local and foreign products). ments'protectionist incentives or demand-side factors Nonetheless,many member states continue to exhibit such as the nationalist sentiment. interest in protecting domestic industries and seek out To explore the magnitude of media bias and its more veiled and indirect means of supporting their sources,I utilize a set of inferential strategies with an national industries.What measures can states employ empirical focus on Chinese newspapers.I focus on one when traditional measures become costly? This article argues that the news media can serve as sector and examine instances of faulty production in the same sector to account for differences in product one means of protecting domestic industries.In coun- quality between domestic versus foreign firms.Exam- tries where the government controls the media,it can ining news coverage of automobile recalls is an ideal influence media coverage to present domestic firms in test because product recalls have obvious negative im- a more favorable light than their foreign counterparts. plications on the products'quality,and their character- By influencing a major source of product-related in- 235.5010 istics are comparable across different cases.Focusing formation,governments can indirectly shape consump- on Chinese newspapers allows me to pin down gov- tion patterns.Yet,governments can circumvent possi- ernment influence due to the variation in the level of ble disputes at the WTO due to the absence of explicit government control over different newspapers.I fur- regulations and the difficulty of verifying government ther delineate the effect of protectionist interest by involvement. exploiting subnational variations in regional govern- In fact,firms doing business in foreign markets have ments'ownership of automotive industries. repeatedly expressed concerns over unfavorable cov- My analysis of auto recall coverage by 121 Chinese newspapers between 2005 and 2013 reveals a system- Sung Eun Kim is an Assistant Professor of Political Science atic home bias in government-controlled media.Offi- Department of Political Science and International Relations,Korea cial newspapers controlled by the central government University,145 Anam-ro,Seongbuk-gu,Seoul,Korea,02841 (sung_kim@korea.edu) are nearly twice as likely to cover recalls by foreign I thank Andrew Cheon.Shigeo Hirano,Xian Huang,Dong automakers and publish lengthier and more negative Jung Kim,Florence Larocque,Yotam Margalit,Tamar Mitts,An- stories about such events when compared to similar re- drew Nathan,Krzysztof Pelc,Pablo Pinto,Subhasish Ray,Johannes calls involving domestic automakers.Further,a subna- Urpelainen,Joonseok Yang.Boliang Zhu,three anonymous re. tional analysis corroborates that the bias is driven by viewers,and the journal's editor for their useful comments.I also benefited from feedback from seminar participants at Columbia government interest in supporting the domestic indus- LSE,NUS,NYU,NYU-Abu Dhabi,UPenn,Yale,and Yale-NUS try.Official regional newspapers in provinces where the and conference participants at APSA.IPES.and MPSA.I thank local governments own automotive enterprises exhibit Kay Key Teo and Lee Shu Hui Jesslene for their excellent re. search assistance.All errors are my own.Replication files are available at the American Political Science Review Dataverse: https://doi.org/10.7910/DVN/JSROOE. See Laurie Burkitt,"Foreign Firms Feel China's Heat."The Wall Street Journal,October 19,2011.For another instance,see Kazunori Received:January 30,2017;revised:September 28,2017;accepted: Takada and Samuel Shen."China Media Train Fire on U.S.Food Gi- April 27 2018.First published online:June 13,2018. ants over Chicken Scare."Reuters,January 17 2013. 954
American Political Science Review (2018) 112, 4, 954–970 doi:10.1017/S0003055418000242 © American Political Science Association 2018 Media Bias against Foreign Firms as a Veiled Trade Barrier: Evidence from Chinese Newspapers SUNG EUN KIM Korea University While the rules of international trade regimes prevent governments from employing protectionist instruments, governments continue to seek out veiled means of supporting their national industries. This article argues that the news media can serve as one channel for governments to favor domestic industries. Focusing on media coverage of auto recalls in China, I reveal a systematic bias against foreign automakers in those newspapers under strict government control. I further analyze subnational reporting patterns, exploiting variation in the level of regional government interest in the automobile industry. The analysis suggests that the media’s home bias is driven by the government’s protectionist interests but rules out the alternative hypothesis that home bias simply reflects the nationalist sentiment of readers. I show that this home bias in news coverage has meaningful impact on actual consumer behavior, combining automobile sales data and information on recall-related web searches. INTRODUCTION An expansion of international trade regimes has increased the cost of employing protectionist measures. States have resorted to nontariff barriers (NTBs) as an alternative to raising tariffs (Mansfield and Busch 1995), but the World Trade Organization (WTO) has strengthened its regulations over NTBs under the core principle of national treatment (i.e., an equal treatment of local and foreign products). Nonetheless, many member states continue to exhibit interest in protecting domestic industries and seek out more veiled and indirect means of supporting their national industries. What measures can states employ when traditional measures become costly? This article argues that the news media can serve as one means of protecting domestic industries. In countries where the government controls the media, it can influence media coverage to present domestic firms in a more favorable light than their foreign counterparts. By influencing a major source of product-related information, governments can indirectly shape consumption patterns. Yet, governments can circumvent possible disputes at the WTO due to the absence of explicit regulations and the difficulty of verifying government involvement. In fact, firms doing business in foreign markets have repeatedly expressed concerns over unfavorable covSung Eun Kim is an Assistant Professor of Political Science, Department of Political Science and International Relations, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul, Korea, 02841 (sung_kim@korea.edu). I thank Andrew Cheon, Shigeo Hirano, Xian Huang, Dong Jung Kim, Florence Larocque, Yotam Margalit, Tamar Mitts, Andrew Nathan, Krzysztof Pelc, Pablo Pinto, Subhasish Ray, Johannes Urpelainen, Joonseok Yang, Boliang Zhu, three anonymous reviewers, and the journal’s editor for their useful comments. I also benefited from feedback from seminar participants at Columbia, LSE, NUS, NYU, NYU-Abu Dhabi, UPenn, Yale, and Yale-NUS and conference participants at APSA, IPES, and MPSA. I thank Kay Key Teo and Lee Shu Hui Jesslene for their excellent research assistance. All errors are my own. Replication files are available at the American Political Science Review Dataverse: https://doi.org/10.7910/DVN/JSR0OE. Received: January 30, 2017; revised: September 28, 2017; accepted: April 27, 2018. First published online: June 13, 2018. erage they receive in the local media. The Wall Street Journal, for instance, reported that “companies such as retailer Wal-Mart and energy giant ConocoPhilips face[d] a wave of critical coverage by state media of grievances against foreign companies.”1 A series of empirical anecdotes alone, however, neither substantiates the existence of home bias (i.e., a systematic tendency to favor domestic firms over foreign ones) nor identifies whether media bias, if any, is driven by governments’ protectionist incentives or demand-side factors such as the nationalist sentiment. To explore the magnitude of media bias and its sources, I utilize a set of inferential strategies with an empirical focus on Chinese newspapers. I focus on one sector and examine instances of faulty production in the same sector to account for differences in product quality between domestic versus foreign firms. Examining news coverage of automobile recalls is an ideal test because product recalls have obvious negative implications on the products’ quality, and their characteristics are comparable across different cases. Focusing on Chinese newspapers allows me to pin down government influence due to the variation in the level of government control over different newspapers. I further delineate the effect of protectionist interest by exploiting subnational variations in regional governments’ ownership of automotive industries. My analysis of auto recall coverage by 121 Chinese newspapers between 2005 and 2013 reveals a systematic home bias in government-controlled media. Official newspapers controlled by the central government are nearly twice as likely to cover recalls by foreign automakers and publish lengthier and more negative stories about such events when compared to similar recalls involving domestic automakers. Further, a subnational analysis corroborates that the bias is driven by government interest in supporting the domestic industry.Official regional newspapers in provinces where the local governments own automotive enterprises exhibit 1 See Laurie Burkitt, “Foreign Firms Feel China’s Heat.” The Wall Street Journal, October 19, 2011. For another instance, see Kazunori Takada and Samuel Shen, “China Media Train Fire on U.S. Food Giants over Chicken Scare.” Reuters, January 17, 2013. 954 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:05, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000242
Media Bias against Foreign Firms as a Veiled Trade Barrier a home bias,but this tendency is less pronounced in itoring and regulating protectionist behavior by inter- nonofficial newspapers located in the same provinces national institutions,which are not particularly effec- and among official newspapers in provinces without tive at addressing indirect or disguised protectionism any direct stake in the automotive industry. (Kim 2016;Rickard and Kono 2014).Compared to gov- I also provide evidence for the effect of home bias ernment procurement or health and safety policies,the on consumer behavior.Through the analysis of recall- use of news media is even more opaque,hindering ef- related web searches,I find that recalls of foreign cars fective regulation.Even if governments were to make receive more public attention than those of domestic an unlikely commitment to ensure equal treatment of cars.The effect of recalls on automobile sales is also foreign goods in media coverage,it would be almost negative for foreign automakers,while the recall effect impossible for international institutions to enforce. for domestic firms is ambiguous.My analysis demon- The next section further discusses the broader litera strates that news coverage largely accounts for why for- ture on protectionism and outlines theoretical expecta- eign firms face more negative consequences from their tions regarding the sources of home bias in the media. recalls. I then describe my empirical strategy and dataset.The The finding has direct implications for challenges following section presents the findings and a series of faced by automakers in the world's largest automo- robustness tests,followed by an analysis on the pos- bile market.China's accession to the WTO in 2001 at- sible effects of home bias on consumer behavior.The tracted keen interest from global automakers due to its final section discusses the applicability of my findings enormous and fast-growing market.Despite its com- beyond China,as well as related implications for the mitment to tempering its protectionist policies,how- study of regime type and trade policy ever,the Chinese government has demonstrated a con- tinued interest in promoting its automobile industry (Gerth 2012).In fact,opening its market resulted only EXPLAINING HOME BIAS IN THE MEDIA in a sluggish increase in automobile imports,from 2.2% 4r元 of total car sales in 1998 to 5.9%in 2012,despite the Building on the literature on protectionism,I provide reduction of Chinese tariffs on vehicles from 101.1% the government-centered explanation of the home bias (1996)to 25.0%(since 2007).-This is partly due to the in the media.Namely,the media bias reflects the gov- presence of joint ventures,but my findings also provide ernment's incentive to employ less visible trade barri- a potential explanation for this phenomenon,namely ers without violating the rules of international trade that encouraging Chinese consumers to purchase Chi- institutions.Alternatively,the home bias may reflect the nationalist sentiment of readers.I discuss these nese products "violate[s]neither the WTO rules nor the market economic rules,"as asserted by the former two potential sources of media bias,in turn,and de- chief negotiator for China's WTO accession (Gerth rive observable implications for testing the existence 2012,213).The utilization of government-controlled of government-driven bias. media provides one such channel for influencing con- sumer decisions. The Argument:News Media as a More broadly,this article contributes to the study of Protectionist Measure international political economy by expanding the dis- cussion of NTBs.While previous research has focused International trade agreements have made imposing on ways governments can directly affect demand,sup- tariffs costly,and the use of NTBs as substitutes has ply,and prices of domestic and foreign goods(Naoi become more pervasive over the past few decades 2009;Rickard 2012),this article illuminates an indirect (Kono 2006:Mansfield and Busch 1995).Those alterna- protectionist mechanism through which governments tive strategies have themselves become costlier,how- affect the flow of product-related information.Individ- ever,as the WTO and other international trade agree- ual consumers play a significant role in international ments have caught on to this trend(Rickard and Kono trade relations,since their demand for domestic and 2014;Staiger 2012).For instance,the WTO significantly foreign products ultimately determines the trade flow. strengthened national treatment obligations through Government's attempts to indirectly foster a consumer the Technical Barriers to Trade Agreement and the preference for domestic products could constitute a se- Sanitary and Phytosanitary Measures Agreement,both rious barrier to trade. of which require member states to treat imported and This article also provides an implication for the effec- locally produced goods equally(Staiger 2012). eys tiveness of international trade institutions.The findings The costs of violating these rules may not be pro suggest that states can pursue concealed measures to hibitive,but member states are certainly discouraged protect domestic industries when trade policy is oth- from employing visible protectionist instruments.Since erwise constrained.Indirect measures might not be as the inception of the WTO,the use of a dispute set- effective as direct measures such as tariffs or quotas. tlement mechanism has become very common,espe- However,they may exacerbate the difficulties of mon- cially with regard to subsidies,countervailing mea- sures,and antidumping duties.The accused country needs to correct its protectionist practices once they are The tariff is based on the HS-code 8703 (motor cars and other vehicles principally designed for the transport of persons)from the ruled WTO-inconsistent,and it also pays a reputational WTO Tariff databases.The import rate is the author's own calcula- cost when its violations become widely known(Maggi tion based on the China Auto Market Almanac series. 1999),on top of the monetary cost of engaging in 955
Media Bias against Foreign Firms as a Veiled Trade Barrier a home bias, but this tendency is less pronounced in nonofficial newspapers located in the same provinces and among official newspapers in provinces without any direct stake in the automotive industry. I also provide evidence for the effect of home bias on consumer behavior. Through the analysis of recallrelated web searches, I find that recalls of foreign cars receive more public attention than those of domestic cars. The effect of recalls on automobile sales is also negative for foreign automakers, while the recall effect for domestic firms is ambiguous. My analysis demonstrates that news coverage largely accounts for why foreign firms face more negative consequences from their recalls. The finding has direct implications for challenges faced by automakers in the world’s largest automobile market. China’s accession to the WTO in 2001 attracted keen interest from global automakers due to its enormous and fast-growing market. Despite its commitment to tempering its protectionist policies, however, the Chinese government has demonstrated a continued interest in promoting its automobile industry (Gerth 2012). In fact, opening its market resulted only in a sluggish increase in automobile imports, from 2.2% of total car sales in 1998 to 5.9% in 2012, despite the reduction of Chinese tariffs on vehicles from 101.1% (1996) to 25.0% (since 2007).2 This is partly due to the presence of joint ventures, but my findings also provide a potential explanation for this phenomenon, namely that encouraging Chinese consumers to purchase Chinese products “violate[s] neither the WTO rules nor the market economic rules,” as asserted by the former chief negotiator for China’s WTO accession (Gerth 2012, 213). The utilization of government-controlled media provides one such channel for influencing consumer decisions. More broadly, this article contributes to the study of international political economy by expanding the discussion of NTBs. While previous research has focused on ways governments can directly affect demand, supply, and prices of domestic and foreign goods (Naoi 2009; Rickard 2012), this article illuminates an indirect protectionist mechanism through which governments affect the flow of product-related information. Individual consumers play a significant role in international trade relations, since their demand for domestic and foreign products ultimately determines the trade flow. Government’s attempts to indirectly foster a consumer preference for domestic products could constitute a serious barrier to trade. This article also provides an implication for the effectiveness of international trade institutions. The findings suggest that states can pursue concealed measures to protect domestic industries when trade policy is otherwise constrained. Indirect measures might not be as effective as direct measures such as tariffs or quotas. However, they may exacerbate the difficulties of mon- 2 The tariff is based on the HS-code 8703 (motor cars and other vehicles principally designed for the transport of persons) from the WTO Tariff databases. The import rate is the author’s own calculation based on the China Auto Market Almanac series. itoring and regulating protectionist behavior by international institutions, which are not particularly effective at addressing indirect or disguised protectionism (Kim 2016;Rickard and Kono 2014). Compared to government procurement or health and safety policies, the use of news media is even more opaque, hindering effective regulation. Even if governments were to make an unlikely commitment to ensure equal treatment of foreign goods in media coverage, it would be almost impossible for international institutions to enforce. The next section further discusses the broader literature on protectionism and outlines theoretical expectations regarding the sources of home bias in the media. I then describe my empirical strategy and dataset. The following section presents the findings and a series of robustness tests, followed by an analysis on the possible effects of home bias on consumer behavior. The final section discusses the applicability of my findings beyond China, as well as related implications for the study of regime type and trade policy. EXPLAINING HOME BIAS IN THE MEDIA Building on the literature on protectionism, I provide the government-centered explanation of the home bias in the media. Namely, the media bias reflects the government’s incentive to employ less visible trade barriers without violating the rules of international trade institutions. Alternatively, the home bias may reflect the nationalist sentiment of readers. I discuss these two potential sources of media bias, in turn, and derive observable implications for testing the existence of government-driven bias. The Argument: News Media as a Protectionist Measure International trade agreements have made imposing tariffs costly, and the use of NTBs as substitutes has become more pervasive over the past few decades (Kono 2006;Mansfield and Busch 1995).Those alternative strategies have themselves become costlier, however, as the WTO and other international trade agreements have caught on to this trend (Rickard and Kono 2014; Staiger 2012). For instance, the WTO significantly strengthened national treatment obligations through the Technical Barriers to Trade Agreement and the Sanitary and Phytosanitary Measures Agreement, both of which require member states to treat imported and locally produced goods equally (Staiger 2012). The costs of violating these rules may not be prohibitive, but member states are certainly discouraged from employing visible protectionist instruments. Since the inception of the WTO, the use of a dispute settlement mechanism has become very common, especially with regard to subsidies, countervailing measures, and antidumping duties. The accused country needs to correct its protectionist practices once they are ruled WTO-inconsistent, and it also pays a reputational cost when its violations become widely known (Maggi 1999), on top of the monetary cost of engaging in 955 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:05, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000242
Sung Eun Kim formal litigation(Davis and Bermeo 2009).These costs One important qualifier warrants a brief discussion. deter member countries from implementing trade bar- A state with strong control over civil society can use riers that may be disputed(Chaudoin.Kucik,and Pelc the media as a protectionist tool more effectively than 2016).With increasing restrictions on the use of pro- states with weaker control over civil society.For in- tectionist instruments.member countries are forced to stance,liberal democracies have a marketplace of ideas abandon their traditional protectionist policies,at the where government-issued information is thoroughly cost of forgoing domestic political benefits,or to risk tested and challenged.Governments in such countries being challenged at the WTO. are less able to collude with the media to hide negative Another option is to find alternative protectionist in- information about domestic firms.Therefore,attempts struments that evade WTO restrictions,which can help to use media as a protectionist instrument would be ob- governments gain domestic political benefits with min- served more often in states with a weak civil society. imal risk.Aside from restricting the flow of imports or offering subsidies,governments can favor domestic firms by promoting the consumption of local products Alternative Explanation:Nationalist Government procurement is one useful instrument, Sentiments but governments can also encourage their citizens to An alternative explanation can be drawn from the buy domestic goods by changing how consumers think demand-side perspective:the media's home bias sim- about national versus foreign products by disseminat- ply reflects economic nationalism among newspa- ing favorable (unfavorable)information about domes- per readers.The demand-side theory of media bias tic(foreign)products.Consumers exposed to biased in- suggests that newspapers,as profit-maximizing firms. formation in favor of domestic products may consume have incentives to offer consumers what they want more domestic products and fewer foreign goods than by distorting stories according to reader preferences they normally would,creating“voluntary” protection- (Gentzkow and Shapiro 2010).According to this per- ist effects spective,newspapers may exhibit bias against foreign As the media represents a key channel through firms when their readers embrace economic national- which consumers gain product-related information ism and hold negative views about foreign economic media outlets serve as potential targets of influence influence.These readers would prefer to read negative for protectionist governments.I suggest two mecha- stories about foreign firms than about domestic firms. nisms by which governments can exert influence over and thus newspapers would be incentivized to provide product-related news coverage.The first is through such coverage to satisfy reader demand. direct censorship.In places where press freedom is This conjecture is consistent with Friebel and Heinz's limited,and especially when governments have direct (2014)finding that German newspapers tend to cover stakes in domestic industries,they can directly suppress the downsizing of foreign firms more intensely and neg- negative stories about domestic companies and prod- atively than local ones.They suggested that this pattern ucts,or indirectly influence news content by providing is driven by consumers'discontent toward the effects news reporting guidelines.For instance,China's central of globalization.Their conclusion was derived from news agency issued directives to state media to focus the biases found in all the newspapers they examined. on strengthening economic propaganda and promoting However,their analysis only examined commercial 5.501g bright economic futures to guide public opinion. newspapers;it thus does not provide guidance for de- The second mechanism is by maintaining a "cozy" termining how a government's protectionist attitudes relationship with the media.Even when formal press might affect news coverage.To better test this demand- freedom is guaranteed,journalists and editors may driven perspective against my own,I outline the follow- have financial and political incentives to abstain from ing hypotheses and test them using a sample of both undermining governmental interests.Some govern- government-owned and commercial newspapers. ments have the authority to appoint top-level man- agers of media companies,so journalists may find it beneficial to maintain a good relationship with the gov- Hypotheses on Media's Home Bias ernment for the sake of their career prospects.Col- The two explanations above suggest the existence of luding with the government can also be profitable for home bias in the media but diverge on the sources media firms,ranging from direct monetary payments of this bias.The two pressures may influence media to administrative decisions or legislative interventions concurrently,which makes it difficult to isolate one that reward more compliant news companies(Besley source from another,but the degree of influence and Prat 2006). should vary. depending on the relative strength of 3 For the leaked directive,see Anne Henochowicz, car purchases,which benefit the FIAT group that had controlled two “Minitrue: national newspapers in Italy(Besley and Prat 2006,721).When gov Keep Reporting on Bright Economic Future,"China Digital Times ernments have direct means of media control,such influence tends to September 10,2015,available at http://chinadigitaltimes.net/2015/09/ occur more directly.For instance,the Chinese government arranged minitrue-keep-reporting-on-bright-economic-future/. its media conglomerations to ensure the growth of more complaint 4 Rewarding news companies through administrative or legislative media outlets.By allowing some party papers to merge with others to intervention is more likely to be employed by governments with- form a conglomerate,sometimes through forced decisions,the gov- out direct means of media control.An example includes the Italian ernment conferred a competitive edge,and oftentimes monolithic government's restriction on car imports and subsidies for domestic power,to these papers(Stockmann 2013,57-8). 956
Sung Eun Kim formal litigation (Davis and Bermeo 2009). These costs deter member countries from implementing trade barriers that may be disputed (Chaudoin, Kucik, and Pelc 2016). With increasing restrictions on the use of protectionist instruments, member countries are forced to abandon their traditional protectionist policies, at the cost of forgoing domestic political benefits, or to risk being challenged at the WTO. Another option is to find alternative protectionist instruments that evade WTO restrictions, which can help governments gain domestic political benefits with minimal risk. Aside from restricting the flow of imports or offering subsidies, governments can favor domestic firms by promoting the consumption of local products. Government procurement is one useful instrument, but governments can also encourage their citizens to buy domestic goods by changing how consumers think about national versus foreign products by disseminating favorable (unfavorable) information about domestic (foreign) products. Consumers exposed to biased information in favor of domestic products may consume more domestic products and fewer foreign goods than they normally would, creating “voluntary” protectionist effects. As the media represents a key channel through which consumers gain product-related information, media outlets serve as potential targets of influence for protectionist governments. I suggest two mechanisms by which governments can exert influence over product-related news coverage. The first is through direct censorship. In places where press freedom is limited, and especially when governments have direct stakes in domestic industries, they can directly suppress negative stories about domestic companies and products, or indirectly influence news content by providing news reporting guidelines. For instance, China’s central news agency issued directives to state media to focus on strengthening economic propaganda and promoting bright economic futures to guide public opinion.3 The second mechanism is by maintaining a “cozy” relationship with the media. Even when formal press freedom is guaranteed, journalists and editors may have financial and political incentives to abstain from undermining governmental interests. Some governments have the authority to appoint top-level managers of media companies, so journalists may find it beneficial to maintain a good relationship with the government for the sake of their career prospects. Colluding with the government can also be profitable for media firms, ranging from direct monetary payments to administrative decisions or legislative interventions that reward more compliant news companies (Besley and Prat 2006).4 3 For the leaked directive, see Anne Henochowicz, “Minitrue: Keep Reporting on Bright Economic Future,” China Digital Times, September 10, 2015, available at http://chinadigitaltimes.net/2015/09/ minitrue-keep-reporting-on-bright-economic-future/. 4 Rewarding news companies through administrative or legislative intervention is more likely to be employed by governments without direct means of media control. An example includes the Italian government’s restriction on car imports and subsidies for domestic One important qualifier warrants a brief discussion. A state with strong control over civil society can use the media as a protectionist tool more effectively than states with weaker control over civil society. For instance,liberal democracies have a marketplace of ideas where government-issued information is thoroughly tested and challenged. Governments in such countries are less able to collude with the media to hide negative information about domestic firms. Therefore, attempts to use media as a protectionist instrument would be observed more often in states with a weak civil society. Alternative Explanation: Nationalist Sentiments An alternative explanation can be drawn from the demand-side perspective: the media’s home bias simply reflects economic nationalism among newspaper readers. The demand-side theory of media bias suggests that newspapers, as profit-maximizing firms, have incentives to offer consumers what they want by distorting stories according to reader preferences (Gentzkow and Shapiro 2010). According to this perspective, newspapers may exhibit bias against foreign firms when their readers embrace economic nationalism and hold negative views about foreign economic influence. These readers would prefer to read negative stories about foreign firms than about domestic firms, and thus newspapers would be incentivized to provide such coverage to satisfy reader demand. This conjecture is consistent with Friebel and Heinz’s (2014) finding that German newspapers tend to cover the downsizing of foreign firms more intensely and negatively than local ones. They suggested that this pattern is driven by consumers’ discontent toward the effects of globalization. Their conclusion was derived from the biases found in all the newspapers they examined. However, their analysis only examined commercial newspapers; it thus does not provide guidance for determining how a government’s protectionist attitudes might affect news coverage. To better test this demanddriven perspective against my own, I outline the following hypotheses and test them using a sample of both government-owned and commercial newspapers. Hypotheses on Media’s Home Bias The two explanations above suggest the existence of home bias in the media but diverge on the sources of this bias. The two pressures may influence media concurrently, which makes it difficult to isolate one source from another, but the degree of influence should vary, depending on the relative strength of car purchases, which benefit the FIAT group that had controlled two national newspapers in Italy (Besley and Prat 2006, 721). When governments have direct means of media control, such influence tends to occur more directly. For instance, the Chinese government arranged its media conglomerations to ensure the growth of more complaint media outlets. By allowing some party papers to merge with others to form a conglomerate, sometimes through forced decisions, the government conferred a competitive edge, and oftentimes monolithic power, to these papers (Stockmann 2013, 57-8). 956 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:05, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000242
Media Bias against Foreign Firms as a Veiled Trade Barrier each source.I delineate observable implications from ibility deficit"is more likely to be found in their cov- the two perspectives:one that attributes home bias erage of government policies or foreign affairs (where to government influence,and the other that points to the pro-government tendency is more obvious),rather reader preferences as the primary source of home bias. than in their coverage of commercial products.More- My argument is centered on governments'protec- over,recent findings suggest that tightly controlled me- tionist incentives as a driver of media bias.The pres- dia are deemed highly credible by Chinese citizens ence of government-driven bias does not necessarily even when their potential slant is recognized(Zhang. imply the lack of demand-driven bias,but we should Zhou,and Shen 2014;Truex 2016).5 From this discus- expect a different pattern of bias across different news- sion,we can infer that governments would,on balance. papers when governments exert significant influence find it beneficial enough to use government-controlled on home bias,compared to cases when such influence media when they seek to achieve protectionist goals is limited.In the former case,where government in- through media control.We can thus draw the following fluence is an important driver of media bias,media hypothesis based on the expected costs and benefits of outlets under tighter government control would be ex controlling the two types of media: pected to exhibit more bias.But in the latter case, where nationalist sentiment is the principal driver of Hypothesis 1.(Government-driven bias.)Government- media's home bias,commercial newspapers should ex- controlled newspapers are more likely than nongovernment hibit more bias than government-controlled media due media to exhibit bias in favor of domestic companies to the former's profit structure. I expect more bias in government-controlled news- Alternatively,the media's home bias may reflect papers,because the costs of controlling those papers popular discontent toward foreign companies.If are significantly lower than those for controlling economic nationalism represents the main source commercial newspapers.When media outlets are of media's home bias,we should expect commercial financially dependent on or directly owned by the media to exhibit a greater degree of home bias 4r元 government,they have incentives to represent govern- than government-controlled media.As commercial ment interests through their news reporting.In many newspapers are more reliant on circulation numbers cases,top-level editors and managers of newspapers, and advertising sales than government-controlled appointed by the government,tend to have similar media.they have stronger incentives to satisfy reader perspectives on the broad direction of government demand.Thus,commercial newspapers would be more policy.The government can thus easily persuade like- likely to slant their contents against foreign companies minded individuals to publish news stories according to when anti-globalization sentiments are prevalent its guidelines.Even when these individuals personally among their readers.On the other hand,government- disagree with a specific government directive,they are controlled newspapers have weaker incentives to slant under greater pressure to follow the directive because news stories according to popular discontent.They the government has direct influence over their career may exhibit bias to pander to nationalist sentiments, prospects.Commercial newspapers,on the other hand. but only when doing so is congruent with government have far less financial or career incentives to follow interests.From this discussion,we can draw the government directives. following hypothesis. Moreover,the government may expect significant benefits from influencing government-controlled me- Hypothesis 2.(Demand-driven bias.)Commercial newspa- dia.The effects of home bias are larger when the pers are more likely than government-controlled newspa- source has a broader readership and is regarded as pers to exhibit bias in favor of domestic companies. more credible by readers.In terms of readership,a few government-controlled newspapers (e.g.,Refer- These two hypotheses can be tested by comparing ence News and People's Daily)enjoy the largest circu- the degree of bias exhibited by each type of newspaper. lation in China.While regional party papers are often An empirical finding of greater bias in government- less dominant than commercial newspapers in many controlled newspapers would be consistent with the regions,they have nevertheless managed to maintain first hypothesis,indicating a strong presence of gov- fairly broad readership,despite the tradeoff between ernment influence.With commercial newspapers as the level of political bias and the size of readership. a baseline for comparison,the difference in the de- They are made freely available at government de- gree of bias can be attributed to the effects of gov- ernment influence.Yet,this is based on the assump- 四 partments,SOEs,and factories,which improves their brand recognition and circulation.In terms of credibil- tion that government-controlled newspapers are no ity,government-controlled media are not significantly disadvantaged compared to commercial media.While These findings should be taken with caution,given other studies government-controlled media are expected to be less finding the opposite pattern (Stockmann 2013).Nevertheless,the contradictory findings from different studies suggest that neither credible due to their well-known biases.such a"cred- government-controlled nor commercial media enjoy a significant ad- vantage in terms of credibility,at least regarding issue areas where the expectation of pro-government bias is not pronounced.While the Qin,Stromberg,and Wu's(2016)analysis of the Chinese media government may exert greater effort to induce bias in commercial market finds a negative association between political bias and adver- newspapers,expecting greater benefits,such benefits would have to tising revenues,which suggests the elasticity of readers to politically be sufficiently high to offset the high costs of capturing commercial biased content. media. 957
Media Bias against Foreign Firms as a Veiled Trade Barrier each source. I delineate observable implications from the two perspectives: one that attributes home bias to government influence, and the other that points to reader preferences as the primary source of home bias. My argument is centered on governments’ protectionist incentives as a driver of media bias. The presence of government-driven bias does not necessarily imply the lack of demand-driven bias, but we should expect a different pattern of bias across different newspapers when governments exert significant influence on home bias, compared to cases when such influence is limited. In the former case, where government influence is an important driver of media bias, media outlets under tighter government control would be expected to exhibit more bias. But in the latter case, where nationalist sentiment is the principal driver of media’s home bias, commercial newspapers should exhibit more bias than government-controlled media due to the former’s profit structure. I expect more bias in government-controlled newspapers, because the costs of controlling those papers are significantly lower than those for controlling commercial newspapers. When media outlets are financially dependent on or directly owned by the government, they have incentives to represent government interests through their news reporting. In many cases, top-level editors and managers of newspapers, appointed by the government, tend to have similar perspectives on the broad direction of government policy. The government can thus easily persuade likeminded individuals to publish news stories according to its guidelines. Even when these individuals personally disagree with a specific government directive, they are under greater pressure to follow the directive because the government has direct influence over their career prospects. Commercial newspapers, on the other hand, have far less financial or career incentives to follow government directives. Moreover, the government may expect significant benefits from influencing government-controlled media. The effects of home bias are larger when the source has a broader readership and is regarded as more credible by readers. In terms of readership, a few government-controlled newspapers (e.g., Reference News and People’s Daily) enjoy the largest circulation in China. While regional party papers are often less dominant than commercial newspapers in many regions, they have nevertheless managed to maintain fairly broad readership, despite the tradeoff between the level of political bias and the size of readership.5 They are made freely available at government departments, SOEs, and factories, which improves their brand recognition and circulation. In terms of credibility, government-controlled media are not significantly disadvantaged compared to commercial media. While government-controlled media are expected to be less credible due to their well-known biases, such a “cred- 5 Qin, Strömberg, and Wu’s (2016) analysis of the Chinese media market finds a negative association between political bias and advertising revenues, which suggests the elasticity of readers to politically biased content. ibility deficit” is more likely to be found in their coverage of government policies or foreign affairs (where the pro-government tendency is more obvious), rather than in their coverage of commercial products. Moreover, recent findings suggest that tightly controlled media are deemed highly credible by Chinese citizens even when their potential slant is recognized (Zhang, Zhou, and Shen 2014; Truex 2016).6 From this discussion, we can infer that governments would, on balance, find it beneficial enough to use government-controlled media when they seek to achieve protectionist goals through media control.We can thus draw the following hypothesis based on the expected costs and benefits of controlling the two types of media: Hypothesis 1. (Government-driven bias.) Governmentcontrolled newspapers are more likely than nongovernment media to exhibit bias in favor of domestic companies. Alternatively, the media’s home bias may reflect popular discontent toward foreign companies. If economic nationalism represents the main source of media’s home bias, we should expect commercial media to exhibit a greater degree of home bias than government-controlled media. As commercial newspapers are more reliant on circulation numbers and advertising sales than government-controlled media, they have stronger incentives to satisfy reader demand. Thus, commercial newspapers would be more likely to slant their contents against foreign companies when anti-globalization sentiments are prevalent among their readers. On the other hand, governmentcontrolled newspapers have weaker incentives to slant news stories according to popular discontent. They may exhibit bias to pander to nationalist sentiments, but only when doing so is congruent with government interests. From this discussion, we can draw the following hypothesis. Hypothesis 2.(Demand-driven bias.) Commercial newspapers are more likely than government-controlled newspapers to exhibit bias in favor of domestic companies. These two hypotheses can be tested by comparing the degree of bias exhibited by each type of newspaper. An empirical finding of greater bias in governmentcontrolled newspapers would be consistent with the first hypothesis, indicating a strong presence of government influence. With commercial newspapers as a baseline for comparison, the difference in the degree of bias can be attributed to the effects of government influence. Yet, this is based on the assumption that government-controlled newspapers are no 6 These findings should be taken with caution, given other studies finding the opposite pattern (Stockmann 2013). Nevertheless, the contradictory findings from different studies suggest that neither government-controlled nor commercial media enjoy a significant advantage in terms of credibility, at least regarding issue areas where the expectation of pro-government bias is not pronounced.While the government may exert greater effort to induce bias in commercial newspapers, expecting greater benefits, such benefits would have to be sufficiently high to offset the high costs of capturing commercial media. 957 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:05, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000242
Sung Eun Kim more sensitive to demand-side pressures than com- event involving a certain party would indicate its bias mercial newspapers.This is a reasonable assumption toward that party.When a newspaper is found to dis- as government-controlled newspapers are no more re- criminate between domestic and foreign firms in its re liant on reader demand than commercial newspapers, porting of otherwise similar recall events,one can con- and readers of official newspapers are no more na- sider it as evidence of bias.Auto recalls are particularly tionalistic than those of commercial newspapers,as well suited to this study's purpose because they happen will be elaborated later in the section on different frequently and get more media attention than other readership.Contrary to the first potential outcome, product recalls,allowing an empirical examination of an empirical finding of greater bias in commercial reporting patterns over various time periods.I also ex- newspapers would provide support for the second hy- amine the intensity and the tone of news reporting on op//s pothesis.In this case,the difference in the degree of auto recalls as supplementary measures. bias would be attributable to demand-side pressures, given that commercial newspapers are no more subject to government pressure than government-controlled Empirical Scope:News Coverage by newspapers Chinese Newspapers I examine the degree of home bias exhibited by EMPIRICAL STRATEGY the Chinese news media.The empirical focus on China provides unique opportunities for exploring the Measuring Media Bias:News Coverage on sources of media's home bias.Newspapers in China Auto Recalls are under the varying degrees of government control while operating within common economic,social and A key consideration in assessing the degree of me- political environment.All newspapers in China are ul- dia bias is to establish an objective benchmark for timately under state control.yet the degree of con- unbiased reporting.While it is relatively straightfor- trol varies substantially across newspapers.While of- ward to compare newspapers'favorability toward a ficial newspapers are tightly controlled by party orga- given party,it is challenging to set up the standard by nizations,commercially oriented newspapers enjoy a which a newspaper can be considered as biased and to greater space for news reporting than official papers what extent.Yet,establishing the standard is impera- (Stockmann 2013,68-73).Also,the highly localized na- tive because this article aims to assess the degree of ture of the Chinese news industry enables a subna- home bias exhibited by newspapers,rather than simply tional comparison of news reporting.All regional gov- comparing their favorability toward domestic versus ernments have their own official newspapers as well foreign firms as commercial newspapers operating in their localities. I address this challenge by examining a newspaper's These local governments differ in their level of inter- selective reporting behavior:How likely is a newspaper ests in the automobile industry,which allows me to pin 是 to cover the story when a similar type of negative or down the effects of governmental economic interests positive event affects a domestic versus a foreign firm? on news reporting. While an unbiased newspaper would be equally likely In essence,my empirical strategy has three basic to cover negative or positive events involving domestic components:I compare news coverage of auto re- or foreign firms,a newspaper with a home bias might calls (1)by foreign versus domestic producers,(2) selectively omit coverage of negative events affecting across official and commercial newspapers operating in domestic firms while covering positive events,and vice the same province,and(3)across provinces with and versa for foreign firms.It is worth emphasizing that the without their own automotive state-owned enterprises events that serve as a basis for comparison should be (SOEs).By comparing news coverage of foreign ver- similar to each other.Otherwise.one cannot determine sus domestic car recalls,I examine the effects of being whether the difference in reporting pattern is due to foreign while controlling for the type of news content bias or other characteristics of the events,unless they Newspapers may vary with respect to the types of news are adequately accounted for. content (e.g.,hard news versus soft news),but I focus Based on these considerations,I assess the degree on one type of recall-related news and compare a given of home bias by examining the frequency of news re- newspaper's relative tendency to cover foreign versus porting devoted to domestic car recalls relative to for- domestic recalls.Further,I examine the effects of gov- eign ones.Product recalls have obvious negative im- ernment influence by comparing official and commer- 四 plications for the quality of the products in question, cial newspapers.In so doing.I can effectively control and their characteristics are comparable across differ- for other national-or regional-level sources of bias be- ent cases.A newspaper's omission of such a negative cause the sample includes both official and commer- cial newspapers in the same province.Lastly,I compare 7 In either case.empirical support for a given hypothesis does not entirely rule out the possibility of the alternative factor.A find- Even when a newspaper tends to report less on domestic recalls ing consistent with the first hypothesis would not necessarily imply than other newspapers due to its focus on soft news than hard news. the absence of demand-side influence,because commercial newspa- the newspaper is not considered as biased in my analysis as long as pers may still exhibit bias,just to a lesser extent than government- the newspaper does not discriminate domestic and foreign compa- controlled newspapers.Similarly,empirical support for the second nies.The newspaper is considered as biased against foreign compa hypothesis would indicate limited government influence,but only nies only when they report more on foreign recalls relative to domes- relative to demand-side influence. tic recalls. 958
Sung Eun Kim more sensitive to demand-side pressures than commercial newspapers. This is a reasonable assumption as government-controlled newspapers are no more reliant on reader demand than commercial newspapers, and readers of official newspapers are no more nationalistic than those of commercial newspapers, as will be elaborated later in the section on different readership. Contrary to the first potential outcome, an empirical finding of greater bias in commercial newspapers would provide support for the second hypothesis. In this case, the difference in the degree of bias would be attributable to demand-side pressures, given that commercial newspapers are no more subject to government pressure than government-controlled newspapers.7 EMPIRICAL STRATEGY Measuring Media Bias: News Coverage on Auto Recalls A key consideration in assessing the degree of media bias is to establish an objective benchmark for unbiased reporting. While it is relatively straightforward to compare newspapers’ favorability toward a given party, it is challenging to set up the standard by which a newspaper can be considered as biased and to what extent. Yet, establishing the standard is imperative because this article aims to assess the degree of home bias exhibited by newspapers, rather than simply comparing their favorability toward domestic versus foreign firms. I address this challenge by examining a newspaper’s selective reporting behavior:How likely is a newspaper to cover the story when a similar type of negative or positive event affects a domestic versus a foreign firm? While an unbiased newspaper would be equally likely to cover negative or positive events involving domestic or foreign firms, a newspaper with a home bias might selectively omit coverage of negative events affecting domestic firms while covering positive events, and vice versa for foreign firms. It is worth emphasizing that the events that serve as a basis for comparison should be similar to each other. Otherwise, one cannot determine whether the difference in reporting pattern is due to bias or other characteristics of the events, unless they are adequately accounted for. Based on these considerations, I assess the degree of home bias by examining the frequency of news reporting devoted to domestic car recalls relative to foreign ones. Product recalls have obvious negative implications for the quality of the products in question, and their characteristics are comparable across different cases. A newspaper’s omission of such a negative 7 In either case, empirical support for a given hypothesis does not entirely rule out the possibility of the alternative factor. A finding consistent with the first hypothesis would not necessarily imply the absence of demand-side influence, because commercial newspapers may still exhibit bias, just to a lesser extent than governmentcontrolled newspapers. Similarly, empirical support for the second hypothesis would indicate limited government influence, but only relative to demand-side influence. event involving a certain party would indicate its bias toward that party. When a newspaper is found to discriminate between domestic and foreign firms in its reporting of otherwise similar recall events, one can consider it as evidence of bias. Auto recalls are particularly well suited to this study’s purpose because they happen frequently and get more media attention than other product recalls, allowing an empirical examination of reporting patterns over various time periods. I also examine the intensity and the tone of news reporting on auto recalls as supplementary measures. Empirical Scope: News Coverage by Chinese Newspapers I examine the degree of home bias exhibited by the Chinese news media. The empirical focus on China provides unique opportunities for exploring the sources of media’s home bias. Newspapers in China are under the varying degrees of government control, while operating within common economic, social and political environment. All newspapers in China are ultimately under state control, yet the degree of control varies substantially across newspapers. While official newspapers are tightly controlled by party organizations, commercially oriented newspapers enjoy a greater space for news reporting than official papers (Stockmann 2013, 68–73).Also, the highly localized nature of the Chinese news industry enables a subnational comparison of news reporting. All regional governments have their own official newspapers as well as commercial newspapers operating in their localities. These local governments differ in their level of interests in the automobile industry, which allows me to pin down the effects of governmental economic interests on news reporting. In essence, my empirical strategy has three basic components: I compare news coverage of auto recalls (1) by foreign versus domestic producers, (2) across official and commercial newspapers operating in the same province, and (3) across provinces with and without their own automotive state-owned enterprises (SOEs). By comparing news coverage of foreign versus domestic car recalls, I examine the effects of being foreign while controlling for the type of news content. Newspapers may vary with respect to the types of news content (e.g., hard news versus soft news), but I focus on one type of recall-related news and compare a given newspaper’s relative tendency to cover foreign versus domestic recalls.8 Further, I examine the effects of government influence by comparing official and commercial newspapers. In so doing, I can effectively control for other national- or regional-level sources of bias because the sample includes both official and commercial newspapers in the same province. Lastly, I compare 8 Even when a newspaper tends to report less on domestic recalls than other newspapers due to its focus on soft news than hard news, the newspaper is not considered as biased in my analysis as long as the newspaper does not discriminate domestic and foreign companies. The newspaper is considered as biased against foreign companies only when they report more on foreign recalls relative to domestic recalls. 958 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:05, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000242