Media Bias against Foreign Firms as a Veiled Trade Barrier official newspapers in regions with and without auto agency,the Xinhua News Agency.I exclude newspa- SOEs to uncover the effects of economic interests on pers with a narrow scope,such as International Finance media's home bias.This comparison also helps in miti- News or China Construction Newspaper.I also restrict gating the potential issue of merely comparing official the sample to daily newspapers since nondailies tend and commercial newspapers that may vary in their re- to have different reporting patterns.12 porting patterns. For all newspapers,I collected their ownership in- formation and classified them into two categories:offi- Data cial newspapers and nonofficial newspapers.3 Official newspapers are owned and strictly controlled by party I utilize an original dataset containing information on committees at different administrative levels.CCP divi- 472 auto recalls announced in China and news reports sions,or party-sponsored mass organizations.They rely on these recalls by 121 newspapers. on indirect government subsidies through mandatory subscription by government departments,government- Auto Recalls.I collected information on passenger affiliated organizations,and SOEs,and are consumed car recalls announced in China between 2005 and in offices,classrooms,and factories.Nonofficial news- 2013,including the name of the manufacturer,the es- papers include evening newspapers that are allowed timated number of affected cars,and the reason for more managerial autonomy despite sponsorship from recall.I classified recalls into three categories accord- party committees,as well as commercial newspapers ing to the manufacturer:domestic,joint venture,or for- that are subsidiaries of other newspapers or press eign.The joint-venture category,accounting for 26%of groups.Nonofficial newspapers are distinguished from passenger car recalls,includes cars produced in China official newspapers by their reliance on advertising rev- by foreign investors in partnership with Chinese com- enues and street vendors for circulation.They also have panies(foreign automakers investing in China are al- greater editorial autonomy than official newspapers,as owed to produce vehicles only through a 50-50 split shown in Qin,Stromberg,and Wu's(2016)study on po- 4号 ownership with Chinese partners).The foreign cate- litical bias of Chinese newspapers.The list of newspa- gory,accounting for 62%of recalls,exclusively cap- pers along with their classification is available in Ap- 'asn tures imported vehicles produced abroad by foreign pendix Table A2. automakers.10 Table Al in the Appendix compares the I then collected newspaper articles published by characteristics of recalls across the three types of man- these newspapers that mention an auto recall event,14 ufacturers. and constructed the dataset with newspaper recall as A particularly high share of recalls for the imported a unit of observation.For each observation.I created category is notable especially given their limited mar- a binary indicator Report,scored as 1 if a newspa- ket share in China.While systematic information on per published an article on a given recall event within the recall process is unavailable,foreign firms might be two weeks of the recall announcement and 0 other 是 under higher pressure to recall their products than do- wise,matching the name of the newspaper,the name mestic firms due to uneven enforcement of the quality of the automaker,the date of publication and the date control.My analysis cannot control for unobservable of recall. discrimination in the recall process.but the existence of Table 1 provides an overview of auto-recall report- such discrimination would indicate that recalls of im- ing patterns by official and nonofficial newspapers ported products involve less serious problems.which across different types of recalls.On average,official should receive less media attention.This implies that newspapers tend to write recall-related articles less fre- my estimates of home bias would be a lower estimate quently (13.0%)than nonofficial newspapers (15.6%). of the true effects of home bias. Reporting patterns also vary widely across different Newspapers.I examine news coverage of 121 daily general-interest newspapers,including the state press 12 I include all 120 daily general-interest newspapers available at WiseNews,which provides access to 120 general-interest and 216 spe- cialized newspapers in China.While not covering all Chinese news- Information on recall announcements in China is available at www. papers,it is the most comprehensive Chinese news database.For in qiche365.org.cn from June 2004,after the Provision on Regulations stance,among 35 newspapers listed to operate in Beijing in the 2011 on Defective Automobile Products Recall was introduced in March Chinese Journalism Yearbook,7 are daily general-interest newspa- cassify recalls announced by a joint-venture producer in the pers,all of which are included in the database.While WiseNews cov- ers the whole period under examination(2005-13),my data cover- foreign producer category when the recall announcement explicitly age is necessarily limited to a shorter period when WiseNews's sub. states that the recalled cars are imported ones.This is when the scription to a particular newspaper starts later than 2005 or ends domestic-foreign joint automakers are in charge of recalling cars pro- earlier than 2013.This dataset covers 29 provinces,province-level duced by foreign automakers and then imported to China. municipalities,and autonomous regions,excluding Macau,Guizhou 11 Recalls in China are initiated in response to consumer com- Province,the Inner Mongolia Autonomous Region,and the Tibet plaints to carmakers or the government agency.Industry experts Autonomous Region.The articles by Xinhua News Agency were col- suggest that domestic carmakers are reluctant to publicly an- ed through Factivd. nounce their recalls through the agency and may have "an in- Sponsorship information is from the 2006 Chinese Newspaper side track in fending off pressure from consumers and govern- Directory. ment quality inspectors."See Charles Clover and Sherry Fei Ju," 14 I searched for all newspaper articles that include the word "re- China Car Recalls Tilt Heavily towards Foreign Brands,"Finan call"(zhaohi)in the headline,returning more than 40,000 articles.I cial Times.April 18.2017 available at https://www.ft.com/content/ excluded irrelevant articles that involved nonauto product recalls or 94e6c28a-20c9-11e7-a454-ab04428977f9. that featured the word "recall"in other contexts. 959
Media Bias against Foreign Firms as a Veiled Trade Barrier official newspapers in regions with and without auto SOEs to uncover the effects of economic interests on media’s home bias. This comparison also helps in mitigating the potential issue of merely comparing official and commercial newspapers that may vary in their reporting patterns. Data I utilize an original dataset containing information on 472 auto recalls announced in China and news reports on these recalls by 121 newspapers. Auto Recalls. I collected information on passenger car recalls announced in China between 2005 and 2013,9 including the name of the manufacturer, the estimated number of affected cars, and the reason for recall. I classified recalls into three categories according to the manufacturer: domestic, joint venture, or foreign. The joint-venture category, accounting for 26% of passenger car recalls, includes cars produced in China by foreign investors in partnership with Chinese companies (foreign automakers investing in China are allowed to produce vehicles only through a 50-50 split ownership with Chinese partners). The foreign category, accounting for 62% of recalls, exclusively captures imported vehicles produced abroad by foreign automakers.10 Table A1 in the Appendix compares the characteristics of recalls across the three types of manufacturers. A particularly high share of recalls for the imported category is notable especially given their limited market share in China. While systematic information on the recall process is unavailable, foreign firms might be under higher pressure to recall their products than domestic firms due to uneven enforcement of the quality control.11 My analysis cannot control for unobservable discrimination in the recall process, but the existence of such discrimination would indicate that recalls of imported products involve less serious problems, which should receive less media attention. This implies that my estimates of home bias would be a lower estimate of the true effects of home bias. Newspapers. I examine news coverage of 121 daily general-interest newspapers, including the state press 9 Information on recall announcements in China is available at www. qiche365.org.cn from June 2004, after the Provision on Regulations on Defective Automobile Products Recall was introduced in March 2004. 10 I classify recalls announced by a joint-venture producer in the foreign producer category when the recall announcement explicitly states that the recalled cars are imported ones. This is when the domestic-foreign joint automakers are in charge of recalling cars produced by foreign automakers and then imported to China. 11 Recalls in China are initiated in response to consumer complaints to carmakers or the government agency. Industry experts suggest that domestic carmakers are reluctant to publicly announce their recalls through the agency and may have “an inside track in fending off pressure from consumers and government quality inspectors.” See Charles Clover and Sherry Fei Ju, “ China Car Recalls Tilt Heavily towards Foreign Brands,” Financial Times, April 18, 2017, available at https://www.ft.com/content/ 94e6c28a-20c9-11e7-a454-ab04428977f9. agency, the Xinhua News Agency. I exclude newspapers with a narrow scope, such as International Finance News or China Construction Newspaper. I also restrict the sample to daily newspapers since nondailies tend to have different reporting patterns.12 For all newspapers, I collected their ownership information and classified them into two categories: official newspapers and nonofficial newspapers.13 Official newspapers are owned and strictly controlled by party committees at different administrative levels,CCP divisions, or party-sponsored mass organizations. They rely on indirect government subsidies through mandatory subscription by government departments, governmentaffiliated organizations, and SOEs, and are consumed in offices, classrooms, and factories. Nonofficial newspapers include evening newspapers that are allowed more managerial autonomy despite sponsorship from party committees, as well as commercial newspapers that are subsidiaries of other newspapers or press groups. Nonofficial newspapers are distinguished from official newspapers by their reliance on advertising revenues and street vendors for circulation.They also have greater editorial autonomy than official newspapers, as shown in Qin, Strömberg, and Wu’s (2016) study on political bias of Chinese newspapers. The list of newspapers along with their classification is available in Appendix Table A2. I then collected newspaper articles published by these newspapers that mention an auto recall event,14 and constructed the dataset with newspaper recall as a unit of observation. For each observation, I created a binary indicator Report, scored as 1 if a newspaper published an article on a given recall event within two weeks of the recall announcement and 0 otherwise, matching the name of the newspaper, the name of the automaker, the date of publication and the date of recall. Table 1 provides an overview of auto-recall reporting patterns by official and nonofficial newspapers across different types of recalls. On average, official newspapers tend to write recall-related articles less frequently (13.0%) than nonofficial newspapers (15.6%). Reporting patterns also vary widely across different 12 I include all 120 daily general-interest newspapers available at WiseNews,which provides access to 120 general-interest and 216 specialized newspapers in China. While not covering all Chinese newspapers, it is the most comprehensive Chinese news database. For instance, among 35 newspapers listed to operate in Beijing in the 2011 Chinese Journalism Yearbook, 7 are daily general-interest newspapers, all of which are included in the database. While WiseNews covers the whole period under examination (2005–13), my data coverage is necessarily limited to a shorter period when WiseNews’s subscription to a particular newspaper starts later than 2005 or ends earlier than 2013. This dataset covers 29 provinces, province-level municipalities, and autonomous regions, excluding Macau, Guizhou Province, the Inner Mongolia Autonomous Region, and the Tibet Autonomous Region. The articles by Xinhua News Agency were collected through Factiva. 13 Sponsorship information is from the 2006 Chinese Newspaper Directory. 14 I searched for all newspaper articles that include the word “recall” (zhaohui) in the headline, returning more than 40,000 articles. I excluded irrelevant articles that involved nonauto product recalls or that featured the word “recall” in other contexts. 959 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 TABLE 1.Summary Statistics of Auto-Recall Reporting Official Newspapers Nonofficial Newspapers Min Mean Max. Min. Mean Max. Total 0.0% 13.0% 66.1% 0.0% 15.6% 61.7% By Recall Size and Manufacturer Small-Scale Recalls (#10,000) Domestic 0.0% 10.0% 57.6% 0.0% 12.1% 63.6% Joint Venture 0.0% 11.7% 59.6% 0.0% 16.2% 57.9% Foreign 0.0% 12.2% 66.9% 0.0% 13.3% 62.4% Large-Scale Recalls(#>10,000) Domestic 0.0% 11.2% 45.5% 0.0% 16.0% 59.1% Joint Venture 0.0% 18.5% 77.8% 0.0% 23.5% 80.0% Foreign 0.0% 21.6% 100.0% 0.0% 27.6% 100.0% By Recall Type Electrical System 0.0% 13.8% 68.5% 0.0% 17.4% 64.0% Engine 0.0% 13.1% 65.1% 0.0% 14.8% 64.2% Steering 0.0% 12.9% 67.6% 0.0% 15.5% 62.2% Brake 0.0% 13.8% 65.3% 0.0% 14.7% 68.8% Note:Entries indicate the statistics for the proportion of recalls covered by a newspaper out of all recalls. The statistics are based on the observations of 121 newspapers. types of recalls.Large-scale recalls receive more me- EMPIRICAL ANALYSIS dia attention than small-scale recalls across newspa- & pers.Reasons for recalls(e.g.,defects in engine,steer- Media Bias against Foreign Firms: ing,or electrical system)may also account for some Government-Driven versus Demand-Driven variations in the reporting pattern.On the crucial ques- tion of whether newspapers distinguish between do- I first examine whether newspapers are more likely to mestic and foreign automakers,both official and nonof- cover recalls involving foreign automakers than recalls ficial newspapers seem to pay more attention to recalls involving domestic ones.In this analysis,the dependent by foreign automakers than the ones by domestic or variable Yikr is a binary indicator Report that is coded joint-venture producers.For the case of large-scale re- 1 if the newspaper i located in a province j published calls,official newspapers report 11.2%of domestic car a news story about the recall event k announced in a recalls on average,but the figure is double for foreign time periodt,and 0 otherwise.I use the binary indicator car recalls (21.6%).Likewise,nonofficial newspapers because most recall events are covered only once by 235.5010 on average report more on foreign car recalls(276%) each newspaper.The binary probit models are specified than domestic ones (16.0%). as follows: This comparison between official and nonofficial newspapers may lead one to conclude that both types Pr(Yijk =1)=(a+B Foreignk B2Officiali of newspapers exhibit bias toward domestic compa- nies by underreporting their recalls.Nonetheless,a few +B3Official*Foreignik considerations should be made prior to drawing such +8Zk+4j+), a conclusion.First,one should account for confound- ing factors (e.g.,severity of recalls,reasons for recalls, where Foreign is a binary indicator for imported for- or temporal trend)that may explain such underreport- eign cars;Official is a binary indicator for official ing of domestic recalls.These factors may account for newspapers;vector Z denotes recall-level control vari- the seeming domestic-foreign distinction by either or ables;u is a vector of province fixed effects;and r both types of newspapers.The next section will exam- is a vector of half-year fixed effects.In construct- ine which type of newspapers exhibit a biased tendency, ing the binary indicator Foreign,I treat both do- if any,even when these factors are controlled.Second, mestic firms and domestic-foreign joint ventures as one should note the substantial variation of reporting nonforeign automakers because domestic companies patterns even within the same type of newspapers.As have at least a 50%stake in the operation of joint will be discussed,some official newspapers have a sig- ventures.15 nificantly greater incentive to protect the domestic au- The main parameters of interest are B1,the coeffi- tomobile industry than other official newspapers.The cient for Foreign,denoting a degree of bias exhibited by next section will examine whether such a difference commercial newspapers,and B3,the coefficient for the in protectionist incentives can account for reporting patterns across official newspapers,in a way consistent with the theoretical expectation. 15 I also estimate the models separating purely domestic companies from joint-venture companies,as presented in Appendix Table A17 960
Sung Eun Kim TABLE 1. Summary Statistics of Auto-Recall Reporting Official Newspapers Nonofficial Newspapers Min. Mean Max. Min. Mean Max. Total 0.0% 13.0% 66.1% 0.0% 15.6% 61.7% By Recall Size and Manufacturer Small-Scale Recalls (# < 10,000) Domestic 0.0% 10.0% 57.6% 0.0% 12.1% 63.6% Joint Venture 0.0% 11.7% 59.6% 0.0% 16.2% 57.9% Foreign 0.0% 12.2% 66.9% 0.0% 13.3% 62.4% Large-Scale Recalls (# > 10,000) Domestic 0.0% 11.2% 45.5% 0.0% 16.0% 59.1% Joint Venture 0.0% 18.5% 77.8% 0.0% 23.5% 80.0% Foreign 0.0% 21.6% 100.0% 0.0% 27.6% 100.0% By Recall Type Electrical System 0.0% 13.8% 68.5% 0.0% 17.4% 64.0% Engine 0.0% 13.1% 65.1% 0.0% 14.8% 64.2% Steering 0.0% 12.9% 67.6% 0.0% 15.5% 62.2% Brake 0.0% 13.8% 65.3% 0.0% 14.7% 68.8% Note: Entries indicate the statistics for the proportion of recalls covered by a newspaper out of all recalls. The statistics are based on the observations of 121 newspapers. types of recalls. Large-scale recalls receive more media attention than small-scale recalls across newspapers. Reasons for recalls (e.g., defects in engine, steering, or electrical system) may also account for some variations in the reporting pattern.On the crucial question of whether newspapers distinguish between domestic and foreign automakers, both official and nonofficial newspapers seem to pay more attention to recalls by foreign automakers than the ones by domestic or joint-venture producers. For the case of large-scale recalls, official newspapers report 11.2% of domestic car recalls on average, but the figure is double for foreign car recalls (21.6%). Likewise, nonofficial newspapers on average report more on foreign car recalls (27.6%) than domestic ones (16.0%). This comparison between official and nonofficial newspapers may lead one to conclude that both types of newspapers exhibit bias toward domestic companies by underreporting their recalls. Nonetheless, a few considerations should be made prior to drawing such a conclusion. First, one should account for confounding factors (e.g., severity of recalls, reasons for recalls, or temporal trend) that may explain such underreporting of domestic recalls. These factors may account for the seeming domestic-foreign distinction by either or both types of newspapers. The next section will examine which type of newspapers exhibit a biased tendency, if any, even when these factors are controlled. Second, one should note the substantial variation of reporting patterns even within the same type of newspapers. As will be discussed, some official newspapers have a significantly greater incentive to protect the domestic automobile industry than other official newspapers. The next section will examine whether such a difference in protectionist incentives can account for reporting patterns across official newspapers, in a way consistent with the theoretical expectation. EMPIRICAL ANALYSIS Media Bias against Foreign Firms: Government-Driven versus Demand-Driven I first examine whether newspapers are more likely to cover recalls involving foreign automakers than recalls involving domestic ones. In this analysis, the dependent variable Yijkt is a binary indicator Report that is coded 1 if the newspaper i located in a province j published a news story about the recall event k announced in a time period t, and 0 otherwise. I use the binary indicator because most recall events are covered only once by each newspaper.The binary probit models are specified as follows: Pr(Yi jkt = 1) = (α + β1Foreignk + β2Officiali + β3Official*Foreignik + δZk + μj + τt), where Foreign is a binary indicator for imported foreign cars; Official is a binary indicator for official newspapers; vector Z denotes recall-level control variables; μ is a vector of province fixed effects; and τ is a vector of half-year fixed effects. In constructing the binary indicator Foreign, I treat both domestic firms and domestic-foreign joint ventures as nonforeign automakers because domestic companies have at least a 50% stake in the operation of joint ventures.15 The main parameters of interest are β1, the coefficient for Foreign, denoting a degree of bias exhibited by commercial newspapers, and β3, the coefficient for the 15 I also estimate the models separating purely domestic companies from joint-venture companies, as presented in Appendix Table A17. 960 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