The government-business relations: how Chinese business leaders take part in government policy formulation in the National People’s Congress

Abstract To better understand the government-business relations and the governance in China, this study investigates the effects of Chinese business leaders’ membership in the National People’s Congress (NPC) on government subsidy, firm’s strategic change, and labor inefficiency. Our sample consists of 959 firms with business leaders in the 10th and 11th NPC, which account for 88% of the total firms that have business leaders in the NPC. To make a valid comparison, we used various criteria to create a matching sample of 44,894 firms that have no business leaders in the NPC. The results suggest that NPC membership has a positive effect on government subsidy, and negative effects on firm’s strategic change and labor inefficiency. After conducting a post-hoc analysis, we found interesting interaction effects of NPC membership and firm ownership upon firm’s strategic change and labor inefficiency. State-owned firms had stronger negative relationships between NPC membership and strategic change, and between NPC membership and labor inefficiency.