Even in a highly controlled environment such as China, media bias is affected by competition and a trade-off between political and economic goals
Free information is essential for many economic activities. However, for political reasons, autocratic governments traditionally monopolise the media to control the flow of information. Modern autocracies, most notably China, seem to chart a different path by tightly controlling political information, while at the same time allowing a competitive media market in other types of information. For example, in China, tightly controlled Party papers such as the People’s Daily focus on political information, while commercial papers focus on entertainment. Some signs suggest that this information-segregation strategy of media has been successful — although constantly ranked among the countries with the lowest degree of press freedom, China has the world’s largest newspaper market and the second largest advertising market. This paradox raises two questions:
- What are the economic costs of the Chinese Communist Party (CCP)’s media control strategy?
- Is the CCP’s information-segregation strategy successful in achieving economic prosperity without sacrificing political control?
In a recent study (Qin et al. 2018), we address these questions by examining the political bias (measured by the amount of government mouthpiece content compared to commercial content) of the Chinese newspapers from 1981 to 2011. Although all general interest newspapers in China are owned by the state, their direct ownership is at the hand of local governments that have strong incentive to produce newspapers that sell. We demonstrate that in such a market, it is impossible to achieve “prosperity without freedom”. In particular, we find that:
- lower-level governments undersupply propaganda relative to a level desired by the central government and proliferate less politically biased newspapers;
- competition between local governments handicaps the media control strategy of aligning the dual politico-economic goal; and
- the markets for political and commercial information cannot be entirely segmented. Hence there is a trade-off between political and economic goals.
These findings have important implications for understanding the role of the media in autocracies and the political-economic trade-off in the Chinese economic reform.
Media bias as a measure of politico-economic trade-off
We measure media bias based on a newspaper’s coverage of government mouthpiece content (political goals) relative to commercial content (economic goals). In particular, we classify a newspaper's coverage of nine topics capturing three broad categories:
- propaganda (mentions of political leaders or citations of the CCP's authoritative news agency),
- politically sensitive or negative information (reporting on corruption, disasters, accidents, and controversial issues that are intensively covered by oppositional overseas Chinese media), and
- commercially oriented content (crime, sports, and entertainment).
We then consolidate these nine types of content into a single-dimensional measure of media bias and apply this measure to 117 general-interest newspapers published in urban areas of mainland China from 1999 to 2010. As shown in Figure 1 below, the bias measure exhibits a strong positive correlation with the newspaper being a Party paper (as opposed to a commercial paper) and a strong negative correlation with predicted advertising revenue. Within the same newspaper market and year, a one-standard-deviation increase in the bias index is associated with a 33% fall in advertising revenues. This suggests that advertisers (readers) are elastic to politically biased content.
Figure 1 Expected advertising revenue and probability to be party daily vs media bias measure
Competition and the failure of market segmentation
As owners of all general interest newspapers, the Chinese government could just produce newspapers without commercial content. However, this strategy would cause newspaper consumption to fall, thereby reducing both advertising revenue and propaganda exposure. It is more effective to achieve the political and economic goals through product differentiation, as observed in China. Specifically, a government produces one highly biased Party paper that exclusively focuses on political goals, and one less-biased commercial paper that largely focuses on economic goals. Such a strategy is analogous to the market-segmentation strategy used by profit-maximising firms to extract the surplus from consumers who differ in their willingness to pay for different brands or quality. We build a simple IO-political economic model that shows that this strategy is optimal to achieve “prosperity without freedom”, but that this is hampered by market competition if demand for the two types of newspapers is not independent.
To test this argument, we explore a drastic reform in which the Chinese central government closed more than 80% of the county-level Party Dailies in 2003 for reasons that were exogenous to the newspapers' decisions (see Figure 2). The exit of these papers reduced the number of competing newspapers in the prefectural markets where prefectural and county governments ran different newspapers. Using a difference-in-differences approach, we find that closing these lower-level Party papers significantly increased the differentiation in the political bias of the higher-level Party and commercial papers, as shown in Figure 3.
Figure 2 Massive exit of county-level newspapers in 2003
Figure 3 Year-by-year effects of reduced competition on product differentiation
Erosion of political goals by lower-level governments
We find evidence that lower-level governments erode the political goals of higher-level governments. Lower-level governments are likely to care less about the political benefits from media bias because, as we theoretically propose, the value of media bias has externalities that are not entirely internalised by lower-level governments. Consistent with this idea, we find that (within the same market, year, and newspaper type) the content of newspapers owned by lower-level governments is less geared towards propaganda.
This difference in valuation between governments at different levels is also visible in newspaper entry patterns. The entry of the first commercial paper produces a political cost by reducing the audience of the pre-existing Party paper and thus the reach of its propaganda. For this reason, we expect the government with the lowest valuation of this political cost to launch the first commercial newspaper. Empirically, we observe that, in 22 of 26 provincial-capital markets where provincial and prefectural governments compete, the prefectural (lower-level) government started the first commercial paper.
We argue that competition between governments facilitates the entry of commercial papers for two reasons. First, market-stealing increases the economic benefits of launching a commercial paper. This implies that a lower-level government facing competitors will enter with a commercial newspaper at a lower level of advertising revenue than if it were a monopolist. Second, the existence of lower-level commercial newspaper will spur the entry of higher-level commercial newspapers, because the political cost of having a commercial paper in the market has already been inflicted. Empirically, we see entry of a higher-level commercial paper immediately after the entry of a lower-level commercial paper in all cases where such entry is possible. The chance of this observed entry pattern under the assumption of random entry is one in 10,000.
The overall findings in our study show that even in a highly controlled environment such as China, market competition plays an important role in reducing audience exposure to propaganda because it shifts the politico-economic trade-off. Consequently, the increasing competition in the Chinese newspaper market has meant that propaganda through the marketplace has become less effective. In response, the Chinese government has altered its media control strategy in recent years. One strategy is to manufacture propaganda on social media platforms, which have more concentrated markets and are directly regulated by the central government.
The difficulty of achieving economic prosperity with strict political control that is illuminated in our study has implications for other areas of the Chinese economy. We relate our measure of media bias to the politico-economic trade-off in other areas of the Chinese economy. As shown in Figure 4, the newspaper bias that we construct, aggregated at the provincial level, is strongly correlated with a pro-market competency index across regions in China (Fan and Wang 2009). The state-owned enterprises, whose dominance in the economy is reflected in the index, are assigned with political goals such as maintaining social stability and protecting the environment, in addition to their economic goals. The trade-off between these goals is affected by factors such as regional competition and economic development, similar to the determinants of media bias in our study.
Figure 4 Media bias and regional competency across Chinese provinces
Notes: SH, GD, and JS (Shanghai, Guangdong, and Jiangshu, respectively) represent the most prosperous provincial newspaper markets in China. Conversely, QH, GS, and NX (Qinghai, Gansu, and Ningxia, respectively) represent the three least-developed newspaper markets.
The insights from our study also help explain some recent economic policies in China. Chinese local governments are often viewed as political entrepreneurs, and the competition among them is an important driver of privatisation and economic growth (Xu 2011). However, in recent years, the Chinese government has steered the economy towards strengthening state-owned enterprises and soothing local competition (Hsieh and Song 2015). In light of our study, the increased competition among local governments is likely to shift the balance towards economic goals. This new course of economic reform may reflect the Chinese government’s endeavours to rebalance the politico-economic trade-off in an increasingly economically competitive but politically stiff environment.
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