Media Bias against Foreign Firms as a Veiled Trade Barrier: Evidence from Chinese Newspapers

Abstract

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.