Using a novel DEA-based model to investigate capacity utilization of Chinese firms

Chinese steel and iron industry has encountered a series of problems such as overcapacity after the phase of asset accumulation and technical improvement. To fully address the issue of the capacity utilization (CU) measurement considering the possibility of changing the quasi-fixed input, we propose a novel DEA-based method in which the reduction of the fixed input is in line with the intention of the Chinese government to remove backward capacity in an intermediate run concept. Meanwhile, three alternative input utilization indicators are clearly categorized and provide information on individual performance and the utilization of quasi-fixed input. An illustrative case study of 48 Chinese steel and iron firms is conducted to examine their CU over the period of 2009-2013. The empirical results indicate that the sample firms made better use of their resources during the investigated period, and the regional investment indicators possess statistically significant positive or negative correlation on CU values. A comparative study with an existing model also demonstrates the validity of the proposed model. On the basis of the above findings, relevant policy implications and suggestions are proposed to support the policymaking in Chinese steel and iron firms or industry.