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Limitations and Negative Results of Investment Regulation Policies

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  • Jiang Feitao
  • Chen Weigang
  • Huang Jianbai

Abstract

This article systematically studies investment regulation policies adopted after 1994 to prevent overcapacity in the Chinese iron and steel industry. Theoretical analysis shows that these policies have three major limitations: they cannot fundamentally govern overcapacity; they cannot be used by policymakers to make accurate predictions or formulate acceptable investment plans; they may disturb the market process and lead to negative policy results. Reviews of policy predictions show that there has always been a large difference between iron and steel industry policy forecasts and plans for investment regulation and market realities. A Hodrick-Prescott filter analysis of the effects of these policies on fixed-asset investment in the industry further reveals that the policies obstruct self-adjustment of fixed-asset investment in the market, leading to negative policy results. Policies of these types should be adopted with great caution.

Suggested Citation

  • Jiang Feitao & Chen Weigang & Huang Jianbai, 2010. "Limitations and Negative Results of Investment Regulation Policies," Chinese Economy, Taylor & Francis Journals, vol. 43(4), pages 30-48, July.
    • Handle: RePEc:mes:chinec:v:43:y:2010:i:4:p:30-48
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