IDEAS home Printed from https://ideas.repec.org/a/sae/emeeco/v12y2020i2p178-198.html
   My bibliography  Save this article

A Study of the Mechanism of Government Intervention on Excess Capacity Through the Enterprise Overinvestment in China

Author

Listed:
  • Biliang Hu
  • Zhiyi Liu
  • Sha Fan

Abstract

This article summarizes government publications focusing on excess capacity from the 1990s to 2016 and argues that the market-oriented principle needs to be established to deal with the long-standing excess capacity issues in China. Based on the specificity of the long-term excess capacity in China, this article puts forward the hypothesis: The excess capacity in China is derived from the enterprise’s overinvestment, and the government intervention is one of the main drivers of the problem. The intervention is actuated by the GDP-based government performance assessment through such means as offering privileges on land use, environmental ignorance, natural resource provision and financial support. This article (a) calculates capacity utilization of 30 manufacturing industries, (b) builds a ‘mediation effect model of overinvestment’, and (c) makes use of the industrial data, economic development data and capacity utilization from 1998 to 2017 to test the hypothesis. The result shows that government intervention indeed has a significant influence on excess capacity. The support for land use and the tolerance for environmental pollution are two of the most persuasive reasons. Therefore, the Chinese government needs to make greater efforts to deepen the market reforms, standardize and improve the factor market so as to accelerate innovation, and push for industrial upgrading.

Suggested Citation

  • Biliang Hu & Zhiyi Liu & Sha Fan, 2020. "A Study of the Mechanism of Government Intervention on Excess Capacity Through the Enterprise Overinvestment in China," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 178-198, May.
    • Handle: RePEc:sae:emeeco:v:12:y:2020:i:2:p:178-198
    DOI: 10.1177/0974910120919347
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0974910120919347
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0974910120919347?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. J. M. Cassels, 1937. "Excess Capacity and Monopolistic Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 51(3), pages 426-443.
    2. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
    3. Nelson, Randy A, 1989. "On the Measurement of Capacity Utilization," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 273-286, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bingqiang Li & Shan Wang & Nannan Dong & Jinzhi Li & Xi Li & He Yu, 2023. "Empirical Analysis of Subsidy Industrial Policy’s Effect on Export Innovation in the Chinese Manufacturing," SAGE Open, , vol. 13(4), pages 21582440231, November.
    2. Jun Liu & Yu Qian & Huihong Chang & Jeffrey Yi-Lin Forrest, 2022. "The Impact of Technology Innovation on Enterprise Capacity Utilization—Evidence from China’s Yangtze River Economic Belt," Sustainability, MDPI, vol. 14(18), pages 1-17, September.
    3. Shi-Woei Lin & Januardi Januardi, 2023. "Two-period pricing and utilization decisions in a dual-channel service-only supply chain," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 31(2), pages 605-635, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. E. Abdul Azeez, 2002. "Economic reforms and industrial performance: An analysis of capacity utilisation in Indian manufacturing," Centre for Development Studies, Trivendrum Working Papers 334, Centre for Development Studies, Trivendrum, India.
    2. Bruno De Borger & Kristiaan Kerstens & Diego Prior & Ignace Van de Woestyne, 2013. "Static efficiency decompositions and capacity utilization: integrating economic and technical capacity notions," Applied Economics, Taylor & Francis Journals, vol. 45(24), pages 3529-3529, August.
    3. Dai, Xiaoyong & Zhao, Zhiqi, 2021. "Can exporting resolve overcapacity? Evidence from Chinese steel companies," Economic Modelling, Elsevier, vol. 102(C).
    4. Subhash C. Ray & Kankana Mukherjee & Yanna Wu, 2006. "Direct And Indirect Measures Of Capacity Utilization: A Non‐Parametric Analysis Of Us Manufacturing," Manchester School, University of Manchester, vol. 74(4), pages 526-548, July.
    5. Shengyu Liu & Heng Yin, 2017. "A Structural Method to Estimate Firm-level Capacity Utilization and Application to Chinese Heavy Industries," Annals of Economics and Finance, Society for AEF, vol. 18(1), pages 1-28, May.
    6. Sarba Priya Ray, 2011. "Economic Efficiency in Indian Rubber Industry," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 5(4), December.
    7. H. Kim, 1999. "Economic Capacity Utilization and its Determinants: Theory and Evidence," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(4), pages 321-339, December.
    8. Sahoo, Biresh K. & Tone, Kaoru, 2009. "Decomposing capacity utilization in data envelopment analysis: An application to banks in India," European Journal of Operational Research, Elsevier, vol. 195(2), pages 575-594, June.
    9. Dale Squires & Kathleen Segerson, 2022. "Capacity and Capacity Utilization in Production Economics," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 24, pages 1001-1037, Springer.
    10. Mohieddine Rahmouni, 2021. "Determinants of capacity utilisation by firms in developing countries: evidence from Tunisia," International Journal of Technological Learning, Innovation and Development, Inderscience Enterprises Ltd, vol. 13(3), pages 212-245.
    11. James Kirkley & Catherine Morrison Paul & Dale Squires, 2002. "Capacity and Capacity Utilization in Common-pool Resource Industries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 71-97, June.
    12. Arnab Deb, 2013. "Economic Reforms, Capacity Utilization, and Productivity Growth in Indian Manufacturing," Alumni working papers 2013-05, University of Connecticut, Department of Economics.
    13. Prior, Diego, 2003. "Long- and short-run non-parametric cost frontier efficiency: An application to Spanish savings banks," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 655-671, April.
    14. Subhash C. Ray & John Walden & Lei Chen, 2018. "Economic Measures of Capacity Utilization: A Nonparametric Cost Function Analysis," Working papers 2018-02, University of Connecticut, Department of Economics.
    15. Kerstens, Kristiaan & Sadeghi, Jafar & Van de Woestyne, Ignace, 2019. "Convex and nonconvex input-oriented technical and economic capacity measures: An empirical comparison," European Journal of Operational Research, Elsevier, vol. 276(2), pages 699-709.
    16. Bassim Shebeb, 2003. "Measuring Capacity Utilization Using A Short-Run Cost Function: An Application to Bahrain Economy," Working Papers 0305, Economic Research Forum, revised 02 2003.
    17. Kamel Helali, 2018. "A New Assessment of the Non-Accelerating Inflation Rate of Unemployment and Capacity Utilization in Tunisia," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 21(68), pages 54-77, June.
    18. Savagar, Anthony & Dixon, Huw, 2020. "Firm entry, excess capacity and endogenous productivity," European Economic Review, Elsevier, vol. 121(C).
    19. Ray, Subhash C. & Walden, John & Chen, Lei, 2021. "Economic measures of capacity utilization: A nonparametric short-run cost function analysis," European Journal of Operational Research, Elsevier, vol. 293(1), pages 375-387.
    20. Balleer, Almut & Noeller, Marvin, 2023. "Monetary policy in the presence of supply constraints: Evidence from German firm-level data," Ruhr Economic Papers 1060, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:emeeco:v:12:y:2020:i:2:p:178-198. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.emergingmarketsforum.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.