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Can government procurement improve capacity utilization in enterprises? Evidence from China

Author

Listed:
  • Xiaoping Li
  • Muci Yan
  • Xiaohang Ren
  • Farhad Taghizadeh-Hesary

Abstract

The ability of government procurement (GP) to influence capacity utilization (CU) is an issue that needs to be studied to resolve overcapacity. Therefore, we investigate the impact and mechanisms of GP on CU of enterprises by utilizing data from Chinese listed companies’ and GP contracts from 2015 to 2022. Our findings indicate that GP significantly enhances CU, with a more pronounced effect observed in private enterprises, capital-intensive firms, highly competitive industries, and the eastern region. Mechanism analysis reveals that GP improves CU by mitigating supply-demand deviations, reducing uncertainty perception on the consumption side, suppressing inefficient investment, and stimulating technological innovation on the production side. Further analysis demonstrates the synergies between GP and government subsidies vary significantly across different CU levels. Additionally, GP effectively boosts enterprise economic performance. This paper significantly enhances the comprehension of demand-side policies’ impact but also offers a practical and efficient policy approach to tackling China’s overcapacity challenges.

Suggested Citation

  • Xiaoping Li & Muci Yan & Xiaohang Ren & Farhad Taghizadeh-Hesary, 2026. "Can government procurement improve capacity utilization in enterprises? Evidence from China," Applied Economics, Taylor & Francis Journals, vol. 58(6), pages 1209-1226, February.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:6:p:1209-1226
    DOI: 10.1080/00036846.2025.2464824
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