Economic Performance Of Administrative Monopoly In The Transition Period Of China

This paper studies administrative monopoly of transition period in China. To find administrative monopoly's economic performance, this paper researches China's administrative monopoly in the analysis framework of industrial economics, by combining theoretical analysis with empirical test, adopting game theory, optimization, econometric methods, institutional change theory as tools.To overcome the limitation of existing theoretical framework and research methods, the research undertakes some innovation in the following three aspects. Firstly, this paper combines economic performance study and institutional analysis, using institution's economic performance to interpret the reason why the planned economy and the gradual transition countries persist in administrative monopoly. The paper also combines theoretical research with empirical analysis, using theoretical model to explain the reason why China's administrative monopoly industries are with high prices, high profits and low consumer surplus. And it is supported by the result of empirical analysis.Secondly, in the theory field, through building a dynamic model of innovation and Cournot competition, this paper discusses administrative monopoly's effect on operation of the industrial economy. The model takes cost-saving and demand stimulus effects into account, in order to analyze dynamic influence of administrative monopoly on market performance. By studying the relations among administrative monopoly, FDI, international trade with new trade theory and sequential game method, this thesis discusses important influence of FDI administrative monopoly on FDI inflows, export and effectiveness of trade policy.Finally, in empirical study field, Chapter IV takes empirical study on the relationship of administrative monopoly and market structure with a cross-section econometric model, by separating the samples of administrative monopoly industries from free-market industries. The research finds that if empirical study ignored the administrative monopoly, its result must be statistically insignificant or unrobust, even self-contradictory. Chapter VI researches administrative monopoly's effect on the regional economy, adopting panel data model and the method of instrument variable. After controlling endogenous problems of the key variable, the regression proves that OLS method is not totally suitable for empirical study of regional administrative monopoly, and its harmfulness would be underestimated.Conclusions are as follows:(1) Administrative monopoly, stated-owned economy and socialist market economy will coexist stably in a long-term, which is a essential feature of China's economic institution in the transition period.(2) State-owned enterprises cannot do without administrative monopoly. Owing to administrative monopoly, state-owned enterprises realize high prices and profits. With the advance of technology and development of the industry, market structure of administrative monopoly industries tends to be endogenously concentrated. The social welfare even agrees with monopoly born of such market. As a matter of fact, the greater state-owned enterprises'monopoly power is, the better. In spite of the harm to consumer surplus, the strong monopoly power helps to improve the profit-based social welfare.Such satisfactory economic performance causes a socialist country to exercise administrative monopoly in the initial period. State-owned economy cannot develop so fast without high prices and profits, and only when private enterprises are prevented from entering into high-profit industry by administrative monopoly can China implement the economic planning so smoothly and realize the nationalization and heavy industrialization in such a short period. In the light of the symbiotic relationship between administrative monopoly and state-owned enterprises, the privatization of property rights in the radical transition countries in Eastern Europe is always accompanied with the legislation and enforcement against administrative monopoly. They are two stepping stones of the reform for Soviet-style planned economy, which are cast by radical transition countries. Meanwhile in the gradual transition countries, state-owned enterprises remain to be the national assets after reform. The profits and taxes paid by them still account for a large percentage in government fiscal revenues. Once state-owned economy suffers long-term losses or even bankruptcy, the consequences will be unimaginable since it is the lifeline of national economy. As a result, state-owned enterprises depend largely on administrative monopoly now.That is the objective reason why the planned economy establishes and gradual transition countries insist to administrative monopoly.(3) Administrative monopoly harms social welfare, consumer surplus and consumption simultaneously.(4) Relative to free market, administrative monopoly lengthens the life cycle of the industry, which accordingly retards the development of economy and the evolvement of industries. Thereby it inhibits the industrial innovation and technological progress. Innovation is the driving force of the development in human society. So administrative monopoly has a far-reaching impaction on the society.(5) Free market does not support Schumpeterian Hypothesis but administrative monopoly industry does. The relationship between R&D and market structure is U-shaped in the administrative monopoly industries. The relationship between R&D and market structure is invert-U-shaped in the free-market industries, which means Schumpeterian Hypothesis is false in free-market industry. Administrative monopoly is a decisive factor of Schumpeterian Hypothesis.(6) FDI administrative monopoly could increase the total social welfare of its own country, while harming the profits of trading partner's enterprises and consumer surplus of its own country. It also increases the price of products and the profit of local company.(7) Administrative monopoly would be the abuse of administrative power. Our empirical study finds that regional administrative monopoly does harm to regional economy. The production efficiency, allocative efficiency of resources, technical innovation capability and international competitiveness of China's province are impaired by regional administrative monopoly.(8) It is restricted competition and administrative power that constitute the essence of administrative monopoly in China's transition period. In administrative monopoly industries, enterprises have lost the freedom to enter the market while the market has lost its competitive vitality. The market where competition is exogenously intervened by administrative monopoly isn't at a normal state. China's administrative monopoly power today is a trinity of administrative power, administrative legislative power and partial judicial power.Given that China takes gradual transition and keeps state-owned economy in a dominant position, our socialist market economy is supposed to allow administrative monopoly in the long run. However, if the reform is supposed to continue in the administrative monopoly industries, our theoretical research shows that administrative monopoly reform is the key prerequisite for property rights reform of state-owned enterprises. Property rights reform cannot be done without administrative monopoly reform.