China's Steel Industrial Organization

The steel industry is a fundamental strategic industry in China. Becauce of the rapid economic development, progress of industrialization and urbanization, and the upgrading of consumption structure of China's economy,the demand for steels increases continuously in China, and China's steel industry have made much progress in many aspects, including technology level, the competitiveness of enterprises and so on. However, China is not a powerful country for its steel industry in which there are a series of problems such as unreasonable product structure, low productivity, low use efficiency of resource, weak technology innovation capability and international competitiveness and so on. Based on the theory of SCP, market structure will determine market conduct and market conduct will determine market performance. The poor market performance of China's steel industry mainly results from the unreasonable industrial organization in the industry. Therefore, it is very important to explore the problems of industrial organizations in China's steel industry and their reasons, which have the significant implications for the development of China's steel industry and even whole economy.There are too many firms in this industry, the industry concentration ratio is so low, low level and extensive production can't be sustainable, and China's steel firms have no enough rights of pricing in international iron ore market. In recent ten years, total number of steel output in China ranks No.1. However, the product structure is not reasonable and the supply the low-level product is much more than demand, which leads to vicious price competition and price is fluctuating greatly. Products with high quality and high value-added mainly depend on import heavily and there is no balance between supply and demand. Moreover, most of steel producers don't reach the smallest economic scale and they have no effective system of technology development and innovation, which bring on the slow development of production technology, lagging production technics and equipments, low rate of utilization of energy and resources, and heavy pollution. Above problems in China's steel industry mainly result from the low efficiency of industry.This dissertation adopts Translog Production Function and Stochastic Frontier Production Function and computes the trend of Total Factor Productivity(TFP) in China's steel industry, the rate of technology progress and the growth rate of technology efficiency which will be used to measure the efficiency of China's steel industry. Our results indicate that the main reason of influencing industrial efficiency of China's steel industry is the factor of technology efficiency which is affected by industrial organization of China's steel industry. Therefore, to improve industrial organization is the key of realizing the sustainable development of the industry and enhancing international competitiveness of the industry.Based on the framework of industrial organization theory, the dissertation analyzes the situation of industrial organization in China's steel industry from three aspects of market structure, market conduct and market performance. Our results show that an unreasonable status exists, which mainly results from lacking micro agents with capability of self-organizing and unbalance between entry barrier and exit barrier. Thus, we should optimize the industrial organization from two aspects of self organizing and being organized.Workable competition refers that effects of scale economy and competitive efficiency will be coordinated so as to optimize the resources allocation and improve economic efficiency. To pursue the workable competition is the main principle of constituting industrial organization policies. Considering the characteristics of scale economy, industrial linkage and SOEs being dominant positions, the dissertation points that the oligarch competition is the target mode of optimizing industrial organization in China's steel industry. The oligarch competition is the market structure between the oligopoly market and the monopolistic competition market and it has both the competition efficiency of monopolistic competition and the scale economy effects of oligopoly.Combing the supply and demand and development trend of world steel industry, the dissertation points out that it should strength SOEs reform and establish modern enterprise system, improve corporate governance structure and cultivate self-organizing capability consulting the experience of world steel industry. Besides, it should strengthen the merger and acquisition of enterprises and establish several large regional enterprise group comprising Bao Steel, Anshan Steel and Wuhan Steel. The role of industrial policy and the industrial associations will benefit for creating a good external environment for China's steel industry.The new viewpoints of this dissertation are indicated as follows: First of all, it explores the industrial organization of China's steel industry from the perspective of workable competition which fill the blank in domestic research, especially in the transitional period from plan economy to market economy with the imperfect market system and great change of domestic and international steel market. Secondly, it adopts methods of econometrics and computes the Total Factor Productivity, the rate of technology progress and technology efficiency in China's steel industry and it analyzes the operational efficiency and characteristics of domestic large scale steel companies which is the base of adjusting China's steel industry. Thirdly, it explores the characteristics of China's steel industry. For example, market demand of industry is very great and multilevel and diverse and China's steel companies are SOEs and they have large-scale technical equipments. Thus, it proposes the transitional direction of China's steel industry which is to create oligarch competition and deepens the understanding of China's steel industrial organizations. Last but not least, it proposes the suggestion that it should make use of self-organization and being organized and constitute reasonable policies, develop industrial associations, create the good external environment with approaches of laws and rules, market mechanism and administration, improve corporate governance structure and their operational systems and play their active roles so as to adjust industrial organizations'goals.