Study On Industrial Concentration In China

This study investigated industrial concentration in Chinese industrial sector. Industrial concentration is a core concept in industrial organization theory. In Harvard Tradition, high industrial concentration is a sign of monopoly; while in Chicago School, high industrial concentration is a sign of high efficiency; game theory-base industrial organization theory proved the positive correlation between industrial concentration and market power, which is the ability of monopoly, under some assumptions; new empirical industrial organization found some evidences of correlateion between high industrial concentration and anticompetitive behavior. More importantly, industrial concentration is a widely used indicator in the antitrust practice of western developed market economies. Although regulation authorities do not allege monopoly only based on industrial concentration level, a high industrial concentration level will incur strict investigation from regulation authorities. A summary of these experiences is important to the forthcoming antitrust practice in China.However, any judgment should be based on data and measurement. China statistical institutions did not calculate or publish any information of industrial concentration yet. This study benefited from a unique data set, containing enterprises in Industrial Census from 1992 to 2002, and this study estimated and summarized the level of industrial concentration in general, time trend, and structure change in Chinese industrial sector, and compared with other economies. I found the industrial concentration was low in general, the time trend was downward, some large and highly concentrated industries became unconcentrated, while some extremely unconcentrated industries became more concentrated, and Chinese industrial concentration was lower than other economies in general.This study further summarized the main findings by other economists, who studied market concentration of other economies in the world, and main determinants of industrial concentration can be classified into the following five categories. (1) Technological factors, mainly the economies of scale determinated by technology; (2) demand factors, which are market size and market growth rate; (3) entry barriers, including capital intensity and advertisement intensity; (4) international factors, including imports, exports, and foreign direct investment; (5) policy factors, which are mainly refer to government intervention at industrial level. I used both OLS estimation and fixed effect estimation, while the main results are basically same. I found that economies of scale were positively correlated with industrial concentration, market size was negatively correlated with industrial concentration, entry barriers were positively correlated with industrial concentration, imports and exports were both positively correlated with industrial concentration, foreign direct invested enterprises were negatively correlated with industrial concentration, and state-owned enterprises were positively correlated with industrial concentration.All of these evidences indicated that the industrial concentration in China is determined by both market factors and government intervention. Technological factors and market factors are basic factors, which determined the basic characteristics of an industry, especially the industrial concentration. But this does not mean the inaction of government, and on the contrary, government intervention can significantly change the industrial concentration level of an industry. In the forthcoming antitrust practice in China, this study has lots of meaningful policy implications. For the industries with high economies of scale, market force determined the high concentration of these industries. If the government split the industry by force, the efficiency may be hurt. For the industries with entry barriers, the sources of the entry barriers should be distinguished, whether they are characteristics of the industries or the results of the behavior of the leading firms. If it is the case of the former, government can do little, while, if it is the case of the later, government can limited the behavior and improve competition. For those industries with lots of imports, split the dominating firms may not be a good strategy, because they are competing with other firms in the world. For the industries with lots of foreign direct invested firms, I did not find any evidence of monopolizing Chinese market, and on the contrary, FDI firms reduced the industrial concentration, and probably improved competition. Although this does not mean FDI firms do not have any intent to monopolize Chinese market or they won't monopolize Chinese market, but the evidences showed that FDI firms are still active factor in China economy. Antitrust authority should notice the positive effect of FDI firms as well as the potential risk of monopolization by FDI firms. For state-owned enterprises, they truly tended to monopolize market.