On Scale Preference And Adverse Concentration Phenomenon In China's Steel Industry

In the end of last century, china's demand for steel increased drastically as the development of industrialization and urbanization, which push forward directly the level of investment of steel industry since 2002. The output of china's steel raised up from 180 million tons in 2002 to 418 million tons in 2006. In contrast, the concentration ratio of china's steel industry dropped sharply since 2000, adverse concentration tendency is very obvious. Many scholars hold the point of view that the decline of concentration ratio is the symbol of the worsen of industry organization, and the resource for this phenomenon is excessive competition and blind entrance. At the same time, in order to improve the concentration ratio, the government force the acquisition and merger in steel industry through administration. In fact, the real reasons for the adverse concentration are as follows:the whole scale of steel market enlarged dramatically, the output of the top-4-capacity enterprises grows slowly, huge demand attract many entry behavior and the quick expand of small scale enterprises. These are the temporal characteristics of the development of china's steel industry, and also the result of imperfect competition mechanism and improper industrial policy.This paper checks up the applicability of the theory that "Excessive-entry theorem" and "blind entrance" can explain the overcapacity in Chinese iron and steal industry. (1) The key large and middle scale iron and steel enterprises are the main reigns in the steel and iron market. Its total output continuously presents unilateral trend of escalation. The iron and steel industry certainly does not have remarkably "the business-stealing effect". Surveying the relative efficiency and the scale efficiency of Chinese iron and steel enterprises by the data envelope, and further using the linear regression to research the influence that scale makes to the efficiency, we can finally indicate the Chinese iron and steel industry certainly does not have the characteristic of increasing return to scale. Excessive-entry theory can't be used to explain why overcapacity forms in the Chinese iron and steal industry. (2) Using co-integration analysis, Granger causality test, IRF and variance decomposition to test the profit margin of iron and steel industry and enterprise entrance, we know that profit margin has remarkable driving effect to enterprise entrance. Blind entrance theory can't explain the overcapacity in iron and steel industry.After China's fiscal decentralization reform, local government has independent economic interests, and government official political promotion system with the core of evaluating GDP growth makes local governments have a strong motivation to intervene enterprises' investment and make use of all kinds of preferential investment policies. The issues of Chinese obscure property rights of land and financial institutions'soft budget constraints make the measures of cheap land and other investment subsidies and help enterprises access to financial resources as the main means appealing the investment of local governments. Further model analyses show that the problem of enterprises'lower own capital causes serious exterior risk costs caused by the behavior of local governments'low land price and the function as a gage of acquiring land with lower price and local governments' Intervention in the financial system of credit makes the enterprises overinvestment and the whole Industry's overcapacity, and is used to explain the formation mechanism of overcapacity in the iron and steel industry.The theoretical discussion of the acceptability of the investment regulations policies in the iron and steel industry and an empirical analysis with HP filtering show that:(1) Investment regulation policies can not prevent overcapacity in the iron and steel industry fundamentally. (2) Policy-makers can not access to and integrate the required information and knowledge, so it is unable to make accurate prediction about market and a wise investment plan. (3) For this policy hinders the discovery process and self-adjustment process of the market, China's steel industry has a serious shortage of investment in fixed assets in longer period, and this hiders rapid adjustment of the steel product structure and the timely updated of the equipment, and it also arouses the acute fluctuations of the fixed asset investment of the steel industry. According to the formation mechanism of overcapacity in Chinese iron and steel industry, the wise governance policy should proceed from these three areas:(1) Reforming the fiscal and taxation systems and government officials political promotion system with the core of evaluating GDP growth, it is to reduce strong motivation of local government to interference in business investment improperly. (2) Reforming the existing land management system and making land ownership explicit, local governments can not provide subsidies for business investment through offering land at low-cost. (3) Make bank's budget restraint hard and straightening out the relationship between the local government and the banks.