A New Method Of Estimating Capacity And Capacity Utilization Rate And Its Application

Since1978, along with the gradual deepening of reform and opening up, China’s economy is not only fast growth, but also suffered three wide-ranging excess capacity------in the period1998-2001, China experienced the first wide-ranging excess capacity; in the period2003-2006, China experienced again wide-ranging excess capacity; our country was attacked by third wide-ranging excess capacity since2009. In China’s three wide-ranging excess capacity, the latter is more serious than previous. It is in this context, excess capacity become one of the significant economic and management issues in China’s economic theory sector and macro management since2008.Although domestic study about excess capacity involves two levels both the industrial economy and the national economy, but this paper shall limit itself to industrial excess capacity. In the discussion of the problem about industrial capacity and capacity utilization rate, there are three perspectives:enterprise perspective, enterprises (industries, regions) comparative perspective and macroeconomic management perspective. This paper shall limit itself to macroeconomic management perspective. Based on macroeconomic management perspective, people focus on industrial capacity utilization level, existence of industrial excess capacity and degree of excess capacity, causes and governance measures of excess capacity, and how to determine and monitor industrial excess capacity. Capacity and capacity utilization rate estimation methods and monitoring warning system for domestic excess capacity are two difficult problems in the study of China’s excess capacity. Capacity and capacity utilization rate estimation methods is the paper’s central topic.This paper discusses in detail three basic concepts in the study of excess capacity------capacity, capacity utilization rate, and excess capacity. Capacity concept is summarized as three categories:technical capacity, economic capacity and experiential capacity. Accordingly, capacity and capacity utilization rate estimation methods is summarized as three categories:estimation methods based on technical capacity concept, estimation methods based on economic capacity concept, and estimation methods based on experiential capacity concept. Furthermore, the central thesis of this paper is further defined the capacity and capacity utilization rate estimation methods based on technical capacity concept.This paper consists of four parts. 1. This paper reviews the domestic and foreign literature, and discriminates and defines three basic concepts in the study of excess capacity------capacity, capacity utilization rate, and excess capacity.(1) In this paper, capacity concept is summarized as three categories:technical capacity, economic capacity and experiential capacity. The capacity in this paper is defined as a technical capacity concept, that is, in the working arrangements framework within each enterprise in the production system to maintain appropriate practice, taking into account the normal downtime and assuming full usefulness of invested capital and labor (or invested capital), the production system may reach a maximum output level.(2) Following the domestic and foreign scholars’definition of capacity utilization rate, capacity utilization rate is defined as the ratio of the actual output to capacity. Of course, the actual output and capacity make use of the value-added indicator.(3) After listing systematically several definitions of excess capacity, the paper proposes the four principles for structuring unified conceptual system of excess capacity and form the unified excess capacity concept system, and, discourses on the advantages of the unified conceptual system of excess capacity. The definition of excess capacity in the paper is excess of capacity with respect to the production amount, that is, it means excess capacity if capacity utilization rate is less than1.2. The paper introduces several domestic and foreign capacity and capacity utilization rate estimation methods; and, based on analysis, comparation and evaluation of these estimation methods, proposes a new estimation method; and then capacity utilization rate of China’s28manufacturing industries in1992-2011is estimated by the new method.(1) This paper assorts estimation methods, and compares with various estimation methods. Based on different data sources and characteristics, capacity and capacity utilization rate estimation methods are divided into two main categories:estimation methods based on macroeconomic statistical data and estimation methods based on enterprises survey results. The former includes both technical capacity concept and economic capacity concept, the latter includes only experiential capacity concept. The former is to apply economy statistical data, while the latter’s data base is the summary data of enterprises survey results.From four aspects------basic thought, error controllability, result stability and concept operability, the paper compares and evaluates both estimation methods based on macroeconomic statistical data and estimation methods based on enterprises survey results. From three aspects------error controllability, result stability and concept operability, this paper compares and evaluates both estimation methods based on technical capacity concept and estimation methods based on economic capacity concept.(2) This paper summaries specific estimation methods based on technical capacity concept. Since the paper’s definition of capacity is technical capacity concept, and our macroeconomic management pays close attention to production capacity by production inputs (especially production inputs by investment in fixed assets), the paper summaries specific estimation methods based on technical capacity concept. These estimation methods have Artus methods, trend through peaks technique,"output/capital" ratio method, peak-to-peak method, Shen-Lisheng (1999) method, Yang-Guang and Ma-Xiaoying (2010) method, Gong-Gang and Yang-Lin (2002) method. Further, from three aspects-----reasonableness of the assumptions, characteristics of useful data (direct use of statistical data or indirect use of statistical data) and use form of technical capacity definition, the paper compares above specific estimation methods based on technical capacity concept. The main conclusions are as follows:①Different specific estimation method has its own advantages and disadvantages; which specific estimation method’s assumptions conform to a period (a region, an industry) current situation, the specific estimation method is even more applicable to estimate this period (this area, this industry) capacity utilization rate data.②Formally, estimation methods based on technical capacity concept is divided into three categories. Category Ⅰ estimation method uses actual output sequence, capital stock sequence and labor sequence for estimating capacity utilization rate. Category Ⅱ estimation method uses actual output sequence and capital stock sequence (don’t use labor sequence) for estimating capacity utilization rate. Category Ⅲ estimation method uses actual output sequence (don’t use capital stock sequence and labor sequence) for estimating capacity utilization rate. And, after comparing advantages and disadvantages of these three categories estimation methods, it is determined that the paper will explore a new specific estimation method based on the category Ⅲ estimation method.(3) This paper puts forward a new specific estimation method. Based on analyzing, comparing and evaluating with multi-angle estimation methods, the paper puts forward a new specific estimation method, and particularly expounds rationality of assumptions of the new estimation method. The rationality of assumptions of the new estimation method is one of argument that the new estimation method is reasonable. The capacity utilization rate of China’s28manufacturing industries in1992-2011is estimated by the new specific estimation method. Then, rationality of estimation data is repeatedly demonstrated (the rationality of estimation data of the new estimation method is another one of argument that the new estimation method is reasonable). The main conclusions are as follows:①The following results can not be introduced by the concept of excess capacity. If the capacity utilization rate is on an upward trend in a certain period of time, it is determined that does not appear excess capacity during this period; if the capacity utilization rate is on an downward trend in a certain period of time, it is determined that appears excess capacity during this period.②Excess capacity is a situation that the capacity utilization rate is too low, and enterprise production, economic operation and the lives of the people receive more negative impact. In accordance with this definition, as capacity utilization rate, superfluous production capacity (that is, capacity minus actual output) should be used to determine whether there has been excess capacity. In a period of time, for one industry, if its capacity utilization rate is at a low ebb, and, its superfluous production capacity rapidly expands, it is likely to occur excess capacity.3. This paper analyzes the relationship between capacity utilization and inflation and investment in fixed assets’s influence to capacity utilization by econometric model; furthermore, investigates the causes of China’s excess capacity based on the economic growth drives mode. The analysis conclusion is that the rapid growth of investment in fixed assets is external reasons of China’s excess capacity, and internal reasons is its excessive reliance on gross capital formation (investment in fixed assets) economic growth drives mode since China’s reform and opening up.4. This paper puts forward proposal to govern China’s excess capacity, and points out the issues that require to further study.