Research On The Excess Capacity Over Chinese Manufacturing Sector

Since the 2008 global financial crisis,as the increasing of the cost of resources,the upgrading of domestic demand structure and the readjustment of the global industrial structure,manufacturing industry of China has been confronted with new serious overcapacity.This problem has become one of the most important macroeconomic risks in our country,and thus resolving the overcapacity crisis is a major challenge for the sustainable development of economy.On this background,this paper investigates the present situation,the causes and the countermeasure of overcapacity in China.We focus on the effect and the mechanism of innovation and OFDI on the overcapacity,and how to take full advantage of the two strategies,and then propose new ideas and policy suggestions to govern the overcapacity crisis stably.Measuring the true degree of excess capacity is the precondition for governing excess capacity scientifically.This article analyzes the characteristics of the excess capacity in China from the industry perspective and the provincial perspective.On the one hand,this paper uses fixed effect stochastic frontier approach to measure the capacity utilization of Chinese manufacturing industries from 1980 to 2014.On the other hand,this paper measures the provincial capacity utilization using the provinces-industry level data.We find that the capacity utilizations of manufacturing industry are very different in time and space:the overcapacity from 2008 is complex,global and secular.From the industry level,the overcapacity shows a tendency of contagion from traditional industries to emerging industries and from local to global.From regional level,the capacity utilization shows a clear co-movement and contagion effect among provinces,namely,the excess production capacity will spread among provinces.From time level,the overcapacity has obvious"inertia" characteristic of path dependence.As a result,we should strengthen the coordination between industries and provinces in the process of governing overcapacity.Based on understanding the present situation and characteristics of overcapacity in manufacturing industry,we investigate the determinants and dissolving mechanism of overcapacity from industry and provincial perspective,using dynamic panel model and spatial dynamic panel model.The results show that there are three categories of factors that promote excess capacity of Chinese manufacturing industries.Specifically,demand shock is the direct cause of excess capacity;over-investment and inefficient investment are the channels of forming excess capacity;systematic distortion under government intervention is the root of excess capacity.Innovation has not worked in alleviating structural contradictions of supply relationship and resolving the problem of excess capacity.As a result,the problem of excess capacity of Chinese manufacturing industries has not been fundamentally resolved.OFDI has a significantly effect on reducing overcapacity index,which means the "Outward Foreign Direct Investment" strategy is an important means to alleviate the degree of overcapacity.Correcting institutional distortions,stimulating enterprises to innovate from the supply side,inspiring enterprises to effectively invest and encouraging enterprises to develop the foreign direct investment are the fundamental ways to alleviate structural contradictions of supply relationship and resolve the problem of excess capacity of Chinese manufacturing industries.Promoting technology innovation is an important way for government to govern excess capacity crisis.Based on the data of the World Bank Business Environment and Enterprise Performance Survey,this paper analyzes the effect of R&D activities on capacity utilization of Chinese manufacturing enterprises.The results of our examination present some evidences.First,R&D investment plays a significantly positive role in increasing capacity utilization.Second,R&D activities of enterprises with overcapacity has a greater positive impact on capacity utilization,meanwhile,enterprises with lower capacity utilization has less tendency to implement R&D activities,and self-selection effect is very unfavorable to govern excess capacity crisis.Furthermore,to subdivide the innovation modes into independent innovation,cooperative innovation and imitation innovation,we find that independent innovation activities are robust and effective approaches in removing excess capacity,but imitation innovation does not have the effect on alleviating excess capacity.Based on the core role of independent innovation in eliminating excess capacity,the government should stimulate enterprises to innovate independently and encourage enterprises to reinforce supplying innovation of independent brand products or services,and thus reducing excess capacity stably.Based on the core role of independent innovation plays on governing overcapacity,this paper investigates the effect of government subsidies and enterprise innovation on the capacity utilization of the strategic emerging industries.The results present some evidences.On the one hand,government subsidy,as a way for government to intervene enterprise,will distort the structure of investment;accelerate the expansion of low-technical capacity,and then reduce the capacity utilization of the enterprise.On the other hand,government subsidy will accelerate innovation which could improve the capacity utilization of enterprises.In addition,the higher the proportion of subsidy for science and technology is,the better the effect of government subsidy on innovation and capacity utilization is.Thus,in order to make government subsidy more effective,we should improve the scientific nature and rationality of industrial policy,and reduce improper intervention to strategic emerging industrial.The "Outward Foreign Direct Investment" strategy is another important way for government to govern overcapacity crisis.Based on PSM-DID method,we use firm-level data to examine the relationship between OFDI of Chinese firm and their overcapacity index.The results of our examination present some evidences.First,the index of excess capacity of Chinese OFDI enterprises has decreased by 2.82%.Second,OFDI of enterprises in the industries with excess capacity has a greater positive impact on the index of excess capacity,meanwhile,enterprises with higher index of excess capacity has less tendency to implement OFDI activities.We then examine scale effect and hysteresis effect of OFDI.We find that the number of OFDI countries has a significantly negative effect on overcapacity index,and OFDI has a long-term effect on overcapacity index.In order to alleviate the overcapacity crisis,the government should continue to adhere to the "going out" strategy,especially to encourage enterprises in industries that have excess production capacity to vigorously develop foreign direct investment.In short,the background,characteristics and the essence of this new round of large-scale overcapacity crisis are different from those of previous overcapacity crisis.The reason of the excess capacity in manufacturing industry is that the traditional manufacturing production capacity cannot meet the demand of market under the new situation.The essence of the overcapacity crisis is the insuufficient capacity for independent innovation.In order to govern the overcapacity crisis,we should give full play to the production and subjective initiative of the producers through innovation driven development strategy and foreign direct investment strategy.We should improve the innovation ability of manufacturing industry,promote the transformation and upgrading of industrial structure,and promote the international division of value chain to realize manufacturing overcapacity governance.