Dual Effects Of Government Behavior On Over-capacity

Overcapacity,along with local debt and real estate bubble,is one of the three major risks of China’s economy.It has caused problems such as distortion of resource allocation,increase of non-performing loan and low efficiency,impeding economic transformation and structural optimization.To resolve overcapacity,the Chinese government has introduced a series of policies.Although these policies have eased the problem of excess capacity to some extent,outdated and excess capacity still exists.Existing studies have analyzed the causes from the perspectives of institutional factors and market failure.However,government behavior is a critical factor affecting the overcapacity of Chinese enterprises,and relevant researches have not discussed the internal logic of overcapacity from the perspective of strategic behavior of government.In China,the central and local governments form a “negotiation-bargaining”relationship,and the failure of central government’s control over the local government along with the excessive intervention of the local government become an important reason for excess capacity.Since 2001,Chinese enterprises have realized a strategic shift from “bring in” to “go global”,and actively carried out international cooperation on production capacity,which has become a new way to resolve overcapacity.Based on three government behavior-provincial market segmentation,government encouraged industrial policy and the Belt and Road,this paper proposes the following questions.Is the capacity utilization of enterprises affected by market segmentation,industrial policies and the Belt and Road? And to what extent it is effected.What heterogeneity and possible mechanisms exist? What is the difference between the the central and local encouraged industrial policies’ influence on the capacity utilization of enterprises?Solving these problems is conducive to improving enterprises’ capacity utilization rate,resolving overcapacity,and achieving industrial upgrading.This paper makes up the following seven chapters.The chapter 1 is introduction;The chapter 2 is the theoretical foundation and literature review;The chapter 3 analyzes the status quo of government behavior and excess capacity and it’s mechanism.This chapter describes the change characteristics of Chinese government behavior and capacity utilization in recent years using macro and micro data,and focuses on the mechanism analysis of government behavior’s influence on overcapacity.In chapter 4,based on the domestic horizontal local government relationship,the influence of market segmentation on enterprises’ overcapacity and its possible heterogeneity and mechanism are investigated,and the mediating effect of capacity utilization on enterprises’ pollution emission is further analyzed based on the mediating effect model.In chapter 5,based on the longitudinal relationship between central and local governments in China,empirical analysis is conducted to examine the impact of central and local encouraged industrial policies on enterprise overcapacity and identify the possible heterogeneity and mechanism.Chapter 6 identifies the impact,heterogeneity and mechanism of the Belt and Road Initiative on Chinese enterprises’ capacity utilization based on international government relations.Chapter 7 is the research conclusion,policy suggestion and prospect.The major conclusions of this study are as follows.Firstly,in the status and mechanism analysis of government behavior,and overcapacity,this paper finds that China’s excess capacity is composed of cyclical excess and non-cyclical excess,which has three characteristics: high degree of homogeneity in product market,excess of preferential policies,and dramatic decrease of effective demand.There are both positive and negative effects of government’s actions on overcapacity.On the one hand,the policy subsidy of local government and the preferential policies of international cooperation lead to overcapacity.On the other hand,the policies and measures introduced by the central and local governments to cut overcapacity,mainly by strictly controlling the increase of production capacity and shutting down outdated capacity,have played a direct role in curbing overcapacity.International cooperation on production capacity is carried out in two modes,namely “pro-gradient” and “anti-gradient”,and reduces overcapacity through resource allocation effect,financing constraint effect and innovation effect.Secondly,in the part of first dimension of government behavior: the empirical analysis of market segmentation’s effects on overcapacity,this paper finds that the improvement of market segmentation will significantly reduce the capacity utilization rate of enterprises;Heterogeneity analysis shows that market segmentation has a stronger restraining effect on capacity utilization of western,small-scaled,non-state-owned and non-resource-intensive industrial enterprises.The mechanism test shows that market segmentation can affect capacity utilization through resource allocation effect and innovation effect.Further analysis shows that the reduction of enterprise capacity utilization rate is the main channel that market segmentation leads to the increase of enterprise pollution emission intensity.Thirdly,in the part of second dimension of government behavior: the empirical analysis of the influence of industrial policies on overcapacity,the central and local encouraged industrial policies’ influence on the capacity utilization rate is different.Heterogeneity analysis shows that encouraged industrial policies have different effects on capacity utilization of different enterprises,a greater effect has seen on large-scaled,state-owned,non-overcapacity and politically connected enterprises.Compared with general encouraging industrial policies,key encouraging industrial policies have a greater effect on the improvement of capacity utilization rate.The encouraging industrial policies introduced by both the central and local government have the most obvious improvement effect on the capacity utilization.The mechanism analysis shows that the industrial policies encouraged by the central government mainly improve the utilization rate of capacity through reducing institutional transaction costs,optimizing resource allocation and alleviating financing constraints.Fourthly,this paper finds that the Belt and Road Initiative significantly improves the capacity utilization of the supported enterprises compared with the non-supported enterprises.Heterogeneity analysis shows that the Belt and Road Initiative has a particularly prominent incentive effect on capacity utilization of those large-scaled,state-owned enterprises,and those located along “the Belt” as well.The mechanism analysis shows that the Belt and Road Initiative can improve the capacity utilization level of supporting enterprises through optimizing resource allocation and easing financing constraints.According to the research conclusions,this paper proposes the following policy suggestions.Firstly,give full play to the central government’s oversight and governance over overcapacity,incorporate the efficiency of resource allocation and the quality of enterprise development into the performance evaluation for local officials,strengthen oversight over capacity expansion in industries with overcapacity,and curb blind and illegal expansion of capacity.Secondly,it’s necessary to provide suitable institutional environment for China’s regional market integration and international production capacity cooperation under the Belt and Road Initiative.Thirdly,deepen market-based reform across the board,appropriately demarcate the boundary between the market and the government,and make the market play a crucial role in resources distribute.Fourthly,the government should formulate and introduce matching policies for small,inland and private enterprises,and increase the support for enterprise scientific research as well.In addition,establish a transparent and fair communication channel between the government and enterprises,take solving structural problems in financing as an important step in the next financial reform,and accelerate private enterprises’ industrial upgrading and capacity utilization.The principal innovations of this thesis are as follows.Firstly,the research perspective innovation.Existing studies mainly investigate the influence factors of excess production capacity in China from market failure and institutional factors,with few studies based on the perspective of government relations,from provincial market segmentation,government’s industrial policy and the Belt and Road Initiative.Secondly,research method innovation.On the one hand,in the calculation of the capacity utilization rate of industrial enterprises,this paper introduces the index of energy input for the first time,and establishes the measurement system including capital input,labor input and energy input,so as to enrich the measurement method of the capacity utilization rate of micro subjects.On the other hand,as for the study on the government behavior’s influence on overcapacity,this paper adopts fixed effect model,intermediary effect model,dual difference model and event study model,raising the correctness and consistence of the estimation results.Thirdly,research content innovation.This paper finds that the local government’s market segmentation behavior puts stronger inhibition on those inland,non-state-owned and small industrial enterprises,and break the market segmentation will not only improve the capacity utilization rate of enterprises,but also further reduce their pollution emission intensity.The influence of central and local encouraged industrial policies on enterprise capacity utilization rate is different.The central government’s policies’ promotion effect is transmitted through institutional transaction costs,resource allocation and financing constraints,and is more obvious in large enterprises and state-owned enterprises.In addition,this paper proves empirically,that the execution of the Belt and Road is conducive to improve the capacity utilization rate of supporting firms.In the future,this paper can be improved as follows.Firstly,establish a more comprehensive index system to measure government behavior and overcapacity.Secondly,take small-scale enterprises as the research object,further explore the relationship between government behavior and enterprise overcapacity through field research.Thirdly,further use multi-party game theory to comprehensively investigate the interaction and cooperation mechanism of the government,social organizations,enterprises,the public and other social subjects,and put forward policy suggestions to control overcapacity.