The Management Strategy For The Root Of Excess Capacity In Steel Industry

"Excess capacity"is not a strange phrase even to most people who have not majored in economics. However, it is defined in many different ways. In this article,"excess capacity"refers to the condition that the sum total of productive capacities, inclusive of available, under construction and planned, exceeds the total consumption. With many different ways available to measure excess capacity, capacity utilization is adopted in this article. The direct reason resulting in excess capacity is the unreasonable investment in fixed assets, while the fundamental cause is the unreasonable pattern of economic growth, and the mechanism lies in the economic system and market structure.On excess capacity, the author did not make profound analysis of its mechanism, instead, its form, e.g., unreasonable investment in fixed assets, is investigated. Excess capacity has always nagged Chinese economy. Although Chinese government has implemented various policy instruments, the problem is still not tackled substantially, with the consequence that capacity is either excess or inadequate. Based on analysis of the historical characteristics, the author believed that the present excess capacity is independent of consumption, and is a sort of wave phenomenon in investment caused by incomplete information.According to the"The General Theory of Employment, Interest and Money"of Keynes, three factors, i.e., yield, cost and expectation, affect investment. In consideration of the practical condition and the time serial covered by the research, the author ascertained that the factors affecting investment in fixed assets are profit margin, interest rate and expectation. Based on this point, the author chose the data of steel industry during 1999 and 2009, i.e., of 40 seasons in 10 successive years, adopted time serial model to make empirical study on those factors and investment in fixed assets, and explored the relationship between them, then concluded: (1) profit margin has a notable positive effect on investment in fixed assets, (2) interest rate has relatively little effect on investment in fixed assets, (3) policies have notable negative effect on investment in fixed assets. Based on the policy implications of the three factors, combining the analysis and the requirement of governing excess capacity, the author made some policy suggestions on how to lead investment on fixed assets to reasonable directions.