Market Size And Capital Intensity Of China

Comparative advantage is that the differences of the relative price of factors between regions are caused by the structure of the factor-endowment of different areas. It emphasizes that a business, region and country involving options of their products, industry and technology must make full use of relatively abundant factor in the region to reduce costs and enhance competitiveness.Since the 21st century,in the context of relatively low labor costs in China, overall capital intensity's rising of China accelerated in processes of industrial production.In other words, the rate of capital accumulation has significantly exceeded the rate of labor's use. Under the premise that endowment of labor in China still have a comparative advantage and there has been no substantial increase in wages,rapid increase in capital intensity make people puzzle.Based on theoretical analysis and empirical analysis of panel data of 28 provinces in our country from 2000 to 2007, and studied the relationship of the size of the market, comparative advantage and changes in capital intensity, this article discovers that theory of comparative advantage explains the relative intensity only from the level of product supply. However, in the choice of industry, business, products, technology and the relative factor intensity, enterprises need to consider not only the product input cost elements of the supply side, but also the product market of demand side. Under such conditions of intensity of competition increasing in the market and the gradual strengthening of the real buyer's market, market demand factors on the business impact of factor intensity factor is likely to exceed the cost factors on the relative intensity of the impact factor. Thus theory and empirical support for the following hypothesis in the body of this article: under the conditions that intensity of competition is not high in the market, enterprises are facing weak demand constraint, the elements of the cost factors has significant influence for the enterprise's choice of the relative intensity, but under the conditions that the market competition is very fierce and enterprises are facing stronger demand constraints, market demand factors on the choice of the relative intensity will have greater impact. Thus from the perspective of the scale of market demand, this article gives a more reasonable explanation for the capital-intensity's rapid rising in China.The establishment of the hypothesis has some theoretical significance in economic development's path and leading industry's choice of China. Taking the current situation of China into account, this article reveals that when selecting our country and the region's economic development path and leading industries, only the guide of the theory of comparative advantage is not enough, but market demand factor will play an increasingly important influence, and it ultimately will play a leading role.