Empirical Research On Excess Capacity Of Chinese Steel Industry Efficiency

Overcapacity is a problem which China faced for a long time. Since the reform and opening up. China has gradually changed from a planned economy to a socialist market economic system; in the planned economy system, the material is very scarce, there is the problem of excess capacity:and in the market economy, with the economic structure adjustment and economic development pattern, the problem of excess production capacity gradually exposed. In the twenty-first century. China carried out large-scale infrastructure investment, after each round of economic overheating, it will form a new round of overcapacity. In 2008. the U.S. financial crisis broke out, and gradually spread to the world.2010 European sovereign debt crisis, central banks have introduced economic stimulus plan, our government has launched a 4 trillion economic stimulus plan to revive the market. With the launch of several rounds of Fed quantitative easing monetary policy and the deepening of the euro zone debt crisis, and domestic raw material market, especially in food prices and housing prices, imported inflation and domestic inflation jointly push China's inflation level. In order to stabilize prices, China's central bank raised banks' deposit reserve ratio and increasing interest rates. As a result, by tight monetary policy many small and medium enterprises, private enterprises have very restricted funding, resulting capacity waste; on the other hand, investment in infrastructure funds a lot on cement, steel, etc. This high energy consumption, high pollution industries exacerbated the extent of excess capacity. Excess capacity study has two merits, one is to define a reasonable level of productivity for the enterprise market strategy and the cornerstone of national policy to provide policy, and the other is to reduce the level of duplication and improve efficiency of resource allocation.This paper reviews literature both in and abroad. Present studies for domestic overcapacity focuses on overcapacity causes and governance mechanisms, or on overcapacity's theoretical analysis, and most of them focused on the qualitative analysis, rarely from a quantitative point of view. Documents from State Council only shows that overcapacity will affect the sustain, rapidness and health development of the economy. There lacks the theoretical analysis of how overcapacity would affect the economy, what is the degree and what solution the government should execute to deal with this problem. As a macroeconomic index, overcapacity can predict the development of economy; as a micro-indicator, it can provide useful information for both managers and investors to make better decisions.The main content of this article, based on the principle of decomposition efficiency, uses 22 listed steel companies to calculate and illustrate the level of capacity utilization, and tries to give a standard for overcapacity.This paper is structured as follows:This paper is divided into five parts. The first part introduces the background, significance of this paper, together with the relevant domestic and abroad literatures, raises the problem to be solved. The second part--the theoretical part is divided into five sections, the first section describes the production technology, including the input sets and output sets; the second section introduces the concept of distance function:the third section introduces the relation between distance function and efficiency measurement:the fourth section raises three different definitions and their measurement and decomposition. The fifth part is summary of part 2. The third part describes methods used to identify capacity utilization. This part consists two sections; the first section is a non-parametric measurement of capacity utilization--data envelopment analysis; the second section is the parametric method--stochastic production frontier approach. The fourth part is the empirical part of this article, consists of four sections, the first section describes the selection of indicators and sample, the second section uses data envelopment analysis to calculate the efficiency of capacity utilization and its decomposition of 22 listed steel companies; the third section uses stochastic frontier model to calculate the 22 companies' capacity utilizations and their decomposition, thereby compare the differences of SFA and DEA. PartⅤ, this article will summarize and propose suggestions on policies and decision making.The paper concludes that average radial capacity utilization of 22 listed companies was 61.2%, the average technical efficiency of 90%, while the optimal capacity utilization was 69.0%, indicating that while enterprises were operating at a higher technical efficiency level, there also exists a serious overcapacity. This article proposes policy recommendations together with directions of improvement for this article.