Government Investment, Excess Capacity And The Transformation Of Economic Development Patterns

Excess capacity was called "Repeated construction","Over investment" or "Over competition" previously. It has been always plagued economy of China. In recent years, the problem of excess capacity has been aroused high attention, and became the focal point of policy division. The problem of excess capacity is one of the unsolved problems in the process of development of China’s economy. A certain degree of excess capacity can stimulate the development of economy. But more than a certain limit, excess capacity will bring economy the very serious consequences. The reason that causes excess capacity is almost the over investment of government. The financial power and administrative power are separated between the central government and local government under the existing tax system of our country. The local government must have enough financial capital to complete infrastructure construction. So the local government has strong desire to investment and gives enterprise a lot of preferential policies to attract a large number of enterprises to the local. At the same time, the existing officials’promotion assessment system in our country is based on GDP, so officials have a stronger desire to appeal to the enterprise to the local to increase GDP. The unclear land property right and soft budget constraint creates a good environment for the investment of government. This paper will discuss the unclear land property right and soft budget constraint to illustrate formation mechanism of investment impulse of our government. Excess capacity will become an inevitable result in the strong investment impulse of government. This article will explain it through establishing the model. The phenomenon of the excess capacity is bound to have effect to development of economy and the change of economy development mode. The most direct impact of excess capacity on corporate is decline of the profits. Enterprise has to lay off employees in order to control cost. This affects the employment rate of the whole society seriously. On the other hand, the impact of excess capacity on resources and environment is worse. Limited resources of our country are largely mined. It hindered the sustainable development of our economy seriously. This series of influence hindered China’s long-term economic development seriously. Therefore the management of problems of excess capacity should be paid attention to. To solve the problem we have to analysis the phenomenon of excess capacity that happened in China and in foreign. This paper analyzes the characteristics and main reason of excess capacity that happened in China since reform and opening up and also discusses similarities and differences of the two-wheeled expansionary fiscal policy under the background of economic crisis and the references from foreign experiences. At last, this paper explains the low efficiency of government investment output by establishing model. Aiming at these problems, this paper put forward the main ideas that control and prevention over capacity are:1. Clear resource allocation range between the government and the market;2. Reform the system of tax-distribution;3. Perfect financial and tax system of restrain industries of excess capacity;4. Perfect financial and tax system of support emerging industry;5. Perfect financial policy of restrain industries of excess capacity. Finally, this paper also puts forward some related measures are:1. Perfect the legal means to governance excess capacity;2. Establish the market access mechanism and exit mechanism;3. Promote the reform of the administrative system actively.