Dose China’s overcapacity-cutting campaign take effect as intended? Evidence from listed manufacturing companies

Abstract

ABSTRACT China has implemented overcapacity-cutting actions in the past few years, and this article focuses on the policy effects on the capacity utilization of firms in manufacturing industries. Based on the data from listed firms, this study measures the firm-level capacity utilization in 2011–2020 using a cost function method in translog form. And on this basis, using a difference-in-differences model, the policy effects are empirically verified. Our results suggest that the implementation of the policy from 2016 relatively increased the capacity utilization of firms in targeted industries with serious overcapacity, and the positive impact continues during the 13th Five-Year Plan period. Further, for firms in the steel industry, we find that their capacity utilization was affected more strongly and more persistently since 2016. We see these findings indicate that China’s overcapacity-cutting policy has not only eliminated a large amount of outdated excess capacity but also improved the efficiency of resource utilization for the remaining companies in the target industries.