The impacts and potential mechanisms of credit support with regard to overcapacity: Based on theoretical and empirical analyses of steel enterprises

Abstract

Credit support is crucial to the expansion of production capacity, and the procyclical nature of bank credit activities will have a profound impact on the formation and evolution of excess capacity. Because steel enterprises represent a basic industry with a high degree of relevance, research conclusions based on the steel industry will provide general theoretical support and decision guidance for related research on other overcapacity industries such as coal, cement, flat glass, electrolytic aluminum, and ships. Based on the data of Chinese industrial enterprises from 2002 to 2013, this paper uses the cost function and seemingly unrelated regression (SUR) method to measure the capacity utilization of China's steel enterprises and discusses the influence of bank credit support on the overcapacity of these enterprises as well as the transmission mechanism of this influence. The following conclusions are drawn: (1) Credit support significantly and strongly reduces the capacity utilization of steel enterprises. Although “credit discrimination” has widened the capacity utilization gap between state-owned and non-state-owned enterprises, credit support has a far more marginal impact on non-state-owned enterprises than on state-owned enterprises. (2) Credit support has accelerated the accumulation of capital in steel enterprises, but it has not caused a significant increase in capital quality or the technological level; this low level of expansion is particularly prominent in non-state-owned enterprises. (3) The phenomenon of “bank-enterprise symbiosis” existing in the allocation of credit resources means that the worse the enterprise's operating efficiency is, the greater the amount of credit resources that are available, and this obstacle to the exit of production capacity is more obvious in state-owned enterprises.