The spatiotemporal effect of factor price distortion on capacity utilization in China’s iron and steel industry

Abstract

Under the situation of global climate change and green transition, China’s iron & steel industry (ISI) faced great pressure to energy conservation and cut backward overcapacity. To explore the characteristics of overcapacity and inherent impacting factor of capacity utilization, the study focused on the relationship of incomplete input factor market and overcapacity. Based on provincial data from 2003 to 2019, the study estimated capacity utilization rate in China’s ISI sector, and further evaluated the impact of factor price distortion on capacity utilization rate and its spatiotemporal effect through dynamic spatial model. Firstly, the capacity utilization rate China’s ISI sector showed regional heterogeneity with an average level of 68%, and the capacity utilization rate would be promoted by previous capacity utilization rate and capacity utilization rate of neighbor provinces; Secondly, capital and energy price distortion showed significant negative effect on capacity utilization, while labor price distortion positively promoted capacity utilization; Thirdly, from the perspective of spatial effect, capital price distortion showed significantly negative effect on capacity utilization. Therefore, deepening factor market reform and reducing the intervention of local government would be effective way to improve capacity utilization and promote cleaning production.