Overcapacity and enterprises’ multi-dimensional innovation capabilities

XIA Xiaohua1 SHI Yupeng2 YIN Zhifeng2

(1.School of Economics and Institute of China’s Economic Reform & Development, Renmin University of China, Beijing 100872, Beijing, China 100872)
(2.School of Economics, Central University of Finance and Economics, Beijing, China 100081)

【Abstract】Development of innovation and overcapacity are two core issues in China’s present economic development. The analysis on the relevance of the two will provide theoretical support for solving the current overcapacity. Based on World Bank’s enterprise surveys data, the authors study the role of innovation in eliminating overcapacity. Innovation is divided into product and service, process, management and marketing innovations, and it is found that improvement in innovation capability is an effective tool to eliminate overcapacity. Furthermore, in the current stage, strengthening management and marketing innovations will help cut overcapacity in a sustained and stable manner, showing more significant effects. The research also indicates that state-owned enterprises have the dual features of serious overcapacity and insufficient innovation capability, compared with non-state-owned ones. Such dual features are mainly reflected in state-owned enterprise groups whose shares are not completely held by governments. Based on the core role of innovation in the process of eliminating overcapacity, the authors argue that enhancing institutional mechanisms and promoting the innovation of state-owned enterprises have the dual effects on improving state-owned enterprises’ innovation operating efficiency and resolving overcapacity.

【Keywords】 overcapacity; innovation; state-owned enterprises; management innovation; marketing innovation;

【DOI】

【Funds】 Project of Department of Innovation and Development, Ministry of Science and Technology of the People’s Republic of China Innovation and Development Division (ZLY2015117).

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(Translated by ZHONG Yehong)

    Footnote

    [1]. ① Overcapacity refers to the difference between maximum and actual outputs in enterprises in normal production conditions. In the case of market economy, overcapacity indicates that the supply of products or services exceeds the market demand. Overcapacity may also be measured by the utilization degree of equipment, with the supply of production equipment exceeding the market demand. The machinery and equipment are unable or difficult to be used for other purposes due to asset-specific characteristics; they exist in an excess status and become “sunk costs.” [^Back]

    [2]. ② Currently, all the main industries with overcapacity are competitive ones, including traditional industries such as steel, cement, flat glass, coal chemical, shipbuilding and machine tools, and emerging industries represented by polysilicon and wind power equipment. [^Back]

    [3]. ① Just as Zhang Ping, Director of National Development and Reform Commission said, China faces overcapacity in flat glass, but electronic flat glass has been imported; it has overcapacity in fan and wind power equipment, but has to import fan bearings and control systems. [^Back]

    [4]. ② There are still a lot of difficulties in measuring the degree of overcapacity from the perspective of micro-enterprises (Zhou, 2007). The empirical studies in this area are insufficient. [^Back]

    [5]. ① In accordance with the 2014 national enterprise innovation survey statistics from 2013 to 2014, among China’s industrial enterprises achieving product innovation, 62.2% had new products in China’s market, but only 21.7% had new products in the international market. The latter proportion is expected to be even lower in all enterprises (including those achieving and those not achieving product innovation), and in enterprises in and before 2010. [^Back]

    [6]. ① For more detailed information, please see the World Bank’s official document “People’s Republic of China 2012 Enterprise Surveys Data Set.” [^Back]

    [7]. ② According to the experience of the United States, the utilization rate of capacity exceeding 95% represents that capacity utilization is close to saturation; when the utilization rate of capacity is between 81% and 90%, it indicates normal capacity utilization; when the rate is less than 81%, it indicates serious overcapacity (Yang, 2013). In robustness testing, when the threshold is set to be the utilization rate of capacity lower than 70%, main conclusions are still valid. [^Back]

    [8]. ① Hefei and the food industry are the benchmark groups for geographic and industrial classification, respectively. [^Back]

    [9]. ① For example, Bao (2010) conducted a case study on “top 50 steel trading companies in Shanghai,” and found that innovations on marketing models had significantly positive impacts on the reduction of capacity. These steel circulation enterprises effectively resolved overcapacity through innovations on marketing models, including those on connection, advance funding, processing and distribution, and reasonable allocation of assets. Among them, reasonable allocation of assets is achieved mainly in ways such as on-the-spot trade, inventory, electronic transactions and futures transactions, which is the closet to the model of marketing innovation defined in the paper. [^Back]

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This Article

ISSN:1002-5766

CN: 11-1047/F

Vol 38, No. 10, Pages 25-39

October 2016

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Article Outline

Abstract

  • 1 Introduction
  • 2 Innovation and overcapacity: theoretical hypothesis
  • 3 Innovation and overcapacity: model and data
  • 4 Empirical results
  • 5 Conclusion and policy implications
  • Footnote

    References