To resolve overcapacity, we must use market competition mechanism

In order to actively and steadily resolve the serious overcapacity of steel, cement, electrolytic aluminum, flat glass, shipbuilding and other industries, and to guide the resolution of other overcapacity industries, the State Council recently issued the "Guiding Opinions on Resolving the Severe Overcapacity of Production Capacity". This is another major measure for the new government to co-ordinate steady growth, adjust structure, promote transformation, and build an upgraded version of China's economy. It is also the focus of work to transform economic development mode and promote industrial restructuring in the current and future period.

Overcapacity is a very prominent problem in China, and its negative impact on economic development is very obvious. Overcapacity makes the production of enterprises in a low-efficiency or even ineffective state, and the vicious competition between enterprises in the same industry, some export-oriented enterprises will also use this low-price marketing strategy in the international market, causing trade friction. Therefore, from a global perspective and a long-term perspective, it is necessary to give high priority to the problem of overcapacity and take effective measures to resolve the governance.

However, overcapacity is not a problem that needs to be faced today. In fact, since the 1990s, overcapacity has been a chronic disease that has plagued the healthy development of China's economy. Every overheated investment will bring overcapacity problems, which has become an important direction in the government's economic regulation. However, in the past 20 years, in the process of economic operation, the phenomenon of overcapacity has fallen into a strange circle. The policy has been tightened to see some effects, and the problem of excessive overcapacity in the policy has become prominent. Therefore, in order to resolve the "difficult problem" of overcapacity, the first thing that needs to be solved is where the root cause of overcapacity is.

When an industry produces relatively large profits, driven by the market's profit-seeking effect, there will inevitably be various capitals entering, resulting in overcapacity, lowering the profitability of capital, and even making the entire industry in a state of total loss. However, in a mature market economy environment, when this phenomenon occurs, the market system will have a role, and some enterprises that have poor strength or lose their business will automatically withdraw from the market, thus returning the entire industry to a normal state. The government does not need to exercise too much in this regard. However, China's overcapacity problem is not entirely a product of the market. The government's excessive intervention in economic operations has caused some industrial policies to be divorced from reality. Under the drive of gross domestic product (GDP) batons, the government's enthusiasm for capacity expansion Enterprises are rising higher, making the market's early warning effect on corporate investment behaviors fail.

Therefore, resolving overcapacity is a problem that needs to be explored. The State Council's "Guiding Opinions" established the basic principle of resolving overcapacity: in accordance with the general principles of respecting the rules, dividing the policies, multi-pronged approach, and treating both the symptoms and the root causes, we will focus on strengthening macro-control and market supervision, resolutely curbing the blind expansion of production capacity;锄 Production, improve supporting policies, respectively “digest a batch, transfer a batch, integrate a batch, eliminate a batch of excess capacity”; focus on innovation system and mechanism, accelerate the transformation of government functions, and promote industrial transformation and upgrading. It can be seen that although this basic principle emphasizes the use of the market, the government has been given more roles.

Since the government has the power to approve many investment projects, it is of certain practical significance to use the government to tighten the entry barriers of certain overcapacity industries. However, when the government has mastered the power to control excess capacity, the role of the market will be secondary, and even the government will limit it for various reasons. The Chinese government has established an access mechanism for many industries, and now it is reforming it to expand the door for private capital to enter the investment field. However, this is still evidenced by the fact that the government is managing the market. The government’s vision is no better than that of the enterprise. After the government’s decision-making replaces the market system, the final result is “retaliation from the market”. Overcapacity is only one of them. One aspect of it.

Therefore, to solve the problem of overcapacity, a more effective way is to let the government withdraw from excessive intervention in the micro-economy and use the market competition mechanism to eliminate excess capacity. In this regard, the negative list management model implemented in the newly established Shanghai Free Trade Zone can be inspired. The government no longer approves investment projects outside the list, and the recent registration of enterprises in the Free Trade Zone has risen. Will this lead to overcapacity in certain industries in the Free Trade Zone? The government does not need to exercise this kind of heart, because even if this happens, the role of the market will force excess capacity to find another way out.

Of course, using the power of the market to resolve the problem of overcapacity does not mean that the government can be a “hands-on shopkeeper” in the market. Instead, it needs the government to change the old concept of administrative examination and approval, and no longer use the approval power in the hands to intervene in the market. The government's impulse to curb new investment projects also requires the government to no longer use the access mechanism to limit the entry of some enterprises. What the government needs to do is to use regulations to regulate the industry and strengthen supervision of environmental energy consumption safety and product quality. For overcapacity industries, the government should actively create a fair trade market environment, allowing enterprises to use capital mergers and acquisitions to achieve industrial transfer, rather than simply using administrative orders to promote closure and transfer.

Potassium Chlorate

Potassium Chlorate,High Purity Potassium Chlorate,Bulk Potassium Chlorate,General Potassium Chlorate

Rucheng Sanxing Electric Chemical Co.,Ltd , https://www.3xchemical.com