The Factor Price Distortions And Its Impact Of The Industrial Sectors In China

Since the reform and opening-up, China has gradually abolished the double-track price system of the product market, and until now a unified and competitive product market has been reformed. However, the reform process of the factor markets is lagging behind, and the productive factor-market distortions of labor, capital, energy, land and other important factors are still existing, which lead to the price factors being distorted. Particularly, for the industrial sectors, the factor price distortions are more prominent. Currently, the factor of industrial economy in china has been distorted to what extent? and what impact dose the factor distortions on the industrial sectors in china? Based on these issues, the relevant theoretical and empirical research have been expended in this paper.On the basis of the existed relevant literature, the following conclusions were drawn firstly, including:firstly, the institutional factor is the major factor which causes the factor market distortions; secondly, the distortions of the factor markets in china is serious generally, furthermore, the extent and direction of distortions are with differences between different factor, industries, regions and ownership; thirdly, the factor market distortions have a negative effectiveness on many aspects of the economy.Secondly, based on the production function method, a prediction model of factor distortions was constructed on the enterprise level and the industry level respectively, and based on the proposed model, the degree of factor distortions of industrial enterprises and industry were estimated between1999-2009. The results showed that both the capital factor and the labor factor appear varying degrees of distortion; at the enterprise level, the degree of price distortions of the labor and capital basically greater than1, which means that the industrial enterprise capital and the absolute cost of labor are too low in China; at the industry level, the differences in the relative factor distortions between different industries are large, and the degree of capital and labor distortions in heavy industries are much obvious than that of the light industries.Finally, Based on the prediction of the factor market distortions, this paper established a model to estimate the effectiveness of factor price distortions on the productivity and the total output. The results showed that, firstly, from the empirical study about the impact of the factor price distortions on the productivity, we can conclude that the average loss of productivity was 26.89%. Besides, on the aspect of different industries, the TFP loss rate of heavy industries is higher than that of light industries; secondly, from a dynamic point of view, the growth of total industrial output was decomposed, and the impact of the factor price distortions on the overall output growth was investigated, on which the following conclusions can be obtained:firstly, among the factors driving the growth of the industrial economy, the input-growth effect has the highest contribution rate; secondly, the contributions of the industry TFP to the total output are positive, but the factor distorting effect of the enterprises offsets some of this effects; thirdly, the portion changing effect of the total allocation effect is positive, but because of the distorting effects of the industry is negative, its total effect on the overall output growth is negative; fourthly, by the comparisons of the negative effects of the enterprise and industrial factor price distortions on the growth of the total output, we found that the loss caused by the factor price distortions at the enterprise level is higher than that at the industry level.At the end, the obtained conclusions are summarized, and some relevant policy recommendations are proposed.