Research On Administrative Monopoly Of Tobacco Industry In China

In 30 years of reform and opening up, China has gradually achieved a great historical turning from a highly centralized planned economy system to a robust socialist market economy system. In this process, "the visible hand" and "invisible hand" and their cross-cutting in economic activities yield a series of special economic phenomena and problems, some of which has become the constraints of reform and development. Administrative monopoly appears in this period and is a typical economic phenomenon that is the government influences and limits the market to play a role (Yu Liangchun and Yu Donghua,2009).China's Tobacco Industry is an integral of part of national economy, and one of important source of national finance. Tobacco monopoly system is the basic system of the tobacco industry; the core is the "unified leadership, vertical management, monopoly franchise." "Tobacco Monopoly Act" expressly provides that "the state supervises monopoly for the production, sale, import and export, and implements monopoly license system". This paper argues that tobacco monopoly system essentially represents a kind of administrative power, it is implemented by government departments with significant mandatory and exclusive, so china's tobacco industry actually is an administrative monopoly industry.This paper focuses on administrative monopoly and reveals the administrative monopolistic level of China's tobacco industry and the influence of administrative monopoly on the efficiency of China's tobacco industry, and researches the dynamic and resistance mechanisms of institutional change of China's tobacco industrial administrative monopoly, and compares the governance modes of tobacco industry in the world. On the basis of theoretical and empirical study, the paper proposes reform ideas to break administrative monopoly of China's tobacco industry. In this paper, the research of administrative monopoly in China's tobacco industry consists of three parts:1. The measurement of the level of China's tobacco industrial administrative monopoly(1) The level of China's tobacco industrial administrative monopoly is measured from three aspects of system, structure and behavior. The result of the empirical study shows that China's tobacco industry is a high administrative monopolistic industry. First, the production and operation management of China's tobacco industry under the system of monopoly are highly concentrated and have high barriers to entry. The government has entirely driven the pricing of tobacco products. And the tobacco taxation system influences the market structure and enterprises' behavior of tobacco industry and the pattern of interest distribution between central and local governments, industrial and commercial. Second, the property rights of China's tobacco industry are entirely concentrated in the aspect of structure, but the market and brand concentration is very low. Third, the influence of the State Tobacco Monopoly Administrative Bureau on the conducts of China's tobacco industry is extremely serious. Over investment, exclusion of potential competitors and joint as the goal of target alliance are the reflections of Administrative power intervention in the resource allocation. These three aspects can show that China's tobacco industry under monopoly system is indeed highly industrial administrative monopolistic. And administrative power is the main means to allocate resources. The role of market mechanism is extremely weak.(2) The paper measures the level of regional administrative monopoly of China's tobacco industry with the measurement of spatial agglomeration degree. The changes of region segmentation and industry agglomeration are in the opposite direction, the lower (higher) the industry spatial agglomeration is, the higher(lower) the regional administrative monopoly is. The measurement results show that the spatial agglomeration level of China's tobacco industry is overall low and there is serious region segmentation, that is to say the regional administrative monopoly level is very serious. The dynamic changes of the spatial agglomeration level of China's tobacco industry during 1983-2006 show that the regional administrative monopoly has a deteriorating trend after a slight decrease.2. The measurement and its determination of administrative monopolistic efficiency in China's tobacco industry(1) The production efficiency losses caused by administrative monopoly in China's tobacco industry are measured using the data envelopment analysis (DEA). The paper uses DEA method to study the influence of administrative monopoly on the efficiency of tobacco enterprises with the provincle panel data during 1998-2006. On this basis, the analytical framework of group technical efficiency (GTE) is applied to analyze the influence of administrative monopoly on China's tobacco industry. Empirical study shows that the efficiency losses are 24.3% and 11.1% respectively caused by industrial administrative monopoly and regional administrative monopoly during nine years of 1998-2006. The overall efficiency losses of China's tobacco industry caused by administrative monopoly are 32.7% that is 81.7% of overall losses of China's tobacco industry.(2) From the perspective of rent dissipation the paper empirically studies the social welfare losses caused by administrative monopoly of China's tobacco industry. The rent dissipation of administrative monopoly includes social welfare losses, X-inefficiency, rent-seeking costs, high-income of the inter-industry workers and the non-normal expenditure of the administration. The empirical measurement shows that the total rent dissipation caused by administrative monopoly of China's tobacco industry during 1998-2006 is between 1072.731 billions yuan and 1331.771 billions yuan. The total rent dissipation due to the deadweight losses is between 210.96 billions yuan and 470 bilions yuan. The total rent dissipation due to X-ineffiency is 717.822 billions yuan which is the largest part of all rent dissipation. The total rent dissipation due to rent-seeking is 71.54 billions yuan. The total rent dissipation due to high-income is 31.47 billions yuan. The total rent dissipation due to non-normal administrative expenditure is 40.939 billions yuan.(3) The determinants of taxes and profits of China's tobacco industry are empirically estimated with econometrics' methods. The results of empirical study show that the industry concentration hardly influences the taxes and profits of China's tobacco industry without considering the impacts of regional monopoly. If the regional monopoly is considered, regional monopoly and industry concentration have a significant positive impact on the taxes and profits of China's tobacco industry. Based on the above, the paper gives the answer to the issue that is the taxes and profits are caused by monopoly or high efficiency. The results show that the high level of taxes and profits is caused by both monopoly and efficiency, and the promotion of monopoly is much higher than that of efficiency.3. The reform of administrative monopoly in China's tobacco industry(1) The paper studies the change mechanism of China's tobacco industry administrative monopoly institution. A force-resistance model of institutional change is constructed to theoretically research the influence mechanism of the force and resistance and their interest groups on institutional change. First, without considering the scope of the interest groups, the relationship between the resistance (the force) and the resistance interest groups (the force interest groups) and their interests (losses) is positive. Second, the relationship between the ability of collective action of interest groups and their force or resistance is also positive. Third, at a given time, institutional change will occur only if the force is greater than the resistance. From one time point to another time point, institutional change will occur only of the changed force is greater than the changed resistance. On the basis of the model, the paper analyzed the resistance groups including the Tobacco Monopoly Bureau, local governments, tobacco industries and businesses and the force groups including foreign capital, public health, consumers and tobacco farmers and their interests and losses. The results show that the monopoly system of tobacco industry will continue in short run without considering the influence of foreign capital and public health. In the long run, as the groups of foreign capital and public healthy policy grow stronger and when the force is greater than the resistance, the tobacco monopoly system will change. Taking into account the strong resistance groups in the process of China's tobacco monopoly system changes and to avoid conflicts between interest groups, the change in the tobacco monopoly system should adopt a combination of mandatory and progressive mode.(2) The paper studies the choice of tobacco industry governance mode and gives an international comparison about tobacco industry governance modes. From the tobacco industry's own features, the market and government are both required to participate into the tobacco industry governance. The relative efficiency of government and the market determines the tobacco industry governance mode choice. We reference the general analysis framework of social institution choice in new comparative economics to construct a model of the tobacco industry governace mode choice. And we analyze the short run equilibrium and long run equilibrium of the tobacco industry governance mode choice respectively. The results show that when the efficiency of the government regulation is higher than the market allocation efficiency, the government should be more applied and the market should be less applied. When the market efficiency is higher than that of the government, the market should be more applied and the government should be less applied. At the same time, according to the different participation levels of the market and the government, the governance of tobacco industry can be summarized four basic modes including the complete state monopoly mode, incomplete state monopoly mode, market-driven mode and fully market-oriented mode. Finally, we advance that China's tobacco industry governance mode should change from the current state monopoly mode and through a transition period to market-driven governance mode with the regulation of the government.Finally, the paper advances the policies to break and reform administrative monopoly of China's tobacco industry at this stage. The policies include separating the government from the firms and reducing the administrative intervention of the Tobacco Monopoly Bureau, to adjust the current tax system and reduce administrative intervention of local government, to promote market-oriented reform and introduce competitive mechanism of market economy, to establish regional large tobacco group through inter-provincial and trans-regional consolidation and reorganization of tobacco enterprises, to develop big tobacco brands and give the brands full play to optimize the tobacco resource allocation, to encourage and promote the domestic tobacco companies "going out", to break the administrative monopoly of China's tobacco industry based on "anti-monopoly law" and "anti improper Competition Law "and other legal means.