China’s Intra-industry Misallocation:Estimates,causes,and Countermeasures Research

Removing resource misallocation by which the growth of TFP has been seriously hindered is significant for China to realize sustained growth and surmount middle-income trap.By estimating the degree of misallocation in three representative industries of China from 2011 to 2013,and analyzing and comparing reasons behind the misallocation,the paper attempts to seek deep sources of misallocation and to make suggestions for future reform.According to the degree of marketization and ranging it from low to high,the paper identifies three representative industries orderly as Tobacco products、Motor vehicles and Textile mill products.We develop a new way that utilizes residuals of regressing TFPR on TFPQ to measure the degree of resource misallocation.Applying the new method and using plant-level data from the China Industry Business Performance Data(2011-2013),we find that the range of degree of misallocation in three industries from low to high is likewise Tobacco products、Motor vehicles and Textile mill products,and that if resource miasallocation does not exist,they can boost TFP by 52.9%、492.6%、588.4% respectively.Our method of measuring misallocation facilitates the analysis of its contributing facors.Applying it and through adding different variables that describe the nature of business in regressing,we make abundant and sound empirical research.We find that ownership is still the principal cause of China‘s resource misallocation: in each industry state-owned plants have got the most resource and public support,and meanwhile foreign-owned plants occupies more resource than privately owned domestic plants,so we can see that the privately owned domestic plants still stay at a disadvantage.Ownership and the degree of marketization also impact the persistence of misallocation.Tobacco industry which has the lowest market degree shows the strongest persistence of misallocation since its 95% of variation in current year‘s misallocation can be explained by the misallocation in last year,while only 24% of misallocation variation in Motor vehicles and 30% of misallocation variation in Textile mill products can be explained by resource misallocation in last year.Our result shows that one important channel of ownership in China to impact resource allocation in moderately market-oriented industry and considerably market-oriented industry is the unchanged lackage of exit mechanism for state-owned plants.Exits in these industries are more closely related to the lack of productive resouces rather than productivity,and among all the ownerships,as productivity falls,only exit probability of privately owned domestic plants would increase,suggesting that the state-owned plants even in these industries where they appear as a low proportion do not have efficient exit mechanism so that phenomenons such as dominating resouces inefficiently and sucking blood from banks still exist.Besides ownership,we find plants that export,including privately owned domestic plants that export,get more productive resources such as better access to credit and public output subsidies,which means whether export or not also contributes to the formation of misallocation in China.According to our estimate results,as the most market-oriented industry in our paper textile also has the highest degree of misallocation.To research why this happens,we contrast textile industry with tabacco industry for the same empirical programs,finding that there are indeed extra misallocation contributing factors in more market-oriented industries.First,for example,plant age is one of these extra factors.As plant age increases,in a highly market-oriented environment,the plant will develop advantages on getting resources gradually and spontaneously.Second,disparate development of regions can also cause misallocation.Since factors contributing to China‘s regional disparate development include not only innate comparative advantage but also policy disparities,namely disparities on degree of economic reforms,the highest degree of misallocation in textile industry has exactly reflected the contradiction between the partial intra-industry reform and the not thoroughly free economic system.Our result has many important caveats.Because ownership and the tough situation of private economy contribute most to China‘s resource misallocation and heavily hamper its growth of TFP as well as output,China still has to deepen reforms of state-owned plants and further economic liberalization.But in the meantime,ownership is not the unique factor causing miasallocation,so the resolution of misallocation also need other means,such as moderately turning around outward-looking economy,promoting balanced development among regions,enhancing anti-monoply system construction,cracking down rent seeking and corruption,to work together.