A study of the impact of de-capacity policies on industry capacity utilization paths: Evidence from the Chinese steel industry

by Shixin Shi, Hao Li, Hongsong Tang, Yang Liu

The issue of overcapacity has become an unavoidable challenge in the rapid development of nations, constraining economic progress, particularly within industries like steel, coal, and cement. This study, using the example of the Chinese steel industry in the context of supply-side structural reform, employs data envelopment analysis (DEA) models to measure capacity utilization, and ordinary least squares (OLS) models to investigate the impact of capacity reduction policies on the steel industry’s capacity utilization pathways. The research findings indicate that capacity reduction policies have a significantly positive impact on the capacity utilization in the steel industry. They enhance capacity utilization through four pathways: “equipment optimization and upgrade”, “enterprise mergers and restructuring”, “technology innovation-driven”, and “environmental protection regulations”. Among these, “technology innovation-driven” and “environmental protection regulations” play predominant roles, while the effect of “international market expansion” on increasing capacity utilization in the steel industry is not significant. To ensure the sustained effectiveness of capacity reduction policies, the nation should continue to strengthen the “technology innovation-driven” and “environmental protection regulations” pathways. Additionally, it should activate the “national market expansion” pathway, fully exploring the potential for international cooperation to achieve improved capacity utilization in the steel industry.