Guy S. Liu

THE EFFICIENCY OF FIRMS: WHAT DIFFERENCE DOES COMPETITION MAKE?*

In Cournot oligopoly the efficiency of a firm relative to others determines its market share: this relationship gives an incentive to improve efficiency. The incentives are greater in markets where firm behaviour is more competitive. Components of firm efficiency are identified by frontier production function techniques in 19 UK manufacturing sectors: technical change, average efficiency of each firm relative to the frontier, and the efficiency of each firm relative to its own ‘best practice’ in each period. Short run declines in market shares and profits induce the firm to improve efficiency relative to its ‘best practice’. Long run differences in efficiency are correlated with differences in gross investment.

How will ownership in China's industrial sector evolve with WTO accession?

Abstract What changes will WTO accession bring to Chinas industry? Will it cause large state firms to be stronger or weaker, and if so, how? The paper applies the market structure theory to develop a tool called the market-share testing principle to answer these questions and to analyze ownership evolution in Chinas industry. Our main finding is that many large state firms will survive, and their survival strategy will involve changing from being wholly state-owned and state-controlled to diluted state ownership and reduced state control. This partnership with the private sector will get them the funding, technology, and improvements in corporate governance that will enable them to grow. WTO membership will accelerate the emergence of a greatly diversified ownership structure.

The Investment Behaviour of Firms in an Oligopolistic Setting

Industrial organization theory has identified strategic investment in capacity as an important element in competition in oligopolistic markets. In this paper, the authors specify a model of oligopolistic investment behavior and test it with panel data for 114 firms in fifteen narrowly defined U.K. manufacturing industries in the 1970s and 1980s. The industries are distinguished according to their market characteristics as fragmented, dominant firm, and dominant group sectors. The results indicate behavior that is noncooperative in fragmented sectors, cooperative in dominant group sectors, and competitive in dominant firm sectors. Copyright 1998 by Blackwell Publishing Ltd

Cost Behaviour of Chinese State-owned Manufacturing Enterprises in the 1980s

This paper aims to model the cost behaviour of Chinese state-owned enterprises in the 1980s. Given production autonomy and profit-related bonus incentives, state firms are expected to increase profits and therefore bonuses by changing their cost behaviours more rationally. However, since institutional constraints remain and distort the rational demand of the firm for input factors, the changes cannot go as far as expected by the standard neoclassical cost minimisation theory. Based on this, we derived a total cost function for Chinese state firms restricted by the government control over their total wage bills. We then test it using a panel data of 386 state manufacturing enterprises in the period 1983-87. It is found that the model predicted well. Despite the constraints, the reform did lead the firms to respond to both changes in factor prices in the directions expected by cost minimising behaviour and to bonus incentives to produce more efficiently.

The performance impact of firm ownership transformation in China: mixed ownership vs. fully privatised ownership

Does ownership transformation affect firm performance? On the basis of an analysis of over 1100 Chinese companies during the period of ownership reform (1997–2003), this paper identifies that, for China that has the world’s largest state sector under transition, the mix of state and private ownership – partial privatisation – emerges as the best performing type of ownership model for Chinese firms. The finding supports the argument that firms can gain the best synergy of both state support and private business strength, which provides a good explanation to the current campaign of mixed ownership for further reform of state enterprises after 2013.

The Chinese electricity industry: supply capacity and its determinants with reference to OECD countries

This paper takes a two-stage estimation approach to investigate the direct and indirect determinants of the capacity of power supply in China, with reference to the Organization for Economic Cooperation and Development countries. In the first stage we investigate the determinants of demand for electric consumption and in the second stage we test the impact of demand for consumption on capacity. Our study shows that the direct impact on capacity growth is mainly of GDP growth, which is a China-specific effect, and load factor, which is a non-China specific effect. Capacity investment is driven by the demand for power relative to the utilization of existing capacity. Furthermore, power prices and the industrial structure of an economy are the indirect determinants of capacity through their impacts on demand. The industrial structure has a strong influence on the power demand in China, since the country has accelerated its industrialization with more investment in heavy industry that further fuels the demand for power and therefore supply capacity.

Understanding the Performance of the Electric Power Industry in China

Despite three decades of reform, Chinas electricity sector is still organized by a “new reformed plan” where capacity investment has been liberalized but prices and production remain controlled. This paper examines the impact of the current plan prices on end-users with reference to the OECD and how the plan price of electricity supply is formed. We argue that the plan price is set in an attempt to balance the interests of the public and the power industry. We find that Chinas industries do not pay a cheaper price for electricity than the West, and the plan price is formed through bargain between the firm and the state, which allows the firm to have a soft price constraint on its costs.

Labour supply and pollution in China

In the context of sharply declining labour supply in China, this article analyses the relationship between pollution and labour supply theoretically. In addition, using Chinese provincial data, we find that pollution impacts negatively on labour supply and that this is aggravated by rising labour income.

Steel demand and steel consuming industries in China

This study analyzed the relationship between steel demand and supply in steel industry in China. Cointegration, vector auto regression (VAR), vector error correction model (VECM) and Granger causality are applied on yearly data set covering the period 1978-2005. The major findings of the paper are: (1) the apparent steel consumption is cointegrated with the machine-tool production and floor space of building under construction; (2) there are two-way Granger causality between steel consumption and the two steel consuming industries: machinery and construction.

Privatisation or Competition

Market competition is essential for any economy to be efficient. In order to develop competition in a transition economy, it is conventionally thought that privatisation should take place first. This wisdom has been challenged by the Chinese reform experience of the last two decades, which modified the incentive structure of state enterprises and created markets and market competition in the absence of large scale privatisation. Chinas experience, however, raises the question of whether its chosen type of reform is sufficient to promote competition in a market dominated by public firms. To answer this, we need to know what kind of markets were created – regional markets closed to trade or unified markets with easy access – and whether or not improved incentives for state firms have led to competition. This paper investigates these questions on the basis of a survey of both theory and empirical evidence; and finds that the Chinese reform policies did succeed in stimulating competition among state firms.