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Mechanism of Excess Capacity Based on China’s Regional Competition and Market Distortion
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TitleMechanism of Excess Capacity Based on China’s Regional Competition and Market Distortion  
AuthorJIANG Feitao,GENG Qiang,LV Daguo and LI Xiaoping  
OrganizationInstitute of Industrial Economics, CASS;Center for Yangtze River Delta Economics and Social Development Research, School of Economics of Nanjing University;School of Business, Sun Yat-sen University,,, 
Key WordsExcess Capacity; Investment Subsidy; Cost Externalization; Risk Externalization 
AbstractThis paper focuses on how the defect of China’s economy system and the unhealthy competition of local governments lead to the formation of redundant construction and excess capacity: China’s fiscal decentralization and the political promotion system between local officials based on the growth of GDP lead to the intensive competition of capital inflow, resulting in strong motive forces of local governments for intervening enterprises’ investment and issuing many preferential policies. Defined ambiguously property rights of land, the serious defect of environment protection and the problem of the soft-restricted of financial institution make room for local governments to undersell industry land,to sacrifice environment intending to provide help for enterprises to obtain financial resources, which plays important roles in competitions. The effects caused by local governments’ behavior mentioned above is the result of the local government’s behavior of underselling land so as to support loan, to distort enterprises’ investment behavior, which leads to excess investment capacity, redundant construction and excess capacity. For the purpose of settling these problems, we should promote reformation in the field of land property right, environment protection mechanism, financial system, and the promotion system of local officials. 
Serial NumberWP101 
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