Whether to effectively solve the overcapacity is related to high-quality economic development and social stability. It is of great theoretical and practical significance to explore how to improve the capacity utilization rate under the new development pattern. It is found that the opening of Chinese service industry has significantly improved the capacity utilization rate of enterprises by improving productivity, promoting export expansion and reducing inefficient investment. The improvement effect of capacity utilization rate through the opening of the service industry is more important for private enterprises, general trading enterprises, high capital-intensive enterprises and enterprises with low financing constraints, which promotes the transformation of export enterprises from indirect export to direct export mode, from non-general trade (pure processing trade and mixed trade) to general trade form, so as to further improve the capacity utilization rate of enterprises. It provides a feasible solution for China to solve the overcapacity through the opening of the service industry.

1. Improve Capacity Utilization Rate to Provide New Path of Solving Overcapacity in Chinese Manufacturing Industry

In the context of the current economic slowdown, some industries face the risk of overcapacity. From a long-term perspective, the overcapacity restricts the national economic growth and endangers national security and social stability. CPC and the Government have always attached great importance to the overcapacity. In 2013, Guiding Opinions on Resolving the Contradiction of Serious Overcapacity issued by the State Council pointed out that resolving the contradiction of serious overcapacity is a focus in promoting the adjustment of industrial structure at present and in the future. In the report of the 19th National Congress of CPC, cut overcapacity was the first task in deepening the supply-side structural reform. In the report of the 20th National Congress of CPC, it was emphasized continuously the supply-side structural reform. Undoubtedly, how to solve the overcapacity under the new development pattern has important theoretical and practical significance.

Since the reform and opening-up, compared with the manufacturing industry, the opening-up level of the service industry is relatively backward, which is mainly reflected in the strict foreign investment control imposed by the Government on the service industry; therefore, the releasing foreign investment control in the service industry has become the key link for China to promote its opening-up. However, the service industry is an important production input of manufacturing industry. The upgrading of manufacturing industry not only depends on the traditional material intermediate market, but also needs supporting service intermediate products, which objectively requires the development quality of the service industry. The opening of the service industry will introduce foreign service providers and intensify market competition, which will directly lead to the decline of service cost and the improvement of service quality, to provide assistance for the development of manufacturing enterprises. The Central Economic Work Conference in 2022 emphasized expanding high-level opening to the outside world, promoting institutional opening, and implementing national treatment for foreign enterprises. At present, the opening of the service industry is expected to become a new way to solve the current overcapacity. Firstly, the opening of the service industry can promote foreign service providers to enter the domestic market, increase the types of available services for manufacturing enterprises, deepen the social division of labors, improve their productivity, reduce their mismatch of resources, and enhance their ability to cope with uncertain demands, so as to improve their capacity utilization rate. Secondly, the opening of the service industry can improve the efficiency and quality of service providers and reduces the service prices, reduce their fixed and variable export costs, promote their export expansion, intensify their competition, force them to develop differentiated products and improve product quality, so as to further absorb the overcapacity. Thirdly, the demonstration effect caused by the opening of the service industry can improve the efficiency of the built-in service departments of manufacturing enterprises, reduce the information asymmetry between them and upstream and downstream producers and customers, so as to reduce their inefficient investment.

2. Theoretical Logic of Improving Capacity Utilization Rate of Manufacturing Enterprises by Opening up Service Industry

(1) Opening of service industry, productivity improvement and capacity utilization rate of manufacturing enterprises

Improving the productivity of manufacturing enterprises can reduce costs, improve product quality and enhance competitiveness, expand market share, and play a positive role in improving their capacity utilization rate. Manufacturing enterprises with higher productivity always have higher capacity utilization rate. Firstly, compared with manufacturing enterprises with low productivity, manufacturing enterprises with high productivity always have low mismatch of resources and high capacity utilization rate. Secondly, manufacturing enterprises with high productivity can choose small capacity and output to avoid risks and achieve high capacity utilization rate against uncertain demands. Therefore, how to improve the productivity of manufacturing enterprises is the key to improve their capacity utilization rate. The opening of the service industry provides a new feasible solution to this problem. Previous studies have found that the opening of the service industry has a significant role in promoting the productivity of manufacturing enterprises. Firstly, the opening of the service industry can intensify the competition among domestic service producers, save their costs from service links for R&D and innovation, reduce their R&D costs, and encourage their R&D and innovation, so as to improve their productivity. Secondly, after the opening of the service industry, foreign service producers with advanced technology and information can be introduced into the domestic market, to promote the competition improve the efficiency of domestic service industry, and enhance the productivity of manufacturing enterprises through inter-industry spillover effect. Thirdly, the introduction of foreign service providers can bring demonstration effect, to improve the efficiency of built-in service departments of manufacturing enterprises, and then enhance their productivity. Finally, the opening of the service industry can enable manufacturing enterprises to obtain intermediate inputs with more types and higher quality at lower costs, so as to improve their productivity.

(2) Opening of service industry, export expansion and capacity utilization rate of manufacturing enterprises

The export expansion of manufacturing enterprises includes export start of manufacturing enterprises without export services and export expansion of manufacturing enterprises with export services. The export expansion of manufacturing enterprises can increase their total demand, absorber their overcapacity and improve their capacity utilization rate. In addition, the export expansion can also intensify their competition, force them to carry out research and development of differentiated products, and encourage them to improve product quality for competitive advantages, so as to play a positive role in absorbing the overcapacity. On the other hand, the opening of the service industry has a positive impact on the export expansion of manufacturing enterprises. Firstly, it can reduce the prices of service inputs, reduce their variable and fixed export costs, so as to enable manufacturing enterprises without export services to pay fixed export costs and expand the sales of manufacturing enterprises with export services in foreign markets. Secondly, the knowledge and technology-intensive service industry not only plays a role in the production process of manufacturing enterprises, but also provides strong support for the circulation of products. After the opening of the service industry, foreign efficient service enterprises can be introduced into the domestic market, so as to reduce the leverage ratio of manufacturing enterprises, ease their financing constraints, and then promote their export expansion.

(3) Opening of service industry, reduction of inefficient investment and capacity utilization rate of manufacturing enterprises

Improper government intervention often provides some wrong signals to manufacturing enterprises and increase environmental uncertainty. Furthermore, the higher the environmental uncertainty is, the higher the information asymmetry between manufacturing enterprises and upstream and downstream producers and customers is, which may lead to inefficient investment of manufacturing enterprises, i.e., over-investment or under-investment that result in overcapacity. However, after the opening of the service industry, foreign service providers with operation and management modes and information of foreign service industry can be introduced into the domestic market to improve the efficiency of the built-in service departments of manufacturing enterprises through demonstration effects, so as to reduce the information asymmetry between manufacturing enterprises and upstream and downstream producers and customers, and then reduce the inefficient investment of manufacturing enterprises. For example, improving the efficiency of computer, information and communication services can reduce the information asymmetry between manufacturing enterprises and upstream and downstream producers, and the efficiency improvement of advertising, retail, wholesale and financial services can alleviate the information asymmetry between manufacturing enterprises and customers.

3. Countermeasures and Suggestions to Improve Capacity Utilization Rate of Chinese Manufacturing Enterprises by Opening up Service Industry

Cut overcapacity is an important part of comprehensively deepening the supply-side structural reform. How to alleviate the overcapacity under the new development pattern is of great practical significance to national security and social stability. It is found that the opening of the service industry has a significant role in improving the capacity utilization rate of manufacturing enterprises, and improving productivity, promoting export expansion and reducing inefficient investment are important transmission channels for the opening of the service industry to improve capacity utilization rate. The effect of improving the capacity utilization rate through the opening of the service industry is more obvious for private enterprises, general trading enterprises, and enterprises with high capital intensity and low financing constraints; the opening of the service industry can encourage them to change their export trade patterns and modes, so as to improve their capacity utilization rate and alleviate their overcapacity.

Therefore, the opening of the service industry provides a feasible solution to improve the capacity utilization rate and solve the overcapacity of manufacturing enterprises:

Firstly, we shall continuously implement a more proactive opening-up strategy, steadily push forward the opening-up policy of foreign investment in the service industry, improve the national entry treatment and the negative list management system, improve the efficiency of resource allocation in the service industry, innovate the development mechanism of service trade, and form a wider, broader and deeper opening-up pattern.

Secondly, we shall continuously deepen the opening of the service industry, vigorously promote and deepen the market-oriented reform, improve the reorganization and liquidation system of bankruptcy enterprises, get rid of administrative monopoly, avoid excessive competition in the industry, encourage enterprises’ innovation, and attach importance to the construction of enterprise management capabilities, so as to enhance the promotion effect of capacity utilization rate through the opening of the service industry.

Thirdly, we shall actively guide the export enterprises for transforming and upgrading the trade modes, to optimize the export market structure, enhance the international competitiveness of manufacturing enterprises, fully release the dividend of the opening of the service industry to improve their capacity utilization rate and solve their overcapacity. 

(Notes and references omitted)

Sources: The Guangming Daily (Page 16, December 5, 2023);

Finance & Trade Economics (No.11, 2023).