Social Sciences in China (Chinese Edition)

No.2, 2017

Misallocation of Resources and Characteristics of Chinese Enterprise Scale Distribution

 (Abstract)

Li Xuchao, Luo Deming and Jin Xiangrong

The rational distribution of enterprise scale is a necessary condition for the transformation and upgrading of industrial structures and the optimization of urban hierarchal systems. From the perspective of misallocation of resources, an empirical analysis of the features of enterprise scale distribution in China and the mechanism behind its formation shows that the distribution of Chinese enterprise scale deviates from the optimal state determined by the distribution of productivity. The size distortion coefficient is negatively correlated with productivity, so that enterprises with high productivity are prevented from growing because of “constraints,” while those with low productivity fatten thanks to irrational “subsidies.” That increases the Pareto Index of scale distribution, resulting in insufficient numbers of large and small-sized enterprises and an excess of mid-sized ones. The misallocation of resources destroys the correspondence between enterprise size and productivity, causing the inadequate utilization of advanced productive forces and excessive expansion of backward production capacity and at the same time weakening the effectiveness of related industrial policies.