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The Role of Administrative Examination and Approval and Capacity Expansion

【Authors】
LIU Cheng, ZHONG Chunping 
【WorkUnit】
National Academy of Economic Strategy, CASS, 100028
【Abstract】

It is easy to find that the administrative examination and approval system plays a key role in the expansion of production capacity, and even leads to excess capacity, and thus reform of administrative examination and approval may become the fundamental solution to excess capacity. This paper builds a theoretical model, and uses data of China's prefecture level cities from 2004 to 2013 to examine the role and limits of the reform of the administrative examination and approval to “cut excessive industrial capacity”. The results show that the local government will promote production capacity expansion under the promotion incentives; reform of administrative examination and approval helps to cut excess capacity; social welfare oriented examination and approval, such as environmental protection and production safety, cannot be canceled or delegated to lower level authorities, but should be strengthened. Therefore, it is not appropriate to implement the policy of strengthening examination and approval based on the hypothesis of market failure. We should strengthen and optimize the reform of administrative examination and approval, and cancel general items needing approval or delegate power to lowerlevel authorities. Meanwhile, we should strengthen a small number of social welfare oriented examination and approval.

JEL:D24, H11, P21

【KeyWords】
Promotion Incentive, Reform of Administrative Examination and Approval, Capacity Expansion