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Abstract: This paper assesses Iron and steel industry organization in China, based on analysis of market concentration and entry barriers.
Keywords: Iron and steel industry；market concentration；entry barriers
一、Introduction
Iron and steel industry is engaged in such activities as smelting and processing black metal, what is more, it is a fundamental pillar of national income. Opportunities such as the low price human resources, large quantities of raw materials and enormous demand help the industry in China grow fast. However, finance crisis in 2008 caused the industry to desolate so seriously that price of iron material decreased and profit of the industry went down. Although, series of policy which regulated and promoted ten industries including iron and steel make matter better for a short time. However, there are many problems as follows: profit rate is lower than that of the average industry in China all over the world, China have few right to determine the price of ore, product is low-value and identical promotion also is a out of the question.
二、Market structure
In fact, market concentration is a measurable index to weight the number of companies and relative scales. For companies are too many to calculate all market shares, the paper simply chooses CRn to reckon market concentration. From 2000 to 2009 CR4 in China is as follows: 32%, 28%, 25%, 23%, 20%, 22%, 24%, 27%, 30%. CR6，CR8 and CR10 follow the similar tendency but have different and larger figures.
From the figures, change of market concentrations takes on U-curve, and the year 2005 is the turning point from decrease to increase. According to fact, the reason for decreasing is that more companies attracting by high profit rate from 2000 to 2005 and reduced state restrains result in less concentration. However 《Development policy of iron and steel industry》by State Development and Reform Committee is taken into office in 2005, that is, since 2005, government encouraged large companies to annexation, including lateral and vertical one. Apart from enterprises annexation, upriver companies and manufacturing also exist annexation. In addition, styles of annexations are various, such as investment, long-time contracts, recomposition and so on.
三、Entry barriers
As far as people are concerned, Iron and steel industry is intermediate part between iron ores and manufacturing. Regarding to features, four parts are used to comprehend entry barriers.
1.Resources barriers Analyzing cost, raw materials nearly contain 70%, in other word, the price of iron ore have great influence on entire cost. Three ore suppliers——Australia's BHP Billiton, Australia's Rio Tinto Group and Brazil's CVRD,the export quantity reaches 70% of all-combined export quantity in the globe. Compared with market concentration of iron and steel industry, iron ore industry concentrates tightly and owns bargaining power. It is the reason that profits shift to upriver companies. Recent years, the price of iron ore increases so fast that that in 2010 are fivefold higher that that in 2000.
2.Administration permit barrier
In fact, Chinese economic management model has changed from highly centralization of state power to regional distribution of state power. As far as I am concerned, iron and steel industry is a good and fast method to enhance the GDP. It is the key reason that local government provide preferential treatment such as loan on favorable terms to attract merchants to get into the industry. However, recent years central authorities speed up to regulate iron and steel industry, that is, to increase market concentration. The government shut up a series of factories that were suitable to industrial development. At the same time, government just controls the number of products in low quality and in low competition.
3.Technological barriers
Although China is the largest export country, almost all export products are so low—value that profit is limited even negative. Compared with high—value products exported from Japan or developed countries, China has few advantages to compete in the world market. As a matter of fact, it is other reason that profit in China is decreased. According to prices of different products, high—value products are real point to reach high profits. In sum, technological barriers are raised because of high development of society.
4.Fund barriers
It is common sense that iron and steel industry is fund intensive that fixed assets contain 70 percent of all cost. Because of large input at earlier stage, the invest period is long and investment is large. Concerning the successors in the industry, all have large scale and are planted by government.
四、conclusion
In short, the industry in China encounters bottlenecks which may be solved by regulation of structure.
Keywords: Iron and steel industry；market concentration；entry barriers
一、Introduction
Iron and steel industry is engaged in such activities as smelting and processing black metal, what is more, it is a fundamental pillar of national income. Opportunities such as the low price human resources, large quantities of raw materials and enormous demand help the industry in China grow fast. However, finance crisis in 2008 caused the industry to desolate so seriously that price of iron material decreased and profit of the industry went down. Although, series of policy which regulated and promoted ten industries including iron and steel make matter better for a short time. However, there are many problems as follows: profit rate is lower than that of the average industry in China all over the world, China have few right to determine the price of ore, product is low-value and identical promotion also is a out of the question.
二、Market structure
In fact, market concentration is a measurable index to weight the number of companies and relative scales. For companies are too many to calculate all market shares, the paper simply chooses CRn to reckon market concentration. From 2000 to 2009 CR4 in China is as follows: 32%, 28%, 25%, 23%, 20%, 22%, 24%, 27%, 30%. CR6，CR8 and CR10 follow the similar tendency but have different and larger figures.
From the figures, change of market concentrations takes on U-curve, and the year 2005 is the turning point from decrease to increase. According to fact, the reason for decreasing is that more companies attracting by high profit rate from 2000 to 2005 and reduced state restrains result in less concentration. However 《Development policy of iron and steel industry》by State Development and Reform Committee is taken into office in 2005, that is, since 2005, government encouraged large companies to annexation, including lateral and vertical one. Apart from enterprises annexation, upriver companies and manufacturing also exist annexation. In addition, styles of annexations are various, such as investment, long-time contracts, recomposition and so on.
三、Entry barriers
As far as people are concerned, Iron and steel industry is intermediate part between iron ores and manufacturing. Regarding to features, four parts are used to comprehend entry barriers.
1.Resources barriers Analyzing cost, raw materials nearly contain 70%, in other word, the price of iron ore have great influence on entire cost. Three ore suppliers——Australia's BHP Billiton, Australia's Rio Tinto Group and Brazil's CVRD,the export quantity reaches 70% of all-combined export quantity in the globe. Compared with market concentration of iron and steel industry, iron ore industry concentrates tightly and owns bargaining power. It is the reason that profits shift to upriver companies. Recent years, the price of iron ore increases so fast that that in 2010 are fivefold higher that that in 2000.
2.Administration permit barrier
In fact, Chinese economic management model has changed from highly centralization of state power to regional distribution of state power. As far as I am concerned, iron and steel industry is a good and fast method to enhance the GDP. It is the key reason that local government provide preferential treatment such as loan on favorable terms to attract merchants to get into the industry. However, recent years central authorities speed up to regulate iron and steel industry, that is, to increase market concentration. The government shut up a series of factories that were suitable to industrial development. At the same time, government just controls the number of products in low quality and in low competition.
3.Technological barriers
Although China is the largest export country, almost all export products are so low—value that profit is limited even negative. Compared with high—value products exported from Japan or developed countries, China has few advantages to compete in the world market. As a matter of fact, it is other reason that profit in China is decreased. According to prices of different products, high—value products are real point to reach high profits. In sum, technological barriers are raised because of high development of society.
4.Fund barriers
It is common sense that iron and steel industry is fund intensive that fixed assets contain 70 percent of all cost. Because of large input at earlier stage, the invest period is long and investment is large. Concerning the successors in the industry, all have large scale and are planted by government.
四、conclusion
In short, the industry in China encounters bottlenecks which may be solved by regulation of structure.