Is Trade Liberalization Effective in Promoting Firms’ Inventory Adjustment

Inventory fluctuations are an important variable in explaining changes in China’s economy, and inventory management is a key channel for firms to adjust their production decisions in the face of exogenous shocks. In recent years, China has been encouraging the expansion of the level of openness to the outside world, steadily promoting various foreign opening policies and significantly increasing the level of trade liberalization. In view of this, it is of great practical significance to explore the inventory adjustment of enterprises in the context of trade liberalization. Based on the quasi-natural experiment of China’s WTO accession and the data of Chinese manufacturing enterprises from 1999—2008, this paper investigates the impact of trade liberalization on enterprises’ inventory of non-finished goods using the double-difference method. It is found that ⅰ) trade liberalization significantly reduces the level of non-finished goods inventory of manufacturing firms, and the results are robust. ⅱ) Trade liberalization contributes to the reduction of firms’ non-finished goods inventory stock mainly through two channels: market demand squeeze on local firms by foreign products and reduced difficulty in purchasing intermediate goods. ⅲ) Trade liberalization has had a greater impact on small-scale, non-State-owned, light industrial and exporting enterprises. Enterprises should actively take advantage of the development opportunities brought by the lowering of trade barriers and reasonably adjust their inventory reserves to improve their resource utilization and thus enhance their profitability.