Inventory in mainland China: Historical, industry, and geographic perspectives

We review inventories in mainland China by evaluating the trajectory of aggregate inventories in recent decades, and then modelling the relationship of inventories in some 300,000 manufacturers with respect to volume (using cost of goods sold), industry (using SIC codes), and geographical location (using the 31 regions of China). We find that inventories generally exhibit economies of scale (in terms of cost of goods sold) in all but one industry (tobacco), and differ widely by province, with relatively high inventories in remote regions. We provide explanations for apparent diseconomies of scale for large unlisted firms, and reflect on why publicly listed manufacturers have significantly higher inventories than do unlisted firms. We note that manufacturing inventories as a proportion of manufacturing value‐added are substantially higher in China than in the US The results may be employed for benchmarking and auditing of firms and managers, as well as for conducting due diligence for investment, mergers and acquisitions.