the reasons for the existence of clay red bricks

As early as the end of the last century, China proposed to restrict the behavior of taking soil to burn bricks, but the current situation has not been alleviated. In order to better explore the reasons for the existence of clay red bricks, the research team conducted field investigations in a county in Jiangxi Province. The obtained data was analyzed using the SCP framework, and empirical analysis was conducted on the three relevant entities of clay red brick manufacturers, consumers, and governments to determine the social, economic, and political reasons for the existence of clay red bricks.

1、 The current status of the clay red brick industry

Modern industrial organization theory links the three basic categories of market structure, market behavior, and market performance with public policy and market basic environment, standardizes the theoretical system of industrial organization theory, supplements and improves the traditional SCP theory, and proposes the impact of market basic environment and public policy on industry. Based on field investigations of the clay red brick industry, this article analyzes the reasons for the existence of clay red bricks from the perspectives of demand environment, supply environment, and public policy.

According to Bain’s analysis criteria, the red brick industry in the county is essentially monopolistic competition. There are 87 clay red brick factories in the county, 14 large brick factories, and the rest are small brick factories. There are numerous brick factories, which divide their sales areas among each other, forming a form of competition within large regions and monopoly within small regions. Large brick factories have a larger scale, with output generally more than twice that of small brick factories. Due to technological and scale advantages, their costs are generally 4 cents lower than those of small brick factories.

The red brick industry has relatively high fixed costs compared to its product prices, which means there are certain barriers. Due to the special nature of brick factories, their fixed assets are highly specialized and almost cannot be converted for their use. The fixed investment of a large brick factory is generally around 2.5 million yuan. The fixed investment of a small brick factory is usually around 480000 yuan. However, due to local protectionism in the county and the fact that many large brick factories are established by outsiders, the high costs of land use and procurement have weakened its scale cost advantage.

Red brick factory products are relatively single, divided into genuine and defective products. Authentic red bricks fired normally have a price of 0.35 yuan per piece, and brick factories generally have a gross profit of 5 cents; Defective bricks refer to bricks that are fired at a lower temperature due to their location outside. They are an unintentional product, and brick factories sell them at a price lower than cost to reduce losses. Contractors also use them for structures without load-bearing requirements due to their low price. The prices in the county have basically stabilized, and almost every brick factory has its own sales area, so there is basically no price competition within a certain region. A certain monopoly has been formed in a small area, but the prices are basically within a reasonable range. There was also a red brick Qatar incident in the county before, and most of the brick factories in the county participated. It was initiated by two locals and raised the price of red bricks for a certain period of time, but soon the government intervened and banned it.

The red brick industry has certain characteristics of economies of scale. There are a total of 87 brick factories of different sizes in the county, with a total annual output of around 609 million pieces. Calculated at 0.35 yuan per piece, the annual output value is around 220 million pieces. A small brick factory pays an annual tax of around 80000 yuan, while a large brick factory pays around 150000 yuan. The cost of large brick factories is currently about 10% lower than that of small brick factories. Moreover, large brick factories

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Having large equipment such as crushers will have a greater cost advantage when the nearby high-quality red soil resources are exhausted, while small brick factories have to transport soil from other places due to the lack of large equipment, forcing their costs to increase. A small brick factory typically produces 5 million pieces per year and requires 30 employees, while a large brick factory typically produces 15 million pieces per year and requires 50 employees. This shows that large brick factories also have advantages in per capita production capacity.

From the perspective of environmental benefits, the red brick factory in this county consumes a large amount of non renewable resources such as clay and coal, while damaging vegetation and causing soil erosion. Moreover, there is no exhaust gas treatment equipment, regardless of size. During the production process, exhaust gases such as ammonia oxides and carbon dioxide are directly emitted into the atmosphere, leading to environmental acidification and even causing photochemical smog, while also triggering the greenhouse effect.

2、 Reasons for the existence of clay red bricks

（1） Large market demand

With the continuous development of the economy, the process of rural urbanization has also accelerated. In recent years, new housing construction in both rural and urban areas has sprung up like mushrooms after rain. The reason for this is firstly due to the increase in disposable income of farmers, who have the ability to purchase and build new houses. Secondly, inflation has an impact on people’s investment expectations, and farmers are converting their savings into new houses; Finally, the implementation of rural medical insurance and pension insurance has enabled farmers to no longer worry about saving for retirement, and buying and building new houses has become one of the alternatives to some of their pensions. In this context, the rural red brick market is rapidly expanding. The county is mainly dominated by small-scale clay red brick factories. According to the traditional market division in rural areas, an administrative village is a separate market. At present, there are 28 neighborhood committees and about 300 administrative villages in the county. On average, each clay red brick factory needs to supply about 3 to 4 village committees. According to an average of 2000 villagers per village committee, a small clay red brick must be operated for at least 20 years to meet the housing needs of a generation. After 20 years, the next generation’s housing needs will emerge, so the clay red brick market is in short supply.

（2） Supply factors

Farmers are building houses one after another, which has led to a soaring price of clay red bricks. Nowadays, the price of clay red bricks is three times that of 2001, and the profit of red bricks has also increased. The high profit is an important reason for attracting manufacturers and expanding the production scale of red bricks. The average price of clay red bricks in the county is about 0.35 yuan per piece. The annual output of a small clay red brick factory is about 5 million pieces, with a profit of about 0.05 yuan and an annual profit of around 250000 yuan; Large clay red brick factories have a profit margin of around 0.09 yuan due to economies of scale, with an average annual output of about 15 million pieces and a profit of around 1.35 million yuan. Such high profits are a great temptation for investors and have become an important reason for the existence and expansion of production scale of clay red bricks.

In addition, in recent years, with the advancement of technology and the continuous strengthening of people’s environmental awareness, various new wall materials such as unburned bricks have emerged. However, experts acknowledge that clay red bricks are still the best quality wall material to date. The coverage rate of clay and red bricks in the county is over 95%. The only remaining portion of unburned hollow bricks have no scale, simple equipment, extremely poor product quality, and extremely limited production quantity. This type of unburned brick can generally only be used for residents or construction site fences, and cannot be used as building materials for houses. On the other hand, red soil in Jiangxi is an excellent raw material for firing clay red bricks, and the clay red bricks fired have excellent texture, smooth and delicate. Therefore, there is a significant difference in quality between new wall materials and traditional clay red bricks, which is the key to clay red bricks winning the market.

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（3） Administrative inaction

As a poverty-stricken county in China, the annual tax revenue of the county in 2012 was about 750 million yuan, of which the annual tax paid by the clay and red brick factory accounted for about 1.5% of the total tax revenue. In many regions of our country, the system of assessing administrative performance based on GDP indicators still exists. Clay red bricks, as one of the important industries in the county, will have a significant impact on local fiscal revenue once completely banned. Therefore, local administrative personnel maintain the existence of clay red bricks through administrative protection in order to improve administrative performance. Moreover, as one of the important behaviors that interfere with the healthy operation of the market, rent-seeking has provided a way for some operators of clay red brick factories to avoid laws and regulations and even evade taxes. Rent seeking can avoid administrative crackdowns, as manufacturers bribe officials to delay the policy of “gradual crackdowns” while clay and red brick factories are not shut down.

Another reason for the ban on clay red bricks is the labor factor. On average, a small clay red brick factory can solve about 30 surplus laborers, while a large clay red brick factory can solve about 50 employees. Therefore, the clay red bricks in the county can solve about 3000 surplus laborers for the whole county. In some administrative villages, clay and red brick factories have become the main source of income for farmers in addition to farming. Once the clay and red bricks are completely banned, these surplus laborers will be completely unemployed, and some will become a financial burden.

3、 Solution measures

In 2005, China issued the “Notice on Further Promoting the Innovation of Wall Materials and Promoting Energy saving Buildings”, stating that by the end of 2010, all cities would prohibit the use of solid clay bricks. This requires improvement in the following areas:

（1） Market Access

Small factories in a certain county account for about 83.9%. To increase the entry threshold, the new factory needs to introduce new equipment, such as crushers (costing about 150000 yuan). Its main function is to crush stones or other hard minerals in clay and then enter the brick making machine to make bricks. Not only does it save the cost of raw materials, but it also reduces the amount of clay used.

The firing of clay red bricks requires a large amount of non renewable resources, and the emissions during the process cause environmental pollution, as well as noise and photochemical smog pollution. Therefore, it is necessary to improve certain environmental standards: (1) Reasonably select sites and avoid building red brick factories in areas with sensitive air environments; (2) Determine a reasonable height for the discharge waste cylinder based on the intensity of pollutant generation load and environmental emission standards requirements; (3) Construct a green belt within a certain range from the factory building; (4) Strengthen the management of excavation site environment, control the large-scale rolling and landslide of mountain soil, and generate a large amount of dust; (5) For large factories, it is necessary to establish a water spraying system to suppress dust.

The county has caused significant land damage: the exploitation of forests and farmland has resulted in serious energy consumption and vegetation destruction; The excessive excavation of clay by brick factories has led to road depressions, coupled with the accumulation of adult rainwater, resulting in the formation of several ‘small artificial lakes’. Establish land standards based on this situation: 1. The state or local government needs to introduce relevant effective policies to regulate farmers’ use of arable land and forest land to a certain extent. 2. The government and manufacturers work together to fill such mud pits and set up a reasonable number of warning signs near incomplete pits to prevent accidents from occurring.

The government can also adopt eviction measures: it is stipulated that no new brick factories are allowed to be opened after three years, and the mud pits caused by mining must be filled in within two years. Completely shut down red brick factories within 15 to 20 years. The approval authority shall be handed over to the county-level people’s government, and at least one irregular inspection shall be conducted annually

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The township government will supervise and remind, and the supervision team of the Land and Resources Bureau is responsible for supervising the implementation of the punishment decision issued by the municipal bureau. At the end of the three-year period, the province will conduct a review. Each county shall establish a red brick factory crackdown supervision team to monitor the crackdown situation in various regions and regularly report to the provincial government.

（2） Promotion of new materials

The government has a significant impact on the promotion of new materials: (1) subsidy policies. The implementation of subsidy policies can be approached from two aspects: production subsidy policies and consumption subsidies: (2) credit incentives and investment promotion policies: firstly, providing medium to long-term low interest loans for manufacturers engaged in the production of new materials such as cement bricks, with a loan period of 10 to 15 years, starting from the second year or later, and maintaining a fixed interest rate for 5 years. Secondly, provide more incentives to venture capital. Due to the high investment risk of new materials such as cement bricks, banks and various investment institutions tend to overestimate the loan risk of this industry, resulting in a lower total loan amount. Therefore, tax incentives can be provided to banks and various investment institutions to reduce their financing tax burden and encourage them to invest in this industry. (3) Acquisition and pricing policies. Adopt a mandatory procurement and stable price system, and leverage market guidance. (4) Tax preferential policies. Firstly, tax deduction. Allow enterprises to deduct certain special expenses that comply with regulations from taxable income in a certain proportion. Secondly, deferred taxation. Taxpayers are allowed to delay or pay their tax obligations in installments for certain eligible taxes. Similar to providing taxpayers with an interest free loan, it helps them to some extent solve their financial difficulties. Thirdly, accelerate depreciation. Implement more flexible accelerated depreciation methods and relax the existing depreciation period standards.

Furthermore, increasing publicity is essential. The concept that “solid clay bricks are more durable than hollow bricks” is deeply buried in the hearts of most rural and small city residents. If this concept is not corrected, the promotion of new materials will not be possible, which requires the government to increase efforts in publicity. Distribute propaganda tasks to various village committees and brigades to promote from the grassroots level.