Abstract: Overcapacity means the imbalance of resource allocation of production factors. The key to successfully solve the problem is to deal with the rational exertion of the function of market and government resource allocation. Using the panel data of 30 provinces and cities in China from 2008 to 2014, this paper empirically tests the check and balance relationship between market mechanism and government intervention in resource allocation from the perspective of overcapacity, and uses the data from 2000 to 2009 to test the robustness. The results show that the improvement of market-oriented level optimizes the allocation of resources and has achieved remarkable results in resolving overcapacity; The expansion of local government investment has promoted industrial development to deviate from the reasonable evolution law and exacerbated overcapacity. When the scale of local government investment is low, the improvement of marketization level shows a significant inhibitory effect on overcapacity. With the expansion of local government investment scale, the effect of market mechanism to resolve overcapacity is continuously weakened, and the negative impact is gradually highlighted.
