China is a major producer, consumer, and exporter of fireworks and firecrackers. Currently, the industry has reached a large scale, and production and sales have become a pillar of economic development in some areas. However, safety issues in producing fireworks and firecrackers are also prominent. This article believes that the industry’s unreasonable market structure, lack of innovation, and shortage of human capital mainly cause this.
Keywords: fireworks and firecrackers, production, firework safety
China is the birthplace of fireworks and firecrackers, with a huge consumer market having different regulations. The use of fireworks and firecrackers has a long history and rich cultural significance in China. Currently, China has become the world’s largest producer, consumer, and exporter of fireworks and firecrackers. The industry has also become a pillar of economic development in some areas. However, safety issues in the production of fireworks and firecrackers are also prominent, and accidents happen from time to time.
I. Current Status of the Fireworks and Firecrackers Industry
China is a major producer and exporter of fireworks and firecrackers. The agencies and industries have developed rapidly and has reached a large scale in China. According to statistics, at the end of 2003, there were 7,064 fireworks and firecrackers production enterprises in China, distributed in 26 provinces (cities, districts), with nearly 150,000 sales enterprises and outlets, employing over 450,000 personnel engaged in fireworks and firecrackers sales management and business, with sales of 9.33 billion yuan.
By the end of 2005, the number of fireworks and firecrackers production enterprises in China increased to 7,113, with approximately 140,000 sales enterprises, nearly 1.5 million employees, an annual output value of about 12 billion yuan, a total export value of about 340 million US dollars, and a production volume accounting (account) for about 75% of the world’s total. In 2006, the national output value of fireworks and firecrackers exceeded 200 billion yuan, with a year-on-year growth rate of over 15%. China’s fireworks and firecrackers products are mainly exported to Europe, North America, and some Asian regions. Since 2001, China’s fireworks and firecrackers exports have grown at an average annual rate of 10%.
In 2004, fireworks and firecrackers were exported to 98 countries and regions, with an export value of 348 million US dollars, a year-on-year increase of 10.33% and 10.1%, respectively, in export volume and amount. The export earnings in 2005 and 2006 were also high.
Approximately 500 million US dollars; In the first two months before 2007, China exported over 40,000 tons of fireworks and firecrackers, generating 58.24 million US dollars in foreign exchange revenue, with a year-on-year increase of 41% and 50%, respectively.
In the past two years, due to the country’s special safety regulation campaign for fireworks and firecrackers, factories producing these products have undergone “industrialization” renovations. Small family workshops and seasonal production sites have been banned. At the beginning of 2007, there were 6,329 fireworks and firecracker production enterprises across the country, a decrease of 11% and 784 enterprises from 2005.
The main production areas for fireworks and firecrackers in China are Liuyang and Liling in Hunan, Wanzai, Pingxiang, and Shangli in Jiangxi, Hefei, and Beihai Guangxi. In 2004, the number of production enterprises in these three provinces (autonomous regions) accounted for 74% of the country’s total number of production units and 83% of the total sales.
Hunan, Jiangxi, and Guangxi are considered the traditional production areas for fireworks and firecrackers in China, with over a thousand years of production history. Hunan and Jiangxi are the two provinces with the highest production capacity, and their combined output in 2005 exceeded 20 million cases, accounting for over 80% of the country’s annual production. In 2004, these two provinces’ fireworks and firecracker products accounted for 60% of the international market share and 80% of the domestic market share.
In addition, other provinces and cities such as Anhui, Henan, Hebei, Guizhou, Shaanxi, Sichuan, and Guangdong also have a small amount of production. Sales enterprises and distribution networks are mostly in Shandong and Zhejiang, where the number of sales enterprises and distribution networks exceeds 20,000, accounting for about 30% of the total in the country. The main export ports for fireworks and firecrackers are concentrated in Guangdong, Hunan, and Guangxi.
II. An Overview of the Safety of Fireworks and firecracker production
Fireworks and firecracker production is a labor-intensive high-risk agencies, and improper operation or management can easily lead to safety accidents. Moreover, due to their labor-intensive and high-risk nature, fireworks and firecracker accidents tend to have many casualties in a single incident.
According to incomplete statistics, from 1993 to 1996, 373 major accidents caused three or more deaths nationwide, resulting in 2,019 fatalities. Fireworks and firecracker explosions accounted for 44 accidents, 11.8% of the total, and 324 deaths, or 16.1%. According to statistics from the State Administration of Work Safety, from 1985 to November 2005, 8,532 fireworks and firecracker accidents resulted in 9,349 deaths throughout the country.
On average, there were 406 accidents and 445 deaths per year. From January to November 2006, 121 fireworks and firecracker accidents nationwide resulted in 206 deaths, representing increases of 36% and 15.7%, respectively, compared to the same period in 2005.
China’s fireworks and firecracker industry currently has low-quality products, and there is a large amount of illegal production. Regarding product quality, according to sampling inspection data from relevant quality inspection departments, the national qualification rate for fireworks and firecrackers was 63.1% in 2000, with firecrackers at 24.1% and fireworks at 70.0%. In 2001, the qualification rate was 67.7%, 76.9%, and 53.9% in the production and circulation sectors, respectively. In 2003, the qualification rate was only 41.7%, with more than half of the products failing to meet the standards.
The sampling qualification rates for products from large, medium, and small enterprises were 100%, 54.2%, and 28.2%, respectively. The product qualification rate for fireworks and firecrackers was 56.7% in 2004, 57.2% in 2005, and 70.5% in 2007. The situation in some provinces is even worse. For example, in Shanxi Province, from 2002 to 2005, the sampling inspection rates for the fireworks displays and firecrackers were 18%, 26.7%, 48.6%, and 43.3%, respectively, all below 50%.
In terms of illegal production, in 2003, there were 109 explosion accidents in the fireworks and firecracker production process nationwide, with 72 of them caused by illegal production, accounting for 66.1% of the total accidents. Among the 109 explosion accidents, 88 occurred in residential areas, accounting for 64.7% of the total.
In the same year, there were 23 deaths resulting from fireworks and firecracker explosions in Anhui Province, with 21 of them caused by illegal production activities. From January to November 2007, there were 50 accidents and 125 deaths resulting from the illegal production and operation of fireworks and firecrackers, accounting for 42.4% and 52.5% of the total accidents and deaths, respectively. Among them, there were 18 major accidents resulting in 91 deaths, accounting for 64.3% and 61.9% of the total number of major accidents and deaths, respectively.
III. Causes of safety problems in the production of fireworks and firecrackers
The causes of safety problems in the production of fireworks and firecrackers are multifaceted, mainly manifested in three aspects: the unreasonable internal market structure of the industry, insufficient innovation, and a lack of human capital.
1. Unreasonable market structure of the fireworks and firecracker industry
The market structure of an industry generally refers to the characteristics and forms of market relations. The Herfindahl-Hirschman Index (HHI) measures market concentration in a specific industry. It is calculated by summing up the squared market shares of all companies in the industry, using the formula HHI = ∑(Xi/T)2 = ∑Si2, where T is the total size of the industry, Xi is the size of the i-th company in the industry, Si is the market share of the i-th company, and N is the number of companies in the industry.
A higher HHI value indicates higher market concentration (property). When a single firm monopolizes the market, HHI = 1; when there are many firms with the same size in the market, HHI = 1/n, and as n approaches infinity, HHI tends towards 0.
The HHI index is chosen because:
(1). It addresses more weight to larger companies, revealing the influence of large companies in the industry without search;
(2). The index value decreases as the number of companies increases and increases as the difference in market share widens;
(3). The index can effectively measure changes in the concentration of the entire industry.
Although the fireworks industry in China has formed on a relatively large scale, the market concentration of fireworks is not high. In 2006, the output value (T) of the fireworks industry in China exceeded 20 billion yuan. Still, there were about 7,000 fireworks production companies (N), among which there was only one large listed company in 2001, the Panda Fireworks Group Co., Ltd. in Liuyang, Hunan.
The company was not primarily engaged in production but in management. In 2006, the company’s main business revenue was only 143 million yuan. Comparing this revenue with the total output value of the fireworks industry in China for that year, the share was less than 1%. In addition, the annual output value (Xi) of general fireworks factories does not exceed 50 million yuan. From the calculation of the HHI index, the Si value of the fireworks industry is much less than 1, so the Si2 value is even smaller, and the N value is very large. Hence, the HHI value is very small, indicating low market concentration in the fireworks industry.
Furthermore, with the rapid development of China’s economy and the continuous improvement of residents’ income levels, the overall consumption structure has gradually shifted from essential goods to non-essential goods. The people’s enthusiasm for pursuing traditional ethnic culture and spiritual satisfaction has increased.
In addition, large cities such as Beijing have successively implemented “bans, changes, and restrictions” or “lifting bans” on fireworks and firecrackers, leading to the continuous growth of the domestic market for fireworks and firecrackers. It has expanded the market capacity, which has an inverse effect on market concentration. Under the assumption that the existing company size remains unchanged, the larger the market capacity, the lower the market concentration.
Characteristics such as production process, brand, packaging, and display special effects can arouse consumers’ preferences for a company’s products and help it gain a competitive advantage in the market. Currently, China’s fireworks and firecracker production industry is mixed with both reputable and disreputable companies, leading to vicious price competition and low market prices due to a lack of product differentiation. Low levels of product differentiation in fireworks and firecrackers are mainly due to insufficient differentiation in the supply of products by producers, which is largely reflected in brand construction.
Consumers’ recognition of a brand reflects their preference for that brand’s products. In the fireworks and firecrackers industry, “Liuyang Fireworks” is the only well-known brand, but it is a regional brand and not a single enterprise brand. Fireworks produced in Liuyang can all be called “Liuyang Fireworks,” and there appears to be no difference in the eyes of consumers.
Additionally, consumers’ demand for differentiated products is low. In the vast rural areas of China, people mainly consume low-end firecracker products. As long as these products can create a festive atmosphere with their “explosive” and “loud” qualities, that is sufficient for farmers.
Low barriers to market entry and exit affect the market structure, competition levels, market efficiency, and various behaviors of producers. Economists have conducted extensive research on entry barriers, with Bain (1956) defining them as all factors that allow existing companies to earn supernormal profits without the threat of entry, including economies of scale, absolute cost advantages, product differentiation advantages, and capital requirements. Here, we adopt Bain’s theory to analyze the fireworks and firecracker industry entry barriers.
First, there are no significant economies of scale in fireworks and firecracker production, and large companies have no competitive advantage. Large-scale fireworks and firecracker producers do not have a clear cost disadvantage, and small-scale manual workshops do not have an obvious uneconomical scale. Large and small companies differ in the former’s ability to produce high-end fireworks products, while most manual workshops only produce low-end firecracker products.
However, both fireworks and firecrackers have huge markets. Second, there is no significant absolute cost advantage for existing fireworks and firecracker producers. Absolute cost advantages mainly refer to the exclusionary ownership of raw materials, patents, sales channels, transport systems, special business capabilities, and professional talents. Throughout the entire fireworks and firecracker industry, raw materials are civilian explosives that potential entrants can easily obtain.
There are few patented technologies (codes, google), and sales channels and transport systems are insufficient to form entry barriers. Both current and potential employees are mainly migrant workers, accounting for 56.02% of the total employees. Third, the fireworks and firecracker industry is a labor-intensive industry (agriculture) that requires a small initial capital investment, with handwork (handling) being the primary method of production and machine equipment (from brands) having a relatively small proportion.
Production Issues; in terms of policy regulations and regulatory barriers, the government has not explicitly restricted the exit of fireworks and firecracker manufacturers from the market. Therefore, there are almost no barriers to exit in the fireworks and firecracker industry.
Based on the classic Harvard School SCP analysis framework, Market Structure determines Market Conduct, which, in turn, determines Market Performance. A thorough analysis of market structure from market concentration, product differentiation, and entry and exit barriers shows a “three lows” phenomenon in a high-risk labor-intensive industry such as fireworks and firecrackers. It includes low market concentration, product differentiation, and entry and exit barriers.
It determines that the microeconomic entities in China’s fireworks and firecracker industry are mainly small and medium-sized enterprises. There is vicious price competition and illegal production in the market behavior. However, the investment ability of small and medium-sized enterprises in production safety is very limited. Vicious price competition hinders the healthy, sustainable, and orderly development of the fireworks and firecracker industry. Illegal production is a “public” challenge to the production safety resources of fireworks and firecracker production. These are important reasons for this market’s frequent production safety problems.
2. Lack of innovation
For production enterprises in such a high-risk labor-intensive industry as fireworks and firecrackers, technological innovation is the lifeline of enterprises and a safety line. Improving the technological level of various production processes of fireworks and firecrackers is very important for reducing production safety accidents in the industry. The current lack of innovation in fireworks and firecracker production enterprises mainly manifests in three aspects.
3. Raw materials
The production of fireworks and firecrackers generally involves the use of oxidants, reducers, binders, colorants, sensitizers, pure sensory agents, and other materials. The production technology is strong, and the danger is serious. During the process of making fireworks and firecrackers, any thermal energy (such as heating, flames, sparks), mechanical energy (such as impact, friction needle), electrical energy (such as electric sparks, discharge), light energy, chemical energy, and other human factors can become sources of ignition that cause fireworks and firecracker materials to burn and explode.
The main physical or chemical ingredients used to manufacture fireworks and firecrackers include black powder, potassium chlorate, aluminum powder, magnesium powder, titanium powder, sulfur, red phosphorus, barium nitrate, strontium nitrate, and other materials. These materials are generally not easily flammable or explosive by themselves, but when mixed, they are prone to combustion and explosion, causing accidents.
Taking potassium chlorate, the main ingredient traditionally used in fireworks and firecrackers, as an example, potassium chlorate is a strong oxidant and is not easily flammable or explosive by itself. However, when mixed with reducing agents and subjected to heat, impact, or friction, it is extremely easy to ignite and explode. The sensitivity of fireworks and firecrackers made from potassium chlorate salts to impact and friction is even higher than that of some detonators. Because of the unstable chemical properties of potassium chlorate, in 2002, the General Office of the State Council issued a notice of guidance, clarifying the management was in a dilemma.
4. Production equipment
In terms of production equipment, China’s fireworks and firecrackers industry is labor-intensive. The production of fireworks and firecrackers is still mainly operated manually, with a low degree of mechanization and low labor productivity. Taking Liling in Hunan province, one of the main producing areas of fireworks and firecrackers, as an example, only 6 out of the 14 processes in producing fireworks and firecrackers use machinery, with a ratio of 6:8 between mechanized and manual processes.
For the production of spray, rotation, and airborne products, the ratio is 4:7, and for the production of gift box shells and pearl products, the ratio is 2:9 and 2:5, respectively. The low level of mechanization not only hinders the development of the fireworks and firecrackers industry but also reduces the safety factor in production. The low level of mechanization is closely related to innovation.
Assuming that the manufacturers of fireworks and firecrackers are rational and aim to maximize profits, they do not replace labor with machines: 1) the machines cannot meet production requirements, and 2) replacing labor with machines is not cost-effective. These are mainly due to insufficient innovation in machinery manufacturing or transformation processes.
5. Production processes and formulation
In terms of production processes and formulation, the main processes for producing fireworks and firecrackers include grinding, mixing, compressing and granulating, drying, and product manufacturing. Currently, these processes in China are mainly manually operated.
In contrast, dangerous processes such as compression and granulation have been mostly mechanized and automated in foreign countries, and far-infrared or vacuum drying technologies are used for drying medicines. In terms of product formulation, China is lagging. For example, the ratio of launch weight to launch powder for spherical gift box shells is 1/8-1/10 in China, while in Japan, it is 1/18-1/20.
The ratio of launch weight to launch powder for rocket launch powder is 1/5-1/8 in China, while in Germany, it is 1/10-1/15. The higher the ratio, the more dangerous the content of explosives and the higher the risk factor. The fundamental reason for unreasonable processes and formulations is the lack of innovation in these areas.
In summary, there is a clear lack of innovation in raw materials, production equipment, and production processes and formulations, which leads to high risks in raw materials, low mechanization levels, and outdated processes and formulations. These are all important reasons for frequent safety accidents such incidents in China’s fireworks and firecrackers industry.
IV. Lack of human capital
Overview of human resources, capital in the fireworks and firecrackers industry:
1. Currently, human capital in China’s fireworks and firecrackers industry is very scarce, mainly manifested in the low education levels of industry employees. Even in Liuyang, Hunan, known as the “hometown of fireworks in China,” only 1,280 of the 200,000 people producing fireworks and firecrackers have professional engineering and technical titles. In addition, most of the production staff in China’s fireworks and firecrackers industry are migrant workers. According to a survey by the General Administration of Work Safety in 2006 in 9 provinces and regions in China, migrant workers accounted for account for 56% of the employees in high-risk industries such as coal mines and fireworks and firecrackers. However, migrant workers have low education levels, poor safety awareness, and lack of professional skills, which has seriously affected the safety of the fireworks and firecrackers industry.”
2. Ignorable reasons.
3. Formation of human capital in the fireworks industry
4. The lack of human capital in the fireworks industry is closely related to the unreasonable mechanism of its formation. Schultz believes that human capital is formed through investment, mainly through education and training. However, in the current Chinese fireworks industry, fireworks and firecrackers’ formula or manufacturing process is passed down from generation to generation, with talents being cultivated through an apprenticeship system. So far, no college or university in the country offers a major in fireworks and firecrackers, and there is no formal education channel for cultivating talent in the industry. It has limited individual or enterprise investment in human capital. The serious consequence of this cultivation method is that the ability of production enterprises to develop and innovate products independently is clearly inadequate, with most of them relying on traditional experience, especially some small and medium-sized enterprises. It has resulted in a very slow development of the industry’s product technology and even stagnation.
In China, the fireworks industry is a labor-intensive and high-risk industry, with the manual operation being the main production method. Therefore, the quality of production personnel is extremely important, as their skill level not only affects production efficiency but also significantly impacts product safety.
To sum up, the production safety issues in the fireworks industry are closely related to the unreasonable market structure, insufficient innovation, and lack of human capital in the industry. The unreasonable market structure is mainly reflected in the “three lows” phenomenon of low market concentration, low product differentiation, and low barriers to entry and exit. This “three lows” phenomenon promotes low market performance through enterprise market behavior. It provides a broad market space for illegal production activities in the fireworks industry, which is the main reason for production safety issues. In addition, insufficient innovation by enterprises has restricted the upgrading of the fireworks industry, hindered the development of a highly rationalized industry structure, and to some extent, determined that labor-intensive production factors are the mainstay of the fireworks industry’s production activities. However, the fireworks industry is also a high-risk industry. The combination of labor intensity and lack of human capital provides “favorable” conditions for frequent production safety accidents characterized by high casualties in single incidents.