Culling the Capital Stock: Asset Specificity and the Margins of Herd Liquidation in China's Beef Cattle Sector

ABSTRACT This study examines how Chinese cattle farms reduced their breeding herds during the price downturn and how adjustment differed between specialized breeders and mixed breeding–fattening farms. A conceptual investment framework links herd retention to expected breeding returns and the cost of abandoning specialized assets. The main analysis is the first in the literature to use Chinese administrative operating records from 1,944 farms that held breeding cows in 2022 and continued reporting through 2025. Herd‐change decomposition, regressions with province fixed effects, and monthly logit models of breeding exit compare herd reductions and the cessation of breeding across farm types, controlling for initial herd size. Continuing farms initially reduced herd size, whereas the cessation of breeding became more important as the downturn persisted. Specialized breeders mainly reduced their herds, while mixed breeding–fattening farms accounted for most herd dissolutions. The findings extend agribusiness research on livestock supply by showing that production specialization is associated with different forms of herd contraction, consistent with specialized assets making exit more costly.