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Deregulation or Governmental Intervention? A Counterfactual Perspective on China's Electricity Market Reform
Author(s) -
Chen Sumei,
He Lingyun
Publication year - 2013
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2013.12030.x
Subject(s) - deregulation , counterfactual thinking , electricity market , electricity , economics , china , electricity retailing , competition (biology) , market economy , electricity generation , unemployment , computable general equilibrium , business , power (physics) , macroeconomics , ecology , philosophy , physics , epistemology , quantum mechanics , biology , political science , law , electrical engineering , engineering
The long‐standing severe power shortage in China has provoked much debate on whether China should further promote market‐oriented electricity reform. The present paper addresses this issue by analyzing the impacts of deregulation of the electricity generation sector and retailing activities on other sectors, the macroeconomy and electricity users. A counterfactual scenario analysis is used based on a simplified computable general equilibrium framework. We find that deregulation can significantly improve the efficiency of electricity production, increase employment and enhance household welfare. These nontrivial findings can help to resolve many controversies about governmental intervention during China's economic transition. Our findings have two implications relating to policy feasibility and applicability; that is, competition in the electricity retail market should be phased in, and the necessary arrangements for unemployment in incumbent firms should be considered.