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Competition Policy, Corporate Saving and China's Current Account Surplus

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  • Rod Tyers

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Abstract

China’s industrial reforms have left many key industries dominated by single or small numbers of firms, most of which remain state owned. Until recently, these firms have not been required to pay dividends to the state and the recent surge in China’s growth has made them very profitable, with their economic profits adding 20% of GDP to corporate saving. This bolsters the overall saving-investment gap and hence China’s controversial current account surplus. In other countries, oligopolistic industries tend to be taxed more heavily and they are commonly subjected to price regulation. This study offers an economy-wide analysis of approaches to oligopoly rents in China. The results suggest that, while policy changes targeting national saving, including increased corporate taxation, expansionary fiscal policy and SOE privatisation all help to control the external imbalance, they tend also to turn demand inward, inducing higher oligopoly rents and slower growth. Competition policy, embodying both price cap regulation and free entry, proves more effective both in controlling the external imbalance and in fostering continued growth.

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Bibliographic Info

Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2008-496.

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Length: 52 Pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:acb:cbeeco:2008-496

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  1. Don, H. & Gunasekera, B. H. & Tyers, Rod, 1990. "Imperfect competition and returns to scale in a newly industrialising economy : A general equilibrium analysis of Korean trade policy," Journal of Development Economics, Elsevier, Elsevier, vol. 34(1-2), pages 223-247, November.
  2. John Fernald & Brent Neiman, 2011. "Growth Accounting with Misallocation: Or, Doing Less with More in Singapore," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 29-74, April.
  3. Rod Tyers & Ying Zhang, 2011. "Appreciating the Renminbi," The World Economy, Wiley Blackwell, vol. 34(2), pages 265-297, 02.
  4. Charles Yuji Horioka & Junmin Wan, 2006. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0676, Institute of Social and Economic Research, Osaka University, revised Sep 2007.
  5. Rod Tyers & Ling Huang, 2009. "Combating China's Export Contraction: Fiscal Expansion or Accelerated Industrial Reform?," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2009-501, Australian National University, College of Business and Economics, School of Economics.
  6. Rod Tyers & Jane Golley & Bu Yongxiang & Ian Bain, 2006. "China's Economic Growth and its Real Exchange Rate," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2006-476, Australian National University, College of Business and Economics, School of Economics.
  7. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  8. Rod Tyers, 2005. "Trade Reform and Manufacturing Pricing Behavior in Four Archetype Asia-Pacific Economies ," Asian Economic Journal, East Asian Economic Association, East Asian Economic Association, vol. 19(2), pages 181-203, 06.
  9. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," CER-ETH Economics working paper series 08/89, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  10. Rod Tyers & Iain Bain, 2008. "American And European Financial Shocks: Implications For Chinese Economic Performance," CAMA Working Papers 2008-08, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  11. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, American Economic Association, vol. 74(5), pages 1016-32, December.
  12. Jahangir Aziz & Li Cui, 2007. "Explaining China's Low Consumption," IMF Working Papers 07/181, International Monetary Fund.
  13. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
  14. Aart Kraay, 2000. "Household Saving in China," World Bank Economic Review, World Bank Group, World Bank Group, vol. 14(3), pages 545-570, September.
  15. Rees, Lucy & Tyers, Rod, 2004. "Trade reform in the short run: China's WTO accession," Journal of Asian Economics, Elsevier, Elsevier, vol. 15(1), pages 1-31, February.
  16. Eichengreen, Barry, 2006. "Global imbalances: The new economy, the dark matter, the savvy investor, and the standard analysis," Journal of Policy Modeling, Elsevier, Elsevier, vol. 28(6), pages 645-652, September.
  17. Bradley, Ian & Price, Catherine, 1988. "The Economic Regulation of Private Industries by Price Constraints," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 37(1), pages 99-106, September.
  18. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, Springer, vol. 1(2), pages 133-47, June.
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Cited by:
  1. Luke Deer & Ligang Song, 2012. "China's Approach to Rebalancing: A Conceptual and Policy Framework," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 20(1), pages 1-26, 01.
  2. Rod Tyers & Ling Huang, 2009. "Combating China's Export Contraction: Fiscal Expansion or Accelerated Industrial Reform?," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2009-501, Australian National University, College of Business and Economics, School of Economics.
  3. Peter E. Robertson, 2010. "Investment Led Growth In India: Hindu Fact or Mythology?," Economics Discussion / Working Papers, The University of Western Australia, Department of Economics 10-08, The University of Western Australia, Department of Economics.

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