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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.

Suggested Citation

  • Rod Tyers, 2008. "Competition Policy, Corporate Saving and China's Current Account Surplus," ANU Working Papers in Economics and Econometrics 2008-496, Australian National University, College of Business and Economics, School of Economics.
  • Handle: RePEc:acb:cbeeco:2008-496
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp496.pdf
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    References listed on IDEAS

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    1. 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.
    2. Charles Yuji Horioka & Junmin Wan, 2007. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2077-2096, December.
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    5. Rod Tyers & Ling Huang, 2009. "Combating China's Export Contraction: Fiscal Expansion or Accelerated Industrial Reform?," ANU Working Papers in Economics and Econometrics 2009-501, Australian National University, College of Business and Economics, School of Economics.
    6. Rod Tyers & Ying Zhang, 2011. "Appreciating the Renminbi," The World Economy, Wiley Blackwell, vol. 34(2), pages 265-297, February.
    7. 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.
    8. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
    9. Rod Tyers, 2005. "Trade Reform and Manufacturing Pricing Behavior in Four Archetype Asia-Pacific Economies ," Asian Economic Journal, East Asian Economic Association, vol. 19(2), pages 181-203, June.
    10. 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 2006-476, Australian National University, College of Business and Economics, School of Economics.
    11. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    12. Rees, Lucy & Tyers, Rod, 2004. "Trade reform in the short run: China's WTO accession," Journal of Asian Economics, Elsevier, vol. 15(1), pages 1-31, February.
    13. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, vol. 1(2), pages 133-147, June.
    14. Rod Tyers & Iain Bain, 2008. "American and European Financial Shocks: Implications for Chinese Economic Performance," ANU Working Papers in Economics and Econometrics 2008-491, Australian National University, College of Business and Economics, School of Economics.
    15. Jahangir Aziz & Li Cui, 2007. "Explaining China’s Low Consumption; The Neglected Role of Household Income," IMF Working Papers 07/181, International Monetary Fund.
    16. 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, vol. 34(1-2), pages 223-247, November.
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    Cited by:

    1. Tyers, Rod, 2015. "International effects of China's rise and transition: Neoclassical and Keynesian perspectives," Journal of Asian Economics, Elsevier, vol. 37(C), pages 1-19.
    2. repec:bla:worlde:v:39:y:2016:i:11:p:1674-1702 is not listed on IDEAS
    3. Tyers, Rod, 2014. "Looking inward for transformative growth," China Economic Review, Elsevier, vol. 29(C), pages 166-184.
    4. Rod Tyers & Ling Huang, 2009. "Combating China's Export Contraction: Fiscal Expansion or Accelerated Industrial Reform?," ANU Working Papers in Economics and Econometrics 2009-501, Australian National University, College of Business and Economics, School of Economics.
    5. Rod Tyers, 2012. "The Rise and Robustness of Economic Freedom in China," Economics Discussion / Working Papers 12-02, The University of Western Australia, Department of Economics.
    6. Rod Tyers & Ying Zhang, 2011. "Appreciating the Renminbi," The World Economy, Wiley Blackwell, vol. 34(2), pages 265-297, February.
    7. 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, January.
    8. Rod Tyers & Jenny Corbett, 2012. "Japan's economic slowdown and its global implications: a review of the economic modelling," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 26(2), pages 1-28, November.
    9. Rod Tyers, 2016. "China and Global Macroeconomic Interdependence," The World Economy, Wiley Blackwell, vol. 39(11), pages 1674-1702, November.
    10. Rod Tyers, 2012. "Looking Inward for Transformative Growth in China," CAMA Working Papers 2012-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    11. Peter E. Robertson, 2010. "Investment Led Growth In India: Hindu Fact or Mythology?," Economics Discussion / Working Papers 10-08, The University of Western Australia, Department of Economics.
    12. Jane Golley & Rod Tyers, 2012. "China's Gender Imbalance and its Economic Performance," Economics Discussion / Working Papers 12-10, The University of Western Australia, Department of Economics.
    13. Rod Tyers & Ying Zhang, 2014. "Real exchange rate determination and the China puzzle," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 28(2), pages 1-32, November.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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