Chinese Experience in the Introduction of a Market Mechanism Into a Planned Economy: The Role of Pricing

Abstract

A brief review is first presented of the changes in pricing institutions in China since 1949, with particular emphasis on the shift from an equilibrium price system to a distorted price system. The authors argue that distorted prices are harmful to economic growth even in a planned economy, since even an experienced economic planner can never escape from the full implications of a distorted price system. Examples are given showing the detrimental results of such a system. The central point of China's economic reform is the extension of decision-making power to enterprises and the introduction of a market mechanism so as to improve microeconomic efficiency. But such a goal cannot easily be achieved due to the false information provided by the distorted price system. So price adjustment becomes an issue of primary importance, and the authors discuss the difficulties for price adjustment posed by various interest groups.

Microeconomic Efficiency and Macroeconomic Policy Effectiveness in China's Transformation Phase

“…The double-track or two-tiered price system is now widely used in China for exchange of products [3,4,5]. Under this system, each productive unit is required to deliver annually or per period of time a specified quantity(ies) of a product(s) (official quota(s)) to the appropriate state authority in return for payment at a specified price(s) (official prices).…”

Survey of Models on Demand, Customer Base-Line and Demand Response and Their Relationships in the Power Market

“…A better connection between the wholesale and retail markets will allow consumers to optimally reap those gains. Mao and Hare (1989) review the changes in pricing institutions in China since 1949. The emphasis is on the shift from equilibrium to a distorted price system.…”