COMPETITION POLICY, CORPORATE SAVING AND CHINA'S CURRENT ACCOUNT SURPLUS

CAMA Working Papers from Australian National University, Centre for Applied Macroeconomic Analysis

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.

JEL-codes: D43 D58 F32 L13 L43 L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-com, nep-ifn, nep-reg and nep-tra
Date: Written 2008-07
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http://cama.anu.edu.au/Working%20Papers/Papers/2008/Tyers_212008.pdf (application/pdf)

Related works:
Working Paper: Competition Policy, Corporate Saving and China's Current Account Surplus (2008)
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