Primary fossil energy cost and price regulation in energy processing sectors---the perspective of price regulation market with Chinese characteristics

All enterprises in the field of energy processing in China are state-owned enterprises (SOEs), and the government regulates the prices of their products. China's SOEs have multiple objectives, so the market is not mimic a simple oligopoly market. Energy processing sectors are the links between primary fossil energy and the economy. We apply a dynamic recursive computable general equilibrium model with multi-sectors and multi-households, named CEEEA/CGE model, to simulate and analyze the impact of primary fossil energy cost changes and what will happen if prices are regulated in these energy processing sectors. These results underscore the role of price regulation in energy processing sectors: the regulation seems to stabilize the economy. It will reduce the impact of rising and falling energy costs, whether the impact is good or bad. Other findings are: 1) resource curse is spotted when the primary energy cost is reduced dramatically. 2) CPI only increases by a little, even if the primary energy costs increase significantly. 3) The economic impact of the changes in fossil energy costs is asymmetric.

Automated summary

All energy processing enterprises in China are state-owned and their product prices are regulated by the government. The dynamic recursive computable general equilibrium model (CEEEA/CGE model) is used to simulate and analyze the impact of changes in primary fossil energy costs and the effects of price regulation in these energy processing sectors. The results show that price regulation stabilizes the economy and reduces the impact of energy cost fluctuations, whether positive or negative. Other findings include the resource curse phenomenon when primary energy costs are dramatically reduced, minimal increase in the consumer price index (CPI) despite significant energy cost increases, and the asymmetric economic impact of changes in fossil energy costs.