The impact of energy price deregulation on prices in China : a structural path analysis

Rapid economic growth in China is accompanied by the increasing demand for energy. It is also argued that the Chinese energy use is inefficient due to distortions in the pricing system. The deregulatory reforms in the 2000s have brought about the price increases in the energy market.The impact of the changing energy prices on price levels in production sectors in the economy is important due to inter-sectoral relations. This paper evaluates the potential impacts of changes in energy prices in China from the social accounting matrix (SAM) price modeling viewpoint. To this end, we construct a SAM for China and examine the impacts of changing energy prices on prices in the economy. We conduct our analysis separately for four different types of energy, namely, coal,oil, electricity, and natural gas. We found that the impact of changes in electricity generation cost appears to affect the consumer prices the most while the impact of natural gas prices is the least significant and negligibly small.