Reform and structural change in the Chinese economy: A CGE analysis

In this study, a computable general equilibrium (CGE) model is developed and used to analyze reform measures that are part of China's transition to a market economy. The policy simulations done with the model focus on the effects of reforms in the system of government planning and on some recent proposals to reform the system of taxation. A detailed 30-sector social accounting matrix (SAM) for 1987 is constructed from Chinese source material and serves as the primary data base for the CGE model.;The China CGE model incorporates a number of features of the present-day Chinese economy. The most important of these features is the "two-tier plan/market" system. Under this system, most Chinese enterprises have been required to sell part of their output at fixed plan prices. Output in excess of plan quotas can be sold at market prices. Similarly, enterprises purchase inputs allocated through the plan at subsidized prices, while the remaining required inputs are purchased through markets.;Because collectives, joint ventures, and private enterprises have been the most dynamic part of the Chinese economy, they are separated from state-owned enterprises in the model. Non-state enterprises have generally been much less subject to the government planning system, paid less in taxes, and had differential access to factors of production. These differences are accounted for in the model. The reduced labor mobility that has been a characteristic of Chinese state-owned enterprises is also modeled.;The China CGE model is used to perform a number of policy simulations. The first set of simulations looks at the effects of reforms in the planning system. Reforms that reduce the level of plan allocations are compared to reforms that raise plan prices toward market levels. For intermediate goods, these reforms are equivalent, although there may be other advantages to reducing the scope of the plan. The second set of simulations examines the potential impact of China's proposed taxation system reforms. The taxation system reforms involve the substitution of a value-added tax for the turnover tax and an equalization of enterprise income tax rates for all forms of enterprise ownership.