The transition process from planning to markets: A CGE analysis of the Chinese economy

Prices play an important role in China's economic reform. This role could even be crucial if the Chinese authority decides to deemphasize government planning in favor of a market economy. A two-tier price system, representing a hybrid of government administered and market determined prices, is already in operation, and will likely continue to operate in the foreseeable future.;The objective of this dissertation is to formalize a Computable General Equilibrium (CGE) model with modifications to accommodate special features of a mixed economy and to provide a quantitative analysis of the effects of government price policy on the economy during a transition process from a centrally planned economy to a more market oriented mixed economy. This mathematical model is used as a framework to examine possible alternatives that are available to the Chinese government should it decide to expand the market sector of the economy. Such alternatives could include different combinations of official prices and quotas. The models and the methodologies used in this investigation provide a general equilibrium analysis that accounts for intersectoral and intrasectoral reactions to price change. An index system of relative prices is established in this research to evaluate the degree of price distortions. The approach is an improvement over partial equilibrium methods used in other investigations in this field. The basic research strategy is to simulate various policy options for price reform in a centrally planned economy, evaluating each option, in turn, on the basis of its consequences for market performance.;The CGE model is calibrated to a social accounting matrix (SAM) based on the Chinese data for 1983. It is solved by the Generalized Algebraic Modelling System (GAMS).