The Achilles’ Heels of Growth: Factor Price Distortions and Wealth Transfer in China

26 Pages Posted: 17 Nov 2011

See all articles by Lian CHENG

Lian CHENG

Chinese Academy of Social Sciences (CASS) - Institute of Finance and Banking

Shuguang Zhang

affiliation not provided to SSRN

Date Written: November 16, 2011

Abstract

As critical piece of China’s gradualist economic transition, domestic price reform still faces major challenges. In particular, factor price, which is still tightly-controlled and not market-based, is lower than market equilibrium price. Factor price distortion not only reduces market efficiency but also affects wealth distribution. Subsequent wealth transfer has, over the past ten to fifteen years, created a powerful vested interests and spawned social resentment, both of which may constitute major hazards in China’s future reform and development. Keeping in mind that China will have to address factor price distortion in its next step of reform, this paper takes stock of China’s journey toward price reform; examines the relationship among factor price distortion, previous economic growth, and policy; and estimates the size of resulting wealth transfer.

Keywords: factor price, economic growth, wealth transfer

JEL Classification: E25, E64, F41

Suggested Citation

Cheng, Lian and Zhang, Shuguang, The Achilles’ Heels of Growth: Factor Price Distortions and Wealth Transfer in China (November 16, 2011). Available at SSRN: https://ssrn.com/abstract=1960360 or http://dx.doi.org/10.2139/ssrn.1960360

Lian Cheng (Contact Author)

Chinese Academy of Social Sciences (CASS) - Institute of Finance and Banking ( email )

11F, MCC Tower, No. 28, Shuguangxili
Chaoyang District
Beijing, Beijing 100732
China

HOME PAGE: http://ifb.cass.cn/

Shuguang Zhang

affiliation not provided to SSRN ( email )

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