Despite three decades of reform, China's electricity sector is still organized by a “new reformed plan” where capacity investment has been liberalized but prices and production remain controlled. This paper examines the impact of the current plan prices on end-users with reference to the OECD and how the plan price of electricity supply is formed. We argue that the plan price is set in an attempt to balance the interests of the public and the power industry. We find that China's industries do not pay a cheaper price for electricity than the West, and the plan price is formed through bargain between the firm and the state, which allows the firm to have a soft price constraint on its costs.
I am grateful to Albert Park at Oxford University, my colleagues at Brunel University, Wing Thye Woo, and other participants at the Asian Economic Panel Meeting in Tokyo 2010 for their valuable comments in help of revising the paper. All errors are mine.