Crossing the cross-subsidy: Evidence from China's electricity sector

Abstract

Electricity cross-subsidy poses a challenge to the reform of China's electricity system in terms of marketization. This paper measures the size of electricity cross-subsidy in China and examines the impact of eliminating it using the CGE model. In addition, we calculate a compensation variance so that household welfare is not affected. The results show the sum of cross-subsidy was 392.34 billion CNY, of which the subsidies from secondary and tertiary industries were 308.73 and 83.61 billion CNY. If the cross-subsidy were eliminated, GDP, exports, interest rates, and most sectors' output would increase, but the price level would also rise.