Impact of Energy Market Distortions on the Productivity of Energy Enterprises in China

Abstract

China aims to enhance its total factor productivity (TFP) to achieve sustainable development. However, the looming energy market reform and its accompanying energy distortions prevent the realization of this ambitious goal. This study first establishes a theoretical model to reveal the inhibitory effects of energy market distortions on the TFP of energy enterprises, and we examine this issue using the micro-data of Chinese energy enterprises. The empirical results indicate that relative distortions among energy enterprises and overall distortions in different regions significantly inhibit the promotion of energy enterprises TFP, but the marginal inhibitory effects are diminishing. Energy market distortions also inhibit enterprises’ entry and accelerate enterprises’ exit from the energy market. Thus, eliminating inappropriate interventions in micro-energy enterprises, establishing a unified national energy market, and improving the competitive environment of energy companies are of great theoretical and policy importance.