Understanding the Economic Responses to China’s Electricity Price-Cutting Policy: Evidence from Zhejiang Province

Abstract

As a critical pattern to promote industrial growth and recover the economy, China has widely applied an electricity price-cutting policy, especially after the global spread of COVID-19. However, the current insufficient research indicates a noticeable knowledge gap around the actual outcome of this policy measure. This paper, therefore, aimed at filling this gap by focusing on the case of Zhejiang province. Recently, there have been three main kinds of price-cutting policies employed in Zhejiang, decreasing the general industrial electricity price, temporary electricity price-cutting, and targeted price reduction for large industries. Using a computable general equilibrium model that incorporates the Zhejiang electricity system’s operating characteristics, we simulated the economic impact of these electricity price adjustment policies. The results indicate that it was practical to promote the economy by reducing electricity prices, but the specific arrangements of policy have led to differences in economic stimulus consequences. This paper further obtained the multiplier effect in each industry. If electricity price adjustment policies were introduced only for industries with a higher comprehensive multiplier effect, the policy effectiveness would be further optimized.