The emergence of convergent price clusters in China: Evidence from the transitional energy market

Abstract

© 2016 The European Bank for Reconstruction and Development. This paper reports new evidence on the existence of both large and small price divergent clusters for China's energy markets, 2000-2009. The largest convergent price clusters suggest that the coal and gasoline markets are well integrated, however, small convergent price clusters suggest that electricity and diesel markets are proving harder to integrate. The paper argues that the traditional approach to price convergence analysis should be applied with caution, especially in a transitional economy such as China where questions to be asked should relate to the 'degree of market-orientation' and not simply whether it is a market-based economy or not.