China’s oil and petrochemical industry is under administrative monopoly. Administrative monopoly, according to the Unirule Institute of Economics, refers to trade monopoly from concessions granted and the monopolistic power conferred by administrative departments through administrative documents on business entities—enterprises or administrative institutions that are also engaged in profit-making activities. Administrative monopolies come in various forms, including barriers to entry, special privileges and price regulation, which lead to multi-level monopolistic powers and status. The administrative monopoly in China’s oil and petrochemical industry has evolved from the previous planned economy. Although the central government has the motivation to reform state-owned enterprises to increase revenue, which has been mainly from taxation, it lacks the impetus to break the administrative monopoly. This article shows that the barriers to entry form high monopoly prices and transfer the consumer surplus into business profit, which is unfair and distorts income allocation. After analysing the forms and origins of administrative monopoly in China’s oil and petrochemical industry, the article demonstrates that administrative monopoly causes distorted factor prices, compromises fair trade, reduces efficiency and causes loss of social welfare and degradation of business ethics. This article also proposes judicial, administrative and market-oriented reform solutions.
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