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The Business of Governing Business in China: Institutions and Norms of the Emerging Regulatory State
Published online by Cambridge University Press: 13 June 2011
Abstract
China began to establish markets a quarter century ago, but only in the last decade has its government made a concerted effort to design new institutions to govern them. Hence, a “regulatory state” is emerging. The prevailing literature focuses on a seeming convergence of Chinas institutions with the dominant global model of the “independent regulator,” including the establishment of new regulatory commissions. Yet research on China's strategic industries—those in the infrastructure and financial services sectors—suggests that assumptions of convergence obscure key elements of a regulatory design characterized by continued state ownership (as opposed to privatization), maximization of the value of these assets, and active government structuring of these industries. Moreover, regulators in the existing party-state bureaucracy have relatively weak authority. This research cautions us to rethink dominant models of Chinese political economy so that we retain a place for the central state in directing market reform at the “commanding heights” of the economy.
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References
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18 The securities regulator, CSRC, does have functional responsibility for some aspects of privatization. Still, most securities firms themselves are state-owned.
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28 SCIO, formed in 2001, is run by three vice ministers under the SILSG's direction.
29 The 1998 restructuring reduced the party's nomenklatura power to appoint key industry leaders, with much of the authority to appoint management placed with the State Council's Large Firm Work Committee (dagongwei). The party wrested back some of this power by creating the powerful (but little- known) Central Enterprise Work Commission (Zhongyang Daxing Qiye Gongzuo Weiyuanhui). SASAC is the most recent iteration of the party-state power of appointment. Naughton (fn. 25); and author interview with Development Research Center of the State Council scholar, November 26, 2002.
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34 Author interview, Washington, D.C., November 18,2003. Zhang Chunjiang was reportedly unhappy with this transfer to the business side, and only learned about the transfer upon return from an overseas trip.
35 Eisner, Marc Allen, Regulatory Politics in Transition, 2d ed. (Baltimore: Johns Hopkins University Press, 2000), 7Google Scholar. Rather than tampering with existing agencies, new agencies (e.g., the U.S. Department of Homeland Security) are commonly created to administer new policies.
36 This is a theme in the writings of China's foremost scholars of regulation in Yanjiu Baogao (fn. 15).
37 Author interview, Chinese Academy of Social Sciences scholar, Beijing, September 13, 2002. Such “regulatory grabs” also characterized Japan's regulatory reforms in the 1980s. Vogel (fn. 2), 210.
38 Xinzhu (fn. 31) suggests that the role of the TAB vis-a-vis other parts of the Mil, especially at the provincial level, is far from clear.
39 On comparative cases, see Kraemer, Kenneth L., Dedrick, Jason, Jeong, Kuk-Hwan, King, John Leslie, Vedel, Thierry, West, Joel, and Wong, Poh-Kam, “National Information Infrastructure: A Cross- Country Comparison,” Information Infrastructure and Policy 5, no. 2 (1996)Google Scholar.
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41 Government agencies with authority over the Internet include the State Administration of Radio, Film, and TV (SARFT); the State Secrets Bureau; the Ministry of Public Security; and the State Administration for Industry and Commerce.
42 DeWoskin (fn. 31), 640.
43 The Department of Power Industry, the bureau-level successor (as a result of the 1998 reorganization) to the Ministry of Electric Power, was first located in the SETC, and then in 2003 was moved to the new Ministry of Commerce.
44 Rothman (fn. 33); and Chung (fn. 33), fn. 79.
45 Traditionally, shiye danwei institutions perform nonprofit functions under government direction. Shiye danwei are distinguished from governmental “administrative agencies” (xingzhengjiguan) such as ministries (e.g., Mil) and governmental “organizations” (jigou —e.g., CAAC), on the one hand, and profit-making enterprises (qiye danwei), on the other hand. Some of these institutions, such as the Chinese Academy of Sciences, have long been under the “direct leadership” (zhijie lingdao) of the State Council, but most are located at lower levels of government. Historically, they have been of lower status in the State Council hierarchy than “administrative agencies” and “organizations”; in particular, they are seldom headed by ministers. See Tao-Chiu, Lam and Perry, James L., “Service Organizations in China: Reform and Its Limits,” in Lee, Peter Nan-shong and Lo, Carlos Wing-Hung, eds., Remaking China's Public Management (Westport, Conn.: Quorum Books, 2001)Google Scholar.
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47 Walter and Howie (fn. 30), 62. These authors also detail the centralization of regulatory power over securities under CSRC in Beijing and its branches, and away from provincial governments. See also Green (fn. 26), 159–60.
48 A major policy of state-owned enterprises in the last five years has been zhuada, fangxiao, or, “grasp the big and let go of the small.” The policy calls for closing down or selling off small- and medium-sized state assets, while taking better control of the large ones—including most of those governed by the new regulators and/or on the SASAC list. Clarke (fn. 20).
49 Telecommunications's role as a “pillar industry” is stated in the Tenth Five-Year Plan for Telecommunications (2001–2005). Mil's summary of the plan declares the “information industry as a pillar industry in the national economy” and “a strategic industry fundamental to national security.” See Telecommunications Research Project of Hong Kong University (hereafter cited as “TRP”), “China: Summary of the Tenth Five-Year Plan (2001—2005)—Information Industry,” http://www.trp.hku.hk/infofile/china/2002/10–5-yr-plan.pdf (accessed January 25,2004). On electric power as a “pillar” industry, subject to extensive planning by the NDRC, see Zhang Chi (fn. 32). On renewed emphasis on “national champions,” see Thun, Eric, “Industrial Policy, Chinese- Style: FDI, Regulation, and Dreams of National Champions,” Journal of East Asian Studies (Fall 2004)CrossRefGoogle Scholar. As a rule, industrial policy is not WTO-incompatible, although certain tools commonly used in industrial policy are. The belief that the Asian Financial Crisis would snuff out industrial policy in China is expressed in Lardy, Nicholas, Integrating China into the Global Economy (Washington, D.C.: Brookings Press, 2002), 152Google Scholar.
50 On the social/political goals of telecommunications, see Zhang Xinzhu (fn. 31) and TRP (fn. 49).
51 See OECD (fn. 12), 414; Zhang Chi (fn. 32); and Zhu, Songbin and Li, Xiaolin, “China Powers Up,” China Business Review 30, no. 3 (May-June 2003)Google Scholar.
52 See “CPC Decision” (fn. 17). Concern for market stability in insurance was voiced by former CIRC head Ma Yongwei. See “China to Tighten Insurance Regulation,” People's Daily (online), February 9, 2002, http://english.people.com.cn/200202/09/eng20020209_90184.shmtl (accessed June 13, 2005). The Tenth Five-Year Plan in telecommunications encourages “orderly competition.” TRP (fn. 49). On limits on competition in China during the entire reform period, see Nolan, Peter, China and the Global Business Revolution (Hampshire, UK: Palgrave, 2001)CrossRefGoogle Scholar; and Solinger, Dorothy J., From Lathes to Looms: China's Industrial Policy in Comparative Perspective (Stanford, Calif: Stanford University Press, 1991)Google Scholar.
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54 Chung (fn. 33), 77.
55 The NDRC allows electricity prices to fluctuate within a 10-percent band. By international standards, the state-set price of electric power in China is high.
56 Nolan (fh. 52) discusses the balance between increasing competition and state industry consolidation.
57 See Shy, Oz, The Economics of Network Industries (Cambridge: Cambridge University Press, 2001)CrossRefGoogle Scholar.
58 This discussion applies to basic service providers in telecommunications. The market structures of equipment providers and value-added services are more diverse.
59 On market concentration as well as the serial restructurings in telecommunications, see Xu et al. (fn. 40), 4, 7; and Zhou Qiren, “Building Up a More Competitive Telecommunication System in China” (Paper presented at the University of Maryland, College Park, November 18,2003).
60 Kan Kaili, “Bu Paichu Youren Zao Shi” (Don't rule out that some create the force), http://it.sohu.com/2004/06/15/22/article220542253.shtml (accessed June 20,2004).
61 This hike reportedly had been approved by Mil and the State Council in 1999, but it was not implemented until it was needed to support the IPO. Premier Zhu Rongji was sharply critical of these events. Tony Munroe and Vicki Kwang, “China Telecom Delays IPO because of Weak Demand,” Reuters, October 31,2002. Mil also acted on behalf of China Telecom in its 1998 dismantling of Sinoforeign joint ventures involving Unicom. DeWoskin (fn. 31). Xu et al. (fn. 40) argue that “Mil still acts protectively for Telecom on all regulatory decisions” (p. 9).
62 The number of registered airlines expanded from just one (CAAC) to thirty-four. By the late 1990s, China had two-thirds the number of airlines as the U.S. did, and had less than 20 percent of the market size. Rothman (fn. 33), 3.
63 The three groups are Air China (China National Aviation), China Eastern Airlines, and China Southern Airlines. Two other companies were formed in related businesses. Chung (fh. 33), 76—78; and Tang Min, “Restructuring Puts Air China in Advantageous Position,” China Daily, November 29, 2002, l.The 1999 restructuring involved raising prices and reducing the number of domestic nights.
64 Lardy (fn. 49), 128–130; Green (fh. 26), 22. The four commercial banks are: Industrial and Commercial Bank of China, Agricultural Bank of China, Construction Bank of China, and Bank of China.
65 The firms are primarily state-owned (13 percent of assets were private at the end of 2002), mostly by local governments. Green (fn. 26), 78—84, 96.
66 The 1996 restructuring created three groups under one PICC holding company. On the market structure of the Chinese insurance industry, see OECD (fn. 12), 274–75.
67 The National Bureau of Asian Research, “China: Insurance Industry and WTO Liberalisation,” http://www.nbr.org/wtoforum/MaYongwei.html (accessed November 23,1999).
68 Only five companies have been granted licenses to operate nationwide. OECD (fn. 12), 276,280.
69 OECD (fn. 12), 399. Chinas use of licensing to determine market entry is reminiscent of Japan's strategy for protecting industry. Sohn, Yul, “The Rise and Development of the Japanese Licensing System,” in Carlile, Lonny E. and Tilton, Mark C., eds., Is Japan Really Changing Its Ways? (Washington, D.C.: Brookings Press, 1998)Google Scholar. Chinas 1993 Unfair Competition Law and 1999 Price Law do not ban many exclusionary practices, though they do prohibit overt, anticompetitive protectionist actions by local governments. OECD (fn. 12), 38,397,421.
70 This has been a major goal of China's regulatory development. On international efforts at capacity building, see Grindle, Merilee S., “Ready or Not: The Developing World and Globalization,” and Elaine Ciulla Kamarck, “Globalization and Public Administration Reform,” both in Nye, Joseph S. and Donahue, John D., eds., Governance in a Globalizing World (Washington, D.C.: Brookings Press, 2002)Google Scholar.
71 Regulatory risk is risk to firms for which regulatory changes will harm business. Risk is higher in natural monopoly industries, where sunk costs are high. Governments may try to reduce risk by monitoring changes in rules and processes to encourage transparency. Shleifer, Andrei and Vishny, Robert W., The Grabbing Hand: Government Pathologies and Their Cures (Cambridge, Mass.: Harvard University Press, 1998)Google Scholar.
72 This view of China's political economy is well illustrated by Woo, Wing Thye, “The Real Reasons for China's Growth,” The China Journal 41 (January 1999), 115–137CrossRefGoogle Scholar; and Yang (fn. 4). Woo does note in passing (136) that nonconverging elements are evident in some places in the economy due to reformers' compromises with conservatives. On increasing competitiveness in the PRC economy, see Lardy (fn. 49).
73 Pictures of a substantially decentralized system are found in, for instance, Rawski, Thomas G., “Reforming China's Economy: What Have We Learned?” The China Journal 41 (January 1999), 139–56CrossRefGoogle Scholar; and Oi, Jean C., Rural China Takes Off: Institutional Foundations of Economic Reform (Berkeley: University of California Press, 1999)Google Scholar.
74 This latter picture emerges clearly in recent studies by younger scholars, including Lin (fn. 21), Mertha (fn. 22), and Thun (fn. 49). See also Nolan (fn. 52).
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