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OECD Reviews of Regulatory Reform: China 2009

Defining the Boundary between the Market and the State

image of OECD Reviews of Regulatory Reform: China 2009

China has made enormous progress in developing the modern legal and regulatory foundation for the market economy. The private sector is now the main driver of growth, and new laws have gone a long way toward establishing private property rights, competition, and mechanisms for entry and exit comparable to those of many OECD countries. At the same time important challenges remain, including further clarification of the scope of state ownership, reform of relations among central and local governments, firmer establishment of the rule of law, and strengthening of regulatory institutions and processes.

 

This review of China's regulatory system focuses on the overall economic context for regulatory reform, the government’s capacity to manage regulatory reform, competition policy and enforcement, and market openness. The review also examines the regulatory framework in the electricity, water and health care sectors. As for OECD countries, the review follows a multidisciplinary and highly interactive approach. A number of OECD instruments and policies are used in this assessment, although the review also takes into account the specific challenges faced by the Chinese authorities. The review includes a comprehensive set of policy recommendations.

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The Challenges of Transition for Competition Law and Policy

Conditions supporting vigorous market competition in the People’s Republic of China were revived after the interruption of a generation-long experiment in central planning. Transition reforms began in the 1970s by acknowledging and encouraging initiative in local markets, which led to vigorous competition among township and village enterprises and regions. Opening to outside markets destabilised monopolies. As competition became established by the 1990s, the focus of reform turned to create the laws and institutions needed to support enterprise markets on a national scale. China adopted a general competition law in August 2007 that became effective a year later. China’s Antimonopoly Law follows familiar international practices about horizontal and vertical restrictive agreements, abuse of dominance and mergers. Like competition laws in many jurisdictions, the Antimonopoly Law pursues several policy goals. Many details, such as merger notification thresholds, remain to be determined by regulations and guidelines and by experience in applying it. China is now completing the restructuring of the heavy-industry heritage of its once-planned economy. The challenges of transition to a market economy are being succeeded by challenges of development, along with the familiar problems of regulatory reform, of providing infrastructure and public services in a market setting. Curbing government intrusion that tries to protect special interests by dampening competition and favouring particular competitors is complicated by the complexity of the relationships between national and local levels of government authority. 

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