OECD Reviews of Regulatory Reform: China 2009

Defining the Boundary between the Market and the State

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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 People’s Republic of China faces many serious challenges in its water sector – including scarcity, pollution and flooding – that constrain economic growth and harm the health of the people. Despite massive investment in the sector, the overall situation of resource availability and water quality continues to worsen as economic development continues. This chapter outlines some to the core challenges of water management in China, which include the fragmentation of the institutional and legal framework and the inefficient co-operation, both vertically and horizontally, among the different departments of government and the different layers at state, provincial and local levels. To understand and analyse how the Chinese authorities can solve these challenges, this chapter will consider the institutional and regulatory issues at river basin level that affect the allocation of water to different users for abstractions for irrigation, rural and urban domestic use, and industry. The chapter also seeks to address some of these points from the perspective of improving the regulatory systems, drawing on experience from OECD countries. 

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