Economics and Regulation in China

Michael Faure, Guangdong Xu

• Publisher: Routledge
• Year: 2013
• eBook ISBN: 9781134623075
• Topic: Business
• Subtopic: Business General
• Index: Business

This book, from a top international group of scholars, explores the ways in which economic tools can be used to improve the quality of regulation in general and legislative tools in particular.

As the role of law becomes increasingly important in China, the question arises of how effective regulatory and legislative tools can be developed to accompany the Chinese evolution towards a welfare state. China therefore provides a unique case study for scholars and policymakers interested in examining how regulation can play a role in promoting sustainable development.

Economics and Regulation in China goes beyond traditional economic analysis of law by focusing specifically on the question of how economic tools can guide the quality of legislation. To this end, the book centres in on three areas: regulation as a tool of economic growth, competition policy and environmental policy. Not only are these three domains of great importance for China, but they are also relevant for a broad scholarship interested in the economic analysis of law.

This volume contributes to discussions on how ex-ante evaluation of legislative proposals and ex-post analysis can increase the effectiveness and efficiency of regulation, using economic tools, offering insights that go beyond the particular case of China. The analysis offered by this book makes it an invaluable resource for academics and policymakers alike.

1 Introduction and editorial foreword

Michael Faure and Guangdong Xu

1.1 Reasons for this book

The goal of this book is to acquire insights into the way in which economic tools can be used to improve the quality of regulation in general and legislative tools more particularly. This book will hence fit into the branch referred to as law and economics or economic analysis of law. This methodology has been largely employed in the US and in Europe to analyse legal rules (descriptively) and to prescribe particular legal rules. In this book law and economics will be used in an attempt to test ex ante and ex post how the quality of regulation can be improved. It hence touches upon regulatory tools like regulatory impact assessment (RIA) but is also broader, for example since law and economics recently has incorporated insights from behavioural sciences which generally are not taken into account in a RIA.

The question of how the quality of legislation can be improved is relevant for China since the role of law is becoming increasingly important there. As a result of this the question arises how regulatory and legislative tools can be developed to accompany the Chinese evolution towards a welfare state in an effective manner. China hence provides a unique case study for scholars and policymakers interested in examining how regulation can play a role in promoting sustainable development.

The book will hence go beyond traditional economic analysis of law by focusing specifically on the question how economic tools can guide the quality of legislation. In addition to this more general and broad question the book will zoom in on three particular fields where it will be tested how economics can positively affect the quality of regulation. These domains are (1) regulation as a tool of economic growth; (2) competition policy; and (3) environmental policy. Not only are these three domains of great importance for China, but also for a broad scholarship interested in economic analysis of law.

The book can contribute to insights into how ex ante evaluation of legislative proposals and ex post analysis can increase the effectiveness and efficiency of regulation, using economic tools. Even though the focus is on the case of China which provides interesting challenges for social engineers, insights provided by the book have an importance that go beyond the particular case of China. In that sense the volume goes beyond any of the more traditional books on economic analysis of law where the relevance for policymakers and, more particularly, for improving the quality of regulation has so far received less attention.

1.2 History and origins of this book

This book originates from a long-standing cooperation between various Chinese and European institutions that led to the realisation of a research project which was at the origin of this book. The editors have worked together for a long time within collaborations between, on the one hand the Research Center for Law and Economics of the China University of Political Science and Law to which Guangdong Xu is connected and on the other hand the Rotterdam Institute for Law and Economics (RILE) and the Maastricht European Institute for Transnational Legal Research (METRO) to which Michael Faure is connected. Guangdong Xu was Erasmus Mundus visiting professor at the Erasmus School of Law in January – February 2011 and collaborated, inter alia, to a book on law and economic growth co-edited by Michael Faure and Jan Smits.¹ Michael Faure became ‘Haiwaimingshi (Distinguished Foreign Professor)’ at the Center for Law and Economics of the China University of Political Science and Law (CUPL). It is in the framework of this collaboration that a seminar was organised between the three mentioned institutions on Wednesday 23 May 2012 in Beijing entitled ‘Using economics to improve regulation’. The contributions to this book constitute a selection of the papers presented at that seminar. The papers were afterwards rewritten and intensively edited before they were included in this volume.

This collaboration also fits into a broader interest of collaboration between Chinese, European and American scholars with respect to economic analysis of law, with a special focus on the central topics of this volume, being economic growth, competition policy and environmental pollution. With respect to economic growth we already mentioned the volume edited by Faure and Smits (2011) to which, in addition to Guangdong Xu, Julan Du also contributed (2011). With respect to competition policy an initial analysis of the new Chinese Anti-Monopoly Law was executed in a book edited by Faure and Zhang (2011) to which European, Chinese and American scholars contributed; a follow-up of this volume was published in 2013 (Faure and Zhang 2013). Many collaborative projects also took place with respect to environmental law. Some projects focused specifically on marine oil pollution (see for example the volumes edited by Faure and Hu 2006 and by Faure et al. 2010); other research focuses specifically on legal remedies for transboundary pollution (Faure and Song 2008). In general economic analysis of law and its strength had been analysed in an earlier volume (Eger et al. 2007). The current volume hence builds up on this earlier research, but takes the analysis further by focusing more specifically on the opportunities for using economics to improve regulation in China.

1.3 Methodology

It may be clear that various approaches have been followed in the different chapters in this book. These various approaches are useful and provide a richness to answer questions related to the use of economics in improving regulation in China.

1.3.1 Multidisciplinarity

When dealing with complex questions related to the role of law in economic growth in China a mere monodisciplinary approach may not suffice to provide relevant answers. Although many social sciences may be involved in answering the question central to this book, the current book mainly adopts the approach known as law and economics or economic analysis of law. For European and Chinese scholars interested in economic analysis of law China provides wonderful opportunities to test those models empirically, given the rich and exciting developments, of course related to economic growth, that are currently occurring in China. These challenges not only relate to economic growth, but also to the application of competition policy as well as to the fight against environmental pollution. The question that arises in all those areas is to what extent the economic models can be useful to support the rapidly growing Chinese economy which is also struggling with the adaptation of its economy to a competitive environment and with increasing environmental pollution which it seeks to prevent and remedy.

1.3.2 Legal interdisciplinary

In addition, it may be clear that the various issues addressed in this book cannot mainly be addressed from one particular angle, e.g. private law or public law. Hence many contributors necessarily take a broader perspective and, for example, address administrative law, but also questions of international (trade) law, competition law and regulation as well as environmental law. To some extent these different legal disciplines are addressed in specific chapters (which would amount to a multidisciplinary approach), but in other chapters different legal disciplines are also integrated whereby mutual interdependencies are equally addressed (a truly legal interdisciplinary approach). An advantage of this multi- and interdisciplinary approach is that it also allows the contributors to show the richness of the economic analysis of law and its ability to be applied to a wide variety of legal domains and to address issues of interdependencies between different legal instruments as well.

1.3.3 Comparative approach

By mentioning the history and origins of this book (above in Section 1.2) we have already indicated the advantages of following a comparative approach. This has benefits both for China and for the (European) scholars addressing legal problems in China. The case of China, as we argue, provides a lot of scope for mutual learning. Hence, this book will not only focus on Chinese law and regulations in China, but also for example on international (trade) law, as well as on evolutions in Europe and in the US with respect to, inter alia, competition policy and environmental law. Looking at evolutions in Europe and the US may provide an interesting perspective through which one can analyse current evolutions in China as well. Again, this may not only provide useful insights for Chinese policymakers who may learn from previous experiences in the US and in Europe; also for scholars and policymakers outside of China the fascinating case of China can provide highly interesting insights, which may not only lead to improvement of current academic models, but may also provide further insights for the practical and policy perspective.

1.4 Topics

The topics chosen in this book all relate to the central question: to what extent can economics provide useful insights to improve the quality of regulation in China? The book therefore consists of a series of chapters that each in their own way try to answer that question. However, three specific topics have been chosen to analyse this central question, which allows a division within three separate parts.

The first part deals with regulation as a tool of economic growth. It addresses, inter alia, the important question of whether regulation has been relevant in China’s economic growth and moreover normatively analyses to what extent economic growth in China can be considered as sustainable. A crucial issue playing an important role in the chapters included in this part is of course the role that the Chinese government plays in regulating the (financial) market either explicitly or implicitly via the important role of state-owned enterprises in China.

Part II deals with the important topic of competition policy. It is, in a book focusing on economics and regulation, not possible to bypass the fact that during the twenty-ninth session of the Tenth National People’s Congress on 30 August 2007, China adopted an Anti-Monopoly Law. Almost one year later, on 1 August 2008 this law entered into force. Still questions arise with respect to the application of this Anti-Monopoly Law in practice and for example with respect to the question at which level enforcement should take place. Moreover, since China now also has been a member of the Word Trade Organization (WTO) for more than ten years the question of how China has behaved within the WTO can be analysed from an economic perspective as well.

Part III focuses on what could probably be considered a downside of the Chinese miracle of economic growth, being environmental pollution. Some claim that China has become one of the world’s largest polluters, which raises important questions not only concerning environmental liability rules, but also concerning the contribution of China to global carbon dioxide emissions. Increasingly China is looking for instruments to prevent emissions of carbon dioxide, but questions arise as to the efficiency of the approach chosen.

1.5 Structure of this book

It has already been stated above that the book is divided into three main parts. Part I deals with regulation as a tool of economic growth. Chapter 2 by Guangdong Xu deals with financial repression, economic distortion and China’s growth miracle. Chapter 3 by Wenjing Li and Binwei Gui addresses public housing in Beijing and the way government regulation can outperform the market. The question of the role of law in dealing with the stock market in China is addressed by Tianshu Zhou in Chapter 4. Jiye Hu provides an empirical approach of the regulation of China’s pension investment scheme in Chapter 5.

Part II focuses on economic analysis of competition policy in the broad sense, thus also including aspects of international trade law. In Chapter 6 Xinzhu Zhang and Vanessa Yanhua Zhang sketch recent developments in China’s competition policy against monopolistic and collusive agreements. Chapter 7 by Roger Van den Bergh and Jingyuan Ma also deals with the anti-monopoly law in China, but more particularly with the enforcement of antitrust law and the question of decentralisation. Niels Philipsen in Chapter 8 addresses the question to what extent professional regulation can also be considered as a tool of economic growth. Turning to international trade law Jie Hong provides a legal–economic analysis of the WTO’s agreement on safeguards in Chapter 9. Xiaoping Zhang analyses incentives for developing countries like China to accede to the General Procurement Agreement in Chapter 10.

Part III contains contributions dealing with environmental policy. Chapter 11 by Stefan Weishaar and Fitsum Tiche discusses the efficiency of hybrid emission trading systems. Hao Zhang analyses the role of government in the carbon trading market in China, discussing the case of Tianjin in Chapter 12. Chapter 13 is by Michael Faure and Weiqiang Hu and deals with environmental liability in China. Hui Wang focuses on the marine environmental liability scheme in China and provides an economic analysis in Chapter 14.

Part IV consisting solely of Chapter 15 contains a set of comparative and concluding remarks by the editors.

1.6 Contributors

The contributors to this book come, as was made clear, from various universities in China, Europe and the US. Many Chinese scholars are connected to the Center for Law and Economics of the China University of Political Science and Law (CUPL). This is the case for Jiye Hu, Wenjing Li, Binwei Gui, Guangdong Xu and Tianshu Zhou. Jie Hong is connected to the Business School of CUPL. Xiaoping Zhang is with the Central University of Finance and Economics in Beijing and Xinzhu Zhang with the Chinese Academy of Social Sciences in Beijing. Vanessa Yanhua is with the Global Economics Group in New York (USA). She is one of the Chinese contributors actually not currently residing in China. This is also the case for Hui Wang (METRO Institute, Maastricht University, Maastricht, The Netherlands), Weiqiang Hu (at the Erasmus School of Law in Rotterdam, the Netherlands) and Hao Zhang (at Melbourne Law School in Australia) as well as for Jingyuan Ma (connected to the Erasmus School of Law and the University of Hamburg in Germany).

Michael Faure and Niels Philipsen are from the METRO Institute of Maastricht University, co-organ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• List of contributors
• List of abbreviations
• 1 Introduction and editorial foreword
• PART I Regulation as a tool of economic growth
• PART II Economic analysis of competition policy
• PART III Environmental policy
• PART IV Comparative conclusions
• Index