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China: China Finance Profile 2012

2012/03/01

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China Finance Profile 2012

People’s Republic of China: Developments in Regulatory Reform


Main characteristics of Chinese regulatory reform

Since introduced in late 1970s, regulatory reform has been an integral part of the economic reform in China. Its main goal is to reduce government interference in the economy by easing controls and setting up a fair market economy environment. After 30 years’ reform, China has successfully transformed from a highly centralised planned economy to a dynamic socialist market economy, with the market playing a full and fundamental role in resource allocation, and a macro-control system guided by national plans, programmes and industrial policies, and coordinated and applied with fiscal policies and monetary policies. During this period, China has established its regulatory framework and continuously improved its regulatory policies.

Laws, policies and principles

China set the direction of reform to develop a socialist market economy in 1992, promulgated a guidance document concerning the development of its market economy in 1993, and in 2003 added further direction, including systemic arrangements for regulatory reform, the basic orientation of which was to reduce regulation and to bring into play the fundamental role of the market in resource allocation, step by step. Regulatory reform has been an important part in the annual plan of economic system reform. For example, the recently promulgated Opinions on Deepening the Reform of Economic System in 2009 addressed many areas closely related to regulatory reform, including the reforms of governmental economic management, monopolised sectors, prices of resource products, energy-saving and environmental protection, industrial structure and enterprise development, the public service system, fiscal and finance sectors, etc.

The Corporate Law, enforced in 1994, laid the foundation for a market environment where enterprises of different ownership can compete on a free, equal and fair footing. The Law on Legislation enforced in 2000 stipulated a purview of authority and a procedure for enacting laws, regulations and rules. The Administrative Licence Law, enforced in 2004, stipulated the formation, implementation, supervision and examination of administrative licence. The Law on Product Quality, Law Against Unfair Competition, Price Law, Law on Tenders and Bids and Antimonopoly Law laid down prohibitive provisions on the abuse of administrative powers to eliminate or restrict competition.

Goals of the regulatory reform

China’s current reform aims to create a unified and open modern market system with orderly competition by raising the role of the market in resource allocation:

to improve the competitiveness and production efficiency of enterprises and increase the efficiency, level and quality of public entities;

to advance regulations in a scientific, democratic and legal manner; and

to improve social welfare and promote economic development.

 

Mechanisms and institutions to supervise regulatory reform
Institutions

Currently, China does not have a dedicated and integrated institution to supervise regulatory reform. In accordance with the Supervision Law of the Standing Committee of People’s Congress at All Levels, the standing committees of People’s Congress at all levels supervise the work of government at their respective levels, including the supervision of regulatory reform and the review of the enforcement of laws and regulations.

The Chinese central government, i.e. the State Council, makes comprehensive arrangements for regulatory reform. The National Development and Reform Commission (NDRC) is the governmental department responsible for providing general guidance and co-ordinating the economic reform. Its responsibilities include drawing up annual plans for regulatory reform and drafting comprehensive reform schemes. It also plays an important role in areas such as price control and anti-monopoly.

Regulatory reform in different fields is implemented by the respective functional departments. Moreover, China has also established some special industrial regulatory bodies, such as the State Electricity Regulatory Commission, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission.

Recognition and support
The Chinese government adopts a positive attitude to advancing regulatory reform. It regards regulatory reform steps to be important tasks, making arrangements in its annual plan for reform and formulating corresponding policies. The Chinese government would solicit opinions and suggestions from all sectors of the society and get extensive support before formally issuing and implementing these arrangements and policies.

Transparency and predictability

The Administrative Licence Law (enforced in 2004) stipulated that the issues and procedures required of administrative licences should be made known to the public, and that hearings should be held on such issues and procedures if necessary. Since December 2000, the Chinese government has vigorously promoted openness in government affairs. The Regulations on the Disclosure of Government Information enforced in 2008 required the government to disclose government information in a timely and accurate manner and protect the rights of citizens, legal entities and other organisations to acquire government information lawfully. Meanwhile, China has established a government news spokesmen system and an electric government affairs system so that the public can acquire related information through portals/websites and press conferences or apply directly to the government for information. In the past few years, the government has solicited public opinions on many major reform plans and important draft laws through government websites, the media, hearings and other channels enabling the public to fully express their opinions.

Improve the quality of regulations

Tools, systems and procedures of regulation for improving the (flow) quality of new
regulations

China has yet to use the Regulatory Impact Analysis (RIA) tools recommended by APEC. However, China approves of the RIA framework. In fact, similar methods of investigation and analysis, expert consultancy, majority opinion and external example as advocated by RIA, have been used by the Chinese government and its departments for many years.

Tools, systems and procedures of regulation for improving the quality (maintenance) of current regulations

Empowered by the State Council, the National Development and Reform Commission (NDRC) is responsible for regularly reviewing the overall progress of economic reform. The implementation of regulations in different fields is examined by respective functional departments. The People’s Congress and its standing committee at all levels, the State Council and local governments examine the implementation of related laws, regulations and rules within their respective scope of responsibility pursuant to related provisions of the Law on Legislation. Senior government levels regularly evaluate the performance of lower levels, wherein the effect of the application of related regulations is an important item of evaluation.

To transform government functions and reduce government interference in the market, China has overhauled the administrative examination and approval system and rigorously reviewed those items requiring administrative examination and approval since 2001. After careful examination and deliberation, these items were either maintained, cancelled or subjected to lower levels based on the principles of lawfulness, rationality, effectiveness, responsibility and supervision.

Since the promulgation and implementation in 2005 of the Several Opinions of the State Council on Encouraging, Supporting and Guiding the Development of Individual and Private Economy and Other Non-Public Sectors of the Economy, related departments of the central government and local governments have examined, trimmed and revised the laws, regulations and policies that restrict the access of non-public sectors of the economy to market.

 

Future challenges and lessons learned in promoting regulatory reform

Lessons learned in promoting regulatory reform and major progress in the past five
years

Over the past five years, China has made continuous progress in regulatory reform. It has relaxed control over power, telecommunications, postal services, the railways, civil aviation, public utilities and other sectors, facilitating market access and pursuing a fair competition policy to promote the development of these sectors. China has promoted the interests of the non-public and small and medium-sized enterprises (SMEs) enabling them to better compete with other established market players on an equal footing. This was achieved by improving market accessibility, perfecting fiscal, tax and financial policies, improving government services and supervision and limiting restrictive provisions. China has also promoted the standardised development of production through applying market mechanisms to capital, land, human resource and other production essentials and improving the necessary regulations and policies. China has promoted the transformation of economic regulation, market supervision, social management and public service through administrative management system reform, a reduction in the number of items requiring administrative examination and approval and deeper reform of the investment system. Further, China has improved the quality and level of its public services by advocating system-wide reforms in culture, health, education and other social fields, and gradually lowering the threshold for private capital to enter these areas. In addition, the enactment and enforcement of the Antimonopoly Law, part others, have promoted fair competition and protected consumer interests.


Challenges ahead
Facing unstable international economic conditions, China will continue to deepen its regulatory reform applying clear goals and tasks for future reforms:

To meet the requirements for changing economic development models, China will pay more attention to economic structure, the need to reduce resource use and energy consumption, and the protection of the ecological environment.

To meet the requirements for perfecting the market economy system, China will focus on promoting the development of the non-public economy, deepening the reforms of the stateowned enterprises and monopolistic sectors, and improving the market system, etc.

To balance the development of the economy and the society, China will make efforts to solve problems in income distribution, social security, health, education, science and technology, culture and other fields.

To meet the challenges of economic globalisation, China will focus on opening more areas, optimising the structure of opening, and improving the quality of opening.

China will deepen the reform of its administration system to further transform government functions, reduce the number of items requiring administrative examination and approval, and improve the scientific and democratic decision-making mechanisms of the government as well as government publicity. And sixthly, China will actively reflect on the experience and practice of RIA, carefully judging the appropriate time and method of implementation.

Commercial Banking Report Q1 2011