Let rule of law guide the market Government departments and social organizations should enhance supervision with legal means to ensure healthy operations
The next five years are key for China to establish a market economy with rule of law. Market economy ruled by law guarantees that the market plays a decisive role in the distribution of resources and that the government functions well. It requires the authorities accelerate the transformation from administration-oriented market supervision to market supervision based on the rule of law, and at the same time deepen reform of the administrative examination and approval system.
Currently the domestic consumer market environment does not fulfill the requirement of releasing consumption demand. The scale of China’s overall consumption by 2020 should be about 45 to 50 trillion yuan ($7.2 to 8 trillion), so it can be the main pillar of 7 percent GDP growth. Government market supervision has become the key factor influencing the overall situation of economic transformation and growth. The supervision of consumer goods such as food or of monopoly industries shows that it is hard to achieve effective market supervision without change to the supervision system that is centered on administrative supervision.
In reality, some authorities have both the power of administrative examination and approval as well as the power of market supervision, which means they unavoidably pay more attention to examination and approval while ignoring supervision. Administrative examination and approval are a pre-regulation measure for the authorities while market supervision controls operating activities in the market. In a modern market economy, post-supervision is a more effective supervision measure than pre-examination and approval. The pre-examinations and approvals required should be as fewas possible. This requires strictly separating administrative examination and approval with market supervision in the functions of government.
Pre-examinations and approvals are the government’s administrative power, thus the exercising of this power should be clearly defined in the law. Market supervision is mainly post-supervision, which should also be implemented according to the law. Too many pre-administrative examinations and approvals not only suppress market vitality, but they fail to guarantee the effectiveness of supervision.
In the next fewyears, one of the crucial tasks to accelerate reform of the administrative management system and establish effective government is to propel the transformation of market supervision from administrative-oriented to law-oriented and to reconstruct the entire market supervision system.
First, a comprehensive and authoritative market supervision organization should be established. Although the government has launched several market supervision laws and regulations in recent years, their functions are not satisfactory. One of the main reasons for this is administrative examination and approval power and supervision power have not been separated. Some local areas have recently tried to integrate market supervision organizations and achieved good effects. With the consideration of huge-ministry reform, the authorities should integrate and establish a comprehensive and authoritative market supervision organization at the State level.
Second, the authorities should adjust the power structure of market supervision and establish a law enforcement organization that strictly separates policymaking and policy implementation. The new comprehensive market supervision organization should integrate the market supervision functions of the State Administration for Industry and Commerce and the General Administration of Quality Supervision, Inspection and Quarantine; and integrate the antitrust law enforcement power of theMinistry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce to establish an antitrust bureau directly under the State Council. It should improve the coordination mechanism between the People’s Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission to focus more attention on financial activities rather than financial organizations.
Third, legislation of market supervision should be strengthened. The authorities should enact a market supervision lawto establish the legal status of supervision organizations, sanction violators and put limits by lawon supervision. The Food Safety Lawand Drug Administration Lawshould be revised to perfect the food and drug supervision system. And anti-administrative monopoly measures should be included in the Anti-monopoly Law.
In a modern market economy, it is difficult to guarantee the effectiveness of market supervision if it solely relies on the government. Social organizations such as industry associations should be authorized with corresponding legal status so they can play a role in market supervision and ensuring enterprises’ self-discipline.
The frequent consumer goods safety scandals that have been exposed reflect the loopholes in the government’s market supervision and the lack of self-discipline. We should develop intermediary organizations in the market to propel market supervision by law.
Although numerous intermediary organizations have emerged in many industries since the launch of reform and opening-up, most of them are attached to administrative organizations and lack the necessary independence required. Thus these intermediary organizations have played a limited role in maintaining market competition and market order. We should accelerate the uncoupling of industry associations and support enterprises to establish independent industry organizations, which can then take on administrative management functions from the government.
Industry associations should establish a corporate governance structure to guarantee their healthy development and set out their market supervision responsibilities. The authorities should define in lawthe independence and management framework of industry organizations.
The transformation of market supervision can guarantee that the “market determines resource distribution” and the safety of China’s consumer market. The author is president of the China Institute for Reform and Development.