UC Berkeley

This study focuses on regulatory development in China. I seek to explain the following question: Why have Independent Regulatory Agencies (IRAs) failed to function? While an IRA, defined by its institutional autonomy and specialized authority, is regarded as the most effective regulatory device, my research demonstrates that an IRA in fact runs a higher risk of being captured in transition economies. I distinguish between independence in form and independence in practice. I argue that a regulatory agency requires practical independence in order to make state regulation work and formal independence has produced regulatory capture. I construct an analytical model of “embedded regulation dynamics” to illuminate how the IRAs are besieged by other government entities and vulnerable to capture by business groups. I conclude that the IRA model has limited applicability in the Chinese context.

China’s State Electricity Regulatory Commission is created as a model IRA for other industries, but its poor performance and regulatory capture reveal the reality behind the myth of the IRA. The SERC suffers from insufficient regulatory authority and its operational abilities have been ironically restricted by its institutional autonomy. Moreover, the power enterprises with different ownership structures delineate the various routes by which the industry can involve itself in the policy-making process. Consequently, the IRA is captured indirectly by the industry through state administrative procedures and institutional defects. Moreover, a comparison to the regulatory situation in the civil aviation and telecommunications industries illuminates that the regulatory agencies are able to function effectively and ensure a stable market and promote competition without organizational autonomy.