Market regulation in China
The aim of this paper is to discuss market regulation in China. It will explain what market regulation is and what it entails. It will also appreciate the different issues regarding market regulation in China and will expound on the various challenges China encounters as a result of its regulations for different markets. It will explain the different impacts of the market regulations in China. It will as well give recommendations regarding what China can do so as to improve on the current market regulations and overcome the challenges that it has regarding the same.
Introduction Market regulation involves controlling the market such that provision of services and goods is done by a body which has been appointed by the government. This kind of regulation may have the terms and conditions to be used during the supply of services and goods and the specific prices which are charged on the same. It is found to be common place for a market which is regulated to have control over natural monopolies like electricity, gas and water supply and communication among others.
Market regulation is established when governments are privatizing their controlled utility assets. There are various forms of regulations for a controlled market.
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For example, policies might be changed in the real estate market in order to encourage investments and reduce the housing prices. Changes in stock market regulation might be done to encourage people to buy stock as they reduce their risks (Cooney, 2002). Issues in market regulation in China There are many issues arising regarding market regulation in China. First, there are claims that the mechanisms for capital market regulation in China are not tough enough. This has resulted into many small and medium sized investors who are not experience entering the market.
This gives the capital market of China a weaker risk tolerance. Analysts claim that these small and medium sized investors need to be barred from entering the capital market. Others argue that there should be a mechanism with strict supervision which should not be aimed at denying them from entering the capital market, rather; it should aim at helping to decrease the higher risk through further development. The mechanisms to be set should aim to protect the majority of investors whose interests are now vulnerable (Effros, 1997).
The stock investors are bitter as a result of the stock market regulations. They have incurred huge losses as a result of the changes in stock market regulations. They claim that the reforms regulators copied the efforts of other oversees countries but they did not seem to work in the China stock market. Since the stock market in China seems to have many problems, and the investors continue to make losses. There have also been allegations that the stock market regulators have been allowing companies to cook figures in their books deceiving the investors.
These have also contributed to making the investors to buy stock from losing companies thinking that the companies are making profits. In the end, they investors have lost their money in such ventures (Shao & World Bank, (1997). The market regulation for agricultural products in China has problems as well. Most of these problems were only discovered when China became a member of the World Trade Organization (WTO) and they are attributed to be caused by lack of clear guidelines in the supervisory and quality regulatory for food production and agriculture.
The market regulations for agricultural products in China has been said to be out of date and lack consistence with the international standards. The supervision and regulation which has been put in place for agricultural production and processing lack in effectiveness. These have contributed to the Chinese agricultural products being rejected as they do no meet the requirements for international trade (Tao, 2008). Impacts of market regulation Research shows that the product market in China has improved over the last few decades.
This has contributed to the increased competitiveness of the market leading to the fact that the market forces now determine the economic behavior and price formation. The administrative reforms have led to the enhancement of capacity of the government to supervise the market economy. Product market regulation has also decreased relying on microeconomic interventions and it now focuses on framework conditions. The intervention by the government has remained to be pervasive and the effects are that there is constrained growth as the economy develops (Huang, 2006).
The real market regulation in China which was carried out last was considered to be a failure because of its adverse effects. It was said to be ineffective and untimely since it contributed to the increment of the land prices. The economic analysts predicted that as a result, the housing prices might not decrease this year due to the persistent demand and supply which is likely to make the housing prices continue going up. The tight demand and supply for housing in China have made the investors to be reluctant to buy as they wait for a decline in the housing prices.
As a result, there is much idle land and land speculations have as well heightened. This implies that the efforts have only made the situation worse by dwarfing the measures of the regime to have additional land release and have also not increased the supply of housing in China. The housing market has therefore been full of solid investment and speculation but real demand for housing has been pushed out. Other contributing factors to the adverse effects are the real estate transaction levy which is said to be incorrectly done.
It was actually designed to add to the speculation cost but it ended up becoming a contributing factor to the increased housing prices. Economist analysts continue to argue that the real estate market regulation has also failed because it tends to reduce the chances of the average citizen to invest since most citizens invest because of the ease to get loans and buy houses. The most adverse effects as a result of this kind of regulation are the collapse of the property market as predicted by the economic analysts (Shao & World Bank, (1997).
As a result of the changes which have continued to occur in the stock market, the investors in China stock market have continued to lose their money. They claim that the people in charge of the stock market regulations copy what is done in the stock market of other countries. This has made them to lose huge amounts of money as the stocks prices continue to sink. As a result, most of the people who have invested in the stock market and lost do not perceive the stock market as a tool for investment.
There are claims that the stock market regulators have actually allowed the free falling of the market. Since the regulators have cracked down on irregularities, this has caused market volatility. The investors’ confidence has also been sabotaged in the process. However, as the former chairmen of CSRC continue to talk more about development in the stock market rather than laying emphasis on the market regulations, some of the stocks have gained and the investors seem to shift their focus to market development with the hope that they will gain in the process.
As a result of laxity in the supervision and regulation in the agricultural market, the producers in China have resulted to abusing or misusing antibiotics, pesticides and fertilizers. There are also violations regarding regulations set for animal production. These practices contribute the high levels of contaminations in animal feeds among other products. After joining the WTO, China’s regulation and supervision of their agricultural markets has changed and this has made their products acceptable in the international market. They also have more investors from other countries.
As a result of complying with the SPS regulations, China’s agricultural markets have improved and their opportunities expanded (Huang, 2006). Challenges of market regulation in China One of the biggest challenges in China’s market regulation is under product market regulation. Undoing the conventional link between the government and the state-owned enterprises has not been achieved yet. This has slowed the economic growth in China. In the stock market, there is a big challenge to the regulators. The policies they come up with are directly copied from other economies and do not seem to work in China.
This implies that may be they have not done enough research on what is applicable in the China’s stock market. They therefore make regulations to benefit a few while the smaller investors lose in the long run. In the real estate market, there are deviations in the forecasts and the reality on the ground after changing the policies regarding the same. Instead of positive changes occurring as a result of altering the policies on property market, there are adverse effects resulting to heightened property prices and reluctance among the buyers to acquire property due to the high prices.
This is a move to slow the economic growth (Tao, 2008). The most common challenge in the agricultural markets is lack of the will among the small scale farmers to comply with the set market regulations in their sector. This has made them to misuse and abuse chemical making the Chinese products to be rejected in the international market. There are claims that use of chemicals increase food production and this is why most farmers go for that irrespective of the harm the chemicals on the food are likely to cause.
Even after China’s decision to follow the SPS regulations in food production, there are still producers who continue to violate the rules. The other challenge regarding the same is that even as China continues to respond and comply to the SPS regulations, some of the other countries might still use SPS barriers to discourage the Chinese products from entering their countries as a way of protecting their domestic markets. Since the Chinese products are relatively cheap, most average citizens in many countries go for them instead of purchasing the more expensive locally produced products.
This ensures ready markets for the Chinese products. However, countries are likely to have stricter inspections of the Chinese products and also set higher standards in order to keep the Chinese products out of their countries. This would mean eliminating some of the ready markets that China has always had (Shao & World Bank, (1997). Recommendations for improving market regulation Some of the proposed ways of improving market regulation in China is loosening the links between the government and the enterprises which are state owned.
This can be attained through decreasing the size of the state sector, more so amongst the public companies which are smaller in size. The administrative burdens can as well be reduced as this would create more room for involving the private sector in network sectors. It can also be achieved through reducing the barriers to investment in services which are directly foreign as this would promote productivity and competition which would further lead to economic growth (Cooney, 2002). In the stock market, the investors have lost a lot of money.
It is recommended that the regulators could have the stock market of China in mind when they are importing regulatory efforts from oversees. The ones that they have already copied have made people to lose money. They should first of all check how stocks perform in China and how the investors invest their money. Even if they are to take some measures, they should not do so blindly since the people getting hurt as a result are the investors who are the contributors of a strong economy.
At the same time, they should revive the investor’ confidence by not participating in their fraudulent acts of inflating some of the companies’ profits in order to make the investors to buy their stock. They should side with the investors and make changes to the market regulations in their favor because without investors, stocks are useless. In the end, the investors and the companies they are investing in will benefits, and so will the Chinese economy (Effros, 1997). Regarding the agricultural markets, China should ensure that it has effective laws regarding the same and should always punish non compliance.
This would reduce the number of producers who go against them and produce cheap but harmful products. It should also continue complying with the SPS regulations of the other countries. This would make sure that they produce higher quality and less harmful agricultural products which are more acceptable in the international market. On the other hand, since it is a member of the WTO, it should participate in the international trade negotiations to ensure that its agricultural products are not discriminated against in the international market.
Through the same, they should be able to get an equal stand as other countries in the international market (Tao, 2008). Conclusion China does not usually fail because of lack of regulations in its various sectors. There are rules and regulations in every sector of the economy. However, the major problem with market regulations in China is non compliance with the set regulations. At the same time, the people who go against the law are not always punished and this encourages the same.
The regulations are altered to favor the rich minority to the detriment of the average citizens. All these make the economy to lag behind. If the different governmental bodies would ensure compliance of market regulations, the Chinese investors would benefit and the economy would grow. On the other hand, it would promote investment from the local and foreign investors which would also support the growth of the Chinese economy. References Cooney, Sean, (2002), Law and labour market regulation in East Asia, ISBN 0415221684, 9780415221689, Routledge Effros, Robert C.
(1997), Current legal issues affecting central banks, Volume 4, ISBN 1557755035, 9781557755032, International Monetary Fund Huang, Hui, (2006), International securities markets: insider trading law in China, ISBN 9041125574, 9789041125576, Kluwer Law International Shao, Shiwei & World Bank, (1997), China: power sector regulation in a socialist market economy, Volume 361, ISBN 0821339133, 9780821339138, World Bank Publications Tao, Julia, (2008), China: Bioethics, Trust, and the Challenge of the Market, Volume 96, ISBN 1402067569, 9781402067563, Springer, 2008