Regulation of the inter-provincial establishment of companies: applying the private interest approach to China

摘要

Existing empirical evidence shows that Chinese companies sometimes face difficulties when they try to establish themselves across provinces in China. A significant cause of this problem is the way in which local authorities apply the existing rules on inter-provincial establishment of companies. Moreover, local companies (being insiders in the market) may seek to create barriers to entry. The creation of licensing barriers in China supports some of the arguments provided by the ‘private interest approach to regulation’. The exercise of licensing power seems to primarily serve local officials’ attempts to seek promotion and to extract bribes. Promotion as an incentive device, which is a particular feature in the Chinese context, differs to some extent from the incentive devices formulated in ‘traditional’ public choice theory: holding, for example, that the goal of being re-elected drives politicians to meet the needs of interest groups. The empirical evidence (which includes the results of various interviews we conducted) presented in this paper demonstrates that in some cases companies have encountered difficulties in expanding across provinces and that entry barriers are created by local officials, preventing real market integration in China.