China began to establish markets a quarter century ago, but only in the last decade has its government made a concerted effort to design new institutions to govern them. Hence, a “regulatory state” is emerging. The prevailing literature focuses on a seeming convergence of Chinas institutions with the dominant global model of the “independent regulator,” including the establishment of new regulatory commissions. Yet research on China's strategic industries—those in the infrastructure and financial services sectors—suggests that assumptions of convergence obscure key elements of a regulatory design characterized by continued state ownership (as opposed to privatization), maximization of the value of these assets, and active government structuring of these industries. Moreover, regulators in the existing party-state bureaucracy have relatively weak authority. This research cautions us to rethink dominant models of Chinese political economy so that we retain a place for the central state in directing market reform at the “commanding heights” of the economy.
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