Defining the limits of local government power in China: The relevance of international experience

This paper looks at the impact of decentralization on China's market system. It is argued that as the Chinese central government relaxed its control over the economy through decentralization, local governments turned many of the transferred powers to restrict market competition. This paper proposes that an umbrella legislation of Interregional Commerce be enacted and a Fair Trade Commission be created to ensure that government policies at all levels be pro‐competition. As an institutional prerequisite, the government organizational reform should be extended to more sectors of the economy.