Regional competition and regulatory decentralization: the case of China

Abstract

The Chinese regulatory decentralization has evolved since regulation was introduced in the transition process. The quota system is an important instrument in China's regulatory regimes. Stock issuance quota system for regulating public offerings in securities markets is a major example. We argue that under certain conditions quotas can generate proper incentives to induce regional governments to cooperate in implementing regulations nationwide. Four groups of evidence are provided that regulatory decentralization in China's financial market has created incentives for regional competition and decentralized information collection in stock issuance. Weaknesses and limitations of the Chinese regulatory decentralization are discussed.