Chinese administrative law defines market regulation as the imposition of rules on trade practices. This kind of market regulation is general and therefore not confined to any specific industry, market, or region. Before the 2018 reforms, business regulators in China did not regulate trade practices, and their focus was solely on criminality such as personal injury and counterfeit products. In other words, pre-2018 regulators only looked at individual transactions. The reformed market regulation policy now considers overall prevailing trade practices with the purpose of maintaining healthy economic development.
The new policy requires limiting market access and regulating trade practices during the initial business formation or permit approval phases, which supports the development of important industries, prevents irrational investments, and stops illegal business operations. Once permits are granted, rigorous inspections are conducted to identify unlawful business practices or non-permitted operations, fraudulent undercapitalization, or shell company operations.
Market regulation under the new policy involves a set of processes that start by determining whether to allow a business access to the market based on an initial assessment of their qualifications, followed by subsequent oversight activities. The legislative record indicates that some businesses are fundamentally nefarious and will continually attempt to circumvent regulations to send out false advertisements and cheat customers which, in turn, leads to market disorder and drives legitimate businesses out of the market.
Documented cases involve the “poisoned baby formula” scandal, and, more familiar to English-speaking audiences, the 2022 findings by the Translators Association of China that fraud created an expansive “Chinglish” phenomenon by driving honest translators out of the market. Market regulators in China are tasked with taking a macroeconomic approach to determine the causes of market dysfunction and implement policy solutions to restore market order.
Comparative Law
In the United States, most of the business regulation described above is managed through the Deceptive Trade Practices Act (DTPA), and has a strong focus on litigation rather than proactive regulation. Furthermore, business entity formation is not part of market regulation, and there are no permitting limitations on business activities in the certificate of formation itself, whereas China includes these limitations in the formation documents themselves and imposes requirements to offer certain kinds of goods or services.
Further Reading
See our comprehensive resources on China’s Foreign Investment Law. and an overview of FDI regulation in our Foreign Investment Law FAQ.
Translation Guide
See: 市场监管