Regulatory institutional reform of the power sector in China

In 2002, China established the State Electricity Regulatory Commission as part of the nation's electricity reform plan. However, this agency existed for only a decade, after which it was incorporated into the National Energy Administration (NEA), a governmental department. Why did the independent regulatory model not survive in China? This paper introduces the historical background of regulatory institutional change in China and evaluates current regulatory governance against the standard of agency independence. The findings indicate that the NEA can hardly be regarded as independent from the government and stakeholders. Subsequently, the paper explains the reason that independent regulatory institutions are not applicable in China from the perspective of institutional supply and demand. From the demand side, as the macroeconomic controller, the National Development and Reform Commission can deliver superior policy output compared to an independent regulator. In addition, public ownership makes it unnecessary for the government to create an independent regulator as a credible commitment mechanism. From the supply side, the traditional administrative arrangement and lack of regulatory economics knowledge contribute to an undersupply of independent regulation.