Review of Industrial Organization 21: 167–183, 2002.
© 2002 Kluwer Academic Publishers. Printed in the Netherlands.
Market Power in China: Manifestations, Effects and
Department of American & Oceanian Studies, Chinese Academy of International Trade &
Economic Cooperation (CAITEC), Ministry of Foreign Trade & Economic Cooperation
(MOFTEC), Beijing, China
Abstract. This paper presents a picture of market power in China – its current situation, manifest-
ations, causes, damaging effects and related economic laws and regulations. China is in a transition
from a planned economy to a socialist market economy. Market power in China is reﬂected largely in
administrative monopolies inherited from the old system, as well as in economic monopolies created
by the new system. Administrative monopolies are worse than economic monopolies in terms of the
distortion of transaction behavior and the preclusion of market competition. They have become a
pressing issue facing China in its economic and social development. China has been developing a
legislative framework on market competition, but this framework currently appears weak and power-
less in the face of the administrative monopolies. However, the introduction of an anti-monopoly law
will undoubtedly be helpful in enhancing the market competition mechanism.
Key words: Anti-monopoly law, China, competition, market power, monopoly.
JEL Classiﬁcations: K21, L4, L5.
HINA IS IN
RANSITION FROM A
CONOMY TO MARKET
A socialist planned economy prevailed in China from the founding of the People’s
Republic in 1949 until 1978. Then, China was a nationally uniﬁed domestic mar-
ket based on socialist public ownership, with state-owned organizations playing a
leading role in managing and controlling the production and distribution of goods.
Market activities were carried out in a planned way under uniﬁed state leadership.
The market was divided into a direct planned market (a market under the direct
mandatory planning control of the state), and an indirect planned market (a market
subject to indirect control through state directive planning). The state issued only
directive planned targets to enterprises, which thus had more autonomy and ﬂex-
ibility in carrying out these plans. With respect to key capital and consumer goods
essential to national security and the people’s livelihood, the state issued produc-