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Stefan E. Weishaar and Ruohong Chen

Market-based instruments such as emissions trading systems put a price on carbon emissions as a way of addressing climate change. Increasing production costs have led to fears of carbon leakage and have generated increased interest in WTO law, in particular in the area of border tax adjustments and subsidies. Research in the area of carbon labels was more in vogue several years ago, but owing to the recent developments in WTO case law regarding Technical Barriers to Trade (TBT), and in light of the proliferation of Emissions Trading Systems around the globe, it is high time to re-examine carbon labels and how they are to be assessed from a law and economics perspective. This chapter explores the legal risks and regulatory opportunities of carbon labels under WTO law, and whether WTO law follows law and economic insights.

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Roy A. Partain and Michael G. Faure

China has announced plans to reduce its greenhouse gas emissions and part of that plan is to develop carbon capture and storage (CCS) facilities. This chapter examines the regulatory challenges facing China as it undertakes this plan, and provides a menu of robust options for policy makers. In pursuit of this plan, China faces two material challenges in implementing its CCS strategy. The first is a lack of suitable onshore sites in the southern areas close to the industrial centers of Hong Kong, Shenzhen, and Shanghai. Their local geography and geology favors the use of offshore CCS; there are large suitable basins off the shore of most of southeastern China. Thus China needs to consider the inclusion of offshore CCS options. Second, China has announced its intent to leverage the finance options afforded under the Clean Development Mechanism (CDM) of the Kyoto Protocol. CCS, and offshore CCS, are permissible technologies allowed under the CDM, but there are regulatory requirements spelt out in Decision 10/CMP.7, which would need to be satisfied in advance to qualify an offshore CCS project for CDM-based support. Thus China needs to be able to rapidly progress its regulatory framework addressing CCS operations. This chapter explores the efficient pathways available to Chinese policy makers to rapidly develop a regulatory approach that would satisfy the regulatory requirements of Decision 10/CMP.7, whilst providing options to best match the regulatory and governing institutions of China. The chapter explores the literature of law and economics on regulatory theory to explain when certain options might be robust and when other options might be robust.

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Binwei Gui, Michael G. Faure and Guangdong Xu

In this chapter we test the applicability of the environmental Kuznets curve (EKC) to China and find that, at least for certain pollution indicators such as industrial waste gas and SO2, there is indeed an inverted U-shaped trend that conforms to the prediction of the EKC. In addition, we explore the role of institutions in shaping the connection between income and pollution in China, and find that institutional variables to a large extent account for the heterogeneity in EKC patterns in China’s different regions. Finally, we examine the channels through which institutions may influence pollution control and environmental quality, and find that institutional indicators affect the pollution level through the operational outcomes of pollution abatement measures rather than by affecting structural transformation or the volume of pollution abatement facilities.

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Jonathan Klick

This chapter reviews the empirical revolution in law and economics. Its growing reliance on natural or quasi-experimental research designs has increased the credibility and usefulness of scholarly work in this discipline. This evolution also offers great possibilities for China to overcome methodological deficiencies of law and economics research by drawing upon its well-functioning bureaucracy, large population and numerous jurisdictional units. By basing its regulatory reform on randomized field experiments, China is uniquely suited to systematically test its regulations and policies and provides important and robust lessons for other countries and jurisdictional units.

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Niels Philipsen

This chapter discusses one of the main areas of EU competition law: State aid. Like other areas of EU competition law, such as abuse of dominance and merger control, there is a clear shift towards a ‘more economic approach’ and a stronger focus on efficiency. However, this stronger focus on efficiency with regard to a politically sensitive area such as State aid is not self-evident, and also raises the question why other jurisdictions do not have a similar control over market intervention by States (US) or provinces (China). It also raises the question whether controlling the efficiency of government spending should be a task of the EU rather than Member States. The aim of this chapter is therefore to critically assess the changing goals of EU State aid policy, from market integration and equity to efficiency and fiscal discipline. Possible implications for China are also discussed.

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Wenming Xu, Stefan E. Weishaar and Niels Philipsen

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Tao Xi

In this chapter we look at the regulation of the commercial banking sector in China, which has been heavily relied on to meet the needs of domestic firms. Due to significant government ownership of banks, the role of the market is still rather limited as far as domestic banking is concerned. Against the background of a recent attempt of the central government to liberalize its banking sector, we analyse and propose a systematic reform plan to solve the incompatibility between the current regulatory framework and ‘normal’ business practices. First, the comprehensive management of commercial banks raises new challenges and no longer fits with the separate regulation of different financial sectors. In addition, there are significant conflicts between market incentives and national industrial policy when commercial banks extend their loans to companies with a high share of state ownership. Public regulators often make business decisions for commercial banks, and this should be restrained. Finally, the implicit governmental guarantee for deposits in banks generates a moral hazard problem for domestic banks. We recommend that commercial deposit insurance should be established.

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Jiajia Dai, Shiting Feng and Wenming Xu

This chapter employs a ‘shock-based’ research design to analyse the differences in the effects of the 2002 Notice concerning private securities litigation issued by the Supreme People’s Court on stock price performance in A/B_share markets. Using a sample of 162 twin A/B_shares issued by 81 listed firms, we find that the portfolio of B_shares, which are treated and held in large volume, obtains a significant positive treatment effect of 2.08 per cent relative to that of A_shares over a 3-day event window. In addition, a placebo test demonstrates that there is no difference in cumulative returns between A_shares of firms issuing both A_shares and B_shares and those of matched firms issuing only A_shares. Finally, we look into the determinants of the abnormal return between A/B_shares issued by the same firms and find that court efficiency is positively correlated with the magnitude of the abnormal return. Rational investors expect that compensation from private litigation will be determined by the costs of using the judiciary system.

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Regulatory Reform in China and the EU

A Law and Economics Perspective

Edited by Stefan E. Weishaar, Niels Philipsen and Wenming Xu

With the Chinese government planning a comprehensive and detailed reform of regulatory law, the European experience is likely to contribute significantly. This timely book analyses comparative Chinese and EU regulatory reform from a Law and Economics perspective.
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Niels Philipsen, Stefan E. Weishaar and Wenming Xu