Regulatory Incentive and Regulatory Governance: An Institutional Perspective on USO Regime in China

Abstract:     
Three years after the execution of the VAP, Chinese government has managed to hoist its national village penetration to 98.9% at the end of 2006, which means about 99% of the total administrative villages nationwide have now been connected by at least two workable telephone lines. As part of the goal of its recent ideology of harmonious society and building “socialist new villages,” the Communist Party of China is now kicking off an even more ambitious goal to further promote telephone penetration as well as Internet diffusion in its vast rural areas. All of these have been done in the absence of what seems to be a sustainable universal service regime.The current regime has already demonstrated a number of drawbacks or problems, the most salient part of which has been its nature of uncertainty and inconsistency, both in terms of regulatory incentive and regulatory governance. Despite Universal Service Fund (USF) has long been promulgated by the industry regulator as an ideal solution to these problems, there also lack of sound warrant for this regime when taking into account the unique institutional endowment in China. This paper first revisits the objective of universal service obligations (USOs) in China which is closely followed by close examination of problems with current regime from an institutional perspective, then by discussion of the possible mode for China to better implement USOs under drastic socio-economic transition and political transformation. The paper concludes that there currently exists a pervasive “implicit law” or Qian Gui Ze permeating in almost every arena in China. This “implicit law” has been growing in importance and has become a secondary (sometimes primary) mechanism beyond standard market force in influencing private and public choices, the allocation of resources, and government’s role. Under this institutional endowment,
USF regime is probably unable to serve the best interest of the public while a “non-subsidy” and
“joint-commission” regime may serve the goal better where “explicit law” can dominate.

Number of Pages in PDF File: 22

Keywords: Universal service obligations (USOs), Regulation, Economics of Institution, Transitional economy, China

JEL Classification: L51, L96, L98, O17, P31, I38

Accepted Paper Series