Beginning in the 1990s, China has completed two phases of emission trading pilots. In this paper we assess China's pilot programme and analyze how it has been constrained by major problems in three areas of governance capacities: state, policy, and administrative capacities. These problems reflect deeper and more profound dilemmas of market transition experienced by the Chinese government in the past three decades. The dilemmas have resulted in the development of a ‘state-led’ pseudomarket, instead of a full and ‘autonomous’ market, for emission trading in China. It is evidently clear that China still faces many challenges in establishing a market for emission trading which require strengthening its governing capacity in order to address effectively the issues of the rule of law, independent regulation, information disclosure, and public accountability.
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