The court as a market regulator: Proactive rule-making of the Supreme People’s Court of China on economic regulation

Abstract

The literature on the allocation of power for rule-making and law enforcement assumes that administrative agencies are ex-ante regulators, while courts are ex-post enforcers. However, the Supreme People’s Court of China makes proactive rules to govern economic affairs, functioning as a de facto market regulator. The empirical evidence on Chinese credit regulations suggests that the incentive level and information access interactively determine the rule-making power allocation between courts and agencies. This article argues that the additional delegation of proactive rule-making power to the judiciary is both a challenge and an opportunity for advancing China’s reform agenda. It proposes institutional rearrangements to correct ineffective incentives and to channel information into courts. The research highlights the hybrid role the Supreme People’s Court plays in policy implementation and dispute resolution, offering new insights into the design of efficient rule-making power allocation.